nep-exp New Economics Papers
on Experimental Economics
Issue of 2013‒05‒19
forty-two papers chosen by
Daniel Houser
George Mason University

  1. The Miracle of Microfinance? Evidence from a Randomized Evaluation By Esther Duflo; Abhijit Banerjee; Rachel Glennerster; Cynthia G. Kinnan
  2. Self-Selection into Economics Experiments Is Driven by Monetary Rewards By Abeler, Johannes; Nosenzo, Daniele
  3. Social Preferences in Private Decisions By Jona Linde; Joep Sonnemans
  4. Public Good Contributions Among Coffee Farmers in Costa Rica: Cooperativists and Private Market Participants. By Hopfensitz, Astrid; Miquel-Florensa, Pepita
  5. Complex Tax Incentives: An Experimental Investigation By Abeler, Johannes; Jäger, Simon
  6. The veil of experimental currency units By Drichoutis, Andreas; Lusk, Jayson; Nayga, Rodolfo
  7. The Impact of Risk Perception and Risk Attitudes on Corrupt Behavior: Evidence from a Petty Corruption Experiment By Djawadi, Behnud Mir; Fahr, René
  8. Providing negative cost public projects under a fair mechanism: An experimental analysis By Werner Güth; Anastasios Koukoumelis; M. Vittoria Levati; Matteo Ploner
  9. Strategies and Evolution in the Minority Game: A Multi- Round Strategy Experiment By Jona Linde; Joep Sonnemans; Jan Tuinstra
  10. Learning, Forecasting and Optimizing: An Experimental Study By Te Bao; John Duffy; Cars Hommes
  11. The Power of a Bad Example - A Field Experiment in Household Garbage Disposal By Robert Dur; Ben Vollaard
  12. Employee recognition and performance: A field experiment By Dur R.; Neckermann S.; Bradler C.; Non J.A.
  13. Severity vs. Leniency Bias in Performance Appraisal: Experimental evidence By Lucia Marchegiani; Tommaso Reggiani; Matteo Rizzolli
  14. Repayment and Exclusion in a Microfinance Experiment By Jean-Marie Baland; Lata Gangadharan; Pushkar Maitra; Rohini Somanathan
  15. The Social Dilemma of Microinsurance: A Framed Field Experiment on Free-Riding and Coordination By Wendy Janssens
  16. Facing Your Opponents: Social Identification and Information Feedback in Contests By Mago , Shakun; Samak , Anya; Sheremeta, Roman
  17. The Effects of Prize Spread and Noise in Elimination Tournaments: A Natural Field Experiment By Josse Delfgaauw; Robert Dur; Arjan Non; Willem Verbeke
  18. Risk and Inequality in a Social Decision Making Experiment By Ingrid M.T. Rohde; Kirsten I.M. Rohde
  19. Fostering Cooperation through the Enhancement of Own Vulnerability By Anita Kopanyi-Peuker; Theo Offerman; Randolph Sloof
  20. Digital Labor-Market Intermediation and Job Expectations: Evidence from a Field Experiment By Dammert, Ana C.; Galdo, Jose C.; Galdo, Virgilio
  21. Individual Expectations, Limited Rationality and Aggregate Outcomes By Te Bao; Cars Hommes; Joep Sonnemans; Jan Tuinstra
  22. Information at a Cost: A Lab Experiment By Pedro Robalo; Rei S. Sayag
  23. Ability Dispersion and Team Performance: A Field Experiment By Sander Hoogendoorn; Simon C. Parker; Mirjam van Praag
  24. The Influence of Wages on Public Officials' Corruptibility: A Laboratory Investigation By Roel van Veldhuizen
  25. The Effect of Early Entrepreneurship Education: Evidence from a Randomized Field Experiment By Laura Rosendahl Huber; Randolph Sloof; Mirjam van Praag
  26. Ethnic Diversity and Team Performance: A Field Experiment By Sander Hoogendoorn; Mirjam van Praag
  27. An experimental investigation of risk sharing and adverse selection By Potters J.A.M.; Tausch F.; Riedl A.M.
  28. What can the Big Five Personality Factors contribute to explain Small-Scale Economic Behavior? By Julia Muller; Christiane Schwieren
  29. The Economic Impact of Envy: Evidence from a Multi-Period Game with Attacks and Insurance By Philip J. Grossman; Mana Komai
  30. Correlation Neglect in Belief Formation By Enke, Benjamin; Zimmermann, Florian
  31. The Non-Equivalence of Labor Market Taxes: A Real-Effort Experiment By Matthias Weber; Arthur Schram
  32. Judicial Error by Groups and Individuals By Frans van Dijk; Joep H. Sonnemans; Ed Bauw
  33. Within and Across Class Envy: Anti-Social Behaviour in Hierarchical Groups By Philip J. Grossman; Mana Komai
  34. Endophilia or Exophobia: Beyond Discrimination By Feld, Jan; Salamanca, Nicolas; Hamermesh, Daniel S.
  35. Shotguns and Deadlocks By Landeo, Claudia; Spier, Kathryn
  36. Scale, Scope and Cognition: Context Analysis of Multiple Stated Choice Experiments on the Values of Life and Limb By Marija Bockarjova; Piet Rietveld; Erik T. Verhoef
  37. Late Interventions Matter Too: The Case of College Coaching New Hampshire By Scott E. Carrell; Bruce Sacerdote
  38. Social Networks and the Decision to Insure By Cai, Jing; de Janvry, Alain; Sadoulet, Elisabeth
  39. Do Hypothetical Experiences Affect Real Financial Decisions? Evidence from Insurance Take-up By Cai, Jing; Song, Changcheng
