|
on Experimental Economics |
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Issue of 2018‒04‒30
twenty papers chosen by |
| By: | Homayoon Moradi (National Research University Higher School of Economics); Alexander Nesterov (National Research University Higher School of Economics) |
| Abstract: | We use a range of dictator game experiments to investigate why people avoid information. Dictators in our experiment know their own payoffs and can choose whether to learn the payoffs of the recipient. We vary whether dictators can learn the recipient's payoff before or after they are presented with their self-interested action. We find that dictators are more likely to avoid information when they do not yet know their self-interested action, and consequently act more selfishly in this case. These results go against two popular explanations of information avoidance: self-image and default effects. We study and test alternative explanations such as wishful thinking, cognitive dissonance, and attention and find support for the latter. |
| Keywords: | Attention, Wishful Thinking, Self-Image, Default Effect, In- formation Avoidance, Moral Wiggle Room |
| JEL: | C91 D64 D83 D01 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:189/ec/2018&r=exp |
| By: | Engelmann, Dirk; Friedrichsen, Jana; Kübler, Dorothea |
| Abstract: | Whether pro-social preferences identified in economic laboratories survive in natural market contexts is an important and contested issue. We find that the willingness to buy at a higher price when higher wages are paid to the worker in a laboratory experiment framed as a market exchange correlates both with the choice for a fair trade product before the laboratory experiment and with the willingness to pay a positive fair trade premium, elicited at the end of the experiment. These results support the notion that fairness preferences as assessed in laboratory experiments capture preferences in comparable situations outside the laboratory. |
| Keywords: | fairness,market experiments,external validity,fair trade |
| JEL: | C91 D01 D91 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbmbh:spii2018203&r=exp |
| By: | Filomena Garcia (Indiana University, & UECE); Luca David Opromolla (Banco de Portugal, CEPR, CESifo, & UECE); Andrea Vezzulli (University of Insubria); Rafael Marques (ISEG-School of Economics and Management) |
| Abstract: | The administration of tax policy has shifted its focus from enforcement to complementary instruments aimed at creating a social norm of tax compliance. In this paper we provide an analysis of the effects of the dissemination of information regarding the past degree of tax evasion at the social level on the current individual tax compliance behavior. We build an experiment where, for given levels of audit probabilities, fines and tax rates, subjects have to declare their income after receiving either a communication of the official average tax evasion rate or a private message from a group of randomly matched peers about their tax behavior. We use the experimental data to estimate a dynamic econometric model of tax evasion. The econometric model extends the Allingham-Sandmo-Yitzhaki tax evasion model to include self-consistency and endogenous social interactions among taxpayers. We find four main results. First, tax compliance is very persistent. Second, the higher the official past tax evasion rate the higher the degree of persistence: evaders are more likely to evade again, and compliant individuals are more likely to comply again. Third, when all peers communicate to have evaded (complied) in the past, both evaders and compliant individuals are more likely to evade (comply). Fourth, while both treatments, and especially the unofficial information treatment, are associated, in the context of our experiment, with a significantly larger growth in evasion intensity, the aggregate effect depends on the characteristics of the population. In countries with inherently low levels of tax evasion, official information can have beneficial effects by consolidating the behavior of compliant individuals. However, in countries with inherently high levels of tax evasion, official information can have detrimental effects by intensifying the behavior of evaders. In both cases, the impact of official information is magnified in the presence of strong peer effects. |
| Keywords: | Tax morale, Information, Tax evasion, Experiment, Peer Effects |
| JEL: | H26 D63 C24 C92 Z13 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:00101&r=exp |
| By: | Jens Weghake; Claudia Keser; Martin Schmidt; Mathias Erlei (Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal)) |
| Abstract: | We conducted a laboratory experiment to study the price setting behavior in two-sided markets. We seek to answer two specific research questions: Do participants charge the equilibrium prices that can be derived from a theoretical model? How is the price setting affected by the characteristics of the Nash equilibrium? Our study shows that there are hardly any realizations of the Nash equilibrium. Participants seem to use simple heuristics. The increase in complexity caused by asymmetry has two effects: On the one hand, it makes finding the optimal pricing more difficult so that, on average, we find prices that are further away from optimal prices. On the other hand, higher complexity goes along with stronger signals against non-expedient heuristics so that, on an individual level, the equilibrium is reached in more markets. |
