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on Experimental Economics |
| By: | Thomas Stöckl; Jürgen Huber; Michael Kirchler; Florian Lindner |
| Abstract: | In laboratory experiments we explore the effects of communication and group decision making on investment behavior and on subjects’ proneness to behavioral biases. Most importantly, we show that communication and group decision making does not impact subjects’ overall proneness to biases like gambler’s fallacy and hot hand belief. However, groups decide differently than individuals as they rely significantly less on useless outside advice from “experts” and choose the risk-free option less frequently. Finally, we document gender differences in investment behavior: groups of two female subjects choose the risk-free investment more often and are slightly more prone to the hot hand belief than groups of two male subjects. |
| Keywords: | Hot hand belief, Gambler’s fallacy, Experimental finance, Experts, Team decision making |
| JEL: | C91 C92 D81 G10 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2013-04&r=exp |
| By: | Hoppe, Eva I.; Schmitz, Patrick W. |
| Abstract: | Principal-agent models in which the agent has access to private information before a contract is signed are a cornerstone of contract theory. We have conducted an experiment with 720 participants to explore whether the theoretical insights are reflected by the behavior of subjects in the laboratory and to what extent deviations from standard theory can be explained by social preferences. Investigating settings with both exogenous and endogenous information structures, we find that agency theory is indeed useful to qualitatively predict how variations in the degree of uncertainty affect subjects' behavior. Regarding the quantitative deviations from standard predictions, our analysis based on several control treatments and quantal response estimations shows that agents' behavior can be explained by social preferences that are less pronounced than in conventional ultimatum games. Principals' own social preferences are not an important determinant of their behavior. However, when the principals make contract offers, they anticipate that social preferences affect agents' behavior. |
| Keywords: | Agency theory; Adverse selection; Information gathering; Ultimatum game; Social preferences; Experiment |
| JEL: | D86 D82 C72 C91 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:44240&r=exp |
| By: | Binzel, Christine (University of Heidelberg); Fehr, Dietmar (WZB - Social Science Research Center Berlin) |
| Abstract: | While strong social ties help individuals cope with missing institutions, trade is essentially limited to those who are part of the social network. We examine what makes the decision to trust a stranger different from the decision to trust a member of a given social network (a friend), by comparing the determinants of these two decisions for the same individual. We implement a binary trust game with hidden action in a lab-in-the-field experiment with residents of an informal housing area in Cairo. Our results show that trust is higher among friends than among strangers and that higher trust among friends is related to the principal's belief of trustworthiness. However, on average a principal underestimates her friend's trustworthiness leading to inefficient outcomes. Our findings suggest that even within a social network, trade may often be limited to exchanges with few information asymmetries. |
| Keywords: | trust, social distance, hidden action, solidarity, economic development |
| JEL: | C72 C93 D82 O12 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7183&r=exp |
| By: | Giovanna Devetag; Sibilla Di Guida; Luca Polonio |
| Abstract: | We analyze subjects’ eye movements while they make decisions in a series of one-shot games. The majority of them perform a partial and selective analysis of the payoff matrix, often ignoring the payoffs of the opponent and/or paying attention only to specific cells. Our results suggest that subjects apply boundedly rational decision heuristics that involve best responding to a simplification of the decision problem, obtained either by ignoring the other players’ motivations or by considering them only for a subset of outcomes. Finally, we find a correlation between types of eye movements observed and choices in the games. |
| Keywords: | one-shot games, eye-tracking, similarity, categorization, focal points, individual behavior, experimental economics, behavioral economics |
| JEL: | C72 C91 D01 D83 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpce:1301&r=exp |
| By: | Bouma, Jetske A.; Joy, K.J.; Paranjape, Suhas; Ansink, Erik |
