nep-exp New Economics Papers
on Experimental Economics
Issue of 2017‒03‒19
twenty-one papers chosen by
Daniel Houser
George Mason University

  1. Discrimination as Favoritism: The Private Benefits and Social Costs of In-group Favoritism in an Experimental Labor Market By Dickinson, David L.; Masclet, David; Peterle, Emmanuel
  2. From personalized exchange towards anonymous trade: A field experiment on the workings of the invisible hand By Erwin Bulte; Andreas Kontoleon; John List; Ty Turley; Maarten Voors
  3. The effects of group composition in a strategic environment: Evidence from a field experiment By John List; William Neilson; Michael Price
  4. Is trustworthiness written on the face? By Dilger, Alexander; Müller, Julia; Müller, Michael
  5. An experimental investigation of rating-market regulation By Claudia Keser; Asri Özgümüs; Emmanuel Peterlé; Martin Schmidt
  6. Facing Yourself: A Note on Self-Image By Armin Falk
  7. Diversity in Cognitive Ability Enlarges Mispricing in Experimental Asset Markets By Nobuyuki Hanaki; Eizo Akiyama; Yukihiko Funaki; Ryuichiro Ishikawa
  8. Communication and Conflict Management By Eisenkopf, Gerald
  9. Compensation and Honesty: Gender Differences in Lying By Nieken, Petra; Dato, Simon
  10. Competition Entry and Relative Performance Feedback: The Importance of Information Disaggregated by Gender By Jeworrek, Sabrina
  11. Impulsive Consumption and Financial Wellbeing: Evidence from an Increase in the Availability of Alcohol By Itzhak Ben-David; Marieke Bos
  12. Lie for a Dime: When Most Prescreening Responses are Honest But Most "Eligible" Respondents are Lies By Jesse Chandler; Gabriele Paolacci
  13. Economic systems and risk preferences: evidence from East and West Germany By Neugart, Michael
  14. KÖLSCH versus ALT: Erkenntnisse aus konsumentenpsychologischen Experimenten By Quack, Helmut
  15. The New Jersey Graduated Work Incentive Experiment By David Kershaw; Felicity Skidmore
  16. The Gary Experiment in Welfare Reform By Kenneth Kehrer Stanley Stephenson; Jr.
  17. Stated Preferences for Conservation Policies under Uncertainty: Insights on Individuals’ Risk Attitudes in the Environmental Domain By Michela Faccioli; Laure Kuhfuss; Mikołaj Czajkowski
  18. Swarm behavior of traders with different subjective predictions in the Market By Hiroshi Toyoizumi
  19. The Negative Income Tax Experiment in New Jersey: General Discussion By David Kershaw
  20. Investing in Managerial Honesty By Rajna Gibson; Matthias Sohn; Carmen Tanner; Alexander F. Wagner
  21. Measuring subjective dimensions of empowerment among extremely and moderately poor women in Colombia and Peru: Lessons from the Field By Susana Martínez-Restrepo; Johanna Yancari; Laura Ramos Jaimes

  1. By: Dickinson, David L. (Appalachian State University); Masclet, David (University of Rennes); Peterle, Emmanuel (Université de Franche Comté)
    Abstract: In this paper, we examine labor market favoritism in a unique laboratory experiment design that can shed light on both the private benefits and spillover costs of employer favoritism (or discrimination). Group identity is induced on subjects such that each laboratory "society"consists of eight individuals each belonging to one of two different identity groups. In some treatments randomly assigned employer-subjects give preference rankings of potential worker-subjects who would make effort choices that impact employer payoffs. Though it is common knowledge that group identity in this environment provides no special productivity information and cannot facilitate communication or otherwise lower costs for the employer, employers preferentially rank in-group members. In such instances, the unemployed workers are aware that an intentional preference ranking resulted in their unemployment. Unemployed workers are allowed to destroy resources in a final stage of the game, which is a simple measure of the spillover effects of favoritism in our design. Though we find evidence that favoritism may privately benefit a firm in terms of higher worker effort, the spillover costs that result highlight a reason to combat favoritism/discrimination. This result also identifies one potential micro-foundation of societal unrest that may link back to labor market opportunity.
