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on Experimental Economics |
| By: | Gill, David; Prowse, Victoria; Vlassopoulos, Michael |
| 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 J3 J33 |
| Date: | 2013–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:50166&r=exp |
| By: | Guidon Fenig (University of British Columbia); Mariya Mileva (Kiel Institute for the World Economy); Luba Petersen (Simon Fraser University) |
| Abstract: | In this paper we demonstrate how an experimental general equilibrium economy can be implemented in a laboratory setting in a simplified, time- and cost-efficient manner. We then introduce an asset market to study speculative behavior within a general equilibrium setting where subjects' objective is to maximize their utility from consumption and leisure. Subjects are endowed with units of an asset but are not obliged to participate in the asset market. Asset prices consistently grow above fundamental value and do not decline significantly with learning. Finally, we introduce a policy preventing subjects from borrowing to purchase assets. The borrowing constraint does not have any effect on the deviation of asset prices from fundamental value. Asset market activity has no significant effect on the real economy in either treatment, suggesting a limited role for monetary policy intervention. |
| Keywords: | Experimental macroeconomics, laboratory experiment, monetary policy, asset price bubbles, general equilibrium, production economy |
| JEL: | C61 D81 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:sfu:sfudps:dp13-08&r=exp |
| By: | Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Lilia Zhurakhovska (Max Planck Institute for Research on Collective Goods, Bonn) |
| Abstract: | Punishees regularly ask for justification. But is justification also effective? To answer this question under controlled conditions, we have conducted a public goods experiment with central punishment. The authority is neutral – she does not benefit from contributions to the public good. Punishment is costly. Along with the punishment decisions the authority writes justifications for her decisions. In the Baseline, authorities are requested to justify punishment decisions, but the reasons are kept confidential. In the Private treatment, the addressee is only informed about the justification of the authority’s decision affecting herself, not affecting others. In the Public treatment, all reasons are made public. Whenever reasons are communicated, there is less monetary punishment. Authorities partly substitute words for action. Contributions decay in later periods if the justification is only communicated to the addressee. In the remaining two treatments, contributions stabilize at a high level. |
| Keywords: | experiment, Public Good, justification, authority, central intervention |
| JEL: | H41 D63 C91 D62 D03 K14 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2013_16&r=exp |
| By: | Yoan Hermstrüwer (Max Planck Institute for Research on Collective Goods, Bonn); Stephan Dickert (Vienna University of Economics and Business, Institute for Marketing and Consumer Research) |
| Abstract: | Privacy law relies on the argument that consent does not entail any relevant impediments for the liberty of the consenting individual. Challenging this argument, we experimentally investigate whether consent to the publication of personal information in cyberspace entails self-coercion on a social norm level. Our results suggest that the monetary benefits from consent constitute a price that people are willing to accept for increased compliance with social norms. Providing people with a prior consent option is sufficient to generate chilling effects (i.e., a reduction of norm-deviant behavior). However, nudging people towards potential publicity does not increase the value they place on privacy. We also test how the default design of the right to deletion of personal information (right to be forgotten) affects chilling effects and privacy valuations. Surprisingly, the right to be forgotten does not reduce chilling effects. Moreover, individuals tend to stick with the status quo of permanent information storage. |
| Keywords: | Social Norms, Nudges, Behavioral Law and Economics of Privacy, Consent, Right to Be Forgotten, Dictator Games |
| JEL: | C93 C91 A13 D03 K29 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2013_15&r=exp |
| By: | Catia Batista (Faculdade de Economia, Universidade Nova de Lisboa and IZA); Dan Silverman (Arizona State University and NBER); Dean Yang (Department of Economics and Gerald R. Ford School of Public Policy, University of Michigan, NBER, and BREAD) |