| Abstract: | Decentralization of irrigation management to local communities is often claimed to improve performance. The argument is that decentralization enhances the perceived legitimacy of irrigation management, which in turn increases the willingness of water users to cooperate and contribute to irrigation management. To test this hypothesis, we collected information about water users’ legitimacy perceptions in five villages alongside an irrigation channel in Maharashtra, India. In two of the villages, the irrigation department is in charge of irrigation management, while in the other three villages, this task has been decentralized to local water users associations (WUAs). To assess the impact of legitimacy perceptions on cooperation, we used survey-based indicators of perceived legitimacy to explain three outcomes, each of which partly reflects the willingness of water users to cooperate and contribute to irrigation management: (1) water users’ self-reported charge payments, (2) WUA-reported charge payments, and (3) water users’ behavior in a field experiment that was framed in terms of irrigation management. Our results show that legitimacy perceptions differ between the two types of villages as well as between WUA members and non-members, but these differences do not explain any of the three outcomes. Non-members contribute significantly less under the irrigation frame as compared to WUA members, but game behavior is not correlated with (self-reported or WUA-reported) charge payments. We conclude that decentralization of irrigation management may enhance legitimacy perceptions but this has no effect on the willingness of water users to contribute to irrigation management. |
| Keywords: | Framed field experiment; public goods game; irrigation management; legitimacy; water users association |
| JEL: | D70 Q15 C93 |
| Date: | 2013–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:44295&r=exp |
| By: | Felix Ebeling |
| Abstract: | Conditional cooperation (CC) is one of the most persistent behaviors in charitable giving. The laboratory experiment presented in this paper is designed to explore two questions: First, whether heterogeneous endowments of donors affect conditional cooperative giving. Second, whether potential donors exploit ambiguity about other donors’ endowments in a self-serving manner to justify lower giving. We find that heterogeneous endowments affect giving in a way that suggests individuals concern for equality of donors’ earnings after giving. Furthermore, the results do not confirm the exploitation of ambiguity about other donors’ endowments. Individuals do not bias beliefs about other donors’ endowments in a self-serving manner to justify lower giving. |
| Keywords: | public good, donation, conditional cooperation, social norms, ambiguity |
| JEL: | C91 D63 H41 |
| Date: | 2013–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:kls:series:0058&r=exp |
| By: | Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University) |
| Abstract: | We provide an overview of experimental literature on contests and point out the two main phenomena observed in most contest experiments- (i) overbidding relative to the standard Nash equilibrium prediction and (ii) heterogeneous behavior of ex-ante symmetric contestants. Based on the sample of contest experiments that we review, the median overbidding rate is 72%. We provide different explanations for the overbidding phenomenon, including bounded rationality, utility of winning, other-regarding preferences, probability distortion, and the shape of the payoff function. We also provide explanations for heterogeneous behavior of contestants based on differences in preferences towards winning, inequality, risk and losses, and demographic differences. Furthermore, we suggest mechanisms that can reduce overbidding and induce more homogeneous behavior. Finally, we discuss directions for future research. |
| Keywords: | experiments, contests, overbidding, heterogeneous behavior |
| JEL: | C72 C91 C92 D72 D74 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:13-06&r=exp |
| By: | Anthony M. Kwasnica (Smeal College of Business, The Pennsylvania State University); Katerina Sherstyuk (Department of Economics, University of Hawaii at Manoa) |
| Abstract: | We survey experimental research on multi-unit auctions with an emphasis on topics that may be of a unifying interest to experimental, as well as theoretical and empiri- cal economists. Topics include static and dynamic multi-unit auctions; combinatorial auctions and efficient auction design; simultaneous and sequential auctions; bidder asymmetry and endogenous entry, and collusion in auctions. We also discuss behav- ioral regularities observed in multi-unit auction experiments. |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201301&r=exp |
| By: | Marco Pagnozzi (University of Napoli "Federico II" and CSEF); Krista Jabs Saral (Webster University) |
