New Economics Papers
on Experimental Economics
Issue of 2014‒06‒14
29 papers chosen by

  1. The Paradox of Misaligned Profiling: Theory and Experimental Evidence By Holt, Charles; Kydd, Andrew; Razzolini, Laura; Sheremeta, Roman
  2. Cooperation and Personality By Proto, Eugenio; Rustichini, Aldo
  3. A trust game in loss domain. By Kvaløy, Ola; Luzuriaga, Miguel
  4. The values of ex-ante and ex-post communication in dictator games By Pascal Langenbach
  5. The effects of rewards on tax compliance decisions By Fochmann, Martin; Kroll, Eike B.
  6. Social anchor effects in decision-making under ambiguity By Lahno, Amrei M.
  7. Can Interaction be the Primary Focus of In-group Biases? By David Johnson; Robert Oxoby
  8. The Relevance of Relative Position in Ultimatum Games By Miller Moya, Luis Miguel; Ubeda Molla, Paloma
  9. The effect of tax privacy on tax compliance: An experimental investigation By Blaufus, Kay; Bob, Jonathan; Otto, Philipp E.
  10. A hybrid game with conditional and unconditional veto power By Werner Güth; M. Vittoria Levati; Natalia Montinari; Chiara Nardi
  11. Other-regarding behavior under collective action By Sherstyuk, Katerina; Tarui, Nori; Wengrin, Melinda Podor; Viloria, Jay; Saijo, Tatsuyoshi
  12. Discretionary Sanctions and Rewards in the Repeated Inspection Game By Daniele Nosenzo; Theo Offerman; Martin Sefton; Ailko van der Veen
  13. Cognitive Ability, Character Skills, and Learning to Play Equilibrium: A Level-k Analysis By Gill, David; Prowse, Victoria L.
  14. Five Steps to Planning Success. Experimental Evidence from U.S. Households By Aileen Heinberg; Angela A. Hung; Arie Kapteyn; Annamaria Lusardi; Anya Savikhin Samek; Joanne Yoong
  15. Estimating the Impact of Microcredit on Those Who Take It Up: Evidence from a Randomized Experiment in Morocco By Bruno Crépon; Florencia Devoto; Esther Duflo; William Pariente
  16. Human Pro-Social Motivation and the Maintenance of Social Order By Simon Gächter
  17. Strategic Trustworthiness via Unstrategic Third-party Reward – An Experiment By Lilia Zhurakhovska
  18. Peer effects and social preferences in voluntary cooperation By Simon Gächter; Christian Thöni
  19. Buyer power in large buyer groups? By Lisa Bruttel
  20. Directing remittances to education with soft and hard commitments : evidence from a lab-in-the-field experiment and new product take-up among Filipino migrants in Rome By De Arcangelis, Giuseppe; Joxhe, Majlinda; McKenzie, David; Tiongson, Erwin; Yang, Dean
  21. The Effects of Non-binding Retail-price Recommendations on Consumer and Retailer Behavior By Lisa Bruttel
  22. Jacks-of-All-Trades? The Effect of Balanced Skills on Team Performance By Rosendahl Huber, Laura; Sloof, Randolph; van Praag, Mirjam
  23. Can tax rate increases foster investment under entry and exit flexibility? Insights from an economic experiment By Fahr, René; Janssen, Elmar; Sureth, Caren
  24. Weak moral motivation leads to the decline of voluntary contributions By Charles Figuieres; David Masclet; Marc Willinger
  25. Sharing Personal Information with Close and Distant Peers By Simeon Schudy; Verena Utikal
  26. How do risk attitudes affect measured confidence? By Zahra Murad; Chris Starmer; Martin Sefton
  27. Creating Reciprocal Value Through Operational Transparency By Ryan W. Buell; Tami Kim; Chia-Jung Tsay
  28. Moving Ahead by Thinking Backwards: Cognitive Skills, Personality, and Economic Preferences in Collegiate Success By Stephen V. Burks; Connor Lewis; Paul Kivia; Amanda Wiener; Jon E. Anderson; Lorenz Götten; Colin DeYoung; Aldo Rustichini
  29. The price of empowerment : experimental evidence on land titling in Tanzania By Ali, Daniel Ayalew; Collin, Matthew; Deininger, Klaus; Dercon, Stefan; Sandefur, Justin; Zeitlin, Andrew

  1. By: Holt, Charles; Kydd, Andrew; Razzolini, Laura; Sheremeta, Roman
    Abstract: This paper implements an experimental test of a game-theoretic model of equilibrium profiling. Attackers choose a demographic “type” from which to recruit, and defenders choose which demographic types to search. Some types are more reliable than others in the sense of having a higher probability of carrying out a successful attack if they get past the security checkpoint. In a Nash equilibrium, defenders tend to profile by searching the more reliable attacker types more frequently, whereas the attackers tend to send less reliable types. Data from laboratory experiments with financially motivated human subjects are consistent with the qualitative patterns predicted by theory. However, we also find several interesting behavioral deviations from the theory.
