nep-exp New Economics Papers
on Experimental Economics
Issue of 2014‒11‒17
twenty-two papers chosen by
Daniel Houser
George Mason University

  1. Intergenerational Cooperation: an Experimental Study on Beliefs By Kulesz, Micaela M.; Dittrich, Dennis A. V.
  2. Risk, Uncertainty and Entrepreneurship: Evidence From a Lab-in-the-Field Experiment By Martin Koudstaal; Randolph Sloof; Mirjam van Praag
  3. Trust in generosity: An experiment of the repeated Yes-No game By Werner Güth; Hironori Otsubo
  4. Bidding for Nothing? The Pitfalls of overly Neutral Framing By Peter D�rsch; Julia Muller
  5. Leaders as Role Models for the Voluntary Provision of Public Goods By Simon Gaechter; Elke Renner
  6. Groups and trust: Experimental evidence on the Olson and Putnam hypotheses By Giacomo Degli Antoni; Gianluca Grimalda
  7. Does Relative Grading help Male Students? Evidence from a Field Experiment in the Classroom By Eszter Czibor; Sander Onderstal; Randolph Sloof; Mirjam van Praag
  8. The Impact of Fine Size and Uncertainty on Punishment and Deterrence: Evidence from the Laboratory By Feess, Eberhard; Schramm, Markus; Wohlschlegel, Ansgar
  9. Second thoughts: Theory and experiment in social dilemmas By Tatsuyoshi Saijo; Yoshitaka Okano
  10. Omission Effects in Fairness Behavior By Gärtner, Manja; Sandberg, Anna
  11. Does Infrastructure Facilitate Social Capital Accumulation? Evidence from Natural and Artefactual Field Experiments in a Developing Country By Aoyagi, Keitaro; Sawada, Yasuyuki; Shoji, Masahiro
  12. An Experimental Approach to Merger Evaluation By Christopher T. Conlon; Julie Holland Mortimer
  13. Business training plus for female entrepreneurship? Short And medium-term experimental evidence from Peru By Martin Valdivia
  14. Rating Agencies: An Experimental Analysis of their Remuneration Model By Christoph Buehren; Marco Plessner
  15. Intergenerational games with dynamic externalities and climate change experiments By Katerina Sherstyuk; Nori Tarui; Majah-Leah V. Ravago
  16. Conspicuous Consumption and Peer Effects among the Poor: Evidence From a Field Experiment By Christopher P Roth
  17. Maintaining Local Public Goods: Evidence from Rural Kenya By Sheely, Ryan
  18. Does access to microfinance affect consumption inequality? :evidence from a randomized controlled trial in Andhra Pradesh, India By Mukhopadhyay, Jyoti Prasad
  19. Assessing the Political Impacts of a Conditional Cash Transfer: Evidence from a Randomized Policy Experiment in Indonesia. By Julia, Tobias; Sumarto, Sudarno; Moody, Habib
  20. Recall Searching with and without Recall By Tibor Neugebauer; Daniela Di Cagno; Carlos Rodriguez-Palmero,; Abdolkarim Sadrieh
  21. On the fundamental performance of a marketable permit system in a trader setting By Koji Kotani; Kenta Tanaka; Shunsuke Managi
  22. Measuring mispricing in experimental markets By Owen Powell

  1. By: Kulesz, Micaela M.; Dittrich, Dennis A. V.
    Abstract: We report on an experiment in which subjects older than 55 years old and subjects younger than 26 years old play repeatedly 4 versions of the centipede game. For each game we define four treatments that allow us to study cooperation and belief formation of these two age groups. We find that beliefs about the others' age group shape the outcome: while seniors are cooperative and generous with juniors when they incur lower opportunity costs, for juniors it is when playing with seniors that they learn the way to the theoretical solution by smoothly decreasing their cooperation levels.
    Keywords: Centipede Game, Age differences, Decision Making, Beliefs, Social Preferences.