  40. Democratic Values Transmission By Brañas Garza, Pablo; Espinosa Alejos, María Paz; Giritligil, Ayca E.
  41. A reconciliation of time preference elicitation methods By Drichoutis, Andreas; Nayga, Rodolfo
  42. “How General is Trust in Most People?” - Comment By Eduard J. Bomhoff; Grace Lee Hooi Yean

  1. By: Esther Duflo; Abhijit Banerjee; Rachel Glennerster; Cynthia G. Kinnan
    Abstract: This paper reports on the first randomized evaluation of the impact of introducing the standard microcredit group-based lending product in a new market. In 2005, half of 104 slums in Hyderabad, India were randomly selected for opening of a branch of a particular microfinance institution (Spandana) while the remainder were not, although other MFIs were free to enter those slums. Fifteen to 18 months after Spandana began lending in treated areas, households were 8.8 percentage points more likely to have a microcredit loan. They were no more likely to start any new business, although they were more likely to start several at once, and they invested more in their existing businesses. There was no effect on average monthly expenditure per capita. Expenditure on durable goods increased in treated areas, while expenditures on “temptation goods” declined. Three to four years after the initial expansion (after many of the control slums had started getting credit from Spandana and other MFIs ), the probability of borrowing from an MFI in treatment and comparison slums was the same, but on average households in treatment slums had been borrowing for longer and in larger amounts. Consumption was still no different in treatment areas, and the average business was still no more profitable, although we find an increase in profits at the top end. We found no changes in any of the development outcomes that are often believed to be affected by microfinance, including health, education, and women’s empowerment. The results of this study are largely consistent with those of four other evaluations of similar programs in different contexts.
    JEL: D21 G21 O16
    Date: 2013–05
  2. By: Abeler, Johannes (University of Oxford); Nosenzo, Daniele (University of Nottingham)
    Abstract: Laboratory experiments have become a wide-spread tool in economic research. Yet, there is still doubt about how well the results from lab experiments generalize to other settings. In this paper, we investigate the self-selection process of potential subjects into the subject pool. We alter the recruitment email sent to first-year students, either mentioning the monetary reward associated with participation in experiments; or appealing to the importance of helping research; or both. We find that the sign-up rate drops by two-thirds if we do not mention monetary rewards. Appealing to subjects' willingness to help research has no effect on sign-up. We then invite the so-recruited subjects to the laboratory to measure a range of preferences in incentivized experiments. We do not find any differences between the three groups. Our results show that student subjects participate in experiments foremost to earn money, and that it is therefore unlikely that this selection leads to an over-estimation of social preferences in the student population.
    Keywords: methodology, selection bias, laboratory experiment, field experiment, other-regarding behavior, social preferences, social approval, experimenter demand
    JEL: C90 D03
    Date: 2013–04
  3. By: Jona Linde (University of Amsterdam, CREED); Joep Sonnemans (University of Amsterdam, CREED)
    Abstract: Social preference models were originally constructed to explain two things: why people spend money to affect the earnings of others and why the income of others influences reported happiness. We test these models in a novel experimental situation where participants face a risky decision that affects only their own earnings. In the social (individual) treatment participants do (not) observe the earnings of others. In the social treatment gambles therefore not only affect absolute but also relative earnings. Outcome-based social preference models therefore predict a treatment difference. We find that decisions are generally the same in both treatments, in line with rule-based social preference models, like procedural fairness.
    Keywords: fairness, social preferences, decision making under risk, experiment
    JEL: C91 D63 D81
    Date: 2012–01–09
  4. By: Hopfensitz, Astrid (TSE); Miquel-Florensa, Pepita (TSE)
    Abstract: We present an experimental lab-in-the-field study on co?ee farmers in Costa Rica, to investigate the importance of real world institutions on abstract game behavior. Farmers participated in experimental public-good games with partners drawn either from their own or di?erent from their own background (members of a cooperative or free market traders). While free market participants are largely uninfluenced in their decisions by the identity of their partners, cooperativists strongly react to it. Behavior of cooperativists in the experiment is predicted through real world behavior, experience and motivations. Specifically, labels that create additional institutional constraints (Fair Trade, Rainforest alliance) influence behavior.
    Keywords: Trust – Digit Ratio – Testosterone – Strategy Detection – Betrayal Aversion
    JEL: C92 O13 Q13
    Date: 2013–04–26
  5. By: Abeler, Johannes (University of Oxford); Jäger, Simon (Harvard University)
    Abstract: How does the tax system's complexity affect people's reaction to tax changes? To answer this question, we conduct a real-effort experiment in which subjects receive a piece rate and face a set of taxes. In one treatment the tax system is simple; in the other treatment it is highly complex. The payoff-maximizing effort level and the incentives around this optimum are, however, identical across treatments. We then introduce the same sequence of additional tax rules in both treatments. We find that subjects in the complex treatment adjust their effort provision less in response to a new tax than subjects in the simple treatment. Many subjects in the complex treatment even ignore the new rule entirely, repeating their previous choice. Contrary to predictions from models of rational inattention, we find no evidence that subjects are less likely to ignore larger changes in incentives. Our results suggest that the effect of a newly introduced tax will be attenuated in a more complex tax system.
    Keywords: complexity, taxation, attention, salience, laboratory experiment
    JEL: C91 D03 H31 J22
    Date: 2013–04
  6. By: Drichoutis, Andreas; Lusk, Jayson; Nayga, Rodolfo
    Abstract: It is common practice to have subjects make decisions which pay out in a fictitious experimental currency. Earnings in the experimental currency are then converted to cash at the end of the experiment. Like many practices in experimental economics, however, these procedural choices seems to be driven more by habit or tradition than by empirical evidence that more desirable outcomes are produced. In this paper, we report the results of an induced value experiment in which we manipulated the exchange rate between the experimental currency and cash. We find virtually no relationship between a stronger/weaker experimental currency and the ability of theory to predict observed outcomes. The only significant effect that was generated relates to the comparison of the cash-only condition to the 1-to-1 exchange condition, with the latter producing greater behavioral deviations from theoretical predictions. The results suggest that experimenters might be able to spread scarce research dollars over more subjects by using weaker experimental currency but using a 1-to-1 conversion between the experimental currency and cash might, in the words of Davis and Holt (1993), "create an artificial 'game-board' sense of speculative competitiveness."
