nep-exp New Economics Papers
on Experimental Economics
Issue of 2017‒09‒17
eighteen papers chosen by

  1. Economic rationality under cognitive load By Andreas Drichoutis; Rodolfo M. Nayga, Jr.
  2. How Stress Affects Performance and Competitiveness across Gender By Jana Cahlikova; Lubomir Cingl; Ian Levely
  3. Trading while sleepy? Circadian mismatch and excess volatility in a global experimental asset market By David L. Dickinson; Ananish Chaudhuri; Ryan Greenaway-McGrevy
  4. Competition and Academic Performance: Evidence from a Classroom Experiment By Kelly Bedard; Stefanie Fischer
  5. Partial Cartels and Mergers with Heterogeneous Firms : Experimental Evidence By Gomez Martinez, Francisco
  6. The role of correlation in two-asset games: Some experimental evidence By Martin Geiger; Richard Hule
  7. Do the altruists lie less? By Rudolf Kerschbamer; Daniel Neururer; Alexander Gruber
  8. Why Is Unemployment Duration a Sorting Criterion in Hiring? By Van Belle, Eva; Caers, Ralf; De Couck, Marijke; Di Stasio, Valentina; Baert, Stijn
  9. Loss Aversion and the Quantity-Quality Tradeoff By Jared Rubin; Anya Samek; Roman M. Sheremeta
  10. Strategic Feedback in Teams: Theory and Experimental Evidence By Seda Ertac; Mert Gumren; Levent Kockesen
  11. Bayesian versus Heuristic-based choice under sleep restriction and suboptimal times of day By David L. Dickinson; Todd McElroy
  12. The British Pound on Brexit night: a natural experiment of market efficiency and real-time predictability By Ke WU; Spencer WHEATLEY; Didier SORNETTE
  13. An Experimental Test of the No Safety Schools Theorem By David B. Johnson; Matthew D. Webb
  14. Scalable Price Targeting By Jean-Pierre Dubé; Sanjog Misra
  15. High-Dosage Tutoring and Reading Achievement: Evidence from New York City By Roland G. Fryer, Jr; Meghan Howard Noveck
  16. The Attack and Defense of Weakest-Link Networks By Dan Kovenock; Brian Roberson; Roman M. Sheremeta
  17. On the emergence of a sanctioning institution By Adriana Alventosa; Gonzalo Olcina
  18. Ambiguity and the Centipede Game: Strategic Uncertainty in Multi-Stage Games By Eichberger, Jürgen; Grant, Simon; Kelsey, David

  1. By: Andreas Drichoutis (Agricultural University of Athens); Rodolfo M. Nayga, Jr. (Department of Agricultural Economics & Agribusiness, University of Arkansas,)
    Abstract: Economic analysis assumes that consumer behavior can be rationalized by a utility function. Previous research has shown that some decision-making quality can be captured by permanent cognitive ability but has not examined how a temporary load in subjects' working memory can a ect economic rationality. In a controlled laboratory experiment, we exogenously vary cognitive load by asking subjects to memorize a number while they undertake an induced budget allocation task (Choi et al., 2007a,b). Using a number of manipulation checks, we verify that cognitive load has adverse a ects on subjects' performance in reasoning tasks. However, we nd no e ect in any of the goodness-of- t measures that measure consistency of subjects' choices with the Generalized Axiom of Revealed Preferences (GARP), despite having a sample size large enough to detect even small di erences between treatments with 80% power. Our nding suggests that researchers need not worry about economic rationality breaking down when subjects are placed under temporary working memory load.
    Keywords: Cognitive load, rationality, revealed preferences, working memory, response times, laboratory experiment
    JEL: C91 D03 D11 D12 G11
    Date: 2017
  2. By: Jana Cahlikova; Lubomir Cingl; Ian Levely
    Abstract: Since many key career events, such as exams and interviews, involve competition and stress, gender differences in response to these factors could help to explain the labor-market gender gap. In a laboratory experiment, we manipulate psychosocial stress using the Trier Social Stress Test, and confirm that this is effective by measuring salivary cortisol. Subjects perform a real-effort task under both tournament and piece-rate incentives and we elicit willingness to compete. We find that women under heightened stress do worse than women in the control group when compensated with tournament incentives, while there is no treatment difference for performance under piece-rate incentives. For males, stress does not affect output under competition. We also find that stress decreases willingness to compete overall, and for women, this is related to performance. These results help to explain previous findings on gender differences in performance under competition both in and out of the lab.
