nep-exp New Economics Papers
on Experimental Economics
Issue of 2014‒12‒29
24 papers chosen by

  1. The long-term impact of matching and rebate subsidies when public goods are impure: Field experimental evidence from the carbon offsetting market By Kesternich, Martin; Löschel, Andreas; Römer, Daniel
  2. An Experimental Investigation into Queueing Behavior By Anna Conte; Marco Scarsini; Oktay Sürücü
  3. Committees and Status Quo Bias: Structural Evidence from a Randomized Field Experiment By Simon Quinn; Tom Gole
  4. The effect of charitable giving on workers’ performance. Experimental evidence By Gary Charness; Ramón Cobo-Reyes; Angela Sanchez
  6. A field experiment in motivating employee ideas By Gibbs, Michael; Neckermann, Susanne; Siemroth, Christoph
  7. "Read my Lips!" Experimental Evidence on the Effects of Electoral Competition on Shirking and Trust By Gari Walkowitz; Arne R. Weiss
  8. Dishonesty under Scrutiny By van de Ven, Jeroen; Villeval, Marie Claire
  9. Emotions-at-risk: An experimental investigation into emotions, option prices and risk perception By Bosman, Ronald; Kräussl, Roman; van Galen, Thomas
  10. Economic Experiments and Environmental Policy : A Review By Noussair, C.N.; van Soest, D.P.
  11. Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity By Snir, Avichai; Levy, Daniel; Gotler, Alex; Chen, Haipeng (Allan)
  12. Is Information Power? Using Mobile Phones and Free Newspapers during an Election in Mozambique By Jenny C. Aker; Paul Collier; Pedro C. Vicente
  13. Does subsidising young people to learn to drive promote social inclusion? Evidence from a large controlled experiment in France By Julie Le Gallo; Yannick L'Horty; Pascale Petit
  14. Bargaining with a residual claimant: An experimental study By Embrey M.S.; Hyndman K.; Riedl A.M.
  15. Money is more than memory By Bigoni, Maria; Camera, Gabriele; Casari, Marco
  16. Macroinsurance for Microenterprises: A Randomized Experiment in Post-Revolution Egypt By McKenzie, David
  17. Informational asymmetries in laboratory asset markets with state-dependent fundamentals By Keser, Claudia; Markstädter, Andreas
  18. Information Mirages and Financial Contagion in Asset Market Experiment By Noussair, C.N.; Xu, Yilong
  19. Financing Smallholder Agriculture: An Experiment with Agent-Intermediated Microloans in India By Pushkar Maitra; Sandip Mitra; Dilip Mookherjee; Alberto Motta; Sujata Visaria
  20. Does Reading During the Summer Build Reading Skills? Evidence from a Randomized Experiment in 463 Classrooms By Jonathan Guryan; James S. Kim; David M. Quinn
  21. Sexism, Statements, and Audits By Eric Schniter; Timothy W. Shields
  22. Is it Always Best to be on Top? The Effect of Ad Positioning on Key Performance Indicators in Search Engine Advertising By Philipp Herrmann; Michael Mueller
  23. Context dependent cheating: Experimental evidence from 16 countries By Pascual-Ezama, David; Fosgaard, Toke R.; Cardenas, Juan Camilo; Kujal, Praveen; Veszteg, Robert; Gil-Gómez de Liaño, Beatriz; Gunia, Brian; Weichselbaumer, Doris; Hilken, Katharina; Antinyan, Armenak; Delnoij, Joyce; Proestakis, Antonios; Tira, Michael D.; Pratomo, Yulius; Jaber-López, Tarek; Brañas-Garza, Pablo
  24. The two faces of independence: betweenness and homotheticity By Daniel R. Burghart; Thomas Epper; Ernst Fehr

  1. By: Kesternich, Martin; Löschel, Andreas; Römer, Daniel
    Abstract: In this paper, we investigate both short- and long-term impacts of financial stimuli on public goods provision when contributions are tied to individual harm-related behavior. We conduct a large-scaled field experiment to examine voluntary contributions to a carbon offsetting program during the online purchase of a bus ticket. We systematically vary the individual payoff structure by introducing different matching grants (1/3:1, 1:1, 3:1) and price rebates (r-25%, r-50%, r-75%). Our results show that price rebates are more effective than matching schemes in raising participation rates while matching grants induce higher contributions to the offsetting program. We suspect differences in the personal responsibility for the compensated emissions to drive this result. Analyzing repeated bookings, we find decreasing treatment effects for returning customers except for the case of 1:1 matching grants. The equal matching scheme is also the only intervention that increases net contributions of customers compared to the control group.
