nep-exp New Economics Papers
on Experimental Economics
Issue of 2016‒04‒30
25 papers chosen by

  1. Field Experiments in Markets By Omar Al-Ubaydli; John A. List
  2. The Mechanism of Inflation Expectation Formation among Consumers By Naohito Abe; Yuko Ueno
  3. Informational contagion in the laboratory By Marco Cipriani; Antonio Guarino; Giovanni Guazzarotti; Federico Tagliati; Sven Fischer
  4. The limits of guilt By Loukas Balafoutas; Helena Fornwagner
  5. Altruism, Cooperation and Trust: Other-regarding Behavior and Collective Actions in Thailand By Rawadee Jarungrattapong; Suparee Boonmanunt
  6. Social identity and solidarity in ethnically diverse societies: Experimental evidence from Vietnam By Roggemann, Hanne; Hadnes, Myriam; Landmann, Andreas
  7. Extremists An Experimental Study Of How Social Interactions Change Preferences By Ian Crawford; Donna Harris
  8. On the Interpretation of World Values Survey Trust Question: Global Expectations vs. Local Beliefs By Banerjee, Ritwik
  9. When Can Financial Education Affect Savings Behavior? Evidence From A Randomized Experiment Among Low Income Clients of Branchless Banking in India By Calderone, Margherita; Fiala, Nathan; Mulaj, Florentina; Sadhu, Santadarshan; Sarr, Leopold
  10. Same Question but Different Answer Experimental Evidence on Questionnaire Design's Impact on Pverty Measured by Proxies By Kilic, Talip; Sohnesen, Thomas
  11. The Adverse Consequences of Tournaments: Evidence from a Field Experiment By De Paola, Maria; Gioia, Francesca; Scoppa, Vincenzo
  12. Brinkmanship on the Commons: A Laboratory Experiment Related to African Pulaar Herders By Wilhelms, Steven C.; Coatney, Kalyn T.; Chaudhry, Anita M.; Rodgers, Aaron D.
  13. Tell Me How to Rule: Leadership, Delegation, and Voice in Cooperation By Marco Faillo; Federico Fornasari; Luigi Mittone
  14. The Management of Innovation: Experimental Evidence By Kusterer, David J.; Schmitz, Patrick W.
  15. Can information help reduce imbalanced application of fertilizers in India? Experimental evidence from Bihar: By Fishman, Ram; Kishore, Avinash; Rothler, Yoav; Ward, Patrick S.; Jha, Shankar; Singh, R. K. P.
  16. School grants and education quality : experimental evidence from Senegal By Amaro Da Costa Luz Carneiro,Pedro Manuel; Koussihouede,Oswald; Lahire,Nathalie; Meghir,Costas; Mommaerts,Corina
  17. Can we neutralize social preference in experimental games? By Michal Krawczyk; Fabrice Le Lec
  18. Institutional Endogeneity and Third-party Punishment in Social Dilemmas By Isabel Marcin; Pedro Robalo; Franziska Tausch
  19. Does banknote quality affect counterfeit detection? Experimental evidence from Germany and the Netherlands By van der Horst, Frank; Eschelbach, Martina; Sieber, Susann; Miedema, Jelle
  20. Noisy Information Signals and Endogenous Preferences for Labeled Attributes By Liaukonyte, Jura; Streletskaya, Nadia; Kaiser, Harry
  21. Recent Developments in the Experimental Elicitation of Time Preference By Cheung, Stephen L.
  22. Where Do Social Preferences Come From? By Chaning Jang; John Lynham
  23. Effectiveness and Economics of Hermetic Bags for Maize Storage: Results of a Randomized Controlled Trial in Kenya By Ndegwa, Michael; De Groote, Hugo; Gitonga, Zachary; Bruce, Anani
  24. Inter-generational thoughtfulness in a dynamic public good experiment By Spiller, Jörg; Bolle, Friedel
  25. Accommodating Stake Effects under Prospect Theory By Ranoua Bouchouicha; Ferdinand Vieider

  1. 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
  2. By: Naohito Abe (Institute of Economic Research Hitotsubashi University); Yuko Ueno (Institute of Economic Research Hitotsubashi University)
    Abstract: How do we determine our expectations of inflation? Because inflation expectations greatly influence the economy, researchers have long considered this question. Using a survey with randomized experiments among 15,000 consumers, we investigate the mechanism of inflation expectation formation. Learning theory predicts that once people obtain new information on future inflation, they change their expectations. In this regard, such expectations are the weighted average of prior belief and information. We confirm that the weight for prior belief is a decreasing function of the degree of uncertainty. Our results also show that monetary authority information affects consumers to a greater extent when expectations are updated. With such information, consumers change their inflation expectations by 32% from the average. This finding supports improvements to monetary policy publicity.
