New Economics Papers
on Experimental Economics
Issue of 2014‒06‒28
sixteen papers chosen by

  1. Ode to the sea: Workplace Organizations and Norms of Cooperation By Uri Gneezy; Andreas Leibbrandt; John A. List
  2. Visual Tools and Narratives: New Ways to Improve Financial Literacy By Annamaria Lusardi; Anya Savikhin Samek; Arie Kapteyn; Lewis Glinert; Angela Hung; Aileen Heinberg
  3. The (True) Legacy of Two Really Existing Economic Systems By Ariely, Dan; Garcia-Rada, Ximena; Hornuf, Lars; Mann, Heather
  4. Behavioral Efficiency: Definition, Methodology, Demonstrations By Ronald M. Harstad
  5. Promoting Competition or Helping Less-Endowed? An Experiment on Collective Institutional Choices under Intra-Group Inequality By Kamei, Kenju
  6. Do experimental protocols in Conjoint Analysis matter in non Hypothetical settings? By Yangui, A.; Akaichi, F.; Costa-Font, M.; Gil, J. M.
  7. Experimental Elicitation of Ambiguity Attitude using the Random Incentive System By Baillon, Aurélien; Halevy, Yoram; Li, Chen
  8. Are stockholders rational? An experimental approach to testing the competitive storage model By Pfuderer, Simone
  9. Thar she blows again: Reducing anchoring rekindles bubbles By Baghestanian, Sascha; Walker, Todd B.
  10. Business Literacy and Development: Evidence from a Randomized Controlled Trial in Rural Mexico By Gabriela Calderón; Jesse M.Cunha ;; Giacomo De Giorgi      
  11. Measuring ambiguity aversion: A systematic experimental approach By Krahnen, Jan Pieter; Ockenfels, Peter; Wilde, Christian
  12. Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile By Felipe Kast; Dina Pomeranz
  13. Trust, trustworthiness and selection into the financial industry By Gill, Andrej; Heinz, Matthias; Schumacher, Heiner
  14. Commons as a risk-management tool: theoretical predictions and an experimental test By Marielle Brunette; Philippe Delacote; Serge Garcia; Jean-Marc Rousselle
  15. Consumer willingness to pay for genetically modified potatoes in Ireland: an experimental auction approach By Thorne, F.; Loughran, D.; Fox, S.; Mullins, E.; Wallace, M.
  16. Loss Aversion in Sequential Auctions: Endogenous Interdependence, Informational Externalities and the "Afternoon Effect" By Rosato, Antonio

  1. By: Uri Gneezy; Andreas Leibbrandt; John A. List
    Abstract: The functioning and well-being of any society and organization critically hinges on norms of cooperation that regulate social activities. Empirical evidence on how such norms emerge and in which environments they thrive remains a clear void in the literature. To provide an initial set of insights, we overlay a set of field experiments in a natural setting. Our approach is to compare behavior in Brazilian fishermen societies that differ along one major dimension: the workplace organization. In one society (located by the sea) fishermen are forced to work in groups whereas in the adjacent society (located on a lake) fishing is inherently an individual activity. We report sharp evidence that the sea fishermen trust and cooperate more and have greater ability to coordinate group actions than their lake fishermen counterparts. These findings are consistent with the argument that people internalize social norms that emerge from specific needs and support the idea that socio-ecological factors play a decisive role in the proliferation of pro-social behaviors.
    JEL: C93 J0
    Date: 2014–06
  2. By: Annamaria Lusardi; Anya Savikhin Samek; Arie Kapteyn; Lewis Glinert; Angela Hung; Aileen Heinberg
    Abstract: We developed and experimentally evaluated four novel educational programs delivered online: an informational brochure, a visual interactive tool, a written narrative, and a video narrative. The programs were designed to inform people about risk diversification, an essential concept for financial decision- making. The effectiveness of these programs was evaluated using the RAND American Life Panel. Participants were exposed to one of the programs, and then asked to answer questions measuring financial literacy and self-efficacy. All of the programs were found to be effective at increasing self-efficacy, and several improved financial literacy, providing new evidence for the value of programs designed to help individuals make financial decisions. The video was more effective at improving financial literacy scores than the written narrative, highlighting the power of online media in financial education.
