New Economics Papers
on Experimental Economics
Issue of 2012‒10‒27
seventeen papers chosen by

  1. Deception: The Role of Guilt By Pierpaolo Battigalli; Gary Charness; Martin Dufwenberg
  2. Agricultural Decisions after Relaxing Credit and Risk Constraints By Karlan, Dean S.; Osei, Robert; Osei-Akoto, Isaac; Udry, Christopher
  3. Truth-Telling: A Representative Assessment By Abeler, Johannes; Becker, Anke; Falk, Armin
  4. Experimental Evidence on the Relationship between Tax Evasion Opportunities and Labor Supply By Doerrenberg, Philipp; Duncan, Denvil
  5. To See Is To Believe: Common Expectations in Experimental Asset Markets By Cheung, Stephen L.; Hedegaard, Morten; Palan, Stefan
  6. Strategic behavior in regressions: an experimental By Javier Perote; Juan Perote-Peña; Marc Vorsatz
  7. Trust, Values and False Consensus By Jeffrey Butler; Paola Giuliano; Luigi Guiso
  8. Generosity norms and intrinsic motivation in health care provision: evidence from the laboratory and the field By J. Michelle Brock; Andreas Lange; Kenneth L. Leonard
  9. Unexplored Dimensions of Discrimination in Europe: Homosexuality and Physical Appearance By Patacchini, Eleonora; Ragusa, Giuseppe; Zenou, Yves
  10. Judgmental Overconfidence and Trading Activity By Gelinde Fellner; Sebastian Krügel
  11. Savings and Prize-Linked Savings Accounts By Atalay, Kadir; Bakhtiar, Fayzan; Cheung, Stephen L.; Slonim, Robert
  12. Are you what you eat? Experimental evidence on risk preferences and health habits By Miraldo, M; Galizzi, MM
  13. Margin Trading Bans in Experimental Asset Markets By Sascha Füllbrunn; Tibor Neugebauer
  14. Ethnic Discrimination in China's Internet Job Board Labor Market By Maurer-Fazio, Margaret
  15. Price as a signal of product quality: some experimental evidence By Giovanni Mastrobuoni; Franco Peracchi; Aleksey Tetenov
  16. Time and Uncertainty in Resource Dilemmas: Equilibrium Solutions and Experimental Results By Anabela Botelho; Ariel Dinar; Lígia M.Costa Pinto; Amnon Rapoport
  17. The Pedagogy of Science and Environment: Experimental Evidence from Peru By Diether W. Beuermann; Emma Naslund-Hadley; Inder J. Ruprah; Jennelle Thompson

  1. By: Pierpaolo Battigalli; Gary Charness; Martin Dufwenberg
    Abstract: Gneezy (2005) reports evidence indicating that in some settings people do not like to lie. In many other situations people do not suffer when they lie. We show that the theory of simple guilt can accommodate these observations.
    Date: 2012
  2. By: Karlan, Dean S.; Osei, Robert; Osei-Akoto, Isaac; Udry, Christopher
    Abstract: The investment decisions of small-scale farmers in developing countries are conditioned by their financial environment. Binding credit market constraints and incomplete insurance can reduce investment in activities with high expected profits. We conducted several experiments in northern Ghana in which farmers were randomly assigned to receive cash grants, grants of or opportunities to purchase rainfall index insurance, or a combination of the two. Demand for index insurance is strong, and insurance leads to significantly larger agricultural investment and riskier production choices in agriculture. The salient constraint to farmer investment is uninsured risk: when provided with insurance against the primary catastrophic risk they face, farmers are able to find resources to increase expenditure on their farms. Demand for insurance in subsequent years is strongly increasing in a farmer’s own receipt of insurance payouts, and with the receipt of payouts by others in the farmer’s social network. Both investment patterns and the demand for index insurance are consistent with the presence of important basis risk associated with the index insurance, and with imperfect trust that promised payouts will be delivered.