    Keywords: experimental currency units; ECU; tokens; Vickrey auction; induced values
    JEL: C90
    Date: 2013–05–09
  7. By: Djawadi, Behnud Mir (University of Paderborn); Fahr, René (University of Paderborn)
    Abstract: We investigate one possible explanation for observed rates of corrupt behavior namely that individual decision makers who frequently engage in illegal actions may underestimate the overall probability of being caught. This might in particular be true for petty corruption where small amounts of bribes are involved and the 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 being left with a considerable lower income in all subsequent periods. Because risk attitudes might differ 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 of being 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 behavior might nullify measures to fight petty corruption by increased governmental auditing.
    Keywords: petty corruption, risk, choice bracketing, experimental economics
    JEL: D73 C91 D81 K4
    Date: 2013–05
  8. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Anastasios Koukoumelis (Max Planck Institute of Economics, Strategic Interaction Group); M. Vittoria Levati (Max Planck Institute of Economics, Strategic Interaction Group, and Department of Economics, University of Verona); Matteo Ploner (DECO-CEEL, University of Trento)
    Abstract: This paper experimentally examines a procedurally fair provision mech- anism allowing members of a small community to determine, via their bids, which of four alternative public projects to implement. Previous experi- ments with positive cost projects have demonstrated that the mechanism is efficiency enhancing. Our experiment tests whether the mechanism re- mains conducive to efficiency when negative cost, but less efficient, projects are made available. We find that this is not the case. On the other hand, we detect no significant difference in bid levels depending on whether mixed feelings are present or absent, and on whether the others' valuations are known or unknown.
    Keywords: Public projects, Bidding behavior, Procedural fairness, Experiment
    JEL: C72 C92 D63 H44
    Date: 2013–05–13
  9. By: Jona Linde (University of Amsterdam); Joep Sonnemans (University of Amsterdam); Jan Tuinstra (University of Amsterdam)
    Abstract: Minority games are a stylized description of strategic situations with both coordination and competition. These games are widely studied using either simulations or laboratory experiments. Simulations can show the dynamics of aggregate behavior, but the results of such simulations depend on the type of strategies used. So far experiments provided little guidance on the type of strategies people use because the set of possible strategies is very large. We therefore use a multi-round strategy method experiment to directly elicit people's strategies. Between rounds participants can adjust their strategy and test the performance of (possible) new strategies against strategies from the previous round. Strategies gathered in the experiment are subjected to an evolutionary competition. The strategies people use are very heterogeneous although aggregate outcomes resemble the symmetric Nash equilibrium. The strategies that survive evolutionary competition achieve much higher levels of coordination.
    Keywords: minority game, strategy experiment, evolution, simulation
    JEL: C63 C72 C91 D03
    Date: 2013–03–07
  10. By: Te Bao (University of Amsterdam); John Duffy (University of Pittsburgh); Cars Hommes (University of Amsterdam)
    Abstract: Rational Expectations (RE) models have two crucial dimensions: 1) agents correctly forecast future prices given all available information, and 2) given expectations, agents solve optimization problems and these solutions in turn determine actual price realizations. Experimental testing of such models typically focuses on only one of these two dimensions. In this paper we consider both forecasting and optimization decisions in an experimental cobweb economy. We report results from four experimental treatments: 1) subjects form forecasts only, 2) subjects determine quantity only (solve an optimization problem), 3) they do both and 4) they are paired in teams and one member is assigned the forecasting role while the other is assigned the optimization task. All treatments converge to Rational Expectation Equilibrium (REE), but at very different speeds. We observe that performance is the best in treatment 1) and worst in the treatment 3). Most forecasters use a n adaptive expectations rule. Subjects are less likely to make conditionally optimal production decision for given forecasts in treatment 3) where the forecast is made by themselves, than in treatment 4) where the forecast is made by the other member of their team, which suggests that "two heads are better than one" in finding REE.
    Keywords: Learning, Rational Expectations, Optimization, Experimental Economics, Bounded Rationality
    JEL: C91 C92 D83 D84
    Date: 2012–02–17
  11. By: Robert Dur (Erasmus University Rotterdam, CESifo, and IZA); Ben Vollaard (Tilburg University, CentER, and TILEC)
    Abstract: Field-experimental studies have shown that people litter more in more littered environments. Inspired by these findings, many cities around the world have adopted policies to quickly remove litter. While such policies may avoid that people follow the bad example of litterers, they may also invite free-riding on public cleaning services. We are the first to show that both forces are at play. We conduct a natural field experiment where, in a randomly assigned part of a residential area, the frequency of cleaning was drastically reduced during a threemonth period. We find evidence that some people start to clean up after themselves when public cleaning services are diminished. However, the tendency to litter more dominates. We also find evidence for persistency in these responses after the treatment has ended.
    Keywords: littering, public services, free-riding, field experiment
    JEL: C93 H40 K42
    Date: 2012–07–03
  12. By: Dur R.; Neckermann S.; Bradler C.; Non J.A. (GSBE)
    Abstract: This paper reports the results from a controlled field experiment designed to investigate the causal effect of public recognition on employee performance. We hired more than 300 employees to work on a three-hour data-entry task. In a random sample of work groups, workers unexpectedly received recognition after two hours of work. We find that recognition increases subsequent performance substantially, and particularly so when recognition is exclusively provided to the best performers. Remarkably, workers who did not receive recognition are mainly responsible for this performance increase. This result is consistent with workers having a preference for conformity.
    Keywords: Field Experiments;
    Date: 2013
  13. By: Lucia Marchegiani (Rome 3 University); Tommaso Reggiani (University of Cologne); Matteo Rizzolli (Free University of Bozen)
    Abstract: Performance appraisal can be biased in two main ways: lenient supervisors assign pre- dominantly high evaluations (thus rewarding also undeserving agents who have exerted no effort) while severe supervisors assign predominantly low evaluations (thus failing to reward deserving agents who have exerted effort). The principal-agent model with moral hazard predicts that both biases will be equally detrimental to effort provision. We test this prediction with a laboratory experiment and we show that failing to reward deserving agents is significantly more detrimental than rewarding undeserving agents. This finding is compatible with empirical evidence on real world supervisors being preponderantly biased towards lenient appraisals. We discuss our result in the light of alternative economic the- ories of behavior. Our result brings interesting implications for strategic human resource management and personnel economics and contributes to the debate about incentives and organizational performance.
