New Economics Papers
on Experimental Economics
Issue of 2013‒04‒20
twenty papers chosen by

  1. Do Control Questions Influence Behavior in Experiments? By Catherine Roux; Christian Thöni
  2. Risk Aversion Relates to Cognitive Ability: Fact or Fiction? By Andersson, Ola; Tyran, Jean-Robert; Wengström, Erik; Holm, Håkan J.
  3. Cooperation, Trust, and Economic Development: An Experimental Study in China By Junyi Shen; Xiangdong Qin
  4. "Behavioral Approach to Repeated Games with Private Monitoring" By Hitoshi Matsushima; Tomomi Tanaka; Tomohisa Toyama
  5. Who is Coming to the Experiment? A Cautionary Tale from China By Elaine Liu; Paul Frijters; Tao Sherry Kong
  6. Rebels without a clue? Experimental evidence on partial cartels By Clemens, Georg; Rau, Holger A.
  7. Strategic risk in contract design By Abdolkarim Sadrieh; Guido Voigt
  8. I am sorry - Honest and fake apologies By Verena Utikal
  9. Principal-Agent and Peer Relationships in Tornaments By Gerald Eisenkopf; Sabrina Teyssier
  10. Bounded Rationality and Strategic Uncertainty in a Simple Dominance Solvable Game By Nobuyuki Hanaki; Nicolas Jacquemet; Stéphane Luchini; Adam Zylbersztejn
  11. Does being elected increase subjective entitlements? Evidence from the laboratory By Arne Robert Weiss; Irenaeus Wolff
  12. The Importance of the Cognitive Environment for Intertemporal Choice By Michael A. Kuhn; Peter Kuhn; Marie-Claire Villeval
  13. Low second-to-fourth digit ratio predicts indiscriminate social suspicion, not improved trustworthiness detection By Bonnefon, Jean-François; De Neys, Wim; Hopfensitz, Astrid
  14. Honest on Mondays: Honesty and the Temporal Distance between Decisions and Payoffs By Ruffle, Bradley; Tobol, Yossi
  15. A simple test for the ignorability of non-compliance in experiments By Huber, Martin
  16. Coexistence of small and dominant firms in Bertrand competition: Judo economics in the lab By Abdolkarim Sadrieh; Daniel Cracau
  17. Household Vulnerability to Wild Animal Attacks in Developing Countries: Experimental Evidence from Rural Pakistan By Kurosaki, Takashi; Khan, Hidayat Ullah
  18. Does Coordination of Welfare Services' Delivery Make a Difference for Extremely Disadvantaged Jobseekers? Evidence from the 'YP4' Trial By Jeff Borland; Yi-Ping Tseng; Roger Wilkins
  19. Cheap talk about the detection probability By Baumann, Florian; Friehe, Tim
  20. Ambiguity revealed By Ralph Bayer; Subir Bose; Matthew Polisson; Ludovic Renou

  1. By: Catherine Roux; Christian Thöni
    Abstract: Outcomes and strategies shown in control questions prior to experimental play may provide subjects with anchors or induce experimenter demand effects. In a Cournot oligopoly experiment we explore whether control questions influence subjects' choices in initial periods and over the course of a repeated game. We vary the framing of the control question to explore the cause of potential influences. We find no evidence for an influence of the control question on choices, neither in the first period nor later in the game.
    Keywords: Control questions; Experimenter demand effects; Anchoring; Experimental design
    JEL: B41 C72 C91
    Date: 2013–03
  2. By: Andersson, Ola (Research Institute of Industrial Economics (IFN)); Tyran, Jean-Robert (Department of Economics, University of Vienna); Wengström, Erik (Department of Economics, Lund University); Holm, Håkan J. (Department of Economics, Lund University)
    Abstract: Recent experimental studies suggest that risk aversion is negatively related to cognitive ability. In this paper we report evidence that this relation might be spurious. We recruit a large subject pool drawn from the general Danish population for our experiment. By presenting subjects with choice tasks that vary the bias induced by random choices, we are able to generate both negative and positive correlations between risk aversion and cognitive ability. Structural estimation allowing for heterogeneity of noise yields no significant relation between risk aversion and cognitive ability. Our results suggest that cognitive ability is related to random decision making, rather than to risk preferences.
