nep-exp New Economics Papers
on Experimental Economics
Issue of 2015‒09‒11
twenty papers chosen by
Daniel Houser
George Mason University

  1. Benefit Losses Loom Larger than Taxes: The Effects of Framing and Loss Aversion on Behavioural Responses to Taxes and Benefits By Avram, Silvia
  2. A self-funding rewawrd mechanism for tax compliance By Enrique Fatas; Daniele Nosenzo; Martin Sefton; Daniel John Zizzo
  3. Identity, language, and conflict: An experiment on ethno-linguistic diversity and group discrimination in two bilingual societies By Maria Paz Espinosa; Enrique Fatas; Paloma Ubeda
  4. Authority and centrality: Power and cooperation in social dilemma networks By Boris van Leeuwen; Abhijit Ramalingam; David Rojo Arjona; Arthur Schram
  5. A Self-Funding Reward Mechanism for Tax Compliance By Enrique Fatas; Daniele Nosenzo; Martin Sefton; Daniel John Zizzo
  6. Electricity demand response in Japan:Experimental evidence from a residential photovoltaic generation system By Takanori Ida; Kayo Murakami; Makoto Tanaka
  7. Bubble Formation and (In)Efficient Markets in Learning-to-Forecast and -optimise Experiments By Te Bao; Cars Hommes; Tomasz Makarewicz
  8. Be a Good Samaritan to a Good Samaritan: Field Evidence of Interdependent Other-Regarding Preferences in China By Chang, Simon; Dee, Thomas S.; Tse, Chun-Wing; Yu, Li
  9. Identity and group conflict By Subhasish M. Chowdhury; Joo Young Jeon; Abhijit Ramalingam
  10. Team Incentives and Performance: Evidence from a Retail Chain By Friebel, Guido; Heinz, Matthias; Krüger, Miriam; Zubanov, Nikolay
  11. Why are heterogeneous communities inefficient? Theory, history, and an experiment By David Hugh-Jones; Carlo Perroni
  12. Delay of Gratification and the Role of Defaults: An Experiment with Kindergarten Children By Sutter, Matthias; Yilmaz, Levent; Oberauer, Manuela
  13. Does it matter which effort task you use? A comparison of four effort tasks when agents compete for a prize By Emanuela Lezzi; Piers Fleming; Daniel John Zizzo
  14. Third-Party vs. Second-Party Control: Disentangling the role of autonomy and reciprocity. By Gabriel Burdin; Simon Halliday; Fabio Landini
  15. What if women earned more than their spouse? An experimental investigation of work division in couples By François Cochard; Hélène Couprie; Astrid Hopfensitz
  16. Does Searching Broader Improve Job Prospects? A Field Experiment By Philipp Kircher; Paul Muller; Michele Belot
  17. Do consumers take advantage of common pricing standards? An experimental investigation By Robert Sugden; Jiwei Zheng
  18. Do Boys and Girls Use Computers Differently, and Does It Contribute to Why Boys Do Worse in School than Girls? By Fairlie, Robert W.
  19. Experimenting with Measurement Error: Techniques with Applications to the Caltech Cohort Study By Ben Gillen; Erik Snowberg; Leeat Yariv
  20. Evidential equilibria: Heuristics and biases in static games of complete information Working Paper Version By Ali al-Nowaihi; Sanjit Dhami

  1. By: Avram, Silvia
    Abstract: A substantive body of research highlights the existence of framing effects in labour supply responses to taxation challenging traditional models that assume taxes only influence behaviour via the budget constraint. Using a lab experiment, this paper examines the presence of differential responses to identical marginal tax schedules coming from direct taxation and from benefit withdrawal respectively. In an incentivised real-effort task, subjects supply time and effort while facing an incentive structure that is framed as taxation or benefit withdrawal respectively, while yielding the exact same budget constraint. Results indicate that subjects in the benefit withdrawal condition are more likely to reduce working time compared to both subjects in the tax treatment and a control group where the incentive structure is described without using the language of taxes and benefits. The effect is driven by loss-averse individuals suggesting that benefit streams may be subject to an ‘endowment effect’. The findings have clear implications for welfare policy design.
    Date: 2015–08–20
  2. By: Enrique Fatas (University of East Anglia); Daniele Nosenzo (University of Nottingham); Martin Sefton (University of Nottingham); Daniel John Zizzo (Newcastle University)
    Abstract: We compare in a laboratory experiment two audit-based tax compliance mechanisms that collect fines from those found non- compliant. The mechanisms differ in the way fines are redistributed to individuals who were either not audited or audited and found to be compliant. The first, as is the case in most extant tax systems, does not discriminate between the unaudited and those found compliant. The second targets the redistribution in favor of those found compliant. We find that targeting increases compliance when paying taxes generates a social return. We do not find any increase in compliance in a control treatment where individuals audited and found compliant receive symbolic rewards. It is not the mere assigning of rewards, but the material incentives inherent in the rewards that improve compliance. We conclude that existing tax mechanisms have room for improvement by rewarding financially those audited and found compliant.
