nep-exp New Economics Papers
on Experimental Economics
Issue of 2020‒02‒03
thirty-six papers chosen by

  1. The Effect of Expert Feedback on Antibiotic Prescribing in Pediatrics: Experimental Evidence By Eilermann, Kerstin; Halstenberg, Katrin; Kuntz, Ludwig; Martakis, Kyriakos; Roth, Bernhard; Wiesen, Daniel
  2. No moral wiggles in e5 and e1,000 dictator games under ambiguity By Brañas-Garza, Pablo; Kovářík, Jaromír; Lopez-Martin, Maria del Carmen
  3. Rationally Inattentive savers and Monetary Policy Changes: A Laboratory Experiment By Andrea Civelli; Cary Deck; Antonella Tutino
  4. Urban Costs and the Spatial Structure of Cities: A Laboratory Experiment By Michiel Bliemer; Laurent Denant-Boemont; Sabrina Hammiche; David Hensher; Corinne Mulley
  5. Performance effects of setting a high reference point for peer-performance comparison By Eyring, Henry; Narayanan, V.G.
  6. Reconsidering Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets By Brice Corgnet; Cary Deck; Mark DeSantis; Kyle Hampton; Erik O. Kimbrough
  7. The Economic Preferences of Cooperative Managers By Alves, Guillermo; Blanchard, Pablo; Burdin, Gabriel; Chávez, Mariana; Dean, Andrés
  8. Breaking Up: Experimental Insights into Economic (Dis)Integration By Camera, Gabriel; Hohl, Lukas; Weder, Rolf
  9. Competitiveness, gender and handedness: a large- sample intercultural study By Buser, Thomas; Cappelen, Alexander; Gneezy, Uri; Hoffman, Moshe; Tungodden, Bertil
  10. Using Revenue Sharing for Higher Risk and Return Business Ventures in Microfinance: An Experimental Study By Jeremy Clark; John Spraggon
  11. Status and Economic Rent: Experimental Evidence on the Matthew Effect By Clingingsmith, David; Sheremeta, Roman M
  12. Who Debates, Who Wins? At-Scale Experimental Evidence on Debate Participation in a Liberian Election By Jeremy Bowles; Horacio Larreguy
  13. Motivated Errors By Christine L. Exley; Judd B. Kessler
  14. How Do Employers Use Compensation History?: Evidence From a Field Experiment By Moshe A. Barach; John J. Horton
  15. Multilateral Bargaining over the Division of Losses By Duk Gyoo Kim; Wooyoung Lim
  16. Status and the Demand for Visible Goods: Experimental Evidence on Conspicuous Consumption By Clingingsmith, David; Sheremeta, Roman M
  17. How do we choose whom to trust? The effect of social networks on trust By Federica Alberti; Anna Conte; Daniela T. Di Cagno; Emanuela Sciubba
  18. Agricultural Transformation and Farmers' Expectations: Experimental Evidence from Uganda By Bonan, Jacopo; Kazianga, Harounan; Mendola, Mariapia
  19. Product Quality and Reputation in Experimental Markets By Blake Dunkle; R. Mark Isaac; Philip C. Solimine
  20. Are groups really more dishonest than individuals? By Castillo, Geoffrey; Choo, Lawrence; Grimm, Veronika
  21. Delegated Decision-Making in Finance By Holzmeister, Felix; Holmén, Martin; Kirchler, Michael; Stefan, Matthias; Wengström, Erik
  22. Strategic interactions between tax and statutory auditors and different information regimes: Implications for tax audit efficiency By Blaufus, Kay; Schöndube, Jens Robert; Wielenberg, Stefan
  23. “Fatal Attraction” and Level-k thinking in games with Non-neutral frames By Crawford, Vincent P
  24. General Equilibrium Effects of Cash Transfers: Experimental Evidence from Kenya By Dennis Egger; Johannes Haushofer; Edward Miguel; Paul Niehaus; Michael W. Walker
  25. Simple Belief Elicitation: an experimental evaluation By Schlag, Karl; Tremewan, James
  26. Mental Accounts and the Marginal Propensity to Give By Clingingsmith, David
  27. Rewarding Commitment to Attend School: A Field Study with Indigenous Australian High School Students By Azhar Hussain Potia; Juliana Silva-Goncalves; Benno Torgler; Uwe Dulleck
  28. Training Aspiring Entrepreneurs to Pitch Experienced Investors: Evidence from a Field Experiment in the United States By Clingingsmith, David; Shane, Scott
  29. Let Others Go First: How Pitch Order Affects Investor Interest in Elevator Pitches By Clingingsmith, David; Shane, Scott
  30. An Introduction to Audit Studies in the Social Sciences By Gaddis, S. Michael