    Keywords: voluntary carbon offsets,randomized field experiment,public goods,rebate subsidy,matching subsidy
    JEL: H41 C93 D03 L92
    Date: 2014
  2. By: Anna Conte (Max Planck Institute of Economics, Jena, and WBS, University of Westminster, EQM Department); Marco Scarsini (Dipartimento di Economia e Finanza, LUISS, Roma); Oktay Sürücü (Center for Mathematical Economics, Bielefeld University)
    Abstract: We conduct an experiment meant to explore the factors driving customers' decisions in a queueing system. Under different time allowance conditions, the experimental subjects are asked to join one of two queues that differ in their length, server speed, and entry fee. We investigate some aspects of a queue on which subjects base their decision and what is the effect of time pressure on their decision criteria. We find that only a proportion of subjects behave rationally and use the relevant information efficiently. The size of this proportion increases when time limitation is relaxed. The rest of the subjects seem to adopt a rule of thumb that ignores the information on server speed and follows the shorter queue. Consequently, these subjects use less time than rational types when making their decisions. Furthermore, time pressure harms decision performance since the presence of time limitation stresses a great deal of subjects and causes them to use time inefficiently.
    Keywords: Queues with entry fee, join the shortest queue, laboratory experiments, decision time
    JEL: C91 L00 C33 C35
    Date: 2014–11–25
  3. By: Simon Quinn; Tom Gole
    Abstract: When members of a committee have incentives to agree with each other, they over-weight public information: this can generate status quo bias.  We test this hypothesis using a novel field experiment -  a large debate tournament with random assignment of judges to committees.  To analyse our experimental data, we develop a new structural methodology for estimating discrete dynamic Bayesian games using Markov Perfect Equililbrium.  Our method allows for correlated unobservable signals and for rational dynamic updating of coordination preferences along the equilibrium path.  Our structural estimates show that judges with greater desire to coordinate are more likely to vote for teams with better past records; this shows that, in a committee context, public information can cause coordination on weaker candidates.
    Keywords: committees, discrete games, identification, field experiments, discrimination
    JEL: C93
    Date: 2014–11–20
  4. By: Gary Charness (University of California at Santa Barbara); Ramón Cobo-Reyes (University of Exeter Business School.); Angela Sanchez (University of Exeter Business School.)
    Abstract: We investigate how donating worker earnings for voluntary extra work, a form of corporate social responsibility, affects worker behavior. In our experiment, participants performed a realeffort task. Subjects were asked to enter real data (from an unrelated experiment) for 60 minutes and were paid on a piece-rate basis. After the 60 minutes, they were then asked if they wished to stay for up to another 30 minutes; we varied the piece-rate pay and whether it was paid to the worker or to a charity. Our results show that when the piece rate paid is relatively high, workers do more extra work when they are directly paid this piece rate as compared to when their earnings are instead paid to a charity. However, with low piece rates, this relationship reverses and workers are much more motivated when the money is donated to a charity instead of when it is paid directly to them. This approach is potentially a win-win outcome for at least firms and charities. We also find that when we only pay a small amount to workers, their behavior differs only modestly from the situation in which we do not pay at all.
    Keywords: labor market, gift exchange-game, delegation, responsibility-allevietion, experiments.
    Date: 2014–04–27
  5. By: Aniol Llorente-Saguer (School of Economics and Finance, Queen Mary, University of London); Ro’i Zultan (BGU)
    Keywords: auctions, collusion, bribes, experiment.
    JEL: C72 C91 D44
    Date: 2014
  6. By: Gibbs, Michael; Neckermann, Susanne; Siemroth, Christoph
    Abstract: We study the effects of a field experiment designed to motivate employee ideas, at a large technology company. Employees were encouraged to submit ideas on process and product improvements via an online system. In the experiment, the company randomized 19 account teams into treatment and control groups. Employees in treatment teams received rewards if their ideas were approved. Nothing changed for employees in control teams. Our main finding is that rewards substantially increased the quality of ideas submitted. Further, rewards increased participation in the suggestion system, but decreased the number of ideas per participating employee, with zero net effect on the total quantity of ideas. The broader participation base persisted even after the reward was discontinued, suggesting habituation. We find no evidence for motivational crowding out. Our findings suggest that rewards can improve innovation and creativity, and that there may be a tradeoff between the quantity and quality of ideas.