    Keywords: tax evasion, rewards, audits
    JEL: C91 J26
    Date: 2015–08–24
  3. By: Maria Paz Espinosa (University of the Basque Country); Enrique Fatas (University of East Anglia); Paloma Ubeda (University of the Basque Country)
    Abstract: Ethno-linguistic diversity has been empirically linked to low provision of public goods. We contribute to this literature analyzing diversity in a lab-in-the-field experiment in which we carefully control for ethno-linguistic diversity in two different bilingual societies, one with a much stronger identity conflict (the Basque Country) than the other (Valencia Country). In both locations, our participants come from different ethno- linguistic cultures (Catalan or Spanish, Basque or Spanish), and interact with other participants from their same background or a different one. We recruit participants using their mother tongue language, and study the effect of homogeneous (with no diversity) or mixed (with ethno-linguistic diversity) natural cultural identities in a nested public goods game with a local and a global public good. The game is constructed to eliminate any tension between efficiency and diversity; so, not contributing to the global (and efficient) public good can be interpreted as willingness to exclude the other group from the benefits of your contribution. Our results strongly support that diversity is strongly context dependent. While diversity in the Basque Country significantly reduces contributions to the global public good, and efficiency, it has no effect in the Valencia Country (if any, the effect is positive, but insignificant). We show that diversity destroys (reinforces) conditional cooperation in the Basque (Valencia) Country. While diversity is associated with overoptimistic empirical beliefs in Valencia, it significantly increases normative group discrimination in Basque Country.
    Keywords: natural identity, ethno-linguistic groups, group effects, norms, discrimination
    Date: 2015–08
  4. By: Boris van Leeuwen (Toulouse School of Economics); Abhijit Ramalingam (University of East Anglia); David Rojo Arjona (University of Leicester); Arthur Schram (Amsterdam School of Economics)
    Abstract: We investigate the effects of power on cooperation in repeated social dilemma settings. Groups of five players play either multi-player trust games or VCM-games on a fixed network. Power stems from having the authority to allocate funds raised through voluntary contributions by all members and/or from having a pivotal position in the network (centrality). We compare environments with and without ostracism by allowing players in some treatments to exclude others from further participation in the network. Our results show that power matters but that its effects hinge strongly on the type involved. Reminiscent of the literature on leadership, players with authority often act more cooperatively than those without such power. Nevertheless, when possible, they are quickly ostracized from the group. Thus, this kind of power is not tolerated by the powerless. In stark contrast, centrality leads to less cooperative behavior and this free riding is not punished; conditional on cooperativeness, players with power from centrality are less likely to be ostracized than those without. Hence, not only is this type of power tolerated, but so is the free riding it leads to.
    Keywords: power, cooperation, networks, public goods
    JEL: C91 D02 D03 H41
    Date: 2015–03–03
  5. By: Enrique Fatas (Department of Economics, University of East Anglia); Daniele Nosenzo (Department of Economics, University of Nottingham); Martin Sefton (Department of Economics, University of Nottingham); Daniel John Zizzo (BENC and Newcastle University Business School, Newcastle University)
    Abstract: We compare in a laboratory experiment two audit-based tax compliance mechanisms that collect fines from those found non-compliant. The mechanisms differ in the way fines are redistributed to individuals who were either not audited or audited and found to be compliant. The first, as is the case in most extant tax systems, does not discriminate between the un-audited and those found compliant. The second targets the redistribution in favor of those found compliant. We find that targeting increases compliance when paying taxes generates a social return. We do not find any increase in compliance in a control treatment where individuals audited and found compliant receive symbolic rewards. It is not the mere assigning of rewards, but the material incentives inherent in the rewards that improve compliance. We conclude that existing tax mechanisms have room for improvement by rewarding financially those audited and found compliant.
    Keywords: tax evasion, rewards, audits
    Date: 2015
  6. By: Takanori Ida; Kayo Murakami; Makoto Tanaka
    Abstract: We report on a randomized controlled trial used to examine the effect of dynamic pricing when applied to households with rooftop photovoltaic (PV) power-generation systems. Using high-frequency data on household-level electricity use, PV generation, purchases, and sales, we find that critical peak pricing induced significant usage reductions of 3-4% among households with PV systems, a quarter of the effect size seen among average households without solar PV systems. In addition, we investigate the influence of the amount of PV power generated on treatment effects and the potential heterogeneity caused by participating households’ attributes. This is the first large-scale field experiment evaluating the demand response of households with PV generation capabilities.