    Keywords: inflation expectations, Bayesian updating, rational expectation, randomized survey experiments.
    JEL: E31 C81 D80
    Date: 2016–03
  3. By: Marco Cipriani (Federal Reserve of New York); Antonio Guarino (University College London); Giovanni Guazzarotti (Bank of Italy); Federico Tagliati (University College London); Sven Fischer (Max Planck Institute for Research on Collective Goods)
    Abstract: We study the informational channel of financial contagion under laboratory conditions. In our experiment, two markets with correlated fundamentals open sequentially and in both of them subjects receive private information. Subjects in the market opening second also observe the history of trades and prices in the first market. We find that although in both markets private information is only imperfectly aggregated, subjects are able to make correct inferences based on the public information coming from the market that opens first. We thus observe financial contagion under laboratory conditions: the correlation between asset prices is very close to that predicted by the theory. Moreover, as the theory predicts, there is no contagion when asset fundamentals are independent: in other words, subjects only react to the history of prices and trades in the first market when it is rational to do so because they convey information.
    Keywords: informational contagion, laboratory experiment
    JEL: C92 G01 G14 G15
    Date: 2016–04
  4. By: Loukas Balafoutas; Helena Fornwagner
    Abstract: Guilt aversion has been put forward in recent years as a prominent motivation for certain aspects of human behavior. When agents are guilt averse, their utility depends on what they believe others expect of them and they suffer a cost whenever they fall short of those expectations. In this paper we suggest that there may be limits to this kind of motivation. We present evidence from a dictator game showing that dictators display behavior consistent with guilt aversion for relatively low levels of recipient expectations, roughly up to the point where the recipient expects half of the available surplus. Beyond that point the relationship between expectations and transfers becomes negative. We argue that this non-monotonicity can help explain why the economic literature on guilt aversion offers conflicting findings on the relationship between expectations and behavior. Moreover, we examine this relationship at the individual level and establish a typology of subjects depending on how and whether they condition their behavior on recipient expectations. Our evidence is consistent with a simple theoretical model of guilt aversion.
    Keywords: guilt aversion, greed, experiment, strategy method
    JEL: C91 D03
    Date: 2016–04
  5. By: Rawadee Jarungrattapong (Thailand Development Research Institute); Suparee Boonmanunt (Faculty of Environment and Resource Studies, Mahidol University)
    Keywords: Altruism,Cooperation,Trust,Behavior, Thailand
    Date: 2016–03
  6. By: Roggemann, Hanne; Hadnes, Myriam; Landmann, Andreas
    Abstract: We study the impact of social identity on risk sharing behavior in an ethnically diverse society in the Central Highlands of Vietnam. We ran Solidarity Games with 285 male household heads from two distinct ethnic groups. We varied participants' social identity by altering the ethnic composition in the risk-sharing group of three. Our main strategy is to influence identity induced solidarity towards the unlucky coplayer by manipulating the identity of the non-affected third player. Our results are consistent with social identity theory, predicting that identity is endogenous to group composition. We partially confirm existing evidence on in-group favoritism, once identity becomes salient. Additionally, we find that those subjects that constitute the minority in the risk-sharing group show adaptive behavior by imitating the perceived norm of the dominant ethnic group. These results suggest that identity is context specific. Particularly, the rather disadvantaged group in the heterogeneous society seems to adapt their behavior to the social environment.
    Keywords: Social Identity, Risk Sharing, Neighborhood e ects, Vietnam, Community/Rural/Urban Development, Public Economics, Risk and Uncertainty, D3,
    Date: 2015
  7. By: Ian Crawford; Donna Harris
    Abstract: Abstract: We study the effects of social interactions on individuals’ other-regarding preferences. Using a modified dictator game and a structural choice-revealed preference approach, we compare five models of other regarding preferences and, using our preferred specification, we measure an individual’s preferences before and after subjects have interacted face-to-face in a small group. We then examine whether a change in preferences is observed. We find that these interactions do indeed change individuals’ other-regarding preferences and that these effects are highly heterogeneous. In most groups, preferences of individual group members become more homogenous as might be expected, but we also find that subjects’ preferences can converge towards those of a single key individual in the group whose preferences are both extreme and also unchanging. These key individuals often have strongly egoistic preferences and are also more likely to be male. These effects are more prevalent amongst younger subjects than older.
