nep-exp New Economics Papers
on Experimental Economics
Issue of 2016‒04‒09
29 papers chosen by

  1. Do not incentivize eco-friendly behavior - Go for a competition to go green! By Christoph Bühren; Maria Daskalakis
  2. The Effect of Performance-Based Incentives on Educational Achievement: Evidence from a Randomized Experiment By Steven D. Levitt; John A. List; Sally Sadoff
  3. Demand shifts due to salience effects: Experimental evidence By Dertwinkel-Kalt, Markus; Köhler, Katrin; Lange, Mirjam R. J.; Wenzel, Tobias
  4. Cooperation in the Finitely Repeated Prisoner's Dilemma By Matthew Embrey; Guillaume R. Frechette; Sevgi Yuksel
  5. Corruption, Norm Violation and Decay in Social Capital By Banerjee, Ritwik
  6. Field Experiments in Markets By Omar Al-Ubaydli; John A. List
  7. How Do Agents React to Dynamic Wage Increases? An Experimental Study By Sliwka, Dirk; Werner, Peter
  8. The strategic environment effect in beauty contest games By Nobuyuki Hanaki; Angela Sutan; Marc Willinger
  9. Efficiency Measurement via Revealed Thresholds, Without Knowing Valuations By Ronald M. Harstad
  10. Job-Search Periods for Welfare Applicants: Evidence from a Randomized Experiment By Bolhaar, Jonneke; Ketel, Nadine; van der Klaauw, Bas
  11. Unleashing Animal Spirits - Self-Control and Overpricing in Experimental Asset Markets By Kocher, Martin G.; Lucks, Konstantin E.; Schindler, David
  12. Network Cognition By Roberta Dessi; Edoardo Gallo; Sanjeev Goyal;
  13. Effciency and equilibrium in network games: An experiment By Edoardo Gallo; Chang Yan; ;
  14. Can Iron-Fortified Salt Control Anemia? Evidence from Two Experiments in Rural Bihar By Abhijit Banerjee; Sharon Barnhardt; Esther Duflo
  15. Procedures for Eliciting Time Preferences By Freeman, David; Manzini, Paola; Mariotti, Marco; Mittone, Luigi
  16. Trading in Networks: Theory and Experiments By Syngjoo Choi; Andrea Galeotti; Sanjeev Goyal;
  17. What You Don't Know... Can't Hurt You? A Field Experiment on Relative Performance Feedback in Higher Education By Azmat, Ghazala; Bagues, Manuel F.; Cabrales, Antonio; Iriberri, Nagore
  18. Accuracy and Retaliation in Repeated Games with Imperfect Private Monitoring: Experiments and Theory By Yutaka Kayaba; Hitoshi Matsushima; Tomohisa Toyama
  19. Cash Inflow and Trading Horizon in Asset Markets By Michael Razen; Jürgen Huber; Michael Kirchler
  20. The Perception of Dependence and Investment Decisions By Ungeheuer, Michael; Weber, Martin
  21. First-place loving and last-place loathing: How rank in the distribution of performance affects effort provision By David Gill; Victoria Prowse; Zdenka Kissova; Jaesun Lee
  22. What Are the Headwaters of Formal Savings? Experimental Evidence from Sri Lanka By Callen, Michael; Mel, Suresh de; McIntosh, Craig; Woodruff, Christopher
  23. Copyright Enforcement: Evidence from Two Field Experiments By Hong Luo; Julie Holland Mortimer
  24. Count To Ten Before YouTrade: Evidence On The Role Of Deliberation In Experimental Financial Markets By Giovanni Ferri; Matteo Ploner; Matteo Rizzolli
  25. Information Acquisition and Exchange in Social Networks By Sanjeev Goyal; Stephanie Rosenkranz; Utz Weitze; Vincent Buskens
  26. Weather and the Psychology of Purchasing Outdoor-Movie Tickets By Buchheim, Lukas; Kolaska, Thomas
  27. Collusion with a Greedy Center in Position Auctions By Emmanuel LORENZON
  28. Revealed Indifference: Using Response Times to Infer Preferences By Arkady Konovalov; Ian Krajbich
  29. Response to Comment on "Estimating the Reproducibility of Psychological Science" By Jesse Chandler; et. al

  1. By: Christoph Bühren (University of Kassel); Maria Daskalakis (University of Kassel)
    Abstract: Which behavior-based interventions are more appropriate to induce energy saving: energy saving goals with or without incentive, energy saving products, environmentally related information, social comparison or competition? We try to answer this question in a comprehensive study. First, we designed energy bills with different behavioral interventions. Second, we evaluated their appropriateness in an empirical survey with 457 participants. Third, we tested behavioral consequences in real effort lab experiments with 550 subjects in 11 treatments and one baseline. Our results indicate that monetary incentives to save energy might foster the intention to invest effort in energy saving but backfire if factual performance is required. Instead, fostering non-incentivized self-set goals and providing social comparison induced substantial effort to protect the environment. Non-incentivized competition to save energy provided the best results. Our study concludes with implications for practical policy design and further need of research.