    Keywords: randomized controlled trial, field experiment, photovoltaic generation, dynamic pricing
    JEL: D1 Q4
    Date: 2015–08
  7. By: Te Bao (University of Groningen, the Netherlands); Cars Hommes (University of Amsterdam, the Netherlands); Tomasz Makarewicz (University of Amsterdam, the Netherlands)
    Abstract: This experiment compares the price dynamics and bubble formation in an asset market with a price adjustment rule in three treatments where subjects (1) submit a price forecast only, (2) choose quantity to buy/sell and (3) perform both tasks. We find deviation of the market price from the fundamental price in all treatments, but to a larger degree in treatments (2) and (3). Mispricing is therefore a robust finding in markets with positive expectation feedback. Some very large, recurring bubbles arise, where the price is 3 times larger than the fundamental value, which were not seen in former experiments.
    Keywords: Financial Bubbles; Experimental Finance; Rational Expectations; Learning to Forecast; Learning to Optimize
    JEL: C91 C92 D53 D83 D84
    Date: 2015–09–04
  8. By: Chang, Simon (University of Western Australia); Dee, Thomas S. (Stanford University); Tse, Chun-Wing (Central University of Finance and Economics); Yu, Li (Central University of Finance and Economics)
    Abstract: We conducted large-scale lost letter experiments in Beijing, a megacity with more than 21 million residents, to test if the observed altruistic attribute of the letter recipient would induce more passersby to return the lost letters. The treatment letters were addressed to a nationally renowned charitable organization in China, while the control letters were intended to an invented individual. A total of 832 ready-to-be-posted letters were distributed in 208 communities across eight districts in the city. The overall return rate was only about 13%. Yet, the return rate of the treatment letters (17%) was nearly twice as high as that of the control letters (9%). The finding adds large-scale field experiment evidence in support of the interdependent other-regarding preferences theory. In addition, we also found that the lost letters were more likely to be returned if they were dropped in communities with a relatively higher income or a postal box located closer.
    Keywords: other-regarding preferences, lost letter technique, altruism, China
    JEL: C93 D03
    Date: 2015–08
  9. By: Subhasish M. Chowdhury (University of East Anglia); Joo Young Jeon (University of East Anglia); Abhijit Ramalingam (University of East Anglia)
    Abstract: We experimentally investigate the effects of real and minimal identities on group conflict. In turn we provide a direct test of the hypotheses coined by Amartya Sen that the salience of a real identity escalates conflict but that of a mere classification would not do so. In a baseline treatment two groups – one of East Asians, and the other of Caucasians – engage in a group contest, but the information on racial composition is not revealed. In the minimal identity treatment each group is arbitrarily given a different color code, whereas in the real identity treatment the race information is revealed. Supporting Sen’s hypotheses, we find that compared to the baseline, free-riding declines and conflict effort increases in the real identity treatment but not in the minimal identity treatment. Moreover, this occurs due to an increase in efforts in the real identity treatment by females in both racial groups, but not by a particular racial group.
    Keywords: conflict, identity, race, gender
    JEL: C91 C92 D03 D74 J15 J16
    Date: 2015–05–25
  10. By: Friebel, Guido (Goethe University Frankfurt); Heinz, Matthias (University of Cologne); Krüger, Miriam (Goethe University Frankfurt); Zubanov, Nikolay (Goethe University Frankfurt)
    Abstract: We test the effectiveness of team incentives by running a natural field experiment in a retail chain of 193 shops and 1,300 employees. As a response to intensified product market competition, the firm offered a bonus to shop teams for surpassing sales targets. A bonus to teams rather than individuals was a natural choice because the firm does not measure individual performance and relies on flexible task allocation among employees. On average, the team bonus increases sales and customer visits in the treated shops by around 3%, and wages by 2.3%. The bonus is highly profitable for the firm, generating for each bonus dollar an extra $3.80 of sales, and $2.10 of operational profit. The results show the importance of complementarities within teams and suggest that improved operational efficiency is the main mechanism behind the treatment effect. Our analysis of heterogeneous treatment effects offers a number of insights about the anatomy of teamwork. The firm decided to roll out the bonus to all of its shops, and the performance of treatment and control shops converged after the roll-out.
