New Economics Papers
on Experimental Economics
Issue of 2013‒10‒25
eleven papers chosen by

  1. Intertemporal Consumption and Debt Aversion:An Experimental Study By Thomas Meissner; ; ;
  2. Dynamic Incentive Effects of Relative Performance Pay: A Field Experiment By Delfgaauw, Josse; Dur, Robert; Non, Arjan; Verbeke, Willem
  3. Statistical formats to optimize evidence-based decision making: a behavioral approach By Iván Arribas; Irene Comeig; Amparo Urbano Salvador; Jose E. Vila
  4. Risk-Taking Behavior in the Wake of Natural Disasters By Lisa Cameron; Manisha Shah
  5. The Geometry of Distributional Preferences and a Non-Parametric Identification Approach By Rudolf Kerschbamer
  6. Relative Performance Pay in the Shadow of Crisis By Kräkel, Matthias; Nieken, Petra
  7. The Consequences of a Piece Rate on Quantity and Quality: Evidence from a Field Experiment By Heywood, John S.; Siebert, W. Stanley; Wei, Xiangdong
  8. On altruism and remittances By Alexis Antoniades; Ganesh Seshan; Roberto A. Weber; Robertas Zubrickas
  9. Mental Accounting: A Closed-Form Alternative to the Black Scholes Model By Siddiqi, Hammad
  10. Does risk matter for occupational choices? Experimental evidence from an African labour market By Paolo Falco
  11. To Hold Out or Not to Hold Out By Frank Schorfheide; Kenneth I. Wolpin