| Abstract: | We investigate the determinants of giving in a lab-in-the-field experiment with large stakes. Study participants in urban Mozambique play dictator games where their counterpart is the closest person to them outside their household. Dictators share more with counterparts when they have the option of giving in kind (in the form of goods), compared to giving that must be in cash. Qualitative post-experiment responses suggest that this effect is driven by a desire to control how recipients use gifted resources. Standard economic determinants such as the rate of return to giving and the size of the endowment also affect giving, but the effects of even large changes in these determinants are significantly smaller than the effect of the in-kind option. Our results support theories of giving where the utility of givers depends on the composition (not just the level) of gift-recipient expenditures, and givers thus seek control over transferred resources. |
| Keywords: | sharing, altruism, giving, dictator game, inter-household transfers, Mozambique |
| JEL: | C92 C93 D01 D03 D64 O17 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:crm:wpaper:1321&r=exp |
| By: | Shawn Cole; Martin Kanz; Leora Klapper |
| Abstract: | We use an experiment with commercial bank loan officers to test how performance based compensation affects risk-assessment and lending. High-powered incentives lead to greater screening effort and more profitable lending decisions. This effect, however, is muted by deferred compensation and limited liability, two standard features of loan officer incentive contracts. We find that career concerns and personality traits affect screening behavior, but show that the response to monetary incentives does not vary with traits such as risk-aversion, optimism or overconfidence. Finally, we present evidence that incentive contracts distort the assessment of credit risk, even among trained professionals with many years of experience. Loans evaluated under permissive incentives are rated significantly less risky than the same loans evaluated under pay-for-performance. |
| JEL: | D03 G21 J33 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19472&r=exp |
| By: | Marcela Ibanez (Georg-August University Göttingen); Gerhard Riener (Heinrich Heine University Düsseldorf); Ashok Rai (Williams College) |
| Abstract: | Affirmative action is a subject of intense debate. Supporters point to the increased representation of women and minority groups while critics contend that affirmative action can lead to inefficiencies. In this paper we present results from two field experiments that were designed to test how applicants sort in response to affirmative action rules that favor of women. Our results suggest that the criticism of affirmative action is misplaced. We find that affirmative action does not lead to lower standards in the pool of applicants. |
| Keywords: | Field experiment |
| Date: | 2013–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:got:gotcrc:150&r=exp |
| By: | Attila Ambrus (Department of Economics, Duke University); Ben Greiner (School of Economics, Australian School of Business, the University of New South Wales); Parag Pathak (Department of Economics, Massachusetts Institute of Technology) |
| Abstract: | This paper experimentally investigates how individual preferences, through unrestricted deliberation, get aggregated into a group decision in two contexts: reciprocating gifts, and choosing between lotteries. In both contexts we find that median group members have a significant impact on the group decision, but particular other members also have some influence. Non-median members closer to the median tend to have more influence than other members. By investigating the same individual’s influence in different groups, we find evidence for relative position in the group having a direct effect on influence. We do not find evidence that group choice exhibits a shift in a particular direction that is independent of member preferences and caused by the group decision context itself. We also find that group deliberation not only involves bargaining and compromise, but it also involves persuasion: preferences tend to shift towards the choice of the individual’s previous group, especially for those with extreme individual preferences. |
| Keywords: | group decision-making, role of deliberation, social influence |
| JEL: | C72 C92 H41 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2013-24&r=exp |
| By: | Sarah Jacobson (Williams College); Jason Delaney (School of Business Administration, Georgia Gwinnett College) |
| Abstract: | Some policy problems pit the interests of one group against those of another group. One group may, for example, determine the provision of a project (such as a power plant or a dam) that benefits group members but has downstream externalities that hurt people outside the group. We introduce a model of projects with such asymmetries. In-group members may contribute to a common fund that benefits them as a public good. In the model, benefits from the project may or may not vary within the group. Project provision has negative downstream externalities: common fund contributions hurt agents outside the in-group (“Outsiders”) rendering common fund contributions anti-social overall. Many models of social preferences predict that such externalities should reduce or eliminate project provision, although conditional cooperation or a preference for in-group members may counteract this effect. We test this model with a lab experiment. With homogeneous in-group benefits, the presence of negative downstream externalities reduces contribution levels by nearly half. We introduce a rotating high-return position that allows subjects to trade favors. Contributions diminish only slightly with the introduction of the negative externality and reciprocal giving occurs whether or not Outsiders are present. |
