nep-exp New Economics Papers
on Experimental Economics
Issue of 2016‒06‒18
28 papers chosen by

  1. Risk, Ambiguity and Efficient Liability Rules: An experiment. By Nicolas Lampach; Kene Boun My; Sandrine Spaeter
  2. Honest Abe or Doc Holliday? Bluffing in Bargaining By Gregory DeAngelo; Bryan McCannon
  3. Designing contests between heterogeneous contestants: An experimental study of tie-breaks and bid-caps in all-pay auctions By Llorente-Saguer, Aniol; Sheremeta, Roman M.; Szech, Nora
  4. The Impact of Microfinance on Pro-Social Behaviors: Experimental Evidence of Public Goods Contributions in Uganda By Bryan McCannon; Zachary Rodriguez
  5. A Lasting Effect of the HIV/AIDS Pandemic: Orphans and Pro-Social Behavior By Joshua Hall; Shree Baba Pokharel
  6. Affirmative action and effort choice An experimental investigation By Juliana Silva-Goncalves; Uwe Dulleck; Anita Hong; Markus Schaffner; Stephen Whyte
  7. Provision of public goods: Unconditional and conditional donations from outsiders By Esther Blanco; Tobias Haller; James M. Walker
  8. Incentive of risk sharing and trust formation: Experimental and survey evidence from Bangladesh By Shoji, Masahiro
  9. It's the thought that counts: The role of intentions in noisy repeated games By Rand, David Gertler; Fudenberg, Drew; Dreber, Anna
  10. Theory of Mind Predicts Cooperative Behavior By Gregory DeAngelo; Bryan McCannon
  11. Testing for the Ratchet Effect: Evidence from a Real-Effort Work Task By Cardella, Eric; Depew, Briggs
  12. Solving the second-order free rider problem in a public goods game: An experiment using a leader support system By Hiroki Ozono; Nobuhito Jin; Motoki Watabe; Kazumi Shimizu
  13. Reacting to Unfairness: Group Identity and Dishonest Behavior By Nives Della Valle; Matteo Ploner
  14. The Political Economy of Public Sector Absence: Experimental Evidence from Pakistan By Callen, Michael; Gulzar, Saad; Hasanain, Ali; Khan, Muhammad Yasir
  15. A Random Shock Is Not Random Assignment By Christoph Engel
  16. Guilt-Averse or Reciprocal? Looking at Behavioural Motivations in the Trust Game By Yola Engler; Rudolf Kerschbamer; Lionel Page
  17. Preference Cloud Theory: Imprecise Preferences and Preference Reversals By Bayrak, Oben; Hey, John
  18. Can War Foster Cooperation? By Michal Bauer; Christopher Blattman; Julie Chytilová; Joseph Henrich; Edward Miguel; Tamar Mitts
  19. How Can Bill and Melinda Gates Increase Other People's Donations to Fund Public Goods? By Dean Karlan; John List
  20. Microcredit Contracts, Risk Diversification and Loan Take-Up By Attanasio, O.; Augsburg, B.; de Haas, Ralph
  21. The impact of taxation and signposting on diet: an online field study with breakfast cereals and soft drinks By Daniel John Zizzo; Melanie Parravano; Ryota Nakamura; Suzanna Forwood; Marc Suhrcke
  22. Impact of bidder learning on conservation auctions: An initial experimental analysis By Iftekhar, Sayed; Latacz-Lohmann, Uwe
  23. Financial risk analysis of lucerne pasture establishment: Under-sowing vs Direct sowing By Nordblom, Thomas L.; Hutchings, Timothy R.; Li, Guangdi; Hayes, Richard C.; Finlayson, John D.
