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on Experimental Economics |
| By: | Ciril Bosch-Rosa (Technische Universitaet Berlin); Thomas Meissner (Technische Universitaet Berlin); Antoni Bosch-Domènech (Universitat Pompeu Fabra) |
| Abstract: | Smith et al. (1988) reported large bubbles and crashes in experimental asset markets, a result that has been replicated many times. Here we test whether the occurrence of bubbles depends on the experimental subjects' cognitive sophistication. In a two-part experiment, we first run a battery of tests to assess the subjects' cognitive sophistication and classify them into low or high levels of cognitive sophistication. We then invite them separately to two asset market experiments populated only by subjects with either low or high cognitive sophistication. We observe classic bubble- crash patterns in the sessions populated by subjects with low levels of cognitive sophistication. Yet, no bubbles or crashes are observed with our sophisticated subjects. This result lends strong support to the view that the usual bubbles and crashes in experimental asset markets are caused by subjects' confusion and, therefore, raises some doubts about the relevance of this type of experiments. Creation Date: 2015-03-16 |
| Keywords: | Asset Market Experiment, Bubbles, Cognitive Sophistication |
| JEL: | C91 D12 D84 G11 |
| URL: | http://d.repec.org/n?u=RePEc:bdp:wpaper:2015006&r=exp |
| By: | Marcel Fafchamps; Ruth Vargas Hill |
| Abstract: | We design an original laboratory experiment to investigate whether redistributive actions hinder the formation of Pareto-improving groups. We test, in an anonymous setting with no feedback, whether people choose to destroy or steal the endowment of others and whether they choose to give to others, when granted the option. We then test whether subjects join a group that increases their endowment but exposes them to redistribution. We conduct the experiment in three very different settings with a priori different norms of pro-social behavior: a university town in the UK, the largest urban slum in Kenya, and rural Uganda. We find a lot of commonality but also large differences between sites. UK subjects behave in a more selfish and strategic way -- giving less, stealing more. Kenyan and Ugandan subjects behave in a more altruistic and less strategic manner. However, pro-social norms are not always predictive of joining behavior. African subjects are less likely to join a group when destruction or stealing is permitted. It is as if they are less trusting even though they are more trustworthy. These findings contradict the view that African current underdevelopment is due to a failure of generalized morality. |
| JEL: | D03 O17 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21127&r=exp |
| By: | Doerrenberg, Philipp; Schmitz, Jan |
| Abstract: | We study tax compliance in Slovenia using data generated in a field experiment. Small accounting companies were randomly assigned to an untreated control group and two treatment groups. Companies in the first treatment group received a letter that highlighted the importance of paying taxes and informed about the likelihood of becoming subject to an audit. In the second treatment group, tax officers from the tax authorities handed out in person the same letter that companies in the first treatment group received by post. The results indicate that such letters can increase compliance, and trigger even more compliance if handed over in person. These findings are in line with the theoretical predictions that we derive to rationalize the experiment. |
| Keywords: | Tax Compliance,Audits,Randomized Field Experiment,Tax authority,Information provision |
| JEL: | H20 H32 H50 C93 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:15028&r=exp |
| By: | Ackermann, Hagen |
| Abstract: | I study how different types of subsidization affect investment decisions in a laboratory experiment. Even though the expected pro t is identical in all treatments, I find highly significant differences between them. In particular, when investment alternatives get subsidized with tax credits the willingness to invest in the subsidized alternative increases remarkably. In addition, the willingness to take risks increases in general, when tax credits are introduced. Hence, tax credits might be more effective in promoting investments. |
| Keywords: | behavioral economics,subsidies,tax incentives,distorting subsidization,real investment,risk-taking behavior |
| JEL: | C91 D14 H25 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:arqudp:185&r=exp |
| By: | Ralph-C Bayer (School of Economics, University of Adelaide) |
| Abstract: | If either property rights or institutions are weak, agents who create wealth by cooperating will later have an incentive to fight over the distribution of it. In this paper we investigate theoretically and experimentally the circumstances under which welfare losses from investment in distributional contests destroy welfare gains from voluntary cooperation. We find that in situations, where the return to cooperation is high, subjects cooperate strongly and welfare exceeds the predicted non-cooperation levels. If returns to cooperation are low, then subjects still cooperate, but the resources wasted in the distributional conflict lead to lower welfare than if subjects had followed the theoretical prediction of not cooperating. |
| Keywords: | Conflict, Cooperation, Contests, Experiments |
| JEL: | D74 C91 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2015-04&r=exp |
| By: | Sara le Roux (Department of Economics, Oxford Brookes University); David Kelsey (Department of Economics, University of Exeter) |
