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on Experimental Economics |
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Issue of 2013‒12‒15
27 papers chosen by |
| By: | John List |
| Abstract: | Not applicable. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:feb:artefa:00389&r=exp |
| By: | Cason, Timothy; Sheremeta, Roman; Zhang, Jingjing |
| Abstract: | Costless pre-play communication has been found to effectively facilitate coordination and enhance efficiency in games with Pareto-ranked equilibria. We report an experiment in which two groups compete in a weakest-link contest by expending costly efforts. Allowing intra-group communication leads to more aggressive competition and greater coordination than control treatments without any communication. On the other hand, allowing inter-group communication leads to less destructive competition. As a result, intra-group communication decreases while inter-group communication increases payoffs. Our experiment thus provides an example of an environment where communication can either enhance or damage efficiency. This contrasts sharply with experimental findings from public goods and other coordination games, where communication always enhances efficiency and often leads to socially optimal outcomes. |
| Keywords: | contest, between-group competition, within-group competition, cooperation, coordination, free-riding, experiments |
| JEL: | C70 D72 H41 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52107&r=exp |
| By: | Charness, Gary; Cobo-Reyes, Ramon; Lacomba, Juan A; Lagos, Francisco; Perez, Jose M |
| Keywords: | Social and Behavioral Sciences |
| Date: | 2013–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt8j55h1xj&r=exp |
| By: | Charness, Gary; Feri, Francesco; Meléndez-Jiménez, Miguel A; Sutter, Matthias |
| Keywords: | Social and Behavioral Sciences |
| Date: | 2013–07–22 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt6m0584qv&r=exp |
| By: | Charness, Gary; Schram, Arthur |
| Keywords: | Social and Behavioral Sciences |
| Date: | 2013–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt0t39x0pt&r=exp |
| By: | John Duffy; Enrica Carbone |
| Abstract: | We report results from a laboratory experiment exploring the extent to which individuals can solve a deterministic, intertemporal lifecycle consumption optimization problem. The environment we study has a positive interest rate on savings and no discounting implying that the optimal consumption path should be linearly increasing over time, i.e., agents maximize their lifecycle payoff by smoothing their consumption over time. In addition to studying the individual intertemporal consumption/savings problem, we explore the role played by social information regarding the consumption/savings decisions of other, homogeneously endowed agents as well as the role played by an external habit formation specification for preferences. We find that subjects are generally closest to the conditionally optimal consumption path when they do not have access to social information on the consumption decisions made by other, similarly situated subjects or when social concerns (external habits) are explicitly incorporated into their utility functions. |
| JEL: | C91 C92 D11 D91 E21 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:pit:wpaper:513&r=exp |
| By: | Deck, Cary; Sheremeta, Roman |
| Abstract: | This paper examines theory and behavior in a two-player game of siege, sequential attack and defense. The attacker’s objective is to successfully win at least one battle while the defender’s objective is to win every battle. Theoretically, the defender either folds immediately or, if his valuation is sufficiently high and the number of battles is sufficiently small, then he has a constant incentive to fight in each battle. Attackers respond to defense with diminishing assaults over time. Consistent with theoretical predictions, our experimental results indicate that the probability of successful defense increases in the defenders valuation and it decreases in the overall number of battles in the contest. However, the defender engages in the contest significantly more often than predicted and the aggregate expenditures by both parties exceed predicted levels. Moreover, both defenders and attackers actually increase the intensity of the fight as they approach the end of the contest. |
| Keywords: | Colonel Blotto, conflict resolution, weakest-link, game of siege, multi-period resource allocation, experiments. |
| JEL: | C91 D74 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52130&r=exp |
| By: | De Paola, Maria (University of Calabria); Gioia, Francesca (University of Calabria); Scoppa, Vincenzo (University of Calabria) |
| Abstract: | We conducted a field experiment involving 720 Italian undergraduate students to investigate the existence of gender differences in performance in competitive settings and whether performance is affected by one's opponent gender. The experimental design was aimed at disentangling gender differences in taste for competition from other differences in psychological attitudes, such as self-confidence and risk aversion. Students were invited to undertake a midterm exam under a tournament scheme having as a prize some bonus points to add to the final grade. Students competed in pairs of equal predicted ability but different gender composition. We find that females are as likely as males to take part in the competition and to obtain a good performance. The gender of one's competitor does not play any role in shaping students' behavior. Men and women perform similarly both in the competitive and in the non-competitive environment. |
