New Economics Papers
on Experimental Economics
Issue of 2012‒10‒20
nineteen papers chosen by

  1. Punishment and Cooperation in Stochastic Social Dilemmas By Erte Xiao; Howard Kunreuther
  2. The effects of financial literacy training: Evidence from a field experiment with German high-school children By Lührmann, Melanie; Serra-Garcia, Marta; Winter, Joachim
  3. Carrots that Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes By Omar Al-Ubaydli; Steffen Andersen; Uri Gneezy; John A. List
  4. Giving versus Taking: A “Real Donation” Comparison of Warm Glow and Cold Prickle in a Context-Rich Environment By Philip J. Grossman; Catherine C. Eckel
  5. The freeze-out bond exchange offer. An experimental approach By Flavio Bazzana; Luigi Mittone; Luciano Andreozzi
  6. Security of Property as a Public Good: Institutions, Socio-Political Environment and Experimental Behavior in Five Countries By Francisco Campos-Ortiz; Louis Putterman; T. K. Ahn; Loukas Balafoutas; Mongoljin Batsaikhan; Matthias Sutter
  7. Under-Savers Anonymous: Evidence on Self-Help Groups and Peer Pressure as a Savings Commitment Device By Felipe Kast; Stephan Meier; Dina Pomeranz
  8. Is a "firm" a firm? A Stackelberg experiment By Hildenbrand, Andreas
  9. Trust, Values and False Consensus By Jeffrey Butler; Paola Giuliano; Luigi Guiso
  10. Motivational cherry picking By Regner, Tobias; Riener, Gerhard
  11. Moral cleansing and moral licenses: experimental evidence By Brañas-Garza, Pablo; Bucheli, Marisa; García-Muñoz, Teresa; Espinosa Alejos, María Paz
  12. Joint-Liability vs. Individual Incentives in the Classroom. Lessons from a Field Experiment with Undergraduate Students By Alejandro Cid; José María Cabrera
  13. Incentive Effects of Funding Contracts: An Experiment By Irenaeus Wolff; J. Philipp Reiss
  14. Income effect and altruism By Subhashish Modak Chowdhury; Joo Young Jeon
  16. Peer Effects in Risk Aversion By Ana I. Balsa; Néstor Gandelman; Nicolás Gonzalez
  17. Business Training and Female Enterprise Start-Up, Growth, and Dynamics: Experimental Evidence from Sri Lanka By de Mel, Suresh; McKenzie, David; Woodruff, Christopher
  18. Information asymmetry and deception in the investment game By Irma Clots-Figueras; Roberto Hernán; Praveen Kujal
  19. Microfinance at the margin: Experimental evidence from Bosnia and Herzegovina By Britta Augsburg; Ralph De Haas; Heike Harmgart; Costas Meghir

  1. By: Erte Xiao; Howard Kunreuther
    Abstract: Previous findings on punishment have focused on environments in which the outcomes are known with certainty. In this paper, we conduct experiments to investigate how punishment affects cooperation in a two-person stochastic prisoner’s dilemma environment where each person can decide whether or not to cooperate, and the outcomes of alternative strategies are specified probabilistically under a transparent information condition. In particular, we study two types of punishment mechanisms: 1) an unrestricted punishment mechanism: both persons can punish; and 2) a restricted punishment mechanism: only cooperators can punish non-cooperators. We show that the restricted punishment mechanism is more effective in promoting cooperative behavior than the unrestricted one in a deterministic social dilemma. More importantly, the restricted type is less effective in an environment where the outcomes are stochastic than when they are known with certainty. Our data suggest that one explanation is that non-cooperative behavior is less likely to be punished when there is outcome uncertainty. Our findings provide useful information for designing efficient incentive mechanisms to induce cooperation in a stochastic social dilemma environment.
    JEL: C72 C73 C91 D02 D03
    Date: 2012–10
  2. By: Lührmann, Melanie; Serra-Garcia, Marta; Winter, Joachim
    Abstract: We report the results of a field experiment evaluating the impact of financial literacy training on teenagers of between 14 and 16 years of age in lower stream high schools in Germany. Before the training, teenagers in treatment and control groups show little interest in financial matters and low levels of self-assessed knowledge. After the training, teenagers exhibit a significant increase in both their interest in financial matters and their self-assessed knowledge. Their objective knowledge also increases in some dimensions, e.g. their ability to assess risks correctly. We find that after the training, the prevalence of impulse purchases decreases, so teenagers can be steered towards being more sovereign consumers. We also find an increase in intended savings in a hypothetical task. Finally, our data show that already at these young ages, there are strong gender differences in all dimensions of financial matters: financial knowledge, motivation, and behavior.