    Keywords: terrorism, profiling, game theory, laboratory experiment
    JEL: C72 C91 J16
    Date: 2014–05–20
  2. By: Proto, Eugenio (University of Warwick and CAGE); Rustichini, Aldo (University of Minnesota)
    Abstract: Cooperating behavior may be fostered by personality traits re ecting either favorable inclination to others or willingness to comply with norms and rules. We test the relative importance of these two factors in an experiment where subjects provide real mental effort in two treatments with identical task, differing only by whether others' payment is affected. If the rst hypothesis is true, subjects reporting high Agreeableness score should put more effort; if the second is true, reporting higher Conscientiousness should predict more effort. We find experimental support for the second hypothesis but not for the first, as subjects reporting high Altruism do not behave consistently with this statement.
    Keywords: Personality Traits, Cooperation, Effort Provision
    Date: 2014
  3. By: Kvaløy, Ola (UiS); Luzuriaga, Miguel (UiS)
    Abstract: In standard trust games, no trust is the default, and trust generates a potential gain. We investigate a reframed trust game in which full trust is default and where no trust generates a loss. We find significantly lower levels of trust and trustworthiness in loss domain when full trust is default than in gain domain when no trust is default. As a consequence, trust is on average profitable in gain domain, but not in loss domain. We also find that subjects respond more positively to higher trust in loss domain than in gain domain.
    Keywords: Trust; Reciprocity; Framing; Defaults; Reference Points; Experiment
    JEL: C72 C91
    Date: 2014–06–10
  4. By: Pascal Langenbach (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: In the dictator game, the recipient’s opportunity to send a message to the dictator increases giving. The effect is equally strong if the message is written before or after the dictator has decided (experiment 1). Recipients have a stronger willingness to pay for ex-ante communication, however (experiment 2).
    Keywords: communication; dictator games; generosity; laboratory experiment
    JEL: D63 D64 C91 D83 D03
    Date: 2014–06
  5. By: Fochmann, Martin; Kroll, Eike B.
    Abstract: We analyze how the redistribution of tax revenues influences tax compliance behavior by applying different reward mechanisms. In our experiment, subjects have to make two decisions. In the first stage, subjects decide on the contribution to a public good. In the second stage, subjects declare their income from the first stage for taxation. Our main results are threefold: First, from an aggregated perspective, rewards have a negative overall effect on tax compliance. Second, we observe that rewards affect the decision of taxpayers asymmetrically. In particular, rewards have either no effect (for those who are rewarded) or a negative effect (for those who are not rewarded) on tax compliance. Thus, if a high compliance rate of taxpayers is preferred, rewards should not be used by the tax authority. Third, we find an inverse u-shaped relationship between public good contribution and tax compliance. In particular, up to a certain level, tax compliance increases with subjects' own contributions to the public good. Above this level, however, tax compliance decreases with the public good contribution. --
    Keywords: tax evasion,tax compliance,redistribution of taxes,tax affectation,rewarding,public good,behavioral economics,experimental economics
