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on Experimental Economics |
| By: | Beraldo, Sergio; Filoso, Valerio; Marco, Stimolo |
| Abstract: | Conformity behavior, i.e. the agreement between an individual's choices and the prevailing behavior of a reference group, is a commonly observed phenomenon. Though some types of social interactions may give raise to specific incentives to adopt either a majoritarian or a contrarian behavior, we want to investigate whether the same behavioral pattern emerges even when no economic motivator is present. To accomplish this task, we employ an experimental Vickrey median price auction designed to provide incentives to reveal individual preferences truthfully. Whereas we feed the control group with just the median price, we give out additional information on other players' bids for those in the treated groups. These informations are designed to provide hints at revising individual bids. Our main results point to a strong tendency of the individuals to adapt their behavior to those of the individuals which can be observed. Moreover, although a clear shaping effect (a regression toward the median price) does emerge for the control group, the provision of information about the actual behavior of a sample of the relevant group is able to minimize or neutralize the shaping effect. Specifically, we find that players adjust to a divergence between their bids and the average bid of a reference group by a factor of 47.4\%—87.3\%. These figures point to a relevant role for conformity in group behavior. |
| Keywords: | Endogenous preferences, shaping effect, social conformity, Vickrey auction |
| JEL: | C91 C92 D44 |
| Date: | 2013–07–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:48539&r=exp |
| By: | David Gill; Victoria Prowse; Michael Vlassopoulos |
| Abstract: | We use an online real-effort experiment to investigate how bonus-based pay and worker productivity interact with workplace cheating. Firms often use bonus-based compensation plans, such as group bonuses and firm-wide profit sharing, that induce considerable uncertainty in how much workers are paid. Exposing workers to a compensation scheme based on random bonuses makes them cheat more but has no effect on their productivity. We also find that more productive workers behave more dishonestly. These results are consistent with workers' cheating behavior responding to the perceived fairness of their employer's compensation scheme. |
| Keywords: | Bonus, compensation, cheating dishonesty, lying, employee crime, productivity, slider task, real effort, experiment |
| JEL: | C91 J33 |
| Date: | 2013–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:666&r=exp |
| By: | Bradley J. Ruffle (BGU); Naomi E. Feldman (Research Division Federal Reserve Board Washington, D.C.) |
| Abstract: | We test the equivalence of tax-inclusive and tax-exclusive prices through a series of experiments that differ only in their handling of the tax. Subjects receive a cash budget and decide how much to keep and how much to spend on various attractively priced goods. Subjects spend significantly more when faced with tax-exclusive prices. This treatment effect is robust to different price levels, to initial shopping-cart purchases and persists throughout most of the ten rounds. A goods-level analysis, intra-round revisions as well as results from a third tax-deduction treatment all cast doubt on salience as the source of our findings. |
| Keywords: | experimental economics, sales tax, VAT, tax salience |
| JEL: | C91 H20 H31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bgu:wpaper:1302&r=exp |
| By: | Elaine Liu (University of Houston); Juanjuan Meng (Peking University Guanghua School of Management); Joseph Wang (National Taiwan University) |
| Abstract: | This paper investigates how Confucianism affects individual decision making in Taiwan and in China and whether the Cultural Revolution in China, which denounced Confucian teaching, has had a long-lasting impact. We found that Chinese subjects in our experiments became less accepting of Confucian values, such that they became more risk loving, less loss averse, and more impatient after being primed with Confucianism, whereas Taiwanese subjects became more trustworthy and more patient after being primed by Confucianism. Combining the evidence from the incentivized laboratory experiments and subjective survey measures, we found evidence that Chinese subjects and Taiwanese subjects reacted differently to Confucianism. |
| Keywords: | social norm, Confucianism, time preferences, risk aversion, trust |
| JEL: | C91 Z10 |
| Date: | 2013–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:hou:wpaper:2013-199-49&r=exp |
| By: | Drouvelis, Michalis (University of Birmingham); Powdthavee, Nattavudh (London School of Economics) |
| Abstract: | What determines people's moral judgments of selfish behaviors? Here we study whether people's normative views in trust and gift exchange games, which underlie many situations of economic and social significance, are themselves functions of positive emotions. We used experimental survey methods to investigate people's moral judgments empirically, and explored whether we could influence subsequent judgments by deliberately making some individuals happier. We found that moral judgments of selfish behaviors in the economic context depend strongly on other people's behaviors, but their relationships are significantly moderated by an increase in happiness for the person making the judgment. |