    Keywords: management practices, randomized controlled trial (RCT), natural field experiment, insider econometrics
    JEL: J3 L2 M5
    Date: 2015–08
  11. By: David Hugh-Jones (University of East Anglia); Carlo Perroni (University of Warwick)
    Abstract: We examine why heterogenous communities may fail to provide public goods. Current work characterizes sanctioning free-riders as an under-supplied public good. We argue that often free-riders can be punished by the coordinated action of a group. This punishment can be profitable, and need not be undersupplied. But the power to expropriate defectors can also be used to expropriate outgroups. Heterogenous societies may be inefficient because minorities, rather than free-riders, are expropriated. Even if this is not so, groups’ different beliefs about the reasons for expropriation may make the threat of punishment less effective at preventing free-riding. We illustrate our theory with evidence from California mining camps, contemporary India, and US schools. In a public goods experiment using minimal groups and a profitable punishment institution, outgroups were more likely to be punished, and reacted differently to punishment than in group members.
    Keywords: group coercion, social heterogeneity
    JEL: H1 H4 N4 D02
    Date: 2015–04–02
  12. By: Sutter, Matthias (University of Cologne); Yilmaz, Levent (University of Innsbruck); Oberauer, Manuela (University of Innsbruck)
    Abstract: The ability to delay gratification has been shown to be related to higher education and income and better health status. We study in an experiment with 336 kindergarten children, aged three to six years, whether intertemporal choice behavior is malleable. In a control condition, about 50% of children prefer two rewards the next day over one reward immediately. By setting a simple default this fraction increases to more than 70%, indicating that simple defaults work very successfully in promoting delay of gratification. We also find that patience increases with age and that more patient children have a lower BMI.
    Keywords: delay of gratification, intertemporal choice, default, experiment, children
    JEL: C91 D03
    Date: 2015–08
  13. By: Emanuela Lezzi (University of Insubria); Piers Fleming (University of East Anglia); Daniel John Zizzo (Newcastle University)
    Abstract: Effort tasks are commonly used to assess individual investment and performance in an experimental setting. Although the tasks used are diverse, they are typically intended to be equivalent as far as they aim to generalize beyond the specific task. We compare an induced value effort task and three real effort tasks in a contest game. Results show that there is no equivalence across tasks in relation to how risk attitude, anxiety and gender predict performance.
    Keywords: effort tasks, experimental methodology, contests, induced value
    JEL: C72 C90 C91
    Date: 2015–04
  14. By: Gabriel Burdin (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Simon Halliday (Smith College (United States). Department of Economics); Fabio Landini (Bocconi University (Italy). Department of Political Science)
    Abstract: This paper studies the role of autonomy and reciprocity in explaining control averse responses in principal-agents interactions. While most of the social psychology literature emphasizes the role of autonomy, recent economic research has provided an alternative explanation based on reciprocity. We propose a simple model and an experiment to test the relative strength of these two motives. We compare two treatments: one in which control is exerted directly by the principal (second-party control); and the other in which it is exerted by a third party enjoying no residual claimancy rights (third-party control). If control aversion is driven mainly by autonomy, then it should persist in the third-party treatment. Our results, however, suggest that this is not the case. Moreover, when a third party instead of the principal exerts control, control results in a greater expected profit for the principal. The implications of these results for organizational design are discussed.
    Keywords: third-party, second-party, control aversion, autonomy, principal-agent game, social preferences, trust, reciprocity
    JEL: C72 C91 D23 M54
    Date: 2015–09
  15. By: François Cochard (CRESE EA3190, Univ. Bourgogne Franche-Comté); Hélène Couprie (Université de Cergy-Pontoise, THEMA); Astrid Hopfensitz (Toulouse School of Economics)
    Abstract: Female specialization on household work and male specialization on labor-market work is a widely observed phenomenon across time and countries. Gender differences regarding characteristics (preferences, productivity) and context (wage rates, social norms) are generally recognized to explain this fact. We experimentally investigate work division by true co-habiting couples participating in a newly developed specialization task. Efficiency in this task comes at the cost of inequality, giving higher earnings to the “advantaged” player. We compare behavior when men (or women) are in the advantaged position, which correspond to the traditional (or power) couple case where he (or she) earns more. We show that women do not contribute more than men to the household public good whatever the situation. This result allows us to rule-out some of the standard explanations of the work division puzzle.