    JEL: C91 D14 H24
    Date: 2014
  6. By: Lahno, Amrei M.
    Abstract: I experimentally examine whether feedback about others' choices provides an anchor for decision-making under ambiguity. In a between-subjects design I vary whether subjects learn choices made individually by a "peer" in a first part when facing the same task a second time, and whether prospects are defined over gains or losses. My key findings are that the relative ambiguity attitude (compared to the peer's) significantly matters for shifts in individual attitudes, and that dynamics considerably differ between gain and loss domains. For gains, learning to be comparably ambiguity averse increases the likelihood for such shifts, relative to the individual condition; for losses, this likelihood decreases only if peers learn to exhibit exactly the same attitude. Further, I observe imitative shifts towards the peer's attitude in the gain domain, but only towards neutrality in the loss domain. Shifts towards neutrality for losses also appear significant without social anchor suggesting that ambiguity seeking might not be particularly robust. Moreover, cognitive ability positively correlates to shifts towards neutrality in the gain domain, but has no impact in the loss domain.
    Keywords: Decision-making under uncertainty; ambiguity; social comparison; learning; laboratory experiment.
    JEL: C91 D03 D81 D83
    Date: 2014–06–05
  7. By: David Johnson (University of Calgary); Robert Oxoby (University of Calgary)
    Abstract: Previous work on group identity in economics has demonstrated behavior consistent with in-group favoritism: individuals are more generous to members of their own group in comparison to members of other groups. We present an experiment in which we seek to identify if in-group favoritism is driven by a desire to be more generous to in-group members or rather eschew interacting with out-group members. Our results demonstrate that individuals do not necessarily behave differently when interacting with in-group or out-group members in a simple ultimatum game. Rather, many individuals are willing to incur a cost to ensure interacting with an in-group member. Surprisingly this discrimination does not result in larger ultimatum game offers, but results in increased levels of reported happiness with resultant outcomes.
    Keywords: experiments, identity, happiness
    JEL: C9 D1 M5
    Date: 2014–05–29
  8. By: Miller Moya, Luis Miguel; Ubeda Molla, Paloma
    Abstract: This paper investigates the effect of focal points and initial relative position in the outcome of a bargaining process. We conduct two on-line experiments. In the first experiment we attempt to replicate Güth, Huck and Müller's (2001) results about the relevance of equal splits. In our second experiment, we recover the choices of participants in forty mini-ultimatum games. This design allows us to test whether the equal split or any other distribution or set of distributions are salient. Our data provide no support for a focal-point explanation but we find support for an explanation based on relative position. Our results confirm that there is a norm against hyper-fair offers. Proposers are expected to behave selfishly when the unselfish distribution leads to a change in the initial relative position.
    Keywords: bargaining, focal points, relative position
    JEL: C78 C92
    Date: 2014
  9. By: Blaufus, Kay; Bob, Jonathan; Otto, Philipp E.
    Abstract: In this paper, a tax game with audit costs as a public bad is designed to investigate the impact of public disclosure on tax evasion experimentally. Three different types of tax privacy are tested, ranging from complete privacy to full disclosure. We expect to observe two different effects: first, a contagion effect, arising when an individual observes non-compliance of other individuals and therefore reduces his own tax compliance; second, a shame effect of increased tax compliance due to the anticipated shame of being declared a tax evader. We find evidence of increasing tax evasion with reduced tax privacy if information is disclosed anonymously. Our results also indicate that the shame effect is not strong enough to override the contagion effect when both effects are present. Our results are of particular importance for fiscal policy because public disclosure may lead to more evasion instead of less, due to motivational crowding-out of tax morale. --
    Keywords: Tax privacy,Tax evasion,Public bad,Social norm,Conditional cooperation,Economic experiment
    JEL: H24 H26 H30
    Date: 2014
  10. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); M. Vittoria Levati (Max Planck Institute of Economics, Jena, and DSE, University of Verona); Natalia Montinari (Economics Department, Lund University); Chiara Nardi (Max Planck Institute of Economics, Jena, and DSE, University of Verona)
    Abstract: In the hybrid game, one proposer confronts two responders with veto power: one responder can condition his decisions on his own offer but the other cannot. We vary what the informed responder knows about the offers as well as the uninformed responder's conflict payoff. Neither variation affects behavior: proposers always favor informed responders, who frequently accept minimal offers.