    Keywords: Other-regarding preferences, social interactions, preference dynamics, preference heterogeneity, social conformity
    JEL: C90 C92 D70
    Date: 2016–03–29
  8. By: Banerjee, Ritwik (Indian Institute of Management)
    Abstract: How should we interpret the World Values Survey (WVS) trust question? We conduct an experiment in India, a low trust country, to correlate the WVS trust question with trust decisions in an incentivized Trust Game. Evidence supports findings from one strand of the fractured literature – the WVS trust question captures expectations about others' trustworthiness, though not always. We show that WVS trust question correlates with globally determined stable expectations but does not correlate with short term locally determined fluctuations in beliefs about trustworthiness. One implication of our study is that survey based methods may not be used to measure contextualized beliefs.
    Keywords: corruption, social capital, belief, trust games
    JEL: C91 C92 D03
    Date: 2016–04
  9. By: Calderone, Margherita (University of Leuven); Fiala, Nathan (University of Connecticut); Mulaj, Florentina (The World Bank); Sadhu, Santadarshan (IFMR Research Foundation); Sarr, Leopold (The World Bank)
    Abstract: Financial literacy programs are popular, despite recent research showing no significant changes to savings behavior. We experimentally test the impact of financial literacy training on clients of a branchless banking program that offers doorstep access to banking to low income households. The intervention had significant impacts: savings in the treatment group increased by 29% ($27) within a period of one year. The increase in savings is due in part to decreases in expenditures on temptation goods. These results suggest that financial education interventions, when paired with banking experience, can be successful in changing savings outcomes.
    Keywords: Financial literacy training, branchless banking, financial education intervention
    Date: 2014–09
  10. By: Kilic, Talip; Sohnesen, Thomas
    Abstract: Does the same question asked of the same population yield the same answer in face-to-face interviews when other parts of the questionnaire are altered? If not, what would be the implications for proxy-based poverty measurement? Relying on a randomized household survey experiment implemented in Malawi, this study finds that observationally equivalent as well as same households answer the same questions differently when interviewed with a short questionnaire versus the longer counterpart that, in a prior survey round, would have informed the prediction model for a proxy-based poverty measurement exercise. The analysis yields statistically significant differences in reporting between the short and long questionnaires across all topics and types of questions. The reporting differences result in significantly different predicted poverty rates and Gini coefficients. While the difference in predictions ranges from approximately 3 to 7 percentage points depending on the model specification, restricting the proxies to those collected prior the variation in questionnaire design, namely demographic variables from the household roster and location fixed effects, leads to same predictions in both samples. The findings emphasize the need for further methodological research, and suggest that short questionnaires designed for proxy-based poverty measurement should be piloted, prior to implementation, in parallel with the longer questionnaire from which they have evolved. The fact that at the median it took 25 minutes to complete the food and non-food consumption sections in the long questionnaire also implies that the implementation of these sections might not be as overly costly as usually assumed.
    Keywords: Agricultural and Food Policy,
    Date: 2015
  11. By: De Paola, Maria (University of Calabria); Gioia, Francesca (University of Edinburgh); Scoppa, Vincenzo (University of Calabria)
    Abstract: We run a field experiment to investigate whether competing in rank-order tournaments with different prize spreads affects individual performance. Our experiment involved students from an Italian University who took an intermediate exam in which one part was awarded on the basis of their relative performance. Students were matched in pairs on the basis of their high school grades and each pair was randomly assigned to one of three different tournaments. Random assignment neutralizes selection effects and allows us to investigate if larger prize spreads increase individual effort. We do not find any positive effect of larger prizes on students' performance and in several specifications we do find a negative effect. Furthermore, we show that the effect of prize spreads on students' performance depends on their degree of risk-aversion: competing in tournaments with large spreads negatively affects the performance of risk-averse students, while it does not produce any effect on students who are more prone to take risks.
