New Economics Papers
on Experimental Economics
Issue of 2014‒03‒08
thirteen papers chosen by

  1. Beware of Popular Kids Bearing Gifts: A Framed Field Experiment By Jingnan Chen; Daniel Houser; Natalia Montinari; Marco Piovesan
  2. Behavioral public choice: A survey By Schnellenbach, Jan; Schubert, Christian
  3. Peer Pressure and Productivity: The Role of Observing and Being Observed By Sotiris Georganas; Mirco Tonin; Michael Vlassopoulos
  4. No Two Experiments are Identical By Epstein, Larry G.; Halevy, Yoram
  5. Are groups 'less behavioral'? The case of anchoring By Meub, Lukas; Proeger, Till
  6. Do Emission Trading Schemes Facilitate Efficient Abatement Investments? An Experimental Study By Silvester van Koten
  7. Referral Incentives in Crowdfunding By Naroditskiy, Victor; Stein, Sebastian; Tonin, Mirco; Tran-Thanh, Long; Vlassopoulos, Michael; Jennings, Nicholas R.
  8. Fairness Through the Lens of Cooperative Game Theory: An Experimental Approach By Geoffroy De Clippel; Kareen Rozen
  9. Buying and Selling Risk - An Experiment Investigating Evaluation Asymmetries By Werner Güth; Matteo Ploner; Ivan Soraperra
  10. Group lending or individual lending? Evidence from a randomised field experiment in Mongolia By Attanasio, Orazio; Augsburg, Britta; de Haas, Ralph; Fitzsimons, Emla; Harmgart, Heike
  11. Negotiating to Avoid "Gradual" versus "Dangerous" Climate Change: An Experimental Test of Two Prisoners' Dilemma By Scott Barrett; Astrid Dannenberg
  12. Prospect Theory for Online Financial Trading By Yang-Yu Liu; Jose C. Nacher; Tomoshiro Ochiai; Mauro Martino; Yaniv Altshuler
  13. Behavioural Economics and Taxation By Till Olaf Weber; Jonas Fooken; Benedikt Herrmann

  1. By: Jingnan Chen (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Natalia Montinari (Lund School of Economics and Management, Lund University); Marco Piovesan (Department of Economics, University of Copenhagen)
    Abstract: The literature on pro-social behavior shows that older children are more generous than younger children; however, the level of individual generosity is heterogeneous even between children of the same age. This paper investigates whether a child’s popularity affects a child’s generosity. Our participants – 231 children, six to twelve years old – decide how many of their four colored wristbands they want to share with another anonymous child. We manipulate the visibility of this decision: in treatment Public, the decisions are revealed to the entire class at the end of the game, whereas in treatment Private children’s decisions remain secret. In addition, we elicited each child’s network of friends using an innovative “seating map†mechanism. Our results reveal that more popular children are more generous in Public than Private decision environments, while less popular children behave similarly in both cases. Moreover, older children in Public display greater generosity than (i) older children in Private and (ii) younger children in either Public or Private. Finally, in Public, older and more popular children share more than less popular older children, and more than younger children regardless of popularity; whereas, in Private there is no effect of popularity on children of any age. Length: 34
    Keywords: popularity, children, field experiment, public decision making, pro-social behavior
    JEL: C93 J13
    Date: 2014–02
  2. By: Schnellenbach, Jan; Schubert, Christian
    Abstract: Public choice theory has originally been motivated by the need to correct the asymmetry, widespread in traditional welfare economics, between the motivational assumptions of market participants and policymakers: Those who played the game of politics should also be considered rational and self-interested. History repeats itself with the rise of behavioral economics: Cognitive biases discovered in market participants often induce a call for rational governments to intervene. Recently, however, behavioral economics has also been applied to the explanatory analysis of the political process. This paper surveys the current state of the emerging field of 'behavioral public choice' and considers the scope for further research. --
    Keywords: Behavioral Public Choice,Behavioral Economics,Rational Irrationality,Cognitive Biases,Social Norms,Voting,Paternalism
    JEL: D78 D03 A12 D72
    Date: 2014
  3. By: Sotiris Georganas; Mirco Tonin; Michael Vlassopoulos
    Abstract: Peer effects arise in situations where workers observe each others’ work activity. In this paper we disentangle the effect of observing a peer from that of being observed by a peer, by setting up a real effort experiment in which we manipulate the observability of performance. In particular, we randomize subjects into three groups: in the first one subjects are observed by another subject, but do not observe anybody; in the second one subjects observe somebody else’s performance, but are not observed by anybody; in the last group subjects work in isolation, neither observing, nor being observed. We consider both a piece rate compensation scheme, where pay depends solely on own performance, and a team compensation scheme, where pay also depends on the performance of other team members. Overall, we find some evidence that subjects who are observed increase productivity at least initially when compensation is team based, while we find that subjects observing react to what they see when compensation is based only on own performance.
