nep-exp New Economics Papers
on Experimental Economics
Issue of 2017‒03‒26
sixteen papers chosen by

  1. Countercyclical risk aversion and self-reinforcing feedback loops in experimental asset markets By Anthony Newell; Lionel Page
  2. Probability weighting under time pressure: applying the double-response method By Katarzyna Gawryluk; Michal Krawczyk
  3. Team Goal Incentives and Individual Lying Behavior By Julian Conrads; Mischa Ellenberger; Bernd Irlenbusch; Elia Nora Ohms; Rainer Michael Rilke; Gari Walkowitz
  4. Long-run expectations in a Learning-to-Forecast Experiment: A Simulation Approach By Annarita Colasante; Simone Alfarano; Eva Camacho-Cuena; Mauro Gallegati
  5. The logic of costly punishment reversed: Expropriation of free-riders and outsiders By Hugh-Jones, David; Perroni, Carlo
  6. Does Differential Treatment Translate to Differential Outcomes for Minority Borrowers? Evidence from Matching a Field Experiment to Loan-Level Data By Martin, Hal; Hanson, Andrew; Hawley, Zackary
  7. Linking risk aversion, time preference and fertilizer use in Burkina Faso By Tristan Le Cotty; Elodie Maitre d'Hotel; Raphael Soubeyran; Julie Subervie
  8. Do professional norms in the banking industry favor risk-taking? By Alain Cohn; Ernst Fehr; Michel André Maréchal
  9. Do the effects of social nudges persist? Theory and evidence from 38 natural field experiments By Alec Brandon; Paul Ferraro; John List; Robert Metcalfe; Michael Price; Florian Rundhammer
  10. Number of Scale Points and Data Characteristics: An Experimental Investigation By Anandakuttan B Unnithan
  11. Improving Data Quality, Model Functionalities and Optimizing User Interfaces in Decision Support Systems By Franz, Markus
  12. Zum Zusammenhang zwischen Employer Awards und Arbeitgeberattraktivität By Weinert, Stephan
  13. Effects of Insurance Incentives on Road Safety: Evidence from a Natural Experiment in China By Dionne, Georges; Liu, Ying
  14. Research Design Meets Market Design: Using Centralized Assignment for Impact Evaluation By Atila Abdulkadiroglu; Joshua D. Angrist; Yusuke Narita; Parag A. Pathak
  15. Formation of coalition structures as a non-cooperative game By Dmitry Levando
  16. Efficiency and Voluntary Redistribution under Inequality By Masaki Aoyagi; Naoko Nishimura; Yoshitaka Okano

  1. By: Anthony Newell; Lionel Page
    Abstract: We design an asset market experiment in which participants are primed in a boom or bust market condition before trading. We find that pricing bubbles are significantly reduced in the markets in the bust priming condition and that mispricing of assets is larger in the boom condition. We also find that participants exhibit weaker predictive ability in the boom priming condition compared to the bust priming condition. These findings lend weight to the idea that traders’ risk attitude are time varying and that market dynamics may affect these risk attitudes, creating the possibility of feedback loops on market conditions themselves.
    Keywords: Behavioural finance, countercyclical risk aversion, time-varying risk aversion, feedback loops, financial bubbles.
    JEL: C91 C92 D81 G10 G12
    Date: 2017–03–17
  2. By: Katarzyna Gawryluk (Centre for Economic Psychology and Decision Sciences Koźmiński University); Michal Krawczyk (Faculty of Economic Sciences, University of Warsaw)
    Abstract: We conduct a laboratory experiment to investigate the impact of deliberation time on behavior under risk and uncertainty. Towards this end we let our participant make quick, intuitive evaluations of a number of lotteries and modify them, should they wish to do so, after deliberation. Both certainty equivalents are incentivized (a double-response method). The main finding is that additional deliberation time reduces pessimism, especially in the case of lotteries involving unknown probabilities.
    Keywords: probability weighting, prospect theory, time pressure
    JEL: D81 C91
    Date: 2017
  3. By: Julian Conrads; Mischa Ellenberger; Bernd Irlenbusch; Elia Nora Ohms; Rainer Michael Rilke; Gari Walkowitz
    Abstract: In this article we examine the influence of two goal compensation schemes on lying behavior. Based on the die rolling task of Fischbacher/Föllmi-Heusi (2013), we apply an individual goal incentive scheme and a team goal incentive scheme. In both settings individuals receive a fixed bonus when attaining the goal. We find that under team goal incentives subjects are less inclined to over-report production outputs beyond the amount which is on average necessary for goal attainment. Investigating subjects’ beliefs on their team mates’ behavior under team goal incentives reveals that subjects who either believe that lying is not profitable (i.e., the team goal cannot be reached with a lie) or not absolutely necessary (i.e., there is a good chance that the team goal can also be reached without lying) tend to be honest. We also find that subjects who believe that the team goal has already been reached by their team mates tend to over-report production outputs. Across treatments, women are found to be more honest than men. Subjects’ personality is not associated with reported production outputs. Our work contributes to previous research on how different compensation schemes affect unethical behavior in organizational settings.