| Keywords: | gender differences, attitude toward competition, psychological differences, tournaments, field experiment, student achievements |
| JEL: | J16 J24 J70 C93 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7799&r=exp |
| By: | Miwa Nakai (Graduate School of Economics, Kobe University, Japan); Tomonori Honda (The National Institute of Advanced Industrial Science and Technology, Japan); Nariaki Nishino (School of Engineering, The University of Tokyo, Japan); Kenji Takeuchi (Graduate School of Economics, Kobe University, Japan) |
| Abstract: | This paper aims, through laboratory-based economic experiments, to shed light on the decision-making process in SRI and how it differs from decision making by other types of investors. We asked subjects to make decisions regarding stock investments on the basis of the three attributes of return, variance, and CSR, and we estimated their utility function to classify the types of investors. We also conducted a dictator game and lottery-choice experiments to measure subjectsf heterogeneity in regard to three psychological factors: altruism, risk aversion, and time preference. We used psychological factors to apply a latent class model and we examined whether these factors affect investment in the stock of companies that actively promote CSR. The main finding of this study is that there is heterogeneity among investors, even among SRI investors. With the latent class model, we found conventional investors, SRI investors, and risk-loving SRI investors among our subjects. We hypothesised three psychological factors behind this heterogeneity. While the results support our altruistic hypothesis, the results under the risk-averse hypothesis and lower time preference hypothesis depend on which investor group is treated as SRI investors and also on the model specification. Although previous studies also found heterogeneity among SRI investors, no studies have tried to reveal the psychological background of the heterogeneity. |
| Keywords: | Behavioural Finance; Economic Experiment; Socially Responsible Investment |
| JEL: | M14 G02 C91 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:1314&r=exp |
| By: | Tibor Neugebauer,; Sascha Fullbrunn (LSF) |
| Abstract: | We model the safety net problem as a social dilemma game involving moral hazard, risk taking and limited liability. The safety net game is compared to both an individual decision task involving full liability and the deterministic public goods game. We report experimental data to show that limited "liability leads to higher risk taking in comparison to full liability;" nevertheless, the difference is much smaller than predicted by theory. In the safety net game, subjects behave as if socially responsible for the losses they impose on the group. With repetition, nevertheless, a gradual emergence of the moral hazard problem arises. |
| Keywords: | Forthcoming: Economic Inquiry |
| JEL: | C9 D7 D8 H4 I1 I3 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:crf:wpaper:12-12&r=exp |
| By: | Tibor Neugebauer; Susana Cabrera; Enrique Fatas; Juan A. Lacomba (LSF) |
| Abstract: | The paper reports an experimental study on a promotion-demotion mechanism to mitigate the free-rider problem in team production. The "mechanism hierarchically splits a group in two; we refer to one subgroup as" the major league and to the other as the minor league. The most cooperative subject of the minor league is switched with the least cooperative subject in the major league. The results reveal a significant increase of cooperation levels relative to the standard voluntary contribution mechanism. We argue that competition arises and contributions increase because some subjects believe in a larger short-term continuation payoff from the major league than from the minor league. The data suggest that the promotion-demotion mechanism leads to a self-sorting of subjects according to their cooperativeness. |
| Keywords: | experiment, group incentives, organization design |
| JEL: | C92 H41 J33 J4 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:crf:wpaper:12-3&r=exp |
| By: | Emna Trabelsi (ISG - Institut Supérieur de Gestion de Tunis - Université de Tunis); Walid Hichri (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon) |