    JEL: C9
    Date: 2014–04
  2. By: Martin Koudstaal (University of Amsterdam); Randolph Sloof (University of Amsterdam, the Netherlands); Mirjam van Praag (Copenhagen Business School, Denmark)
    Abstract: Theory predicts that entrepreneurs have distinct attitudes towards risk and uncertainty, but empirical evidence is mixed. To better understand the unique behavioral characteristics of entrepreneurs and the causes of these mixed results, we perform a large ‘lab-in-the-field’ experiment comparing entrepreneurs to managers – a suitable comparison group – and employees (n = 2288). The results indicate that entrepreneurs perceive themselves as less risk averse than managers and employees, in line with common wisdom. However, when using experimental incentivized measures, the differences are subtler. Entrepreneurs are only found to be unique in their lower degree of loss aversion, and not in their risk or ambiguity aversion. This combination of results might be explained by our finding that perceived risk attitude is not only correlated to risk aversion but also to loss aversion. Overall, we therefore suggest using a broader definition of risk that captures this unique feature of entrepreneurs; their willingness to risk losses.
    Keywords: Entrepreneurs, managers, risk aversion, loss aversion, ambiguity aversion, lab-in- the field experiment
    JEL: L26 C93 D03
    Date: 2014–10–17
  3. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Hironori Otsubo (Soka University)
    Abstract: This paper reports results of a 100-round Yes-No game experiment conducted under the random matching protocol. In contrast to ultimatum bargaining, the responder in the Yes-No game decides whether to accept without knowing the proposer's offer. Although both games have the same solution outcome (i.e., the proposer offers the smallest possible amount and the responder accepts), the set of equilibria of the ultimatum bargaining game is rather large whereas the equilibrium of the Yes-No game is essentially unique. Avrahami et al. (2013) found an immediate convergence to proposers offering an equal split in their repeated ultimatum bargaining experiment. Our main interest is which dynamics emerge when proposers and responders repeatedly play the Yes-No game. We found neither convergence to offering an equal split nor to the solution outcome. Most participants display a surprising constancy of behavior but the categories of behavior are rather rich.
    Keywords: Yes-No game, Repetition, Learning, Veto power, Laboratory experiment
    JEL: C72 C92
    Date: 2014–10–27
  4. By: Peter D�rsch (University of Heidelberg, Germany); Julia Muller (Erasmus University Rotterdam, the Netherlands.)
    Abstract: Neutral framing is a standard tool of experimental economics. However, overly neutral instructions, which lack any contextual clues, can lead to strange behavior. In a contextless second price auction for a meaningless good, a majority of subjects enter positive bids - a case of cognitive experimenter demand effect. Subjects bid positive amounts because this is what they think they are tasked with in the experiment. Adding a second auction that has a context drastically reduces the positive bids in the meaningless first auction by reducing the cognitive experimenter demand effect.
    Keywords: Context, Neutral Framing, Experimenter Demand Effect, Experiment, Second-Price Auction
    JEL: C90 D44
    Date: 2014–05–25
  5. By: Simon Gaechter (School of Economics, University of Nottingham); Elke Renner (School of Economics, University of Nottingham)
    Abstract: We investigate the link between leadership, beliefs and pro-social behavior. This link is interesting because field evidence suggests that people’s behavior in domains like charitable giving, tax evasion, corporate culture and corruption is influenced by leaders (CEOs, politicians) and beliefs about others’ behavior. Our framework is an experimental public goods game with a leader. We find that leaders strongly shape their followers’ initial beliefs and contributions. In later rounds, followers put more weight on other followers’ past behavior than on the leader’s current action. This creates a path dependency the leader can hardly correct. We discuss the implications for understanding belief effects in naturally occurring situations.
    Keywords: Leadership, beliefs, experiments, public goods, path dependency, public policy, management.