  31. On strategic transmission of gradually arriving information By Alexander Frug
  32. Financial Decisions and Financial Regulation: Three Concepts of Performance Based Regulation By Uwe Dulleck
  33. How Individual Income Tax Policy Affects Entrepreneurship By Clingingsmith, David; Shane, Scott
  35. Social Media and Xenophobia: Evidence from Russia By Leonardo Bursztyn; Georgy Egorov; Ruben Enikolopov; Maria Petrova

  1. By: Eilermann, Kerstin (Department of Business Administration and Health Care Management, University of Cologn); Halstenberg, Katrin (University of Cologne, Medical Faculty and University Hospital, Department of Pediatrics, Cologne); Kuntz, Ludwig (Department of Business Administration and Health Care Management, University of Cologne); Martakis, Kyriakos (University of Cologne, Medical Faculty and University Hospital, Department of Pediatrics, Cologn); Roth, Bernhard (University of Cologne, Medical Faculty and University Hospital, Department of Pediatrics, Cologne); Wiesen, Daniel (Department of Health Management and Health Economics)
    Abstract: Background. Inappropriate prescribing of antibiotics, which is common in pediatric care, is a key driver of antimicrobial resistance. To mitigate the development of resistance, antibiotic stewardship programs often suggest the inclusion of feedback targeted at individual providers. Empirically, however, it is not well understood how feedback affects individual physicians’ antibiotic prescribing decisions. Also, the question of how physicians’ characteristics, such as clinical experience, relate to antibiotic prescribing decisions and to responses to feedback is largely unexplored. Objective. To analyze the causal effect of descriptive expert feedback (and individual characteristics) on physicians’ antibiotic prescribing decisions in pediatrics. Design. We employed a randomized, controlled framed field experiment, in which German pediatricians (n=73) decided on the length of first-line antibiotic treatment for routine pediatric cases. In the intervention group (n=39), pediatricians received descriptive feedback in form of an expert benchmark, which allowed them to compare their own prescribing decisions with expert recommendations. The recommendations were elicited in a survey of pediatricdepartment directors (n=20), who stated the length of antibiotic therapies they would choose for the routine cases. Pediatricians’ characteristics were elicited in a comprehensive questionnaire. Results. Providing pediatricians with expert feedback significantly reduced the length of antibiotic therapies by ten percent on average. Also, the deviation of pediatricians’ decisions from experts’ recommendations significantly decreased. Antibiotic therapy decisions were significantly related to pediatricians’ clinical experience, risk attitudes, and personality traits. The effect of feedback was significantly associated with physicians’ experience. Conclusion. Our results indicate that descriptive expert feedback can be an effective means to guide pediatricians, especially those who are inexperienced, towards more appropriate antibiotic prescribing. Therefore, it seems to be suitable for inclusion in antibiotic stewardship programs.
    Keywords: Framed field experiment; descriptive feedback; expert benchmark; length of antibiotic therapy; clinical experience.
    JEL: D90 I12
    Date: 2019–12–16
  2. By: Brañas-Garza, Pablo; Kovářík, Jaromír; Lopez-Martin, Maria del Carmen
    Abstract: This paper explores excuse-driven behavior in giving. In our powered laboratory experiment, participants play Dictator Games sharing 5e or 1,000e under certainty or ambiguity with a charity. In contrast to previous papers using MPLs {that necessarily introduce additional layers of uncertainty{our subjects participate in two DGs. We �nd no evidence that people use moral wiggles to hide their sel�shness. They share equally out of 5e under certainty and ambiguity and as much out of 1,000e under ambiguity as they do under certainty in the previous literature. These �findings raise the question whether previous results might be an artifact.