| Keywords: | happiness, moral judgments, trust games, gift exchange games |
| JEL: | C91 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7495&r=exp |
| By: | Lisa Bruttel; Tim Friehe |
| Abstract: | This paper presents results from an experiment studying a two-person 4x4 pure coordination game. We seek to identify a labeling of actions that induces subjects to select all options with the same probability. Such a display of actions must be free from salient properties that might be used by participants to coordinate. Testing 23 different sets of labels, we identify two sets that produce a distribution of subjectsÕ choices which approximate the uniform distribution quite well. Our design can be used in studies intending to compare the behavior of subjects who play against a random mechanism with that of participants who play against human counterparts. |
| Keywords: | coordination game, experiment, mixed strategy, level k |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:twi:respas:0083&r=exp |
| By: | Dur, R.; Vollaard, B.A. (Tilburg University, Center for Economic Research) |
| Abstract: | 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: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2013037&r=exp |
| By: | Mulder, Machiel; Haan, Marco A.; Dijkstra, Peter T. (Groningen University) |
| Abstract: | We present an experiment on yardstick competition. Experimental firms set cost levels in each period and can communicate with each other in an attempt to increase the regulated price. We find that when market shares are heterogeneous, collusion is least frequent and prices are lowest. The number of players on a market also infuences prices, but to a lesser extent. Comparing across yardsticks, the discriminatory yardstick yields the lowest prices, while a best-practice yardstick yields the highest prices. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugsom:13008-eef&r=exp |
| By: | Valeria Faralla; Alessandro Innocenti; Eva Venturini |
| Abstract: | The paper examines in the laboratory how risk-taking situations are affected by the conditions of observing other’s choices (observer) and being observed by others (source). By extending Yechiam et al.’s (2008) experimental design to the domain of gains we find that observers are more probable than sources to choose risky alternatives producing rare gains than equiprobable gains. The impact of social exposure is also analyzed and interpreted in the context of personality traits to assess how heterogeneity influences risky decisions. |
| Keywords: | risky shift, social exposure, personality traits. |
| JEL: | C91 D01 D81 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:usi:labsit:046&r=exp |
| By: | John Bone; Paolo Crosetto; John D Hey; Carmen Pasca |
| Abstract: | This paper reports an experiment designed to elicit social preferences over income compensation schemes, where income differences between subjects have two independent components: one due to chosen effort and the other due to random chance. These differences can be compensated through social dividends, according to principles chosen beforehand by subjects themselves from behind a stylised Rawlsian veil of ignorance, or outside the society on which the principles will be implemented. We test the attractiveness in particular of Luck Egalitarianism, compensating inequalities due to chance but not those due to choice. We find modest but not overwhelming support for these principles, suggesting that subjects’actual preferences are more complex. |
| Keywords: | chance, choice, envy-freeness, fairness, luck, luck egalitarianism, responsibility |
| JEL: | D31 D63 C91 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:13/15&r=exp |
| By: | Carpenter, Jeffrey P. (Middlebury College); Dolifka, David (Middlebury College) |
| Abstract: | Empirical studies of the principal-agent relationship find that extrinsic incentives work in many instances, linking rewards to performance increases effort, but that they can also backfire, reducing effort. Intrinsic motivation, the internal drive to work to master a skill or to improve one's self image, is thought to be the key to whether incentives work or not. If the incentives crowd-out intrinsic motivation, and the effect is large enough, the net motivational effect on effort will be negative. We posit that an aversion to being exploited, i.e. being used instrumentally for the benefit of another, is one facet of intrinsic motivation, triggered by the combination of high-powered incentives and egoistic principal intent, that can cause incentives to fail. Using an experiment that provides the material circumstances necessary for exploitation to occur, we find that agent compliance is significantly lower for exploitative principals who use high-powered incentives and have a financial interest to do so, compared to neutral principals who use the same contracts but do not benefit from them. To corroborate our interpretation of the results we show that a surveyed "exploitation aversion" scale moderates this effect. Exploitation averse participants are less likely to comply with the incentives than exploitation tolerant participants when the principal signals an exploitative intent, but they are no less likely to comply with the same incentives when the principal is neutral. Our results have implications for the design and implementation of incentive structures within organizations. |