| Keywords: | two-sided market theory, experiment, duopoly, platform competition |
| JEL: | C72 C91 D43 L13 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:tuc:tucewp:0018&r=exp |
| By: | Filomena Garcia (Indiana University, and UECE); Luca David Opromolla (Banco de Portugal, CEPR, CESifo, and UECE); Andrea Vezzulli (University of Insubria); Rafael Marques (ISEG-School of Economics and Management) |
| Abstract: | The administration of tax policy has shifted its focus from enforcement to complementary instru-ments aimed at creating a social norm of tax compliance. In this paper we provide an analysis of the effects of the dissemination of information regarding the past degree of tax evasion at the social level on the current individual tax compliance behavior. We build an experiment where, for given levels of audit probabilities, fines and tax rates, subjects have to declare their income after receiving either a communication of the official average tax evasion rate or a private message from a group of ran-domly matched peers about their tax behavior. We use the experimental data to estimate a dynamic econometric model of tax evasion. The econometric model extends the Allingham–Sandmo–Yitzhaki tax evasion model to include self-consistency and endogenous social interactions among taxpayers. We find four main results. First, tax compliance is very persistent. Second, the higher the official past tax evasion rate the higher the degree of persistence: evaders are more likely to evade again, and compli-ant individuals are more likely to comply again. Third, when all peers communicate to have evaded (complied) in the past, both evaders and compliant individuals are more likely to evade (comply). Fourth, while both treatments, and especially the unofficial information treatment, are associated, in the context of our experiment, with a significantly larger growth in evasion intensity, the aggregate effect depends on the characteristics of the population. In countries with inherently low levels of tax evasion, official information can have beneficial effects by consolidating the behavior of compliant individuals. However, in countries with inherently high levels of tax evasion, official information can have detrimental effects by intensifying the behavior of evaders. In both cases, the impact of official information is magnified in the presence of strong peer effects. |
| Keywords: | Tax morale, Information, Tax evasion, Experiment, Peer Effects |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2018004&r=exp |
| By: | Hett, Florian; Schmidt, Felix |
| Abstract: | This paper studies heterogeneity in the reaction to rank feedback. In a laboratory experiment, individuals take part in a series of dynamic real-effort contests with intermediate feedback. To solve the identification problem in estimating the causal effect of rank feedback on subsequent effort provision we implement a random multiplier in the first round of each contest. The realization of this multiplier then serves as a valid instrument for rank feedback. While rank feedback has a robust effect on subsequent effort provision on average, an explicit analysis of between-subject heterogeneity reveals that a substantial fraction of participants in fact react entirely opposite than the aggregated results indicate. We further show that this heterogeneity has consequences for overall outcomes, thereby arguing that heterogeneous sensitivities to rank feedback could have implications for the design of various policies in education and organizations. |
| Keywords: | heterogeneity,competitiveness,contest,rank feedback,relative performance evaluation |
| JEL: | C91 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:203&r=exp |
| By: | Vassilopoulos, Achilleas; Drichoutis, Andreas C.; Nayga, Rodolfo |
| Abstract: | We present the results of an economic laboratory experiment that tests behavioral biases that have been associated with the BDM mechanism. By manipulating the highest random competing bid, the maximum possible loss, the distribution of prices and the elicitation format, we attempt to disentangle the effects of reference-dependence, expectations as well as price and loss anchoring on subjects' bids. The results show that bids are affected by expectations and anchoring on the highest price but not by anchoring on the maximum possible loss. In addition, results are supportive of the no-loss-in-buying hypothesis of Novemsky and Kahneman (2005). |
| Keywords: | Becker-DeGroot-Marschak (BDM) mechanism; expectations; anchoring; valuation; experiment |
| JEL: | C91 D44 |
| Date: | 2018–03–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:85635&r=exp |
| By: | Marshall Burke; Lauren Falcao Bergquist; Edward Miguel |