    Keywords: agriculture; credit markets; insurance markets; misallocation; risk; underinvestment
    JEL: C93 D24 D92 G22 O12 O13 O16 Q12 Q14
    Date: 2012–10
  3. By: Abeler, Johannes (University of Oxford); Becker, Anke (University of Bonn); Falk, Armin (University of Bonn)
    Abstract: A central assumption of the canonical cheap talk literature is that people misreport their private information if this is to their material benefit. Recent evidence from laboratory experiments with student subjects suggests, however, that while many people do report the payoff-maximizing outcome, some report their private information truthfully or at least do not lie maximally. We measure truth-telling outside the laboratory by calling a representative sample of the German population at home. In our setup, participants have a strong monetary incentive to misreport, misreporting cannot be detected, and reputational concerns are negligible. Yet, we find that aggregate reporting behavior closely follows the expected truthful distribution. Our results underline the importance of lying costs and raise questions regarding the influence of the decision-making environment and the elicitation mode on reporting behavior.
    Keywords: private information, cheap talk, honesty, lying costs, representative experiment
    JEL: C93 D01 D82 D83
    Date: 2012–10
  4. By: Doerrenberg, Philipp (University of Cologne); Duncan, Denvil (Indiana University)
    Abstract: Motivated by the observation that access to evasion opportunities is distributed heterogeneously across the labor market, this paper examines the extent to which labor supply elasticities with respect to tax rates depend on such evasion opportunities. We first discuss the channels through which access to evasion affects labor supply responses and then set up a laboratory experiment in which all participants undertake a real-effort task over several rounds. Subjects face a tax rate, which varies across rounds and are required to pay taxes on earned income. The treatment group is given the opportunity to underreport income while the control group is not. We find that participants in the treatment group have significantly larger effort responses to changes in the net-of-tax rate than participants in the control group; suggesting that both groups indeed react differently to taxes.
    Keywords: lab experiment, taxable income, labor supply, tax evasion, taxes
    JEL: H21 H24 H26 J22
    Date: 2012–10
  5. By: Cheung, Stephen L. (University of Sydney); Hedegaard, Morten (University of Copenhagen); Palan, Stefan (University of Graz)
    Abstract: We challenge the recent claim that mispricing in the experimental asset markets introduced by Smith, Suchanek, and Williams (1988) is merely an artefact of confusion over declining fundamental value, and can be eliminated through appropriate training. We instead propose that when training is public knowledge, it reduces uncertainty over the behavior of others and facilitates the formation of common expectations. We disentangle the effect of training from the effect of its public knowledge, and find that when all subjects are trained to understand fundamental value, but this is not public knowledge, mispricing is as great as when training is absent.
    Keywords: asset market experiment, price bubbles, common knowledge of rationality
    JEL: C92 D84 G12
    Date: 2012–10
  6. By: Javier Perote; Juan Perote-Peña; Marc Vorsatz
    Abstract: We study experimentally in the laboratory the situation when individuals have to report their private information (that is commonly known to be the sum of an observable and a random component) to a public authority that then makes inference about the true value hold by each of the individuals. It is assumed that individuals prefer this inferred or predicted value to be as close as possible to the their true value. Consistent with the theoretical literature, we show that the participants in our experiment misrepresent their private information more under the OLS than under the resistant line estimator (which extends the median voter theorem to the two{dimensional setting). Moreover, only the resistant line estimator is empirically unbiased and subjects earn signicantly less if the OLS estimator is applied.
    Date: 2012–10
  7. By: Jeffrey Butler (EIEF); Paola Giuliano (University of California-Los Angeles, NBER, CEPR and IZA); Luigi Guiso (EIEF and CEPR)
    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 one’s 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.
    Date: 2012
  8. By: J. Michelle Brock (EBRD); Andreas Lange (University of Hamburg); Kenneth L. Leonard (University of Maryland)
    Abstract: We examine the correlation between the generosity of clinicians – as measured in a laboratory experiment – and the quality of care in their normal practices under three different intrinsic incentive schemes. Specifically, we observe clinicians in their normal work environment, when a peer observes them and six weeks after an encouragement visit from a peer. Clinicians who give at least half of their endowment to a stranger in the laboratory (generous) provide 10 per cent better quality care than those who do not. In addition, the average clinician provides about 4 per cent better quality when observed by a peer and 10 per cent higher quality care after the encouragement visit. Importantly, we find that generous clinicians react to peer scrutiny and encouragement in the same way as non-generous clinicians. Many clinicians are intrinsically motivated to provide higher quality care. However, most clinicians respond to increased intrinsic incentives in the form of scrutiny and encouragement from peers.