| Abstract: | This paper studies the impact of ambiguity in the best shot and weakest link models of public good provision. The models are ?rst analysed theoretically. Then we conduct experiments to study how ambiguity affects behaviour in these games. We test whether subjects? perception of ambiguity differs between a local opponent and a foreign one. We fi?nd that an ambiguity safe strategy, is often chosen by subjects. This is compatible with the hypothesis that ambiguity aversion infl?uences behaviour in games. Subjects tend to choose contributions above (resp. below) the Nash equilibrium in the Best Shot (resp. Weakest Link) model. |
| Keywords: | Public goods; Ambiguity; Choquet expected utility; strategic complements; weakest link; best shot. |
| JEL: | C72 C91 D03 D81 H41 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:exe:wpaper:1506&r=exp |
| By: | Fochmann, Martin; Wolf, Nadja |
| Abstract: | Although there is already a variety of papers analyzing tax evasion decisions, only little focus is put on tax evasion of gains and losses. As taxpayers can evade taxes by either underreporting their income or by overdeducting expenses, we study whether there is a significant difference if subject are confronted with a gain or a loss scenario. We find that individuals evade more in the first than in the latter case. As a consequence, subjects are more willing to evade taxes by underreporting income than by overdeducting expenses. We show that this finding can be explained by mental accounting and an asymmetric evaluation of tax payments and tax refunds. Our result is robust to treatment variation. However, if individuals have to complete only one tax declaration (but still decide on gains and losses) and we therefore expect subjects to use only one mental account, the effect vanishes. This provides strong evidence that mental accounting plays an important role in tax evasion decisions. Further results are presented and discussed. |
| Keywords: | tax evasion,tax compliance,prospect theory,mental accounting,behavioral taxation,experimental economics |
| JEL: | C91 D14 H24 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:arqudp:186&r=exp |
| By: | Maroš Servátka (University of Canterbury); Daniel Woods |
| Abstract: | This paper tests Psychological Forward Induction in the Lost Wallet Game, in an attempt to explain an empirical puzzle observed by Dufwenberg & Gneezy (2000) that the size of the outside option forgone by the first mover does not affect the behavior of the second mover. This is puzzling as Psychological Forward Induction and other theories predict that raising the outside option will increase the reward provided by the second mover to the first mover for foregoing the outside option. Our experiment tests whether the second movers update their beliefs after observing their paired first movers’ decision by eliciting beliefs with different second mover knowledge of first mover decision, depending on treatment. We find that second movers do update their beliefs conditional on receiving information on the first mover’s action, supporting Psychological Forward Induction. |
| Keywords: | beliefs, experiment, guilt aversion, lost wallet game, psychological forward induction |
| JEL: | C70 C91 |
| Date: | 2015–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:15/09&r=exp |
| By: | Marcel Fafchamps; Simon R. Quinn |
| Abstract: | We run a novel field experiment to link managers of African manufacturing firms. The experiment features exogenous link formation, exogenous seeding of information, and exogenous assignment to treatment and placebo. We study the impact of the experiment on firm business practices outside of the lab. We find that the experiment successfully created new variation in social networks. We find significant diffusion of business practices only in terms of VAT registration and having a bank current account. This diffusion is a combination of diffusion of innovation and simple imitation. At the time of our experiment, all three studied countries were undergoing large changes in their VAT legislation. |
| JEL: | D22 L26 O33 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21132&r=exp |
| By: | Edward Cartwright; Anna Stepanova |
| Abstract: | We contrast and compare three ways of predicting efficiency in a forced contribution threshold public good game. The three alternatives are based on ordinal potential, quantal response and impulse balance theory. We report an experiment designed to test the respective predictions and find that impulse balance gives the best predictions. A simple expression detailing when enforced contributions result in high or low efficiency is provided. |
| Keywords: | Public good; threshold; impulse balance theory; quantal response; forced contribution; ordinal potential |
| JEL: | C72 H41 C92 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1506&r=exp |
| By: | Christopher Boyce (University of Stirling); Mikolaj Czajkowski (University of Warsaw); Nick Hanley (University of St Andrews); Charles Noussair (Tilburg University); Michael Townsend (NZ National Institute for Water and Atmosphere); Steve Tucker (University of Waikato) |
