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on Experimental Economics |
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Issue of 2014‒08‒20
fourteen papers chosen by |
| By: | Marcel Fafchamps (University of Oxford); Bereket Kebede (University of East Anglia); Daniel John Zizzo (University of East Anglia) |
| Abstract: | The paper reports the result of an experimental game on asset integration and risk taking. We find evidence that winnings in earlier rounds affect risk taking in subsequent rounds, but no evidence that real life wealth outside the experiment affects risk taking. We and some evidence of imitation of the risk taking behavior of others that is distinct from learning. Controlling for past winnings, participants who receive a low endowment in a round engage in more risk taking. We also test a keeping-up-with-the-Joneses hypothesis and find some evidence that subjects seek to keep up with winners. Taken together, the evidence is consistent with risk taking tracking a reference point that is affected by social comparisons. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:14-03&r=exp |
| By: | Zilu Shang (ICMA Centre, Henley Business School, University of Reading); Chris Brooks (ICMA Centre, Henley Business School, University of Reading); Rachel McCloy (University of Reading) |
| Abstract: | Investors are now able to analyse more noise-free news to inform their trading decisions than ever before. Their expectation that more information means better performance is not supported by previous psychological experiments which argue that too much information actually impairs performance. To test whether more information always means better performance in the stock markets, an experiment is conducted based on a trading simulation manipulated from a real market-shock. The results indicate that the explicitness of information neither improves nor impairs participants’ performance effectiveness from the perspectives of returns, share and cash positions, and trading volumes. However, participants’ performance efficiency is significantly affected by information explicitness. Although they need less time to implement their decisions when placing an order, explicitly informed investors are punished by making more mistakes. |
| Keywords: | explicitness of information, performance effectiveness, performance efficiency, individual investors, experimental finance |
| JEL: | C91 D82 G02 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:icmadp:icma-dp2013-05&r=exp |
| By: | C. Bram Cadsby (Department of Economics and Finance, University of Guelph); Jim Engle-Warnick (McGill University); Tony Fang (Monash University); Fei Song (Ryerson University) |
| Abstract: | Tournaments are widely used to assign bonuses and determine promotions. Tournament-based compensation is motivating because of the link between relative performance and financial rewards. However, performing relatively well (poorly) may also yield psychological benefits (pain). This may also stimulate effort. Through a real-effort artefactual field experiment with factory workers in China, we examine how both psychological and financial incentives, together with attitudes toward risk, may influence motivation and performance. For comparison purposes, Chinese undergraduate students also participated in a comparable laboratory experiment. We provided performance-ranking information both privately and publicly, with and without rank based financial incentives. Our results show that performance-ranking information had a significant motivational effect on average performance for students, but not for workers. Adding financial incentives based on rank provided little evidence of further improvements. Much of the difference between workers and students can be explained by differences in attitudes toward risk. Indeed, for both groups the size of both financial and psychological incentive effects is inversely related to individual levels of risk aversion, and is positive and significant both for workers and for students who are sufficiently risk-tolerant. Lastly, performance did not deteriorate when incentives were removed, suggesting that they worked through the encouragement of learning. |
| Keywords: | incentives, social comparison, performance feedback, peer pressure, tournament, risk aversion, artefactual field experiment |
| JEL: | C91 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2014-03&r=exp |
| By: | Martin G. Kocher; Fanagfang Tan; Jing Yu |
| Abstract: | This paper experimentally examines the effect of electoral delegation on providing global public goods shared by several groups. Each group elects a delegate who can freely decide on each group member's contribution (including the contribution of herself) to the global public good. Our results show that people mostly vote for delegates who assign equal contributions for every group member. However, in contrast to standard theoretical predictions, unequal contributions across groups drive cooperation down over time, and it decreases efficiency by almost 50% compared to the benchmark. This pattern is not driven by delegates trying to exploit their fellow group members, as indicated by the theory - quite to the opposite, other-regarding preferences and a re-election incentives guarantee that delegates assign equal contributions for all group members. Since the source of the resulting inefficiency is the polycentric nature of global public goods provision together with other-regarding preferences, we use the term P-inefficiency to describe our finding. |
| Keywords: | Global Public Goods, Delegation, Cooperation, Experiment |
| JEL: | C92 D72 H41 |