    Keywords: discrimination, experimental economics, social identity, conflicts
    JEL: C90 C92 J15 J16
    Date: 2017–02
  2. By: Erwin Bulte; Andreas Kontoleon; John List; Ty Turley; Maarten Voors
    Abstract: The experimental literature has shown the tendency for experimental trading markets to converge to neoclassical predictions. Yet, the extent to which theory explains the equilibrating forces in markets remains under-researched, especially in the developing world. We set up a laboratory in 94 villages in rural Sierra Leone to mimic a real market. We implement several treatments, varying trading partners and the anonymity of trading. We find that when trading with co-villagers average efficiency is somewhat lower than predicted by theory (and observed in different contexts), and markets do not fully converge to theoretical predictions across rounds of trading. When participants trade with strangers efficiency is reduced more. Anonymizing trade within the village does not affect efficiency. This points to the importance of behavioral norms for trade. Intra-village social relationships or hierarchies, instead, appear less important as determinants of trading outcomes. This is confirmed by analysis of the trader-level data, showing that individual earnings in the experiment do not vary with one's status or position in local networks.
    Date: 2017
  3. By: John List; William Neilson; Michael Price
    Abstract: Recent theoretical and empirical studies have explored the effect of group membership and identity on individual decision-making. This line of research highlights that economic models focusing on the individual as the sole entity in the decision-making environment potentially miss critical features. This study takes this literature in a new direction by overlaying a field experiment onto a setting where groups have arisen naturally. Our experimental laboratory is large open air markets, where we are able to examine the effects of group membership on seller's collusive behavior as measured by prices and surplus allocations. This permits us to explore strategic implications of group composition. Empirical results illustrate the importance of group composition on pricing decisions, and show that deviations from Nash equilibrium are crucially related to group membership.
    Date: 2016
  4. By: Dilger, Alexander; Müller, Julia; Müller, Michael
    Abstract: Trust is an important driver of economic transactions, but how do people decide whom to trust? We conduct an experiment to investigate whether people are able to predict trustworthiness by judging the face of a stranger. The behavior of the second player in the Trust Game is used as a measure of trustworthiness. Other subjects assess the trustworthiness of the second players of the Trust Game in the second stage using standardized photos of their faces. We find no significant interrelation in our statistical estimations between trustworthiness ratings and the behavior of the examined players. Surprisingly, players that were rated as more attractive sent back significantly less in the Trust Game.
    JEL: C72 C91 D03 D81 J71
    Date: 2017
  5. By: Claudia Keser; Asri Özgümüs; Emmanuel Peterlé; Martin Schmidt
    Abstract: We introduce a simple game-theoretical model that captures the main aspects of the repeated interaction between an issuer and a credit-rating agency. It involves up-front payments of issuer-fees and direct publication of requested ratings. Due to pecuniary injuries for untruthful ratings, the credit-rating agency should always report truthfully in the subgame perfect equilibrium. Knowing this, the issuer should never request a rating. Conducting laboratory experiments, we find that behavior significantly deviates from the equilibrium prediction in favor of a cooperative solution: issuers frequently do request ratings, which is often reciprocated with untruthful good ratings.
    Keywords: Game theory, laboratory experiments, rating agencies, regulation,
    JEL: C70 C9 G0
    Date: 2017–03–06
  6. By: Armin Falk (Universität Bonn)
    Abstract: Numerous signaling models in economics assume image concerns. These take two forms, as relating either to social image or self-image. While empirical work has identified the behavioral importance of the former, little is known about the role of self-image concerns. We exogenously vary self-image concerns in manipulating self-directed attention and study the impact on moral behavior. The choice context in the experiment is whether subjects inflict a painful electric shock on another subject to receive a monetary payment. Three between-subjects conditions are studied. In the main treatment, subjects see their own face on the decision screen in a real-time video feed. In the two control conditions, subjects see either no video at all or a neutral video. We find that the exogenous increase in self-image concerns significantly reduces the fraction of subjects inflicting pain.