    JEL: C93 J24 M52 O32
    Date: 2014
  7. By: Gari Walkowitz (University of Cologne); Arne R. Weiss (University of Cologne)
    Abstract: We experimentally test whether electoral competition reduces shirking behavior by office-holders and increases citizens' trust. We hypothesize that competition increases campaign promises by office-holders, who feel committed to what they promise. Using a novel repeated multi-person investment-game with periodic elections, we indeed find that elected office-holders shirk less (i.e., they back-transfer more to citizens relative to investments) as compared to randomly appointed office-holders. Surprisingly, this effect cannot be explained through competition inflating the level of electoral promises. Nevertheless, promises do matter; in fact, they carry greater weight for the behavior of elected office-holders than for their randomly appointed counterparts. Elections also have a positive short-term effect on citizens' trust by cutting off both low and excessively high promises.
    Keywords: elections, promises, shirking, trust game
    JEL: D72 D02 D03 C71 C91
    Date: 2014–11–30
  8. By: van de Ven, Jeroen (University of Amsterdam); Villeval, Marie Claire (CNRS, GATE)
    Abstract: We investigate how different forms of scrutiny affect dishonesty, using Gneezy's (2005) deception game. We add a third player whose interests are aligned with those of the sender. We find that lying behavior is not sensitive to revealing the sender's identity to the observer. The option for observers to communicate with the sender, and the option to reveal the sender's lies to the receiver also do not affect lying behavior. Even more striking, senders whose identity is revealed to their observer do not lie less when their interests are misaligned with those of the observer.
    Keywords: deception, lies, dishonesty, social image, experiment
    JEL: C91 D83
    Date: 2014–11
  9. By: Bosman, Ronald; Kräussl, Roman; van Galen, Thomas
    Abstract: This paper experimentally investigates how emotions are associated with option prices and risk perception. Using a binary lottery, we find evidence that the emotion 'surprise' plays a significant role in the negative correlation between lottery returns and estimates of the price of a put option. Our findings shed new light on various existing theories on emotions and affect. We find gratitude, admiration, and joy to be positively associated with risk perception, although the affect heuristic predicts a negative association. In contrast with the predictions of the appraisal tendency framework (ATF), we document a negative correlation between option price and surprise for lottery winners. Finally, the results show that the option price is not associated with risk perception as commonly used in psychology.
    Keywords: risk perception,emotions,affect heuristic,option prices,experiment
    JEL: D81 D03 G17
    Date: 2014
  10. By: Noussair, C.N. (Tilburg University, Center For Economic Research); van Soest, D.P. (Tilburg University, Center For Economic Research)
    Abstract: Abstract: We summarize and review the literature on two types of economic experiments. First we discuss the use of experimental laboratories to testbed market solutions to issues in environmental policy. We concentrate on experiments with one and two-sided markets, and applications in the domain of water allocation, food safety, and tradable permit systems. Second, we explore the consequences for environmental policies of the vast body of literature refuting the assumption that humans are only concerned with their own private welfare. We review the literature addressing whether government intervention is always necessary to protect the environment, and also whether it is always effective in doing so.
    Keywords: Survey; experiment; environment; social dilemma
    JEL: C92 Q20 Q30 Q50
    Date: 2014
  11. By: Snir, Avichai; Levy, Daniel; Gotler, Alex; Chen, Haipeng (Allan)
    Abstract: Using data from three sources (a laboratory experiment, a field study, and a large US supermarket chain), we document a surprising asymmetric behavior of 9-ending prices: they are more rigid upward, but not downward, in comparison to non 9-ending prices. The data from the lab experiment and the field study suggest that shoppers are less likely to notice higher prices when they end with 9, or price increases when the new prices end with 9, in comparison to other endings. The consumers' misperception seems to be caused by their use of 9-endings as a signal for low prices, which interferes with price information processing. The supermarket data suggest that retail price setters respond strategically to the consumer misperception by setting 9-ending prices more often after price increases than after price decreases. 9-ending prices, therefore, usually increase only if the new prices are also 9-ending. Consequently, 9-ending prices exhibit asymmetric rigidity: they are more rigid than non 9-ending prices upward but not downward.