| Abstract: | Large and regular seasonal price fluctuations in local grain markets appear to offer African farmers substantial inter-temporal arbitrage opportunities, but these opportunities remain largely unexploited: small-scale farmers are commonly observed to "sell low and buy high" rather than the reverse. In a field experiment in Kenya, we show that credit market imperfections limit farmers' abilities to move grain inter-temporally. Providing timely access to credit allows farmers to buy at lower prices and sell at higher prices, increasing farm revenues and generating a return on investment of 28%. To understand general equilibrium effects of these changes in behavior, we vary the density of loan offers across locations. We document significant effects of the credit intervention on seasonal price fluctuations in local grain markets, and show that these GE effects shape individual level profitability estimates. In contrast to existing experimental work, the results indicate a setting in which microcredit can improve firm profitability, and suggest that GE effects can substantially shape microcredit's effectiveness. In particular, failure to consider these GE effects could lead to underestimates of the social welfare benefits of microcredit interventions. |
| JEL: | D21 D51 G21 O13 O16 Q12 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24476&r=exp |
| By: | Olga A. Rud (Hamilton College); Jean Paul Rabanal (Colby College); Manizha Sharifova (University of the Pacific) |
| Abstract: | We test in a controlled laboratory environment whether traders in a bilateral exchange internalize the impact of their actions on market prices better than in a large market. In this model, traders choose asset holdings, constrained by a technology frontier. Next, each trader experiences a random shock which makes only one type of asset profitable. In a general equilibrium environment with incomplete markets, this leads to pecuniary externalities because traders increase scarce asset holdings beyond what is socially optimal. This behavior is especially exacerbated in large experimental markets as traders fail to internalize the impact of their actions on prices. We find that when markets are incomplete, a bilateral exchange can slightly mitigate the extent of pecuniary externalities, and weakly increase welfare. |
| Keywords: | Pecuniary externalities, incomplete markets, general equilibrium, experimental market games, walrasian equilibrium |
| JEL: | D51 D82 G10 C72 C92 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:123&r=exp |
| By: | Ritwik Banerjee (IIMB - Indian Institute of Management [Bangalore]); Nabanita Datta Gupta (Aarhus University [Aarhus]); Marie Villeval (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Is success in a task used strategically by individuals to motivate their beliefs prior to taking action in a subsequent, unrelated, task? Also, is the distortion of beliefs reinforced for individuals who have lower status in society? Conducting an artefactual field experiment in India, we show that success when competing in a task increases the performers' self-confidence and competitiveness in the subsequent task. We also find that such spillovers affect the self-confidence of low-status individuals more than that of high-status individuals. Receiving good news under Affirmative Action, however, boosts confidence across tasks regardless of the caste status. |
| Keywords: | Motivated beliefs, spillovers, self-confidence, competitiveness, Affirmative Action, experiment |
| Date: | 2018–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01760347&r=exp |
| By: | Cilliers, Jacobus; Kasirye, Ibrahim; Leaver, Clare; Serneels, Pieter; Zeitlin, Andrew |
| Abstract: | To achieve the twin objectives of incentivizing agent performance and providing information for planning purposes, public sector organizations often rely on reports by local monitors that are costly to verify. Received wisdom has it that attaching financial incentives to these reports will result in collusion, and undermine both objectives. Simple bargaining logic, however, suggests the reverse: pay for locally monitored performance could incentivize desired behavior and improve information. To investigate this issue, we conducted a randomized controlled trial in Ugandan primary schools that explored how incentives for teachers could be designed when based on local monitoring by head teachers. Our experiment randomly varied whether head teachers' reports of teacher attendance were tied to teacher bonus payments or not. We find that local monitoring on its own is ineffective at improving teacher attendance. However, combining local monitoring with finanacial incentives leads to both an increase in teacher attendance (by 8 percentage points) and an improvement in the quality of information. We also observe substantial gains in pupil attainment, driven primarily by a reduction in dropouts. By placing a financial value on these enrollment gains, we demonstrate that pay for locally monitored performance passes both welfare and fiscal sustainability tests. |
| Keywords: | Performance pay; Monitoring; Campbell's law; Field experiment; Education; Welfare; Uganda. |