    Keywords: Environmental behavior; Goals; Incentives; Social Comparison; Competition; Experiment
    JEL: D03 D12 C91
    Date: 2015
  2. By: Steven D. Levitt; John A. List; Sally Sadoff
    Abstract: We test the effect of performance-based incentives on educational achievement in a low-performing school district using a randomized field experiment. High school freshmen were provided monthly financial incentives for meeting an achievement standard based on multiple measures of performance including attendance, behavior, grades and standardized test scores. Within the design, we compare the effectiveness of varying the recipient of the reward (students or parents) and the incentive structure (fixed rate or lottery). While the overall effects of the incentives are modest, the program has a large and significant impact among students on the threshold of meeting the achievement standard. These students continue to outperform their control group peers a year after the financial incentives end. However, the program effects fade in longer term follow up, highlighting the importance of longer term tracking of incentive programs.
    JEL: C93 I24 I25
    Date: 2016–03
  3. By: Dertwinkel-Kalt, Markus; Köhler, Katrin; Lange, Mirjam R. J.; Wenzel, Tobias
    Abstract: We conduct a laboratory experiment that tests two fundamental predictions unique to salience theory. If an agent purchases one of two vertically differentiated products, salience theory makes the following two distinct predictions. First, it hypothesizes that a higher expected price level for both products shifts demand toward the more expensive, high-quality product. Second, it predicts that demand for the high-quality product is larger if the price level is expectedly high than if it is unexpectedly high. In our experiment, subjects purchased fast or slow internet access at different price levels. Our results strongly support both predictions of salience theory.
    Keywords: salience theory,attention,relative thinking
    JEL: D03
    Date: 2016
  4. By: Matthew Embrey (University of Sussex); Guillaume R. Frechette (NYU); Sevgi Yuksel (UCSB)
    Abstract: More than half a century after the first experiment on the finitely repeated prisoner's dilemma, evidence on whether cooperation decreases with experience, as suggested by backward induction, remains inconclusive. This paper provides a meta-analysis of prior experimental research and reports the results of a new experiment to elucidate how cooperation varies with the environment in this canonical game. We describe forces that affect initial play (formation of cooperation) and unraveling (breakdown of cooperation). First, contrary to the backward induction prediction, the parameters of the repeated game have a signifcant effect on initial cooperation. We identify how these parameters impact the value of cooperation - as captured by the size of the basin of attraction of Always Defect- to account for an important part of this effect. Second, despite these initial differences, the evolution of behavior is consistent with the unraveling logic of backward induction for all parameter combinations. Importantly, despite the seemingly contradictory results across studies, the paper establishes a systematic pattern of behavior: Subjects converge to using threshold strategies that conditionally cooperate until a threshold round; and conditional on establishing cooperation, the first defection round moves earlier with experience. Simulation results generated from a learning model estimated at the subject level provide insights on the long-term dynamics and the forces slowing down the unravelling of cooperation.
    Keywords: repeated games, prisoners dilemma, threshold strategies, basin of attraction
    JEL: C73 C92
    Date: 2016–02
  5. By: Banerjee, Ritwik (Indian Institute of Management)
    Abstract: The paper studies the link between corruption and social capital (measured as trust), using data from a lab experiment. Subjects play either a harassment bribery game or a strategically identical but differently framed ultimatum game, followed by a trust game. In a second experiment, we elicit social appropriateness norm of actions in the bribery game and the ultimatum game treatments. Our experimental design allows us to examine whether subjects, who have been asked to pay a bribe, are less likely to trust than those in an isomorphic role in the ultimatum game. We also uncover the underlying mechanism behind any such behavioral spillover. Results suggest that a) there is a negative spillover effect of corruption on trust and the effect increases with decrease in social appropriateness norm of the bribe demand; b) lower trust in the bribery game treatment is explained by lower expected return on trust; c) surprisingly, for both the bribery and the ultimatum game treatments, social appropriateness norm violation engenders the decay in trust through its adverse effect on belief about trustworthiness.
