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on Experimental Economics |
| By: | Jingcheng Fu (School of Economics, University of Nottingham); Martin Sefton (School of Economics, University of Nottingham); Richard Upward (School of Economics, University of Nottingham) |
| Abstract: | Using a laboratory experiment we examine how social comparisons affect behavior in a sequential search task. In a control treatment, subjects search in isolation while in two other treatments subjects get feedback on the search decisions and outcomes of a partner subject. The average level and rate of decline in reservation wages are similar across treatments. Nevertheless, subjects who are able to make social comparisons search differently from those who search in isolation. Within a search task we observe a reference wage effect: when a partner exits, the subject chooses a new reservation wage which is increasing in partner income. We also observe a social learning effect: between search tasks, subjects who have been paired with a more patient and successful partner increase their reservation wages in the next task. |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2017-10&r=exp |
| By: | Carrera, Mariana (Case Western Reserve University); Royer, Heather (University of California, Santa Barbara); Stehr, Mark (Drexel University); Syndor, Justin (University of Wisconsin-Madison) |
| Abstract: | We conducted a randomized controlled trial testing the effect of modest incentives to attend the gym among new members of a fitness facility, a population that is already engaged in trying to change a health behavior. Our experiment randomized 836 new members of a private gym into a control group, receiving a $30 payment unconditionally, or one of 3 incentive groups, receiving a payment if they attended the gym at least 9 times over their first 6 weeks as members. The incentives were a $30 payment, a $60 payment, and an item costing $30 that leveraged the endowment effect. These incentives had only moderate impacts on attendance during members' first 6 weeks and no effect on their subsequent visit trajectories. We document substantial overconfidence among new members about their likely visit rates and discuss how overconfidence may undermine the effectiveness of a modest incentive program. |
| Keywords: | endowment effect, incentives, exercise, overconfidence |
| JEL: | C93 D3 I12 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10874&r=exp |
| By: | Olivier Bos; Francisco Gomez-Martinez; Sander Onderstal; Tom Truyts |
| Abstract: | We study the relative performance of the first-price sealed-bid auction and the second-price sealed-bid auction in a laboratory experiment where bidders can signal information through their bidding behavior to an outside observer. We consider two different information settings: the auctioneer reveals either the identity of the winning bidder only, or she also reveals the winner’s payment to an outside observer. We find that the first-price sealed-bid auction in which the winner’s payment is revealed outperforms the other mechanisms in terms of revenue and efficiency. Our findings may have implications for the design of charity auctions, art auctions, and spectrum auctions. |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:585499&r=exp |
| By: | Buser, Thomas (University of Amsterdam and the Tinbergen Institute); Ranehill, Eva (University of Zürich); van Veldhuizen, Roel (WZB Berlin Social Science Center) |
| Abstract: | A recent literature emphasizes the importance of the gender gap in willingness to compete as a partial explanation for gender differences in labor market outcomes. However, whereas experiments investigating willingness to compete typically do so in anonymous environments, real world competitions often have a more public nature, which introduces potential social image concerns. If such image concerns are important, we should expect public observability to further exacerbate the gender gap. We test this prediction using a laboratory experiment that varies whether the decision to compete, and its outcome, is publicly observable. Across four different treatments, however, all treatment effects are close to zero. We conclude that the public observability of decisions and outcomes does not exert a significant impact on male or female willingness to compete, indicating that the role of social image concerns related to competitive decisions may be limited. |
| Keywords: | gender differences; competitiveness; social image; experiment; |
| JEL: | C91 D03 J16 |
| Date: | 2017–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:40&r=exp |
| By: | Maria De Paola; Francesca Gioia; Fabio Piluso (Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF, Università della Calabria) |
| Abstract: | We ran a field experiment to investigate whether nudge policies, consisting in behavioural insight messaging, help to improve performance in financial trading. Our experiment involved students enrolled in a financial trading course in an Italian University who were invited to trade on Borsa Italiana’s virtual platform. Students were randomly assigned to a control group and a treatment group. Treated students received a message reminding them of the existence of behavioural biases in financial trading. We find that treated students significantly improve the performance of their portfolio. This effect is mainly driven by students with a higher than average risk aversion. Several behaviours may explain the increase in performance. We find evidence pointing to a reduction in the home and status quo biases for risk averse nudged participants. |
| Keywords: | Financial trading, Behavioural biases, Reminders, Nudges, Home bias, Status quo bias, Risk aversion |
| JEL: | D14 E21 E22 O16 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:clb:wpaper:201705&r=exp |
| By: | Uttara Balakrishnan; Johannes Haushofer; Pamela Jakiela |