| Keywords: | public bad, public good, social preferences, reciprocity, externalities, in-group-out-group, parochial altruism |
| JEL: | C91 D01 D62 D71 H41 Q50 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2013-09&r=exp |
| By: | Altmann, Steffen (IZA); Falk, Armin (University of Bonn); Grunewald, Andreas (University of Bonn) |
| Abstract: | The behavioral relevance of non-binding default options is well established. While most research has focused on decision makers' responses to a given default, we argue that this individual decision making perspective is incomplete. Instead, a comprehensive understanding of the foundation of default effects requires taking account of the strategic interaction between default setters and decision makers. We provide a theoretical framework to analyze which default options arise in such interactions, and which defaults are more likely to affect behavior. The key drivers are the relative level of information of default setters and decision makers, and their alignment of interests. We show that default effects are more pronounced if interests of the default setter and decision makers are more closely aligned. Moreover, decision makers are more likely to follow default options the less they are privately informed about the relevant decision environment. In the second part of the paper we experimentally test the main predictions of the model. We report evidence that both the alignment of interests as well as the relative level of information are key determinants of default effects. An important policy relevant conclusion is that potential distortions arising from default options are unlikely if decision makers are either well-informed or reflect on the interests of default setters. |
| Keywords: | default options, libertarian paternalism, behavioral economics, incentives, laboratory experiment |
| JEL: | D03 D18 D83 C92 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7610&r=exp |
| By: | Michael D. Carr; Phil Mellizo |
| Abstract: | Data from lab experiments support the claim that individuals have social preferences. Most models of social preferences, however, consider only the distribution of outcomes, not the source of the endowment used in the game. Once the source is considered, outcomes in the ultimatum game are more difficult to interpret. We extend the ultimatum game to allow for responder-produced endowments. We find that offers increase when the responder produces the endowment, but rejection rates are lower. Further, offers remain below 100% of the endowment, suggesting that unproductive proposers feel entitled to a part of the endowment, and responders respect this right. |
| JEL: | C91 D30 D63 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:mab:wpaper:14&r=exp |
| By: | Duncan Gilchrist (Harvard University); Michael Luca (Harvard Business School, Negotiation, Organizations & Markets Unit); Deepak Malhotra (Harvard Business School, Negotiation, Organizations & Markets Unit) |
| Abstract: | Behavioral economists argue that above-market wages elicit reciprocity, causing employees to work harder - even in the absence of repeated interactions or strategic career concerns. In a field experiment with 266 employees, we show that paying above-market wages, per se, does not have an effect on effort. However, structuring a portion of the wage as a clear and unexpected gift (by hiring at a given wage, and then offering a raise with no further conditions after the employee has accepted the contract) does lead to persistently higher effort. Consistent with the idea that the recipient's interpretation of the wage as a gift is an important factor, we find that effects are strongest for employees with the most experience and those who have worked most recently - precisely the individuals who would recognize that this is a gift. |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:14-030&r=exp |
| By: | Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Kerstin Pull (University of Tübingen); Manfred Stadler (University of Tübingen); Alexandra Zaby (University of Tübingen) |