    Keywords: Price Points,Price Recall,Sticky Prices,Rigid Prices,Price Rigidity,Price Adjustment,9-Ending Prices,Psychological Prices,Asymmetric Price Adjustment
    JEL: E31 L16 C91 C93 D03 D80 M31
    Date: 2014–11–05
  12. By: Jenny C. Aker; Paul Collier; Pedro C. Vicente
    Abstract: African elections often reveal low levels of political accountability. We assess different forms of voter education during an election in Mozambique. Three interventions providing information to voters and calling for their electoral participation were randomized; an SMS-based information campaign, an SMS hotline for electoral misconduct, and the distribution of a free newspaper. To measure impact, we look at official electoral results, reports by electoral observers, behavioral and survey data. We find positive effects of all treatments on voter turnout. We observe that the distribution of the newspaper led to more accountability-based participation and to a decrease in electoral problems. JEL codes: D72, O55, P16
    Keywords: voter education, political economy, cell phones, newspapers, randomized experiment, field experiment, Mozambique, Africa
    Date: 2013
  13. By: Julie Le Gallo; Yannick L'Horty; Pascale Petit
    Date: 2014
  14. By: Embrey M.S.; Hyndman K.; Riedl A.M. (GSBE)
    Abstract: We experimentally investigate a bargaining environment in which players negotiate over a xed payment to one player, while the other player receives the residual from a random pie realization after subtracting the xed payment. Contrary to the intuition that risk exposure is detrimental, we show that residual claimants are able to extract a risk premium, which is increasing in risk exposure. In some cases the premium is so high that it is advantageous to bargain over a risky pie rather than a risk-less pie. Contrary to theory, the comparatively less risk averse residual claimants benet the most. Moreover, bargaining frictions increase as risk increases, and we document more frequent disagreements as risk increases. When given the chance to choose a less or more risky distribution over which to bargain, residual claimants tend to choose the more risky distribution only when there is the possibility of an equal-split ex-post. Our results suggest that theoretical bargaining models require some separation between the determinants of bargaining power and fair compensation for risk exposure.
    Keywords: Cooperative Games; Design of Experiments: Laboratory, Group Behavior; Criteria for Decision-Making under Risk and Uncertainty;
    JEL: C71 C92 D81
    Date: 2014
  15. By: Bigoni, Maria; Camera, Gabriele; Casari, Marco
    Abstract: Impersonal exchange is the hallmark of an advanced society. One key institution for impersonal exchange is money, which economic theory considers just a primitive arrangement for monitoring past conduct in society. If so, then a public record of past actions - or memory - supersedes the function performed by money. This intriguing theoretical postulate remains untested. In an experiment, we show that the suggested functional equality between money and memory does not translate into an empirical equivalence. Monetary systems perform a richer set of functions than just revealing past behaviors, which proves to be crucial in promoting large-scale cooperation.
    Keywords: cooperation,intertemporal trade,experiments,social norms,social dilemmas
    JEL: C70 C90 D03 E02
    Date: 2014
  16. By: McKenzie, David
    Abstract: Firms in many developing countries cite macroeconomic instability and political uncertainty as major constraints to their growth. Economic theory suggests uncertainty can cause firms to delay investments until uncertainty is resolved. We conduct a randomized experiment in post-revolution Egypt to measure the impact of insuring microenterprises against macroeconomic and political uncertainty. Demand for macroeconomic shock insurance was high; 36.7 percent of microentrepreneurs in the treatment group purchased insurance. However, purchasing insurance does not change the likelihood that a business takes a new loan, the size of the loan, or how they invest this loan. We attribute this lack of effect to microenterprises largely investing in inventories and raw materials rather than irreversible investments like equipment. These results suggest that, contrary to what they profess, macroeconomic and political risk is not inhibiting the investment behavior of microenterprises. However, insurance may still be of value to them to help cope with shocks when they do occur, but we are unable to examine this dimension as our insurance product did not pay out over the course of the pilot.
    Keywords: Egypt; insurance; microenterprises; political instability; risk; uncertainty
    JEL: C93 D22 G22 O12 O16
    Date: 2014–10
  17. By: Keser, Claudia; Markstädter, Andreas
    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 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. The precision of mar ket price forecasts is impeded by the presence of insiders.
