nep-exp New Economics Papers
on Experimental Economics
Issue of 2013‒01‒12
fourteen papers chosen by
Daniel Houser
George Mason University

  1. The impact of risk perception and risk attitudes on corrupt behavior: Evidence from a petty corruption experiment By Fahr, René; Djawadi, Behnud Mir
  2. The dark side of team incentives: Experimental evidence on advice quality from financial service professionals By Anastasia Danilov; Torsten Biemann; Thorn Kring; Dirk Sliwka
  3. Patient Preferences and Treatment Thresholds under Diagnostic Risk: An Economic Laboratory Experiment By Mayrhofer, Thomas; Krieger, Miriam
  4. Three-Player Trust Game with Insider Communication By Sheremeta, Roman; Zhang, Jingjing
  5. You Can’t Put Old Wine in New Bottles: The Effect of Newcomers on Coordination in Groups By McCarter, Matthew; Sheremeta, Roman
  6. Group Identity and Leading-by-Example By Michalis Drouvelis; Daniele Nosenzo
  7. Hidden Costs of Control in Social Groups By Wiederhold, Simon; Riener, Gerhard
  8. An Experiment on Decision Making under Risk and Uncertainty By Archavski, V. Yu.; Okulov, V. L.
  9. The disposition effect and investor experience By Da Costa Jr, Newton; Goulart, Marco; Cupertino, Cesar; Macedo Jr, Jurandir; Da Silva, Sergio
  10. Information and Learning in Oligopoly: an Experiment By M. Bigoni; M. Fort
  11. Implementing quotas in university admissions: An experimental analysis By Kübler, Dorothea; Braun, Sebastian; Dwenger, Nadja; Westkamp, Alexander
  12. The effects of early childhood intervention on child development and early skill formation. Evidence from a randomized experiment. By Sandner, Malte
  13. Protest Attitudes and Stated Preferences: Evidence on Scale Usage Heterogeneity By Maria A. Cunha-e-Sá; Luis C. Nunes; Vladimir Otrachshenko
  14. Mixed Equilibrium: When Burning Money is Rational By Souza, Filipe; Rêgo, Leandro

  1. By: Fahr, René; Djawadi, Behnud Mir
    Abstract: We investigate one possible explanation for corrupt behavior namely that individual decision makers who engage frequently in illegal actions might underestimate the overall probability of being caught. This might be in particular true for petty corruption where small amounts of bribes are involved and detection rate is rather low. To abstract from confounding effects of reciprocal behavior we design an experiment where a public official decides upon accepting a bribe that leads to a higher present period income while facing the risk of being audited and left with a considerable lower income in all subsequent periods. Because risk attitudes might be different when putting earned versus endowed income at risk we compare treatments where participants either receive an endowment beforehand or earn their income by conducting a real effort task in every period. Independent of the treatments we already find high rates of corruption in very early periods. Risk attitudes measured with a subsequent lottery-choice experiment do not correlate with the behavior observed in the corruption experiment. We explain our findings by a systematic underestimation of the overall probability to be audited. Although detection probability is small in each period, the probability of being caught only once is substantially high when engaging in corrupt behavior on a regular basis. Our findings have important political implications because the underestimation of the total risk involved in engaging in corrupt behaviour might nullify measures to fight petty corruption by increased governmental auditing. --
    JEL: D73 C91 D81
    Date: 2012
  2. By: Anastasia Danilov (University of Cologne); Torsten Biemann (University of Cologne); Thorn Kring (Steinbeis University of Berlin); Dirk Sliwka (University of Cologne)
    Abstract: In an experiment with professionals from the financial services sector, we investigate the impact of a team incentive scheme on recommendation quality of investment products when advisors benefit from advising lower quality products. Experimental results reveal that, when group affiliation is strong, worse products are recommended significantly more often under team incentives than under individual incentives.