  24. Risk Aversion and Preferences for an Environmental Good: A discrete choice experiment By Dorner, Zack; Brent, Daniel A.; Leroux, Anke
  25. Negotiating with the future: Incorporating imaginary future generations into negotiations By Yoshio Kamijo; Asuka Komiya; Nobuhiro Mifune; Tatsuyoshi Saijo
  26. Financial Contagion in the Laboratory: Does Network Structure Matter? By John Duffy; Aikaterini Karadimitropoulou; Melanie Parravano
  27. Ellsberg re-revisited: An experiment disentangling model uncertainty and risk aversion By Loic Berger; Valentina Bosetti
  28. The effects of endogenous enforcement on strategic uncertainty and cartel deterrence By Carsten J. Crede; Liang Lu

  1. By: Nicolas Lampach; Kene Boun My; Sandrine Spaeter
    Abstract: We conduct experiments to study the incentive effects of strict liability by comparing both regimes, unlimited and limited liability in the domain of risk and ambiguity. We assume that the firm’s activities cause a risk of technological disaster and can invest in prevention to reduce the likelihood of accident. We assess Lampach and Spaeter’s theoretical predictions. We find on average high levels of investment under limited liability in the domain of risk, consistent with the theory, but lower level of investment in prevention in the domain of ambiguity. We do not find that subjects’ degree of optimism affect the decision choice albeit we demonstrate strong evidence in favor of inequity aversion, fairness and risk preferences.
    Keywords: Strict liability; Technological disaster; Experiment; Risk; Ambiguity; Optimism.
    JEL: K13 C91 D81
    Date: 2016
  2. By: Gregory DeAngelo (West Virginia University, Department of Economics); Bryan McCannon (West Virginia University, Department of Economics)
    Abstract: We consider a bargaining environment where there is asymmetric information regarding whether the two players have common preferences or conflicting preferences. If the cost of strategic communication is independent of the state, then signaling is not expected to be effective. If the uninformed agent believes, though, a (cheap†talk) signal has been sent, then the informed agents are incentivized to engage in deceptive bluffing. Alternatively, if bluffing is not too prevalent, honest communication can be worthwhile. We explore this theoretically and experimentally. We present a bargaining model where state†dependent mixed strategies arise as equilibria. Thus, bluffing occurs in equilibrium. In the model, players who experience a disutility to engaging in deceptive behavior are then introduced. The set of equilibria are refined and we show, ironically, that the introduction of honest players increases the overall level of deception. We then design an experimental game to assess the validity of the predictions from the theoretical model. We show that agents attempt to strategically transmit information even when (costly) signaling is not possible. Across rounds of the game honest, but cheap talk, signaling and bluffing co†move in that as the former becomes more prevalent so too does the latter. Furthermore, we document a contagion effect in the laboratory. Bluffing not only creates deadweight loss in a particular dyad, but leads the agent who was bluffed to engage in more bargaining conflict in future rounds against a new, randomly†selected opponent. Aggregate wealth is higher prior to the introduction of deception in the group.
    Keywords: bargaining, bluff, cheap†talk signaling, contagion, deception, experiment, signal, strategic information transmission
    Date: 2016–06
  3. By: Llorente-Saguer, Aniol; Sheremeta, Roman M.; Szech, Nora
    Abstract: A well-known theoretical result in the contest literature is that greater heterogeneity decreases performance of contestants because of the "discouragement effect." Leveling the playing field by favoring weaker contestants through bid-caps and favorable tie-breaking rules can reduce the discouragement effect and increase the designer's revenue. We test these predictions in an experiment. Our data show that indeed, strengthening weaker contestants through tie-breaks and bid-caps significantly diminishes the discouragement effect. Bid-caps can also improve revenue. Most deviations from Nash equilibrium can be explained by the level-k model of reasoning.
    Keywords: all-pay auction,rent-seeking,bid-caps,tie-breaks,contest design
    JEL: C72 C91 D72
    Date: 2016
  4. By: Bryan McCannon (West Virginia University, Department of Economics); Zachary Rodriguez (Saint Bonaventure University, School of Business)
    Abstract: We ask whether access to microfinance loans by the poor has a spillover effect on their pro†social behaviors. An experimental field study in southern, rural Uganda is conducted using free riding in public goods contributions as an assessment. We document higher levels of contributions by those who have previously received a microloan. This effect cannot be explained by changes in social norms, income effects, or sample selection bias. The results suggest that exposure to microfinance promotes social preferences.