| Keywords: | financial incentives, intrinsic motivation, crowding, exploitation, experiment |
| JEL: | C92 J33 M52 M55 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7499&r=exp |
| By: | Holger Herz; Dmitry Taubinsky |
| Abstract: | People's desire for fair transactions can play an important role in negotiations, organizations, and markets. In this paper, we show that markets can also shape what people consider to be a fair transaction. We propose a simple and generally-applicable model of path-dependent fairness preferences, in which past experiences shape preferences, and we experimentally test the model's predictions. We find that previous exposure to competitive pressure substantially and persistently reduces subjects' fairness concerns, making them more likely to accept low offers. Consistent with our theory, we also find that past experience has little effect on subjects' inclinations to treat others unfairly. |
| Keywords: | Social preferences, reference points, fairness, bargaining |
| JEL: | C78 C91 D01 D03 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:128&r=exp |
| By: | Erik O. Kimbrough (Simon Fraser University); Alexander Vostroknutov (Maastricht University) |
| Abstract: | We study a novel, repeated common pool resource game in which current resource stocks depend on resource extraction in previous periods. Our model shows that for a sufficiently high regrowth rate, there is no commons dilemma: the resource will be preserved indefinitely in equilibrium. Lower growth rates lead to depletion. Laboratory tests of the model indicate that favorable ecological characteristics are necessary but insufficient to encourage effective CPR governance. However, using a method developed in Kimbrough and Vostroknutov (2013), we identify behavioral types ex ante by observing individual willingness to follow a costly rule, and we show that assortative matching on type facilitates CPR management. |
| Keywords: | cooperation, common pool resource game, rule-following, experimental economics. |
| JEL: | C9 C7 D7 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:sfu:sfudps:dp13-06&r=exp |
| By: | Nicolas Jacquemet (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, BETA - Bureau d'économie théorique et appliquée - CNRS : UMR7522 - Université de Strasbourg - Université Nancy II); Adam Zylberstejn (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne) |
| Abstract: | We experimentally study an asymmetric coordination game with two Nash equilibria: one is Pareto-efficient, the other is Pareto-inefficient and involves a weakly dominated strategy. We assess whether information about the interaction partner helps eliminate the imperfect equilibrium. Our treatments involve three information-enhancing mechanisms: repetition and two kinds of individual signals: messages from partner or observation of his past choices. Repetition-based learning increases the frequencies of the most efficient outcome and the most costly strategic mismatch. Moreover, it is superseded by individual signals. Like previous empirical studies, we find that signals provide a screening of partners' intentions that reduces the frequency of coordination failures. Unlike these studies, we find that the transmission of information between partners, either via messages or observation, does not suffice to significantly increase the overall efficiency of outcomes. This happens mostly because information does not restrain the choice of the dominated action by senders. |
| Keywords: | coordination game; communication; cheap-talk; observation |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00845123&r=exp |
| By: | Esther Duflo; Michael Greenstone; Rohini Pande; Nicholas Ryan |
| Abstract: | In many regulated markets, private, third-party auditors are chosen and paid by the firms that they audit, potentially creating a conflict of interest. This paper reports on a two-year field experiment in the Indian state of Gujarat that sought to curb such a conflict by altering the market structure for environmental audits of industrial plants to incentivize accurate reporting. There are three main results. First, the status quo system was largely corrupted, with auditors systematically reporting plant emissions just below the standard, although true emissions were typically higher. Second, the treatment caused auditors to report more truthfully and very significantly lowered the fraction of plants that were falsely reported as compliant with pollution standards. Third, treatment plants, in turn, reduced their pollution emissions. The results suggest reformed incentives for third-party auditors can improve their reporting and make regulation more effective. |
| JEL: | L51 M42 O13 Q56 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19259&r=exp |
| By: | Cole, Shawn; Gine, Xavier; Vickery, James |