    Keywords: Risk preference; cognitive ability; experiment; noise
    JEL: C81 C91 D12 D81
    Date: 2013–04–12
  3. By: Junyi Shen (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Xiangdong Qin (School of Economics, Shanghai Jiao Tong University, China)
    Abstract: Many previous empirical studies have suggested that cooperation and trust affect economic growth. However, the precise relationship between trust and cooperation (i.e., whether trust leads to cooperation or cooperation leads to trust) remains unclear and it is not known how the level of economic development affects the level of cooperation and trust. Using a combination of public goods experiment, gambling game experiment, and trust game experiment, we investigate the links among cooperation, trust, and economic development in four regions of China. Our results suggest that first, there is a U-shaped or V-shaped relationship between cooperation and economic development; second, on the one hand, cooperation leads to trust, and on the other hand, more cooperative behavior may be created by rewarding trusting behavior; and third, men are more cooperative and trusting than women. Furthermore, we find that the widely used 'GSS trust' question from the General Social Survey (GSS) does not predict either cooperation or trust, whereas the questions 'GSS fair' and 'GSS help' have weak predictive power for trusting behavior but not for cooperative behavior.
    Keywords: Cooperation, Trust, Economic development, Experiment, China
    JEL: C91 H41 I32
    Date: 2013–04
  4. By: Hitoshi Matsushima (Faculty of Economics, University of Tokyo); Tomomi Tanaka (Economic Development & Global Education, LLC); Tomohisa Toyama (Faculty of Engineering, Kogakuin University)
    Abstract: We examine repeated prisoners' dilemma with imperfect private monitoring and random termination where the termination probability is low. We run laboratory experiments and show subjects retaliate more severely when monitoring is more accurate. This experimental result contradicts the prediction of standard game theory. Instead of assuming full rationality and pure self-interest, we introduce naiveté and social preferences, i.e., reciprocal concerns, and develop a model that is consistent with, and uniquely predicts, the observed behavior in the experiments. Our behavioral model suggests there is a trade-off between naiveté and reciprocity. When people are concerned about reciprocity, they tend to make fewer random choices.
    Date: 2013–03
  5. By: Elaine Liu (University of Houston); Paul Frijters (University of Queensland); Tao Sherry Kong (Peking University)
    Abstract: We compare the characteristics and regression coefficients between the participants in a field experiment in China and the survey population from which they were recruited. The experimental participants were more educated, younger, more likely to be male, more risk-loving and work fewer hours than the more general population. The estimates of their regression coefficients in the standard analyses of wages, happiness and entrepreneurship differed significantly from non-participants, indicating that inferences drawn from experimental samples may not hold for more representative groups of the population.
