New Economics Papers
on Experimental Economics
Issue of 2013‒11‒14
fifteen papers chosen by

  1. Bad boys: the effect of criminal identity on dishonesty By Alain Cohn; Michel André Maréchal; Thomas Noll
  2. Gender Differences in Risk Aversion: Do Single-Sex Environments Affect their Development? By Alison L. Booth; Lina Cardona-Sosa; Patrick Nolen
  3. Does Inflation Targeting Matter ? An Experimental Investigation By Camille Cornand; Cheick Kader M’Baye
  4. Time Delay and Support for Taxation By Tiezzi, Silvia; Xiao, Erte
  5. "Payment Systems in the Healthcare Industry: An Experimental Study Of Physician Incentives" By Ellen P. Green
  6. Lack of material resources causes harsher moral judgments By Marko Pitesa; Stefan Thau
  7. Kitchen Confidential? Norms for the Use of Transferred Knowledge in Gourmet Cuisine By Di Stefano , Giada; King , Andrew A.; Verona , Gianmario
  8. Experimentation in Federal Systems By Steven Callander; Bård Harstad
  9. Language Skills and Homophilous Hiring Discrimination: Evidence from Gender-and Racially-Differentiated Applications By Anthony Edo; Nicolas Jacquemet; Constantine Yannelis
  10. Over-Confidence and Entrepreneurial Choice Under Ambiguity By Shyti , Anisa
  11. Incentive compensation for risk managers when effort is unobservable By Paul H. Kupiec
  12. Disastrous disappointments: asset-pricing with disaster risk and disappointment aversion By Jim Dolmas
  13. The impact of duality on managerial decisions and performance: Evidence from the mutual fund industry By Kempf, Alexander; Pütz, Alexander; Sonnenburg, Florian
  14. A Multi-attribute Yardstick Auction without Prior Scoring By Jens Leth Hougaard; Kurt Nielsen; Athanasios Papakonstantinou
  15. Nonlinear Difference-in-Differences in Repeated Cross Sections with Continuous Treatments By Xavier D'Haultfoeuille; Stefan Hoderlein; Yuya Sasaki

  1. By: Alain Cohn; Michel André Maréchal; Thomas Noll
    Abstract: We conducted an experiment with 182 inmates from a maximum-security prison to analyze the impact of criminal identity on dishonest behavior. We randomly primed half of the prisoners to increase the mental saliency of their criminal identity, while treating the others as the control group. The results demonstrate that prisoners become more dishonest when we render their criminal identity more salient in their minds. An additional placebo experiment with regular citizens shows that the effect is specific to individuals with a criminal identity. Moreover, our experimental measure of dishonesty correlates with inmates’ offenses against in-prison regulation. Altogether, these findings suggest that criminal identity plays a crucial role in rule violating behavior.
    Keywords: Dishonesty, identity, crime, prison, experiment
    JEL: K00 C93 K14 K42 Z10
    Date: 2013–10
  2. By: Alison L. Booth; Lina Cardona-Sosa; Patrick Nolen
    Abstract: Single-sex classes within coeducational environments are likely to modify students' risk-taking attitudes in economically important ways. To test this, we designed a controlled experiment using first year college students who made choices over real-stakes lotteries at two distinct dates. Students were randomly assigned to weekly classes of three types: all female, all male, and coeducational. They were not allowed to change group subsequently. We found that women are less likely to make risky choices than men at both dates. However, after eight weeks in a single-sex class environment, women were significantly more likely to choose the lottery than their counterparts in coeducational groups. These results are robust to the inclusion of controls for IQ and for personality type, as well as to a number of sensitivity tests. Our findings suggest that observed gender differences in behavior under uncertainty found in previous studies might partly reflect social learning rather than inherent gender traits.
    Keywords: Gender, risk preferences, single-sex groups, cognitive ability. Classification JEL: C9, C91, C92, J16, D01, D80, J16, J24
    Date: 2013–10
  3. By: Camille Cornand (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Cheick Kader M’Baye (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)
    Abstract: We use laboratory experiments with human subjects to test the relevance of different inflation targeting regimes. In particular and within the standard New Keynesian model, we evaluate to what extent communication of the inflation target is relevant to the success of inflation targeting. We find that if the central bank only cares about inflation stabilization, announcing the inflation target does not make a di-fference in terms of macroeconomic performances compared to a standard active monetary policy. However, if the central bank also cares about the stabilization of the economic activity, communicating the target helps to reduce the volatility of inflation, interest rate, and output gap although their average levels are not affected. This finding is consistent with those of the theoretical literature and provides a rationale for the adoption of a flexible inflation targeting regime.