    JEL: D14 D91
    Date: 2014–06
  3. By: Ariely, Dan; Garcia-Rada, Ximena; Hornuf, Lars; Mann, Heather
    Abstract: By running an experiment among Germans collecting their passports or ID cards in the citizen centers of Berlin, we find that individuals with an East German family background cheat significantly more on an abstract task than those with a West German family background. The longer individuals were exposed to socialism, the more likely they were to cheat on our task. While it was recently argued that markets decay morals (Falk and Szech, 2013), we provide evidence that other political and economic regimes such as socialism might have an even more detrimental effect on individuals’ behavior.
    Keywords: Experimental economics; cheating; cross-culture study
    JEL: C93 D63 P51
    Date: 2014–06–19
  4. By: Ronald M. Harstad (Department of Economics, University of Missouri-Columbia)
    Abstract: Laboratory experiments employing an induced-values methodology often report on allocative efficiencies observed. That methodology requires experimenters know subjects' motivations, questionable in laboratory experiments, impossible in field experiments. Allocative efficiency implies a hypothetical costless aftermarket would be inactive. An allocation mechanism's outcome is herein defined to be behaviorally efficient if an appropriate aftermarket is actually appended to the mechanism and at most a negligible size of remaining mutually beneficial gains identified. Methodological requirements for behavioral efficiency observation are provided. A first demonstration observes significantly greater behavioral inefficiencies in secondthan in first-price auctions. A simple field demonstration indicates when a public good increase can be observed to cover marginal cost to subjects' mutual benefit, without knowing valuations. Several empirical issues that arise are briefly discussed. A wide variety of empirical economic policy studies can utilize this methodology to observe comparative evidence of alternative policies' allocative efficiency shortfalls.
    Keywords: behavioral efficiency, aftermarkets, field experiment methodology, allocative efficiency, valuation revelation
    JEL: C9 C93 D01 D61 D03 D46
    Date: 2014–02–02
  5. By: Kamei, Kenju
    Abstract: Unequally-distributed resources, whether people’s income or competence, are ubiquitous in our real world. Whether to promote competition or to lead to a more equal environment is often in question in societies or organizations. With heterogeneous endowments, we let subjects collectively choose whether to have a competitive lottery contest - where only one individual in a group wins and receives an award, generating a greater income inequality - or to have a public good that benefits the less-endowed to a greater degree. Our data indicates that highly-endowed individuals contribute little when the public good is selected. The majority of subjects, however, vote in favor of having a public good, contrary to the standard theory predictions. In addition, a belief elicitation task shows that they expect payoffs to be more equally distributed under the public good regime than under the contest regime. Moreover, the subjects’ preferences between the two regimes are little affected by their risk attitudes or the size of awards in competition. These suggest that people’s institutional choices are driven more by their income inequality-averse preferences.
    Keywords: heterogeneity, experiment, cooperation, competition, public goods, inequality
    JEL: C92 D63 D70 D72 H4
    Date: 2014–06–20
  6. By: Yangui, A.; Akaichi, F.; Costa-Font, M.; Gil, J. M.
    Abstract: This paper aims at comparing the performance of three conjoint analyses (CA) in terms of estimated partworths, predictive power and estimated WTP: choice experiment (CE); ranking conjoint analysis (RCA) and best-worst scaling (BWS). Comparisons are made in a non-hypothetical setting. For comparison purposes in the last two formats only the information on the most preferred option is considered. The hypothetical CE is used as the benchmark. Olive oil is the food product used in our experiment. Results reveal preferences regularity between samples’ responses across the formats implying not statistically differences in the marginal participants’ WTP. Moreover, in an incentive compatible context, RCA and BWS compared with CE provide similar results regarding to the in-sample and out-of-sample predictive power and also in terms of decision consistency when just only the first rank data is analyzed.
    Keywords: conjoint analysis, best worst scaling, external validity, experimental economics, hypothetical bias, Marketing, Research Methods/ Statistical Methods, C91, D12,
    Date: 2014–04
  7. By: Baillon, Aurélien; Halevy, Yoram; Li, Chen
    Abstract: We demonstrate how the standard usage of the random incentive system in ambiguity experiments is not incentive compatible if the decision maker is ambiguity averse. We propose a slight modification of the procedure in which the randomization takes place before decisions are made and the state is realized and prove that if subjects evaluate the experimental environment in that way (first - risk, second - uncertainty), incentive compatibility may be restored.