    Keywords: Ultimatum, Yes/No game
    JEL: C72 C92
    Date: 2014–05–14
  11. By: Sherstyuk, Katerina; Tarui, Nori; Wengrin, Melinda Podor; Viloria, Jay; Saijo, Tatsuyoshi
    Abstract: In many collective action settings, such as decisions on public education or climate change mitigation, actions of a group have welfare consequences for themselves as well as their followers. We conduct laboratory experiments with two-stage predecessor-follower prisoners' dilemma and coordination games with dynamic externalities to study whether concerns for the followers' welfare affect the predecessors' behavior. We find that predecessors often give up own payoffs to avoid imposing negative externalities on the followers, but not to generate positive externalities for the followers. A concern for the followers aligned with own group payoff maximization motive helps to resolve social dilemma and coordination problems; yet, a conflict in motives greatly exacerbates both free-riding and coordination on the payoff-inferior equilibrium. We also find strong evidence of social learning: the followers tend to blindly mimic their own predecessor, but act opposite to their match's predecessor, no matter whether these actions are welfare-improving or not.
    Keywords: economic experiments, other-regarding behavior, collective action
    JEL: C90 C73
    Date: 2014–05
  12. By: Daniele Nosenzo (School of Economics, University of Nottingham); Theo Offerman (Department of Economics, University of Amsterdam); Martin Sefton (School of Economics, University of Nottingham); Ailko van der Veen (Department of Economics, University of East Anglia)
    Abstract: We experimentally investigate a repeated “inspection game†where, in the stage game, an employee can either work or shirk and an employer simultaneously chooses to inspect or not inspect. The unique equilibrium of the stage game is in mixed strategies with positive probabilities of shirking/inspecting while combined payoffs are maximized when the employee works and the employer does not inspect. We examine the effects of allowing the employer discretion to sanction or reward the employee after observing stage game payoffs. When employers have limited discretion, and can only apply sanctions and/or rewards following an inspection, we find that both instruments are equally effective in reducing shirking and increasing joint earnings. When employers have discretion to reward and/or sanction independently of whether they inspect we find that rewards are more effective than sanctions. In treatments where employers can combine sanctions and rewards employers rely mainly on rewards and outcomes closely resemble those of treatments where only rewards are possible.
    Keywords: Inspection Game; Costly Monitoring; Discretionary Incentives; Rewards; Punishment; Experiment.
    Date: 2014–04
  13. By: Gill, David (University of Oxford); Prowse, Victoria L. (Cornell University)
    Abstract: In this paper we investigate how cognitive ability and character skills influence behavior, success and the evolution of play towards Nash equilibrium in repeated strategic interactions. We study behavior in a p-beauty contest experiment and find striking differences according to cognitive ability: more cognitively able subjects choose numbers closer to equilibrium, converge more frequently to equilibrium play and earn more even as behavior approaches the equilibrium prediction. To understand better how subjects with different cognitive abilities learn differently, we estimate a structural model of learning based on level-k reasoning. We find a systematic positive relationship between cognitive ability and levels; furthermore, the average level of more cognitively able subjects responds positively to the cognitive ability of their opponents, while the average level of less cognitively able subjects does not respond. Finally, we compare the influence of cognitive ability to that of character skills, and find that both cognition and personality affect behavior and learning. More agreeable and emotionally stable subjects perform better and learn faster, although the effect of cognitive ability on behavior is stronger than that of character skills.
    Keywords: cognitive ability, character skills, personality traits, level-k, bounded rationality, learning, convergence, non-equilibrium behavior, beauty contest, repeated games, structural modeling, theory of mind, intelligence, IQ, cognition, Raven test
    JEL: C92 C73 D83
    Date: 2014–06
  14. By: Aileen Heinberg; Angela A. Hung; Arie Kapteyn; Annamaria Lusardi; Anya Savikhin Samek; Joanne Yoong
    Abstract: While financial knowledge has been linked to improved financial behavior, there is little consensus on the value of financial education, in part because rigorous evaluation of various programs has yielded mixed results. However, given the heterogeneity of financial education programs in the literature, focusing on “generic” financial education can be inappropriate and even misleading. Lusardi (2009) and others argue that pedagogy and delivery matter significantly. In this paper, we design and field a low-cost, easily-replicable financial education program called “Five Steps,” covering five basic financial planning concepts that relate to retirement. We conduct a field experiment to evaluate the overall impact of “Five Steps” on a probability sample of the American population. In different treatment arms, we quantify the relative impact of delivering the program through video and narrative formats. Our results show that short videos and narratives (each takes about three minutes) have sizable short-run effects on objective measures of respondent knowledge. Moreover, keeping informational content relatively constant, format has significant effects on other psychological levers of behavioral change: effects on motivation and self-efficacy are significantly higher when videos are used, which ultimately influences knowledge acquisition. Follow-up tests of respondents’ knowledge approximately eight months after the interventions suggest that between one-quarter and one-third of the knowledge gains and about one-fifth of the self-efficacy gains persist. Thus, this simple program has effects both in the short run and medium run.