    Keywords: self-image, moral behavior
    JEL: D64 C91
    Date: 2017–03
  7. By: Nobuyuki Hanaki (Université Côte d'Azur; GREDEG-CNRS; IUF); Eizo Akiyama (University of Tsukuba, Japan); Yukihiko Funaki (Waseda University, Japan); Ryuichiro Ishikawa (University of Tsukuba, Japan)
    Abstract: Does diversity of cognitive ability among market participants increase mispricing? Does common knowledge of heterogeneity in relation to cognitive ability of market participants further increase mispricing? We investigated these questions by measuring subjects' cognitive ability and categorizing those above median ability as type `H' and those below median ability as type `L'. We then constructed three market types, each containing six traders: 6H, 6L, and 3H3L. Subjects were informed of their own cognitive type and, depending on the treatment, that of the others in their market. We found that heterogeneous markets (3H3L) generated significantly larger mispricing than homogeneous markets (6H or 6L) regardless of whether subjects were informed about the cognitive type of others in their market. Thus, diversity of cognitive ability among market participants increased mispricing. However, common knowledge of heterogeneity or homogeneity in the market did not have a signi cant additional effect.
    Keywords: Cognitive ability, Heterogeneity, Mispricing, Experimental asset markets
    JEL: C90 D84
    Date: 2017–03
  8. By: Eisenkopf, Gerald
    Abstract: The paper studies an experimental conflict in a repeated game and tests the robustness of communication as an intermediate conflict resolution instrument. The results show a strong and persistent impact of communication. Most conflict parties refrain from conflict expenditures even after the opportunity for communication has expired. Third party involvement with punishment options do not enhance this effect while the indivisibility of the contest prize reduces it. The initial intensity of the conflict has a small but long-term negative impact on conflict resolution.
    JEL: C92 F51 D74
    Date: 2016
  9. By: Nieken, Petra; Dato, Simon
    Abstract: We compare gender differences in lying under two incentive schemes that are widely used in companies: individual performance-pay and tournament incentives. While we do not observe significantly different behavior of males and females given individual performance-pay, females lie significantly less than males if the compensation scheme is switched to tournament incentives. This result is mainly driven by a decrease in the propensity to lie of females in a competitive environment. The gender gap in lying is robust with respect to the gender composition of the pool of opponents. Dishonesty is largest for males competing in a mixed-gender environment.
    JEL: M52 J16 C91
    Date: 2016
  10. By: Jeworrek, Sabrina
    Abstract: By providing different forms of performance feedback before choosing between a piece-rate and a tournament compensation scheme, I test whether the gender tournament gap diminishes in size since individuals’ entry decision might be driven by incorrect self-assessments. Only the provision of information on average performance by gender indeed shrinks the gender tournament gap, which is especially due to men with below average ability opting for the piece-rate more often. These results highlight that beliefs on one’s own and others’ abilities are still biased by gender stereotypes.
    JEL: C91 D82 J16
    Date: 2016
  11. By: Itzhak Ben-David; Marieke Bos
    Abstract: Increased availability of temptation goods might harm individuals if they have time-inconsistent preferences and consume more in the present than planned before. We study this idea by examining the credit behavior of low-income households around the expansion of the opening hours of retail liquor stores during a nationwide experiment in Sweden. Consistent with store closures serving as commitment devices, expanded operating hours led to higher alcohol consumption (Nordström and Skog 2003) and greater consumer credit uptake and default. Thus, our results show that limiting the availability of temptation goods can improve the financial wellbeing of individuals with inconsistent time preferences.
    JEL: D03 D12 I18 L51 L66
    Date: 2017–03
  12. By: Jesse Chandler; Gabriele Paolacci
    Abstract: The Internet has enabled recruitment of large samples with specific characteristics. However, when researchers rely on participant self-report to determine eligibility, data quality depends on participant honesty.
    Keywords: Eligible respondents, prescreening responses
    JEL: I
  13. By: Neugart, Michael
    Abstract: For standard economic models it is typically assumed that preferences are given and stable. But do economic systems shape individuals' risk preferences? Using the reunification of East and West Germany as a natural experiment I evaluate differences in financial risk taking comparing Eastern and Western German households for almost two decades after the fall of the Berlin Wall. Controlling for a large set of socio-economic variables East Germans having been ``treated'' by a command economy were more prone to taking financial risk than West German citizens. The differences were quantitatively relevant after the fall of the Iron Curtain and almost vanished by 2008.
