nep-exp New Economics Papers
on Experimental Economics
Issue of 2014‒09‒05
twelve papers chosen by
Daniel Houser
George Mason University

  1. Divided Loyalists or Conditional Cooperators? Creating Consensus about Cooperation in Multiple Simultaneous Social Dilemmas By Matthew W. McCarter; Anya C. Samak; Roman M. Sheremeta
  2. Testing the strength and robustness of the attraction effect in consumer decision making By Paolo Crosetto; Alexia Gaudeul
  3. The CCCTB option – an experimental study By Claudia Keser; Gerrit Kimpel; Andreas Oestreicher
  4. Individual and Group Behaviour Toward Risk: A Short Survey By Temerario, Tiziana
  5. Awareness programs and change in taste-based caste prejudice By Ritwik Banerjee; Nabanita Datta Gupta
  6. Affirmative Action and Human Capital Investment: Evidence from a Randomized Field Experiment By Christopher Cotton; Brent R. Hickman; Joseph P. Price
  7. How responsive are people to changes in their bargaining position? Earned bargaining power and the 50–50 norm By Nejat Anbarci; Nick Feltovich
  8. Informational Asymmetries in Laboratory Asset Markets with State-Dependent Fundamentals By Claudia Keser; Andreas Markstädter
  9. Communication networks in markets By Edoardo Gallo
  10. "Preference for Flexibility and Random Choice: an Experimental Analysis" By Mark Dean; John McNeil
  11. The Effect of Financial Selection in Experimental Asset Markets By Dmitry Gladyrev; Owen Powell; Natalia Shestakova
  12. The focal point in the Traveller’s Dilemma: An Experimental Study By Morone, Andrea; Morone, Piergiuseppe

  1. By: Matthew W. McCarter (University of Texas – San Antonio and Economic Science Institute); Anya C. Samak (University of Wisconsin – Madison); Roman M. Sheremeta (Case Western Reserve University and the Economic Science Institute)
    Abstract: The current social dilemma literature lacks theoretical consensus regarding how individuals behave when facing multiple simultaneous social dilemmas. The divided-loyalty hypothesis, from organizational theory, predicts that cooperation will decline as individuals experience multiple social dilemmas with different compared to the same group members. The conditional-cooperation hypothesis, from behavioral economics, predicts that cooperation will increase as individuals experience multiple social dilemmas with different compared to the same group members. We employ a laboratory experiment to create consensus between these literatures and find support for the conditional-cooperation hypothesis. The positive effect of interacting with different group members comes from participants having an opportunity to shift their cooperative behavior from the less cooperative to the more cooperative group.
    Keywords: cooperation, conditional cooperation, defection, loyalty, experiments, public goods, social dilemmas
    Date: 2014
  2. By: Paolo Crosetto (University of Grenoble); Alexia Gaudeul (Friedrich Schiller University Jena)
    Abstract: We report the results of an original experiment that was designed to test the strength and robustness of the attraction effect. Rather than the usual simple tests for this effect, we consider a conceptually simple consumer purchasing task where alternatives are however difficult to evaluate. For the attraction effect to be observed, the consumer must go through two steps: the first is to find out that two or more options are comparable, which leads him to exclude the dominated alternatives. The second is to favor the dominant option over those that are not comparable. Our experiment allows us to determine whether and how many individuals stop before each of those two steps. The results confirm the existence of an attraction effect in our setting, but the effect is not strong. Indeed, only a minority of subjects perform the second step. The effect is not robust to introducing larger differences in prices among options and to widening the range of options to choose from. We conclude by showing that our subjects would benefit from relying more on performing asymmetric dominance editing rather than on their skills in the purchasing task.
    Keywords: Asymmetric Dominance Editing, Attraction Effect, Comparability, Consumer Choice, Experimental Economics, Pricing Formats
    JEL: C91 D12 D83
    Date: 2014–08–22
  3. By: Claudia Keser; Gerrit Kimpel; Andreas Oestreicher
    Abstract: The objective of this paper is to look into the probability that, given the choice, corporate groups would opt for taxation on a consolidated basis. Consolidation would allow them to offset losses crossborder but remove the opportunity to exploit international tax-rate differentials between entities via transfer pricing. We present a laboratory experiment in which we investigate to what extent a corporation would be inclined to take up the consolidation option and how this would impact on the corporation’s location of investment and its transfer pricing activities involving locations outside the consolidated group. We use a 2-by-2 treatment design with two levels of tax-rate differential between two investment locations, and two different remuneration functions allowing the participants to act as owners or managers of a company.