    Keywords: corruption, social capital, social norm, trust games
    JEL: C91 C92 D03
    Date: 2016–03
  6. By: Omar Al-Ubaydli; John A. List
    Abstract: This is a review of the literature of field experimental studies of markets. The main results covered by the review are as follows: (1) Generally speaking, markets organize the efficient exchange of commodities; (2) There are some behavioral anomalies that impede efficient exchange; (3) Many behavioral anomalies disappear when traders are experienced.
    JEL: C93 D01 D03
    Date: 2016–03
  7. By: Sliwka, Dirk (University of Cologne); Werner, Peter (University of Cologne)
    Abstract: We investigate how workers' performance is affected by the timing of wages in a real-effort experiment. In all treatments agents earn the same wage sum but wage increases are distributed differently over time. We find that agents work harder under increasing wage profiles if they do not know these profiles in advance. A profile that continuously increases wages by small amounts raises performance by about 15% relative to a constant wage. The effort reactions can be organized by a model in which agents reciprocally respond to wage impulses, comparing wages to an adaptive reference standard determined by the previous wage.
    Keywords: wage, reciprocity, reference point
    JEL: M12 C91
    Date: 2016–03
  8. By: Nobuyuki Hanaki (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis - CNRS - Centre National de la Recherche Scientifique); Angela Sutan (GESC Dijon - Groupe Ecole Supérieure de Commerce Dijon - Bourgogne); Marc Willinger (LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - Institut national de la recherche agronomique (INRA) - Centre international de hautes études agronomiques méditerranéennes [CIHEAM] - CNRS - Centre National de la Recherche Scientifique, UM - Université de Montpellier)
    Abstract: Recent experimental studies have shown that observed outcomes deviate significantly more from the Nash equilibrium when actions are strategic complements than when they are strategic substitutes. This " strategic environment effect " offers promising insights into the aggregate consequences of interactions among heterogeneous boundedly rational agents, but its macroeconomic implications have been questioned because the underlying experiments involve a small number of agents. We studied beauty contest games with a unique interior Nash equilibrium to determine the critical group size for triggering the strategic environment effect. We show theoretically that the effect operates for interactions among three or more agents. Our experimental results partially support this theory, showing a statistically significant strategic environment effect for groups of five or more agents. Our findings establish that experiments involving a small number of interacting agents can provide major insights into macro phenomena and bolster previous work done on such issues as price dynamics.
    Keywords: beauty contest games,iterative reasoning,strategic substitutability,strategic complementarity
    Date: 2016–03
  9. By: Ronald M. Harstad (Department of Economics, University of Missouri-Columbia)
    Abstract: Laboratory experiments employing an induced-values methodology often report on allocative efficiencies observed. That methodology requires experimenters know subjects’ motivations precisely, questionable in labs, impossible in field experiments. Allocative efficiency implies a hypothetical costless aftermarket would be inactive. An allocation mechanism’s outcome is defined to be behaviorally efficient if an appropriate aftermarket is actually appended to the mechanism and measures at most a negligible size of remaining mutually beneficial gains. Methodological requirements for an appropriate aftermarket are specified. A first demonstration observes more frequent and ex-ante larger behavioral inefficiencies in second- than in first-price auctions. A simple field demonstration indicates when a public-good increase can be observed to cover marginal cost to subjects’ mutual benefit, without knowing valuations. A wide variety of empirical economic-policy studies can utilize this methodology to observe comparative evidence of alternative policies’ allocativeefficiency shortfalls.