| Abstract: | This paper tests whether changes in 'incidental emotions' lead to changes in economic choices. Incidental emotions are experienced at the time of an economic decision but are not part of the payoff from a particular choice. As such, the standard economic model predicts that incidental emotions should not affect behavior, yet many papers in the behavioral science and psychology literatures find evidence of such effects. In this paper, we used a standard procedure to induce different incidental emotional states in respondents, and then carried out a choice experiment on changes to an environmental good (beach quality). We estimated preferences for this environmental good and willingness to pay for changes in this good, and tested whether these were dependent on the particular emotional state induced. We also tested whether choices became more or less random when emotional states were induced, based on the notion of randomness in a standard random utility model. Contrary to our a-priori hypothesis we found no significant evidence of treatment effects, implying that economists need not worry about the effects of variations in incidental emotions on preferences and the randomness of choice, even when there is measured (induced) variation in these emotions. |
| Keywords: | choice experiments; behavioral economics; ecosystem services; emotions; rationality |
| JEL: | Q51 Q57 D03 D87 |
| Date: | 2015–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:wai:econwp:15/02&r=exp |
| By: | Anderson, Lisa R.; DeAngelo, Gregory; Emons, Winand; Freeborn, Beth; Lang, Hannes |
| Abstract: | Increasing penalty structures for repeat offenses are ubiquitous in penal codes, despite little empirical or theoretical support. Multi-period models of criminal enforcement based on the standard economic approach of Becker (1968) generally find that the optimal penalty structure is either flat or declining. We experimentally test a two-stage theoretical model that predicts decreasing penalty structures will yield greater deterrence than increasing penalty structures. We find that decreasing fine structures are more effective at reducing risky behavior. Additionally, our econometric analyses reveal a number of behavioral findings. Subjects are deterred by past convictions, even though the probability of detection is independent across decisions. Further, subjects appear to take the two-stage nature of the decision making task into account, suggesting that subjects consider both current and future penalties. Even controlling for the fine a subject faces for any given decision, being in a decreasing fine structure has a significant effect on deterrence. |
| Keywords: | crime and punishment; deterrence; experimental evidence; repeat offenders |
| JEL: | C91 K10 K42 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10576&r=exp |
| By: | Lindeboom, Maarten; van der Klaauw, Bas; Vriend, Sandra |
| Abstract: | This paper studies the effects of various audit regimes, differing in the degree of control and the presence of performance incentives, on behavior of care providers filing applications for providing long-term care services to patients. We present evidence from a large-scale field experiment in the Dutch market for long-term care. We find that increasing the degree of control reduces the number of applications and that introducing performance incentives reduces this even further. However, we find evidence for substitution with other types of long-term care services, which are often less extensive. Finally, we find detrimental effects on audit approval rates, but we provide some results showing that assessors are less strict when audits do not have direct implications. |
| Keywords: | auditing; field experiment; incentives; long-term care |
| JEL: | C93 H51 I18 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10572&r=exp |
| By: | Pagnozzi, Marco; Saral, Krista J. |
| Abstract: | We analyze how the possibility of resale affects efficiency in multi-object uniform-price auctions with asymmetric bidders using a combination of theory and experiments. The resale market is modeled as an unstructured bargaining game between auction bidders. Our experimental design consists of four treatments that vary the (exogenous) probability that bidders participate in a resale market after the auction. In all treatments, the possibility of resale increases efficiency after the auction, but it also induces demand reduction by high-value bidders during the auction, which reduces auction efficiency. In contrast to what is usually argued, resale does not necessarily increase final efficiency. When there is a low probability of a resale market, final efficiency is actually lower than in an auction without resale. |
| Keywords: | efficiency, multi-object auctions, resale, asymmetric bidders, bargaining, economic experiments |
| JEL: | C9 D44 |
| Date: | 2015–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:63962&r=exp |
| By: | Lisa R. Anderson; Gregory DeAngelo; Winand Emons; Beth Freeborn; Hannes Lang |
| Abstract: | Increasing penalty structures for repeat offenses are ubiquitous in penal codes, despite little empirical or theoretical support. Multi-period models of criminal enforcement based on the standard economic approach of Becker (1968) generally find that the optimal penalty structure is either flat or declining. We experimentally test a two-stage theoretical model that predicts decreasing penalty structures will yield greater deterrence than increasing penalty structures. We find that decreasing fine structures are more effective at reducing risky behavior. Additionally, our econometric analyses reveal a number of behavioral findings. Subjects are deterred by past convictions, even though the probability of detection is independent across decisions. Further, subjects appear to take the two-stage nature of the decision making task into account, suggesting that subjects consider both current and future penalties. Even controlling for the fine a subject faces for any given decision, being in a decreasing fine structure has a significant effect on deterrence. |
| JEL: | C91 K42 K10 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp1505&r=exp |
