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on Experimental Economics |
| By: | Takanori Ida; Ryo Okui |
| Abstract: | In this study, we examine how information provision affects the degree of overcon dence using an online experiment. The 4,210 experimental participants engaged in stock market prediction exercises in 2014 were asked to evaluate their absolute and relative performance. We conducted a randomized controlled trial such that randomly selected participants obtained information about their own performance and/or the distribution of others' performances before evaluating their performances. We find that while participants exhibit overconfidence bias, this can be alleviated by information provision and that the effect of the elimination of overconfidence is stronger when only partial information, rather than complete information, is provided. Further, we show that the mere provision of information, even if it is consistent with prior beliefs, decreases the degree of overconfidence. |
| Keywords: | Overconfi dence; information provision; randomized controlled trial; online experiment; stock market prediction |
| JEL: | C91 D83 D91 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:snu:ioerwp:no126&r=all |
| By: | Gruener, Sven |
| Abstract: | Clinical studies and economic experiments are often conducted with randomized controlled trials. In clinical studies, power calculations are carried out as a standard. But what’s about economic experiments? After describing the basic idea of the calculation procedure, I tackle the practice of sample size calculations in the realm of experimental economics by considering the publications of 5 economic journals in the period 2000–2018. These are two top-ranked economic journals (Quarterly Journals of Economics and American Economic Review), the leading field journals in the area of experimental economics (Experimental Economics) and behavioral sciences (Journal of Economic Behavior and Organization), and a leading field journal in environmental economics (Environmental and Resource Economics). In contrast to clinical drug trials, sample size calculations have rarely been carried out by experimental economists. But the number of power calculations has slightly increased in recent years, especially in the leading journals of economics. However, this can be partly explained by the fact that field experiments (in which scholars pay more attention to power analyses than in lab experiments these days) play an important role in these journals. |
| Date: | 2019–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:574he&r=all |
| By: | Syngjoo Choi; Booyuel Kim; Minseon Park; Yoonsoo Park |
| Abstract: | This paper investigates the impact of a student-centered teaching pedagogy program on cooperative behaviors of 610 students in five middle schools. We combine the school- level program of changing teaching practice with laboratory experiments, implemented before and after the program, measuring changes of students¡¯ cooperation. We show that the program increased students¡¯ voluntary contributions in a linear public goods experiment and raised teamwork performance in a real-effort task where members pursue a common interest. Our findings support the idea that teaching practices stimulating interpersonal interaction among students affect the formation of cooperative norms among students. |
| Keywords: | teaching practices; project-based learning; cooperation; field experiment; laboratory experiments |
| JEL: | C91 C92 C93 I21 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:snu:ioerwp:no122&r=all |
| By: | Christoph March |
| Abstract: | Artificial intelligence (AI) is starting to pervade the economic and social life rendering strategic interactions with artificial agents more and more common. At the same time, experimental economic research has increasingly employed computer players to advance our understanding of strategic interaction in general. What can this strand of research teach us about an AI-shaped future? I review 90 experimental studies using computer players. I find that, in a nutshell, humans act more selfishly and more rational in the presence of computer players, and they are often able to exploit these players. Still, many open questions prevail. |
| Keywords: | experiment, robots, computer players, survey |
| JEL: | C90 C92 O33 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7926&r=all |
| By: | Jianxin Wang (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University) |
| Abstract: | Alcohol consumption is an important component of business negotiations across many cultures, yet this behavior remains unmodeled and its potential implications untested. This paper is a step towards filling that gap. We develop a theory that combines guilt-aversion with a canonical alcohol myopia framework. Our GAAM (guilt aversion and alcohol myopia) model predicts that intoxication increases promise-making but has no effect on promise-breaking. We test these predictions using a prisoner’s dilemma game with pre-play communication in a lab-in-the-field experiment. Among males, we find behavior consistent with predictions: intoxication promotes promise-making behavior but does not impact the rate at which promises are trusted or broken. Consequently, intoxication increases communication efficiency. We do not observe intoxication to impact female promise-making, trusting, or promise-breaking behaviors. This is consistent with previous empirical findings that females are substantially less sensitive than males to alcohol- induced myopia. |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:gms:wpaper:1074&r=all |