    Keywords: Field experiment, China
    JEL: A10
    Date: 2013–04–08
  6. By: Clemens, Georg; Rau, Holger A.
    Abstract: This paper provides experimental evidence on the formation of partial cartels with endogenous coordination. Firms face a coordination challenge when a partial cartel is to be formed as every firm is better off if it is not inside the cartel but is a free-riding outsider. We introduce a three-stage mechanism with communication which facilitates the formation of a cartel and respectively allows the formation of a partial cartel. All-inclusive cartels are always formed. We find that partial cartels are frequently rejected out-of-equillibrium if moutside firms profit excessively from the formation of the cartel. --
    Keywords: Partial Cartels,Coordination,Communication,Experiment
    JEL: C92 D02 L41
    Date: 2013
  7. By: Abdolkarim Sadrieh (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Guido Voigt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: Supply chains facing asymmetric information can either operate in a cooperative mode with information and benefit sharing or can choose a non-cooperative form of interaction and align their incentives via screening contracts. In the cooperative mode, supply chain efficiency can be achieved, but high levels of trust and trustworthiness are required. In the non-cooperative mode, the contract mechanism guarantees a second best supply chain performance, but only if all parties choose their equilibrium strategies without trembles. Experimental evidence, however, shows that both operating modes often fail due to strategic risk. Cooperation is disrupted by deceptive signals and the lack of trust, whereas non-cooperative strategies suffer from persistent out-of-equilibrium behavior. We present an experiment on supply chain interaction with reduced strategic risk in both operating modes. We find that supply chain performance can reach a second-best level in either operating mode, if strategic risk is sufficiently reduced. We present two means to reduce strategic risk. First, a punishment mechanism leads to a better matching of trust and trustworthiness and supports the cooperative operating mode. Second, an enforcement of self-selection supports the non-cooperative equilibrium by increasing the attractiveness of screening contracts. We conclude that supply chain managers should seek to reduce the variability of the supply chain partners' behavior no matter what operating mode is considered.
    Keywords: Behavioral operations management, contracting, asymmetric information, punishment
    Date: 2013–03
  8. By: Verena Utikal
    Abstract: Apologies have a positive effect on forgiveness. Nevertheless not all people apologize after an offense. In a laboratory experiment we test whether lying aversion can explain this behavior by comparing honest and fake apologies. First, we show that even an honest apology comes along with a cost for some people. Second, costs for fake apologies are even higher. Fake apologies are less likely than honest apologies and consist of different wording and content. Receivers understand apologies as a signal for honesty. Following, forgiveness after an honest apology is more likely than after a fake apology.
    Keywords: Apology, Lying, Intentions, Experiment
    Date: 2013
  9. By: Gerald Eisenkopf (Department of Economics, University of Konstanz, Germany); Sabrina Teyssier (INRA-ALISS, Ivery sur Seine, France)
    Abstract: Social preferences explain competitive behavior between agents and reciprocity towards a principal but there is no insight into the interaction of competition and reciprocity. We conducted a laboratory experiment with two treatments to address this issue. In a conventional tournament, an agent receives either the full prize or no prize at all. The other treatment provides the same incentives but the actual payment of an agent equals her expected payment. In both treatments the principal chooses between a low and a high guaranteed payment. Standard economic theory predicts the same effort provision in all situations. Our results show that inequity between agents’ payoffs and generosity of the principal determines the effectiveness of tournaments. Moreover, the data reveal that agents focus their preferences either on the principal or on the agent.
    Keywords: Tournament, Envy, Inequity, Agency problem
    JEL: M52 D03 C90
    Date: 2013–04–11
  10. By: Nobuyuki Hanaki (Aix-Marseille University); Nicolas Jacquemet (University of Lorraine and Paris School of Economics); Stéphane Luchini (Aix-Marseille University); Adam Zylbersztejn (University of Lorraine and Paris School of Economics)
    Abstract: How much of the failures to achieve Pareto efficient outcome observed in a simple 2 2 dominance solvable game can be attributed to strategic uncertainty and how much is actually due to individual bounded rationality? We address this question by conducting a set of experiments involving two main treatments: one in which two human subjects interact, and another in which one human subject interacts with a computer program whose behavior is known. By making the behavior of the computer opponent perfectly predictable, the latter treatment eliminates strategic uncertainty. Our results suggest that observed coordination failures can be attributed equally to individual bounded rationality and strategic uncertainty.
    Date: 2013
  11. By: Arne Robert Weiss; Irenaeus Wolff
    Abstract: In Geng, Weiss, and Wolff(2011), we pointed to the possibility that a voting mechanism may create or strengthen an entitlement effect in political-power holders relative to a random-appointment mechanism. This comment documents that such an effect, if it exists, is not robust.