    Keywords: Inflation targeting, inflation expectations, monetary policy, New Keynesian model, laboratory experiments
    JEL: D82 D83 E52 E58
    Date: 2013
  4. By: Tiezzi, Silvia; Xiao, Erte
    Abstract: People often experience the benefits of taxation with time. We design experiments to test the hypothesis that delaying the benefits of taxation can lead to low support for taxes. In a dynamic market experiment with negative externalities, we consistently find that people are less willing to accept Pigouvian taxes, aimed at reducing negative externalities and restoring market efficiency, when the negative externalities are delayed. While people learn to adopt taxation when the negative externality occurs immediately, the resistance to taxation remains robust over time when the externality is delayed. Our data suggest that people are less likely to support taxation when they found it difficult to understand the working of the new institution. We discuss the policy implications of our findings for promoting support for taxation.
    Keywords: lab experiments, externalities, support for taxation, discounting
    JEL: D03 D62 D72 H23
    Date: 2013–10
  5. By: Ellen P. Green (Department of Economics,University of Delaware)
    Abstract: Policy makers and the healthcare industry have proposed changes to physician payment structures as a way to improve the quality of health care and reduce costs. Several of these proposals require healthcare providers to employ a valuebased purchasing program (also known as pay-for-performance [P4P]). However, the way in which existing payment structures impact physician behavior is unclear and, therefore, predicting how well P4P will perform is difficult. To understand the impact physician payment structures have on physician behavior, I approximate the physician-patient relationship in a real-effort laboratory experiment. I study several prominent physician payment structures including feefor- service, capitation, salary, and P4P. I find that physicians are intrinsically motivated to provide high quality care and relying exclusively on extrinsic incentives to motivate physicians is detrimental to the quality of care and costly for the healthcare industry.
    Keywords: Physician Payment System, Laboratory Experiment, Incentives, Fee-for-Service, Capitation, Salary, Report Cards, Pay-for-Performance, Crowd Out
    JEL: C9 I1
    Date: 2013
  6. By: Marko Pitesa (MC - Management et Comportement - Grenoble École de Management (GEM)); Stefan Thau (INSEAD - INSEAD)
    Abstract: This research tested the idea that lack of material resources (e.g., low income) causes people to make harsher moral judgments because lack of material resources is associated with a lower ability to cope with the effects of others' harmful behavior. Consistent with this idea, a large cross-cultural survey (Study 1) found that both chronic (low income) and situational (inflation) lack of material resources were associated with harsher moral judgments. The effect of inflation was stronger for low-income individuals, whom inflation renders relatively more vulnerable. A follow-up experiment (Study 2) caused participants to perceive they lacked material resources by employing different anchors on the scale they used to report their income. The manipulation led to harsher judgments of harmful, but not of non-harmful, transgressions and this effect was explained by a sense of vulnerability. Alternative explanations were excluded. These results demonstrate a functional and contextually situated nature of moral psychology.
    Keywords: moral judgments, material resources, income, moral transgressions, moral psychology
    Date: 2013–10–25
  7. By: Di Stefano , Giada; King , Andrew A.; Verona , Gianmario
    Abstract: When will knowledge holders share their knowledge with peers? Several studies suggest that norms of knowledge disclosure encourage knowledge transfer. More recently, scholars have hypothesized that norms of knowledge use may indirectly promote it. In this article, we synthesize a theoretical framework of the effect of norms of knowledge use and test its predictions by means of a field experiment involving more than 500 Italian chefs. For the literature on knowledge transfer, we confirm the importance of norms, but we also show that they are not complete substitutes for other means of protecting private knowledge. For the literature on social norms, we provide evidence of how actors assess others’ propensity to conform and how this influences the intention to participate in the norm-regulated exchange.