| By: | Rand John; Tarp Finn; Trifkovi? Neda; Rodriguez Paula |
| Abstract: | This study investigates the role of owners’ personal preferences and behaviour in determining the success of micro, small and medium-sized enterprises using a lab-in-the-field experiment with small-business owners in Myanmar. The study is a complement to a 2017 quantitative survey conducted within the project ‘Towards inclusive development in Myanmar’.The lab-in-the-field experiment comprised five behavioural games: dictator, bargaining, trust, public goods, and risk-preference elicitation. It was conducted in 12 townships in 11 states and regions of Myanmar in September and October 2018. The sample comprised 397 enterprise owners, managers, and employees.This study has a twofold contribution. First, we present for the first time the behavioural profile of small-business owners in Myanmar. Second, we link the results of different behavioural games to the main participant and enterprise characteristics. Finally, we reflect on the implications for enterprise performance and for policy as it relates to micro, small and medium-sized enterprises. |
| Keywords: | Entrepreneurship,Altruism,Bargaining,Behaviour,Trust,Risk-taking |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2019-79&r=all |
| By: | Allan Drazen; Anna Dreber; Erkut Y. Ozbay; Erik Snowberg |
| Abstract: | Recent large-scale replications of social science experiments provide important information on the reliability of experimental research. Unfortunately, there exist no mechanisms to ensure replications are done. We propose such a mechanism: journal-based replication, in which the publishing journal contracts for a replication between acceptance and publication. We discuss what we learned from a proof-of-concept journal-based replication at the Journal of Public Economics. Our experience indicates that journal-based replication would be relatively straightforward to implement for laboratory experiments. |
| Keywords: | replication, reliability, experiments, journal-based replication |
| JEL: | A11 A14 C18 C92 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7942&r=all |
| By: | Stüber, Robert |
| Abstract: | Altruistic punishment is often thought to be a major enforcement mechanism of social norms. I present experimental results from a modified version of the dictator game with third-party punishment, in which third parties can remain ignorant about the choice of the dictator. I find that a substantial fraction of subjects choose not to reveal the dictator's choice and not to punish the dictator. I show that this behavior is in line with the social norms that prevail in a situation of initial ignorance. Remaining ignorant and choosing not to punish is not inappropriate. As a result, altruistic punishment is significantly lower when the dictator's choice is initially hidden. The decrease in altruistic punishment leads to more selfish dictator behavior only if dictators are explicitly informed about the effect of willful ignorance on punishment rates. Hence, in scenarios in which third parties can ignore information and dictators know what this implies, third-party punishment may only ineffectively enforce social norms. |
| Keywords: | Third-party punishment,Willful ignorance,Sorting,Social preference |
| JEL: | C91 D01 D63 D83 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbmbh:spii2019215&r=all |
| By: | Arthur B. Nelson (Department of Economics, Florida State University) |
| Abstract: | Many contests are sequential, with leaders making decisions rst, and followers observing those decisions and responding to them. The theory predicts that, unlike in standard Stackelberg duopoly settings, in two-player sequential contests the leader has no strategic advantage. However, this is no longer the case for sequential contests with multiple leaders. Applications include political competition with two established parties and a possibility for a third party entry, or R&D competition with multiple incumbents and a new entrant. We conduct a lab experiment testing the equilibrium predictions for two- and three-player sequential contests, with the corresponding simultaneous contests as controls. Consistent with theory, we find evidence of entry deterrence by leaders in the three-player sequential contest, but not in the two-player version. |
| Keywords: | contest, sequential move, Stackelberg, deterrence, experiment |
| JEL: | C92 D72 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2019_11_02&r=all |
| By: | Allan Drazen; Anna Dreber Almenberg; Erkut Y. Ozbay; Erik Snowberg |
