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on Experimental Economics |
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Issue of 2019‒05‒06
twenty-one papers chosen by |
| 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:0101&r=all |
| By: | Ondřej Krčál (Masaryk University); Rostislav Staněk (Masaryk University); Martin Slanicay (Masaryk University) |
| Abstract: | A large body of evidence supports a negative association between risk aversion of workers and the level of risk they face in their occupations. This relationship could be explained by the self-selection of workers into jobs according to their risk preferences or by the effect on risk attitudes of occupations in which people face or witness dangerous situations. We use incentivized experiments to measure risk preferences among three different groups: experienced firefighters, novice firefighters, and students. We find that experienced firefighters are less risk-averse than novice firefighters, and these in turn are less risk-averse than students. The effects remain significant even after controlling for other relevant differences between these groups. Our findings suggest that the observed relationship between risk aversion and high-risk occupations is not only a result of self-selection but also of people’s preferences being shaped by their work lives. |
| Keywords: | risk preferences, high-risk occupations, self-selection, lab-in-the-field experiment |
| Date: | 2019–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:mub:wpaper:2019-05&r=all |
| By: | Analia Schlosser; Zvika Neeman; Yigal Attali |
| Abstract: | We study how different demographic groups respond to incentives by comparing their performance in “high” and “low” stakes situations. The high stakes situation is the GRE examination and the low stakes situation is a voluntary experimental section of the GRE. We find that Males exhibit a larger drop in performance between the high and low stakes examinations than females, and Whites exhibit a larger drop in performance compared to minorities. Differences between high and low stakes tests are partly explained by the fact that males and whites exert lower effort in low stakes tests compared to females and minorities. |
| Keywords: | high stakes, low stakes, GRE, incentives, experiment, performance, gender gap, race gap |
| JEL: | C93 I23 I24 J15 J16 J24 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7590&r=all |
| By: | Stephan Huber (University of Regensburg and UAS Augsburg); Jochen Model (UAS Augsburg); Silvio Städter (UAS Augsburg) |
| Abstract: | Alliances often provide a collective good among their allies. This article offers laboratory experimental evidence that the possibility to vote for the exclusion of non-cooperating allies, i.e. ostracism, can be a powerful negative referendum to increase allies’ contributions to the collective good. However, it is found that ostracism does not necessarily increase earnings in a public goods game. In particular, it is shown that the ostracism mechanism is used differently by individuals. While ostracism increases contributions irrespective of the game is played with a alliances of individuals or teams as the decision makers, the earnings do not statistically significant increase in alliances of individuals. This result can be explained with different voting patterns. Compared to individuals, teams vote and in turn exclude significantly less in early periods but more in later periods of the game. Thus, negative earnings effects of ostracism, i.e., excluded players can neither contribute to the collective good nor receive from the collective good, are found to be less severe in alliances of teams. |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:iaa:dpaper:201902&r=all |
| By: | Florian Lindner; Michael Kirchler; Stephanie Rosenkranz; Utz Weitzel |
| Abstract: | A pervasive feature in the finance industry is relative performance, which can include extrinsic (money), intrinsic (self-image), and reputational (status) motives. In this paper, we model a portfolio decision with two assets and investigate how reputational motives (i.e., the public announcement of the winners or losers) influence risk-taking in investment deci- sions vis-a-vis intrinsic motives. We test our hypotheses experimentally with 864 students and 330 financial professionals. We find that reputational motives play a minor role among financial professionals, as the risk-taking of underperformers is already increased due to intrinsic motives. Student behavior, however, is mainly driven by reputational motives with risk-taking levels that come close to those of professionals when winners or losers are announced publicly. This indicates that professionals show higher levels of intrinsic (self-image) incentives to outperform others compared to non-professionals (students), but a similar behavior can be sparked among the latter by adding reputational incentives. |
| Keywords: | experimental finance, behavioral economics, investment game, rank incen- tives, social status, reputational motives |
| JEL: | G02 G11 D03 C91 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2019-07&r=all |
| By: | Christoph Huber; Julia Rose |
| Abstract: | In real world financial markets, dividend processes as well as fundamental values are governed by imprecision; neither the objective probabilities of returns nor the actual amounts of possible returns are known for certain. With a novel experimental approach, we analyze the impact of risk, imprecision in probabilities (ambiguity), imprecision in outcomes, and a combination of the latter two in an individual decision task and in a market environment. In contrast to the previous literature, we do not find any significant imprecision premia for imprecise probabilities. However, we do find significant and persistent imprecision-in-outcomes seeking in the individual task as well as the market setting. Looking deeper into the combination of individual attitudes and market behavior, we find that these patterns survive despite a high level of heterogeneity in individual's beliefs about outcomes. |