| Abstract: | We present a model of price leadership on homogeneous product markets where the price leader is selected endogenously. The price leader sets and guarantees a sales price to which followers can adjust according to their individual supply functions. The price leader then clears the market by serving the residual demand. Firms with different marginal costs would induce different prices if they were price leaders. Somewhat counter-intuitively, lower marginal costs of the leader imply higher prices. We compare two mechanisms to determine the price leader in a between-subjects design, majority voting and competitive bidding. The experimental data of later rounds support our theoretical finding that experienced price leaders with lower marginal costs choose higher prices. In the majority voting treatment, participants with higher marginal costs more often establish the lowest cost competitor as price leader in order to induce a higher sales price. |
| Keywords: | Price leadership, majority voting, bidding, experimental economic |
| JEL: | D43 D74 L11 |
| Date: | 2013–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2013-039&r=exp |
| By: | Guido Bünstorf (University of Kassel); Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Sven Fischer (Max Planck Institute for Research on Collective Goods, Bonn); Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena) |
| Abstract: | We experimentally test the effect of enforceable non-compete clauses on working efforts. The employee can invest into the probability of making a profitable innovation. After a successful innovation (Win) the employee may want to leave the firm (Shift) whereas after an innovation failure (Lose) he may remain (Stay) . In the treatments with non-compete clause, but not in the baseline, the employer can prevent successful innovators from leaving the firm. With standard preferences, effort should be lower if the worker cannot leave the firm, except if compulsory compensation for having to stay is very high. By contrast we find no reduction in effort even if compensation is low. Employers anticipate the incentive problem and pay a higher wage which employees reciprocate by higher effort. |
| Keywords: | labor relations, non compete clause, non compete covenant, reciprocity, fairness |
| JEL: | L51 D21 J33 J38 |
| Date: | 2013–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2013-038&r=exp |
| By: | Tsusaka, Takuji W.; Kajisa, Kei; Pede, Valerien O.; Aoyagi, Keitaro |
| Abstract: | Artefactual field experiments, spatial econometrics, and household survey are blended in a single study to investigate how the experience of collective irrigation management in the real world facilitates the spillover of social behaviour among neighbours. The dictator and public goods games are conducted among irrigated and non-irrigated rice farmers in the Philippines. The spillover effect is found only among irrigated farmers. In the public goods game, punishment through social disapproval reduces free-riding more effectively among irrigated farmers. These indicate that strengthened ties among neighbours are likely to induce the spillover of social norms together with an effective punishment mechanism. |
| Keywords: | behavioural games, artefactual field experiments, spatial econometrics, dictator game, public goods game, irrigation, social norms |
| JEL: | C59 D01 Q25 |
| Date: | 2013–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:50162&r=exp |
| By: | Kaplan, Todd; Ruffle, Bradley; Shtudiner, Zeev |
| Abstract: | Sometimes cooperation between two parties requires exactly one to cede to the other. If the decisions whether to cede are made simultaneously, then neither or both may acquiesce leading to an inefficient outcome. However, inefficiency may be avoided if a party can wait to see what the other does. We experimentally test whether adding a waiting option to such a two-player cooperation game enhances cooperation. Although subjects cede less overall with the waiting option, we show that they coordinate more and consequently achieve higher profits. Yet, a dark side overhangs waiting: the least cooperative pairs do worse with this option. They wait not to facilitate coordination but to disguise their entry. |
| Keywords: | cooperation, endogenous timing, social dilemmas |
| JEL: | C9 Z13 |
| Date: | 2013–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:50096&r=exp |
| By: | Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Axel Ockenfels (Universität Köln, Staatswissenschaftliches Seminar) |
| Abstract: | Antitrust authorities all over the world are concerned if a particularly aggressive competitor, a "maverick", is bought out of the market. One plausible determinant of acting as a maverick is behavioral: the maverick derives utility from acting competitively. We test this conjecture in the lab. In a pretest, we classify participants by their social value orientation. Individuals who are rivalistic in an allocation task indeed bid more aggressively in a laboratory oligopoly market. Yet we also observe that the suppliers' willingness to pay to buy the maverick out of the market is much smaller than the gain from doing so. Again, rivalry contributes to the phenomenon: a supplier who buys out the maverick would fall behind the remaining competitor in terms of profits, which does not seem acceptable to most suppliers. |
| Keywords: | Oligopoly, aggressive sales, maverick, merger, buyout, social value orientation, rivalry |