| Abstract: | Weather is a key source of income risk for many firms and households, particularly in emerging market economies. This paper uses a randomized controlled trial approach to study how an innovative risk management instrument for hedging rainfall risk affects production decisions among a sample of Indian agricultural firms. The analysis finds that the provision of insurance induces farmers to shift production toward higher-return but higher-risk cash crops, particularly among more-educated farmers. The results support the view that financial innovation may help mitigate the real effects of uninsured production risk. In a second experiment, the study elicits willingness to pay for insurance policies that differ in their contract terms, using the Becker-DeGroot-Marshak mechanism. Willingness-to-pay is increasing in the actuarial value of the insurance, but substantially less than one-for-one, suggesting that farmers'valuations are inconsistent with a fully rational benchmark. |
| Keywords: | Climate Change Economics,Labor Policies,Debt Markets,Insurance Law,Non Bank Financial Institutions |
| Date: | 2013–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6546&r=exp |
| By: | Lisa Bruttel |
| Abstract: | This paper presents an experiment on the loyalty enhancing effect potentially created by retroactive price reduction schemes. Such price reductions are applied ex post to all units bought in a certain time frame if the total quantity passes a given threshold. Close to the threshold, the marginal price for the missing units up to the threshold is very low. A dominant firm can use this effect to exclude potential rivals from competition, which is why some jurisdictions consider retroactive discounts as unlawful. This study considers whether there in fact is a loyalty enhancing effect of retroactive discounts and shows how it relates to risk preferences and loss aversion. |
| Keywords: | consumer behavior, risk aversion, loss aversion, experiment |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:twi:respas:0084&r=exp |
| By: | Lacomba, Juan A. (Universidad de Granada); Lagos, Francisco (Universidad de Granada); Reuben, Ernesto (Columbia University); van Winden, Frans (University of Amsterdam) |
| Abstract: | We introduce three variations of the Hirshleifer-Skaperdas conflict game to study experimentally the effects of post-conflict behavior and repeated interaction on the allocation of effort between production and appropriation. Without repeated interaction, destruction of resources by defeated players can lead to lower appropriative efforts and higher overall efficiency. With repeated interaction, appropriative efforts are considerably reduced because some groups manage to avoid fighting altogether, often after substantial initial conflict. To attain peace, players must first engage in costly signaling by making themselves vulnerable and by forgoing the possibility to appropriate the resources of defeated opponents. |
| Keywords: | conflict, rent-seeking, appropriation, peace, escalation, tournaments, contests |
| JEL: | C92 D72 D74 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7492&r=exp |
| By: | Dean Karlan (Economic Growth Center, Yale University); Aishwarya Lakshmi Ratan (Economic Growth Center, Yale University); Jonathan Zinman (Department of Economics, Dartmouth College) |
| Abstract: | The poor can and do save, but often use formal or informal instruments that have high risk, high cost, and sub-optimal design. This could lead to undersaving compared to a world without market or behavioral frictions. Undersaving has important welfare consequences: variable consumption, low resilience to shocks, and foregone profitable investments. We lay out five sets of constraints that may hinder the adoption and effective usage of savings products and services by the poor: transaction costs, lack of trust and regulatory barriers, information and knowledge gaps, social constraints and behavioral biases. We discuss each in theory, and then summarize related empirical evidence, with a focus on recent field experiments. We then put forward key open areas for research and practice. |
| Keywords: | Savings, Randomized Evalutation, Poverty |
| JEL: | D12 D91 G21 O16 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:1027&r=exp |
| By: | Ezra Einy (Department of Economics, Ben-Gurion University of the Negev, Israel); Ori Haimanko (Department of Economics, Ben-Gurion University of the Negev, Israel); Diego Moreno (Departamento de Economia, Universidad Carlos III de Madrid.); Aner Sela (Department of Economics, Ben-Gurion University of the Negev. Israel); Benyamin Shitovitz (Department of Economics, University of Haifa) |
| Abstract: | Under standard assumptions about players'cost functions, we show that a Tullock contest with asymmetric information has a pure strategy equilibrium. Next we study Tullock contests in which players have a common value and a common state-independent linear cost function. A two-player contest in which one player has an information advantage has a unique equilibrium. In equilib- rium both players exert the same expected effort, and although the player with an information advantage wins the prize with probability less than one-half, his payoff is greater or equal to that of his opponent. When there are more than two players in the contest, having information advantage leads to higher payoffs, but the other properties of equilibrium no longer hold. |
| JEL: | C72 D44 D82 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bgu:wpaper:1303&r=exp |