| Keywords: | ambiguity aversion, imprecision, uncertainty, asset markets, experimental finance |
| JEL: | G11 G12 C92 D81 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2019-06&r=all |
| By: | Becker, Sascha O. (University of Warwick); Fernandes, Ana (University of Bern); Weichselbaumer, Doris (University of Linz) |
| Abstract: | Due to conventional gender norms, women are more likely to be in charge of childcare than men. From an employer's perspective, in their fertile age they are also at "risk" of pregnancy. Both factors potentially affect hiring practices of firms. We conduct a large-scale correspondence test in Germany, Switzerland, and Austria, sending out approx. 9,000 job applications, varying job candidate's personal characteristics such as marital status and age of children. We find evidence that, for part-time jobs, married women with older kids, who likely finished their childbearing cycle and have more projectable childcare chores than women with very young kids, are at a significant advantage vis-avis other groups of women. At the same time, married, but childless applicants, who have a higher likelihood to become pregnant, are at a disadvantage compared to single, but childless applicants to part-time jobs. Such effects are not present for full-time jobs, presumably, because by applying to these in contrast to part-time jobs, women signal that they have arranged for external childcare. |
| Keywords: | experimental economics, discrimination, fertility |
| JEL: | C93 J16 J71 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12308&r=all |
| By: | Khan, Adnan Q.; Khwaja, Asim Ijaz; Olken, Benjamin A. |
| Abstract: | Bureaucracies often post staff to better or worse locations, ostensibly to provide incentives. Yet we know little about whether this works, with heterogeneity in preferences over postings impacting effectiveness. We propose a performance-ranked serial dictatorship mechanism, whereby bureaucrats sequentially choose desired locations in order of performance. We evaluate this using a two-year field experiment with 525 property tax inspectors in Pakistan. The mechanism increases annual tax revenue growth by 30–41 percent. Inspectors whom our model predicts face high equilibrium incentives under the scheme indeed increase performance more. Our results highlight the potential of periodic merit-based postings in enhancing bureaucratic performance. |
| Keywords: | SES-1124134 |
| JEL: | C93 D73 H71 H83 J45 M54 O17 |
| Date: | 2019–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100339&r=all |
| By: | Cacault, M. Paula (University of Geneva); Hildebrand, Christian (University of St. Gallen); Laurent-Lucchetti, Jérémy (University of Geneva); Pellizzari, Michele (University of Geneva) |
| Abstract: | Using a randomized experiment in a public Swiss university, we study the impact of online live streaming of lectures on student achievement and attendance. We find that (i) students use the live streaming technology only punctually, apparently when random events make attending in class too costly; (ii) attending lectures via live streaming lowers achievement for low-ability students and increases achievement for high-ability ones and (iii) offering live streaming reduces in-class attendance only mildly. These findings have important implications for the design of education policies. |
| Keywords: | EduTech, distance learning, live streaming |
| JEL: | I20 I21 I23 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12298&r=all |
| By: | Vishnu V. Narayan; Enguerrand Prebet; Adrian Vetta |
| Abstract: | The declining price anomaly states that the price weakly decreases when multiple copies of an item are sold sequentially over time. The anomaly has been observed in a plethora of practical applications. On the theoretical side, Gale and Stegeman proved that the anomaly is guaranteed to hold in full information sequential auctions with exactly two buyers. We prove that the declining price anomaly is not guaranteed in full information sequential auctions with three or more buyers. This result applies to both first-price and second-price sequential auctions. Moreover, it applies regardless of the tie-breaking rule used to generate equilibria in these sequential auctions. To prove this result we provide a refined treatment of subgame perfect equilibria that survive the iterative deletion of weakly dominated strategies and use this framework to experimentally generate a very large number of random sequential auction instances. In particular, our experiments produce an instance with three bidders and eight items that, for a specific tie-breaking rule, induces a non-monotonic price trajectory. Theoretic analyses are then applied to show that this instance can be used to prove that for every possible tie-breaking rule there is a sequential auction on which it induces a non-monotonic price trajectory. On the other hand, our experiments show that non-monotonic price trajectories are extremely rare. In over six million experiments only a 0.000183 proportion of the instances violated the declining price anomaly. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1905.00853&r=all |
| By: | Gary Bolton (University of Texas at Dallas); Eugen Dimant (University of Pennsylvania); Ulrich Schmidt (Kiel Institute for the World Economy) |