| Abstract: | Recent large-scale replications of social science experiments provide important information on the reliability of experimental research. Unfortunately, there exist no mechanisms to ensure replications are done. We propose such a mechanism: journal-based replication, in which the publishing journal contracts for a replication between acceptance and publication. We discuss what we learned from a proof-of-concept journal-based replication at the Journal of Public Economics. Our experience indicates that journal-based replication would be relatively straightforward to implement for laboratory experiments. |
| JEL: | A11 A14 C18 C92 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26444&r=all |
| By: | Syngjoo Choi; Sanjeev Goyal; Fr¢¥ed¢¥eric Moisan |
| Abstract: | We conduct an experiment to understand the principles that govern network formation. The design of the experiment builds on a model of linking and efforts taken from Galeotti and Goyal [2010]. In order to reduce cognitive complexity facing human subjects and facilitate learning, we develop a new experimental platform that integrates a network visualization tool using an algorithm of Barnes and Hut [1986] with an interactive tool of asynchronous choices in continuous time. Our experiment provides strong support for macroscopic predictions of the theory: there is specialization in linking and e?orts across all treatments. Moreover, and in line with the theory, the specialization is more pronounced in larger groups. Thus subjects abide by the law of the few. Information on payo?s provided to subjects a?ects their behavior and yields di?erential welfare consequences. In the treatment where subjects see only their own payo?s, in large groups, the most connected individuals compete ?ercely they exert large efforts and have small earnings. By contrast, when a subject sees everyone¡¯s payo?s, in large groups, the most connected individuals engage in less intense competition they exert little e?ort and have large earnings. The e?ects of information are much more muted in small groups. |
| JEL: | C92 D83 D85 Z13 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:snu:ioerwp:no120&r=all |
| By: | Rudolf Kerschbamer; Daniel Neururer; Matthias Sutter |
| Abstract: | Credence goods markets are characterized by pronounced informational asymmetries between consumers and expert sellers. As a consequence, consumers are often exploited and market efficiency is threatened. However, in the digital age, it has become easy and cheap for consumers to self-diagnose their needs using specialized webpages or to access other consumers’ reviews on social media platforms in search for trustworthy sellers. We present a natural field experiment that examines the causal effect of information acquisition from new media on the level of sellers’ price charges for computer repairs. We find that even a correct self-diagnosis of a consumer about the appropriate repair does not reduce prices, and that an incorrect diagnosis more than doubles them. Internet ratings of repair shops are a good predictor of prices. However, the predictive valued of reviews depends on whether they are judged as reliable or not. For reviews recommended by the platform Yelp we find that good ratings are associated with lower prices and bad ratings with higher prices, while non-recommended reviews have a clearly misleading effect, because non-recommended positive ratings increase the price. |
| Keywords: | credence goods, fraud, information acquisition, internet, field experiment |
| JEL: | C93 D82 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7932&r=all |
| By: | Aurélien Baillon (Erasmus University Rotterdam); Joseph Capuno (University of the Philippines Diliman); Owen O'Donnell (Erasmus University Rotterdam); Carlos Tan (University of the Philippines Diliman); Kim van Wilgenburg (Erasmus University Rotterdam) |
| Abstract: | Temporary incentives are offered in anticipation of persistent effects, but these are seldom estimated. We use a nationwide randomized experiment in the Philippines to estimate effects three years after the withdrawal of two incentives for health insurance. A premium subsidy had a persistent effect on enrollment that is more than four fifths of the immediate effect. Application assistance had a much larger immediate impact, but less than a fifth of this effect persisted. The subsidy persuaded those with higher initial willingness to pay to enroll and keep enrolling, while application assistance achieved a larger immediate effect by drawing in those who valued insurance less and were less likely to re-enroll. |
| Keywords: | incentives, persistence, health insurance, subsidy, randomized experiment |
| JEL: | I13 C93 |
| Date: | 2019–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20190078&r=all |
| By: | Erkut, Hande; Shalvi, Shaul |