| Abstract: | In this paper, we propose to compare different partial transparency regimes in order to determine the optimal diessemination policy by the central bank, using an experimental approach. A treatment dedicated to the benchmark situation (where information is fully released) is also available. Our experiment is based on subsequent framework of Morris and Shin (2002), Cornand and Heinemann (2008) and Trabelsi (2012). The predictive power of K-level reasoning is an issue that is addressed also in this paper. Our experiment indicates that -when fully disclosed- players overreact to public information and this overreaction is efficiently reduced when the degree of publicity decreases (i.e. when the fragmentation measure increases). The average weight assigned to common signal decreases over treatments, especially when we establish partial transparent strategy (i.e. fragmented information). The results provide support both for and against global games theoretical predictions. In fact, although players overreact to public signal, their behavior is inconsistent with theoretical equilibrium, which means that the destabilizing effect of public information is less pronounced experimentally than when it does in theory. This is not the case when public information is fragmented ; subjects' behavior does approach equilibrium. These observations coincide with both a collective and an individual analyses of behavior. |
| Keywords: | Central bank transparency; coordination games; semi-public information; private information; experimental economics |
| Date: | 2013–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00915667&r=exp |
| By: | Christoph Bühren (University of Kassel); Thorben C. Kundt (Helmut-Schmidth-University) |
| Abstract: | We conducted an experimental study on social preferences using dictator games similar to Fehr et al. (2008). We show that social preferences differ between participants who receive low-stakes monetary rewards for their decisions and participants who consider hypothetical stakes. The results are robust when we control for socio-demographic characteristics and participants’ risk attitudes. Besides incentives, gender plays an important role for the categorization of different social preferences. |
| Keywords: | social preferences, incentive mechanisms, dictator games |
| JEL: | D91 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201349&r=exp |
| By: | Fisch, Jill E.; Wilkinson-Ryan, Tess |
| Abstract: | There is mounting evidence that retail investors make predictable, costly investment mistakes, including underinvestment, naive diversification, and payment of excessive fund fees. Over the past thirty-five years, however, participant-directed 401(k) plans have largely replaced professionally managed pension plans, requiring unsophisticated retail investors to navigate the financial markets themselves. Policy-makers have struggled with regulatory interventions designed to improve the quality of investment decisions without a clear understanding of the reasons for investor mistakes. Absent such an understanding, it is difficult to design effective regulatory responses. This article offers a first step in understanding the investor decision-making process. We use an internet-based experiment to disentangle possible explanations for inefficient investment decisions. The experiment employs a simplified construct of an employee's allocation among the options in a retirement plan coupled with technology that enables us to collect data on the specific information that investors choose to view. In addition to collecting general information about the process by which investors choose among mutual fund options, we employ an experimental manipulation to test the effect of an instruction on the importance of mutual fund fees. Pairing this instruction with simplified fee disclosure allows us to distinguish between motivation-limits and cognition-limits as explanations for the widespread findings that investors ignore fees in their investment decisions. Our results offer partial but limited grounds for optimism. On the one hand, within our simplified experimental construct, our subjects allocated more money, on average, to higher-value funds. Furthermore, subjects who received the fees instruction paid closer attention to mutual fund fees and allocated their investments into funds with lower fees. On the other hand, the effects of even a blunt fees instruction were limited, and investors were unable to identify and avoid clearly inferior fund options. In addition, our results suggest that excessive, naive diversification strategies are driving many investment decisions. Although our findings are preliminary, they suggest valuable avenues for future research and important implications for regulation of retail investing. -- |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:201323&r=exp |
| By: | Joseph E. Harrington, Jr (Dept of Business Economics & Public Policy, The Wharton School, University of Pennsylvania); Roberto Hernan-Gonzalez (Dept of Economic Theory and History, Universidad de Granada); Praveen Kujal (Middlesex University) |
| Abstract: | Collusion is when firms coordinate on suppressing competition, and coordination typically requires that firms communicate in some manner. This study conducts experiments to determine what modes of communications are able to produce and sustain collusion and how the efficacy of communication depends on firm heterogeneity and the number of firms. We consider two different communication treatments: non-binding price announcements and unrestricted written communication. Our main findings are that price announcements allow subjects to coordinate on a high price but only under duopoly and when firms are symmetric. While price announcements do result in higher prices when subjects are asymmetric, there is little evidence that they are coordinating their behavior. When subjects are allowed to engage in unrestricted communication, coordination on high prices occurs whether they are symmetric or asymmetric. We find that the incremental value to express communication (compared to price announcements) is greater when firms are asymmetric and there are more firms. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:13-30&r=exp |