    Keywords: Experiment on couples, Time allocation, Work division
    JEL: D13 C99 J16
    Date: 2015–09
  16. By: Philipp Kircher (University of Edinburgh); Paul Muller (VU); Michele Belot (University of Edinburgh)
    Abstract: We investigate experimentally the effects of a web-based information intervention for employment prospects. We invited 300 job seekers to search for jobs in our computer facilities at the University of Edinburgh for 12 consecutive weekly sessions. They searched for real jobs using our web interface. After 3 weeks, we introduced a manipulation of the interface for half of the sample. The manipulation consisted of providing suggestions of alternative jobs that could be considered (given the profile of the job seeker). These suggestions were made using background information from real labour market transitions. We find that such intervention works and affects job search behaviour. For job seekers who are searching relatively narrowly, such intervention broadens their search and significantly improve their job prospects. The intervention is ineffective for those who are already searching broadly.
    Date: 2015
  17. By: Robert Sugden (University of East Anglia); Jiwei Zheng (University of Warwick)
    Abstract: Gaudeul and Sugden have hypothesized that, when some but not all competing products are priced in a common standard and when consumers are liable to make errors in cross-standard price comparisons, consumers confine their attention to common-standard offers. This ‘largest common standard’ (LCS) heuristic provides incentives for sellers to use common standards, and so differs from most ‘consider-then-choose’ decision processes by not exposing consumers to exploitation by sellers. We report an experimental test of this hypothesis, using choice tasks similar to those represented in the Gaudeul–Sugden model. These tasks are parameterized such that participants, given their actual cognitive abilities, would benefit by using the LCS heuristic. However, we find little evidence that this heuristic is used. Most participants use a ‘dominance editing’ (DE) rule which begins by eliminating transparently dominated offers. This rule incentivises sellers not to use common standards. Since DE is less efficient than LCS, given participants’ cognitive abilities, the use of DE is evidence of overconfidence.
    Keywords: shortlisting, common standard, largest common standard heuristic, dominance editing, consideration set
    Date: 2015–07
  18. By: Fairlie, Robert W. (University of California, Santa Cruz)
    Abstract: Boys are doing worse in school than are girls, which has been dubbed "the Boy Crisis". An analysis of the latest data on educational outcomes among boys and girls reveals extensive disparities in grades, reading and writing test scores, and other measurable educational outcomes, and these disparities exist across family resources and race. Focusing on disadvantaged schoolchildren, I then examine whether time investments made by boys and girls related to computer use contribute to the gender gap in academic achievement. Data from several sources indicate that boys are less likely to use computers for schoolwork and are more likely to use computers for playing games, but are less likely to use computers for social networking and email than are girls. Using data from a large field experiment randomly providing free personal computers to schoolchildren for home use, I also test whether these differential patterns of computer use displace homework time and ultimately translate into worse educational outcomes among boys. No evidence is found indicating that personal computers crowd out homework time and effort for disadvantaged boys relative to girls. Home computers also do not have negative effects on educational outcomes such as grades, test scores, courses completed, and tardies for disadvantaged boys relative to girls.
    Keywords: technology, computers, ICT, education, gender, field experiment, poverty
    JEL: C93 I24 J16
    Date: 2015–08
  19. By: Ben Gillen; Erik Snowberg; Leeat Yariv
    Abstract: Measurement error is ubiquitous in experimental work. It leads to imperfect statistical controls, attenuated estimated effects of elicited behaviors, and biased correlations between characteristics. We develop simple statistical techniques for dealing with experimental measurement error. These techniques are applied to data from the Caltech Cohort Study, which conducts repeated incentivized surveys of the Caltech student body. We illustrate the impact of measurement error by replicating three classic experiments, and showing that results change substantially when measurement error is taken into account. Collectively, these results show that failing to properly account for measurement error may cause a field-wide bias: it may lead scholars to identify "new" effects and phenomena that are actually similar to those previously documented.
    JEL: C81 C9 D8 J71
    Date: 2015–09
  20. By: Ali al-Nowaihi; Sanjit Dhami
    Abstract: Standard equilibrium concepts in game theory find it difficult to explain the empirical evidence from a large number of static games including the prisoners dilemma game, the hawk-dove game, voting games, public goods games and oligopoly games. Under uncertainty about what others will do in one-shot games, evidence suggests that people often use evidential reasoning (ER), i.e., they assign diagnostic significance to their own actions in forming beliefs about the actions of other like-minded players. This is best viewed as a heuristic or bias relative to the standard approach. We provide a formal theoretical framework that incorporates ER into static games by proposing evidential games and the relevant solution concept: evidential equilibrium (EE). We derive the relation between a Nash equilibrium and an EE. We illustrate these concepts in the context of the prisoners dilemma game.
    Keywords: Evidential reasoning, game theory, cognitive bias, prisoners dilemma game, oligopoly games, conservative heuristics, radical heuristics, decision making.
    JEL: D03
    Date: 2015–08

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