    Keywords: Social norms; knowledge transfer; institutional theory; thick rationality; intellectual property
    JEL: L00 Z00
    Date: 2013–08–07
  8. By: Steven Callander; Bård Harstad
    Abstract: We present a model where heterogeneous districts choose both whether to experiment and the policies to experiment with. Since districts learn from each other, the first-best requires that policy experiments converge so that innovations are useful also for neighbors. However, the equilibrium implies the reverse – policy divergence – since each district uses its policy choice to discourage free-riding. We then study a clumsy central government that harmonizes final policy choices. This progressive concentration of power induces a policy tournament that can increase the incentive to experiment and encourage policy convergence. We derive the best political regime as well as the optimal levels of heterogeneity, transparency, prizes, and intellectual property rights.
    JEL: D78 H77
    Date: 2013–10
  9. By: Anthony Edo (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); 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); Constantine Yannelis (Stanford University - Department of Economics - Department of Economics)
    Abstract: This paper investigates the importance of ethnic homophily in the hiring discrimination process, and provides a novel test for statistical discrimination. Our evidence comes from a correspondence test performed in France, in which we use three different kinds of ethnic identification: French sounding names, North African sounding names, and "foreign" sounding names with no clear ethnic association. Within both male and female groups, we show that all non-French applicants are equally discriminated against when compared to French applicants. This indicates that racial discrimination in employment is directed against members of non-majority ethnic groups, and highlights the importance of favoritism for in-group members. Moreover we find direct evidence of homophily: recruiters with European names are more likely to call back French named applicants and female recruiters are more likely to call back women. The paper also directly tests for statistical discrimination by adding a signal related to language skill ability in all resumes sent to half the job offers. Although the signal inclusion significantly impacts the discrimination experienced by non-French females, it is much weaker for male minorities.
    Keywords: Correspondence testing; gender discrimination; racial discrimination; ethnic homophily; language skills
    Date: 2013–10
  10. By: Shyti , Anisa
    Abstract: Entrepreneurship studies have attributed to over-confidence decisions to start a new venture. Many decision situations, through which over-confidence is measured, entail some degrees of uncertainty, (e.g., related to own skill or to competition). The aspect of uncertainty is largely neglected in over-confidence studies or entrepreneurial research. Both uncertainty and over-confidence influence individuals’ likelihood perceptions. Nevertheless, these two aspects are seldom jointly investigated, and the little evidence provides inconclusive results. In this study, we experimentally investigate how uncertainty, as a property of the situation, and over-confidence, as a characteristic of decision makers’ beliefs, influence choice behavior. Our findings with Executive MBA participants show that over-confident decision makers choose less uncertain options for low likelihood outcomes and more uncertain options for high likelihood outcomes, contrary to neutral confidence decision makers, whose choices are in line with standard Prospect Theory predictions
    Keywords: entrepreneurship; ambiguity attitudes; decision making; over-con fidence
    JEL: D80 D81 L26
    Date: 2013–05–21
  11. By: Paul H. Kupiec (American Enterprise Institute)
    Abstract: In a financial intermediary, risk managers can expend effort to reduce loan probability of default and loss given default, but effort is unobservable. Incentive compensation (IC) can induce manager effort. When deposit insurance is subsidized, the demand for risk management declines. Regulatory policy should then reinforce incentives to offer risk mangers appropriate IC contracts.