    Keywords: competitiveness; performance in tournaments; psychosocial stress; gender gap;
    JEL: C91 D03 J16 J33
    Date: 2017–05
  3. By: David L. Dickinson; Ananish Chaudhuri; Ryan Greenaway-McGrevy
    Abstract: Traders in global markets operate at different local times-of-day. Suboptimal times-of-day may produce sleepiness due to daily variations in sleep/wake patterns and possibly also increased accumulation of hours awake. Global asset markets imply significantly increased heterogeneity in circadian timing, and likely sleepiness, of trader decisions compared to localized markets. We examine these factors by administering single-location and global sessions of an online asset market experiment that regularly produces valuation bubble and crash events. Global sessions involved real time trades between subjects in two locations 16 time zones apart (i.e., “global” markets) and at varied local times of day across sessions. We find asset market bubbles occur in all sessions, but global markets had significantly more extreme and longer duration valuation bubbles. Additionally, subjects at the most suboptimal times-of-day held significantly more asset shares in their portfolios in late trading rounds compared to other subjects—a risky strategy with overvalued shares. Overall, our results highlight a unique but underappreciated factor present across traders in global market environments. They also point to the importance of a relatively common cognitive state (i.e., suboptimal time-of-day) in attempting to understand trader behavior and, ultimately, market outcomes. Key Words: Asset Markets, Experiments, Bubbles, Sleep, Circadian rhythm
    JEL: C92 G12 G15 D84
    Date: 2017
  4. By: Kelly Bedard (University of California, Santa Barbara and IZA); Stefanie Fischer (Department of Economics, California Polytechnic State University)
    Abstract: We examine the effect of relative evaluation on academic performance by implementing a classroom-level field experiment in which students are incentivized individually or in a tournament to take a microeconomics quiz. We focus on two aspects of competitive environments that may be particularly salient in academics: tournament size and one's perceived position in the ability distribution. At least in our setting, we find no evidence that effort responses to competition are sensitive to tournament size. However, in contrast to previous studies that examine effort responses to exogenously assigned competition, we find a large negative competition effect for students who believe they are relatively low in the ability distribution and no competition effect for those who believe they are relatively high ability. Using additional treatments, we further show that the divergence between our results and past results is driven by task type and not by differences in selection into participation between lab and field environments.
    Date: 2017
  5. By: Gomez Martinez, Francisco
    Abstract: A usual assumption in the theory of collusion is that cartels are all-inclusive. In contrast, most real- world collusive agreements do not include all firms that are active in the relevant industry. This paper studies both theoretically and experimentally the formation and behavior of partial cartels. The theoretical model is a variation of Bos and Harrington's (2010) model where firms are heterogeneous in terms of production capacities and where individual cartel participation is endogenized. The experimental study has two main objectives. The first goal is examine whether partial cartels emerge in the lab at all, and if so, which firms are part of it. The second aim of the experiment is to study the coordinated effects of a merger when partial cartels are likely to operate. The experimental results can be summarized as follows. We find that cartels are typically not all-inclusive and that various types of partial cartels emerge. We observe that market prices decrease by 20% on average after a merger. Our findings suggest that merger analysis that is based on the assumption that only full cartels forms produces misleading results. Our analysis also illustrates how merger simulations in the lab can be seen as a useful tool for competition authorities to back up merger decisions.
    Keywords: Experiments; Mergers; Cartels; Bertrand oligopoly
    JEL: G34 L44 L41 L13 C92
    Date: 2017–08–01
  6. By: Martin Geiger; Richard Hule
    Abstract: In our experimental setting, participants face the decision to invest into two assets which are subject to correlated information. While fundamental states and signals about fundamental states are correlated, success and default of the investment projects is determined separately. Nevertheless, correlation of signals may give rise to spillovers through informational contagion since participants may overvalue correlated signals resulting from a double-counting problem in the updating process or may be prone to behavioral biases related to good and bad news. Quite strikingly, in our setting, the degree of correlation does not promote pronounced contagious effects. In particular, this is consistent with the theoretical two-dimensional global games solution of the underlying investment game. However, a heuristic of neglecting correlation and signals about the second asset has also merits to explain participants' investment behavior. In some treatments we can distinguish between participants' strategies being derived from the two- dimensional global game and from a heuristic being derived from a one- dimensional game. We cannot reject that people play the two-dimensional investment game as it would be two separate one-dimensional games and ignore correlation.