    Keywords: rank-order tournaments, incentives, prize spread, risk-aversion, randomized experiment
    JEL: J33 J31 J24 D81 D82 C93
    Date: 2016–03
  12. By: Wilhelms, Steven C.; Coatney, Kalyn T.; Chaudhry, Anita M.; Rodgers, Aaron D.
    Abstract: Heterogeneous forage utilization by free ranging livestock in Senegal have been observed. This research addresses the changes in production practices and short run strategic implications of remittance investment in livestock. The resulting model is one of brinksmanship leading to a war-of-attrition over resource use. Laboratory experiments demonstrate heterogeneous outcomes ranging from cooperative economically efficient to heavier exploitation of the resource. Though consistent with the findings from past long run analyses, these results are largely due to mixed strategies and behavioral attributes, such as assertive and aggressive behaviors not previously identified.
    Keywords: Remittances, Commons Resource, Brinksmanship, War of Attrition, Experiment, Environmental Economics and Policy, Institutional and Behavioral Economics, Livestock Production/Industries, Q24, Q56, Q58, C72, C91,
    Date: 2016
  13. By: Marco Faillo; Federico Fornasari; Luigi Mittone
    Abstract: Following some recent studies, we experimentally test the effect of intra-group leadership in a public good experiment. Specifically, individuals taking part in our experiment are randomly assigned either the role of leader or the role of follower. Leaders take part in a public good game, aware of the fact that every decision they make directly affects their followers. In this sense, our experimental setting combines the dimension of leadership in cooperation with the one of delegated agents. In our experiment, we find that leadership produces two main effects: subjects contribute more, and tend to punish more frequently. In spite of the presence of higher contributions, we observe lower payoffs; these are caused by an aggressive behavior that push leaders to mane an undue use of punishment. Allowing one-sided communication between followers and leaders provide a different effect: communication reduces decision makers’ aggressiveness, leading to lower contributions and punishment, but better results in terms of final payoffs. The same welfare can be reached when leadership is not implemented at all; this suggests that the presence of a dictatorial leader in public goods with punishment can be beneficial only when there is communication.
    Keywords: Voluntary contribution experiment, Leadership, Punishment
    JEL: C72 C92 H41 O12
    Date: 2016
  14. By: Kusterer, David J.; Schmitz, Patrick W.
    Abstract: We report data from a laboratory experiment with 566 participants that was designed to test Aghion and Tirole's (1994a) management of innovation theory. A research unit and a customer can invest to increase the probability of making an innovation. When the innovation is made, the parties bargain over the division of the revenue. In line with Aghion and Tirole's (1994a) predictions based on the Grossman-Hart-Moore property rights approach, we find that ownership matters for the division of the revenue and the investments. However, communication can somewhat mitigate the theoretical problem that the customer will not relinquish ownership to the cash-constrained research unit.
    Keywords: Incomplete Contracts; Investment incentives; Laboratory experiments; Property rights
    JEL: C92 D23 D86 O32
    Date: 2016–04
  15. By: Fishman, Ram; Kishore, Avinash; Rothler, Yoav; Ward, Patrick S.; Jha, Shankar; Singh, R. K. P.
    Abstract: The imbalanced application of chemical fertilizers in India is widely blamed for low yields, poor soil health, pollution of water resources, and large public expenditures on subsidies. To address the issue, the government of India is investing in a large-scale, expensive program of individualizedsoil testing and customized fertilizer recommendations, with the hope that scientific information will lead farmers to optimize the fertilizer mix. We conducted a randomized controlled trial in the Indian state of Bihar in what we believe to be the first evaluation of the effectiveness of the program as currently implemented. We found no evidence of any impact of soil testing and customized fertilizer recommendations on actual fertilizer use or the willingness to pay for lacking nutrients (elicited using aBecker-DeGroot-Marschak mechanism). Several factors could be driving these results, including a lack of understanding, lack of confidence in the information’s reliability, or the costs of the recommended fertilizer mixes. We provide evidence that suggestslack of confidence is the main factor inhibiting farmers’ response
    Keywords: fertilizers, farm inputs, soil analysis, randomized controlled trial, Becker-DeGroot-Marschak mechanism,
    Date: 2016
  16. By: Amaro Da Costa Luz Carneiro,Pedro Manuel; Koussihouede,Oswald; Lahire,Nathalie; Meghir,Costas; Mommaerts,Corina
    Abstract: The effect of increasing school resources on educational outcomes is a central issue in the debate on improving school quality. This paper uses a randomized experiment to analyze the impact of a school grants program in Senegal, which allowed schools to apply for funding for improvements of their own choice. The analysis finds positive effects on test scores at lower grades that persist at least two years. These effects are concentrated among schools that focused funds on human resource improvements rather than school materials, suggesting that teachers and principals may be a central determinant of school quality.