    Keywords: International company taxation, separate accounting, formula apportionment, transfer pricing, experimental economics,
    JEL: C91 H25 M41
    Date: 2014–04–01
  4. By: Temerario, Tiziana
    Abstract: In the real life groups, rather than individuals, take the most part of decisions. So that it is useful to study how groups take a decision in different strategic environments. This paper provides an overview of previous research about groups’ preferences over risk. I compare different experimental designs and examine their different results, focusing on how groups reach agreement in risky choices, compared with individuals.
    Keywords: Risk attitude; preferences; uncertainty; pairwise choice; review; groups;
    JEL: C91 C92 D81
    Date: 2014–08
  5. By: Ritwik Banerjee (Department of Economics and Business, Aarhus University, Denmark); Nabanita Datta Gupta (Department of Economics and Business, Aarhus University, Denmark)
    Abstract: Becker’s theory of taste-based discrimination predicts that relative employment of the discriminated social group will improve if there is a decrease in the level of prejudice for the marginally discriminating employer. In this paper we experimentally test this prediction offered by Becker (1971) in the context of caste in India, with management students (potential employers in the near future) as subjects. First, we measure caste prejudice and show that awareness through a TV social program reduces implicit prejudice against the lower caste and the reduction is sustained over time. Second, we find that the treatment reduces the prejudice levels of those in the left tail of the prejudice distribution - the group which can potentially affect real outcomes as predicted by the theory. And finally, a larger share of the treatment group subjects exhibit favorable opinion about reservation in jobs for the lower caste.
    Keywords: Caste prejudice, taste-based discrimination, implicit association test, laboratory experiment, media influence
    JEL: C91 O1 J15
    Date: 2014–08–18
  6. By: Christopher Cotton; Brent R. Hickman; Joseph P. Price
    Abstract: The empirical literature on Affirmative Action (AA) in college admissions tends to ignore the effects admissions policies have on incentives of students to invest developing pre-college human capital. We explore the incentive effects of AA using a field experiment that creates a microcosm of the college admissions market. Our experimental design is based on the asymmetric, multi-object, all-pay auction framework in Bodoh-Creed and Hickman (2014). We pay 5th through 8th grade students based on their performance on a national mathematics exam relative to other competitor students, and observe the use of a study website as students prepare for the exam. An AA treatment favors "disadvantaged" students by reserving prizes for lower grade students who on average have less mathematics training and practice. We find that the AA policy significantly increases both average time investment and subsequent math achievement scores for disadvantaged students. At the same time, we find no evidence that it weakens average human capital investment incentives for advantaged students. We also find strong evidence that AA can narrow achievement gaps while promoting greater equality of market outcomes.
    JEL: C93 D44 D82 J15 J24
    Date: 2014–08
  7. By: Nejat Anbarci; Nick Feltovich
    Abstract: A recurring puzzle in bargaining experiments is that individuals under–respond to changes in their bargaining position, compared to the predictions of standard bargaining theories. Nearly all of these results have come from settings with bargaining power allocated exogenously, so that individuals may perceive it as having been “unearned” and thus be reluctant to exploit it. Also, equal splits have typically been equilibrium outcomes, leading to a powerful tendency toward 50–50 splits. We conduct a bargaining experiment in which subjects earn their bargaining power through a real–effort task. Treatments are based on the Nash demand game (NDG) and a related unstructured bargaining game (UBG). Subjects bargain over a fixed “cake” (amount of money), with disagreement payoffs determined entirely by the number of units of the real–effort task successfully completed. About one–fourth of the time, one player earns a disagreement payoff above half the cake size; in these cases, 50–50 splits are not individually rational, and thus not equilibriumoutcomes. We find that subjects are least responsive to changes in own and opponent disagreement payoffs in the NDG with both disagreement payments below half the cake size. Responsiveness is higher in the UBG, and in the NDG when one disagreement payment is more than half the cake, but in both cases it is still less than predicted. It is only in the UBG when a disagreement payment is more than half the cake that responsiveness to disagreement payoffs reaches the predicted level. Our results imply that even when real–life bargaining position is determined by past behaviour rather than luck, the extent to which actual bargaining corresponds to theoretical predictions will depend on (1) the institutions within which bargaining takes place, and (2) the distribution of bargaining power; in particular, whether the 50–50 norm yields a viable outcome. See above See above
    Keywords: NA, Game theoretical models, Game theoretical models
    Date: 2013–06–21
  8. By: Claudia Keser; Andreas Markstädter
    Abstract: We investigate the formation of market prices in a new experimental setting involving multi-period call-auction asset markets with state-dependent fundamentals. We are particularly interested in two informational aspects: (1) the role of traders who are informed about the true state and/or (2) the impact of the provision of Bayesian updates of the assets’ state-dependent fundamental values (BFVs) to all traders. We find that bubbles are a rare phenomenon in all of our treatments. Markets with asymmetrically informed traders exhibit smaller price deviations from fundamentals than markets without informed traders. The provision of BFVs has little to no effect. Behavior of informed and uninformed traders differs in early periods but converges over time. On average, uninformed traders offer lower (higher) limit prices and hold less (more) assets than informed traders in “good”-state (“bad”-state) markets. Informed traders earn superior profits.