    Keywords: experimental economics,asset markets,informational asymmetries
    JEL: C92 D53 D82 G14
    Date: 2014
  18. By: Noussair, C.N. (Tilburg University, Center For Economic Research); Xu, Yilong (Tilburg University, Center For Economic Research)
    Abstract: We study financial contagion in an experimental market. There are two assets and an exogenous shock reduces the value of one of the two assets. Whether and how the other asset is affected depends on the correlation between the underlying values of the two assets. In some trials, the correlational relationship between the assets is unknown to all agents. In other trials, 50% of the traders are insiders who know the nature of the relationship between the assets. In periods with insiders, prices typically reveal private information. In periods without insiders, information mirages frequently occur, and can readily be interpreted as financial contagion that is unjustified by any underlying fundamental relationship. Our results suggest that under asymmetric information, traders may overreact to data from one market with their behavior in other markets.
    Keywords: Experiment; Asset market; Financial contagion; Information mirage
    JEL: C91 D82 D53 G14
    Date: 2014
  19. By: Pushkar Maitra; Sandip Mitra; Dilip Mookherjee; Alberto Motta; Sujata Visaria
    Abstract: Recent evaluations of traditional microfinance loans have found no significant impacts on borrower incomes or productive activities. We examine whether this can be remedied by (a) modifying loan features to facilitate financing of working capital needs of farmers, and (b) delegating selection of borrowers for individual liability loans to local trader-lender agents incentivized by repayment-based commissions. We conduct a field experiment in West Bengal where this design (called TRAIL) was offered in randomly selected villages. In remaining villages a more traditional design (called GBL) was offered, wherein five-member groups applied for joint liability loans with terms otherwise similar to TRAIL loans. TRAIL loans increased cultivation of potatoes (the major cash crop in the region) and farm incomes by 17–21%, whereas GBL loans had insignificant and highly dispersed effects. We argue this was because TRAIL agents selected borrowers that were low-risk and highly productive, whereas the GBL scheme attracted farmers that were riskier on average and highly heterogeneous in terms of productivity. TRAIL loans also achieved higher repayment and take-up rates, and lower administrative costs.
    JEL: O16 O17 Q14
    Date: 2014–11
  20. By: Jonathan Guryan; James S. Kim; David M. Quinn
    Abstract: There are large gaps in reading skills by family income among school-aged children in the United States. Correlational evidence suggests that reading skills are strongly related to the amount of reading students do outside of school. Experimental evidence testing whether this relationship is causal is lacking. We report the results from a randomized evaluation of a summer reading program called Project READS, which induces students to read more during the summer by mailing ten books to them, one per week. Simple intent-to-treat estimates show that the program increased reading during the summer, and show significant effects on reading comprehension test scores in the fall for third grade girls but not for third grade boys or second graders of either gender. Analyses that take advantage of within-classroom random assignment and cross-classroom variation in treatment effects show evidence that reading more books generates increases in reading comprehension skills, particularly when students read carefully enough to be able to answer basic questions about the books they read, and particularly for girls.
    JEL: I24 J24
    Date: 2014–11
  21. By: Eric Schniter (The Economic Science Institute, and Argyros School of Business & Economics, Chapman University); Timothy W. Shields (The Economic Science Institute, and Argyros School of Business & Economics, Chapman University)
    Abstract: Gender stereotypes and gender-discriminant behaviors have been shown to have strong and undesirable organizational, managerial, and economic effects. We examine the relationship between sexism and accounting practices, and the effect of contextual feedback using laboratory experiments. Sexist stereotypes and contextual feedback may affect the likelihood of financial misstatements and audits when auditors and issuers are of known gender. To investigate these aspects of sexism at zero acquaintance and after contextual feedback, we presented males and females with incentivized belief elicitation tasks about anticipated interaction behaviors and then a series of strategic-communication game decisions in same, other, and unknown gender interactions. Feedback about belief accuracy, actual behaviors, and earnings was only given after completing a full set of belief elicitations and interactions. At zero acquaintance, both genders stereotyped the other gender’s behavior propensities as relatively different than their own gender’s. Both genders’ stereotyped male and female targets similarly, and while both genders discriminated based on target gender, males’ and females’ behavior was similar. Consistent with a statistical discrimination account of sexism, stereotypes and game behaviors were adjusted after contextual feedback to more accurately reflect and predict others’ behaviors. While biosocial and evolutionary perspectives may help explain why undesirable sexism is prevalent, our results suggest that by providing contextual information and incentives in reporting and auditing settings, we can motivate sexists to moderate their stereotypes and linked behaviors.