    Keywords: Education For All,Effective Schools and Teachers,Secondary Education,Tertiary Education,Primary Education
    Date: 2016–04–06
  17. By: Michal Krawczyk (UW - University of Warsaw); Fabrice Le Lec (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We propose an experimental method whose purpose is to remove social concerns in games. The core idea is to adapt the binary-lottery incentive scheme, so that an individual payoff is a probability to see one's preferred social allocation implemented. For a large class of social preference models, the method induces payoffs in the game that are in line with subjects' (social) preferences. We test the method in several popular experimental games, contrasting behaviors with and without our methodology. Our results suggest that a substantial part of the difference between predictions based on selfishness and observed behaviors seems driven by such preferences , since our method does induce more " selfish " behaviors. But they also indicate that a considerable share is left unexplained, perhaps giving weight to alternative explanations or other types of social concerns.
    Keywords: social preferences,experimental game theory,ultimatum game,public goods game,trust game,prisoner's dilemma,dictator game
    Date: 2015
  18. By: Isabel Marcin (Max Planck Institute for Research on Collective Goods); Pedro Robalo (Max Planck Institute for Research on Collective Goods); Franziska Tausch (Max Planck Institute for Research on Collective Goods)
    Abstract: This paper studies experimentally how the endogeneity of sanctioning institutions affects the severity of punishment in social dilemmas. We allow individuals to vote on the introduction of third-party-administered sanctions, and compare situations in which the adoption of this institution is endogenously decided via majority voting to situations in which it is exogenously imposed by the experimenter. Our experimental design addresses the self-selection and signaling effects that arise when subjects can vote on the institutional setting. We find that punishment is significantly higher when the sanctioning institution is exogenous, which can be explained by a difference in the effectiveness of punishment. Subjects respond to punishment more strongly when the sanctioning institution is endogenously chosen. As a result, a given cooperation level can be reached through milder punishment when third-party sanctions are endogenous. However, overall efficiency does not differ across the two settings as the stricter punishment implemented in the exogenous one sustains high cooperation as subjects interact repeatedly.
    Keywords: Endogeneity, Third-party punishment, Voting, Institutions, Social dilemma, Public good
    JEL: C92 D02 D72 H41
    Date: 2016–04
  19. By: van der Horst, Frank; Eschelbach, Martina; Sieber, Susann; Miedema, Jelle
    Abstract: Counterfeit prevention is a major task for central banks, as it helps to maintain public confidence in the currency. It is often maintained that a high quality of the banknotes in circulation helps the public detect counterfeits. However, there has not been any scientific evidence in support of this assertion so far. The present study is a first attempt to fill this research gap. To investigate whether banknote quality affects counterfeit detection, De Nederlandsche Bank (DNB) and the Deutsche Bundesbank (DBB) conducted a field study in 2014 and 2015 amongst 250 consumers and 261 cashiers in the Netherlands and Germany. Participants received a set of 200 banknotes with either a high or a low average soil level, based on the actual circulation in two different countries. Real-life circulation in both Germany and the Netherlands is in between these values. Each set contained 20 counterfeit notes, which testees were asked to detect. On average, untrained consumers detect 79% of the counterfeits, whereas retail cashiers detect 88%. Cashiers are found to detect more counterfeits when the set is clean, even after controlling for a wide range of personal characteristics in a regression. The estimated effect of cleanliness on the cashiers' detection rate is an additional 0.87 out of 20 counterfeits (4.4%) For consumers, the quality of the sets does not change the hit rate in a statistically significant way.
    Keywords: banknotes,counterfeits,banknote quality,signal detection theory
    JEL: E40 E41 E50 E58
    Date: 2016
  20. By: Liaukonyte, Jura; Streletskaya, Nadia; Kaiser, Harry
    Abstract: Consumer preferences for labeled products are often assumed to be exogenous to the presence of labels. However, the label itself (and not the information on the label) can be interpreted as a noisy warning signal. We measure the impact of “Contains” labels and additional information about the labeled ingredients, treating preferences for labeled characteristics as endogenous. We find that for organic food shoppers, the “Contains” label absent additional information serves as a noisy warning signal leading them to overestimate the riskiness of consuming the product. Provision of additional information mitigates the large negative signaling effect of the label.