    JEL: D14 G11 P50
    Date: 2016
  14. By: Quack, Helmut (Department of Economics of the Duesseldorf University of Applied Sciences)
    Abstract: In konsumentenpsychologischen Experimenten mit 50 Kölnern und 50 Düsseldorfern im Alter von 35 bis 65 Jahren wurde untersucht, ob man Unterschiede zwischen den beiden Biersorten KÖLSCH und ALT erkennen kann. Dazu wurde zunächst in einem Blindtest der Geschmack von KÖLSCH und ALT beurteilt. Die Bewertungen von KÖLSCH und ALT bzgl. der Merkmale „schmeckt mir“ sowie „schmeckt frisch“, „schmeckt mild“, „schmeckt würzig“ waren nahezu gleich. Weiterhin wurde in einem Blindtest untersucht, ob die Versuchspersonen KÖLSCH und ALT überhaupt identifizieren können. Auch hierbei gab es keine signifikanten Unterschiede. Nur zu 55 % wurde das Bier richtig erkannt, was auf Zufalls- bzw. Rateniveau liegt. Später wurde in einem offenen Test nochmals der Geschmack für KÖLSCH und ALT untersucht. Jetzt zeigt sich, dass den Kölnern das KÖLSCH deutlich besser schmeckt als das ALT. Den Düsseldorfern hingegen schmeckt das ALT signifikant besser als das KÖLSCH. Eine Untersuchung der Präferenzen unterstützt diese Ergebnisse: Während in dem Blindtest die Präferenzen bei annähernd 50:50 lagen, veränderten sich diese im separaten offenen Test mit 78:22 zugunsten des Heimatbieres. Diese Ergebnisse sind schon erstaunlich, da einfach nicht zu glauben ist, dass Männer zwischen KÖLSCH und ALT objektiv nicht unterscheiden können. Die Ergebnisse werden ausführlich psychologisch und wissenschaftstheoretisch interpretiert und daraus Erkenntnisse für das Marketing abgeleitet.
    Abstract: In consumer psychological experiments with 50 men of Cologne and 50 men of Dusseldorf between the age of 35 and 65, we examined whether there are recognizable differences between the two beers, KÖLSCH and ALT. Firstly the taste of KÖLSCH and ALT was judged in a blind test. The results of the evaluation of KÖLSCH and ALT regarding the characteristics “tastes good”, “tastes fresh”, “tastes mild” and “tastes aromatic” were nearly equal. A further blind test examined whether the test subjects could actually recognize KÖLSCH and ALT at all. Again there was no significant difference – only 55 % of the beer was identified correctly which is on a random level. Later, the taste of KÖLSCH and ALT was tested again, but in an open test. This time the men of Cologne clearly prefer the taste of KÖLSCH. The men of Dusseldorf, however, find the taste of the ALT significantly better than the taste of KÖLSCH. A study of the preferences supports these findings: Whereas the preferences in the blind test, were nearly 50:50, the preferences in the separate open test changed to 78:22 in favour of the home beer. These results are quite amazing, because it is unbelievable that men cannot differentiate objectively between KÖLSCH and ALT. The results are psychologically and epistomologically interpreted in detail and thus insights can be derived for marketing.
    Keywords: Kölsch, Alt, Bier, Geschmack, Experiment, Biermarketing, beer, taste, beer marketing
    JEL: M31 C83 L66
    Date: 2016–07
  15. By: David Kershaw; Felicity Skidmore
    Abstract: The experiment addressed the cost of a nationwide guaranteed annual income determined by the extent to which families would reduce their work effort in response to negative income tax payments.
    Keywords: Negative Income Tax, National basic income, Graduated work incentive, Graduated tax
    JEL: J I
  16. By: Kenneth Kehrer Stanley Stephenson; Jr.
    Abstract: Describes a welfare reform experiment conducted in Gary, Indiana, between 1971 and 1974 as well as results on participants’ work incentives and family well-being.