    Keywords: Agency theory, Performance appraisal, Type I and Type II errors, Leniency bias, Severity bias, Economic experiment
    JEL: C91 M50 J50
    Date: 2013–05
  14. By: Jean-Marie Baland; Lata Gangadharan; Pushkar Maitra; Rohini Somanathan
    Abstract: Microfinance groups often engage in a variety of collective activities not directly related to credit. Groups can sanction members who default on their loans by excluding them from these activities. Our experiment is designed to explore the effectiveness of such sanctions in improving repayment incentives. Groups of 10 members are provided with joint-liability loans for a specific investment project. If groups repay their loans, contributing members have the option of excluding other members and those that remain play a public goods game. By varying loan sizes across groups and allowing for heterogeneous gains from the public good within groups, we identify the role of incentives in repayment decisions. In line with theoretical predictions, groups with the largest repayment burdens have the highest default rates and within groups, individual decisions to contribute to loan repayment depend on gains from the public good game.
    Keywords: Microfinance, Joint Liability, Social Exclusion, Public Good, Heterogeneous Productivity, Laboratory Experiments.
    JEL: C9 G21 O12
    Date: 2013–05
  15. By: Wendy Janssens (VU University Amsterdam)
    Abstract: This paper analyzes free-riding and coordination problems in microinsurance. Our proposition is that the demand for insurance suffers from a social dilemma when formal insurance is introduced in existing risk-sharing networks. Less risk averse individuals offered welfare-improving insurance are tempted to free-ride on the enrollment of their network members while the more risk averse may fail to coordinate. This results in suboptimal demand. Group insurance binds both types to the social optimum. A framed laboratory experiment in Tanzania elicits demand for group versus individual insurance among microcredit clients who typically share risk through joint liability. The experiment demonstrates substantial free-riding but only limited coordination failures. These findings extend the literature on strategic decisions in the presence of a public good and provide a potential explanation for the low take-up of microinsurance.
    Keywords: Framed field experiment, micro health insurance, microfinance, risk-sharing, public good game
    JEL: D71 G21
    Date: 2012–12–18
  16. By: Mago , Shakun; Samak , Anya; Sheremeta, Roman
    Abstract: We experimentally investigate the effect of social identification and information feedback on individual behavior in contests. In all treatments we find significant over-expenditure of effort relative to the standard theoretical predictions. Identifying subjects through photo display decreases wasteful effort. Providing information feedback about others’ effort does not affect the aggregate effort, but it decreases the heterogeneity of effort and significantly affects the dynamics of individual behavior. We develop a behavioral model which incorporates a non-monetary utility of winning and relative payoff maximization. The model explains significant over-expenditure of effort. It also suggests that decrease in ‘social distance’ between group members through photo display promotes pro-social behavior and decreases over-expenditure of effort, while improved information feedback decreases the heterogeneity of effort.
    Keywords: contest, information, identification, over-expenditure, experiments
    JEL: C72 C91 D72 D74
    Date: 2013–05–15
  17. By: Josse Delfgaauw (Erasmus University Rotterdam); Robert Dur (Erasmus University Rotterdam, CESifo, IZA); Arjan Non (Erasmus University Rotterdam); Willem Verbeke (Erasmus University Rotterdam, ERIM)
    Abstract: We conduct a field experiment in a large retail chain to test basic predictions of tournament theory regarding prize spread and noise. A random subset of the 208 stores participates in two-stage elimination tournaments. Tournaments differ in the distribution of prize money across winners of the first and second round of the tournament. As predicted by theory, we find that a more convex prize spread increases performance in the second round at the expense of first-round performance, although the magnitude of these effects is small. Moreover, the treatment effect is significantly larger for stores that historically have relatively stable performance as compared to stores with more noisy performance.
    Keywords: Elimination tournaments, Incentives, Prize spread, Performance measurement, Field experiment
    JEL: C93 M51 M52
    Date: 2011–08–11
  18. By: Ingrid M.T. Rohde (Maastricht University, Bilgi Economics Lab of Istanbul); Kirsten I.M. Rohde (Erasmus School of Economics, Erasmus University Rotterdam)
    Abstract: As societies are increasingly concerned with social risks, it is important to evaluate risks not only from an individual perspective, but also from a societal one. Many increases in social risk involve a simultaneous increase in risk and inequality. This paper presents an experiment which disentangles concerns for risk and inequality in a social risk context. Subjects choose between different types of allocations of risks over 10 other participants. The allocations differ only in terms of dispersion. We disentangle four types of dispersion: ex ante inequality, ex post inequality, individual risk, and collective risk. The results show that people are averse towards ex ante inequality and individual risk, whereas they are ex post inequality and collective risk seeking.
    Keywords: inequality, risk, experiment
    JEL: D03 D63
    Date: 2012–04–26
  19. By: Anita Kopanyi-Peuker (University of Amsterdam); Theo Offerman (University of Amsterdam); Randolph Sloof (University of Amsterdam)
    Abstract: We consider the possibility that cooperation in a prisoner's dilemma is fostered by people's voluntarily enhancement of their own vulnerability. The vulnerability of a player determines the effectiveness of possible punishment by the other. In the "Gradual" mechanism, players may condition their incremental enhancements of their vulnerability on the other's choices. In the "Leap" mechanism, they unconditionally choose their vulnerability. In our experiment, subjects only learn to cooperate when either one of these mechanisms is allowed. In agreement with theory, subjects aiming for cooperation choose higher vulnerability levels in Gradual than in Leap, which maps into higher mutual cooperation levels.