| Abstract: | We analyze the effects of resale through bargaining in multi-object uniform-price auctions with asymmetric bidders. The possibility of resale affects bidders’ strategies, and hence the allocation of the objects on sale and the seller’s revenue. Our experimental design consists of four treatments: one without resale and three resale treatments that vary both the bargaining mechanism and the amount of information available in the resale market. As predicted by theory: (i) without resale, asymmetry among bidders reduces demand reduction; (ii) resale increases demand reduction by high-value bidders; (iii) low-value bidders speculate by bidding more aggressively with resale. Therefore, resale induces speculation and demand reduction which reduce auction efficiency. In contrast to what is usually argued, resale does not necessarily increase final efficiency and may not reduce the seller’s revenue. Features of the resale market that tend to increase its efficiency also reduce the seller’s revenue. |
| Keywords: | multi-object auctions, resale, asymmetric bidders, bargaining, economic experiments |
| JEL: | D44 C90 |
| Date: | 2013–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:328&r=exp |
| By: | Stijn BAERT (Ghent University - Sherppa); Baert COCKX (Ghent University - Sherppa, UCLouvain - IRES, IZA, CESifo); Niels GHEYLE (Ghent University - Sherppa); Cora VANDAMME (Ghent University - Sherppa) |
| Abstract: | We empirically test the relationship between hiring discrimination and labour market tightness at the level of the occupation. To this end, we conduct a correspondence test in the youth labour market. In line with theoretical expectations, we find that, compared to natives, candidates with a foreign sounding name are equally often invited to a job interview if they apply for occupations for which vacancies are difficult to fill, but they have to send twice as many applications for occupations for which labour market tightness is low. Our findings are robust against various sensitivity checks. |
| Keywords: | hiring discrimination, ethnic discrimination, labour market tightness, field experiments |
| JEL: | C93 J15 J21 J24 J42 J71 |
| Date: | 2013–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2013001&r=exp |
| By: | Jeffrey V. Butler (Einaudi Institute for Economics and Finance (EIEF)); Luigi Guiso (Einaudi Institute for Economics and Finance (EIEF)); Tullio Jappelli (University of Naples Federico II and CSEF) |
| Abstract: | Prior research suggests that those who rely on intuition rather than effortful reasoning when making decisions are less averse to risk and ambiguity. The evidence is largely correlational, however, leaving open the question of the direction of causality. In this paper, we present experimental evidence of causation running from reliance on intuition to risk and ambiguity preferences. We directly manipulate participants’ predilection to rely on intuition and find that enhancing reliance on intuition lowers the probability of being ambiguity averse by 30 percentage points and increases risk tolerance by about 30 percent in the experimental sub-population where we would a priori expect the manipulation to be successful (males) |
| Keywords: | Risk Aversion, Risk Ambiguity, Decision Theory, Dual Systems, Intuitive Thinking |
| JEL: | D81 D83 |
| Date: | 2013–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:327&r=exp |
| By: | Esther Blanco; Maria Claudia Lopez; James M. Walker |
| Abstract: | This study examines appropriation decisions in a linear appropriation game setting with variations in the resource damage from appropriation and simultaneous variations in the resource damage and the opportunity cost of conservation, where the ratio of these two variables is held constant. In symmetric and asymmetric group contexts, subjects make decisions without feedback from a menu of seven decision situations. In summary, individual appropriation levels are found to be inversely correlated with the ratio of marginal resource damage from appropriation to the marginal private benefit of appropriation and no significant differences are observed in individual appropriation levels across treatments where this ratio is equal. Moreover, among subjects facing the same marginal incentives, no significant differences are found between decisions of subjects in symmetric and asymmetric groups. Finally, using forecasts of others’ appropriation decisions; we find evidence of both a direct effect from changes in marginal monetary incentives and an indirect effect associated with changes in subjects’ first order beliefs of the appropriation decisions of others. These findings are consistent with previous evidence for public goods games supporting the relevance of the marginal per-capita return and conditional reciprocity in explaining variations in cooperation levels. |
| Keywords: | common pool resources, asymmetry, resource damage, private benefits, laboratory experiments |
| JEL: | D7 D3 C90 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2013-02&r=exp |
| By: | David Gill; Victoria Prowse |