    JEL: D14 D91
    Date: 2014–06
  15. By: Bruno Crépon; Florencia Devoto; Esther Duflo; William Pariente
    Abstract: This paper reports the results from a randomized evaluation of a microcredit program introduced in rural areas of Morocco starting in 2006 by Al Amana, the country’s largest microfinance institution. Al Amana was the only MFI operating in the study areas during the evaluation period. Thirteen percent of the households in treatment villages took a loan, and none in control villages. Among households identified as more likely to borrow based on ex-ante characteristics, microcredit access led to a significant rise in investment in assets used for self-employment activities (mainly animal husbandry and agriculture), and an increase in profit. But this increase in profit was offset by a reduction in income from casual labor, so overall there was no gain in measured income or consumption. We find suggestive evidence that these results are mainly driven by effects on borrowers, rather than by externalities on households that do not borrow. This implies that among those who chose to borrow, microcredit had large, albeit very heterogeneous, impacts on assets and profits from self-employment activities, but small impact on consumption: we can reject an increase in consumption of more than 10% among borrowers, two years after initial rollout.
    JEL: D21 G21 O16
    Date: 2014–05
  16. By: Simon Gächter (School of Economics, University of Nottingham)
    Abstract: This chapter presents some insights from basic behavioural research on the role of human pro-social motivation to maintain social order. I argue that social order can be conceptualised as a public good game. Past attempts to explain social order typically relied on the assumption of selfish and rational agents ("homo economicus"). The last twenty years of research in behavioural and experimental economics have challenged this view. After presenting the most important findings of recent research on human pro-sociality I discuss the evidence on three pillars of the maintenance of social order. The first pillar is internalised norms of cooperation, sustained by emotions such as guilt and shame. The second pillar is the behaviour of other people who typically are "conditional cooperators" willing to cooperate if others do so as well. This motivation can sustain cooperation if enough people cooperate but can jeopardise social order if many others follow selfish inclinations. The third pillar are sanctions meted out to anyone who does not cooperate; ideally punishment can work as a mere threat without being executed much. The chapter also presents some evidence on the cross-cultural variability of some findings, in particular with regard to punishment behaviour. The chapter concludes with remarks on future research.
    Keywords: social order; social dilemma; pro-sociality; strong reciprocity; moral emotions; social norms; conditional cooperation; punishment; rule of law
    Date: 2014–02
  17. By: Lilia Zhurakhovska (University of Erlangen-Nuremberg & Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: The paper investigates the introduction of an institution, in form of an impartial authority (third party), into a two-person situation. The impartial authority can reward a stranger for acting according to a desired behavioral norm. The reward is costly for the authority and her behavior cannot be strategic, i.e., it cannot lead to higher earnings for her in a later stage. A trust game followed by a helping game is implemented. The trustee in the trust game becomes the recipient in the helping game. This paper demonstrates that positive strong indirect reciprocity can exist in one-shot settings (helpers transfer more money to their recipients the more these are trustworthy) and that positive strong indirect reciprocity is not diminishing if the reward can be anticipated. Furthermore, the positive strong indirect reciprocity is correctly anticipated and leads to higher trustworthiness in the treatment.