    Keywords: Giving, charity, uncertainty, ambiguity, stakes.
    JEL: C91 D64 D81
    Date: 2020–01–09
  3. By: Andrea Civelli (University of Arkansas, Walton College of Business, Department of Economics); Cary Deck (University of Alabama; Economic Science Institute, Chapman University); Antonella Tutino (Federal Reserve Bank of Dallas)
    Abstract: We study the response of consumption and saving decisions of rationally inattentive individuals to changes in monetary policy in the laboratory. First, we theoretically characterize the choices of a rationally inattentive agent processing information about the interest rate. Then, we design an experiment with induced inattention to test for the predictions of the model, contrasting them to the full information case. Consistent with the predictions, experimental subjects (a) increase attention when utility gains exceed cognitive costs of tracking the policy rate and decrease savings when their perceived economic outlook deteriorates; (b) respond to Delphic, but not Odyssean, forms of forward guidance. These ?ndings agree with recent empirical evidence on monetary policy e?ects on consumption behavior in U.S. and internationally.
    Keywords: Rational Inattention; Experimental Evidence' Information Processing Capacity; Consumption
    JEL: C91 D11 D8 E20
    Date: 2020
  4. By: Michiel Bliemer; Laurent Denant-Boemont (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique); Sabrina Hammiche (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique); David Hensher; Corinne Mulley
    Abstract: This paper presents a laboratory experiment to investigate how urban costs might determine the internal structure of urban areas (monocentric or polycentric) by influencing location choices of firms and households. The experimental design is in part guided by a theoretical model that shows how the trade-off between communication costs faced by firms and commuting costs borne by workers determine the degree of cities' polycentricism by influencing the distribution of the workplaces within it. In the laboratory experiment, groups of 16 subjects participated in a two-step auction game, where firms and workers first negotiated to find a job contract and second where workers bid for land in order to find a home. The game is repeated for four rounds and different experimental treatments are implemented, each defining a given scenario for communication costs and commuting costs. The chosen benchmark is a polycentric city treatment, where no communication cost exists for firms, giving them no incentive to locate in the CBD. In two other treatments, the communication cost is positive. In the Monocentric City treatment, commuting cost for workers is low, giving a clear incentive for firms to locate in the CBD, as workers do not suffer from potential high commuting costs, giving an outcome where all firms should locate in the CBD. In the Hierarchical City treatment, the commuting cost is very high for workers, giving workers a strong incentive to live close to their workplace and accepting lower wages as a result. Experimental results are in line with theoretical predictions: firms tend to locate in the CBD under the monocentric treatment, whereas more distant locations are accepted leading to a hierarchical outcome as workers propose lower wages for not working in the CBD so as to escape high commuting costs.
    Keywords: Polycentric City,commuting costs,location choices,job contracts
    Date: 2020–01–15
  5. By: Eyring, Henry; Narayanan, V.G.
    Abstract: We conduct a field experiment, based on a registered report accepted by the Journal of Accounting Research, to test performance effects of setting a high reference point for peer-performance comparison. Relative to providing the median as a reference point for online students to compare themselves to, providing the top quartile: damps performance for those below the median; boosts performance for those between the median and top quartile; and, in the case of outcome but not process comparison, boosts performance for those above the top quartile. We do not find that either reference point yields a greater average performance effect. However, providing the more effective reference point in each partition of initial performance yields a 40% greater performance effect than providing either reference point uniformly. Students access the online courses intermittently over the span of a year. Our effects derive from small portions of our treatment groups—5% in the case of process comparison and 26% in the case of outcome comparison—who accessed treatment and who were, on average, more active leading up to and during our intervention
    Keywords: Relative performance information; reference points; performance; social comparison
    JEL: C93 D91 I21 M41
    Date: 2018–05–30
  6. By: Brice Corgnet (Emlyon Business School); Cary Deck (University of Alabama; Chapman University); Mark DeSantis (Chapman University); Kyle Hampton (Chapman University); Erik O. Kimbrough (Chapman University)
    Abstract: The ability of markets to aggregate dispersed information is a cornerstone of economics and finance. In a seminal experiment, Plott and Sunder (1988) offer support for the rational expectations hypothesis. However, recent laboratory experiments have called into question the robustness of those initial results. In this paper, we offer the first attempt to directly replicate key findings of the original study. Failing to replicate their results, the post-study probability that market performance is better described by rational expectations than the prior information (Walrasian) model is low. Given this result, we introduce a new treatment that implements a market structure consistent with naturally occurring prediction markets, which can be viewed as completing the original experimental design. In this new treatment, we find strong support for the rational expectations model. Thus, while the original paper showed conditions where markets can aggregate information, we attempt to identify sufficient conditions for such aggregation to be robust.