| JEL: | D43 K21 L13 L41 C91 D03 D22 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2013_14&r=exp |
| By: | Karthik Muralidharan; Venkatesh Sundararaman |
| Abstract: | The large-scale expansion of primary schooling in developing countries has led to the increasing use of non-civil-service contract teachers who are locally-hired from the same village as the school, are not professionally trained, have fixed-term renewable contracts, and are paid much lower salaries than regular civil-service teachers. This has been a controversial policy, but there is limited evidence on the effectiveness of contract teachers in improving student learning. We present experimental evidence on the impact of contract teachers using data from an ‘as is’ expansion of contract-teacher hiring across a representative sample of 100 randomly-selected government-run rural primary schools in the Indian state of Andhra Pradesh. At the end of two years, students in schools with an extra contract teacher performed significantly better than those in comparison schools by 0.16σ and 0.15σ, in math and language tests respectively. Contract teachers were also much less likely to be absent from school than civil-service teachers (18% vs. 27%). Using the experimental variation in school-level pupil-teacher ratio (PTR) induced by the provision of an extra contract teacher, we estimate that reducing PTR by 10% using a contract teacher would increase test scores by 0.03σ/year. Using high-quality panel data over five years we estimate that the corresponding gain to reducing PTR by 10% using a regular civil-service teacher would be 0.02σ/year. Thus, in addition to finding that contract teachers are effective at improving student learning outcomes, we find that they are no less effective than regular civil-service teachers who are more qualified, better trained, and paid five times higher salaries. |
| JEL: | I21 M55 O15 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19440&r=exp |
| By: | Tomoya Matsumoto (National Graduate Institute for Policy Studies) |
| Abstract: | We used a randomized control trial to measure how the free distribution of hybrid seeds and chemical fertilizers for maize production affected their adoption by small-scale farmers in the subsequent seasons. Information on their demand for the same inputs was collected through sales meetings which we organized in 2009 and 2011 where the inputs were actually sold. It revealed that the demand for the inputs of the free-input recipients was significantly higher in both 2009 and 2011 than that of non-recipients; that of the neighbors of the recipients fell in-between. The initial treatment assignment has a persistent influence on the farmers' demand over the two years whereas the difference between the free-input recipients and their neighbors has been reduced to some extent. The reduction of their gap in the application level of fertilizers is partly driven by social learning through information networks. However, there was no clear evidence of learning effects from peers on the demand for the hybrid seeds. One possible explanation of these mixed results is due to slow dissemination of the new inputs with low profitability. (JEL O13, O33, O55) |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:ngi:dpaper:13-18&r=exp |
| By: | Chang, Wei-Shiun; Salmon, Timothy C.; Saral, Krista Jabs |
| Abstract: | Renegotiation is a common practice in procurement auctions which allows for post-auction price adjustments and is nominally intended to deal with the problem that sellers might underestimate the eventual costs of a project during the auction. Using a combination of theory and experiments, we examine the effectiveness of renegotiation at solving this problem. Our findings demonstrate that renegotiation is rarely successful at solving the problem of sellers misestimating costs. The primary effect of allowing renegotiation is that it advantages sellers who possess a credible commitment of default should they have underbid the project. Renegotiation allows these weaker types of sellers to win more often and it also allows them to leverage their commitment of default into higher prices in renegotiation from a buyer. |
| Keywords: | Procurement auctions, renegotiation, bankruptcy, default, economic experiments |
| JEL: | C9 C91 D44 D82 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:50137&r=exp |
| By: | Brendan Daley; Philipp Sadowski |
| Abstract: | We establish that in the Prisoners’ Dilemma, the model of Daley and Sadowski (2013) is logically distinct from three models that employ well-known forms of other regarding preferences - altruism (Ledyard, 1995; Levine, 1998), inequity aversion (Fehr and Schmidt, 1999), and reciprocity (Rabin, 1993). |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:duk:dukeec:13-18&r=exp |
| By: | Zacharias Maniadis; Fabio Tufano; John List |
| Date: | 2013–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:786969000000000824&r=exp |