| JEL: | D61 H52 I25 O15 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12836&r=exp |
| By: | Lin, Yu-Hsuan |
| Abstract: | This study examines the impact of social preferences on the individual incentives of participating in climate coalitions with laboratory experimental evidences. The theoretical result suggests that, when a player was inequality-neutral, a dominant strategy equilibrium could exist. However, individuals with social preference may lead a vacillated coalition formation. Joining or not joining depend on the player was critical or non-critical to an effective coalition respectively. The laboratory experimental result shows that players were inequality-averse and the coalition was usually larger than the equilibrium size but unstable. The inequality-averse attitudes have significantly positive impact on the incentives of participation. Particularly, when they are non-critical players, egalitarians are likely to give up the free riding benefit by joining a coalition. Our findings help to understand the climate coalition formation. |
| Keywords: | international environmental agreements; social preference; inequality-aversion; experimental design; climate coalition |
| JEL: | C91 D63 D71 Q54 Q58 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:85428&r=exp |
| By: | Felfe, Christina (University of St. Gallen, CESifo); Kocher, Martin (University of Vienna, IHS Vienna, University of Gothenburg); Rainer, Helmut (University of Munich, ifo Institute, CESifo); Saurer, Judith (ifo Institute); Siedler, Thomas (Universitaet Hamburg) |
| Abstract: | Inequality of opportunity, particularly when overlaid with racial, ethnic, or cultural differences, increases the social distance between individuals, which is widely believed to limit the scope of cooperation. A central question, then, is how to bridge such divides. We study the effects of a major citizenship reform in Germany — the introduction of birthright citizenship on January 1, 2000 — in terms of inter-group cooperation and social segregation between immigrant and native youth. We hypothesize that endowing immigrant children with citizenship rights levels the playing field between them and their native peers, with possible spill-overs into the domain of social interactions. Our unique setup connects a large-scale lab-in-the-field experiment based on the investment game with the citizenship reform by exploiting the quasi-random assignment of citizenship rights around its cut-off date. Immigrant youth born prior to the reform display high levels of cooperation toward other immigrants, but low levels of cooperation toward natives. The introduction of birthright citizenship caused male, but not female, immigrants to significantly increase their cooperativeness toward natives. This effect is accompanied by a near-closure of the educational achievement gap between young immigrant men and their native peers. |
| Keywords: | Citizenship, immigration, trust, experiment |
| JEL: | C93 D90 J15 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:ihs:ihsesp:340&r=exp |
| By: | Gill, David (Purdue University); Prowse, Victoria L. (Purdue University) |
| Abstract: | Using real effort to implement costly activities increases the likelihood that the motivations that drive effort provision in real life carry over to the laboratory. However, unobserved differences between subjects in the cost of real effort make quantitative prediction problematic. In this paper we present the slider task, which was designed by us to overcome the drawbacks of real effort tasks. The slider task allows the researcher to collect precise and repeated observations of effort provision from the same subjects in a short time frame. The resulting high-quality panel data allow sophisticated statistical analysis. We illustrate these advantages in two ways. First, we show how to use panel data from the slider task to improve precision by controlling for persistent unobserved heterogeneity. Second, we show how to estimate effort costs at the subject level by exploiting within-subject variation in incentives across repetitions of the slider task. We also provide z-Tree code and practical guidance to help researchers implement the slider task. |
| Keywords: | experimental methodology, real effort, effort provision, cost of effort, slider task, design of laboratory experiments, unobserved heterogeneity |
| JEL: | C91 C13 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11411&r=exp |
| By: | Kjetil Bjorvatn (NHH, Norwegian School of Economics); Nicola Daniele Coniglio (Università degli Studi di Bari "Aldo Moro") |
| Abstract: | We investigate the impact of inequality on cooperation using a linear public good game and focusing on heterogeneity in the source of income, where some participants work for their endowment (“workers”) while others do not (“non-workers”). The key finding of our paper is that cooperation is higher when workers are grouped with other workers, and we provide evidence that the underlying mechanism for this result is a higher degree of altruism between workers. Our results thus lend support to the concerns that inequality may have detrimental effects on economic efficiency. |