    Keywords: prisoner's dilemma, cooperation, endogenous punishment
    JEL: D03 D81 D83
    Date: 2012–12–04
  20. By: Dammert, Ana C. (Carleton University); Galdo, Jose C. (Carleton University); Galdo, Virgilio (World Bank)
    Abstract: Subjective expectations are fundamental for understanding individual behavior. Yet, little is known about how individuals use new information to formulate and update their subjective expectations. In this study, we exploit data from a multi-treatment field experiment to investigate how job-market information sent to jobseekers via short text messages (SMS) influence subjective job gain expectations in Peru. Results show that jobseekers who received digital intermediation based on a large information set increased their before-after job gain expectations relative to the control group. Independently of the information channel, no significant effects were found when labor-market intermediation is based on a restricted (short) set of information.
    Keywords: subjective expectations, labor-market intermediation, ICT, field experiments, Peru
    JEL: I3 J2
    Date: 2013–05
  21. By: Te Bao (University of Amsterdam); Cars Hommes (University of Amsterdam); Joep Sonnemans (University of Amsterdam); Jan Tuinstra (University of Amsterdam)
    Abstract: Recent studies suggest that the type of strategic environment or expectation feedback can have a large impact on whether the market can learn the rational fundamental price. We present an experiment where the fundamental price experiences large unexpected shocks. Markets with negative expectation feedback (strategic substitutes) quickly converge to the new fundamental, while markets with positive expectation feedback (strategic complements) do not converge, but show under-reaction in the short run and over-reaction in the long run. A simple evolutionary selection model of individual learning explains these differences in aggregate outcomes.
    Keywords: Expectation feedback, under- and overreaction, strategic substitutes and strategic complements, heuristic switching model, experimental economics
    JEL: C92 G14 D84 D83 E37
    Date: 2012–02–17
  22. By: Pedro Robalo (University of Amsterdam); Rei S. Sayag (Erasmus University Rotterdam)
    Abstract: The supposed irrelevance of historical costs for rational decision making has been the subject of much interest in the economic literature. In this paper we explore whether individual decision making under risk is affected by the cost of the supplied information. Outside of the lab, it is difficult to disentangle the effect of the cost of information itself from the effect of self-selection by individuals who tend to gain the most from this information. We thus create an environment in the lab where subjects are offered additional, useful and identical information on the state of the world across treatments. By varying the cost of information we can distinguish between selection and sunk cost effects. We find a systematic effect of sunk costs on the manner in which subjects update their beliefs on the state of the world. Subjects over-weigh costly information relatively to free information, which results in a 'push' of beliefs towards the extremes. This shift does not necessarily lead to behavior more attuned with Bayesian updating.
    Keywords: sunk cost, information, Bayesian updating, decision under risk, heuristics and biases, lab experiment
    JEL: C91 D81 D83
    Date: 2012–12–14
  23. By: Sander Hoogendoorn (University of Amsterdam); Simon C. Parker (University of Western Ontario, Richard Ivey School of Business); Mirjam van Praag (University of Amsterdam)
    Abstract: This paper studies the impact of diversity in cognitive ability among members of a team on their performance. We conduct a large field experiment in which teams start up and manage real companies under identical circumstances. Exogenous variation in - otherwise random - team composition is imposed by assigning individuals to teams based on their measured cognitive abilities. The setting is one of business management practices in the longer run where tasks are diverse and involve complex decision-making. We propose a model in which greater ability dispersion generates greater knowledge for a team, but also increases the costs of monitoring necessitated by moral hazard. Consistent with the predictions of our model, we find that team performance as measured in terms of sales, profits and profits per share first increases, and then decreases, with ability dispersion. Teams with a moderate degree of ability dispersion also experience fewer dismissals due to few er shirking members in those teams.
    Keywords: Ability dispersion, team performance, field experiment, entrepreneurship, knowledge pooling, moral hazard
    JEL: C93 D83 J24 L25 L26 M13 M54
    Date: 2012–11–29
  24. By: Roel van Veldhuizen (University of Amsterdam)
    Abstract: Previous studies have proposed a link between corruption and wages in the public sector. This paper investigates this link using a laboratory experiment. In the experiment, public officials have the opportunity to accept a bribe and can then decide between a neutral and a corrupt action. The corrupt action benefits the briber but poses a large negative externality on a charity. The results show that increasing public officials' wages greatly reduces their corruptibility. In particular, experienced low wage public officials accept 91% of bribes on average, whereas high wage public officials accept 38%. Moreover, high wage public officials are less likely to choose the corrupt option.
    Keywords: bribery, corruption, experimental economics, laboratory experiment
    JEL: D73 C91 K42
    Date: 2012–04–13
  25. By: Laura Rosendahl Huber (University of Amsterdam); Randolph Sloof (University of Amsterdam); Mirjam van Praag (University of Amsterdam)
    Abstract: The aim of this study is to analyze the effectiveness of early entrepreneurship education. To this end, we conduct a randomized field experiment to evaluate a leading entrepreneurship education program that is taught worldwide in the final grade of primary school. We focus on pupils' development of relevant skill sets for entrepreneurial activity, both cognitive and non-cognitive. The results indicate that cognitive entrepreneurial skills are unaffected by the program. However, the program has a robust positive effect on non-cognitive entrepreneurial skills. This is surprising since previous evaluations found zero or negative effects. Because these earlier studies all pertain to education for adolescents, our result tentatively suggests that non-cognitive entrepreneurial skills are best developed at an early age.
    Keywords: Skill formation, field experiment, entrepreneurship education, entrepreneurship
    JEL: L26 I21 J24 C93
    Date: 2012–04–20
  26. By: Sander Hoogendoorn (University of Amsterdam); Mirjam van Praag (University of Amsterdam)
    Abstract: One of the most salient and relevant dimensions of team heterogeneity is ethnicity. We measure the causal impact of ethnic diversity on the performance of business teams using a randomized field experiment. We follow 550 students who set up 45 real companies as part of their curriculum in an international business program in the Netherlands. We exploit the fact that companies are set up in realistic though similar circumstances and that we, as outside researchers, had the unique opportunity to exogenously vary the ethnic composition of otherwise randomly composed teams. The student population consists of 55% students with a non-Dutch ethnicity from 53 different countries of origin. We find that a moderate level of ethnic diversity has no effect on team performance in terms of business outcomes (sales, profits and profits per share). However, if at least the majority of team members is ethnically diverse then more ethnic diversity has a positive impact on the performance of teams. In line with theoretical predictions, our data suggest that this positive effect could be related to the more diverse pool of relevant knowledge facilitating (mutual) learning within ethnically diverse teams.