| Date: | 2014–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:qut:qubewp:wp027&r=exp |
| By: | Rokhaya Dieye (Université Laval - Department of Economics); Habiba Djebbari (Université Laval - Department of Economics, AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM)); Felipe Barrera-Osorio (Havard Graduate School of Education - Harvard University) |
| Abstract: | When one's treatment status affects the outcomes of others, experimental data are not sufficient to identify a treatment causal impact. In order to account for peer effects in program response, we use a social network model. We estimate and validate the model on experimental data collected for the evaluation of a scholarship program in Colombia. By design, randomization is at the student-level. Friendship data reveals that treated and untreated students interact together. Besides providing evidence of peer effects in schooling, we find that ignoring peer effects would have led us to overstate the program actual impact. |
| Keywords: | education; social network; impact evaluation |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01025680&r=exp |
| By: | Baert, Stijn (Ghent University) |
| Abstract: | We evaluate the effectiveness of wage subsidies as a policy instrument to integrate disabled individuals into the labour market. To identify causal effects, we conduct a large-scale field experiment in Belgium. Our results show that the likelihood of a disabled candidate receiving a positive response to a job application is not positively influenced by revealing entitlement to the Flemish Supporting Subsidy. |
| Keywords: | labour market policy evaluation, wage subsidies, disability, discrimination |
| JEL: | I38 J14 J78 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8318&r=exp |
| By: | Alexandros Karakostas (Coventry University); Axel Sonntag (University of East Anglia); Daniel John Zizzo (University of East Anglia) |
| Abstract: | If principals are allowed to choose between a revenue sharing, a bonus and a trust contract, a large majority of experimental subjects choose the revenue sharing contract. We find that this choice is the most efficient while at the same time being fair in the Paretian sense that on average agents are not worse off than in the other contracts. Furthermore, the distribution of earnings is only mildly skewed towards the principal. We conclude that under revenue sharing contracts concerns for fairness can go in hand with the use of monetary incentives. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:13-03&r=exp |
| By: | Moinas, Sophie; Pouget, Sébastien |
| Abstract: | We propose a simple classroom experiment on speculative bubbles: the Bubble Game. This game is useful to discuss about market efficiency and trading strategies in a financial economics course, and about behavioral aspects in a game theory course, at all levels. The Bubble Game can be played with any number of students, as long as this number is strictly greater than one. Students sequentially trade an asset which is publicly known to have a fundamental value of zero. If there is no cap on asset prices, speculative bubbles can arise at the Nash equilibrium because no trader is ever sure to be last in the market sequence. Otherwise, the Nash equilibrium involves no trade. Bubbles usually occur with or without a cap on prices. Traders who are less likely to be last and have less steps of reasoning to perform to reach equilibrium are in general more likely to speculate. |
| Keywords: | financial markets, speculation, bubbles |
| Date: | 2014–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:28354&r=exp |
| By: | Hasan Bakhshi (Nesta); John Edwards (Aston University Business School); Stephen Roper (Warwick University Business School); Judy Scully (Aston University Business School); Duncan Shaw (Warwick University Business School); Lorraine Morley (Warwick University Business School); Nicola Rathbone (Aston University Business School) |
| Abstract: | Experimental methods of policy evaluation are well-established in social policy and development economics but are rare in industrial and innovation policy. In this paper we consider the arguments for applying experimental methods to industrial policy measures, and propose an experimental policy evaluation approach (which we call RCT+). This combines the randomised assignment of firms to treatment and control groups with a longitudinal data collection strategy incorporating quantitative and qualitative data (so-called mixed methods). The RCT+ approach is designed to provide a causative rather than purely summative evaluation, i.e. to assess both ‘whether’ and ‘how’ programme outcomes are achieved. We test the RCT+ approach in an evaluation of Creative Credits – a UK business-to-business innovation voucher initiative intended to promote new innovation partnerships between SMEs and creative service providers. The results suggest the potential value of experimental approaches to industrial policy evaluation, and the benefits of mixed methods and longitudinal data collection in industrial policy evaluations. |
| Keywords: | evaluation, experimental, industrial policy, innovation, creative, qualitative research |
| JEL: | Z18 D04 D83 |
| Date: | 2013–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:enr:rpaper:0004&r=exp |
| By: | Subhasish M. Chowdhury (University of East Anglia); Joo Young Jeon (University of East Anglia) |