| By: | Lasha Lanchava |
| Abstract: | This study is the first economic experiment that tests the economic significance of the theory of psychological reactance (Brehm, 1966). For this purpose, I design an economic experiment in which subjects are asked to express their valuation of two-choice situations. In one case, subjects are given absolute freedom, whereas in another, the extent of their freedom of choice is limited. As the experimental data revealed, subjects’ valuation of free and limited choice situations did not differ significantly. Thus, in the experiment, the subjects did not display signs of reactance. In the end, the potential reasons of why the subjects did not exhibit reactance are discussed. The lessons derived from this study may serve as a future guide for testing the economic significance of the reactance theory. |
| Keywords: | psychological reactance; freedom of choice; law enforcement; |
| JEL: | K0 C90 A1 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp492&r=exp |
| By: | Gerald Eisenkopf |
| Abstract: | In intergroup contests a manager advises and motivates her group's members. Her rewards often depend on the subsequent contest expenditure of the members. I test whether such incentives undermine the credibility and effectiveness of a manager's efforts. In the different experimental treatments the managers either benefit from very high or low expenditure or get a predetermined payment. The results show that different management incentives shape the expenditure of the group members even if managers have an advisory role only. However, group members follow recommendations more closely if management compensation is not linked to contest expenditures. |
| Keywords: | Communication, Experiment, Rent-seeking, Management compensation, Group |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:twi:respas:0087&r=exp |
| By: | Dmitry Ryvkin (Department of Economics, Florida State University); Anastasia Semykina (Department of Economics, Florida State University) |
| Abstract: | Many empirical studies have found a positive association between economic development and democracy survival across countries; however, establishing a causal link between the two with naturally occurring data is problematic. We address this question in a laboratory experiment with democracy defined in a narrow sense as the ability of citizens to invest freely in profitable projects and vote on redistributive income taxation. The level of economic development is measured as the efficiency of investment. In the alternative regime -- autocracy -- the dictator decides on the investment levels and taxation for the whole group. Citizens can voluntarily switch from democracy to autocracy by a majority vote. Using a 2x2 between-subject design, we explore how the likelihood of such switches, referred to as democracy breakdown, varies with economic efficiency and inequality in initial endowments. We find, consistent with theoretical predictions, that democracy breakdown is more likely the lower the efficiency, and increases with the degree of inequality. |
| Keywords: | democracy breakdown, economic efficiency, inequality, voting, experiment |
| JEL: | D72 P48 C92 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2013_12_01&r=exp |
| By: | Natalia Montinari (University of Lund, Department of Economics); Michela Rancan (Robert Schuman Centre for Advanced Studies, European University Institute) |
| Abstract: | In many different contexts individuals take decisions on the behalf of others. However, little is known about how this circumstance affects the decision making process and influences the ultimate individuals' choices. In this paper, we focus on the context of investment decisions and study if (and how) lottery-type investment decisions made on behalf of another person differ i) compared to decisions which do not affect anyone else, and ii) depending on the social distance between who makes the decision and who is affected by it. Our results shows that social distance (i.e., whether the person affected by one's decision is an unknown stranger or a friend) is an important determinant when people decide on the behalf of others. Individuals are heterogeneous in their individual investment strategies but, on average, when deciding on behalf of a friend rather than only for themselves or a stranger, their behavior is closer to expected value maximization, exhibiting less risk taking. We interpret these findings as evidence of other regarding preferences affecting the decision making process in lottery-type decisions when the social distance is shortened. |
| Keywords: | Risk seeking, Other Regarding Preferences, Social Distance, Friends, Lottery-type investment |
| JEL: | A13 C91 D64 D81 |
| Date: | 2013–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2013-050&r=exp |
| By: | Tibor Neugebauer; Sascha Fllbrunn (LSF) |