    Keywords: Ethnic diversity, team performance, field experiment, entrepreneurship, (mutual) learning
    JEL: J15 L25 C93 L26 M13 D83
    Date: 2012–07–13
  27. By: Potters J.A.M.; Tausch F.; Riedl A.M. (GSBE)
    Abstract: Does adverse selection hamper the effectiveness of voluntary risk sharing? How do differences in risk profiles affect adverse selection? We experimentally investigate individuals' willingness to share risks with others. Across treatments we vary how risk profiles differ between individuals. We find strong evidence for adverse selection if individuals risk profiles can be ranked according to first-order stochastic dominance and only little evidence for adverse selection if risk profiles can only be ranked on the basis of second-order stochastic dominance. We observe the same pattern also for anticipated adverse selection. These results suggest that the degree to which adverse selection erodes voluntary risk sharing arrangements crucially depends on the form of risk heterogeneity.
    Keywords: Criteria for Decision-Making under Risk and Uncertainty;
    Date: 2013
  28. By: Julia Muller (Erasmus University Rotterdam); Christiane Schwieren (University of Heidelberg)
    Abstract: Growing interest in using personality variables in economic research leads to the question whether personality as measured by psychology is useful to predict economic behavior. Is it reasonable to expect values on personality scales to be predictive of behavior in economic games? It is undoubted that personality can influence large-scale economic outcomes. Whether personality variables can also be used to understand micro-behavior in economic games is however less clear. We discuss reasons in favor and against this assumption and test in our own experiment, whether and which personality factors are useful in predicting behavior in the trust or investment game. We can also use the trust game to understand how personality measures fare relatively in predicting behavior when situational constraints vary in strength. This approach can help economists to better understand what to expect from the inclusion of personality variables in their models and experiments, and where further research might be useful and needed.
    Keywords: Personality, Big Five, Five Factor Model, Incentives, Experiment, Trust Game
    JEL: C72 C91 D03
    Date: 2012–03–26
  29. By: Philip J. Grossman; Mana Komai
    Abstract: We report results from a multi-period game designed to stimulate feelings of envy. There are a number of important features of our game that distinguish it from previous games used to examine envy. A unique and important feature of our design is that it addresses the two negative effects of envy: the wasteful expenditure of resources in an attempt to harm others and the wasteful use of resources by those envied in an attempt to protect themselves. We find that as wasteful as attacks are, spending on protection against attacks, while individually rational, results in even more waste. Players purchase insurance at twice the rate of attacks. Our multiperiod game permits us to examine how subjects' behaviour motivated by envy or the threat of envious actions changes over time. We report evidence consistent with players learning that envious feelings are wasteful and are less satisfying than the foregone monetary rewards.
    Keywords: anti-social preferences, envy, insurance
    JEL: C91 D6
    Date: 2013–05
  30. By: Enke, Benjamin (University of Bonn); Zimmermann, Florian (University of Bonn)
    Abstract: Many information structures generate correlated rather than mutually independent signals, the news media being a prime example. This paper shows experimentally that in such contexts many people neglect these correlations in the updating process and treat correlated information as independent. In consequence, people's beliefs are excessively sensitive to well-connected information sources, implying a pattern of "overshooting" beliefs. Additionally, in an experimental asset market, correlation neglect not only drives overoptimism and overpessimism at the individual level, but also affects aggregate outcomes in a systematic manner. In particular, the excessive confidence swings caused by correlated signals give rise to predictable price bubbles and crashes. These findings are reminiscent of popular narratives according to which aggregate booms and busts might be driven by the spread of "stories". Our results also lend direct support to recent models of boundedly rational social learning.
    Keywords: beliefs, correlation neglect, experiments, markets, overshooting
    JEL: C91 D03 D83 D84 D40
    Date: 2013–04
  31. By: Matthias Weber (CREED, University of Amsterdam); Arthur Schram (CREED, University of Amsterdam)
    Abstract: In a competitive market with taxed transactions, it does not matter under full rationality which side of the market legally transfers the taxes. In the labor market, a tax levied on employers and a corresponding income tax levied on employees are equivalent. With boundedly rational agents, this equivalence is no longer obvious. If people react differently to the two taxes this has direct impact on policy making, political economics, and optimal taxation theory. This paper examines how people react to these duties in a real effort laboratory experiment. We study the differential effects of the two types of taxes on preferences concerning the size of the public sector, subjective well-being, labor supply, and on-the-job performance. To elicit public-sector-size preferences in the laboratory we introduce a novel, incentive compatible approach. Our findings suggest that employer-side taxes induce preferences for a larger public sector. Our findings also sugges t that subjective well-being is higher while both labor supply and on-the-job performance are lower when the taxes are levied on employers. Furthermore, there are gender effects, e.g., women's subjective well-being appears to be more sensitive to framing than men's, while men's labor supply is more sensitive to framing than women's.
    Keywords: tax perception, liability side equivalence, political economy, labor supply
    JEL: C91 H22 H30
    Date: 2013–02–19
  32. By: Frans van Dijk (Netherlands Council for the judiciary); Joep H. Sonnemans (University of Amsterdam); Ed Bauw (University of Amsterdam, Netherlands Council for the judiciary)
    Abstract: In criminal cases judges evaluate and combine probabilistic evidence to reach verdicts. Unavoidably, errors are made, resulting in unwarranted conviction or acquittal of defendants. This paper addresses the questions (1) whether hearing cases by teams of three persons leads to less error than hearing cases alone; (2) whether deliberation leads to better decisions than mechanical aggregation of individual opinions; and (3) whether participating in deliberations improves future individual decisions. We find that having more than one judge consider cases reduces error effectively. This does not mean that it is necessary to deliberate about all cases. In simple cases many errors can be avoided by mechanical aggregation of independent opinions, and deliberation has no added value. In difficult cases discussion leads to less error. The advantage of deliberation goes beyond the case at hand: although we provide no feedback about the quality of verdicts, it improves individual decisions in subsequent cases.