    Keywords: intrinsic incentives, health care quality, altruism, professionalism, Tanzania, experimental economics, Hawthorne effect, Encouragement effect, Study effect
    JEL: I15 O19 C91 C93 J2
    Date: 2012–08
  9. By: Patacchini, Eleonora; Ragusa, Giuseppe; Zenou, Yves
    Abstract: We study labor-market discrimination of individuals with specific characteristics in Italy. We conduct a field experiment in two Italian cities: Rome and Milan, by sending fake CVs to real ads. We find that there is a strong penalty for homosexuals, i.e. about 30% less chance to be called back compared to an heterosexual male and even more so if they are highly skilled. On the other hand, we find no penalty for homosexual females. We also find a beauty premium for females only but this premium is much lower when the "pretty" woman is skilled.
    Keywords: Discrimination; field experiment; gays; lesbians
    JEL: I10 J16 J71
    Date: 2012–10
  10. By: Gelinde Fellner (Ulm University, Institute of Economics); Sebastian Krügel (Max Planck Institute of Economics, International Max Planck Research School "Uncertainty" and Ulm University)
    Abstract: We investigate the theoretically proposed link between judgmental overconfidence and trading activity. In addition to applying classical measures of miscalibration, we introduce a measure to capture misperception of signal reliability, which is the relevant bias in the theoretical overconfidence literature. We relate the obtained overconfidence measures to trading activity in call and continuous experimental asset markets. Our results confirm prior findings that classical miscalibration measures are not related to trading activity. However, misperception of signal reliability is significantly linked to trading volume, particularly in the continuous market. In addition, we find that men trade more than women at high levels of risk aversion, but the gender trading gap vanishes as risk aversion lessens. The reason is that the trading activity of women seems to be more sensitive to risk attitudes than that of men.
    Keywords: Overconfidence, Trading activity, Signal perception
    JEL: D03 C91 G12
    Date: 2012–10–19
  11. By: Atalay, Kadir (University of Sydney); Bakhtiar, Fayzan (University of Sydney); Cheung, Stephen L. (University of Sydney); Slonim, Robert (University of Sydney)
    Abstract: Many households have insufficient savings to handle moderate and routine consumption shocks. Many of these financially fragile households also have the highest lottery expenditures as a proportion of income. This combination suggests that Prize-Linked Savings (PLS) accounts, that combine principal-security with lottery-type jackpots, can increase savings among these at-risk households. Results from an online experiment show that the introduction of PLS accounts increase total savings and reduce lottery expenditures significantly, especially among individuals with the lowest levels of savings and income. The results imply that PLS accounts offer a plausible market-based solution to nudge individuals to increase savings.
    Keywords: savings, individual decision making, personal finance, lotteries, experimental economics
    JEL: E21 D14 C91 L83 D12
    Date: 2012–10
  12. By: Miraldo, M; Galizzi, MM
    Date: 2012–06
  13. By: Sascha Füllbrunn (Department of Economics, Radboud University Nijmegen); Tibor Neugebauer (Luxembourg School of Finance, Faculty of Law, Economics and Finance, University of Luxembourg)
    Abstract: In financial markets, professional traders leverage their trades because it allows to trade larger positions with less margin. Violating margin requirements, however, triggers a margin call and open positions are automatically covered until requirements are met again. What impact does margin trading have on the price process and on liquidity in financial asset markets? Since empirical evidence is mixed, we consider this question using experimental asset markets. Starting from an empirically relevant situation where margin purchasing and short selling is permitted, we ban margin purchases and/or short sales using a 2x2 factorial design to a allow for a comparative static analysis. Our results indicate that a ban on margin purchases fosters efficient pricing by narrowing price deviations from fundamental value accompanied with lower volatility and a smaller bid-ask-spread. A ban on short sales, however, tends to distort efficient pricing by widening price deviations accompanied with higher volatility and a large spread.