    Keywords: Norms, strong indirect reciprocity, third-party reward, trust game, helping game, anticipation
    JEL: D63 C90 D03
    Date: 2014–05
  18. By: Simon Gächter (School of Economics, University of Nottingham); Christian Thöni (Centre Walras-Pareto, University of Lausanne)
    Abstract: Social preferences and social influence effects (“peer effectsâ€) are well documented, but little is known about how peers shape social preferences. Settings where social preferences matter are often situations where peer effects are likely too. In a gift-exchange experiment with independent payoffs between two agents we find causal evidence for peer effects. Efforts are positively correlated but with a kink: agents follow a low-performing but not a high-performing peer. This contradicts major theories of social preferences which predict that efforts are unrelated, or negatively related. Some theories allow for positively-related efforts but cannot explain most observations. Conformism, norm following and social esteem are candidate explanations.
    Keywords: social preferences, voluntary cooperation, peer effects, reflection problem, gift-exchange; conformism; social norms; social esteem, experiments.
    Date: 2014–03
  19. By: Lisa Bruttel
    Abstract: This paper studies the exertion of market power in large buyer groups confronting an incumbent monopolist and a potential market entrant in a repeated trade situation. In the experiment, buyer power can either occur as demand withholding when only the incumbent is present in the market, or it can take the form of buying at higher prices from the entrant in order to foster future re-entry. Comparing markets with groups of two and eight buyers, we find that both forms are prevalent irrespective of the number of buyers. However, a control treatment shows that seemingly strategic behavior is better explained by inequality aversion of the buyers towards the two different sellers.
    Keywords: buyer power, market entry, experiment
    Date: 2014
  20. By: De Arcangelis, Giuseppe; Joxhe, Majlinda; McKenzie, David; Tiongson, Erwin; Yang, Dean
    Abstract: This paper tests how migrants'willingness to remit changes when given the ability to direct remittances to educational purposes using different forms of commitment. Variants of a dictator game in a lab-in-the-field experiment with Filipino migrants in Rome are used to examine remitting behavior under varying degrees of commitment. These range from the soft commitment of simply labeling remittances as being for education, to the hard commitment of having funds directly paid to a school and the student's educational performance monitored. The analysis finds that the introduction of simple labeling for education raises remittances by more than 15 percent. Adding the ability to directly send this funding to the school adds only a further 2.2 percent. The information asymmetry between migrants and their most closely connected household is randomly varied, but no significant change is found in the remittance response to these forms of commitment as information varies. Behavior in these games is shown to be predictive of take-up of a new financial product called EduPay, designed to allow migrants to pay remittances directly to schools in the Philippines. This take-up seems largely driven by a response to the ability to label remittances for education, rather than to the hard commitment feature of directly paying schools.
    Keywords: Remittances,Tertiary Education,Access&Equity in Basic Education,Rural Development Knowledge&Information Systems,Debt Markets
    Date: 2014–05–01
  21. By: Lisa Bruttel
    Abstract: This paper presents results from an experiment on the effects of retail-price recommendations (RPRs) on consumer and retailer behavior. Despite their non-binding nature, RPRs may influence consumersÕ willingness to pay by setting a reference point. Loss averse consumers will then be reluctant to pay a price higher than the recommended one. Furthermore, at a given price level consumers will demand a larger quantity the higher the RPR is. We find evidence for both effects. They are stronger when the price recommendation contains information about the value of the product to the consumer instead of providing an uncorrelated anchor only. Retailers in this study react to RPRs in a similar way as consumers do, but they do not anticipate consumersÕ behavior well.
    Keywords: recommended retail price, consumer behavior, retailer behavior, experiment
    Date: 2014
  22. By: Rosendahl Huber, Laura (University of Amsterdam); Sloof, Randolph (University of Amsterdam); van Praag, Mirjam (Copenhagen Business School)
    Abstract: Previous empirical studies have shown that solo entrepreneurs benefit from having balanced skills: Jacks-of-All-Trades (JATs) are better entrepreneurs than specialists are. Nowadays however, the majority of entrepreneurs start up and run ventures together in teams. In this paper we test whether the effect of more balanced skills is also positive in a team of entrepreneurs. We also explore whether (a lack of) individual balanced skills can be substituted by combining the skills of various specialists within one team. Our field experiment studies teams of children participating in an entrepreneurship education program. Based on pupils' precisely measured level of verbal and mathematical ability, we exogenously compose 179 teams separated into four different types: JAT teams, math-specialist teams, verbal-specialist teams and mixed specialist teams. Our results show that balanced skills are beneficial to team performance, and that it is hard to substitute individual balanced skills by combining different specialists within one team.