    Keywords: sexism, gender, stereotype, discrimination, audit
    JEL: A13 D03 J14 Z1
    Date: 2014
  22. By: Philipp Herrmann (University of Paderborn); Michael Mueller (MSO-Digital)
    Abstract: Search Engine Advertising is one of the fastest growing instruments in online marketing and a major source of costs for online advertisers. In this research, we empirically and experimentally investigate the impact of ad positioning on key performance indicators in search engine advertising namely click-through-rates, cost-per-click, conversion-rates, and cost-per-conversion. We answer our research question by using a unique and very rich dataset provided by an online marketing agency as well as by conducting a field experiment on a major web search engine. Our analysis of the provided dataset shows that click-through-rates and cost-per-click are negatively correlated with the ad position i.e., the topmost ad position has higher click-through-rates and cost-per-click than, for example, positions two and three. In contrast, we do not find a significant negative correlation, and in the majority of cases no correlation, between ad positions and conversion-rates. Thus, due to the high cost-per-click for the top ad positions and the non-existent negative correlation between ad positions and conversion-rates, lower ad positions are also correlated with lower costs-per-conversion compared to the top positions. In particular, we find a decrease in the costs-per-conversion of approximately 40 percent if ads are not listed at the top position but, for example, on the less prominent position four. Validating these results, our field experiment shows a significant and substantial negative relationship between ad-position and click-through-rates, cost-per-click, and costs-per-conversion and no significant relationship between ad position and conversion-rates.
    Keywords: Search Engine Advertising, Advertisement Position, Click-through-Rates, Conversion-Rates, Cost-per-Click, Cost-per-Conversion, Field Experiment
    Date: 2014–08
  23. By: Pascual-Ezama, David; Fosgaard, Toke R.; Cardenas, Juan Camilo; Kujal, Praveen; Veszteg, Robert; Gil-Gómez de Liaño, Beatriz; Gunia, Brian; Weichselbaumer, Doris; Hilken, Katharina; Antinyan, Armenak; Delnoij, Joyce; Proestakis, Antonios; Tira, Michael D.; Pratomo, Yulius; Jaber-López, Tarek; Brañas-Garza, Pablo
    Abstract: Economic loss to society due to dishonesty can be quite large. Policy makers use several international indices that characterize countries according to the quality of their institutions. However, no effort has been made to study how the honesty of citizens varies across sixteen countries. This paper explores the honesty among citizens across sixteen countries and not of the national institutions. We employ a very simple task where participants face a trade-off between the joy of eating a fine chocolate and the disutility of having a threatened self-concept because of lying. The experiment was conducted in 16 countries with 1440 participants. Despite the clear incentives to cheat, we find that individuals are mostly honest. Further, international indices that are indicative of institutional honesty are completely uncorrelated with citizens' honesty for our sample countries.
    Keywords: Honesty, corruption, cultural differences
    JEL: Z0
    Date: 2014
  24. By: Daniel R. Burghart; Thomas Epper; Ernst Fehr
    Abstract: Many studies document failures of expected utility’s key assumption, the independence axiom. Here, we show that independence can be decomposed into two distinct axioms – betweenness and homotheticity – and that these two axioms are necessary and sufficient for independence. Thus, independence can fail because homotheticity, betweenness, or both are violated. Most research has focused on models that assume subjects will violate both axioms or models that assume subjects will satisfy betweenness but violate homotheticity. Our decomposition of independence into betweenness and homotheticity allows us to show, however, that a significant share of subjects obey homotheticity but violate betweenness. Using data from a revealed preference experiment, and without making any parametric assumptions, we show that 1/3 of participants belong in the neglected class of preferences that violate independence but satisfy homotheticity, indicating that betweenness is violated. Another 1/3 of participants satisfy independence. The remaining 1/3 fail both independence and homotheticity and may also fail betweenness. Our results provide useful constraints on future modeling attempts by highlighting, in a non-parametric way, an empirically relevant class of preferences.
    Keywords: Revealed preferences, risk preferences, expected utility, independence axiom, betweenness, homotheticity, consumer choice, aggregation
    JEL: C91 D11 D12 D83
    Date: 2014–11

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