    Keywords: peer effects, piece rate, team incentives, real-effort experiment
    JEL: D03 J24 M52 M59
    Date: 2014
  4. By: Epstein, Larry G.; Halevy, Yoram
    Abstract: We study choice between bets on the colors of two balls, where one ball is drawn from each of two urns. Though you are told the same about each urn, you are told very little, so that you are not given any reason to be certain that the compositions are identical. We identify choices that reveal an aversion to ambiguity about the relation between urns, thus identifying a source of uncertainty different from the usual Knightian distinction between risk and ambiguity. Choice behavior is studied in a controlled high-stakes laboratory experiment, and the ability of new and existing models to rationalize the experimental findings is examined.
    Keywords: ambiguity, uncertainty, correlation, Ellsberg
    JEL: D81 D91
    Date: 2014–02–22
  5. By: Meub, Lukas; Proeger, Till
    Abstract: Economic small group research points to groups as more rational decision-makers in numerous economic situations. However, no attempts have been made to investigate whether groups are affected similarly by behavioral biases that are pervasive for individuals. If groups were also able to more effectively avoid these biases, the relevance of biases in actual economic contexts dominated by group decision-making might be questioned. We consider the case of anchoring as a prime example of a well-established, robust bias. Individual and group biasedness in three economically relevant domains are compared: factual knowledge, probability estimates and price estimates. In contrast to previous anchoring studies, we find groups to successfully reduce, albeit not eliminate, anchoring in factual knowledge tasks. For the other domains, groups and individuals are equally biased by external anchors. We thus suggest that group cooperation reduces biases prevalent on the individual level for predominantly intellective tasks, yet fails to improve decision-making when judgmental aspects are involved. --
    Keywords: anchoring bias,group decision-making,heuristics and biases,incentives,laboratory experiment
    JEL: C91 C92 D8
    Date: 2014
  6. By: Silvester van Koten
    Abstract: Cap-and-trade programs, such as the EU carbon Emission Trading Scheme, are currently the most prominent market-based method used to reduce carbon emissions. Cap-and-trade programs are, on theoretical grounds, considered to be a cost-efficient method. Experimental evidence, however, shows that experimental subjects make highly inefficient abatement choices and that permit allocation methods (allocating permits for free or against payment) bias subjects to too much or too little abatement. The experimental evidence thus suggests that cap-and-trade programs may in practice be more costly than theory predicts. This study, however, challenges this interpretation and shows that, when they are price takers (as in thick markets) and have ample opportunities for learning, subjects quickly learn to make accurate decisions and that these decisions are not affected by the permit allocation method.
    Keywords: abatement; cap-and-trade; experimental economics; emission trading system; carbon permits; experience effects;
    JEL: C91 D62 Q54 Q55 Q58
    Date: 2014–01
  7. By: Naroditskiy, Victor (University of Southampton); Stein, Sebastian (University of Southampton); Tonin, Mirco (University of Southampton); Tran-Thanh, Long (University of Southampton); Vlassopoulos, Michael (University of Southampton); Jennings, Nicholas R. (University of Southampton)
    Abstract: Word-of-mouth, referral, or viral marketing is a highly sought-after way of advertising. We undertake a field experiment that compares incentive mechanisms for encouraging social media shares to support a given cause. Our experiment takes place on a website set up to promote a fundraising drive by a large cancer research charity. Site visitors who choose to sign up to support the cause are then asked to spread the word about the cause on Facebook, Twitter or other channels. Visitors are randomly assigned to one of four treatments that differ in the way social sharing activities are incentivised. Under the control treatment, no extra incentive is provided. Under two of the other mechanisms, the sharers are offered a fixed number of points that help take the campaign further. We compare low and high levels of such incentives for direct referrals. In the final treatment, we adopt a multi-level incentive mechanism that rewards direct as well as indirect referrals (where referred contacts refer others). We find that providing high level of incentives results in a statistically significant increase in sharing behaviour and resulting signups. Our data does not indicate a statistically significant increase for the low and recursive incentive mechanisms.