    Keywords: Elections, Electoral campaigns, Dictator game, Social distance, Entitlement, Experiment
    Date: 2013
  12. By: Michael A. Kuhn (Department of Economics, University of California - University of California, San Diego); Peter Kuhn (Department of Economics, University of California - University of California, Santa Barbara); Marie-Claire Villeval (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon)
    Abstract: We experimentally manipulate two aspects of the cognitive environment -- cognitive depletion and recent sugar intake -- and estimate their effects on individuals' time preferences in a way that allows us to identify the structural parameters of a simple (α,β,δ) intertemporal utility function for each person. We find that individuals exposed to a prior cognitive load, individuals who consumed a sugared drink and individuals who consumed a sugar-free drink all defer more income than a control group exposed to none of these conditions. Structural estimates show that all three effects are driven entirely by increases in the intertemporal substitution elasticity parameter (α). Together, our results suggest that at least for complex economic decisions like intertemporal financial choice, the 'attention/focusing' effect of both prior cognitively demanding activity and prior assignment of a primary reward can improve decision-making.
    Keywords: Time preferences; self-control; depletion; sucrose; experiment
    Date: 2013–04–03
  13. By: Bonnefon, Jean-François (CLLE); De Neys, Wim (Sorbonne, Universite Paris Descartes); Hopfensitz, Astrid (TSE)
    Abstract: Testosterone administration appears to make individuals less trusting, and this effect was interpreted as an adaptive adjustment of social suspicion, that improved the accuracy of trusting decisions. Here we consider another possibility, namely that testosterone increases the subjective cost of being duped, decreasing the propensity to trust without improving the accuracy of trusting decisions. In line with this hypothesis, we show that second-to-fourth digit ratio (2D:4D, a proxy for organising effects of testosterone in the foetus) correlates with the propensity to trust but not with the accuracy of trusting decisions. Trust game players (N=144) trusted less when they had lower 2D:4D (high prenatal testosterone), but their ability to detect the strategy of other players was constant (and better than chance) across all levels of digit ratio. Our results suggest that early prenatal organizing effects of testoterone in the foetus might impair rather than boost economic outcomes, by promoting indiscriminate social suspicion.
    Keywords: Trust – Digit Ratio – Testosterone – Strategy Detection – Betrayal Aversion
    JEL: C91 D03 D64 D87
    Date: 2013–02
  14. By: Ruffle, Bradley (Ben Gurion University); Tobol, Yossi (Jerusalem College of Technology (JTC))
    Abstract: We show that temporally distancing the decision task from the payment of the reward increases honest behavior. Each of 427 Israeli soldiers fulfilling their mandatory military service rolled a six-sided die in private and reported the outcome to the unit's cadet coordinator. For every point reported, the soldier received an additional half-hour early release from the army base on Thursday afternoon. Soldiers who participated on Sunday (the first work day of the week) are significantly more honest than those who participated later in the week. We derive practical implications for eliciting honesty.
    Keywords: experimental economics, honesty, temporal distance, soldiers
    JEL: C93 D63
    Date: 2013–03
  15. By: Huber, Martin
    Abstract: This papers proposes a simple method for testing whether non-compliance in experiments is ignorable, i.e., not jointly related to the treatment and the outcome. The approach consists of (i) regressing the outcome variable on a constant, the treatment, the assignment indicator, and the treatment/assignment interaction and (ii) testing whether the coefficients on the latter two variables are jointly equal to zero. A brief simulation study illustrates the finite sample properties of the test.
    Keywords: Experiment, treatment effects, non-compliance, endogeneity, test.
    JEL: C12 C21 C26
    Date: 2013–04
  16. By: Abdolkarim Sadrieh (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Daniel Cracau (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: The theory of "Judo Economics" describes an optimal entry strategy for small firms. Using a capacity limitation, small firms force dominant market incumbents to accommodate. In this article, we study the power of Judo economics as an entry strategy in different market environments. We find experimental evidence supporting the theory in the original setting with a monopolistic, dominant market incumbent. When we introduce a cost advantage for small firms, profits go down. This can be explained by incumbents responding aggressive towards large entrants. For settings with multiple market incumbents, results are reversed. There, a cost advantage strengthens small firms and pricing below the incumbents' marginal cost provides the unique entry strategy.