    Keywords: financial literacy; financial knowledge; field experiment
    JEL: C93 D14
    Date: 2012–10
  3. By: Omar Al-Ubaydli; Steffen Andersen; Uri Gneezy; John A. List
    Abstract: Constructing compensation schemes for effort in multi-dimensional tasks is complex, particularly when some dimensions are not easily observable. When incentive schemes contractually reward workers for easily observed measures, such as quantity produced, the standard model predicts that unrewarded dimensions, such as quality, will be neglected. Yet, there remains mixed empirical evidence in favor of this standard principal-agent model prediction. This paper reconciles the literature by using both theory and empirical evidence. The theory outlines conditions under which principals can use a piece rate scheme to induce higher quantity and quality levels than analogous fixed wage schemes. Making use of a series of complementary laboratory and field experiments we show that this effect occurs because the agent is uncertain about the principal’s monitoring ability and the principal’s choice of a piece rate signals to the agent that she is efficient at monitoring.
    JEL: C93 D01
    Date: 2012–10
  4. By: Philip J. Grossman; Catherine C. Eckel
    Abstract: This paper revisits the question of framing and the provision of public goods. It also addresses the question, is giving in Dictator Games an expression of altruism or an artefact of experimentation? What is unique about this paper is that we employ a “real donation” lab experiment in a context-rich environment: contributions go to actual public goods (i.e. charitable organizations). Our study focuses directly on subjects’ willingness to contribute to and take from a charity. We do this by allocating the initial endowment in one of three ways: either all to the subjects, all to the charity, or evenly between the two. Subjects are allowed to either contribute or take back as little or as much as they wish. We find that framing is irrelevant when comparing the two extreme cases (i.e. the endowments initially allocated all to the subjects or all to the charity); the final amount allocated to the charity is independent of how the choice option is framed. On-the-other-hand, we find evidence suggesting that, when the endowments are evenly split between the two parties, the initial even split seems to act as a powerful focal point: the final outcome is insignificantly different from the initial allocation.
    Keywords: Warm Glow, Cold Prickle, Charity, Altruism
    JEL: H4 D64 C72 C91
    Date: 2012–09
  5. By: Flavio Bazzana; Luigi Mittone; Luciano Andreozzi
    Abstract: A freeze-out bond exchange offer can occur when a firm wants to replace an exist- ing bond, issued with a covenant, with a new bond that does not have this type of restriction. If the bondholders are not fully coordinated, the shareholders can make the exchange offer unfair to capture wealth from the bondholders. We perform two experiments using the freeze-out game proposed by Oldfield (2004) to isolate (i) the level of information in the exchange offer and (ii) the role of the experience of the bondholders. The results are statistically significant. In the first experiment, they show that experience is a dominant factor with respect to information. Conversely, in the second experiment, the information becomes dominant with respect to expe- rience. The percentages of the choices for the symmetric Nash equilibria are greater in the first experiment. However, in the second experiment, the choices of the asymmetric Nash equilibrium, which is Pareto superior in the game, are greater than in the first experiment. These results have policy implications that may affect exchange offers in the bond market.
    Keywords: freeze-out, covenant, bond, experimental finance
    JEL: G32 G12 C91
    Date: 2012
  6. By: Francisco Campos-Ortiz; Louis Putterman; T. K. Ahn; Loukas Balafoutas; Mongoljin Batsaikhan; Matthias Sutter
    Abstract: We study experimentally the protection of property in five widely distinct countries-Austria, Mexico, Mongolia, South Korea and the United States. Our main results are the correlations between experimental choices with indicators regarding the security of property, trust and the quality of government. We show that subjects from countries with: (1) higher levels of trust or perceptions of safety are more prone to abstain from plundering and devote less resources to protect their property; and (2) high-quality political institutions support collective protection of property through taxation more often. Our results highlight the relevance of socio-political factors in determining countries' success in addressing collective action problems including safeguarding property rights.