    Keywords: experiment, field study, free riding, microfinance, public goods, social norm, social preference, Uganda
    Date: 2016–06
  5. By: Joshua Hall (West Virginia University, Department of Economics); Shree Baba Pokharel (West Virginia University, Department of Economics)
    Abstract: The HIV/AIDS pandemic has caused numerous deaths. One unfortunate consequence of this is the deterioration in family structure and the prevalence of orphanhood. We investigate whether individuals who were orphaned as a child suffer long-term consequences through a underinvestment in their social capital. We conduct a framed field experiment in rural, southern Uganda where the HIV/AIDS pandemic hit hardest. In the experiment, subjects made decisions to contribute to a public good. Results indicate that adults who were orphaned as a child free ride more contributing less to the public good. We explore the mechanism through which their background operates. We provide evidence that an important channel is through social norms. Subjects orphaned when young tend to have lower expectations regarding typical behavior of others. A strong interaction effect is identified where those with the lowest expectations who were also orphaned contribute the least to the public good. Thus, we document long-term consequences to a community of the adverse health event.
    Keywords: HIV/AIDS, orphan, pro-social behavior, public good, social capital, social norm, Uganda
    JEL: I15 D03 C93
    Date: 2016–06
  6. By: Juliana Silva-Goncalves; Uwe Dulleck; Anita Hong; Markus Schaffner; Stephen Whyte
    Abstract: We study the effect of affirmative action on effort in an experiment conducted in high schools in socioeconomically disadvantaged areas in Queensland, Australia. All participating schools have a large representation of indigenous Australians, a population group that is frequently targeted by affirmative action. Our participants perform a simple real-effort task in a competitive setting. Those ranked in the top third receive a high piece-rate payment and all the others receive a low payment.We introduce affirmative action by providing the lowest (bottom third) performers with a positive handicap increasing their chances to achieve the high payment target. Our findings show that the policy increases effort of those that it aims to favour, without discouraging effort of those who are indirectly penalized by affirmative action.
    Keywords: Field experiments, Public administration, Public policy (Law)
    Date: 2016
  7. By: Esther Blanco; Tobias Haller; James M. Walker
    Abstract: The provision of public goods often benefits a larger group than those who actively provide the public good. In an experimental setting, this paper addresses institutional arrangements between subjects who can provide a public good (insiders) and subjects who benefit from the public good but cannot provide it (outsiders). We compare a setting of passive outsiders to situations where outsiders can either make unconditional transfers (donations) or conditional transfers (contracts) to the insiders. The primary behavioral question is to what extent outsiders will respond to the opportunity to subsidize the contributions of insiders and will insiders use such subsidies to increase contributions or simply substitute them for their own contributions. The results suggest the latter. In fact, once conditional or unconditional transfers are allowed, insiders decrease contributions to the public good relative to the baseline condition without transfers.
    Keywords: Public goods, Institution, Externality, Laboratory Experiment
    JEL: D70 H41 C92
    Date: 2016–05
  8. By: Shoji, Masahiro
    Abstract: Using data from a unique household survey and an artefactual field experiment conducted in rural Bangladesh, this study evaluates the impact on trust in community members of an incentive to maintain a risk-sharing arrangement between villagers. Risk sharing is a major opportunity for cooperation in rural economies, and the experience of cooperation could facilitate trust. In order to test this hypothesis, this study characterizes the incentive for risk sharing by the patterns of exogenous income shocks in the real world and risk preference, and trust in community members is elicited experimentally. The empirical results from dyadic regression demonstrate that villagers connected by a stronger incentive form higher level of trust. It is also found that villagers are more likely to share risks in villages that have stronger incentives. These findings suggest that the introduction of formal insurance, which reduces the incentive of risk sharing, could break down trust.
    Keywords: Trust formation; risk sharing; experiment; Bangladesh
    JEL: C91 D12
    Date: 2016–06–13
  9. By: Rand, David Gertler; Fudenberg, Drew; Dreber, Anna
    Abstract: We examine cooperation in repeated interactions where intended actions are implemented with noise but intentions are perfectly observable. Observable intentions lead to more cooperation compared to control games where intentions are unobserved, allowing subjects to reach similar cooperation levels as in games without noise. Most subjects condition exclusively on intentions, and use simpler, lower-memory strategies compared to games where intentions are unobservable. When the returns to cooperation are high, some subjects are tolerant, using good outcomes to forgive attempted defections; when the returns to cooperation are low, some subjects are punitive, using bad outcomes to punish accidental defections.