    Keywords: Leverage, Asset Market, Price Bubble, Experimental Finance
    JEL: C92 D70 G12
    Date: 2012–10–19
  14. By: Maurer-Fazio, Margaret (Bates College)
    Abstract: We conduct a large‐scale field experiment to investigate how Chinese firms respond to job applications from ethnic minority and Han applicants for jobs posted on a large Chinese Internet job board. We denote ethnicity by means of names that are typically Han Chinese and distinctively Mongolian, Tibetan, and Uighur. We find significant differences in the callback rates by ethnicity and that these differences vary systematically across ethnic groups. Not all firms discriminate – approximately half treat all candidates equally. State-owned firms are significantly less likely than privately‐owned firms to discriminate against minorities by calling only candidates with Han names and much more likely to treat candidates equally.
    Keywords: Chinese firms, hiring, discrimination, ethnicity, internet job boards, resume audit study
    JEL: J71 J23 J15 O52 P25
    Date: 2012–10
  15. By: Giovanni Mastrobuoni; Franco Peracchi; Aleksey Tetenov
    Abstract: We study the determinants of the choice between wines in wine tasting experiments where about 200 nonprofessional tasters were asked to indicate which one of the tasted wines they preferred and which one they would buy. In addition to actually tasting several wines, which differ in terms of their intrinsic quality, tasters were randomly given fictitious information about their price and the environment where the grapes were grown and the wines produced. We exploit the randomness of these signals to weigh their importance relative to the intrinsic quality of the wine using a random utility model. The model combines separate information on which wine the tasters prefer and which one they would buy to identify the signaling value of price. We are able to separate the positive signaling effect of price from its negative effect through the budget constraint. Consistent with Wolinsky (1983) and Milgrom and Roberts (1986), we find that tasters use price as a signal about the quality of the product. The signaling effect is strongly non-linear and depends on the tasters' experience.
    Keywords: Pricing; signalling; product quality; wine ratings
    JEL: D11 D12 D82
    Date: 2012
  16. By: Anabela Botelho (NIMA, Universidade do Minho); Ariel Dinar (Water Science and Policy Center, Department of Environmental Sciences, University of California, Riverside); Lígia M.Costa Pinto (NIMA, Universidade do Minho); Amnon Rapoport (A. Gary Anderson School of Business Administration, University of California, Riverside)
    Abstract: Most common pool resource (CPR) dilemmas share two features: they evolve over time and they are managed under environmental uncertainties. We propose a finite-horizon, stochastic, dynamic model that integrates these two dimensions. A distinguishing feature of our model is that the duration of the game is determined endogenously by the players’ collective decisions. In the proposed model, if the resource stock level below which the irreversible event occurs is known in advance, then the optimal resource use coincides with a unique symmetric equilibrium that guarantees survival of the resource. As the uncertainty about the threshold level increases, resource use increases if users adopt decision strategies that quickly deplete the resource stock; however, resource use decreases if they adopt path strategies guaranteeing that the unknown threshold level is never exceeded. Our experimental results show that CPR users frequently implement decision strategies that terminate the game immediately. When the uncertainty about the resource level is reduced, users maintain a positive resource level for a longer duration.
    Date: 2012–09
  17. By: Diether W. Beuermann (Office of Evaluation and Oversight, Inter-American Development Bank, Washington, USA); Emma Naslund-Hadley (Inter-American Development Bank, Washington, USA); Inder J. Ruprah (Inter-American Development Bank, Washington, USA); Jennelle Thompson (Inter-American Development Bank, Washington, USA)
    Abstract: In today’s knowledge-based societies, understanding basic scientific concepts and the capacity to structure and solve scientific questions is more critical than ever. Accordingly, in this paper we test an innovative methodology for teaching science and environment in public primary schools where traditional (teacher centred) teaching was replaced with student centred activities using LEGO kits. We document positive and significant improvements of 0.18 standard deviations in standardised test scores. Such positive results are mainly concentrated within boys that were located above the median of baseline academic performance.
    Keywords: science, environment, Peru
    JEL: I21 I28 I29 O15 O31
    Date: 2012–10

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