| Abstract: | In this paper we investigate how cognitive ability influences behavior, success and theevolution of play towards Nash equilibrium in repeated strategic interactions. We study behaviorin a p-beauty contest experiment and find striking differences according to cognitiveability: more cognitively able subjects choose numbers closer to equilibrium, converge morefrequently to equilibrium play and earn more even as behavior approaches the equilibriumprediction. To understand better how subjects with different cognitive abilities learn differently,we estimate a structural model of learning based on level-k reasoning. We find asystematic positive relationship between cognitive ability and levels; furthermore, the averagelevel of more cognitively able subjects responds positively to the cognitive ability of theiropponents, while the average level of less cognitively able subjects does not respond at all.Our results suggest that, in strategic environments, higher cognitive ability translates intobetter analytic reasoning and a better ‘theory of mind’. |
| Keywords: | Cognitive ability, bounded rationality, level-k, convergence, learning non-equilibrium behavior, beauty contest, repeated games, structural modeling, theory of mind, intelligence, Raven test |
| JEL: | C92 C73 D83 |
| Date: | 2013–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:641&r=exp |
| By: | Wolfgang Luhan; Johann Scharler |
| Abstract: | We develop a simple experimental setting to evaluate the role of the Taylor principle, which holds that the nominal interest rate has to respond more than one-for-one to fluctuations in the inflation rate. In our setting, the average inflation rate fluctuates around the inflation target if the computerized central bank obeys the Taylor principle. If the Taylor principle is violated, then the average inflation rate persistently deviates from the target. We find that these deviations from the target are less pronounced, if inflation rates cannot be as readily observed as nominal interest rates. This result is consistent with the interpretation that subjects underestimate the influence of inflation on the real return to savings if the inflation rate is only observed ex post. |
| Keywords: | Taylor principle, Interest Rate Rule, Inflation Illusion, Laboratory Experiment |
| JEL: | E30 E52 C90 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2013-03&r=exp |
| By: | Borghans, Lex (Maastricht University); Meijers, Huub (Maastricht University); ter Weel, Bas (CPB Netherlands Bureau for Economic Policy Analysis) |
| Abstract: | This research provides an economic model of the way people behave during an IQ test. We distinguish a technology that describes how time investment improves performance from preferences that determine how much time people invest in each question. We disentangle these two elements empirically using data from a laboratory experiment. The main findings is that both intrinsic (questions that people like to work on) and extrinsic motivation (incentive payments) increase time investments and as a result performance. The presence of incentive payments seems to be more important than the size of the reward. Intrinsic and extrinsic motivation turn out to be complements. |
| Keywords: | cognitive test scores, incentives |
| JEL: | J20 J24 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7182&r=exp |
| By: | Johne Bone; Michalis Drouvelis; Indrajit Ray |
| Abstract: | We consider three games, Symmetric Battle of the Sexes, Modified Battle of the Sexes and Chicken and two different correlation devices, public and private, with the same expected payoffs in equilibrium, which is also the best correlated equilibrium payoff for these games. Despite our choices of the payoffs in these games based on some theoretical criteria, we find that coordination and following recommendations vary significantly among our treatments. We explain these differences by analysing players' choices in cases when they do and do not follow recommendations in different games. |
| Keywords: | Coordination, Public message, Recommendation, Correlated equilibrium |
| JEL: | C72 C92 D83 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:12-04r&r=exp |
| By: | Dmitry Ryvkin (Florida State University); Danila Serra (Southern Methodist University) |
| Abstract: | Despite the abundance of theoretical and empirical studies on corruption, identifying successful anti-corruption strategies remains a challenge. This paper tests the effectiveness of an anti-corruption policy that is often discussed among practitioners: an increase in competition among officials providing the same good or service. In particular, we investigate whether overlapping jurisdictions reduce extortionary corruption, i.e., bribe demands for the provision of services that clients are entitled to receive. We overcome measurement and identification problems by addressing our research question in the laboratory. In particular, we conduct an extortionary bribery experiment where clients apply for a license from one of many available offices and officials can demand a bribe on top of the license fee. Officials decide whether or not to demand a bribe and the size of the bribe simultaneously at the beginning of the period, and clients engage in costly search. By manipulating the number of available offices and the size of search costs we are able to assess whether increasing competition reduces extortionary corruption. We find that increasing the number of providers lowers bribe demands only if it reduces search costs. If search costs are unaffected, increasing competition has either no effect or a positive effect on bribe demands, depending on the size of search costs. |