    Date: 2015
  10. By: Gregory DeAngelo (West Virginia University, Department of Economics); Bryan McCannon (West Virginia University, Department of Economics)
    Abstract: Explanations for cooperation in Prisoner’s Dilemma games (PD) have generated significant interest. While institutional explanations, such as the role of repeated interactions and communication, have offered considerable explanatory ability, a psychological measure of Theory of the Mind (ToM) – Reading the Mind in the Eyes – of an individual’s ability to process social and emotional cognition offers new insights. Using this measure, we examine how ToM explains (un)cooperative behavior in a standard PD game. We find that subjects who have higher ToM are less cooperative in PD games and extract higher payoffs.
    Keywords: Cooperation, Experiment, Prisoner’s Dilemma, Reading Mind in the Eyes, Theory of the Mind
    Date: 2016–06
  11. By: Cardella, Eric (Texas Tech University); Depew, Briggs (Louisiana State University)
    Abstract: The "ratchet effect" refers to a phenomenon where workers whose compensation is based on productivity strategically restrict their output, relative to their capability, because they rationally anticipate that high levels of output will be met with increased or "ratcheted-up" expectations in the future. While there is ample anecdotal evidence suggesting the presence of the ratchet effect in real workplaces, it is difficult to actually empirically identify output restriction among workers. In this study, we implement a novel experimental design using a real-effort work task and a piece-rate incentive scheme to directly test for the presence of the ratchet effect using two different methods for evaluating productivity: (i) when productivity is evaluated based on the output of each individual worker, and (ii) when productivity is evaluated collectively based on the output of a group of workers. We find strong evidence of the ratchet effect when productivity is evaluated at the individual-level. However, we find very little evidence of the ratchet effect when productivity is evaluated collectively at the group-level. We attribute the latter result to the free-riding incentive that emerges when productivity is evaluated at the group-level. Furthermore, we find the ratchet effect re-emerges if workers are able to communicate. Our experimental design, combined with using a real-effort work task, also allows us to shed light on an important dynamic implication of the ratchet effect that has not yet been examined in the literature – the role of the ratchet effect on future productivity via learning-by-doing.
    Keywords: ratchet effect, output restriction, piece-rate pay, real-effort task, learning-by-doing
    JEL: J30 J40 D70 D01 C92
    Date: 2016–06
  12. By: Hiroki Ozono (Faculty of Law, Economics and Humanities, Kagoshima University); Nobuhito Jin (School of Psychology Practices, College of Integrated Human and Social Welfare Studies, Shukutoku University); Motoki Watabe (School of Business, MonashUniversity, Malaysia, Jalan Lagoon Selatan); Kazumi Shimizu (School of Political Science and Economics, Waseda University)
    Abstract: To study the collective action problem, researchers have investigated public goods games (PGG), in which each member decides to contribute to a common pool that returns benefits to all members equally. Punishment of non-cooperators—free riders—can lead to high cooperation in PGG. However, the existence of second-order free riders, who do not pay punishment costs, reduces the effectiveness of punishment. We focus on a “leader support system,” in which one group leader can freely punish group followers using capital pooled through the support of group followers. In our experiment, participants were asked to engage in three stages: a PGG stage in which followers decided to cooperate for their group; a support stage in which followers decided whether to support the leader or not; and a punishment stage in which the leader could punish any follower. We found both higher cooperation and higher support for a leader achieved under linkage-type leaders—who punished both non-cooperators and non-supporters. In addition, linkage-type leaders themselves earned higher profits than other leader types because they withdrew more support. This means that a leader who effectively punishes followers could increase their own benefits and the second-order free rider problem would be solved.
  13. By: Nives Della Valle; Matteo Ploner
    Abstract: Employees' misconduct can be attributed to experiences of unfairness. Does this dishonest reaction change when employees identify with the whole organization or with a subunit only? We experimentally investigate whether individuals are more likely to engage in dishonest behavior after having experienced unfairness perpetrated by a peer with a salient group identity. Two peers generate an endowment together, but only one can decide how to share it. They either share the same group identity or have distinct group identities. Then, they approach a task in which they can opportunistically engage in dishonest behavior. Our results show that when peers share the same group identity, unfair distributive decisions do not trigger a dishonest reaction. In contrast, when di erent group identities coexist, dishonest behavior is observed as a reaction to unfairness.