    Keywords: revealed thresholds, behavioral efficiency, aftermarkets, field experiment methodology, allocative efficiency, empirical political economy, valuation revelation
    JEL: C9 C93 D01 D61 D03 D46
    Date: 2014–02–02
  10. By: Bolhaar, Jonneke (Vrije Universiteit Amsterdam); Ketel, Nadine (University of Gothenburg); van der Klaauw, Bas (Vrije Universiteit Amsterdam)
    Abstract: This paper studies mandatory job-search periods for welfare applicants. During this period the benefits application is put on hold and the applicant is obliged to make job applications. We combine a randomized experiment with detailed administrative data to investigate the effects of imposing a job-search period. We find strong and persistent effects on the probability to collect welfare benefits. The reduced benefits are fully compensated by increased earnings from work. Furthermore, we do not find evidence of adverse consequences for the most vulnerable applicants. Our results therefore suggest that a job-search period is an effective instrument for targeting welfare-benefits applicants.
    Keywords: job search, welfare-to-work, active labor-market policies, randomized experiment
    JEL: C21 C93 I38 J64 J08
    Date: 2016–03
  11. By: Kocher, Martin G.; Lucks, Konstantin E.; Schindler, David
    Abstract: One possible determinant of overpricing on asset markets is a lack of self-control abilities of traders. Self-control is the individual capacity to override or inhibit undesired behavioral tendencies such as impulses and to refrain from acting on them. We implement the first experiment that is able to address a potential causal relationship between self-control abilities and systematic overpricing on financial markets by introducing an exogenous variation of self-control abilities. Our experimental conditions seek to detect some of the channels through which individual self-control problems could transmit into irrational exuberance on the aggregate level. We observe a strong effect of inhibited self-control abilities on market overpricing. Our findings are furthermore robust to reducing self-control abilities only for a moderate share of traders in a market. Low self-control traders engage in more speculative behavior early on, but because others imitate their trading patterns, they do not end up earning less and are not driven out of the market.
    Keywords: Behavioral finance; trader behavior; self control; experimental asset markets; overpricing
    JEL: G02 G11 G12 D53 D84
    Date: 2016–02–29
  12. By: Roberta Dessi; Edoardo Gallo; Sanjeev Goyal;
    Abstract: We study individual ability to memorize and recall information about friendship networks using a combination of experiments and survey-based data. In the experiment subjects are shown a network, in which their location is exogenously assigned, and they are then asked questions about the network after it disappears. We find that subjects exhibit three main cognitive biases: (i) they underestimate the mean degree compared to the actual network; (ii) they overestimate the number of rare degrees; (iii) they underestimate the number of frequent degrees. We then analyse survey data from two `real' friendship networks from a Silicon Valley firm and from a University Research Center. We find, somewhat remarkably, that individuals in these real networks also exhibit these biases. The experiments yield three further: findings: (iv) network cognition is a affected by the subject's location, (v) the accuracy of network cognition varies with the nature of the network, and (vi) network cognition has a significant effect on economic decisions.
    Date: 2014–08–27
  13. By: Edoardo Gallo; Chang Yan; ;
    Abstract: The tension between efficiency and equilibrium is a central feature of economic systems. In many contexts, social networks mediate this trade-off: an individual's network position determines equilibrium play, and social relations allow coordination on an efficient norm. We examine this trade-o in a network game with a unique Nash equilibrium, but such that agents can achieve a higher payoff by following a "collaborative norm". Subjects establish and maintain a collaborative norm in the circle, but the norm weakens with the introduction of one asymmetric node in the wheel. In complex and asymmetric networks of 15 and 21 nodes, the norm disappears and subjects' play converges to Nash on every node. We provide evidence that subjects base their decisions on their degree, rather than the overall network structure. Methodologically, the paper shows the capabilities of UbiquityLab: a novel platform to conduct interactive experiments online with a large number of participants.
    Keywords: network, online experiment, network game, strategic complements.
    JEL: C99 D03 D85 Z13
    Date: 2015–02–09
  14. By: Abhijit Banerjee; Sharon Barnhardt; Esther Duflo
    Abstract: Iron deficiency anemia is frequent among the poor worldwide. While it can be prevented with the appropriate supplement or food fortification, these programs often do not consistently reach the poorest. This paper reports on the impact of a potential strategy to address iron deficiency anemia in rural areas: double fortified salt (DFS) - salt fortified with iron and iodine. We conducted a large-scale experiment in rural Bihar. In 200 villages, randomly selected out of 400, DFS was introduced at a price that was half the regular retail price for DFS. After two years, we find no evidence that either selling DFS in villages or providing it for free directly to households has an economically meaningful or statistically significant impact on hemoglobin, anemia, physical health, cognition or mental health. For the sales experiment, we can reject at the 95% level a reduction of 2.5 percentage points in the fraction anemic in the entire sample, and 3.7 percentage points among those who were previously anemic. Using an IV strategy, we find a statistically significant, though relatively small, increase in hemoglobin and reduction in the fraction anemic for adolescents, a subgroup that has responded well to supplements and fortification in earlier studies. These disappointing results are explained both by relatively low take up and by low impact of DFS even when consumed more regularly for the majority of the population.