  1. By: Thomas Meissner; ; ;
    Abstract: This paper tests how subjects behave in an intertemporal consumption/saving experiment when borrowing is allowed and whether subjects treat debt differently than savings. Two treatments create environments where either saving or borrowing is required for optimal consumption. Since both treatments share the same optimal consumption levels, actual consumption choices can be directly compared across treatments. The experimental findings imply that deviations from optimal behavior are higher when subjects have to borrow than when they have to save in order to consume optimally, suggesting debt-aversion. Signifiant underconsumption is observed when subjects have to borrow in order to reach optimal consumption. Only weak evidence is found suggesting that subjects over-consume when saving is necessary for optimal consumption.
    Keywords: Laboratory Experiment, Intertemporal Consumption, Consumption Smoothing, Debt Aversion
    JEL: C91 D81 E21
    Date: 2013–09
  2. By: Delfgaauw, Josse (Erasmus University Rotterdam); Dur, Robert (Erasmus University Rotterdam); Non, Arjan (ROA, Maastricht University); Verbeke, Willem (Erasmus University Rotterdam)
    Abstract: We conduct a field experiment among 189 stores of a retail chain to study dynamic incentive effects of relative performance pay. Employees in the randomly selected treatment stores could win a bonus by outperforming three comparable stores from the control group over the course of four weeks. Treatment stores received weekly feedback on relative performance. Control stores were kept unaware of their involvement, so that their performance generates exogenous variation in the relative performance of the treatment stores. As predicted by theory, we find that treatment stores that lag far behind do not respond to the incentives, while the responsiveness of treatment stores close to winning a bonus increases in relative performance. On average, the introduction of the relative performance pay scheme does not lead to higher performance.
    Keywords: dynamic incentives, relative performance pay, field experiment
    JEL: C93 M52
    Date: 2013–09
  3. By: Iván Arribas (ERI-CES, University of Valencia, Ivie); Irene Comeig (LINEEX, University of Valencia); Amparo Urbano Salvador (ERI-CES, University of Valencia); Jose E. Vila (ERI-CES, University of Valencia)
    Abstract: Statistical information is crucial for managerial decision making. The decision-making literature in psychology and mathematical cognition documents how different statistical formats can facilitate certain types of decisions. The present analysis is the first of its kind to assess the impact of statistical formats in the presentation of data from market research on both the optimality of market decisions and the time required to perform the decision-making process. An economic experiment provides the data for this study. The experiment presents statistical information in simple frequencies and relative frequencies using numerical and pictorial representations in the context of different informational environments. The key findings are that statistical information presented in terms of relative frequency formats gives rise to more accurate decision making than data presented in terms of simple frequencies, independently of the informational environments. When time is the relevant variable, numerical formats lead to a faster interpretation than pictorial ones. Since the number of factors defining the four statistical formats and the different informational environments is quite large, an orthogonal design offers a suitable experimental design. This design keeps the experiment manageable without substantially reducing its analytical power
    Keywords: Economic experiments, Statistical formats, Probability judgment, Orthogonal design, Judgment under uncertainty
    Date: 2013–10
  4. By: Lisa Cameron; Manisha Shah
    Abstract: We investigate whether experiencing a natural disaster affects risk-taking behavior. We conduct standard risk games (using real money) with randomly selected individuals in rural Indonesia. We find that individuals who recently suffered a flood or earthquake exhibit more risk aversion. Experiencing a natural disaster causes people to perceive that they now face a greater risk of a future disaster. We conclude that this change in perception of background risk causes people to take fewer risks. We provide evidence that experimental risk behavior is correlated with real life risk behavior, highlighting the importance of our results.
    JEL: D81 O12 Q54
    Date: 2013–10
  5. By: Rudolf Kerschbamer
    Abstract: This paper proposes a geometric delineation of distributional preference types and a non-parametric approach for their identification in a two-person context. It starts with a small set of assumptions on preferences and shows that this set (i) naturally results in a taxonomy of distributional archetypes that nests all empirically relevant types considered in previous work in economics and social psychology; and (ii) gives rise to a clean experimental test design that discriminates between archetypes according to core features of preferences rather than properties of specific modelling variants. As a by-product the test yields a two-dimensional index of preference intensity.
    Keywords: distributional preferences, social preferences, other-regarding preferences, social value orientations, behavioral economics, experimental economics
    JEL: C90 D63 D64 C81 B41
    Date: 2013–10
  6. By: Kräkel, Matthias; Nieken, Petra
    Abstract: We analyze whether incentives from relative performance pay are reduced or enhanced if a department is possibly terminated due to a crisis. Our benchmark model shows that incentives decrease in a severe crisis, but are boosted given a minor crisis since efforts are strategic complements in the former case but strategic substitutes in the latter one. We tested our predictions in a laboratory experiment. The results confirm the effort ranking but show that in a severe crisis individuals deviate from equilibrium significantly stronger than in other situations. This behavior contradicts the benchmark model and leads to a five times higher survival probability of the department. We develop a new theoretical approach that may explain players’ behavior.
    Keywords: crisis; incentives; strategic complements; strategic substitutes; tournament
    JEL: C9 J3 J6 M5
    Date: 2013
  7. By: Heywood, John S. (University of Wisconsin, Milwaukee); Siebert, W. Stanley (University of Birmingham); Wei, Xiangdong (Lingnan University)
    Abstract: This field experiment examines output quantity and quality for workers in a data input business. We observe two sets of workers that differ in monitoring intensity as they move from time to piece rates. The application of piece rates increases quantity, and we find that the resultant quality can be improved with sufficient monitoring. "Committed" workers also produce higher quantity and quality, showing the role of worker selection - which appears especially strong under time rates. Our results thus show how a firm can refine its worker selection and monitoring options together with the payment system to deliver its chosen quality-quantity combination.
    Keywords: piece rate, monitoring, shirking, quantity and quality trade off, field experiment, worker committment
    JEL: D2 J3 L2 M5
    Date: 2013–09
  8. By: Alexis Antoniades; Ganesh Seshan; Roberto A. Weber; Robertas Zubrickas
    Abstract: We provide a direct test of the impact of altruism on remittances. From a sample of 105 male migrant workers from Kerala, India working in Qatar, we elicit the propensity to share with others from their responses in a dictator game, and use it as a proxy for altruism. When the entire sample is considered, we find that only migrants' income robustly explains remittances. Altruism does not seem to matter. However, we document a strong positive relationship between altruism and remittances for those migrants that report a loan obligation back home, which is nearly half the sample. We explain the role of loan obligations with a standard remittance model, extended with reference-dependent preferences.
    Keywords: Remittances, altruism, reference-dependent preferences, dictator game, Qatar
    JEL: O12 O15 D81
    Date: 2013–10
  9. By: Siddiqi, Hammad
    Abstract: The principle of no arbitrage says that identical assets should offer the same returns. However, experimental and anecdotal evidence suggests that people often rely on analogy making while valuing assets. The principle of analogy making says that similar assets should offer the same returns. I show that the principle of analogy making generates a closed-form alternative to the Black Scholes formula that does not require a complete market. The new formula differs from the Black Scholes formula only due to the appearance of a parameter in the formula that captures the risk premium on the underlying. The new formula,called the analogy option pricing formula, provides a new explanation for the implied volatility skew puzzle in equity options. The key empirical predictions of the analogy formula are discussed. Existing Empirical evidence strongly supports these predictions.
    Keywords: Mental Accounting, Analogy Making, Option Pricing, Behavioral Finance, Implied Volatility Skew, Black Scholes
    JEL: G0 G02 G1 G12 G13
    Date: 2013–08–30
  10. By: Paolo Falco
    Abstract: This paper investigates the role of risk-aversion in the allocation of workers between formal and informal jobs in Ghana. In the model I propose risk-averse workers can opt between the free-entry informal sector and queuing for formal occupations. Conditional on identifying the riskier option, the model yields testable implications on the relationship between risk-preferences and workers’ allocation. My testing strategy proceeds in two steps. First, I estimate expected income uncertainty through panel data and find it significantly higher in the informal sector. Second, using novel experimental data to elicit individual attitudes to risk, I estimate the direct effect of risk-aversion on occupational choices and find that, in line with the first result, more risk-averse workers are more likely to queue for formal jobs and less likely to be in the informal sector. The results bear important implications for the optimal design of employment policies and social security.
    Keywords: sector allocation; occupational choices; risk-aversion; informality
    JEL: C93 J21 J24 J64 O17
    Date: 2013
  11. By: Frank Schorfheide (Department of Economics, University of Pennsylvania); Kenneth I. Wolpin (Department of Economics, University of Pennsylvania)
    Abstract: A recent literature has developed that combines two prominent empirical approaches to ex ante policy evaluation: randomized controlled trials (RCT) and structural estimation. The RCT provides a “gold-standard" estimate of a particular treatment, but only of that treatment. Structural estimation provides the capability to extrapolate beyond the experimental treatment, but is based on untestable assumptions and is subject to structural data mining. Combining the approaches by holding out from the structural estimation exercise either the treatment or control sample allows for external validation of the underlying behavioral model. Although intuitively appealing, this holdout methodology is not well grounded. For instance, it is easy to show that it is suboptimal from a Bayesian perspective. Using a stylized representation of a randomized controlled trial, we provide a formal rationale for the use of a holdout sample in an environment in which data mining poses an impediment to the implementation of the ideal Bayesian analysis and a numerical illustration of the potential benefits of holdout samples.
    Keywords: Bayesian Analysis, Model Selection, Principal-Agent Models, Randomized Controlled Trials
    JEL: C11 C31 C52
    Date: 2013–10–14

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.