    Keywords: Group Identity, Fairness, Dishonesty
    JEL: C91 C92 D03 D63
    Date: 2016
  14. By: Callen, Michael; Gulzar, Saad; Hasanain, Ali; Khan, Muhammad Yasir
    Abstract: This paper presents evidence that one cause of absenteeism in the public sector is that government jobs are handed out as patronage. First, politicians routinely interfere when bureaucrats sanction absent doctors, and doctors are more absent in uncompetitive constituencies and when connected to politicians. Next, we find that the effects of two experimental interventions to address absence are attenuated in uncompetitive constituencies and for connected doctors. The first is a smartphone monitoring technology that nearly doubles inspection rates, and the second, representing the first experiment on the effects of providing data to policymakers, channels real time information on doctor absence.
    Keywords: Absence; Corruption; Data in Policymaking; Information Communication Technology; patronage; Political Competition; Political Connections
    JEL: D72 D73
    Date: 2016–06
  15. By: Christoph Engel (Max Planck Institute for Research on Collective Goods)
    Abstract: A random shock excludes reverse causality and reduces omitted variable bias. Yet a natural experiment does not identify random exposure to treatment, but the reaction to a random change from baseline to treatment. A lab experiment comparing higher certainty with higher severity of punishment for stealing (holding the expected value of the intervention constant) shows that the difference between the effects of a random shock and random assignment can be pronounced.
    Keywords: identification, random exposure, random shock, natural experiment, certainty and severity of punishment
    JEL: C01 C12 C90 K14
    Date: 2016–05
  16. By: Yola Engler; Rudolf Kerschbamer; Lionel Page
    Abstract: For the trust game, recent models of belief-dependent motivations make opposite predictions regarding the correlation between back-transfers and secondorder beliefs of the trustor: While reciprocity models predict a negative correlation, guilt-aversion models predict a positive one. This paper tests the hypothesis that the inconclusive results in previous studies investigating the reaction of trustees to their beliefs are due to the fact that reciprocity and guilt-aversion are behaviorally relevant for different subgroups and that their impact cancels out in the aggregate. We find little evidence in support of this hypothesis and conclude that type heterogeneity is unlikely to explain previous results.
    JEL: C25 C70 C91 D63 D64
    Date: 2016–06–07
  17. By: Bayrak, Oben; Hey, John
    Abstract: This paper presents a new theory, called Preference Cloud Theory, of decision-making under uncertainty. This new theory provides an explanation for empirically-observed Preference reversals. Central to the theory is the incorporation of preference imprecision which arises because of individuals’ vague understanding of numerical probabilities. We combine this concept with the use of the Alpha model (which builds on Hurwicz’s criterion) and construct a simple model which helps us to understand various anomalies discovered in the experimental economics literature that standard models cannot explain.
    Keywords: Imprecise Preferences; Preference Reversals; Decision under Uncertainty; Anomalies in Expected Utility Theory
    JEL: D0 D00 D01 D02 D03 D04 D8 D80 D81
    Date: 2015
  18. By: Michal Bauer; Christopher Blattman; Julie Chytilová; Joseph Henrich; Edward Miguel; Tamar Mitts
    Abstract: In the past decade, nearly 20 studies have found a strong, persistent pattern in surveys and behavioral experiments from over 40 countries: individual exposure to war violence tends to increase social cooperation at the local level, including community participation and prosocial behavior. Thus while war has many negative legacies for individuals and societies, it appears to leave a positive legacy in terms of local cooperation and civic engagement. We discuss, synthesize and reanalyze the emerging body of evidence, and weigh alternative explanations. There is some indication that war violence especially enhances in-group or "parochial" norms and preferences, a finding that, if true, suggests that the rising social cohesion we document need not promote broader peace.