| By: | Jo Laban Peryman (RMIT University, Melbourne); David Kelsey (Department of Economics, University of Exeter) |
| Abstract: | We run experiments with a stag hunt and bargaining coordination game. Using a between-subjects design, we vary the identity of the opponent between someone of the same culture or a different culture. The idea is to see whether cultural norms or identity play a part in coordination decisions. We compare the responses of British and Asian students at the University of Exeter and show the cultural identity of the opponent by physical appearance. The players appear to use cultural stereotypes to predict behaviour, especially in the bargaining game which may require more strategic thought than the stag hunt game. In particular, the British act in way that indicates they believe the Asians will behave more cautiously than other British. According to our results, the stereotype of Asians being cautious is misleading. |
| Keywords: | culture,identity, norms, coordination, bargaining |
| JEL: | C29 C71 C72 Z13 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:exe:wpaper:1505&r=exp |
| By: | Hermann, Daniel; Mußhoff, Oliver; Rüther, Dörte |
| Abstract: | The discount rate is of great importance for all decisions in an intertemporal context, such as the decision of how much a society invests in environmental preservation, or the financial decisionmaking on the individual level. This study experimentally investigates the time preferences of farmers by comparing two different methods: One method is based on the measurement of time preference and risk attitude that are elicited in two parts of an experiment. Afterwards, the discount rate is adjusted using the risk attitude. The other method uses a one-parameter approach without the necessity of separately eliciting the individual risk attitude and without an assumption regarding the form of the utility function. The results reveal that, contrary to previous research, the ascertained discount rates of both methods are different. Furthermore, only the method based on the measurement of time preference and risk attitude separately reveals sensitivities regarding the prospective payout. |
| Keywords: | discount rate,experimental economics,intertemporal decision making,magnitude effect,risk attitude |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:daredp:1506&r=exp |
| By: | Bracha, Anat (Federal Reserve Bank of Boston); Meier, Stephan (Columbia University) |
| Abstract: | Given the fundamental role that credit scores play in day-to-day life in the United States, it is very important to understand what can be done to help individuals improve their credit scores. This question is important in general, and especially important for the low-to-moderate-income (LMI) individuals who likely have a greater need for access to liquidity than higher-income individuals. In this paper the authors report results from a field experiment conducted between early 2013 and early 2014 in Boston, Massachusetts, with LMI taxpayers who were offered credit advising services. Taxpayers who opted into the advising sessions were randomized as to whether they received extra information on credit scores and the average APR (annual payment rate) on basic credit cards in their area (the "information" condition), and, independently, as to whether or not they received monthly text reminders (the "text" condition). These reminders included the individual's financial goal and credit score range, reminders to pay bills on time and to pay at least the minimum amount, and updated interest rate information on basic credit cards. |
| Keywords: | field experiment; credit score; creditworthiness; reminders; financial decisionmaking; low income |
| JEL: | C93 D14 |
| Date: | 2014–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:15-2&r=exp |
| By: | Alexander L. Brown (Texas A&M University, Department of Economics); Rodrigo A. Velez (Texas A&M University, Department of Economics) |
| Abstract: | In experimental partnership dissolution problems with complete information, the divide-and-choose mechanism is significantly superior to the winner's-bid-auction. The performance of divide-and-choose is mainly affected by reciprocity issues and not by bounded rationality. The performance of the winner's-bid-auction is significantly affected by bounded rationality. Contrary to theoretical predicitions divide-and-choose exhibits no first-mover bias. |
| Keywords: | experimental economics; no-envy; divide-and-choose; winner's-bid auction; behavioral mechanism design |
| JEL: | C91 D63 C72 |
| URL: | http://d.repec.org/n?u=RePEc:txm:wpaper:20141106-10001&r=exp |
| By: | Valentina Bosetti (Fondazione Eni Enrico Mattei, Milan (Italy) and Bocconi University, Milan (Italy)); Melanie Heugues (Fondazione Eni Enrico Mattei, Milan (Italy)); Alessandro Tavoni (Grantham Research Institute, London School of Economics, London (England)) |
| Abstract: | We study the effect of leadership in an experimental threshold public ‘bad’ game, where we manipulate both the relative returns of two investments (the more productive of which causes a negative externality) and the extent to which the gains from leadership diffuse to the group. The game tradeoffs mimic those faced by countries choosing to what degree and when to transition from incumbent polluting technologies to cleaner alternatives, with the overall commitment dictating whether they manage to avert dangerous environmental thresholds. Leading countries, by agreeing on a shared effort, may be pivotal in triggering emission reductions in non-signatories countries. In addition, the leaders’ coalition might also work as innovation and technology adoption catalyzer, thus producing a public good (knowledge) that benefits all countries. In our game, players can choose to tie their hands to a cooperative strategy by signing up to a coalition of first movers. The game is setup such that as long as the leading group reaches a pivotal size, its early investment in the externality-free project may catalyze cooperation by non-signatories. We find that the likelihood of reaching the pivotal size is higher when the benefits of early cooperation are completely appropriated by the coalition members, less so when these benefits spillover to the non-signatories. On the other hand, spillovers have the potential to entice second movers into adopting the ‘clean’ technology. |