    Keywords: Uncertianty, Design of Experiments
    JEL: D81 C9
    Date: 2014–06–15
  8. By: Pfuderer, Simone
    Abstract: The competitive storage model has been the main workhorse of the analysis of the role of storage in commodity price formation since Gustafson proposed his model in 1958. The main approach to testing the competitive storage model has been the comparison of the characteristics of the predicted prices series with actual commodity price series. This paper introduces a new approach to testing the competitive storage model. A relatively simple model is taken to the experimental laboratory. Participants in the experiment are asked make storage decisions within a competitive storage model framework. Their behaviour and the resulting price series are compared to the model assumptions and predictions. The experiment will be run at the University of Trento in April 2014.
    Keywords: Agricultural Commodity Prices, Storage, Experiment, Agribusiness, Agricultural Finance, Demand and Price Analysis, C92, D81, Q11,
    Date: 2014–04
  9. By: Baghestanian, Sascha; Walker, Todd B.
    Abstract: We investigate the relationship between anchoring and the emergence of bubbles in experimental asset markets. We show that setting a visual anchor at the fundamental value (FV) in the first period only is sufficient to eliminate or to significantly reduce bubbles in laboratory asset markets. If no FV-anchor is set, bubble-crash patterns emerge. Our results indicate that bubbles in laboratory environments are primarily sparked in the first period. If prices are initiated around the FV, they stay close to the FV over the entire trading horizon. Our insights can be related to initial public offerings and the interaction between prices set on pre-opening markets and subsequent intra-day price dynamics. --
    Keywords: Experimental Asset Markets,Anchoring,Bubbles
    JEL: C90 C91 D03 G02 G12
    Date: 2014
  10. By: Gabriela Calderón; Jesse M.Cunha ;; Giacomo De Giorgi      
    Abstract: This paper explores whether the poor performance of many micro-enterprises can be explained by a lack of basic business skills. We randomized the offer of a free, 48-hour business skills course to female entrepreneurs in rural Mexico. We find that those assigned to treatment earn higher profits, have larger revenues, serve a greater number of clients, are more likely to use formal accounting techniques, and more likely to be registered with the government. Economically significant indirect treatment effects on those entrepreneurs randomized out of the program, yet living in treatment villages are observed. We present a simple model that helps interpret our results, and consistent with the theoretical predictions, we find that entrepreneurs with lower baseline profits are the most likely to quit their business post-treatment, and that the positive impacts of the treatment are increasing in entrepreneurial quality.
    Keywords: Business literacy, economic development, micro-enterprise
    JEL: I25 O12 O14
    Date: 2013–12
  11. By: Krahnen, Jan Pieter; Ockenfels, Peter; Wilde, Christian
    Abstract: This paper provides a systematic analysis of individual attitudes towards ambiguity, based on laboratory experiments. The design of the analysis allows to capture individual behavior across various levels of ambiguity, ranging from low to high. Attitudes towards risk and attitudes towards ambiguity are disentangled, providing pure measures of ambiguity aversion. Ambiguity aversion is captured in several ways, i.e. as a discount factor net of a risk premium, and as an estimated parameter in a generalized utility function. We find that ambiguity aversion varies across individuals, and with the level of ambiguity, being most prominent for intermediate levels. Around one third of subjects show no aversion, one third show maximum aversion, and one third show intermediate levels of ambiguity aversion, while there is almost no ambiguity seeking. While most theoretical work on ambiguity builds on maxmin expected utility, our results provide evidence that MEU does not adequately capture individual attitudes towards ambiguity for the majority of individuals. Instead, our results support models that allow for intermediate levels of ambiguity aversion. Moreover, we find risk aversion to be statistically unrelated to ambiguity aversion on average. Taken together, the results support the view that ambiguity is an important and distinct argument in decision making under uncertainty. --
    Keywords: ambiguity,valuation discount,experimental economics
    JEL: D81 G02
    Date: 2014
  12. By: Felipe Kast; Dina Pomeranz
    Abstract: Poverty is often characterized not only by low and unstable income, but also by heavy debt burdens. We find that reducing barriers to saving through access to free savings accounts decreases participants' short-term debt by about 20%. In addition, participants who experience an economic shock have less need to reduce consumption, and subjective well-being improves significantly. Precautionary savings and credit therefore act as substitutes in providing self-insurance, and participants prefer borrowing less when a free formal savings account is available. Take-up patterns suggest that requests by others for participants to share their resources may be a key obstacle to saving.