    JEL: C80 D74 H56 O10 O12 O40
    Date: 2016–06
  19. By: Dean Karlan; John List
    Abstract: We conducted two matching grant experiments with an international development charity. The primary experiment finds that a matching grant from the Bill and Melinda Gates Foundation raises more funds than a matching grant from an anonymous donor. The effect persists, and is strongest for donors who previously gave to other poverty-oriented charities. Combining these insights with survey results, we conclude that our matching gift primarily works through a quality signal mechanism. Overall, the results help to clarify why people give to charity, what models help to describe those motivations, and how practitioners can leverage economics to increase their fundraising potential.
    Date: 2016
  20. By: Attanasio, O.; Augsburg, B.; de Haas, Ralph (Tilburg University, Center For Economic Research)
    Abstract: We study theoretically and empirically the demand for microcredit under different liability arrangements and risk environments. A simple theoretical model shows that the demand for joint-liability loans can exceed that for individual-liability loans when risk-averse borrowers value their long-term relationship with the lender. Joint liability then offers a way to diversify risk and to reduce the chance of losing access to future loans. We also show that the demand for loans depends negatively on the riskiness of projects. Using data from a randomized controlled trial in Mongolia we find that these model predictions hold true empirically. In particular, we use innovative data on subjective risk perceptions to show that expected project risk negatively affects the demand for loans. In line with an insurance role of joint-liability contracts, this effect is muted in villages where joint-liability loans are available.
    Keywords: microcredit; joint liability; loan take-up; risk diversification
    JEL: D14 D81 D86 G21 O16
    Date: 2016
  21. By: Daniel John Zizzo (BENC and Newcastle University, UK); Melanie Parravano (BHRU and Newcastle University, UK); Ryota Nakamura (Centre for Health Economics, University of York, UK); Suzanna Forwood (Anglia Ruskin University, UK); Marc Suhrcke (Centre for Health Economics, University of York, UK)
    Abstract: We present a large scale study where a nationally representative sample of 1,000 participants were asked to make real purchases within an online supermarket platform. The study captured the effect of price changes, and of the signposting of such changes, for breakfast cereals and soft drinks. We find that such taxes are an effective means of altering food purchasing, with a 20% rate being sufficient to make a significant impact. Signposting represents a complementary nudge policy that could enhance the impact of the tax without imposing severe welfare loss, though the effectiveness may depend on the product category.
    Keywords: taxes, signposting, healthy diet, nudges, public health
    JEL: C93 D12 H31 I1
    Date: 2016–06
  22. By: Iftekhar, Sayed; Latacz-Lohmann, Uwe
    Keywords: Environmental Economics and Policy, Land Economics/Use,
    Date: 2016–02
  23. By: Nordblom, Thomas L.; Hutchings, Timothy R.; Li, Guangdi; Hayes, Richard C.; Finlayson, John D.
    Abstract: Over the past 80 years an unresolved issue in rain-fed crop-pasture rotations by scientists and farm advisors has been whether to recommend sowing a perennial pasture either alone or with a cereal cover crop. Researchers and agronomists have typically advocated sowing pastures alone to improve pasture productivity, but a large proportion of farmers continue to sow pastures under a cover crop suggesting a perceived financial advantage with the latter establishment method. Whether there is a real financial benefit of establishing pastures under a cover crop presents a practical Farm Financial Risk problem. Our study is based on four years of field experiment results (2008 to 2012) along a 200 km transect running north and south of Wagga Wagga, New South Wales, Australia. Analysis of these results with information on local weather and price variations using “The Intensive Farming (IF) model” (Hutchings et al, 2016), suggests the following: (1) sowing the pasture alone is a more reliable method of establishing lucerne (Medicago sativa L.) pasture than sowing under a cover-crop; and (2) the additional costs of sowing a lucerne pasture alone are met in the majority of years by its increased productivity compared with pastures sown with cover-crops. Comparing median decadal cash balance values for pastures with stocking rates of 10, 15 and 20 dse/ha, our results show an advantage with direct-sowing for farms with high equity. Farms with low equity may not be helped by agronomic improvements, but find it best to focus on reducing debts.