| Abstract: | Working hard is costly, so people should work wisely. Yet, they do not always work efficiently, spending their effort on tasks that do not bring tangible benefits. One reason that potentially amplifies inefficient working is that people work in social environments where they are observed and where others' earnings also depend on their effort. In this paper, we investigate whether people work and earn more than they need, and if so why? We use laboratory experiments to disentangle two concerns that potentially lead people to work inefficiently hard, namely image concerns and prosocial motives. Our results suggest that people indeed overwork unnecessarily, and that this is mainly due to image concerns. |
| Keywords: | overworking,image concerns,social preferences |
| JEL: | C91 D91 J22 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbmbh:spii2019214&r=all |
| By: | Syngjoo Choi; Jeongbin Kim; Eungik Lee; Jungmin Lee |
| Abstract: | Probability weighting is a major concept for accommodating systemic departures from expected utility theory. We examine the relation between probability weighting and cognitive ability by conducting laboratory experiments with a pool of subjects with unusually large variation in cognitive ability; native-born South Koreans and North Korean refugees. We find that cognitive ability is related to two distinct features of probability weighting-likelihood insensitivity and optimism. Particularly, the negative association between likelihood insensitivity and cognitive ability is robust to potential confounders and stronger among lower cognitive-ability subjects. Our findings shed light on the sources of anomalous choices against expected utility theory. |
| Keywords: | probability weighting; cognitive ability; likelihood insensitivity; North Korean refugees |
| JEL: | C91 D01 D81 D91 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:snu:ioerwp:no121&r=all |
| By: | Epper, Thomas; Fehr, Ernst; Fehr-Duda, Helga; Thustrup Kreiner, Claus; Dreyer Lassen, David; Leth-Petersen, Søren; Nytoft Rasmussen, Gregers |
| Abstract: | This paper documents a large association between individuals’ time discounting in incentivized experiments and their positions in the real-life wealth distribution derived from Danish highquality administrative data for a large sample of middle-aged individuals. The association is stable over time, exists through the wealth distribution and remains large after controlling for education, income profile, school grades, initial wealth, parental wealth, credit constraints, demographics, risk preferences and additional behavioral parameters. Our results suggest that savings behavior is a driver of the observed association between patience and wealth inequality as predicted by standard savings theory. |
| Keywords: | Wealth inequality, savings behavior, time discounting, experimental methods, administrative data |
| JEL: | C91 D31 E21 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2019:16&r=all |
| By: | Syngjoo Choi; Jos¢¥e-Alberto Guerra; Jinwoo Kim |
| Abstract: | We develop a model of interdependent value auctions in which two types of bidders compete: insiders, who are perfectly informed about their value, and outsiders, who are informed only about the private component of their value. Because of the mismatch of bidding strategies between insiders and outsiders, the second-price auc- tion is inefficient. The English auction has an equilibrium in which the information outsiders infer from the history of drop-out prices enables them to bid toward attaining ecffiency. The presence of insiders has positive impacts on the seller¡¯s revenue. A laboratory experiment confirms key theoretical predictions, despite evidence of naive bidding. |
| Keywords: | Interdependent value auctions; asymmetric information structure; second- price auction; English auction, experiment |
| JEL: | C92 D44 D82 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:snu:ioerwp:no114&r=all |
| By: | Choo, Lawrence; Zhou, Xiaoyu |
| Abstract: | We use an experiment to study whether market competition can reduce anomalous behaviour in games. In different treatments, we employ two alternative mechanisms, the random mechanism and the auction mechanism, to allocate the participation rights to the red hat puzzle game, a well-known logical reasoning problem. Compared to the random mechanism, the auction mechanism significantly reduces deviations from the equilibrium play in the red hat puzzle game. Our findings show that under careful conditions, market competition can indeed reduce anomalous behaviour in games. |
| Keywords: | market competition,market selection hypothesis,auctions,bounded-rationality,red hat puzzle |
| JEL: | C70 C90 D44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwqwdp:082019&r=all |
| By: | Yanchun Jin; Ryo Okui |
| Abstract: | We propose an econometric procedure to test for the presence of overconfidence using data collected by ranking experiments. Our approach applies the techniques from the moment inequality literature. Although a ranking experiment is a typical way to collect data for the analysis of overconfidence, Benoit and Dubra (2011) show that a ranking experiment may generate data that indicate overconfidence even if participants are purely rational Bayesian updaters. Instead, the authors provide a set of inequalities that are consistent with purely rational Bayesian updaters. We propose the application of the tests of moment inequalities developed by Romano et al. (2014) to test such a set of inequalities. Then, we examine the data from Svenson (1981) on driving safety. Our results indicate the presence of overconfidence with respect to safety among US subjects tested by Svenson. However, other cases tested do not show evidence of overconfidence. We also apply our method to re-examine and confirm the results of Benoit et al. (2015). |