| Abstract: | The paper reports experimental data on the behavior in the first-price sealed-bid auction for a varying number of bidders when values and bids are private information. This feedback-free design is proposed for the experimental test of the one-shot game situation. We consider both within-subject and betweensubjects variations. In line with the qualitative risk neutral Nash equilibrium prediction, the data show that bids increase in the number of bidders. However, in auctions involving a small number of bidders, average bids are above, and in auctions involving a larger number of bidders, average bids are below the risk neutral equilibrium prediction. The quartile analysis reveals that bidding behavior is not constant across the full value range for a given number of bidders. On the high value quartiles, however, the average bid-value ratio is not different from the risk neutral prediction. The behavior is different when the winning bid is revealed after each repetition. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:crf:wpaper:13-10&r=exp |
| By: | Benoît Chalvignac; Herrade Igersheim |
| Abstract: | In this paper we present the result of a distribution experiment where players must choose between a maximin, equity-dominant solution and a Hicks optimal, efficiency-dominant distribution. Three different information conditions are used. Under the certainty condition, inequity aversion has no observable effect on the choices of the players whose payoffs vary across distributions. The risk and the uncertainty conditions yield more contrasted outcomes. |
| Keywords: | Distribution games, Inequity aversion, Hicks efficiency, Maximin. |
| JEL: | D03 D6 D7 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2013-21&r=exp |
| By: | Zagorsek, Branislav |
| Abstract: | Information technologies in the postindustrial era require the companies to use new tools to be competitive within the high-velocity environment. One of the new tools they can use is business experiment. Full potential of business experiments rose with the evolution of information technologies. Using sophisticated information technologies or even basic approaches can help to get decisions much faster or even immediately in real time compared to using traditional methods. The purpose of this paper is to present several ways of how to use business experiments that can be used to enhance company’s performance and to find out how prone the Slovak companies are to use business experiments. It should also give a picture how are the business experiments linked to level of informatization of the companies. The two main research foundations of the study were studying actual trends in researches on the topic of business experiments and a self-made survey among 382 companies in Slovakia as a partial outcome of my dissertation research. To interpret the research mathematical and statistical methods were used. First the theoretical basics were formulated and interpreted, as second these basics were enhanced with survey results. The biggest value of this paper is to present some new approaches of how to gain competitive advantage using business experiments. Using the business experiments the competitive advantage can be gained by decreasing the costs when designing the right portfolio, increasing profit by setting the optimal price or just by designing the right product fitting the specific needs of target group or finding the best business conditions like best geographical situation or even finding some correlations between not related products on the first view that allow to bulk them to increase the profit. |
| Keywords: | business experiment, postindustrial, experiment, strategy, business model, decision making, pricing indifference band |
| JEL: | M10 |
| Date: | 2013–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:51708&r=exp |
| By: | Jean Desrochers; J. Francois Outreville |
| Abstract: | The purpose of this paper is to examine whether people treat all forms of uncertainty in the same way. Studies investigating known-risk gambles and ambiguous gambles have systematically used the urn context. Little systematic research has investigated differences in expressed attitude as a function of the manner in which vague probability information is communicated to a decision maker. The experiments reported in this paper examine the behavior of people when faced with different situations with and without an insurance context: a risky situation (the probability of loss is known), an uncertain situation (there is no prior information on the probability of loss) or an ambiguous (the information provided is vague). |
| Keywords: | Risk behavior; ambiguity aversion; insurance purchase |
| JEL: | C90 D81 D83 G22 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:icr:wpicer:10-2013&r=exp |
| By: | Vera Mironova (University of Maryland); Egor Lazarev (Columbia University) |