    Keywords: Property Rights, Efficiency, Experiment, Socio-Political Factors.
    JEL: C91 C92 D03 H41 P14
    Date: 2012–10
  7. By: Felipe Kast; Stephan Meier; Dina Pomeranz
    Abstract: We test the effectiveness of self-help peer groups as a commitment device for precautionary savings, through two randomized field experiments among 2,687 microentrepreneurs in Chile. The first experiment finds that self-help peer groups are a powerful tool to increase savings (the number of deposits grows 3.5-fold and the average savings balance almost doubles). Conversely, a substantially higher interest rate has no effect on most participants. A second experiment tests an alternative delivery mechanism and shows that effects of a similar size can be achieved by holding people accountable through feedback text messages, without any meetings or peer pressure.
    JEL: D00 D03 D11 D12 D14 E2 E20 E21 O2 O20 O54
    Date: 2012–10
  8. By: Hildenbrand, Andreas
    Abstract: Industrial organization is mainly concerned with the behavior of large firms, especially when it comes to oligopoly theory. Experimental industrial organization therefore faces a problem: How can firms be brought into the laboratory? The main approach relies on framing: Call individuals firms! This experimental approach is not in line with modern industrial organization, according to which a firm's market behavior is also determined by its organizational structure. In this paper, a Stackelberg experiment is considered in order to answer the question whether framing individual decision making as organizational decision making or implementing an organizational structure is more effective in generating profit-maximizing behavior. Firms are either represented by individuals or by teams. Teams are organized according to Alchian and Demsetz's (1972) contractual view of the firm. I find that teams' quantity choices are more in line with the assumption of profit maximization than individuals' choices. Compared to individuals, teams appear to be less inequality averse. --
    Keywords: industrial organization,Stackelberg game,individual behaviour,team behaviour,framing,experimental economics
    JEL: C72 C91 C92 D43 L13
    Date: 2012
  9. By: Jeffrey Butler; Paola Giuliano; Luigi Guiso
    Abstract: Trust beliefs are heterogeneous across individuals and, at the same time, persistent across generations. We investigate one mechanism yielding these dual patterns: false consensus. In the context of a trust game experiment, we show that individuals extrapolate from their own type when forming trust beliefs about the same pool of potential partners - i.e., more (less) trustworthy individuals form more optimistic (pessimistic) trust beliefs - and that this tendency continues to color trust beliefs after several rounds of game-play. Moreover, we show that ones own type/trustworthiness can be traced back to the values parents transmit to their children during their upbringing. In a second closely-related experiment, we show the economic impact of mis-calibrated trust beliefs stemming from false consensus. Miscalibrated beliefs lower participants experimental trust game earnings by about 20 percent on average.
    JEL: A1 A12 D01 Z1
    Date: 2012–10
  10. By: Regner, Tobias; Riener, Gerhard
    Abstract: We construct a simple three person trust game with one trustor and two trustees. The trustor has the possibility to either trust both trustees or none, while the trustees make their decisions either sequentially or simultaneously, depending on the treatment. When trustees play sequentially, follower trustees who are informed about the leader's choice are significantly more selfish than in the simultaneous move treatment, independent of the leader's choice. Leaders do not behave significantly different than in the baseline treatment. Follower trustees cherry pick the motivation that materially serves them best. When the leader trustee plays selfish, they tend to conform. When the leader makes a pro-social choice, followers seem to perceive the duty as already fulfilled by the leader. While guilt works well as a motivational force in a dyadic situation, it gets alleviated easily when the situation allows a shifting of responsibility. --
    Keywords: Team production,Trust,Choice architecture,Guilt aversion,Conformity,False consensus effect,Lab experiment,Cherry picking
    JEL: D03 D71 C79 C92
    Date: 2012
  11. By: Brañas-Garza, Pablo; Bucheli, Marisa; García-Muñoz, Teresa; Espinosa Alejos, María Paz
    Abstract: Research on moral cleansing and moral self-licensing has introduced dynamic considerations in the theory of moral behavior. Past bad actions trigger negative feelings that make people more likely to engage in future moral behavior to offset them. Symmetrically, past good deeds favor a positive self-perception that creates licensing effects, leading people to engage in behavior that is less likely to be moral. In short, a deviation from a “normal state of being†is balanced with a subsequent action that compensates the prior behavior. We model the decision of an individual trying to reach the optimal level of moral self-worth over time and show that under certain conditions the optimal sequence of actions follows a regular pattern which combines good and bad actions. We conduct an economic experiment where subjects play a sequence of giving decisions (dictator games) to explore this phenomenon. We find that donation in the previous period affects present decisions and the sign is negative: participants’ behavior in every round is negatively correlated to what they did in the past. Hence donations over time seem to be the result of a regular pattern of self-regulation: moral licensing (being selfish after altruist) and cleansing (altruistic after selfish).