    Keywords: global games, creditor coordination, experimental economics
    JEL: C91 D82 G12
    Date: 2017–09–05
  7. By: Rudolf Kerschbamer; Daniel Neururer; Alexander Gruber
    Abstract: Much is known about heterogeneity in social preferences and about heterogeneity in lying aversion - but little is known about the relation between the two at the individual level. Are the altruists simply upright persons who do not only care about the well-being of others but also about honesty? And are the selfish those who lie whenever lying maximizes their material payoff? This paper addresses those questions in experiments that first elicit subject's social preferences and then let them make decisions in an environment where lying increases the own material payoff and has either consequences for the payoffs of others or no consequences for others. We find that altruists lie less when lying hurts another party but we do not find any evidence in support of the hypothesis that altruists are more (or less) averse to lying than others in environments where lying has no effects on the payoffs of others.
    Keywords: deception, lies, social preferences, distributional preferences, equality equivalence test
    JEL: C91 D63 D64
    Date: 2017–09–04
  8. By: Van Belle, Eva; Caers, Ralf; De Couck, Marijke; Di Stasio, Valentina; Baert, Stijn
    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.
    Keywords: unemployment scarring,signalling theory,queuing theory,rational herding.
    JEL: J64 J24 J23 C91
    Date: 2017
  9. By: Jared Rubin (Argyros School of Business and Economics, Chapman University); Anya Samek (Dornsife College of Letters, Arts and Sciences, University of Southern California); Roman M. Sheremeta (Weatherhead School of Management, Case Western Reserve University)
    Abstract: Firms face an optimization problem that requires a maximal quantity output given a quality constraint. But how do firms incentivize quantity and quality to meet these dual goals, and what role do behavioral factors, such as loss aversion, play in the tradeoffs workers face? We address these questions with a theoretical model and an experiment in which participants are paid for both quantity and quality of a real effort task. Consistent with basic economic theory, higher quality incentives encourage participants to shift their attention from quantity to quality. However, we also find that loss averse participantsshift their attention from quality to quantity to a greater degree when quality is weakly incentivized. These results can inform managers of appropriate ways to structure contracts, and suggest benefits to personalizing contracts based on individual behavioral characteristics.
    Keywords: quantity, quality, experiment, incentives, real effort, loss aversion
    JEL: D24 J24 J31 J41
    Date: 2017
  10. By: Seda Ertac (Department of Economics, Koç University); Mert Gumren (Department of Economics, Koç University); Levent Kockesen (Department of Economics, Koç University)
    Abstract: We theoretically and experimentally analyze public and private feedback in teams that are characterized by different performance technologies. We consider a setting where the principal can provide truthful information on agents’ performances or strategically withhold feedback. We find that if team performance is determined by the best performer (the “best-shot technology”), then both public and private feedback are better than no feedback unless the team is composed of all low performers, in which case no feedback is best. If, on the other hand, team performance is determined by the worst performer (the weakest-link technology), then no feedback is the best regime unless the team is composed of all high performers, in which case public or private feedback is better. Our results have implications for performance feedback policies in educational settings and the workplace.
    Keywords: Lab experiments, Feedback, Performance feedback, Teams, Strategic communication, Disclosure games, Multiple audiences.