| Abstract: | Empirically observed intertemporal choices about money have long been thought to exhibit present bias, i.e. higher short-term compared to long-term discount rates. Recently, this view has been called into question on both empirical and theoretical grounds, and a spate of recent findings suggest that present bias for money is minimal or non-existent when one allows for curvature in the utility function and transaction costs are tightly controlled. However, an alternative interpretation of many of these findings is that, in the interest of equalizing transaction costs across earlier and later payments, small delays were introduced between the time of the experiment and the soonest payment. We conduct a laboratory experiment in Kenya in which we elicit time and risk preference parameters from 494 participants, using convex time budgets and tightly controlling for transaction costs. We vary whether same-day payments are made immediately after the experimental session or at the close of the business day. Using the Kenyan mobile money system M-Pesa to make real-time transfers to subjects' phones allows us to make the soonest payments truly immediate. We find strong evidence of present bias, with estimates of the present bias parameter ranging from 0.902 to 0.924 — but only when same-day payments are made immediately after the experiment. This result suggests that present bias for money does in fact exist, but only for truly immediate payments. |
| JEL: | C91 D90 O12 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23558&r=exp |
| By: | Evan Calford |
| Abstract: | This paper experimentally investigates the role of uncertainty aversion in normal form games. Theoretically, risk aversion will a ect the utility value assigned to realized outcomes while ambiguity aversion a ects the evaluation of strategies. In practice, however, utilities over outcomes are unobservable and the e ects of risk and ambiguity are confounded. This paper introduces a novel methodology for identifying the e ects of risk and ambiguity preferences on behavior in games in a laboratory environment. Furthermore, we also separate the e ects of a subject's beliefs over her opponent's preferences from the e ects of her own preferences. The results support the conjecture that both preferences over uncertainty and beliefs over opponent's preferences a ect behavior in normal form games. |
| Keywords: | Ambiguity Aversion, Game Theory, Experimental Economics, Preferences |
| JEL: | C92 C2 D81 D83 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1291&r=exp |
| By: | Damon Clark; David Gill; Victoria Prowse; Mark Rush |
| Abstract: | Will college students who set goals for themselves work harder and achieve better outcomes? In theory, setting goals can help present-biased students to mitigate their self-control problem. In practice, there is little credible evidence on the causal e ects of goal setting for college students. We report the results of two eld experiments that involved almost four thousand college students in total. One experiment asked treated students to set goals for performance in the course; the other asked treated students to set goals for a particular task (completing online practice exams). Task-based goals had large and robust positive e ects on the level of task completion, and task-based goals also increased course performance. Further analysis indicates that the increase in task completion induced by setting task-based goals caused the increase in course performance. We also nd that performance-based goals had positive but small e ects on course performance. We use theory that builds on present bias and loss aversion to interpret our results. Since task-based goal setting is low-cost, scaleable and logistically simple, we conclude that our ndings have important implications for educational practice and future research. |
| Keywords: | Goal; Goal setting; Higher education; Field experiment; Self-control; Present bias; Time inconsistency; Commitment device; Loss aversion; Reference point; Task-based goal; Performance-based goal; Self-set goal; Performance uncertainty; Overcon dence; Student e ort; Student performance; Educational attainment. |
| JEL: | I23 C93 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1293&r=exp |
| By: | Ensthaler, Ludwig; Huck, Steffen; Leutgeb, Johannes |
| Abstract: | From the regulation of sports to lawmaking in parliament, in many situations one group of people ("agents") make decisions that affect payoffs of others ("principals") who may offer action-contingent transfers in order to sway the agents' decisions. Prat and Rustichini (2003) characterize pure-strategy equilibria of such Games Played Through Agents. Specifically, they predict the equilibrium outcome in pure strategies to be efficient. We test the theory in a series of experimental treatments with human principals and computerized agents. The theory predicts remarkably well which actions, and outcomes are implemented but subjects' transfer offers deviate systematically from equilibrium. We show how quantal response equilibrium accounts for the deviations and test its predictions out of sample. Our results show that quantal response equilibrium is particularly well suited for explaining behavior in such games. |
| Keywords: | games played through agents,experiment,quantal response equilibrium |
| JEL: | D44 C91 D72 D83 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbeoc:spii2016305r&r=exp |
| By: | Van Belle, Eva (Ghent University); Caers, Ralf (KU Leuven); De Couck, Marijke (Free University of Brussels); Di Stasio, Valentina (Nuffield College, Oxford); Baert, Stijn (Ghent University) |
| Abstract: | Recent evidence from large-scale field experiments has shown that employers use job candidates' unemployment duration as a sorting criterion. In the present study, we investigate the mechanisms underlying this pattern. To this end, we conduct a lab experiment in which participants make hiring decisions concerning fictitious job candidates with diverging unemployment durations. In addition, these participants rate the job candidates on statements central to four theoretical mechanisms often related to the scarring effect of unemployment: general signalling theory, (perceived) skill loss, queuing theory, and rational herding. We use the resulting data to estimate a multiple mediation model, in which the effect of the duration of unemployment on hiring intentions is mediated by the four theories. The lower hiring chances of the long-term unemployed turn out to be dominantly driven by the perception of longer unemployment spells as a signal of lower motivation. Recent evidence from large-scale field experiments has shown that employers use job candidates' unemployment duration as a sorting criterion. In the present study, we investigate the mechanisms underlying this pattern. To this end, we conduct a lab experiment in which participants make hiring decisions concerning fictitious job candidates with diverging unemployment durations. In addition, these participants rate the job candidates on statements central to four theoretical mechanisms often related to the scarring effect of unemployment: general signalling theory, (perceived) skill loss, queuing theory, and rational herding. We use the resulting data to estimate a multiple mediation model, in which the effect of the duration of unemployment on hiring intentions is mediated by the four theories. The lower hiring chances of the long-term unemployed turn out to be dominantly driven by the perception of longer unemployment spells as a signal of lower motivation. |