| Abstract: | Both theory and recent empirical evidence on nudging suggest that observability of behavior acts as an instrument for promoting (discouraging) pro-social (anti-social) behavior. Our study questions the universality of these claims. We employ a novel four-party setup to disentangle the roles that the relevant observational mechanisms play in affecting pro-/antisocial behavior. We systematically vary the observability of one's actions by others as well as the (non-)monetary relationship between observer and observee. Observability involving economic incentives crowds-out anti-social behavior in favor of more pro-social behavior. Surprisingly, observation without economic consequences fails to achieve any aggregate pro-social effect, and if anything it backfires. In additional experiments we confirm that this backfiring effect is driven by inequity concerns. We propose and successfully test a solution: increasing the focus on the underlying social norms. |
| Keywords: | Anti-Social Behavior, Experiment, Nudge, Pro-Social Behavior, Reputation |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2019-03&r=all |
| By: | Lee, Charles M. C. (Stanford University - Graduate School of Business); Watts, Edward M. (Stanford University, Graduate School of Business, Students) |
| Abstract: | This study examines how an increase in tick size affects algorithmic trading (AT), fundamental information acquisition (FIA), and the price discovery process around earnings announcements (EAs). Leveraging the SEC’s randomized “Tick Size Pilot†experiment, we show a tick size increase results in a universal decline across four commonly-used proxies for AT. This decrease in AT is accompanied by a sharp drop in abnormal volatility and volume around EAs. More importantly, we find causal evidence of increased FIA in the pre-announcement period. Specically, we show that with a larger tick size: (a) treatment firms’ pre-announcement returns better anticipate next quarter’s standardized unexpected earnings (SUEs); (b) their pre-announcement returns capture more of their total returns; (c) they experience an increase in EDGAR web trac in the days leading up to EAs; and (d) they exhibit a drop in price synchronicity with index returns. Taken together, our evidence shows that while an increase in tick size reduces AT and abnormal market reaction after EAs, it also increases FIA activities prior to EAs. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3732&r=all |
| By: | Athey, Susan (Graduate School of Business, Stanford University, and NBER); Imbens, Guido W. (Graduate School of Business, Stanford University, SIEPR, and NBER) |
| Abstract: | In this paper we study estimation of and inference for average treatment effects in a setting with panel data. We focus on the setting where units, e.g., individuals, firms, or states, adopt the policy or treatment of interest at a particular point in time, and then remain exposed to this treatment at all times afterwards. We take a design perspective where we investigate the properties of estimators and procedures given assumptions on the assignment process. We show that under random assignment of the adoption date the standard Difference-In-Differences estimator is an unbiased estimator of a particular weighted average causal effect. We characterize the properties of this estimand, and show that the standard variance estimator is conservative. |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3712&r=all |
| By: | Hebert, Benjamin (Stanford University); Woodford, Michael (Columbia University) |
| Abstract: | We propose a new approach to modeling the cost of information structures in rational inattention problems: the “neighborhood-based†cost functions. These cost functions have two properties that we view as desirable: they summarize the results of a sequential evidence accumulation problem, and they capture notions of “perceptual distance.†The first of these properties is connected to an extensive literature in psychology and neuroscience, and the second ensures that neighborhood-based cost functions, unlike mutual information, make accurate predictions about behavior in perceptual experiments. We compare the implications of our neighborhood-based cost functions with those of the mutual information in a series of applications: security design, global games, modeling perceptual judgments, and linear-quadratic-Gaussian settings. |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3751&r=all |
| By: | Christopher Blattman; Stefan Dercon; Simon Franklin |
| Abstract: | We study two interventions for underemployed youth across five Ethiopian sites: a $300 grant to spur self-employment, and a job offer to an industrial firm. Despite significant impacts on occupational choice, income, and health in the first year, after five years we see nearly complete convergence across all groups and outcomes. Shortrun increases in productivity and earnings from the grant dissipate as recipients exit their micro-enterprises. Adverse effects of factory work on health found after one year also appear to be temporary. These results suggest that one-time and one-dimensional interventions may struggle to overcome barriers to wage- or self-employment. |
| JEL: | F16 J24 J81 O14 O17 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25788&r=all |
| By: | Hakimov, Rustamdjan (WZB Berlin); Kübler, Dorothea (WZB Berlin) |
| Abstract: | The paper surveys the experimental literature on matching markets. It covers house allocation, school choice, and two-sided matching markets such as college admissions. The main focus of the survey is on truth-telling and strategic manipulations by the agents, on the stability and efficiency of the matching outcome, as well as on the distribution of utility. |
| Keywords: | experiments; matching markets; survey; |
| JEL: | C92 D83 |
| Date: | 2019–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:153&r=all |