    Keywords: skill balance, team diversity, team performance, entrepreneurship, field experiment
    JEL: C93 D83 J24 L25 L26 M13
    Date: 2014–06
  23. By: Fahr, René; Janssen, Elmar; Sureth, Caren
    Abstract: It is well-known that taxes affect risky investment decisions. Analytical studies indicate that tax rate increases can foster (accelerate) investment if there is flexibility, in particular when an exit option is available. We design an experiment that is based on an analytical model with binomial random walk and entry and exit flexibility. Contrasting the underlying model, we find accelerated investment, which is often considered as an increased willingness to invest, on tax rate increases to be independent of the existence of an exit option. However, we observe this investor reaction only for a tax increase, not for a tax decrease. This investment behavior is driven possibly by tax salience and the mechanisms known from the theory of irreversible choice under uncertainty. Our empirical evidence suggests that the accelerating tax effects are much more common than is predicted by the theoretical literature. Policy makers should therefore carefully consider the behavioral aspects when anticipating taxpayer reactions. --
    Keywords: Investment Decisions,Tax Effects,Timing Flexibility,Economic Experiment
    JEL: H25 H21 C91
    Date: 2014
  24. By: Charles Figuieres (Laboratoire Montpelliérain d'Economie Théorique et Appliquée, INRA); David Masclet (CREM, Centre de Recherches en Economie et Management, Université de Rennes 1); Marc Willinger (Laboratoire Montpelliérain d'Economie Théorique et Appliquée, INRA; Université Montpellier 1)
    Abstract: This paper provides a general framework that accounts for the decay of the average contribution observed in most experiments on voluntary contributions to a public good. Each player balances her material utility loss from contributing with her psychological utility loss of deviating from her moral ideal. The novel and central idea of our model is that peoples moral motivation is "weak": their judgement about what is the right contribution to a public good can evolve in the course of interactions, depending partly on observed past contributions and partly on an intrinsic "moral ideal". Under the assumption of weakly morally motivated agents, average voluntary contributions can decline with repetition of the game. Our model also explains other regularities observed in experiments, in particular the phenomenon of over-contributions compared to the Nash prediction and the so-called restart effect, and it is compatible with the conditional cooperation hypothesis.
    Date: 2013
  25. By: Simeon Schudy; Verena Utikal
    Abstract: We provide evidence that people have preferences for data privacy and show that these preferences partly reflect peopleÕs interest in controlling who receives their private information. Participants of an experiment face the decision to share validated personal information with peers. We compare preferences for sharing potentially embarrassing information (body weight and height) and non-embarrassing information (address data) with geographically proximate or distant peers. We find that i) participants are willing to give up substantial monetary amounts in order to keep both types of information private, ii) data types are valued differently, and iii) prices for potentially embarrassing information tend to be higher for geographically proximate than distant peers.
    Keywords: preferences, data privacy, information transmission, experiment
    Date: 2014
  26. By: Zahra Murad (School of Economics, University of Nottingham); Chris Starmer (Department of Economics, University of Amsterdam); Martin Sefton (School of Economics, University of Nottingham)
    Abstract: We examine confidence in own absolute performance using two elicitation procedures: self-reported (non-incentivised) confidence and an incentivised procedure that elicits the certainty equivalent of a bet based on performance. The former procedure reproduces the“hard-easy effect†(overconfidence in easy tasks and underconfidence in hard tasks) found in a large number of studies using non-incentivised self-reports. The latter procedure produces general underconfidence, which is somewhat reduced when we filter out the effects of risk attitudes. However, even after controlling for risk attitudes our incentivised procedure leads to significant underconfidence, and does not lead to better calibration between confidence and performance than non-incentivised self-reports. Finally, we find that self-reported confidence correlates significantly with features of individual risk attitudes including parameters of individual probability weighting.