  6. By: Giacomo Degli Antoni (University of Parma, Department of Law); Gianluca Grimalda (University Jaume I of Castellón - Economics Department)
    Abstract: Mancur Olson and Robert Putnam provide two conflicting views on the effect of involvement with voluntary associations on their members. Putnam argues that associations instill in their members habits of cooperation, solidarity and public spiritedness. Olson emphasizes the tendency of groups to pursue private interests and lobby for preferential policies. We carry out the first field experiment involving a sample of members of different association types from different age groups and education levels, as well as a demographically comparable sample of non-members. This enables us to examine the differential patterns of behavior followed by members of Putnam-type and Olson- type associations. Coherently with both the Putnam's and Olson's view, we find that members of Putnam-type (Olson-type) associations display more (no more) generalized trust than non-members. However, when we examine trustworthy behavior we find the opposite pattern, with members of Olson-type (Putnam-type) associations more (no more) trustworthy than non-members. No relevant effect for the intensity of participation in associations 37
    Keywords: Trust; Voluntary associations; Putnam; Olson; Field experiment
    JEL: A13 D03 C93 Z13
    Date: 2014–10
  7. By: Eszter Czibor (University of Amsterdam); Sander Onderstal (University of Amsterdam); Randolph Sloof (University of Amsterdam); Mirjam van Praag (Copenhagen Business School, Denmark)
    Abstract: The provision of non-pecuniary incentives in education is a topic that has received much scholarly attention lately. Our paper contributes to this discussion by investigating the effectiveness of grade incentives in increasing student performance. We perform a direct comparison of the two most commonly used grading practices: the absolute (i.e., criterion-referenced) and the relative (i.e., norm-referenced) grading schemes in a large-scale field experiment at a university. We hypothesize that relative grading, by creating a rank-order tournament in the classroom, provides stronger incentives for male students than absolute grading. In the full sample, we find weak support for our hypothesis. Among the more motivated students we find evidence that men indeed score significantly higher on the test when graded on a curve. Female students, irrespective of their motivation, do not increase their scores under relative grading. Since women slightly outperform men under absolute grading, grading on a curve actually narrows the gender gap in performance.
    Keywords: Education, Test performance, Grade incentives, Competition, Gender, Field experiment
    JEL: I21 I23 A22 D03 C93
    Date: 2014–08–28
  8. By: Feess, Eberhard; Schramm, Markus; Wohlschlegel, Ansgar
    Abstract: We use a laboratory experiment to test the impacts of uncertainty, the magnitude of fines and aversion against making type-I and type-II errors on legal decision making. Measuring uncertainty as the noise of a signal on the defendant's guilt observed by legal decision makers, we observe that a supposed wrongdoer is less likely to be punished if fines and uncertainty are high. Furthermore, judges care far more about type-I errors and violators steal far less often than expected payoff maximizers would. While our results support the theoretical predictions on average, a cluster analysis provides evidence for heterogeneous behavior of participants, many of whom don't respond to changes in the parameters or are far more driven by uncertainty than the magnitude of fines.
    Keywords: Deterrence; fine size; type-I and type-II error; experiment
    JEL: C91 D03 K14
    Date: 2014–09–28
  9. By: Tatsuyoshi Saijo (Kochi University of Technology); Yoshitaka Okano (Kochi University of Technology)
    Abstract: This paper shows that second thoughts are not an innocent device in our daily life, but is human wisdom that plays an important role in resolving problems such as social dilemmas. We design the simplest possible mechanism to achieve Pareto efficiency in social dilemmas, and then compare the performance of this mechanism with and without second thoughts. First, second thoughts change the payoff structure of the game in favor of cooperation. Second, the mechanism with second thoughts performs very well experimentally, even from the first period. Third, this mechanism is robust even when players deviate from rational choices.
    Keywords: Second thoughts, Social Dilemma, Cooperation
    JEL: C72 C92 D74
    Date: 2014–10
  10. By: Gärtner, Manja (Department of Economics); Sandberg, Anna (Institute for International Economic Studies (IIES))
    Abstract: We investigate whether individuals are more prone to act selfishly if they can passively allow for an outcome to be implemented (omission) rather than having to make an active choice (commission). In most settings, active and passive choice alternatives differ in terms of factors such as defaults, costs of taking an action, and awareness. Isolating the distinction between active and passive choices in an experiment, we find no omission effect in fairness behavior. This suggests that increased selfishness through omission, as observed in various economic choice situations, is driven by these other factors rather than a preference for selfish omissions.