    JEL: I0 I00 I1 O11
    Date: 2016–03
  15. By: Freeman, David (Simon Fraser University); Manzini, Paola (University of St. Andrews); Mariotti, Marco (Queen Mary, University of London); Mittone, Luigi (University of Trento)
    Abstract: We study three procedures to elicit attitudes towards delayed payments: the Becker-DeGroot-Marschak procedure; the second price auction; and the multiple price list. The payment mechanisms associated with these methods are widely considered as incentive compatible, thus if preferences satisfy Procedure Invariance, which is also widely (and often implicitly) assumed, they should yield identical time preference distributions. We find instead that the monetary discount rates elicited using the Becker-DeGroot-Marschak procedure are significantly lower than those elicited with a multiple price list. We show that the behavior we observe is consistent with an existing psychological explanation of preference reversals.
    Keywords: time preferences, elicitation methods, Becker-DeGroot-Marschak procedure, auctions, multiple price list
    JEL: C91 D9
    Date: 2016–03
  16. By: Syngjoo Choi; Andrea Galeotti; Sanjeev Goyal;
    Abstract: We propose a model of posted prices in networks. The model maps traditional concepts of market power, competition and double marginalization into networks, allowing for the study of pricing in complex structures of intermediation such as supply chains, transportation and communication networks and financial brokerage. We provide a complete characterization of equilibrium prices. Our experiments complement our theoretical work and point to node criticality as an organizing principle for understanding pricing, efficiency and the division of surplus in networked markets.
    Keywords: Intermediation, competition, market power, double marginalization.
    JEL: C70 C71 C91 C92 D40
    Date: 2014–05–16
  17. By: Azmat, Ghazala (Queen Mary, University of London); Bagues, Manuel F. (Aalto University); Cabrales, Antonio (University College London); Iriberri, Nagore (University of the Basque Country)
    Abstract: This paper studies the effect of providing feedback to college students on their position in the grade distribution by using a randomized control experiment. This information was updated every six months during a three-year period. In the absence of treatment, students' underestimate their position in the grade distribution. The treatment significantly improves the students' self-assessment. We find that treated students experience a significant decrease in their educational performance, as measured by their accumulated GPA and number of exams passed, and a significant improvement in their self-reported satisfaction, as measured by survey responses obtained after information is provided but before students take their exams. Those effects, however, are short lived, as students catch up in subsequent periods. Moreover, the negative effect on performance is driven by those students who underestimate their position in the absence of feedback. Those students who overestimate initially their position, if anything, respond positively.
    Keywords: relative performance feedback, ranking, randomized field experiment, school performance
    JEL: J71 J44
    Date: 2016–03
  18. By: Yutaka Kayaba (Hitotsubashi University); Hitoshi Matsushima (University of Tokyo); Tomohisa Toyama (Kogakuin University)
    Abstract: We experimentally examine repeated prisoners' dilemma with random termination, where monitoring is imperfect and private. Our estimation indicates that a significant proportion of subjects follow generous Tit-For-Tat (g-TFT) strategies, straightforward extensions of Tit-For-Tat. However, the observed retaliating policies are inconsistent with the g-TFT equilibria. Contrarily to the theory, subjects tend to retaliate more with high accuracy than with low accuracy. They tend to retaliate more than the theory predicts with high accuracy, while they tend to retaliate lesser with low accuracy. In order to describe these results as unique equilibrium, we demonstrate an alternative theory that incorporates naivete and reciprocity.
    Date: 2016–03
  19. By: Michael Razen; Jürgen Huber; Michael Kirchler
    Abstract: It is conjectured that one of the major ingredients of historic financial bubbles was the inflow of money in various forms. We run 36 laboratory asset markets and investigate the joint effect of cash inflow and trading horizon on price efficiency. We show that only markets with cash inflow and long trading horizon exhibit bubbles and crashes. We also observe that markets with extended trading horizon but without cash inflow and markets with shorter trading horizon do not trigger bubbles. Finally, we report that beliefs about prices and, importantly, about (constant) fundamentals follow bubble patterns as well.