    Keywords: Overconfidence, Underconfidence, Experiment, Risk Preferences
  27. By: Ryan W. Buell (Harvard Business School, Technology and Operations Management Unit); Tami Kim (Harvard Business School); Chia-Jung Tsay (University College London)
    Abstract: We investigate whether organizations can create value by introducing visual transparency between consumers and producers. Although existing theory posits that increased contact between the two parties can diminish work performance, we conducted two field and two laboratory experiments in food service contexts that suggest that the introduction of operational transparency improves service quality and efficiency. The introduction of reciprocal operational transparency contributed to a 22.5% increase in customer-reported quality and reduced throughput times to 67.5% of standard. Customers who observed employees engaged in labor perceived greater effort, appreciated that effort, and valued the service more. Employees who observed customers felt more appreciated, and in turn, were more satisfied with their work and exerted increased levels of effort. We find that transparency, by visually revealing operating processes to both producers and consumers, generates a positive feedback loop through which value is created for both parties.
    Keywords: operational transparency, service quality, efficiency, customers, employees
    Date: 2014–06
  28. By: Stephen V. Burks (Division of Social Science, University of Minnesota Morris); Connor Lewis (Division of Science and Math, University of Minnesota Morris); Paul Kivia (Division of Social Science, University of Minnesota Morris); Amanda Wiener (Division of Social Science, University of Minnesota Morris); Jon E. Anderson (Division of Science and Math, University of Minnesota Morris); Lorenz Götten (Faculty of Business and Economics, University of Lausanne); Colin DeYoung (Department of Psychology, University of Minnesota Twin Cities); Aldo Rustichini (Department of Economics, University of Minnesota Twin Cities)
    Abstract: We collected personality (Big Five) and demographic characteristics, and ran incentivized experiments measuring cognitive skills (non-verbal IQ, numeracy, backward induction/planning), and economic (time, risk) preferences, with 100 students at a small public undergraduate liberal arts college in the Midwestern US as part of a larger study that collected the same measures from 1,065 trainee truckers. Using standardized (z-score) versions of our variables we analyze their relative power to predict (1) timely graduation (four years or less), (2) graduation in six years or less, and (3) final GPA. The proactive aspect of Conscientious (but not the inhibitive one) has a large and robust positive effect on all three outcomes, and Agreeableness has a robust negative effect on both graduation outcomes, but not on GPA. Economic time preferences predict graduation in four years, and GPA. Cognitive skill measures predict as expected if entered individually in a multivariate model, but when all variables compete it is only our backward induction measure (“Hit15â€) that weakly predicts graduation in four years, and strongly predicts graduation in six years. Trainee truckers work in a different vocational setting and their results are appropriately different, but there is a common element: Hit15 also predicts job success (completing a one year employment contract that makes training free). We interpret Hit15 as capturing a specific part of the cognitive skills required for selfmanagement in non-routine settings—thinking backward from future goals to make the best current choice—that is not well measured by existing instruments, and suggest this deserves further scientific and institutional scrutiny
    Keywords: Big Five, cognitive skill, backward induction, economic preferences, GPA
    Date: 2014–01
  29. By: Ali, Daniel Ayalew; Collin, Matthew; Deininger, Klaus; Dercon, Stefan; Sandefur, Justin; Zeitlin, Andrew
    Abstract: This paper reports on a randomized field experiment that uses price incentives to address economic and gender inequality in land tenure formalization. During the 1990s and 2000s, nearly two dozen African countries proposed de jure land reforms extending access to formal, freehold land tenure to millions of poor households. Many of these reforms stalled. Titled land remains the de facto preserve of wealthy households and, within households, men. Beginning in 2010, the study tested whether price instruments alone can generate greater inclusion by offering formal titles to residents of a low-income, unplanned settlement in Dar es Salaam at a range of subsidized prices, as well as additional price incentives to include women as owners or co-owners of household land. Estimated price elasticities of demand confirm that prices -- rather than other implementation failures or features of the titling regime -- are a key obstacle to broader inclusion in the land registry, and that some degree of pro-poor price discrimination is justified even from a narrow budgetary perspective. In terms of gender inequality, the study finds that even small price incentives for female co-titling achieve almost complete gender parity in land ownership with no reduction in demand.
    Keywords: Markets and Market Access,Economic Theory&Research,Banks&Banking Reform,Municipal Housing and Land,Political Economy
    Date: 2014–06–01

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.