| Keywords: | Competition; Extortionary Corruption; Experiment. |
| JEL: | D73 D49 C91 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:smu:ecowpa:1301&r=exp |
| By: | Oswald, Andrew (University of Warwick); Proto, Eugenio (University of Warwick); Sgroi, Daniel (University of Warwick) |
| Abstract: | Some firms say they care about the happiness and ‘well-being’ of their employees. But are such claims hype? Or might they be scientific good sense? This study provides evidence that happiness makes people more productive. First, we examine fundamental real-world shocks (bereavement and family illness) imposed by Nature. We show that lower happiness is associated with lower productivity. Second, within the laboratory, we design two randomized controlled trials. Some individuals are deliberately made happier, while those in a control group are not. The treated individuals have 10-12% greater productivity than those in the control group. These complementary kinds of evidence, with their different strengths and weaknesses, point to a consistent pattern. They suggest that happiness raises human performance. |
| Keywords: | Happiness; well-being; productivity; personnel economics. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:cge:warwcg:107&r=exp |
| By: | Wright, Andrew P.; Hudson, Darren |
| Abstract: | This paper uses experimental methods to examine how individuals react to a set of voluntary incentives related to the conservation of a resource. The goal was to determine whether conservation over a critical area, such as a deep portion of an aquifer, could be encouraged, and whether coordination between individuals could be induced. Participants were faced with a bidding process through which units were selected for conservation, and some participants were offered an agglomeration bonus for conserving units that shared a border. Examining how bids changed across rounds revealed the existence of a learning process; implying that a similar real-world program would need to provide a large amount of information up front in order to achieve the desired effect. Using a monetary selection constraint resulted in more units placed in conservation. The bonus did not necessarily encourage conservation at the critical area, but it did reduce participant’s bid amounts. |
| Keywords: | Environmental Economics and Policy, Resource /Energy Economics and Policy, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ags:saea13:143030&r=exp |
| By: | Alison L. Booth; Lina Cardona-Sosa; Patrick Nolen |
| Abstract: | We examine the effect of single-sex classes on the pass rates, grades, and course choices of students in a coeducational university. We randomly assign students to all-female, all-male, and coed classes and, therefore, get around the selection issues present in other studies on single-sex education. We find that one hour a week of single-sex education benefits females: females are 7% more likely to pass their first year courses and score 10% higher in their required second year classes than their peers attending coeducational classes. We find no effect of single-sex education on the probability that a female will take technical classes and there is no effect of single-sex education for males. Furthermore we are able to examine potential mechanisms driving the single-sex effect for females. We find that the results are consistent with a reduction in stereotype threat for females and are not due to a potential tracking effect. |
| Keywords: | single-sex, education, gender, experiment |
| JEL: | C91 C92 J16 J33 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:679&r=exp |
| By: | Kazunori Miwa (Graduate School of Economics, Osaka University) |
| Abstract: | This study experimentally investigates the interaction between firmfs information acquisition choice and mandatory disclosure in the presence of proprietary costs. The results demonstrate that mandatory disclosure diminishes firmfs incentive to acquire industry-wide demand information when information acquisition is costly and endogenous. Further, I also show that firmfs production decision is improved by acquiring information. Taken together, although acquiring information improves firmfs production decision, mandatory disclosure diminishes firmfs incentive to do so, and thus, deteriorates firmfs information environment. This leads to inefficient production, which in turn, might have a substantial impact on market outcomes. |
| Keywords: | Information Acquisition; Mandatory Disclosure; Duopoly; Proprietary Cost; Experiment |
| JEL: | M41 M48 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1301&r=exp |