| Keywords: | overcon?dence; ranking experiments; moment inequality; driving safety |
| JEL: | C12 D03 D81 R41 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:snu:ioerwp:no116&r=all |
| By: | Guzman, Jorge; Oh, Jean Joohyun; Sen, Ananya |
| Abstract: | Entrepreneurial motivation is central for the process of economic growth. However, evidence on the motivations of innovative entrepreneurs, and how those motivations differ across fundamental characteristics, remains scant. We conduct three field experiments with the MIT Inclusive Innovation Challenge to study how innovative entrepreneurs respond to messages of money and social impact, and how this varies across gender and culture. We find consistent evidence that women and individuals located in more altruistic cultures are more motivated by social impact messages than money, while men and those in less altruistic cultures are more motivated by money than social impact. The estimates are not driven by differences in the type of company, its size, or other observable characteristics, but instead appear to come from differences in the underlying motivations of innovative entrepreneurs themselves. |
| Date: | 2019–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:t7crk&r=all |
| By: | Peter Schwardmann; Egon Tripodi; Joël J. van der Weele |
| Abstract: | Does the wish to convince others lead people to persuade themselves about the moral and factual superiority of their position? We investigate this question in the context of two international debating competitions, where persuasion goals (pro or contra a motion) are randomly assigned to debaters shortly before the debate. Using incentives for truthful reporting, we find evidence of self-persuasion in the form of (i) factual beliefs that become more conveniently aligned with the debater’s side of the motion, (ii) shifts in attitudes, reflected in an increased willingness to donate to goal-aligned charities, and (iii) higher confidence in the strength of one’s position in the debate. Self-persuasion occurs before the debate and subsequent participation in the open exchange of arguments does not lead to convergence in beliefs and attitudes. Our results lend support to interactionist accounts of cognition and suggest that the desire to persuade is an important driver of opinion formation and political partisanship. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7946&r=all |
| By: | Kvarven, Amanda; Strømland, Eirik; Wollbrant, Conny Ernst-Peter (University of Gothenburg); Andersson, David; Johannesson, Magnus; Tinghög, Gustav (Linköping University); Västfjäll, Daniel; Myrseth, Kristian Ove R. (Trinity College Dublin) |
| Abstract: | The hypothesis that intuition promotes cooperation has attracted considerable attention. We address the question with a meta-analysis of 82 cooperation experiments, spanning four different types of intuition manipulations—time pressure, cognitive load, depletion, and induction—including 29,087 participants in total. To our knowledge, this is the largest and most comprehensive data set to date. We obtain a positive overall effect of intuition on cooperation, though substantially weaker than that reported in prior meta-analyses, and between studies the effect exhibits a substantial degree of systematic variation. We find that this overall effect depends exclusively on the inclusion of six experiments featuring emotion-induction manipulations, which prompt participants to rely on emotion over reason when making allocation decisions. Upon excluding from the total data set experiments featuring this class of manipulations, between-study variation in the meta-analysis is reduced substantially—and we observed no statistically discernable effect of intuition on cooperation. |
| Date: | 2019–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:osf:metaar:kvzg3&r=all |
| By: | Öberg, Stefan |
| Abstract: | There has been a fundamental flaw in the conceptual design of many natural experiments used in the economics literature, particularly among studies aiming to estimate a local average treatment effect (LATE). When we use an instrumental variable (IV) to estimate a LATE, the IV only has an indirect effect on the treatment of interest. Such IVs do not work as intended and will produce severely biased and/or uninterpretable results. This comment demonstrates that the LATE does not work as previously thought and explains why using the natural experiment proposed by Angrist and Evans (1998) as the example. |
| Date: | 2019–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:acdv4&r=all |
| By: | Ruoxuan Xiong; Susan Athey; Mohsen Bayati; Guido Imbens |