    Keywords: judicial decision making, experiment, law and economics
    JEL: C91 C92 K14
    Date: 2012–03–27
  33. By: Philip J. Grossman; Mana Komai
    Abstract: Models of social preferences (i.e. inequality aversion), assuming society is defined by a hierarchy based on income or wealth, predict that the poor envy the rich. Reference Group Theory predicts that the poor (rich) envy others from the same social group or class. We report results from a game designed to stimulate feelings of envy. Players are defined both by their place within an overarching hierarchy as well as by their place within the hierarchy of their specific class (i.e. their reference groups). We find that, while across class envy is common; within class envy motivates the most anti-social behaviour.
    Keywords: anti-social preferences, envy, hierarchy, reference group theory
    JEL: C91 D6
    Date: 2013–05
  34. By: Feld, Jan (Maastricht University); Salamanca, Nicolas (Maastricht University); Hamermesh, Daniel S. (University of Texas at Austin, Royal Holloway)
    Abstract: The immense literature on discrimination treats outcomes as relative: One group suffers compared to another. But does a difference arise because agents discriminate against others – are exophobic – or because they favor their own kind – are endophilic? This difference matters, as the relative importance of the types of discrimination and their inter-relation affect market outcomes. Using a field experiment in which graders at one university were randomly assigned students' exams that did or did not contain the students' names, on average we find favoritism but no discrimination by nationality, and neither favoritism nor discrimination by gender, findings that are robust to a wide variety of potential concerns. We observe heterogeneity in both discrimination and favoritism by nationality and by gender in the distributions of graders' preferences. We show that a changing correlation between endophilia and exophobia can generate perverse predictions for observed market discrimination.
    Keywords: favoritism, discrimination, field experiment, wage differentials, economics of education
    JEL: J71 I24 B40
    Date: 2013–05
  35. By: Landeo, Claudia (University of Alberta, Department of Economics); Spier, Kathryn (Harvard Law School)
    Abstract: Business divorce is an arduous affair. The process of resolving deadlocks is time consuming and expensive, typically requiring the services of lawyers, financial experts and judges. Prolonged resolution processes, cost-inefficient administration of those processes, and inequitable outcomes impose high monetary and non-monetary costs on the parties themselves and on society as a whole. Asset valuation, which is required to complete the transfer of assets in a business divorce, can pose particular problems for closely-held businesses.In contrast to publicly-traded companies with active markets for equity ownership, closely-held companies may be very difficult for outsider investors and appraisers to evaluate. The economic value of closely-held businesses is often intertwined with the human capital of the founders, their relationships with business associates (including key suppliers and customers), and their tacit business knowledge. The true economic value of closely-held businesses may not be fully reflected in the official business documents and financial statements; instead, the best wisdom concerning the value of the business may lie in the minds of the business owners themselves. This article studies business deadlocks and their resolution. We advance a proposal to reform the way that courts resolve business deadlocks and value business assets. Specifically, we argue that Shotgun mechanisms, where one owner names a single buy-sell price and the other owner is compelled to either buy or sell shares at the named price, should play a larger role in the judicial management of business divorce. Since the party proposing the offer may end up either buying or selling shares, the party has an incentive to identify and name a fair price. Thus, accurate asset valuation is achieved without the use of outside appraisers or inefficient public auctions. We also show that our proposal is aligned with current statutory rules and case law. General partnerships and limited liability companies (LLCs), the most commonly chosen legal entities, are the focus of this study. Important lessons and insights for the judicial resolution of business deadlock are derived from our analysis of the private design and implementation of Shotgun provisions. Although Shotgun provisions have the potential for achieving equitable, expedient, and cost-efficient outcomes, these mechanisms pose challenges in private contractual settings, including the risk of opportunistic behaviors by owners who are at an informational or financial advantage. We argue that these risks are less severe in the judicial context than they are in the private context. Since courts have the ability to design the Shotgun procedure ex-post rather than ex-ante, they are in a better position to identify the presence and nature of the asymmetries and to tailor the mechanism accordingly. Although our arguments regarding the benefits of ex-post judicial design of Shotgun mechanisms are logically consistent and supported by current legal cases, actual field data on the use of these mechanisms is not available. To begin to fill this void, we conducted a series of controlled laboratory experiments with human subjects to assess whether the Shotgun mechanism will have the predicted effects. Our experimental design simulated a deadlocked business venture with two owners where only one of the two owners knew the true value of the business assets. Two different treatments were considered. In the first treatment, the better-informed owner was compelled to make buy-sell offer; in the second treatment, the less-informed owner was compelled to make the buy-sell offer. Our experimental findings support our arguments: (1) Inequitable outcomes arose when the less-informed owner made the buysell offer, and (2) equitable outcomes were obtained when the better informed owner made the buy-sell offer. Specifically, when obligated to make a buy-sell offer, the better-informed owner truthfully revealed his private information to the less-informed owner. To the best of our knowledge, ours is the first experimental study of mandatory Shotgun mechanisms where one party knows the value of the assets while the other does not. Our analysis demonstrates that the application of Shotgun mechanisms by judges when they are called upon to resolve deadlocks and manage business divorce will serve the interests of the business parties themselves and, more generally, the interest of society as a whole.