    Keywords: South-eastern Australia, Rain-fed crop-pasture rotations, Medicago sativa L., Perennial pastures, Weather and price variations, Pasture establishment efficacy and cost, Farm financial risk analysis, Decadal cash balances, Agricultural and Food Policy, Environmental Economics and Policy, Risk and Uncertainty,
    Date: 2016–02
  24. By: Dorner, Zack; Brent, Daniel A.; Leroux, Anke
    Keywords: Environmental Economics and Policy,
    Date: 2016–02
  25. By: Yoshio Kamijo (School of Economics and Management, Kochi University of Technology); Asuka Komiya (Hiroshima University); Nobuhiro Mifune (School of Economics and Management, Kochi University of Technology); Tatsuyoshi Saijo (School of Economics and Management, Kochi University of Technology)
    Abstract: People to be born in the future have no direct influence on current affairs. Given the disconnect between people who are currently living and those that will inherit the planet left for them, individuals who are currently alive tend to be more oriented toward the present, posing a fundamental problem related to sustainability. In this study, we propose a new framework for reconciling the disconnect between the present and the future whereby some individuals in the current generation serve as an imaginary future generation that negotiates with individuals in the real-world present. Through a laboratory-controlled intergenerational sustainability dilemma game (ISDG), we show how the presence of negotiators for a future generation increases the benefits of future generations. More specifically, we found that when faced with members of an imaginary future generation, 60% of participants selected an option that promoted sustainability. In contrast, when the imaginary future generation was not salient, only 28% of participants chose the sustainable option.
    Keywords: Intergenerational Sustainability Dilemma Game, Imaginary Future Generation, Negotiation
    Date: 2016–06
  26. By: John Duffy (Department of Economics, University of California-Irvine); Aikaterini Karadimitropoulou (School of Economics, University of East Anglia); Melanie Parravano (Business School, Newcastle University)
    Abstract: We design and report on laboratory experiments exploring the role of interbank network structure for the likelihood of a financial contagion. The laboratory provides us with the control necessary to precisely explore the role of different network configurations for the fragility of the financial system. Specifically, we study the likelihood of financial contagion in complete and incomplete networks of banks who are linked in terms of interbank deposits as in the model of Allen and Gale (2000). Subjects play the role of depositors who must decide whether or not to withdraw their funds from their bank. We find that financial contagions are possible under both network structures. While such contagions always occur under an incomplete interbank network structure, they are significantly less likely to occur under a complete interbank network structure where interbank linkages can effectively provide insurance against shocks to the system, and localize damage from the financial shock.
    Keywords: Contagion; Networks; Experiments; Bank runs,; Interbank seposits; Financial fragility
    JEL: C92 E44 G21
    Date: 2016–06
  27. By: Loic Berger; Valentina Bosetti
    Abstract: The results of an experiment extending Ellsberg's setup demonstrate that attitudes towards ambiguity and compound uncertainty are closely related. However, this association is much stronger when the second layer of uncertainty is subjective than when it is objective. Provided that the compound probabilities are simple enough, we find that most subjects, consisting of both students and policy makers, (1) reduce compound objective probabilities, (2) do not reduce compound subjective probabilities, and (3) are ambiguity non-neutral. By decomposing ambiguity into risk and model uncertainty, and jointly eliciting the attitudes individuals manifest towards these two types of uncertainty, we characterize individuals' degree of ambiguity aversion. Our data provides evidence of decreasing absolute ambiguity aversion and constant relative ambiguity aversion. Keywords: Ambiguity aversion, model uncertainty, reduction of compound lotteries, nonexpected utility, subjective probabilities, decreasing absolute ambiguity aversion JEL Classification: D81
    Date: 2016
  28. By: Carsten J. Crede (University of East Anglia); Liang Lu (University of East Anglia)
    Abstract: This study experimentally investigates the impact of antitrust enforcement on cartel price decisions when fines and detection probabilities depend on them. We impose expected punishments that create two payoff–equivalent collusive price equilibria, of which one features a lower riskiness of collusion. Subjects are found to behave strategically in that they choose the equilibrium with a lower riskiness of collusion. This suggests that competition authorities can exploit the effects of such endogenous enforcement on strategic uncertainty between cartelists, i.e. a priori uncertainty about the actions of the other cartel members, to lower cartel prices. However, frequency deterrence might be reduced such that the overall welfare effects may be ambiguous.
    Keywords: antitrust, cartels, experiment, deterrence
    JEL: C92 D43 L13 L41
    Date: 2016–05–30

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