    JEL: C72 C92 D23 D82 D83 M12 M54
    Date: 2017–09
  11. By: David L. Dickinson; Todd McElroy
    Abstract: This paper examines the impact of a commonly experienced adverse cognitive state on decision making under uncertainty. Specifically, we administer an at-home sleep restriction protocol combined with random assignment to the time-of-day for decision making. Thus, we induce sleepiness in our subjects via sleep restriction as well as suboptimal time-of-day prior to administration of a Bayesian choice task. The specific task used discriminates between Bayesian choices that coincide with more simple reinforcement heuristic choices (in “Easy” trials) versus those that do not (in “Hard” trials), which is ideal given our underlying hypothesis that sleepy subjects are more likely to use simple heuristics. We first show that both circadian mismatch and sleep restriction significantly increase subjective sleepiness—this documents protocol validity. Our key behavioral results are that sleepy subjects are more likely to make a Bayesian inaccurate decision and more likely to make decisions consistent with a simple reinforcement heuristic, particularly in more cognitively difficult “Hard” trials. Secondary results show that stimulation of subject affect increased used of the simple decision heuristic but, when combined with sleep restriction, increased affect may increase task motivation and improve choice accuracy. These results offer new insights into the likely impact of sleepiness on decision making under uncertainty and highlight the potential negative impact on such cognitive states may have on accurate formation of probability assessments. Key Words:
    Date: 2017
  12. By: Ke WU (ETH Zurich); Spencer WHEATLEY (ETH Zurich); Didier SORNETTE (ETH Zurich and Swiss Finance Institute)
    Abstract: Exploiting the near-experimental conditions provided by the British Pound market in US Dollars during the Brexit vote of June 23rd, 2016, we unearth a major challenge to the Efficient Market Hypothesis. With a single factor of prior polling information, we show that the Brexit result could have been predicted with high confidence under realistic conditions, knowing only the first 20 of all 382 local voting results. However, the market was severely delayed in re flecting this fundamental information. This collective failure indicates both generic inefficiency and a specific inertia/durable bias in the market similar to herding during bubbles.
    Keywords: Brexit, efficient market hypothesis, response function, one factor model, prediction, market failure
    JEL: C51 C53 C54 C93 D72 D83 G17
    Date: 2017–03
  13. By: David B. Johnson (Department of Economics, Finance, and Marketing, University of Central Missouri); Matthew D. Webb (Department of Economics, Carleton University)
    Abstract: In simultaneous search problems individuals choose a portfolio of risky options from a larger menu of options with utility determined by the portfolio’s option with the best ex-post outcome. Chade and Smith (2006) examine simultaneous search problems and show that the optimal portfolio includes the utility maximizing option and others that are riskier. However, Pallais (2015) shows that when individuals apply to more colleges, their decisions are inconsistent with theoretical predictions. We replicate this ?nding experimentally and show that subjects select similar portfolios when the payo?s are independent, suggesting subjects ignore the rival nature of the options.
    Keywords: Decision Making; Simultaneous Search; Correlation Neglect; Online Experiment; College Application
    Date: 2017–09–06
  14. By: Jean-Pierre Dubé; Sanjog Misra
    Abstract: We study the welfare implications of scalable price targeting, an extreme form of third-degree price discrimination implemented with machine learning for a large, digital firm. Targeted prices are computed by solving the firm's Bayesian Decision-Theoretic pricing problem based on a database with a high-dimensional vector of customer features that are observed prior to the price quote. To identify the causal effect of price on demand, we first run a large, randomized price experiment and use these data to train our demand model. We use l1 regularization (lasso) to select the set of customer features that moderate the heterogeneous treatment effect of price on demand. We use a weighted likelihood Bayesian bootstrap to quantify the firm's approximate statistical uncertainty in demand and profitability. We then conduct a second experiment that implements our proposed price targeting scheme out of sample. Theoretically, both firm and customer surplus could rise with scalable price targeting. Optimized uniform pricing improves revenues by 64.9% relative to the control pricing, whereas scalable price targeting improves revenues by 81.5%. Firm profits increase by over 10% under targeted pricing relative to optimal uniform pricing. Customer surplus declines by less than 1% with price targeting; although nearly 70% of customers are charged less than the uniform price. Our weighted likelihood bootstrap estimator also predicts demand and demand uncertainty out of sample better than several alternative approaches.