    Keywords: deception, team incentives, professionals, financial advice, experiment
    JEL: C90 D82 J30 M52
    Date: 2012–10–15
  3. By: Mayrhofer, Thomas; Krieger, Miriam
    Abstract: We study risk-aversion and prudence in medical treatment decisions. In a laboratory experiment, we investigate the frequency and intensity of second- and third-order risk preferences, as well as the effect of the medical decision context. Risk preferences are assessed through treatment thresholds (the indifference point between not treating and treating). Under diagnostic risk, medical decision theory predicts lower treatment thresholds for risk-averse than for risk-neutral decision makers. Given a comorbidity risk in the sick state, prudent individuals have an even lower threshold. Our results demonstrate risk-averse and prudent behavior in medical decisions, which reduce the (average) treatment threshold by 41% relative to risk-neutrality (from 50.0% to 29.3%). Risk aversion accounts for 3/4 of this effect, prudence for 1/4. Medical decision framing does not affect risk aversion, but is associated with more and stronger prudent behavior. These findings can have consequences for diagnostic technologies and QALYs, and thus for clinical guidelines. --
    JEL: I10 C91 D81
    Date: 2012
  4. By: Sheremeta, Roman; Zhang, Jingjing
    Abstract: We examine behavior in a three-player trust game in which the first player may invest in the second and the second may invest in the third. Any amount sent from one player to the next is tripled. The third player decides the final allocation among three players. The baseline treatment with no communication shows that the first and second players send significant amounts and the third player reciprocates. Allowing insider communication between the second and the third players increases cooperation between these two. Interestingly, there is an external effect of insider communication: the first player who is outside communication sends 54% more and receives 289% more than in the baseline treatment. As a result, insider communication increases efficiency from 44% to 68%.
    Keywords: three-player trust games; experiments; reciprocity; communication
    JEL: C72 C91
    Date: 2013–01–02
  5. By: McCarter, Matthew; Sheremeta, Roman
    Abstract: A common finding in social sciences is that member change hinders group functioning and performance. However, questions remain as to why member change negatively affects group performance and what are some ways to alleviate the negative effects of member change on performance? To answer these questions we conduct an experiment in which we investigate the effect of newcomers on a group’s ability to coordinate efficiently. Participants play a coordination game in a four-person group for the first part of the experiment, and then two members of the group are replaced with new participants, and the newly formed group plays the game for the second part of the experiment. Our results show that the arrival of newcomers decreases trust among group members and this decrease in trust negatively affects group performance. Knowing the performance history of the arriving newcomers mitigates the negative effect of their arrival, but only when newcomers also know the oldtimers performance history. Surprisingly, in groups that performed poorly prior to the newcomers’ arrival, the distrust generated by newcomers is mainly between oldtimers about each other rather than about the newcomers.
    Keywords: coordination; group performance; oldtimers; newcomers; trust; experiments
    JEL: C72 C91
    Date: 2013–01–02
  6. By: Michalis Drouvelis (Department of Economics, University of Birmingham); Daniele Nosenzo (School of Economics, University of Nottingham)
    Abstract: We study the interplay between leading-by-example and group identity in a public goods game experiment. A common identity between the leader and her followers is beneficial for cooperation: average contributions are more than 30% higher than in a treatment where no identity was induced. In two further treatments we study the effects of heterogeneous identities. We find no effect on cooperation when only part of the followers share the leader’s identity, or when followers share a common identity that differs from that of the leader. We conclude that group identity is an effective but fragile instrument to promote cooperation.
    Keywords: leading-by-example,leadership, public goods, voluntary contributions,cooperation,identity,experiment
    Date: 2012–05
  7. By: Wiederhold, Simon; Riener, Gerhard
    Abstract: This paper investigates the role of social identity in reactions to control. We propose a simple principal-agent model with control that incorporates the existence of social groups. Our laboratory experiment shows that, in contrast to no-group agents, agents in social groups (i) perform better; (ii) expect less control; (iii) do not reciprocate when facing less control than expected; (iv) decrease their performance substantially when actual control exceeds their expectation. Hidden costs of control thus appear to be more substantial in social groups. --
    JEL: C92 M54 D03
    Date: 2012
  8. By: Archavski, V. Yu.; Okulov, V. L.
    Abstract: We asked the participants of our controlled experiment to solve the Newsboy Problem. In this work we describe the design of the experiment. We analyze results of the experiment and emphasize the difference between the theoretical solution and the solution chosen by our subjects. We test sever-al hypotheses including the hypothesis of learning. We also suggest a pos-sible algorithm that could have been used by the participants. Using the assumptions of the probabilistic algorithm we compute the stationary distribution of the solutions. Executive summary is available on p.39 (in English).
    Keywords: Newsboy (Newsvendor) Problem, random demand, economic experiment, uncertainty, risk, algorithm decision, steady-state distribution,
    Date: 2012
  9. By: Da Costa Jr, Newton; Goulart, Marco; Cupertino, Cesar; Macedo Jr, Jurandir; Da Silva, Sergio
    Abstract: We examine whether investing experience can dampen the disposition effect, that is, the fact that investors seem to hold on to their losing stocks to a greater extent than they hold on to their winning stocks. To do so, we devise a computer program that simulates the stock market. We use the program in an experiment with two groups of subjects, namely experienced investors and undergraduate students (the inexperienced investors). As a control procedure, we consider random trade decisions made by robot subjects. We find that though both human subjects show the disposition effect, the more experienced investors are less affected.