    Keywords: Compensation schemes, Lying, Teams, Goals, Individual differences, Experiment
    JEL: C91 C92 M52
    Date: 2017–03–16
  4. By: Annarita Colasante (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Simone Alfarano (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Eva Camacho-Cuena (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Mauro Gallegati (Department of Economics, Università Politecnica delle Marche, Ancona, Italy)
    Abstract: In this paper, we elicit both short and long-run expectations about the evolution of the price of a financial asset by conducting a Learning-to-Forecast Experiment (LtFE) in which subjects, in each period, forecast the asset price for each one of the remaining periods. The aim of this paper is twofold: on the one hand, we try to fill the gap in the experimental literature of LtFEs where great effort has been made in investigating short-run expectations, i.e. one step-ahead predictions,while there are no contributions that elicit long-run expectations. On the other hand, we propose an alternative computational approach with respect to the Heuristic Switching Model (HSM), to replicate the main experimental results. The alternative learning algorithm, called Exploration-Exploitation Algorithm (EEA), is based on the idea that agents anchor their expectations around the last market price, rather than on the fundamental value, with a range proportional to the recent past observed price volatility. Both algorithms perform well in describing the dynamics of short-run expectations and the market price. EEA, additionally, provides a fairly good description of long-run expectations.
    Keywords: Expectations, Experiment, Evolutionary Learning
    JEL: D03 G12 C91
    Date: 2017
  5. By: Hugh-Jones, David; Perroni, Carlo
    Abstract: Current literature views the punishment of free-riders as an under-supplied public good, carried out by individuals at a cost to themselves. It need not be so: often, free-riders’ property can be forcibly appropriated by a coordinated group. This power makes punishment profitable, but it can also be abused. It is easier to contain abuses, and focus group punishment on free-riders, in societies where coordinated expropriation is harder. Our theory explains why public goods are undersupplied in heterogenous communities: because groups target minorities instead of free-riders. In our laboratory experiment, outcomes were more efficient when coordination was more difficult, while outgroup members were targeted more than ingroup members, and reacted differently to punishment
    Keywords: Cooperation, Costly punishment, Group coercion, Heterogeneity JEL Classification: H1, H4, N4, D02
    Date: 2017
  6. By: Martin, Hal (Federal Reserve Bank of Cleveland); Hanson, Andrew (Department of Economics College of Business Administration Marquette University); Hawley, Zackary (Texas Christian University)
    Abstract: This paper provides evidence on the relationship between differential treatment of minority borrowers and their mortgage market outcomes. Using data from a field experiment that identifies differential treatment matched to real borrower transactions in the Home Mortgage Disclosure Act (HMDA) data, we estimate difference-in-difference models between African American and white borrowers across lending institutions that display varying degrees of differential treatment. Our results show that African Americans are more likely to be in a high-cost (subprime) loan when borrowing from lenders that are more responsive to them in the field experiment. We also show that net measures of differential treatment are not related to the probability of African American borrowers having a high-cost loan. Our results suggest that differential outcomes are related to within-institution factors, not just across-institution factors like institutional access, as previous studies find.
    Keywords: discrimination; mortgage lending; loan outcomes;
    JEL: G2 J15
    Date: 2017–03–22
  7. By: Tristan Le Cotty (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Elodie Maitre d'Hotel (UMR MOISA - Marchés, Organisations, Institutions et Stratégies d'Acteurs - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - INRA Montpellier - Institut national de la recherche agronomique [Montpellier] - CIHEAM - Centre International des Hautes Études Agronomiques Méditerranéennes, CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement); Raphael Soubeyran (LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM3 - Université Paul-Valéry - Montpellier 3 - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - INRA Montpellier - Institut national de la recherche agronomique [Montpellier] - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique); Julie Subervie (LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM3 - Université Paul-Valéry - Montpellier 3 - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - INRA Montpellier - Institut national de la recherche agronomique [Montpellier] - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper investigates whether Burkinabe maize farmers’ fertilizer-use decisionsare correlated with their risk and time preferences. We conducted a survey and a se-ries of hypothetical experiments on a sample of 1,500 farmers. We find that morepatient farmers do use more fertilizer, but it is only because they plant more maize (afertilizer-intensive crop) rather than because they use more fertilizer per hectare ofmaize planted. Conversely, we find no statistically significant link between risk aver-sion and fertilizer use. We use a simple two-period model, which suggests that riskaversion may indeed have an ambiguous effect on fertilizer use.