    Keywords: Fairness; Social preferences; Morals; Dictator game; Omission
    JEL: D03
    Date: 2014–09–24
  11. By: Aoyagi, Keitaro; Sawada, Yasuyuki; Shoji, Masahiro
    Abstract: While social capital in general has been recognized as essential for economic activities, its accumulation mechanisms are largely unexplored. How does people’s trust toward others, one of the core dimensions of social capital, emerge? To shed new light on this largely unanswered question, we investigate the impact of physical infrastructure on social capital accumulation by comparing two hypotheses: the habit formation hypothesis and the repeated interaction hypothesis. We use a unique dataset from an irrigation project in Sri Lanka under a natural experimental situation where a significant portion of irrigated land was allocated through a lottery mechanism. Also, we look at the level of social capital using artefactual field experiments by a strategy method based on a within-subject design. By combining these two instruments, we find that physical distance embedded by irrigation systems explain variations in trust across irrigation communities, suggesting that the level of particularized trust is significantly higher than that of general trust. Also, within-community variation in particularized trust is driven largely by each individual’s years of access to irrigation and is not necessarily affected by social distance or repeated interaction among farmers. Our results indicate that social preference emerges from a technological environment set by physical access to irrigation, suggesting habit formation of pro-social behavior.
    Keywords: ural and artefactual field experiments , trust , social capital , irrigation
    Date: 2014–02–12
  12. By: Christopher T. Conlon (Department of Economics, Columbia University); Julie Holland Mortimer (Boston College)
    Abstract: The 2010 Department of Justice and Federal Trade Commission Horizontal Merger Guidelines lay out a new standard for assessing proposed mergers in markets with differentiated products. This new standard is based on a measure of "upward pricing pressure," (UPP) and the calculation of a "gross upward pricing pressure index" (GUPPI) in turn relies on a "diversion ratio," which measures the fraction of consumers of one product that switch to another product when the price of the first product increases. One way to calculate a diversion ratio is to estimate own- and cross-price elasticities. An alternative (and more direct) way to gain insight into diversion is to exogenously remove a product from the market and observe the set of products to which consumers actually switch. In the past, economists have rarely had the ability to experiment in this way, but more recently, the growth of digital and online markets, combined with enhanced IT, has improved our ability to conduct such experiments. In this paper, we analyze the snack food market, in which mergers and acquisitions have been especially active in recent years. We exogenously remove six top-selling products (either singly or in pairs) from vending machines and analyze subsequent changes in consumers' purchasing patterns, firm profits, diversion ratios, and upward pricing pressure. Using both nonparametric analyses and structural demand estimation, we find significant diversion to remaining products. Both diversion and the implied upward pricing pressure differ significantly across manufacturers, and we identify cases in which the GUPPI would imply increased regulatory scrutiny of a proposed merger.
    Date: 2013–11–30
  13. By: Martin Valdivia
    Abstract: With millions of women around the developing world thrown into self-employment but with low productivity, the question about how to increase the profitability and growth potential of their businesses is increasingly relevant for poverty reduction and gender equity. This study evaluates the impacts of a business development services program serving female microentrepreneurs in Lima using an experimental design, that included two treatment groups: One received only general training (GT), albeit more time-intense than previous studies, and delivered by experts, while the other received in addition technical assistance (TA). Results show the existence of room for efficiency gains and growth, as all treated showed increased sales revenues and self-reported adoption of recommended business practices, although timing differed. Those that received full treatment (GT+TA) were the only ones reporting increased sales 4-7 months after the end of the treatment, but GTonly treated were able to catch up about a year later. Low take up of the training may suggest some space to improve recruitment and delivery of good general business practices.