    Keywords: Demand Shifts and Rotations, Experimental Economics, Labeling, Signaling effect, Willingness-to-Pay, Agricultural and Food Policy, Labor and Human Capital, L13, C21, M31, Q13, Q18,
    Date: 2015
  21. By: Cheung, Stephen L. (University of Sydney)
    Abstract: This methodological survey reviews recent developments in the design of experiments to elicit individuals' time preferences, with a focus on the measurement or control for potentially non-linear utility. While the objective of a time preference experiment is usually to estimate parameters of a discount function, assumptions concerning the nature of utility may have an important influence upon these estimates. The survey classifies experiment designs on two dimensions: whether they assume an equivalence between utility under risk and over time, and whether they result in an estimate of the curvature of utility.
    Keywords: time preference, discounted utility, instantaneous utility, choice list
    JEL: C91 D03 D90
    Date: 2016–04
  22. By: Chaning Jang (Department of Psychology, Princeton University); John Lynham (Department of Economics & UHERO, University of Hawaii at Manoa; Center for Ocean Solutions, Stanford University)
    Abstract: Where do preferences for fairness come from? We use a unique field setting to test for a spillover of sharing norms from the workplace to a laboratory experiment. Fishermen working in teams receive random income shocks (catching fish) that they must regularly divide among themselves. We demonstrate a clear correlation between sharing norms in the field and sharing norms in the lab. Furthermore, the spillover effect is stronger for fishermen who have been exposed to a sharing norm for longer, suggesting that our findings are not driven by selection effects. Our results are consistent with the hypothesis that work environments shape social preferences.
    Keywords: ultimatum game; social preferences; fairness; workplace spillovers
    JEL: Q2 C9 C7 B4 D1
    Date: 2015–08
  23. By: Ndegwa, Michael; De Groote, Hugo; Gitonga, Zachary; Bruce, Anani
    Abstract: Maize is a very important crop in Africa whose production is seasonal but consumption continuous. This makes it important to store it on-farm especially for the small scale farmers, but the traditional storage methods lead to high losses. This calls for more research and investment in improved storage technologies such as hermetic bags. A randomized controlled trial was implemented in Kenya with treatment farmers using hermetic bags and control farmers conventional farmer practices. Hermetic bags were highly effective in controlling loss to an abated loss of 8.5% valued at KSh 307(US$ 3.6) for one season and KSh 918 (US$ 10.7) for three seasons, the recommended minimum times a bag can be re-used. The technology is economically viable with a benefit cost ratio of 1.6 for one season and 4.8 for three seasons.
    Keywords: hermetic bags, maize storage, effectiveness, benefit cost, Crop Production/Industries, Farm Management,
    Date: 2015
  24. By: Spiller, Jörg; Bolle, Friedel
    Abstract: In a laboratory experiment we investigate inter-generational concerns and myopia in a dynamic Public Good game. Groups of four played a 15-period game where they could either invest in a green sector or in a more profitable brown sector that builds a pollution stock. We find that subjects are more cooperative when their final pollution stock will be inherited by another group in a later session. Furthermore, we observe that defection from a negotiated common plan is higher when subjects are in a loss frame, negotiated plans are more ambitious. We analyze our results in reference to several social preference theories and find that Linear Altruism is most supported in such a dynamic environment.
    Keywords: Dynamic,Environmental Economics,Experimental Economics,Inter-Generation,Public Good
    JEL: H41 C91
    Date: 2016
  25. By: Ranoua Bouchouicha (Henley Business School, University of Reading); Ferdinand Vieider (Department of Economics, University of Reading)
    Abstract: We investigate how to accommodate qualitative changes in risk preferences over outcomes and probabilities under prospect theory. We find a double two-fold pattern of risk preferences for gains, one over probabilities and one over outcomes. While such patterns over probabilities are an integral part of prospect theory, a solution on how to incorporate two-fold patterns over outcomes has only recently been proposed by Scholten and Read (2014) [‘Prospect theory and the “forgotten” fourfold pattern of risk preferences. JRU 48(1)’]. We use this insight to address violations of probability-outcome separability under prospect theory as stakes increase [Fehr-Duda, Bruhin, Epper, and Schubert (2010). Rationality on the Rise: Why Relative Risk Aversion Increases with Stake Size’. JRU 40(2)]. We replicate the violations using traditional functional forms such as power or exponential utility. Using logarithmic utility instead makes the violations disappear, showing the importance of accommodating changing risk preferences across the outcome dimension.
    Keywords: risk preferences, prospect theory, probability-outcome separability
    JEL: C51 C52 C91 D03 D90
    Date: 2016–04–17

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