    Keywords: agriculture,risk aversion,time preferences,agricultural price,western africa,fertilizer,aversion au risque,prix agricole,burkina faso,afrique occidentale,engrais
    Date: 2017
  8. By: Alain Cohn; Ernst Fehr; Michel André Maréchal
    Abstract: In recent years, the banking industry has witnessed several cases of excessive risk-taking that frequently have been attributed to problematic professional norms. We conduct experiments with employees from several banks in which we manipulate the saliency of their professional identity and subsequently measure their risk aversion in a real stakes investment task. If bank employees are exposed to professional norms that favor risk-taking, they should become more willing to take risks when their professional identity is salient. We find, however, that subjects take significantly less risk, challenging the view that the professional norms generally increase bank employees’ willingness to take risks.
    Keywords: Risk culture, banking industry, experiment
    JEL: G02 M14 C93
    Date: 2017–03
  9. By: Alec Brandon; Paul Ferraro; John List; Robert Metcalfe; Michael Price; Florian Rundhammer
    Abstract: This study examines the mechanisms underlying long-run reductions in energy consumption caused by a widely studied social nudge. Our investigation considers two channels: physical capital in the home and habit formation in the household. Using data from 38 natural field experiments, we isolate the role of physical capital by comparing treatment and control homes after the original household moves, which ends treatment. We find 35 to 55 percent of the reductions persist once treatment ends and show this is consonant with the physical capital channel. Methodologically, our findings have important implications for the design and assessment of behavioral interventions.
    Date: 2017
  10. By: Anandakuttan B Unnithan (Indian Institute of Management Kozhikode)
    Abstract: Multi-item rating scales are popular in management research where many variables like customer satisfaction, service quality etc. are measured as respondent’s rating in response to statements or questions. Five point and four point scales are quite common and there is no consensus among researchers which of these formats is superior. This study compares the scale characteristics when the same instrument is used with a five point and four point scale. An experimental study was designed where the same items were organized into two different forms one with five point response format and the second with four points format. Respondents were randomly assigned to either one of the formats. When the data is transformed to a common scale, it is seen, that data characteristics like mean, standard deviation, skewness and kurtosis are comparable indicating that there is no change in scale characteristics. However when the correlations are estimated, it is seen that five point scales report a significantly higher correlation. The major implication is that five point scales tend to inflate the reported correlations with a distinct chance of higher type1 error especially when the variables may not be associated.
    Keywords: scale points, measurement, likert scale, five point scale, correlation, type 1 error
    Date: 2016–12
  11. By: Franz, Markus
    Abstract: This dissertation contributes to the research on three core elements of decision support systems for managers and consumers: data management, model management and user interface. With respect to data management this dissertation proposes an approach for reducing unobserved product heterogeneity in online transaction data sets. The example of an online auction data set is used to investigate the approach’s ability to improve data quality. In the area of model management this dissertation contributes an approach to elicit consumer product preferences for exponential (beside linear) utility functions aiming at predicting consumers’ utilities and willingness-to-pay for individual products. The question which utility function (linear or exponential) is better suited for predicting product utilities and the willingness to pay is evaluated using a laboratory experiment. Further, in the area of user interfaces this dissertation deals with information visualization. Focusing on coordinate systems, a laboratory experiment is used to investigate which visualization format (two or three dimensional) is better suited for supporting simple vs. complex decision making scenarios and which criteria matter when choosing a visualization format for a particular level of decision making complexity.
    Date: 2017
  12. By: Weinert, Stephan (Department of Economics of the Duesseldorf University of Applied Sciences)
    Abstract: In der vorliegenden Studie wurde der Forschungsfrage nachgegangen, ob Unternehmen in Employer Awards investieren sollten, um als attraktiver Arbeitgeber wahrgenommen zu werden. Methodisch basiert die Untersuchung auf einem experimentellen einfaktoriellen Zufallsgruppenversuchsplan mit Mehrgruppen-Design. Der zentrale Befund lautet, dass Unternehmen Investitionen in Employer Awards kritisch prüfen sollten, da von ihnen kein positiver Effekt auf die wahrgenommene Arbeitgeberattraktivität auszugehen scheint.