    JEL: C11 C93 D4 L11 M3
    Date: 2017–09
  15. By: Roland G. Fryer, Jr; Meghan Howard Noveck
    Abstract: This study examines the impact on student achievement of high-dosage reading tutoring for middle school students in New York City Public Schools, using a school-level randomized field experiment. Across three years, schools offered at least 130 hours of 4-on-1 tutoring based on a guided reading model, which consisted of 1-on-1 read alouds, independent reading, vocabulary review, and group discussion. We show that, at the mean, tutoring has a positive and significant effect on school attendance, a positive, but insignificant, effect on English Language Arts (ELA) state test scores and no effect on math state test scores. There is important heterogeneity by race. For black students, our treatment increased attendance by 2.0 percentage points (control mean 92.4 percent) and ELA scores by 0.09 standard deviations per year – two times larger than the effect of the Promise Academy Middle School in the Harlem Children’s Zone and KIPP Charter Middle Schools on reading achievement. For Hispanic students, the treatment effect is 0.8 percentage points on attendance (control mean 92.0 percent) and 0.01 standard deviations per year on ELA scores. We argue that the difference between the effectiveness of tutoring for black and Hispanic students is best explained by the average tutor characteristics at the schools they attend.
    JEL: I20 J0
    Date: 2017–09
  16. By: Dan Kovenock (Economic Science Institute); Brian Roberson (Purdue University, Department of Economics, Krannert School of Management); Roman M. Sheremeta (Weatherhead School of Management, Case Western Reserve University and Economic Science Institute, Chapman University)
    Abstract: We experimentally test the qualitatively different equilibrium predictions of two theoretical models of attack and defense of a weakest-link network of targets. In such a network, the attacker’s objective is to successfully attack at least one target and the defender’s objective is to defend all targets. The models differ in how the conflict at each target is modeled — specifically, the lottery and auction contest success functions (CSFs). Consistent with equilibrium in the auction CSF model, attackers utilize a stochastic “guerrilla-warfare” strategy, which involves randomly attacking at most one target with a random level of force. Inconsistent with equilibrium in the lottery CSF model, attackers use the “guerrilla-warfare” strategy and attack only one target instead of the equilibrium “complete-coverage” strategy that attacks all targets. Consistent with equilibrium in both models, as the attacker’s valuation increases, the average resource expenditure, the probability of winning, and the average payoff increase (decrease) for the attacker (defender).
    Keywords: Colonel Blotto, weakest-link, best-shot, multi-dimensional resource allocation, experiments
    JEL: C72 C91 D72 D74
    Date: 2017
  17. By: Adriana Alventosa (Universidad de Valencia. ERI-CES); Gonzalo Olcina (ERICES and University of Valencia)
    Abstract: This paper theoretically studies the emergence of a sanctioning institution in a selfish and wealth-diverse group where the provision of a public good is realized only once. In particular, we present a public goods game where players are given the opportunity to implement a sanctioning institution by hiring an external enforcer which sanctions free-riding behavior. However, the enforcer's effectiveness will not be guaranteed and will depend on the level of effort he exerts to chase these opportunistic attitudes. Whether the sanctioning institution is implemented or not is a task delegated to a government concerned in its persistence, who will represent the interests of a social class with a particular level of wealth. The emergence of the sanctioning institution will depend on a set of institutional and technological parameters, the wealth distribution in the society and the identity of the social class whose interests are represented by the government. Given these exogenous variables, the sanctioning institution will emerge more easily if the government represents the social class with the lowest opportunity cost in the provision of a public good. If implemented, the sanctioning institution can achieve a positive provision of such good if the society counts with a relatively high quality in its sanctioning institutions and high social return of the public good. The case of heterogeneous valuations of the public good will also be proved to show symmetric results.
    Keywords: public goods game, cooperation, wealth inequality, pool punishment, moral hazard.
    JEL: C72 D02 H41
    Date: 2017–09
  18. By: Eichberger, Jürgen; Grant, Simon; Kelsey, David
    Abstract: We propose a solution concept for a class of extensive form games with ambiguity. Specifically we consider multi-stage games. Players have CEU preferences. The associated ambiguous beliefs are revised by Generalized Bayesian Updating. We assume individuals take account of possible changes in their preferences by using consistent planning. We show that if there is ambiguity in the centipede game it is possible to sustain 'cooperation' for many periods as part of a consistent-planning equilibrium under ambiguity. In a non-cooperative bargaining game we show that ambiguity may be a cause of delay in bargaining.
    Date: 2017–09–11

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.