    Keywords: AEI Economic Policy Working Paper Series
    JEL: A G
    Date: 2013–10
  12. By: Jim Dolmas
    Abstract: In this paper, I combine disappointment aversion, as employed by Routledge and Zin and Campanale, Castro and Clementi, with rare disasters in the spirit of Rietz, Barro, Gourio, Gabaix and others. I find that, when the model’s representative agent is endowed with an empirically plausible degree of disappointment aversion, a rare disaster model can produce moments of asset returns that match the data reasonably well, using disaster probabilities and disaster sizes much smaller than have been employed previously in the literature. This is good news. Quantifying the disaster risk faced by any one country is inherently difficult with limited time series data. And, it is open to debate whether the disaster risk relevant to, say, US investors is well-approximated by the sizable risks found by Barro and co-authors in cross-country data. On the other hand, we have evidence that individuals tend to over-weight bad or disappointing outcomes, relative to the outcomes’ weights under expected utility. Recognizing aversion to disappointment means that disaster risks need not be nearly as large as suggested by the cross-country evidence for a rare disaster model to produce average equity premia and risk-free rates that match the data. I illustrate the interaction between disaster risk and disappointment aversion both analytically and in the context of a simple Rietz-like model of asset-pricing with rare disasters. I then analyze a richer model, in the spirit of Barro, with a distribution of disaster sizes, Epstein-Zin preferences, and partial default (in the event of a disaster) on the economy’s ‘risk-free’ asset. For small elasticities of intertemporal substitution, the model is able to match almost exactly the means and standard deviations of the equity return and risk-free rate, for disaster risks one-half or one-fourth the estimated sizes from Barro. For larger elasticities of intertemporal substitution, the model’s fit is less satisfactory, though it fails in a direction not often viewed as problematic—it under-predicts the volatility of the riskfree rate. Even so, apart from that failing, the results are broadly similar to those obtained by Gourio but with disaster risks one-half or onefourth as large.
    Keywords: Interest rates ; Financial markets
    Date: 2013
  13. By: Kempf, Alexander; Pütz, Alexander; Sonnenburg, Florian
    Abstract: We study the decisions and performance of managers who are also chair of the board (duality managers). We hypothesize that duality managers take more risky decisions and deliver worse performance than non-duality managers due to reduced level of control and replacement risk. Using the mutual fund industry as our laboratory we provide strong support for these hypotheses: Duality managers take risk that they could easily avoid, deviate from their benchmarks, make extreme decisions, and, consequently, deliver extreme performance outcomes. Furthermore, their average underperformance is 2.5 percent. All effects are the stronger, the more power the manager has in the board. --
    Keywords: Manager duality,governance,managerial decisions,agency conflicts,mutual funds
    JEL: G23 G34
    Date: 2013
  14. By: Jens Leth Hougaard (Department of Food and Resource Economics, University of Copenhagen); Kurt Nielsen (Department of Food and Resource Economics, University of Copenhagen); Athanasios Papakonstantinou (Department of Food and Resource Economics, University of Copenhagen)
    Abstract: We analyze a simple multi-attribute procurement auction that uses yardstick competition to settle prices. Upon receiving the submitted bids, a mediator computes the yardstick prices (bids) by a linear weighting of the other participants’ bids. The auction simplifies the procurement process by reducing the principal’s articulation of his preferences to simply choosing the most preferred offer as if it was a market with posted prices. Although truthful reporting does not constitute a Nash equilibrium, we demonstrate by simulations that truth-telling may indeed be some kind of focal point. By focusing on the initial winner in case everyone tells the truth, we show that even if the other bidders are allowed to misreport by as much as 20% of their true cost, the initial winner remains the winner in 80% of all simulated auctions in the case of 3 competing bidders. Furthermore, as it takes aggressive bidding to become the new winner of the auction, we show that the new winners typically win with a loss. Combining the two results we have that, almost independently of the number of competing bidders and the degree of misreporting, approximately 90% of all simulations will either have the same initial winner or a new winner who wins the auction with a loss in its utility.
    Keywords: Multi-attribute auction, yardstick competition, articulation of preferences, simulation
    Date: 2013–05
  15. By: Xavier D'Haultfoeuille (CREST); Stefan Hoderlein (Boston College); Yuya Sasaki (Johns Hopkins University)
    Abstract: This paper studies the identification of nonseparable models with continuous, endogenous regressors, also called treatments, using repeated cross sections. We show that several treatment effect parameters are identified under two assumptions on the effect of time, namely a weak stationarity condition on the distribution of unobservables, and time variation in the distribution of endogenous regressors. Other treatment effect parameters are set identified under curvature conditions, but without any functional form restrictions. This result is related to the difference-in-differences idea, but does neither impose additive time effects nor exogenously defined control groups. Furthermore, we investigate two extrapolation strategies that allow us to point identify the entire model: using monotonicity of the error term, or imposing a linear correlated random coefficient structure. Finally, we illustrate our results by studying the effect of mother's age on infants' birth weight.
    Keywords: identification, repeated cross sections, nonlinear models, continuous treatment, random coefficients, endogeneity, difference-in-differences.
    Date: 2013–08–13

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