| Keywords: | public goods; inequality; source of income heterogeneity |
| JEL: | F1 O1 O3 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:bai:series:series_wp_02-2018&r=exp |
| By: | Prasenjit Banerjee; Vegard Iversen; Sandip Mitra; Antonio Nicolò; Kunal Sen |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:man:sespap:1806&r=exp |
| By: | Valfort, Marie-Anne (Paris School of Economics) |
| Abstract: | Relying on a correspondence study conducted in France before the 2015 attacks, this paper compares the callback rates of immigrants of Muslim and Christian culture who originate from the same country and whose religiosity varies from non-religious to religious. Based on responses to over 6,200 job ads, the results reveal an insignificant disadvantage for Muslims when they are not religious. However, Muslims lose further ground when they are religious, while the reverse occurs for Christians. Consequently, religious Muslims must submit twice as many applications as religious Christians before being called back by the recruiters. A follow-up survey confirms that the signal used to convey fictitious applicants' religiosity is not only viewed as relevant but that it is also correctly interpreted by employers. |
| Keywords: | religion, religiosity, Islam, discrimination, France, correspondence study |
| JEL: | C93 J15 J71 Z12 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11417&r=exp |
| By: | Marco Nieddu (Università di Cagliari and CRENoS); Lorenzo Pandolfi (Università di Napoli Federico II and CSEF) |
| Abstract: | We examine the impact of financial literacy on investors’ subjective valuation of financial assets. In a laboratory experiment, we study how the certainty equivalent of a risky lottery changes when varying the framing of the lottery – a financial asset vs. a coin toss – and participants’ level of financial literacy – via teaching basic financial notions. Enhancing financial literacy improves the understanding of the lottery’s structure and increases its certainty equivalent, thus offsetting the negative effects of the financial framing. Our results – which can be rationalized by ambiguity aversion – highlight the importance of promoting financial education to stimulate households’ financial market participation. |
| Keywords: | financial literacy; experimental finance; financial market participation; ambiguity aversion. |
| JEL: | D14 D81 G11 I22 |
| Date: | 2018–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:497&r=exp |
| By: | Alzúa, María Laura (Universidad Nacional de la Plata); Djebbari, Habiba (Université Laval); Pickering, Amy J. (Tufts University) |
| Abstract: | Basic sanitation facilities are still lacking in large parts of the developing world, engendering serious environmental health risks. Interventions commonly deliver in-kind or cash subsidies to promote private toilet ownership. In this paper, we assess an intervention that provides information and behavioral incentives to encourage villagers in rural Mali to build and use basic latrines. Using an experimental research design and carefully measured indicators of use, we find a sizeable impact from this intervention: latrine ownership and use almost doubled in intervention villages, and open defecation was reduced by half. Our results partially attribute these effects to increased knowledge about cheap and locally available sanitation solutions. They are also associated with shifts in the social norm governing sanitation. Taken together, our findings, unlike previous evidence from other contexts, suggest that a progressive approach that starts with ending open defecation and targets whole communities at a time can help meet the new Sustainable Development Goal of ending open defecation. |
| Keywords: | sanitation, behavioral change, community-based intervention, social norm |
| JEL: | Q53 Q58 D78 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11446&r=exp |
| By: | Waichman, Israel; Requate, Till; Karde, Markus; Milinski, Manfred |
| Abstract: | Avoiding a catastrophic climate change event is a global public good characterized by several dimensions, notably heterogeneity between the parties involved. It is often argued that such heterogeneity between countries is a major obstacle to cooperative climate policy. We challenge this belief by experimentally simulating two important heterogeneities, in wealth and loss, when dangerous climate change occurs. We find that under loss heterogeneity the success rate in achieving sufficient mitigation to prevent catastrophic climate change is higher than with homogeneous parties. We also observe that neither endowment heterogeneity nor the combination of endowment and loss heterogeneities lead to significantly different success rates than with homogeneous parties. Our findings suggest that heterogeneities may facilitate rather than hinder successful international climate policy negotiations. |
| Keywords: | global public good,climate change negotiation,collective-risk social dilemma,endowment heterogeneity,loss heterogeneity,focal point |
| JEL: | C92 D74 H41 Q54 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:201805&r=exp |