| Abstract: | Existing studies connect overall wellbeing with both payoffs and related anticipation, but it is not explored whether altruistic behavior as well as anticipation about the same may differ across gender and across income levels. We study altruistic behavior and the corresponding anticipation under a pure income effect with a focus on gender. In a dictator game we vary the common show-up fee of both the dictator and the recipient in each of the between-subject treatments, keep the amount to be shared the same, and incentivize recipients to anticipate the amount given. Overall, female dictators give more than their male counterparts but this is driven specifically by high show-up fees. Male recipients, on average and across all show-up fees, anticipate more than the amount female recipients anticipate. They also anticipate higher amounts than what males give as dictators; females do not show such significant pattern. The results reiterate context-driven behavior and lower payoff anticipation in females, and overconfidence in males. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:13-06&r=exp |
| By: | Calero, Carla (Inter-American Development Bank); Corseuil, Carlos Henrique (Institute for Applied Economic Research (IPEA), Brazil); Gonzales, Veronica (Inter-American Development Bank); Kluve, Jochen (Humboldt University Berlin, RWI); Soares, Yuri (Inter-American Development Bank) |
| Abstract: | This paper provides findings of a small-scale, innovative labor training program that uses expressive arts and theatre as a pedagogical tool. The corresponding life skills training component is combined with a technical component teaching vocational skills. To our knowledge, this is the first paper to rigorously evaluate the effectiveness of a training program constructed around expressive arts. Using a randomized assignment of favela youth into program and control groups, we look at the short-run treatment effects on a comprehensive set of outcomes including employment and earnings as well as measures of personality traits and risk behavior. We find positive short-run employment and earnings impacts five months after the program finalized; no impacts are found for shorter periods. These short-run impacts are economically very large, compared to those typically found in the literature: a 33.3 per cent increase in the probability of being employed, and a 23.6 per cent increase in earnings. We find no evidence of significant program impacts on other outcomes, including personality-related traits, providing evidence that these traits may not be malleable for young adults in the short-run. We argue that the estimated labor market impacts are due to a combination of both skills formation and signaling of higher quality workers to employers. |
| Keywords: | labor market training, youths, randomized controlled trial, life skills |
| JEL: | J24 J68 I38 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8210&r=exp |
| By: | Christopher Ksoll (Ottawa University); Helene Bie Lilleør (The Rockwool Foundation Research Unit); Jonas Helth Lønborg (University of Southern Denmark); Ole Dahl Rasmussen (University of Southern Denmark & DanChurchAid) |
| Abstract: | Seventy percent of the world’s poorest live in rural areas in developing countries with poor access to finance. Village Savings and Loan Associations (VSLAs) have become an increasingly widespread intervention aimed at improving local financial intermediation. Using a cluster randomized trial, we investigate the impact of VSLAs in forty-six villages in Malawi. We find positive and significant intent-to-treat effects on the number of meals consumed per day, total household consumption, and number of rooms in the dwelling over a two-year period. This effect is linked to an increase in savings and credit obtained through the VSLAs, which has increased agricultural investments. |
| Keywords: | Saving groups; Village Savings and Loan Associations; VSLA; Malawi; Impact evaluation; cluster-randomized controlled trial |
| JEL: | O16 O13 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:rok:spaper:56&r=exp |
| By: | Julie A. Nelson |
| Keywords: | cognitive schema, fear, gender, risk aversion, stereotypes |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:mab:wpaper:2013_04&r=exp |
| By: | Daron Acemoglu; Matthew O. Jackson |
| Abstract: | We examine the interplay between social norms and the enforcement of laws. Agents choose a behavior (e.g., tax evasion, production of low-quality products, corruption, substance abuse, etc.) and then are randomly matched with another agent. An agent's payoff decreases with the mismatch between her behavior and her partner's, as well as average behavior in society. A law is an upper bound (cap) on behavior and a law-breaker, when detected, pays a fine and has her behavior forced down to the level of the law. Law-breaking depends on social norms because detection relies, at least in part, on private cooperation and whistle-blowing. Law-abiding agents have an incentive to whistle-blow because this reduces the mismatch with their partner's behavior as well as the overall negative externality. When laws are in conflict with norms so that many agents are breaking the law, each agent anticipates little whistle-blowing and is more likely to also break the law. Tighter laws (banning more behaviors) have counteracting effects, reducing behavior among law-abiding individuals but inducing more law-breaking. Greater fines for law breaking and better public enforcement reduce the number of law-breakers and behavior among law-abiding agents, but increase levels of law breaking among law-breakers (who effectively choose their behavior targeting other high-behavior law-breakers). Within a dynamic version of the model, we show that laws that are in strong conflict with prevailing social norms may backfire, while gradual tightening of laws can be more effective by changing social norms. |
| JEL: | C72 C73 P16 Z1 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20369&r=exp |