    JEL: D14 D91 G22 O16
    Date: 2014–06
  13. By: Gill, Andrej; Heinz, Matthias; Schumacher, Heiner
    Abstract: We examine trust and trustworthiness of individuals with varying professional preferences and experiences. Our subjects study business and economics in Frankfurt, the financial center of Germany and continental Europe. In the trust game, subjects with a high interest in working in the financial industry return 25 percent less than subjects with a low interest. We find no evidence that the extent of professional experience in the financial industry has a negative impact on trustworthiness. We also do not find any evidence that the financial industry screens out less trustworthy individuals in the hiring process. In a prediction game that is strategically equivalent to the trust game, the amount sent by first-movers was significantly smaller when the second-mover indicated a high interest in working in finance. These results suggest that the financial industry attracts less trustworthy individuals, which may contribute to the current lack of trust in its employees. --
    Keywords: Trust,Trustworthiness,Selection,Financial Industry
    JEL: C9 G2 M5
    Date: 2014
  14. By: Marielle Brunette (Laboratoire d'Economie Forestière, INRA - AgroParisTech); Philippe Delacote (Laboratoire d'Economie Forestière, INRA - AgroParisTech; Climate Economic Chair); Serge Garcia (Laboratoire d'Economie Forestière, INRA - AgroParisTech); Jean-Marc Rousselle (INRA, UMR 1135 LAMETA)
    Abstract: The impact of the safety-net use of Common-pool resources (CPR) on the individual investment into and extraction from the commons is analyzed in this paper. Agents of the community first choose to invest in their private project and in the CPR; second, they choose how much to extract from their private project and the commons. The model compares two types of risk management tool: CPR as risk-coping and risk-diversification mechanisms. It also compares two types of risk: risk on a private project and risk on CPR investment by other community members. The theoretical predictions are empirically tested with experimental economics. In this view, we propose an original CPR game composed of two periods, an investment one and an extraction one. Our result clearly shows that risk reduction in the private project unambiguously decreases investment in the CPR, while it does not impact CPR extraction. We also show that a risk-coping strategy is well understood as more flexible and influenced by the outcome in terms of private project yield.
    Keywords: Common-pool resource, Common-pool resource game, deforestation, experimental economics.
    JEL: Q15 Q23 D71 D81
    Date: 2014–04
  15. By: Thorne, F.; Loughran, D.; Fox, S.; Mullins, E.; Wallace, M.
    Abstract: The introduction of genetically modified (GM) crops to Europe has been a significant source of tension among EU member states. While the political landscape is much divided there is also much unknown at the consumer level. The question of whether European consumers want GM foods made available to them or not has yet to be answered definitively. Hence, this research is considered timely; the objective is to examine willingness to pay (either a positive or negative amount) for GM Late Blight resistant (GMLBR) potatoes in Ireland. The methods used in this study serve as a new departure in the experimental auctions literature, whereby willingness to purchase bids for a new technology can have a positive and negative value in a single experiment. The results show that the majority of consumers’ that participated in the experiment derived a greater utility from the conventional potato product compared to the GM potato product when priced at equivalent values. 3 out of 4 participants required the GM product to be priced at a discount in order for the utility to be derived from the GM product to be the same as the utility derived from the conventional product. However, the findings from this research would indicate that if the entry price point for the GMLBR potato product was correctly positioned then a market for the product could exist. Further investigation of the factors that influenced the participants’ willingness to purchase the GMLBR potato indicated that education level, presence of children in the household and frequency of potato purchases significantly affected the purchase decision.
    Keywords: Crop Production/Industries, International Relations/Trade, Political Economy, Research and Development/Tech Change/Emerging Technologies,
    Date: 2014–04
  16. By: Rosato, Antonio
    Abstract: Empirical evidence from sequential auctions shows that prices of identical goods tend to decline between rounds. In this paper, I show how expectations-based reference-dependent preferences and loss aversion can rationalize this phenomenon. I analyze two-round sealed-bid auctions with symmetric bidders having independent private values and unit demand. Equilibrium bids in the second round are history-dependent and subject to a "discouragement effect": the higher the winning bid in the first auction is, the less aggressive the behavior of the remaining bidders in the second auction. When choosing his strategy in the first round, however, a bidder conditions his bid on being pivotal and hence expects not to be discouraged. Equilibrium behavior, therefore, leads the winner of the first round to overestimate the bid of his highest opponent and hence the next-round price so that equilibrium prices decline. Moreover, sequential and simultaneous auctions are not bidder-payoff equivalent nor revenue equivalent.
    Keywords: Reference-Dependent Preferences; Loss Aversion; Sequential Auctions; Afternoon Effect.
    JEL: D03 D44 D81 D82
    Date: 2014–06–21

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