    Keywords: crowdfunding, referral marketing
    JEL: C93 D64 L31 M31
    Date: 2014–02
  8. By: Geoffroy De Clippel; Kareen Rozen
    Date: 2014–02–24
  9. By: Werner Güth; Matteo Ploner; Ivan Soraperra
    Abstract: Experimental studies of the WTP-WTA gap avoid social trading by implementing an incentive compatible mechanism for each individual trader. We compare a traditional random price mechanism and a novel elicitation mechanism preserving social trading, without sacrificing mutual incentive compatibility. Furthermore, we focus on risky goods - binary monetary lotteries - for which asymmetries in evaluations are more robust with respect to experimental procedures. For both elicitation mechanisms, the usual asymmetry in evaluation by sellers and buyers is observed. An econometric estimation sheds new light on its causes: potential buyers are over-pessimistic and systematically underweight the probability of a good outcome.
    Keywords: WTP-WTA gap, risk, elicitation mechanisms, probability weighting
    JEL: D81
    Date: 2014
  10. By: Attanasio, Orazio; Augsburg, Britta; de Haas, Ralph; Fitzsimons, Emla; Harmgart, Heike
    Abstract: Although microfinance institutions across the world are moving from group lending towards individual lending, this strategic shift is not substantiated by sufficient empirical evidence on the impact of both types of lending on borrowers. We present such evidence from a randomised field experiment in rural Mongolia. We find a positive impact of access to group loans on food consumption and entrepreneurship. Among households that were offered group loans the likelihood of owning an enterprise increases by 10 per cent more than in control villages. Enterprise profits increase over time as well, particularly for the less-educated. For individual lending on the other hand, we detect no significant increase in consumption or enterprise ownership. These results are in line with theories that stress the disciplining effect of group lending: joint liability may deter borrowers from using loans for non-investment purposes. Our results on informal transfers are consistent with this hypothesis. Borrowers in group-lending villages are less likely to make informal transfers to families and friends while borrowers in individual-lending villages are more likely to do so. We find no significant difference in repayment rates between the two lending programmes, neither of which en-tailed weekly repayment meetings. --
    Keywords: group lending,poverty,access to finance,randomised field experiment
    JEL: O16 G21 D21 I32
    Date: 2014
  11. By: Scott Barrett; Astrid Dannenberg
    Abstract: According to the Framework Convention on Climate Change, global collective action is needed to stabilize “greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous [our emphasis] anthropogenic interference with the climate system.” The Framework Convention thus implies that, on the far side of some critical concentration level, climate change will be “dangerous,” while on the near side of the threshold, climate change will be “safe” (though perhaps still undesirable). Rather than be linear and smooth, the Framework Convention warns that climate change may be “abrupt and catastrophic.”
    Keywords: climate change, prisoners’ dilemma, catastrophe, negotiations, cooperation, uncertainty, experimental economics
    JEL: C72 F51 H41 H87 Q54
    Date: 2014
  12. By: Yang-Yu Liu; Jose C. Nacher; Tomoshiro Ochiai; Mauro Martino; Yaniv Altshuler
    Abstract: Prospect theory is widely viewed as the best available descriptive model of how people evaluate risk in experimental settings. According to prospect theory, people are risk-averse with respect to gains and risk-seeking with respect to losses, a phenomenon called "loss aversion". Despite of the fact that prospect theory has been well developed in behavioral economics at the theoretical level, there exist very few large-scale empirical studies and most of them have been undertaken with micro-panel data. Here we analyze over 28.5 million trades made by 81.3 thousand traders of an online financial trading community over 28 months, aiming to explore the large-scale empirical aspect of prospect theory. By analyzing and comparing the behavior of winning and losing trades and traders, we find clear evidence of the loss aversion phenomenon, an essence in prospect theory. This work hence demonstrates an unprecedented large-scale empirical evidence of prospect theory, which has immediate implication in financial trading, e.g., developing new trading strategies by minimizing the effect of loss aversion. Moreover, we introduce three risk-adjusted metrics inspired by prospect theory to differentiate winning and losing traders based on their historical trading behavior. This offers us potential opportunities to augment online social trading, where traders are allowed to watch and follow the trading activities of others, by predicting potential winners statistically based on their historical trading behavior rather than their trading performance at any given point in time.
    Date: 2014–02
  13. By: Till Olaf Weber (The University of Nottingham); Jonas Fooken (Joint Research Centre); Benedikt Herrmann (Joint Research Centre)
    Abstract: Most traditional tax policies have been based on classical economic models of tax payers as decision makers.As in many fields where humans make decision, however, more integrated behavioural economic models, that is, models that take into account both psychological and purely economic factors can provide further insights.Therefore, a large literature in the field on the behavioural economics of taxation exists. This report summarizes central parts of this literature, reviewing mainly experimental and observational studies in the academic literature to be informative for policy-makers. It also provides a potential agenda for future research and application of behavioural economic policies with regard to tax compliance.
    Keywords: Tax compliance, behavioural economics, economic experiments, survey
    JEL: D03 H26 H41
    Date: 2014–01

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