| Keywords: | Climate Change, International Cooperation, R&D Spillovers, Threshold Public Goods Game, Coalition Formation Game, Climate Experiment |
| JEL: | Q5 Q58 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2015.21&r=exp |
| By: | Pietro Battiston; Luca Stanca |
| Abstract: | This paper investigates opinion dynamics and social in uence in directed communication networks. We study the theoretical properties of a boundedly rational model of opinion formation in which individuals aggregate the information they receive from their neighbors by using weights that are a function of neighbors' indegree. We then present the results of a laboratory experiment explicitly designed to test the causal effect of indegree on social in uence. We find that the social influence of an agent is positively affected by the number of individuals she listens to. When forming their opinions, agents take into account the structure of their communication network, although only to a limited extent. |
| Keywords: | Social Networks, Learning, Social Influence, Bounded Rationality |
| Date: | 2015–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2015/11&r=exp |
| By: | Luisa Natali; Sudhanshu Handa; David Seidenfeld; Gelson Tembo; Zambia Cash Transfer Evaluation Team; UNICEF Innocenti Research Centre |
| Abstract: | Since the mid 1990s, and following the successful implementation of large scale programmes in Brazil, Mexico and South Africa, cash transfers have become an important part of the poverty alleviation toolkit in developing countries, even among the poorest where, for many, such programmes seemed both administratively complex or simply unaffordable. The ‘African model’ of cash transfers has several distinguishing features which differentiate it from those in Latin America. In this article we take advantage of the unconditional nature of the Zambian CGP, which targets families with very young children and whose objectives are focused on their health and development, to see if the programme has an impact on the schooling and work of school-age children who in principle are not the main target population of the programme. We use data from a large-scale social experiment involving 2,500 households, half of whom were randomized out to a delayed-entry control group, which was implemented to assess the impact of the programme. |
| Keywords: | child labour; educational costs; schooling; |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ucf:inwopa:inwopa776&r=exp |
| By: | Orla Doyle (UCD School of Economics and UCD Geary Institute for Public Policy, University College Dublin); Nick Fitzpatrick (UCD Geary Institute for Public Policy, University College Dublin); Judy Lovett (UCD Geary Institute for Public Policy, University College Dublin); Caroline Rawdon (UCD School of Psychology, University College Dublin) |
| Abstract: | This article investigates the impact of an early intervention program, which experimentally modifies the parenting and home environment of disadvantaged families, on child health in the first 3 years of life. We recruited and randomized 233 (115 intervention, 118 control) pregnant women from a socioeconomically disadvantaged community in Dublin, Ireland into an intervention or control group. The treatment includes regular home visits commencing antenatally and an additional parenting course commencing at 2 years. Maternal reports of child health are assessed at 6, 12, 18, 24, and 36 months. Treatment effects are estimated using permutation testing to account for small sample size, inverse probability weighting to account for differential attrition, and the stepdown procedure to account for multiple hypothesis testing. Following adjustment for multiple testing and attrition, we observe a positive and statistically significant main treatment effect for wheezing/asthma. The intervention group are 15.5 percentage points (pp) less likely to require medical attention for wheezing/asthma compared to the control group. Statistically significant individual main effects which do not survive multiple testing and IPW-adjustment are found for general health (10.0 pp), hospitalizations (8.2 pp), immunizations (8.6 pp), chest infections (12.2 pp) and the number of health problems (d = 0.34). Subgroup analysis reveals more statistically significant adjusted treatment effects for boys than girls regarding fewer health problems (d = 0.63), accidents (23.9 pp), and chest infections (22.8 – 37.9 pp). Our results suggest that a community-based home visiting program may have favorable impacts on early health conditions. As child ill health is costly to society due to an increased demand on health resources and long-term productivity losses, identifying effective interventions to counteract inequalities in health is important from a policy perspective. |
| Keywords: | Randomized controlled trial, home visiting, child health, early intervention |
| JEL: | C12 C93 J13 I14 |
| Date: | 2015–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:ucd:wpaper:201505&r=exp |