    Keywords: entrepreneurship, business training, gender equity
    JEL: C93 D1 D22 J24 O12
    Date: 2014
  14. By: Christoph Buehren (University of Kassel); Marco Plessner
    Abstract: Does it matter who pays for ratings? Yes, but not for the rating agencies' behavior. These are the findings of our experiment where we analyze the effect of the remuneration model of rating agencies on their assessments as well as on investors' and issuers' behavior. First, we find that rating agencies' assessments are comparable whether the agency is (partially) paid by issuers, investors, or solely by the experimenter. Issuers, on the other hand, more often do not return investor's trust when they or investors pay for ratings. Further, investors more often act according to the agencies' recommendations when they have to pay for this information.Does it matter who pays for ratings? Yes, but not for the rating agencies' behavior. These are the findings of our experiment where we analyze the effect of the remuneration model of rating agencies on their assessments as well as on investors' and issuers' behavior. First, we find that rating agencies' assessments are comparable whether the agency is (partially) paid by issuers, investors, or solely by the experimenter. Issuers, on the other hand, more often do not return investor's trust when they or investors pay for ratings. Further, investors more often act according to the agencies' recommendations when they have to pay for this information.
    Date: 2014
  15. By: Katerina Sherstyuk (University of Hawaii at Manoa); Nori Tarui (University of Hawaii at Manoa); Majah-Leah V. Ravago (University of the Philippines Diliman)
    Abstract: Dynamic externalities are at the core of many long-term environmental problems, from species preservation to climate change mitigation. We use laboratory experiments to compare welfare outcomes and underlying behavior in games with dynamic externalities under two distinct settings: traditionally studied games with infinitely-lived decision makers, and more realistic intergenerational games. We show that if decision makers change across generations, resolving dynamic externalities becomes more challenging for two distinct reasons. First, decision makers' actions may be short-sighted due to their limited incentives to care about the future generations' welfare. Second, even when the incentives are perfectly aligned across generations, increased strategic uncertainty of an intergenerational setting may lead to an increased inconsistency of own actions and beliefs about the others, making own actions more myopic. Intergenerational learning through history and advice from previous generations may improve dynamic efficiency, but may also lead to persistent myopic bias.
    Keywords: economic experiments, dynamic externalities, intergenerational games, climate change
    Date: 2014–11
  16. By: Christopher P Roth
    Abstract: I use a randomised conditional cash transfer program from Indonesia to provide evidence on peer effects in consumption of poor households. I combine this with consumption visibility data from Indonesia to examine whether peer effects in consumption differ by a good’s visibility. In line with a model of conspicuous consumption, I find that the expenditure share of visible (nonvisible) goods rises (falls) for untreated households in treated sub-districts, whose reference group visible consumption is exogenously increased. Finally, I provide evidence on the mechanisms underlying the estimated spillovers using data on social interactions and social punishment norms. In line with Veblen’s (1899) claim that conspicuous consumption is more prevalent in societies with less social capital, I show that the peer effects in visible goods are larger in villages and for households with lower levels of social activities.
    Keywords: Conspicuous Consumption, Peer Effects, Relative Concerns, Spillovers,Social Interactions, Social Norms
    JEL: D12 C21 I38
    Date: 2014
  17. By: Sheely, Ryan (Harvard University)
    Abstract: Political Scientists have produced a substantial body of theory and evidence that explains variation in the availability of local public goods in developing countries. Existing research cannot explain variation in how these goods are maintained over time. I develop a theory that explains how the interactions between government and community institutions shape public goods maintenance. I test the implications of this theory using a qualitative case study and a randomized field experiment that assigns communities participating in a waste management program in rural Kenya to three different institutional arrangements. I find that localities with no formal punishments for littering experienced sustained reductions in littering behavior and increases in the frequency of public clean-ups. In contrast, communities in which government administrators or traditional leaders could punish littering experienced short-term reductions in littering behavior that were not sustained over time.
    Date: 2013–12
  18. By: Mukhopadhyay, Jyoti Prasad
    Abstract: This paper examines the impact of access to microfinance on consumption inequality using panel data of 6080 households available from a randomized evaluation conducted by Banerjee et al. (2013) in 104 slums in Andhra Pradesh, India. We find that access to microcredit exacerbates consumption inequality both at the slum-level and the household-level. Further decomposition of inequality indices shows that this difference in consumption inequality is predominantly driven by expenditure on non-food items. However, once all households across treatment and control slums have equal access to microcredit in the long-run, the disparity in consumption inequality between treatment and control slums disappears. Our results also suggest that larger loan size and higher number of loan cycles completed by older microcredit borrowers do not cause any significant divergence in consumption inequality across treatment and control households. These results imply need for targeted livelihood support programmes for those who cannot participate in microcredit programmes.