| Abstract: | Experimentation has become an increasingly prevalent tool for guiding policy choices, firm decisions, and product innovation. A common hurdle in designing experiments is the lack of statistical power. In this paper, we study optimal multi-period experimental design under the constraint that the treatment cannot be easily removed once implemented; for example, a government or firm might implement treatment in different geographies at different times, where the treatment cannot be easily removed due to practical constraints. The design problem is to select which units to treat at which time, intending to test hypotheses about the effect of the treatment. When the potential outcome is a linear function of a unit effect, a time effect, and observed discrete covariates, we provide an analytically feasible solution to the design problem where the variance of the estimator for the treatment effect is at most 1+O(1/N^2) times the variance of the optimal design, where N is the number of units. This solution assigns units in a staggered treatment adoption pattern, where the proportion treated is a linear function of time. In the general setting where outcomes depend on latent covariates, we show that historical data can be utilized in the optimal design. We propose a data-driven local search algorithm with the minimax decision criterion to assign units to treatment times. We demonstrate that our approach improves upon benchmark experimental designs through synthetic experiments on real-world data sets from several domains, including healthcare, finance, and retail. Finally, we consider the case where the treatment effect changes with the time of treatment, showing that the optimal design treats a smaller fraction of units at the beginning and a greater share at the end. |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1911.03764&r=all |
| By: | Arthur B. Nelson (Department of Economics, Florida State University); Dmitry Ryvkin (Department of Economics, Florida State University) |
| Abstract: | We study experimentally contests in which players make investment decisions sequentially, and information on prior investments is revealed between stages. Using a between-subject design, we consider all possible sequences in contests of three players and test two major comparative statics of the subgame-perfect Nash equilibrium: The positive effect of information disclosure on aggregate investment and earlier mover advantage. The former prediction is decidedly rejected, as we observe a reduction in aggregate investment when more information is sequentially disclosed. The evidence on earlier mover advantage is mixed but mostly does not support theory as well. Both predictions rely critically on forward-looking, sophisticated decision-making, which is not typical for our subjects. |
| Keywords: | contest, sequential moves, experiment |
| JEL: | C72 C99 D82 D91 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2019_11_01&r=all |
| By: | Romain Baeriswyl (Swiss National Bank, Boersenstrasse 15, 8001 Zurich, Switzerland); Kene Boun My (BETA-Strasbourg University, 61 Avenue de la Forêt Noire - 67085 Strasbourg Cedex, France); Camille Cornand (Univ Lyon, CNRS, GATE L-SE UMR 5824, F-69130 Ecully, France) |
| Abstract: | Central banks' disclosures, such as forward guidance, have a weaker effect on the economy in reality than in theoretical models. The present paper contributes to understanding how people pay attention and react to various sources of information. In a beauty-contest with information acquisition, we show that strategic complementarities give rise to a double overreaction to public disclosures by increasing agents equilibrium attention, which, in turn, increases the weight assigned to them in equilibrium action. A laboratory experiment provides evidence that the effect of strategic complementarities on the realised attention and the realised action is qualitatively consistent with theoretical predictions, though quantitatively weaker. Both the lack of attention to public disclosures and a limited level of reasoning by economic agents account for the weaker realised reaction. This suggests that it is just as important for a central bank to control reaction to public disclosures by swaying information acquisition by recipients as it is by shaping information disclosures themselves. |
| Keywords: | beauty-contest, information acquisition, overreaction, central bank communication |
| JEL: | D82 E52 E58 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1932&r=all |
| By: | Tanjim Hossain; Ryo Okui |
| Abstract: | Using a set of incentivized laboratory experiments, we characterize how people form beliefs about a random variable based on independent and correlated signals. First, we theoretically show that, while pure correlation neglect always leads to overvaluing of correlated signals, that may not happen if people also exhibit overprecision perceiving signals to be more precise than they actually are. Our experimental results reveal that, while subjects do overvalue moderately or strongly correlated signals, they undervalue weakly correlated signals, suggesting concurrent presence of correlation neglect and overprecision. Estimated parameters of our model suggest that subjects show a nearly complete level of correlation neglect and also suffer from a high level of overprecision. Additionally, we find that subjects do not fully benefit from wisdom of the crowd-they undervalue aggregated information about others¡¯ actions in favor of their private information. This is consistent with models of overprecision where people do not properly incorporate the variance reducing power of averages. |