    Keywords: moral self-licensing, moral cleansing, experiments, moral behaviour
    Date: 2012
  12. By: Alejandro Cid; José María Cabrera
    Abstract: We evaluate the impact of joint-liability incentives in the classroom using a randomized field experiment. The instructor designs groups of three students in the classroom and provides a premium to their homework's grade only if all three members of the group meet some requirements. To isolate the joint-liability effect from selfish motivations, we also design an individual incentives treatment. We find that joint-liability incentives impact positively on the grades attained in homework and midterm exams both in experimental courses and in other courses taken by the students in the semester. Though the average positive effect seems to disappear in final exams, the overall impact of joint-liability incentives on the academic achievements in the semester is still positive. A drawback of this program is a decrease in classmate satisfaction. The significant effectiveness of the peer monitoring developed by joint-liability incentives in a group provides novel implications for the design of grading policies in the classroom and for other social settings where incentives may be based in peer monitoring or joint liability.
    Keywords: field experiment; randomization; education; joint liability; student incentives
    JEL: I20 I23
    Date: 2012
  13. By: Irenaeus Wolff; J. Philipp Reiss
    Abstract: We examine the incentive effects of funding contracts on entrepreneurial effort decisions and allocative efficiency. We experiment with funding contracts that differ in the structure of investor repayment and, therefore, in the incentives for entrepreneurial effort provision. Theoretically the replacement of a standard debt contract by a repayment-equivalent non-monotonic contract reduces effort distortions and increases efficiency. Likewise the replacement of outside equity by a repayment-equivalent standard-debt contract mitigates distortions. We test both hypotheses in the laboratory. Our results reveal that the incentive effects of funding contracts need to be experienced before they reflect in observed behavior. With sufficient experience observed behavior is consistent with the theoretical predictions and supports both hypotheses. If we allow for entrepreneur-sided manipulations of the project outcome we find that non-monotonic contracts lose its appeal.
    Keywords: hidden information, funding contracts, incentives, experiment, standard debt contract, non-monotonic contract, state manipulation
    Date: 2012
  14. By: Subhashish Modak Chowdhury (University of East Anglia); Joo Young Jeon (University of East Anglia)
    Abstract: We investigate the consequences of a pure income effect on the altruistic behavior of donors. Inequity aversion theories predict either no effect or a decrease in giving, whereas warm-glow theory predicts an increase in giving with an increase in the common income of donor and receiver. Theoretical predictions being contradictory, we run a dictator game in which we vary the common show-up fee of both the dictator and the recipient, but keep an extra amount to be shared the same. The prediction of the warm-glow theory is supported.
    Keywords: dictator game, altruism, income effect, inequity aversion, warm-glow
    JEL: C91 D03 D64
    Date: 2012–10–01
  15. By: Nicola Lacetera (Rotman School of Management, University of Toronto); Mario Macis (Carey Business School, Johns Hopkins University); Angelo Mele (Carey Business School, Johns Hopkins University)
    Abstract: We present preliminary results from a small-scale natural field experiment aimed at exploring online social contagion, with an application to charitable giving. We worked in partnership with Heifer International, a non-profit organization aimed at fighting poverty in developing countries, and HelpAttack!, the developer of a Facebook application that facilitates donations to charities while broadcasting such activities to the donors’ Facebook contacts. We ran a series of marketing campaigns, and randomized the broadcasting of users’ pledges, thereby creating exogenous variation in the information that users’ contacts were receiving. Although our campaigns reached as many as about 13 million Facebook users, 6,000 users clicked on the ad and only 18 pledges were made, without any subsequent pledge from these users’ contacts. We offer potential explanations for this finding on the absence of network effects, and outline our plans for future developments of this on-going project.