| By: | Dariel, Aurelie (New York University, Abu Dhabi); Riedl, Arno (Maastricht University); Siegenthaler, Simon (University of Texas at Dallas) |
| Abstract: | Information asymmetries can prevent markets from operating efficiently. An important example is the labor market, where employers face uncertainty about the productivity of job candidates. We examine theoretically and with laboratory experiments three key questions related to hiring via referrals when employees have private information about their productivity. First, do firms use employee referrals when there are social ties between a current employee and a future employee? Second, does the existence of social ties and hiring through employee referrals indeed alleviate adverse selection relative to when social ties do not exist? Third, does the existence of social ties have spill-over effects on wages and hiring in competitive labor markets? The answers to all three questions are affirmative. However, despite the identified positive effect of employee referrals, hiring decisions fall short of the (second-best) efficient outcome. We identify risk aversion as a potential reason for this. |
| Keywords: | adverse selection, labor market, employee referrals, social networks |
| JEL: | C92 D82 D85 E20 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12287&r=all |
| By: | Ingvild Almås; Maximilian Auffhammer; Tessa Bold; Ian Bolliger; Aluma Dembo; Solomon M. Hsiang; Shuhei Kitamura; Edward Miguel; Robert Pickmans |
| Abstract: | Accumulating evidence indicates that environmental temperature substantially affects economic outcomes and violence, but the reasons for this linkage are not well understood. We systematically evaluate the effect of thermal stress on multiple dimensions of economic decisionmaking, judgment, and destructive behavior with 2,000 participants in Kenya and the US who were randomly assigned to different temperatures in a laboratory. We find that most dimensions of decision-making are unaffected by temperature. However, heat causes individuals to voluntarily destroy other participants’ assets, with more pronounced effects during a period of heightened political conflict in Kenya. |
| JEL: | C91 D74 O1 Q50 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25785&r=all |
| By: | Dan Anderberg; Karlijn Marsink |
| Abstract: | Transfers motivated by altruism, norms of giving, and guilt play an important role in supporting individuals who suffer losses due to risk. We present empirical evidence from an artefactual field experiment in Ethiopia in which we introduce formal insurance in a setting where donors make redistributive transfers to anonymously paired recipients. We find that donors reduce their transfers to recipients who don’t take-up insurance, and that this effect is larger for donors who hold the ex ante belief that the recipient is more likely to take-up insurance. The findings are consistent with a model of a norm of giving where donors feel guilty for deviating from the norm. The feelings of guilt decline with the expected social distance, that is revealed by the recipients’ observable insurance uptake decisions. The model highlights how the introduction of formal insurance may erode norms of giving and lead vulnerable groups to face more volatile consumption. |
| Keywords: | formal insurance, transfers, norms of giving, guilt, social distance |
| JEL: | D64 D91 G22 O16 O17 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7596&r=all |
| By: | Dowling, Katharina (LMU Munich); Spann, Martin (LMU Munich); Stich, Lucas (LMU Munich) |
| Abstract: | Digitalization has changed existing business models and enabled new ones. This development has been accompanied by the emergence of new pricing options and the possibility of applying established pricing models in new domains. Today, consumers can, for example, pay for accessing a product instead of buying it. Within such sharing services, consumers can usually choose between a flat-rate and a pay-per-use option. Prior work demonstrated that consumers\' tariff choices are often systematically biased. Overconfidence was identified as one of the key drivers. Yet, prior research is non-experimental and focused on the so-called flat-rate bias. By contrast, we examine the effects of overconfidence on tariff choice experimentally. We show that overconfident consumers overestimate their ability to predict their future usage, which leads them to underestimate their actual usage, and eventually leads them to choose a pay-per-use (vs. a flat-rate) option more frequently. We discuss theoretical and managerial implications. |
| Keywords: | overconfidence; tariff choice; pay-per-use; flat-rate; experiment; |
| Date: | 2019–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:154&r=all |
| By: | Kniesner, Thomas J. (Claremont Graduate University) |
| Abstract: | There are many possible connections between VSL and behavioral economics. A list of topics includes endowment effects, risk salience, ambiguity aversion, present bias, reference groups, reference points, and experienced versus decision utilities. There are also nudges that connect to estimating or using VSL in government decisions and cousins of behavioral economic research including interpersonal heterogeneity, experiments, neuroeconomics, and beauty or personal attractiveness. Current evidence suggests that VSL and behavioral economics best connect via (1) possible multi-attribute reference group effects and (2) a possible distinction between decision utility and experienced utility. |
| Keywords: | VSL, behavioral economics, WTP, WTA, reference dependence, benefit-cost analysis, nudge, internality |
| JEL: | D61 D91 J17 J31 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12280&r=all |