| Abstract: | This study explores how minority status influences individual decisions about investment in a post-conflict society. The study is based on multiple sources of evidence from Bosnia and Herzegovina. First, we exploit an exogenous imposition of minority and majority positions by an asif random adjustment of an administrative boundary and analyze household and business surveys. Second, we run a “lab-in-the field” experiment. The analysis shows that both actual and experimentally induced minority statuses are associated with lower levels of investment. Evidence suggests the perception of discrimination by the government, and not actual discrimination, as the plausible cause of such behavior. Several implications follow: emergence and persistence of segregated ethnic businesses, underinvestment and a basis for horizontal inter-group inequality that could increase the probability of a conflict. |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:hic:wpaper:162&r=exp |
| By: | Christopher T. Conlon; Julie Holland Mortimer |
| Abstract: | The 2010 Department of Justice and Federal Trade Commission Horizontal Merger Guidelines lay out a new standard for assessing proposed mergers in markets with differentiated products. This new standard is based on a measure of ``upward pricing pressure,'' (UPP) and the calculation of a ``gross upward pricing pressure index'' (GUPPI) in turn relies on a ``diversion ratio,'' which measures the fraction of consumers of one product that switch to another product when the price of the first product increases. One way to calculate a diversion ratio is to estimate own- and cross-price elasticities. An alternative (and more direct) way to gain insight into diversion is to exogenously remove a product from the market and observe the set of products to which consumers actually switch. In the past, economists have rarely had the ability to experiment in this way, but more recently, the growth of digital and online markets, combined with enhanced IT, has improved our ability to conduct such experiments. In this paper, we analyze the snack food market, in which mergers and acquisitions have been especially active in recent years. We exogenously remove six top-selling products (either singly or in pairs) from vending machines and analyze subsequent changes in consumers' purchasing patterns, firm profits, diversion ratios, and upward pricing pressure. Using both nonparametric analyses and structural demand estimation, we find significant diversion to remaining products. Both diversion and the implied upward pricing pressure differ significantly across manufacturers, and we identify cases in which the GUPPI would imply increased regulatory scrutiny of a proposed merger. |
| JEL: | L0 L4 L44 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19703&r=exp |
| By: | Leeds, Daniel (University of Michigan); Leeds, Michael A. (Temple University); Motomura, Akira (Stonehill College) |
| Abstract: | The relevance of sunk costs in decision making is one of the major sources of disagreement between neoclassical economists and behavioral economists. We test the importance of sunk costs by examining the role of a player's draft position on his playing time in the National Basketball Association. Specifically, we ask whether players taken as "lottery picks" or in the first round of the draft are treated differently from otherwise identical players who are chosen later. We build on previous studies in three ways. First, we study a time period that had a stronger contrast between the financial commitment to first and second-round draft picks. Second, we use a better measure of playing time by accounting fully for the time a player loses to injury, suspension, or other exogenous factor. Finally and most importantly, we use a more sophisticated methodology – regression discontinuity – to test for whether teams treat lottery picks or first-round picks differently from later picks. Our results find little or no impact of draft round or lottery status on playing time. Hence, our findings strongly support the neoclassical outlook. |
| Keywords: | sunk costs, behavioral economics, basketball, regression discontinuity |
| JEL: | D03 J23 L83 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7801&r=exp |
| By: | Eleonora Bottino; Cintia Goddio; Praveen Kujal |
| Abstract: | Society adopts institutions that can change incentives, reference points and entitlements for the economic agents. In this paper we look at two stylized wage setting institutions and their effect on wage offers and effort in the classic gift exchange experiments of Fehr, Kirchsteiger and Riedl (1993). The first one is the exogenously imposed minimum wage institution (first instituted in New Zealand in 1894). The second institution we look is an endogenous wage proposal institution where workers first make wage proposals. We find that the imposition of an exogenous minimum wage floor at the competitive outcome lowers average wage offers. However, workers do not negatively reciprocate and continue to offer high effort. In the second institution workers make non-binding (endogenous) minimum wage proposals. The introduction of endogenous minimum wage proposals marginally increases wage offers while, average effort decreases when wage proposals are not matched. Finally, relative to the baseline, overall efficiency with the non-binding minimum wage decreases, while, efficiency is only slightly higher under endogenous minimum wage proposals. We find that clear evidence that the institutional structure has important implications towards wage offers, effort and efficiency. |
| JEL: | J2 J3 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:13-29&r=exp |