    Keywords: Judo economics, Market entry, Price competition, Capacity limitation, Experimental economics
    JEL: D43 L11
    Date: 2013–02
  17. By: Kurosaki, Takashi; Khan, Hidayat Ullah
    Abstract: Based on a three-year panel dataset of households collected in rural Pakistan, we first quantify the extent to which farmers are vulnerable to attacks by wild boars; we then examine the impact of an intervention on households’ capacity to reduce related income losses. A local nongovernmental organization implemented the intervention as a randomized controlled trial at the beginning of the second survey year.This experimental design enabled us to cleanly identify the impact of the intervention. We find that the intervention was highly effective in eliminating the crop-income loss of treated households in the second year, but that effects were not discernible in the third year. The finding from the third year could be due to the high implicit cost incurred by the households in implementing the treatment. Regarding the impact of the intervention on a number of consumption measures, the difference-in-difference estimate for the impact on consumption was insignificant in the second year, but highly positive in the third year when estimated without other controls. A part of this consumption increase was because of changes in remittance inflows. The overall results indicate the possibility that treatment in the absence of subsidies was costly for households due to hidden costs, and hence, the income gain owing to the initial treatment was transient.
    Keywords: wild animal attack, agriculture, consumption, randomized controlled trial, Pakistan
    JEL: O13 O15 Q12
    Date: 2013–03
  18. By: Jeff Borland (Department of Economics, The University of Melbourne); Yi-Ping Tseng (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Roger Wilkins (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: Fragmented welfare service delivery has been identified as a significant barrier to improving outcomes for highly disadvantaged individuals. The ‘YP4’ trial, conducted from 2005 to 2009, sought to evaluate, by randomised control method, an approach proposed by Campbell et al. (2003) for integrating delivery of employment, housing, health and other services for young homeless jobseekers. Rather than providing extra access to services or utilisation of different services, the YP4 trial involved assignment of a case manager to help tailor and coordinate available services to reflect the specific circumstances of young homeless jobseekers. We find that the YP4 program did not have a significant effect on economic or psychological wellbeing, a finding that is robust to application of experimental and quasi-experimental methods. It is argued that our study contributes to knowledge on program design, particularly in relation to the importance of the scale of intervention and program administration.
    Keywords: Welfare programs, disadvantaged jobseekers, randomised controlled trials, program evaluation
    JEL: I38 J08 J64 D04
    Date: 2013–03
  19. By: Baumann, Florian; Friehe, Tim
    Abstract: This paper analyzes whether the behavior of potential offenders can be guided by information on the actual detection probability transmitted by the policy maker. It is established that, when viewed as a cheap-talk game, the existence of equilibria with information transmission depends on the level of the sanction, the level of costs related to imposing the sanction, and the level of social harm resulting from the offense. In addition, we find that the policy maker (i.e., society as a whole) is not necessarily better off ex ante when more information is transmitted in equilibrium, but that potential offenders always are. --
    Keywords: crime,cheap talk,law enforcement,imperfect information
    JEL: K42 H23 C72
    Date: 2013
  20. By: Ralph Bayer; Subir Bose; Matthew Polisson (Institute for Fiscal Studies and University of Leicester); Ludovic Renou
    Abstract: We derive necessary and sufficient conditions for data sets composed of state-contingent prices and consumption to be consistent with two prominent models of decision making under uncertainty: variational preferences and smooth ambiguity. The revealed preference conditions for subjective expected utility, maxmin expected utility, and multiplier preferences are characterised as special cases. We implement our tests on data from a portfolio choice experiment.
    Keywords: ambiguity, expected utility, maxmin, revealed preference, smooth, uncertainty, variational
    JEL: D1 D8
    Date: 2013–03

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