    Keywords: microfinance, randomized controlled trial, inequality
    JEL: C23 D63 G21
    Date: 2014–07–03
  19. By: Julia, Tobias; Sumarto, Sudarno; Moody, Habib
    Abstract: Several developing nations, including Indonesia, have experimented with conditional cash transfers (CCTs) to poor households during recent years. Since 2007, Indonesia has been carrying out a randomized CCT pilot program (PNPM Generasi) in 1,625 villages where funds are disbursed to communities rather than households, and local councils allocate the funds to public projects following community input. In this paper, we explore political outcomes associated with the program, including electoral rewards for incumbents, and political participation. By comparing regions receiving the program with a control group, we estimate the CCT’s effects on political behavior in the 2009 elections for President and the national legislative assembly, and we also explore its effects on local politics. We find that the CCT program increases vote shares for legislative candidates from the incumbent president’s party, improves households’ satisfaction with district-level government administrative services, and decreases competition among presidential candidates as measured by the Herfindahl- Hirschman Index (HHI). We do not find conclusive evidence to support the hypothesis that the program increases votes for the incumbent President, and we find no evidence that the program significantly increases voter turnout or affects village-level politics.
    Keywords: Conditional Cash Transfer, Political behavior, Indonesia
    JEL: H3 H42 I3
    Date: 2014–02–03
  20. By: Tibor Neugebauer; Daniela Di Cagno; Carlos Rodriguez-Palmero,; Abdolkarim Sadrieh (LSF)
    Abstract: We revisit the sequential search problem by Hey (1987). In a 2x2 factorial design, varying fixed and random cost treatments with and without recall, we address open research questions that were originally stated by Hey (1987). Our results provide clear evidence for Hey’s (1987) conjecture that recall negatively affects performance in sequential search. With experience, however, search behaviour with and without recall converges towards the optimal reservation rule. We further find that the utilization of optimal reservation rules is independent from the stochastic nature of the search cost.
    JEL: C90 D53 D92 G02 G11 G12
    Date: 2014
  21. By: Koji Kotani (School of Management, Kochi University of Technology); Kenta Tanaka (Mushashi University); Shunsuke Managi (Tohoku University)
    Abstract: A marketable permit system (MPS) has been suggested as solutions to environmental problems. Whereas properties of MPSs in non-trader settings are well-documented, little is explored about how MPSs perform in trader settings. We instituted two auctions of trader settings in MPS experiments: double auction (DA) and uniform price auction (UPA), and obtain the following results: UPAs are more efficient and generate more stable prices than DAs; UPAs induce subjects to more truthfully reveal information about abatement costs for emissions; and a considerable proportion of trades in DAs consist of speculation. Thus, UPAs work better than DAs in trader settings.
    Keywords: Marketable permits, economic experiments, double auction, uniform price auction, trader settings
    Date: 2014–10
  22. By: Owen Powell
    Abstract: Mispricing (the dierence between prices and their underlying fundamental values) is an important characteristic of markets. The literature on the topic consists of many dierent measures. This state of aairs is unsatisfactory, since dierent measures may produce dierent results. Stockl et al. (2010) partially address this problem by proposing (among other things) that measures of mispricing be independent of certain nominal variables: the number of dividend payments and the absolute level of fundamental values. Their conditions rule out all previous measures used in the literature and leads them to propose new measures in response. This paper proposes that mispricing measures be independent of an additional variable: the unit of account. This condition rules out the measures proposed by Stockl et al. (2010) and serves as the basis for a new measure of market mispricing, the Geometric Average Deviation (GAD). The unit of account condition is relevant to many market settings, and thus calls into question the ndings of previous research based on other measures that fail to satisfy this condition. An application illustrates the potential impact of this new measure on previous experimental results.
    JEL: C43 C90 D84 G14
    Date: 2014–10

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