| Keywords: | Correlated and independent signals; information processing; bounded rationality; correlation neglect; overprecision; belief elicitation; wisdom of the crowd |
| JEL: | C91 D81 D83 D84 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:snu:ioerwp:no115&r=all |
| By: | Reithmayer, Corrinna; Danne, Michael; Mußhoff, Oliver |
| Abstract: | Gender determination in incubated eggs (in ovo) has the potential to substitute the highly discussed practice of culling male layer chicks. The aim of this study is to investigate the effect pictures have on peoples' preferences towards in ovo sexing at different stages of embryonic development as an alternative to chick culling. For this purpose, an online survey was conducted with a representative sample of 482 respondents in Germany. A within-subject design with two choice experiments was used to investigate the influence pictures have on respondents' preferences and willingness to pay (WTP). The first choice experiment contained plain text only; the second contained also pictures of a chick or the incubated eggs at the corresponding stages of development. Findings reveal that in ovo gender determination at each proposed day of incubation (days 1, 4 and 9) was preferred to chick culling. In ovo screening on days 1 and 4 was significantly preferred to day 9. This preference for early gender determination increased significantly as a consequence to the provision of pictures. Results furthermore reveal that a high error rate of gender determination or the lack of a meaningful utilisation of incubated eggs can decrease approval for in ovo gender determination to an extent, where no positive WTP remains. Findings of this study are useful for stakeholders in poultry production when considering the implementation of in ovo gender determination as a morally admissible substitute to chick culling. |
| Keywords: | chick,choice experiment,egg,gender determination,in ovo,picture |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:daredp:1907&r=all |
| By: | Stark, Oded; Budzinski, Wiktor; Jakubek, Marcin |
| Abstract: | Assuming that an individual's rank in the wealth distribution is the only factor determining the individual's wellbeing, we analyze the individual's risk preferences in relation to gaining or losing rank, rather than the individual's risk preferences towards gaining or losing absolute wealth. We show that in this characterization of preferences, a high-ranked individual is more willing than a low-ranked individual to take risks that can provide him with a rise in rank: relative risk aversion with respect to rank in the wealth distribution is a decreasing function of rank. This result is robust to incorporating (the level of) absolute wealth in the individual's utility function. |
| Keywords: | Financial Economics, Risk and Uncertainty |
| Date: | 2019–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:ags:ubzefd:296754&r=all |
| By: | Yusuke Kuroishi (London School of Economics); Yasuyuki Sawada (Faculty of Economics, The University of Tokyo and AsianDevelopment Bank) |
| Abstract: | The literature concerning how preferences are affected by extreme events is char-acterized by mixed findings. To bridge this gap, we investigate the impacts of twodisasters triggered by different natural hazards on present bias, exponential time dis-counting, and curvature parameters of a utility function. These are elicited in anintegrated manner by the convex time budget (CTB) experiments as well as the multi-ple price list (MPL) experiments. Based on these approaches, we employ sui generisexperimental data and accurate disaster damage information from the official metricalsurveys in Iwanuma city of Japan and from satellite images of the East Laguna Villageof the Philippines, which were hit, respectively, by a strong earthquake and tsunami in2011 and serious floods in 2012. First, we find that disaster exposure makes individ-uals more present-biased and less risk-averse regardless of distinctive differences insocio-economic conditions and disaster types. Second, the impact lasted for 6 yearsin both areas, suggesting persistency of the effect. Third, our results are consistentwith emotional channels but not necessarily with a potential market friction in theform of binding liquidity constraints. Our findings suggest that the existing mixedempirical evidence can be attributed to the lack of an integrated and consistent frame-work as well as accurate data on disaster damages, rather than variations in literacyor education levels of experimental subjects. |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2019cf1130&r=all |