    Abstract: The studys research question was if firms should invest in employer awards in order to be better perceived as attractive employers. The methodology was based on an experimental univariate randomized multi-group design. As a main finding it can be concluded that firms should carefully evaluate if investments in employer awards are necessary, given that they seem not to have any positive effect on perceived employer attractiveness.
    Keywords: Employer Branding, Employer Awards, Recruiting
    JEL: J2 M12 M5
    Date: 2017–03
  13. By: Dionne, Georges (HEC Montreal, Canada Research Chair in Risk Management); Liu, Ying (Shandong University)
    Abstract: We investigate the incentive effects of insurance experience rating on road safety by evaluating the claim frequency following a regulatory reform introduced in a pilot city of China. Our contribution to the growing literature on moral hazard is to offer a neat identification of a causal effect of experience rating on road safety by employing the differences-in-differences methodology in the framework of a natural experiment. The pre-treatment placebo test corroborates the assumption that the pilot city and the control city share the same pre-reform time trends in claims. We find that basing insurance pricing on traffic violations reduces claim frequency significantly. These results are robust to the inclusion of vehicle controls, alternative definitions of claim frequency, two placebo experiment tests, and several robustness checks. The effects of basing pricing on past claims are not significant.
    Keywords: Insurance incentives; experience rating; road safety; natural experiment; China; traffic violation; past claim; moral hazard.
    JEL: C33 C35 D81 D82 G22 R41
    Date: 2017–03–15
  14. By: Atila Abdulkadiroglu (Duke University); Joshua D. Angrist (MIT); Yusuke Narita (Cowles Foundation, Yale University); Parag A. Pathak (MIT)
    Abstract: A growing number of school districts use centralized assignment mechanisms to allocate school seats in a manner that reflects student preferences and school priorities. Many of these assignment schemes use lotteries to ration seats when schools are oversubscribed. The resulting random assignment opens the door to credible quasi-experimental research designs for the evaluation of school effectiveness. Yet the question of how best to separate the lottery-generated variation integral to such designs from non-random preferences and priorities remains open. This paper develops easily-implemented empirical strategies that fully exploit the random assignment embedded in a wide class of mechanisms, while also revealing why seats are randomized at one school but not another. We use these methods to evaluate charter schools in Denver, one of a growing number of districts that combine charter and traditional public schools in a unified assignment system. The resulting estimates show large achievement gains from charter school attendance. Our approach generates efficiency gains over ad hoc methods, such as those that focus on schools ranked first, while also identifying a more representative average causal effect. We also show how to use centralized assignment mechanisms to identify causal effects in models with multiple school sectors.
    Keywords: Matching Market Design, Natural Experiment, Program Evaluation, Random Assignment, Quasi-Experimental Research Design, School Effectiveness, Charter Schools
    Date: 2017–03
  15. By: Dmitry Levando (National Research University Higher School of Economics)
    Abstract: The paper defines a family of nested non-cooperative simultaneous finite games to study coalition structure formation with intra and inter-coalition externalities. Every game has two outcomes - an allocation of players over coalitions and a payoff profile for every player. Every game in the family has an equilibrium in mixed strategies. The equilibrium can generate more than one coalition with a presence of intra and inter group externalities. These properties make it different from the Shapley value, strong Nash, coalition-proof equilibrium, core, kernel, nucleolus. The paper demonstrates some applications: non-cooperative cooperation, Bayesian game, stochastic games and construction of a non-cooperative criterion of coalition structure stability for studying focal points. An example demonstrates that a payoff profile in the Prisoners' Dilemma is non-informative to deduce a cooperation of players
    Keywords: Non-cooperative Games
    JEL: C71 C72 C73
    Date: 2017–02
  16. By: Masaki Aoyagi; Naoko Nishimura; Yoshitaka Okano
    Abstract: This paper presents an experimental analysis of two-by-two coordination games in which player 1 earns a substantially higher payoff than player 2 except in the inefficient equilibrium where they earn the same payoffs. The main focus is on the comparison of two treatments with and without the ex post redistribution stage in which both players may voluntarily transfer their payoffs earned in the game to the other player. We find that (1) the transfer opportunity raises the probability of coordination on an efficient equilibrium, (2) a transfer from player 1 to player 2 is positive, and is higher when player 2 chooses the action corresponding to the efficient equilibrium, and hence (3) the transfer opportunity tends to improve the efficiency and equity of the final outcome. Furthermore, these tendencies are stronger when the two players have conflicting interests over the two equilibria than when they have common interests.
    Date: 2017–03

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