    Keywords: Negative Income Tax, National basic income, Graduated work incentive, Graduated tax
    JEL: J I
  17. By: Michela Faccioli (The James Hutton Institute, Social, Economic and Geographical Sciences Group); Laure Kuhfuss (The James Hutton Institute, Social, Economic and Geographical Sciences Group; University of St. Andrews, Department of Geography and Sustainable Development); Mikołaj Czajkowski (Faculty of Economic Sciences, University of Warsaw)
    Abstract: The outcome of a conservation policy is often subject to uncertainty. In stated preference valuation, there is increasing recognition that uncertainty affects preferences for environmental policies. However, there is also poor understanding regarding people’s perception of uncertainty per se and risk attitude. To shed more light on this, we designed a discrete choice experiment and compared preferences for environmental outcomes under climate change across two split samples, each confronted with a scenario where environmental outcomes are presented as either certain or uncertain (i.e. probabilistically) but displaying the same expected results. We find that, for an equal expected outcome, preferences vary between the certain and the uncertain treatment. These results indicate that risk attitudes impact stated preferences for conservation policies under uncertainty and reinforce the idea that uncertainty should be included in stated preference studies to provide more accurate and policy relevant results. Interestingly, we additionally find that risk attitudes appear to be both context- and individual- specific – the effect of uncertainty depends on the magnitude and direction of change of the environmental good and on individual’s socio-demographic characteristics.
    Keywords: Stated preference valuation; uncertainty; risk attitude; climate change; conservation
    JEL: D6 D81 Q20 Q51 Q54
    Date: 2017
  18. By: Hiroshi Toyoizumi
    Abstract: A combination of a priority queueing model and mean field theory shows the emergence of traders' swarm behavior, even when each has a subjective prediction of the market driven by a limit order book. Using a nonlinear Markov model, we analyze the dynamics of traders who select a favorable order price taking into account the waiting cost incurred by others. We find swarm behavior emerges because of the delay in trader reactions to the market, and the direction of the swarm is decided by the current market position and the intensity of zero-intelligent random behavior, rather than subjective trader predictions.
    Date: 2017–03
  19. By: David Kershaw
    Abstract: The Negative Income Tax Experiment in New Jersey: General Discussion
    Keywords: Negative Income Tax, National basic income, Graduated work incentive, Graduated tax
    JEL: J I
  20. By: Rajna Gibson (University of Geneva and Swiss Finance Institute); Matthias Sohn (Zeppelin University); Carmen Tanner (University of Zurich); Alexander F. Wagner (University of Zurich, Centre for Economic Policy Research (CEPR), European Corporate Governance Institute (ECGI), and Swiss Finance Institute)
    Abstract: How does investor perception of managerial honesty affect investment choices? Two laboratory experiments shed light on this question. Investors perceive a CEO to be more committed to honesty when the CEO previously resisted, at a personal cost, engaging in earnings management. A one standard deviation higher CEO’s perceived commitment to honesty compared to another CEO reduces the relevance, for investment decisions, of announced future return differences between the CEOs by about 40%. This effect is prominent among investors with a pro-self orientation. Pro-social investors are insensitive to returns, but seek to invest with a CEO with matching honesty values. Overall, these results suggest that (a) (perceived) honesty of the CEO matters, (b) investors’ personal values affect their investment choices, and (c) investors segment into stocks based on the joint effects of these two forces.
    Keywords: Honesty, earnings management, market segmentation, investor preferences, social value orientation, protected values, trust
    Date: 2017–01
  21. By: Susana Martínez-Restrepo; Johanna Yancari; Laura Ramos Jaimes
    Abstract: In this think piece, we discuss our experience implementing quantitative and qualitative instruments, including subjective measures, to assess economic empowerment among poor women in Colombia and Peru. We conclude that in these specific cases, the instruments used to measure empowerment through subjective dimensions do not work for poor women. The difficulty these women have in understanding abstract concepts, their cultural definitions of decision making showed us that researchers should adopt different strategies when measuring subjective empowerment among poor women. This think piece is part of a larger research project aimed at comparing the pros and cons of existing methodologies to measure women’s economic empowerment in Latin America, Asia, and Africa.
    Keywords: Mujeres, Empoderamiento de la Mujer, Participación de la Mujer, Pobreza, Desarrollo Económico, Colombia, Perú
    JEL: I32 I38 J16 O15
    Date: 2016–09–30

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