    Keywords: experimental finance, cash inflow, trading horizon, backward induction, asset market, price efficiency
    JEL: C92 D84 G10
    Date: 2016–03
  20. By: Ungeheuer, Michael; Weber, Martin
    Abstract: We study the perception of dependence between asset returns and its impact on investment decisions. Our findings suggest that, while changes in dependence are not neglected, correlation does not properly capture investors' perception of dependence. In several laboratory experiments we vary dependence between two assets. When dependence is linear, participants understand it and consistently diversify less at higher correlations. However, when we vary non-linear dependence---increasing dependence in extreme returns while decreasing dependence in moderate returns---most participants do not understand dependence in extreme returns. Consequently, they diversify less when dependence in moderate returns increases, even if overall correlation decreases due to less dependence in extreme returns. This finding suggests that investors could improve portfolio selection by taking into account biased beliefs about dependence.
    Keywords: Biased Beliefs; Correlation Neglect; Dependence; Diversification; Investment Decisions; Risk Taking
    JEL: C91 G02 G11
    Date: 2016–03
  21. By: David Gill; Victoria Prowse; Zdenka Kissova; Jaesun Lee
    Abstract: Rank-order relative-performance evaluation, in which pay, promotion and symbolic awards depend on the rank of workers in the distribution of performance, is ubiquitous. Whenever firms use rank-order relative-performance evaluation, workers receive feedback about their rank. Using a real-effort experiment, we aim to discover whether workers respond to the specific rank that they achieve. In particular, we leverage random variation in the allocation of rank among subjects who exerted the same effort to obtain a causal estimate of the rank response function that describes how effort provision responds to the content of rank-order feedback. We find that the rank response function is U-shaped. Subjects exhibit 'first-place loving' and 'last-place loathing', that is subjects work hardest after being ranked first or last. We discuss implications of our findings for the optimal design of firms' performance feedback policies, workplace organizational structures and incentives schemes.
    Keywords: Relative performance evaluation, Relative performance feedback, Rank order feedback, Dynamic effort provision, Real effort experiment, Flat wage, Fixed wage, Taste for rank, Status seeking,Social esteem, Self esteem, Public feedback, Private feedback.
    JEL: C23 C91 J22 M12
    Date: 2016–03–03
  22. By: Callen, Michael (Harvard Kennedy School); Mel, Suresh de (University of Peradeniya); McIntosh, Craig (University of California,); Woodruff, Christopher (University of Warwick)
    Abstract: When households increase their deposits in formal bank savings accounts, what is the source of the money? We combine high-frequency surveys with an experiment in which a Sri Lankan bank used mobile Point-of-Service (POS) terminals to collect deposits directly from households each week. We find that the headwaters of formal savings are in sacrificed leisure time: households work more, with evidence that improved savings options generate an increase in labor effort in both selfemployment and the wage market. The results are consistent with a standard neo-classical model of the effect of real interest rate changes on intertemporal labor allocation, and suggest that the labor allocation channel is an important mechanism linking savings opportunities to income.
    Keywords: savings, household decisionmaking, high-frequency surveys. JEL Classification: O16, D14, G21
    Date: 2016
  23. By: Hong Luo (Harvard Business School); Julie Holland Mortimer (Boston College)
    Abstract: Effective dispute resolution is important for reducing private and social costs. We study how resolution responds to changes in price and communication using a new, extensive dataset of copyright infringement incidences by firms. The data cover two field experiments run by a large stock-photography agency. We find that substantially reducing the requested amount generates a small increase in the settlement rate. However, for the same reduced request, a message informing infringers of the price reduction and acknowledging possible unintentionality generates a large increase in settlement; including a deadline further increases the response. The small price effect, compared to the large message effect, can be explained by two countervailing effects of a lower price: an inducement to settle early, but a lower threat of escalation. Furthermore, acknowledging possible unintentionality may encourage settlement due to the typically inadvertent nature of these incidences. The resulting higher settlement rate prevents additional legal action and reduces social costs.