    Keywords: judicial resolution of business deadlocks; general partnerships; liited liabiity companies; closely-held business entities; shotgun provisions; buy-sell clauses; cake-cutting mechanisms; bargaining with common values; asymmetric information; experiments
    JEL: C72 C90 D82 K20 K40
    Date: 2013–05–01
  36. By: Marija Bockarjova (VU University Amsterdam); Piet Rietveld (VU University Amsterdam); Erik T. Verhoef (VU University Amsterdam)
    Abstract: In this paper we use data from an SP study on flood safety in the Netherlands, and elicit individual preferences for reduction of risk to life and limb. We perform context analysis to test the robustness of fatality risk valuation throughout choice experiments. The main interest of this paper is VOSL sensitivity to the valuation of correlated risks (scope effect). Besides, we explore the role of cognition on the stability of valuation across choice experiments using age and education. We pool data from multiple choice experiments and apply nested and mixed logit models in our analysis. We confirm statistically significant sensitivity to scope, comparing VOSL estimates for the test group in a choice experiment where correlated risks were present (risks of fatality, injury and evacuation) to an experiment where only fatality risk is valued. We find that the origin of differences in VOSL valuations across the choice experiments lies in differences in age and educational attainment, and may therefore be related to cognitive abilities of respondents. In particular, we conclude that higher VOSL sensitivity to scope is most prominently present among respondents of senior age (65 and older) and respondents without college education. This finding has important implications for discrete choice modeling and the use of obtained values in cost-benefit analyses.
    Keywords: stated preferences, value of statistical life, value of statistical injury, value of statistical evacuation, flood risk
    JEL: C01 C33 C83 C90 D12 D61 Q51 Q54
    Date: 2012–04–26
  37. By: Scott E. Carrell; Bruce Sacerdote
    Abstract: We present evidence from an ongoing field experiment in college coaching/ mentoring. The experiment is designed to ask whether mentoring plus cash incentives provided to high school students late in their senior year have meaningful impacts on college going and persistence. For women, we find large impacts on the decision to enroll in college and to remain in college. Intention to treat estimates are an increase in 15 percentage points in the college going rate (against a base rate of 50 percent) while treatment on the treated estimates are 30 percentage points. Offering cash bonuses alone without mentoring has no effect. There are no effects for men in the sample. The absence of effects for men is not explained by an interaction of the program with academic ability, work habits, or family and guidance support for college applications. However, differential returns to college and/or occupational choice may explain some of the differences in treatment effects for men and women.
    JEL: I2
    Date: 2013–05
  38. By: Cai, Jing; de Janvry, Alain; Sadoulet, Elisabeth
    Abstract: Using data from a randomized experiment in rural China, this paper studies the influence of social networks on weather insurance adoption and the mechanisms through which social networks operate. To quantify network effects, the experiment offers intensive information sessions about the insurance product to a random subset of farmers. For untreated farmers, the effect of having an additional treated friend on take-up is equivalent to granting a 15% reduction in the insurance premium. By varying the information available about peers’ decisions and using randomized default options, the experiment shows that the network effect is driven by the diffusion of insurance knowledge rather than purchase decisions.
    Keywords: Social network, Insurance demand, Learning
    JEL: D12 D83 G22 O33
    Date: 2013–05–09
  39. By: Cai, Jing; Song, Changcheng
    Abstract: This paper uses a novel experimental design to study the effect of hypothetical personal experience on the adoption of a new insurance product in rural China. Specifically, we conduct a set of insurance games with a random subset of farmers. Our findings show that playing insurance games improves insurance take-up in real life by 48%. Exploring the mechanism behind this effect, we show that the effect is not driven by changes in risk attitudes, changes in perceived probability of disasters, or learning of insurance benefits, but is driven mainly by the experience acquired in playing the insurance game. Moreover, we find that, compared with experience with real disasters in the previous year, the hypothetical experience gained in the insurance game has a stronger effect on insurance take-up, implying that the impact of personal experience displays a strong recency effect.
    Keywords: Insurance, Take-up, Game, Experience, Learning
    JEL: D03 D14 G22 M31 O16 O33 Q12
    Date: 2013–05–09
  40. By: Brañas Garza, Pablo; Espinosa Alejos, María Paz; Giritligil, Ayca E.
    Abstract: This study addresses the issue of intergenerational transmission of democratic values embedded in social choice rules. We focus on a few rules which have been the focus of social choice theory: plurality, plurality with a runoff, majoritarian compromise, social compromise and Borda rule. We confront subjects with preferences profiles of a hypothetical electorate over a set of four alternatives. Different rules produce different outcomes and subjects decide which alternative should be chosen for the society whose preference profile is shown. We elicit each subject's preferences over rules and his/her parents' and check whether there is any relationship; 186 students and their parents attended the sessions at Istanbul Bilgi University. Overall, we find support for the hypothesis of parental transmission of democratic values and gender differences in the transmitted rule.
    Keywords: experiments, political transmission, democratic values, social choice
    JEL: D71 D72 C90
    Date: 2013
  41. By: Drichoutis, Andreas; Nayga, Rodolfo
    Abstract: We reconcile �findings from the Multiple Price List method (Andersen et al., 2008) and the Convex Time Budget method (Andreoni and Sprenger, 2012a) that seem to have generated a heated debate in the time preference literature. Specifi�cally, we discuss the claims of Andreoni and Sprenger (2012b) that "risk preferences are not time preferences" and assert that this may have been premature given that subsequent fi�ndings from replication and extension studies refute their basic conjecture while another study off�ers an alternative explanation for their results (Andersen et al., 2011a). Although the CTB seems to perform better than the MPL method in terms of predictive validity, we also discuss recent econometric issues that question the validity of claims resulting from analysis of CTB data. We also raise an issue with non-EUT explanations of Andreoni and Sprenger's (2012b) results, since the payment mechanism is not incentive compatible if the isolation assumption is not invoked.
    Keywords: Intertemporal choice; discounting; curvature; convex time budget; risk; multiple price list
    JEL: C91 D81 D91
    Date: 2013–04–19
  42. By: Eduard J. Bomhoff; Grace Lee Hooi Yean
    Keywords: social capital, general trust, in-trust/out-trust, civicness
    Date: 2013–05

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