    Keywords: Disposition effect; Investor experience; Artificial stock market; Framed field experiment
    JEL: G11 C93
    Date: 2013
  10. By: M. Bigoni; M. Fort
    Abstract: This paper presents an experiment on learning in repeated games, which complements the analysis of players' actual choices with data on the information acquisition process they follow. Subjects play a repeated Cournot oligopoly, with limited a priori information. The econometrics hinges on a model built upon Experience Weighted Attraction learning, and the simultaneous analysis of data on the information gathered and on actions taken by the subjects. Results suggest that learning is a composite process, in which different components coexist. Adaptive learning emerges as the leading element, but when subjects look at the strategies individually adopted by their competitors they tend to imitate the most successful behavior, which makes markets more competitive. Reinforcement learning also plays a role, as subjects favor strategies that have yielded higher profits in the past.
    JEL: L13 C92 C72
    Date: 2013–01
  11. By: Kübler, Dorothea; Braun, Sebastian; Dwenger, Nadja; Westkamp, Alexander
    Abstract: Quotas for special groups of students often apply in school or university admission procedures. This paper studies the performance of two mechanisms to implement such quotas in a lab experiment. The fi rst mechanism is a simplifi ed version of the mechanism currently employed by the German central clearinghouse for university admissions, which first allocates seats in the quota for top-grade students before allocating all other seats among remaining applicants. The second is a modifi ed version of the student-proposing deferred acceptance (SDA) algorithm, which simultaneously allocates seats in all quotas. Our main result is that the current procedure, designed to give top-grade students an advantage, actually harms them, as students often fail to grasp the strategic issues involved. The modi ed SDA algorithm signifi cantly improves the matching for top-grade students and could thus be a valuable tool for redesigning university admissions in Germany. --
    JEL: C78 C92 I20
    Date: 2012
  12. By: Sandner, Malte
    Abstract: This paper presents results from a randomized evaluation of a home visiting program for disadvantaged first time mothers and their families implemented in three German federal states. At the end of the first year of the program, children in home visited families perform significantly better than those in the control families by 0.18 standard deviations in the Mental Developmental Index. Examination of gender differences revealed that home visited girls scored 0.30 standard deviations higher than girls in the control families, whereas boys scored similar in both groups. Results indicate no differences in the scores of the Psychomotor Developmental Index and the birth outcomes, despite 0.28 standard deviations higher birth weight for boys in the home visited families compared to boys in the control families. We find evidence for skill self productivity but in different magnitude for boys and girls. Furthermore, we analyze possible monetary returns of the program. --
    JEL: J13 J12 I21
    Date: 2012
  13. By: Maria A. Cunha-e-Sá; Luis C. Nunes; Vladimir Otrachshenko
    Abstract: We contribute to the stated preference literature by addressing scale usage heterogeneity regarding how individuals answer attitudinal questions capturing lack of trust in institutions and fairness issues. Using a latent class model, we conduct a contingent valuation study to elicit the willingness-to-pay to preserve a recreational site. We find evidence that respondents within the same class, that is, with similar preferences and attitudes, interpret the Likert scale differently when answering the attitudinal questions. We identify different patterns of scale usage heterogeneity within and across classes and associate them with individual characteristics. Our approach contributes to better a understanding of individual behavior in the presence of protest attitudes. JEL codes: C35, Q51
    Keywords: Scale usage heterogeneity, Likert scale, protest attitudes, contingent valuation, latent class model
    Date: 2012
  14. By: Souza, Filipe; Rêgo, Leandro
    Abstract: We discuss the rationality of burning money behavior from a new perspective: the mixed Nash equilibrium. We support our argument analyzing the first-order derivatives of the mixed equilibrium expected utility of the players with respect to their own utility payoffs in a 2x2 normal form game. We establish necessary and sufficient conditions that guarantee the existence of negative derivatives. In particular, games with negative derivatives are the ones that create incentives for burning money behavior since such behavior in these games improves the player’s mixed equilibrium expected utility. We show that a negative derivative for the mixed equilibrium expected utility of a given player i occurs if, and only if, he has a strict preference for one of the strategies of the other player. Moreover, negative derivatives always occur when they are taken with respect to player i’s highest and lowest game utility payoffs.
    Keywords: Mixed Nash Equilibrium; Burning Money; Collaborative Dominance; Security Dilemma
    JEL: C7
    Date: 2012–02–10

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