| Keywords: | unemployment scarring, signalling theory, queuing theory, rational herding |
| JEL: | J64 J24 J23 C91 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10876&r=exp |
| By: | Aaron Edlin; Catherine Roux; Armin Schmutzler; Christian Thöni |
| Abstract: | We study the anticompetitive effects of predatory pricing and the efficacy of three policy responses. In a series of experiments where an incumbent and a potential entrant interact, we compare prices, market structures and welfare. Under a laissez-faire regime, the threat of post-entry price cuts discourages entry, and allows incumbents to charge monopoly prices. Current U.S. policy (Brooke Group) does not help. A policy suggested by Baumol (1979) lowers post-exit prices, while Edlin’s (2002) proposal reduces pre-entry prices and encourages entry. While both policies show outcomes after entry that are less competitive than under Laissez-Faire, they nevertheless increase consumer welfare. |
| Keywords: | Predatory pricing, entry deterrence, firm strategy, antitrust law, experiment |
| JEL: | D21 K21 L12 L13 C91 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:258&r=exp |
| By: | André Schmelzer (Max Planck Institute for Research on Collective Goods) |
| Abstract: | This paper compares two prominent stochastic assignment mechanisms in the laboratory: Random serial dictatorship (RSD) and top trading cycles with random endowments (TTC). In standard theory, both mechanisms are strategy-proof and Pareto-effcient for the house allocation problem without endowments. In the experiment, RSD outperforms TTC. This can be attributed to more dominant strategy play under RSD. The behavioral theory of obvious strategy-proofness can partly explain this difference in dominant strategy play. Generally, subjects with extremely high and low levels of contingent reasoning play their dominant strategies. These results suggest that one strategy-proof mechanism may outperform another one if individuals are boundedly rational. |
| Keywords: | market design, mechanism design, randomization |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2017_13&r=exp |
| By: | David Gill; Zdenka Kissova; Jaesun Lee; Victoria Prowse |
| Abstract: | Rank-order relative-performance evaluation, in which pay, promotion, symbolic awards and educational achievement depend on the rank of individuals in the distribution of performance, is ubiquitous. Whenever organizations use rank-order relative-performance evaluation, people receive feedback about their rank. Using a real-e?ort experiment, we aim to discover whether people respond to the specific rank that they achieve. In particular, we leverage random variation in the allocation of rank among subjects who exerted the same effort to obtain a causal estimate of the rank response function that describes how effort provision responds to the content of rank-order feedback. We find that the rank response function is U-shaped. Subjects exhibit ‘first-place loving’ and ‘last-place loathing’, that is subjects work hardest after being ranked first or last. We discuss implications of our findings for the optimal design of performance feedback policies, workplace organizational structures and incentives schemes. |
| Keywords: | Relative performance evaluation; Relative performance feedback; Rank order feedback; Dynamic effort provision; Real effort experiment; Flat wage; Fixed wage; Taste for rank; Status seeking; Social esteem; Self esteem; Public feedback; Private feedback |
| JEL: | C23 C91 J22 M12 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1295&r=exp |
| By: | Galbiati, Roberto; Henry, Emeric; Jacquemet, Nicolas |
| Abstract: | We study how cooperation-enforcing institutions dynamically affect values and behavior using a lab experiment designed to create individual specific histories of past institutional exposure. We show that the effect of past institutions is mostly due to "indirect" behavioral spillovers: facing penalties in the past increases partners' cooperation in the past, which in turn positively affects ones' own current behavior. We demonstrate that such indirect spillovers induce persistent effects of institutions. However, for interactions that occur early on, we find a negative effect of past enforcement due to differential learning under different enforcement institutions. |
| Keywords: | Cooperation; experiments.; Laws; learning; persistence of institutions; repeated games; social values; Spillovers |
| JEL: | C73 C91 D02 K49 P16 Z1 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12128&r=exp |
| By: | Sonsino, Doron; Shifrin, Max; Lahav, Eyal |
| Abstract: | The willingness to trust human receivers is compared to the inclination to take lottery risk in six distinct scenarios, controlling the return distributions. Trust shows significantly smaller responsiveness to return expectations compared to parallel pure-risk lottery allocation, and paired comparisons reveal that investors sacrifice 5% of the expected payoff to trust anonymous receivers. Trust is more calculated and volatile for males, while appearing relative stable for females. The results complement the accumulating evidence regarding physiological differences between trust and risk, in addition suggesting that the trust-risk gap is larger for females. |
| Keywords: | Trust, risk, gender, ambiguity, betrayal aversion |
| JEL: | C72 C90 D80 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80095&r=exp |