    Keywords: Online networks, diffusion, pro-social behavior, network effects
    JEL: C93 D64 O33 M31
    Date: 2012–09
  16. By: Ana I. Balsa; Néstor Gandelman; Nicolás Gonzalez
    Abstract: Using data on Uruguayan adolescents, we estimate peer effects in risk attitudes. Relative risk aversion is elicited in an experimental setting. Identification is based on parents not being able to choose the class within the school of their choice. After controlling for school-grade fixed effect and addressing endogeneity due to simultaneity, we find a significant and quantitative large impact of peers on individuals risk aversion. An increase in one standard deviation of the group risk aversion produces an increase in 44-64% on an individual risk aversion. These findings enhance the importance of multiplicative effects related to risk behavior.
    Keywords: risk aversion; peer effects; instrumental variables
    JEL: I12 D1
    Date: 2012
  17. By: de Mel, Suresh (University of Peradeniya); McKenzie, David (World Bank); Woodruff, Christopher (University of Warwick)
    Abstract: We conduct a randomized experiment in Sri Lanka to measure the impact of the most commonly used business training course in developing countries, the Start-and-Improve Your Business (SIYB) program. In contrast to existing business training evaluations which are restricted to microfinance clients, we consider two more representative groups: a random sample of women operating subsistence enterprises, and a random sample of women who are out of the labor force but interested in starting a business. Both samples are randomized into three groups: a control group, a group invited to attend training, and a group invited to receive training and who receive a cash grant conditional on completing training. We track impacts over four rounds of follow-up surveys taken over two years and find that the short- and medium-term impacts differ. For women already in business, we find that although training alone leads to some changes in business practices, it has no impact on business profits, sales or capital stock. In contrast the combination of training and a grant leads to large and significant improvements in business profitability in the first eight months, but this impact dissipates in the second year. For women interested in starting enterprises, we find that business training speeds up the process of opening a business, and changes the selection of who operates a business by making the entrants less analytically skilled, but leads to no increase in net business ownership by our final survey round. Receiving a grant results in poorer women opening businesses, but again does not increase net business ownership. Training appears to have increased the profitability and business practices of the businesses started up, suggesting it may be more effective for new owners than for enhancing existing businesses.
    Keywords: business training, female self-employment, randomized experiment, business start-up, trajectory of treatment effects
    JEL: O12 J16 L26 M53
    Date: 2012–10
  18. By: Irma Clots-Figueras; Roberto Hernán; Praveen Kujal
    Abstract: Several situations in our daily interactions are characterized by uncertainty and asymmetric information regarding the final outcomes. For example, an investor may overstate a project’s value, or a superior may choose to under, or over, state the gains from a project to a subordinate. We modify the standard investment game to study the effect of possible deception, i.e. over-, or under-, statement of the true value, on investee (and investor) behavior. We find that deception is prevalent and around 66% of the investors send false messages. Investors both over-, and under-, state the true value of the multiplier, k. We elicit investee beliefs and find that investees are naive in that almost half of them believe the message they receive. Meanwhile, a large proportion of investors think that sending a message was useful. The introduction of the possibility of deception does not affect trust or trustworthiness on average, but deceivers make the deceived worse off, return less and are more likely to report lying to avoid harming others. Finally, an increase in information asymmetry increases deception
    Date: 2012–10
  19. By: Britta Augsburg (Institute for Fiscal Studies); Ralph De Haas; Heike Harmgart (Institute for Fiscal Studies); Costas Meghir (Institute for Fiscal Studies and Yale University)
    Abstract: We use an RCT to analyse the impact of microcredit on poverty reduction in Bosnia. The study population are loan applicants that would normally have just been rejected based on regular screening. We find that access to credit allowed borrowers to start and expand small-scale businesses. Households that already had a business and where the borrower had more education ran down their savings, presumably to complement the loan and to achieve the minimum amount necessary to expand their business. In less-educated households, however, consumption went down. A key new result is that there was a substantial increase in the labor supply of young adults (16-19 year olds). This was accompanied by a reduction in school attendance.
    Keywords: Microfinance, liquidity constraints, human capital, randomized controlled trial
    JEL: G21 D21 I32
    Date: 2012–09

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