    Date: 2016–02–19
  24. By: Giovanni Ferri (LUMSA University); Matteo Ploner (University of Trento); Matteo Rizzolli (LUMSA University)
    Abstract: Financial bubbles cause misallocation of resources and even systemic crises. Experimental finance has long tested both the determinant of financial bubbles’ formation and institutional designs meant at solving such bubbles. In line with this literature we explore whether the dual process theory proposed by Kahneman (2011) can explain bubbles’ formation. As compared with our benchmark FAST treatment, we deliberately slow down the decision making process in our SLOW treatment and thus we induce more System-2 type reasoning. We show that high volatility and extreme realizations are greatly reduced and average prices remain consistently aligned with the expected fundamental value once risk-aversion is considered. We also show that the main differences are driven by abnormal ask prices in the FAST treatment that are consistently withdrawn in the SLOW treatment. We also show that the SLOW condition clears out the hot-hand fallacy. We finally derive some tentative policy implications concerning slowing down finance.
    Keywords: Rational vs. emotional choice; Slow vs. fast trading; Dual process theory; System-1 and System-2; Speculative bubbles; Behavioral finance.
    Date: 2016–03
  25. By: Sanjeev Goyal; Stephanie Rosenkranz; Utz Weitze; Vincent Buskens
    Abstract: A central feature of social networks is information sharing. The Internet and related computing technologies define the relative costs of private information acquisition and forming links with others. This paper presents an experiment on the effects of changing costs.We find that a decline in relative costs of linking makes private investments more dispersed and gives rise to denser social networks. Aggregate investment falls, but individuals access to investment remains stable, due to increased networking. The overall effect is a significant increase in individual utility and aggregate welfare.
    Date: 2015–12–21
  26. By: Buchheim, Lukas; Kolaska, Thomas
    Abstract: The consequences of many economic decisions only materialize in the future. To make informed choices in such decision problems, consumers need to anticipate the likelihood of future states of the world, the state-dependence of their preferences, and the choice alternatives that may become relevant. This complex task may expose consumers to psychological biases like extrapolative expectations, projection bias, or salience. We test whether customers are affected by such biases when they buy advance tickets for an outdoor movie theater, a real-world situation that, due to the availability of reliable weather forecasts, closely resembles a stylized decision problem under risk. We find that customers’ decisions are heavily influenced by the weather at the time of purchase, even though the latter is irrelevant for the experience of visiting the theater in the future. The empirical evidence cannot be fully explained by a range of candidate rational explanations, but is consistent with the presence of the aforementioned psychological mechanisms.
    Keywords: Projection Bias; Salience; Extrapolative Expectations; Behavioral Economics; Consumer Behavior
    JEL: D03 D12 D81
    Date: 2016–01–12
  27. By: Emmanuel LORENZON
    Abstract: In this paper we aim at studying the sensitivity of the Generalized Second-Price auction to bidder collusion when monetary transfers are allowed. We propose a model of position auction that incorporates third-parties as agents facilitating collusion in complete information. We show that the first-best collusive outcome can be achieved under any Nash condition. Under the locally envy-free criterion, we find that if the collusive gain is uniformly redistributed among members, the best that can be achieved is Vickrey-Clarkes-Groves outcome. Bidders do not have sufficient incentives to reduce even more their expressed demand. We then provide elements upon which an incentive compatible fee can be set by the center. We provide conditions under which bidders can enhance efficient collusion. Doing so we also contribute to the literature on collusion in multiple-objects simultaneous auctions.
    Keywords: Auctions, Online advertising, Position auctions; Bidding ring, Cartel
    JEL: D44 C72 M3 L41
    Date: 2016
  28. By: Arkady Konovalov (Department of Economics, Ohio State University); Ian Krajbich (Department of Economics, Ohio State University)
    Abstract: Revealed preference is the dominant approach for inferring preferences, but it relies on discrete, stochastic choices. The choice process also produces response times which are continuous and can often be observed in the absence of choice outcomes. Here, using three common choice tasks, we demonstrate that response times reflect strength-of-preference and can thus be used to recover individual utility functions and predict choices out of sample. Furthermore, we are able to use long response times to predict which choices are likely to later be reversed. These results provide a proof of concept for a novel "method of revealed indifference".
    Keywords: preferences, response times, sequential sampling models, drift diffusion model, experimental methodology, social preference, loss aversion, temporal discounting
    JEL: C91 D01 D03 D87 D81 D90
    Date: 2015–02
  29. By: Jesse Chandler; et. al
    Keywords: Estimating the Reproducibility of Psychological Science
    Date: 2016–03–04

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