    Keywords: Experimental economics, asset markets, informational asymmetries,
    JEL: C92 D53 D82 G14
    Date: 2014–05–01
  9. By: Edoardo Gallo
    Abstract: This paper proposes a dynamic model of bargaining to analyze decentralized markets where buyers and sellers obtain information about past deals through their social network. There is a unique equilibrium outcome which depends crucially on the peripheral (least connected) individuals in each group. The main testable predictions are that groups with high density and/or low variability in the number of connections across individuals allow their members to obtain a better deal. These predictions are tested in a lab experiment through 4 treatments that vary the network that groups of 6 subjects are assigned to. The results of the experiment lend support to the theoretical predictions: subjects converge to a high equilibrium demand if they are assigned to a network that is dense and/or has low variability in number of connections across members. An extension explores an alternative set-up in which buyers and sellers belong to the same social network: if the network is regular and the agents are homogeneous then the unique equilibrium division is 50-50
    Keywords: network, communication, experiment, noncooperative bargaining, 50-50 division
    JEL: C73 C78 C91 C92 D83
    Date: 2014–08–26
  10. By: Mark Dean; John McNeil
    Abstract: People may be uncertain about future preferences, leading to both a preference for flexibility in choice between menus and stochastic choice from menus. This paper describes an experimental test of preference uncertainty in a realeffort task. We observe subjects’ preferences over menus of work contracts, along with their choices of effort levels from those contracts. Our results suggest that preference uncertainty is important: 48% of our subjects exhibited strict preference for flexibility. A model of preference uncertainty (Ahn and Sarver (2013)) well describes the relationship between choice of and from menus: subjects willing to pay to include an option in a contact were more likely to use that option, and those that used an option were prepared to pay for it. We show that the introduction of an explicit stochastic element to the contract increased preference for flexibility, suggesting a causal role for uncertainty in menu preferences
    Keywords: #
    Date: 2014
  11. By: Dmitry Gladyrev; Owen Powell; Natalia Shestakova
    Abstract: The market selection hypothesis posits that over time more successful traders will stay in the market, whereas those with trading losses will exit. If success is at least somewhat determined by behavior, then as a result of market selection traders who survive in markets behave differently than traders who are randomly drawn from the population to participate in markets. This effect has so far been ignored in the literature, therefore we design and carry out an experiment to study the effects of market selection on market outcomes. We find that markets populated by more extreme earners exhibit stronger mispricing, and that this is strongly related to the fact that more extreme earners experience higher bubbles in the past. This suggests that experience may not decrease bubbles in real markets as much as was previously thought. Furthermore, we find evidence of relationships between earnings, trading activity, portfolio risk and transaction risk. Mistakes are also associated with more extreme earnings, however this disappears over time.
    JEL: G02 C92 D4 D53
    Date: 2014–08
  12. By: Morone, Andrea; Morone, Piergiuseppe
    Abstract: This paper provides an experimental test of the traveller’s dilemma. Our investigation aims to address the research hypothesis that introducing a reference point à la Schelling (set equal to the Pareto optimal solution) might drive people away from rationality even when the size of the penalty/reward is high. Experimental findings reported in this paper provide answers to this question showing that the reference point did not encourage coordination around the Pareto optimal choice.
    Keywords: traveller’s dilemma; focal point; individual decision
    JEL: C9 D7
    Date: 2014

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