    Keywords: Information Aggregation; Efficient Markets; Rational Expectations; Replication
    JEL: D4 D8 C9
    Date: 2020
  7. By: Alves, Guillermo; Blanchard, Pablo; Burdin, Gabriel; Chávez, Mariana; Dean, Andrés
    Abstract: A growing body of research has been investigating the role of management practices and managerial behaviour in conventional private firms and public sector organizations. However, little is known about managers’ behavioural profile in noninvestorowned firms. This paper aims to fill this gap by providing a comprehensive behavioural characterization of managers employed in cooperatives. We gathered incentive-compatible measures of risk preferences, time preferences, reciprocity, altruism, and trust from 196 Uruguayan managers (half of them employed in worker cooperatives) and 92 first-year undergraduate students. To do this, we conducted a high-stakes lab-in-thefield experiment in which participants played a series of online experimental games and made incentivised decisions.
    Keywords: Competitividad, Investigación socioeconómica, Liderazgo, Productividad,
    Date: 2019
  8. By: Camera, Gabriel; Hohl, Lukas (University of Basel); Weder, Rolf (University of Basel)
    Abstract: Standard international economic theory suggests that people should embrace economic integration because it promises large gains. But recent events such as Brexit indicate a desire for economic disintegration. Here we report results of an experiment, based on a strategic analytical framework, of how size and distribution of potential gains from integration influence outcomes and individuals' inclination to embrace integration. We find that cross-country inequality in potential gains acts as a friction to realize those gains. This suggests that to better understand recent phenomena, international economic theory should account for distributional considerations and behavioral aspects it currently ignores.
    Keywords: endogenous institutions, globalization, indefinitely repeated games, social dilemmas
    JEL: C70 C90 F02
    Date: 2019–11–30
  9. By: Buser, Thomas (University of Amsterdam); Cappelen, Alexander (Dept. of Economics, Norwegian School of Economics and Business Administration); Gneezy, Uri (Rady School of Management, USCD); Hoffman, Moshe (MIT and Harvard); Tungodden, Bertil (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: We conduct a large-scale intercultural experiment to elicit competitiveness and ask whether individual and gender differences in competitiveness are partially determined by nature. We use being a “lefty” (i.e., having either a dominant left hand or a dominant left foot) as a proxy for nature, as it is associated with neurological differences which are determined prenatally and reflects a masculinized neurology. That way we use handedness and footedness as a proxy for innate differences. In large-scale data with incentivized choices from 3683 participants from India, Norway and Tanzania, we find a significant gender gap in competitiveness in all cultures. However, we find inconsistent results when comparing the competitiveness of lefties and righties. In northeast India we find that lefties of both genders are significantly more competitive than righties. In Norway we find that lefty men are more competitive than any other group, but women’s competitiveness is not related to handedness or footedness. In Tanzania, we find no effect of handedness or footedness on the competitiveness of either gender. The merged data show weak evidence of a positive correlation between being a lefty and competitiveness for men, but no such evidence for women. Thus, our data do not provide robust evidence that gender differences in competitiveness are partially determined by nature, where nature is represented by the complex, physiologically-rooted phenomenon of handedness.
    Keywords: Competitiveness
    JEL: A00
    Date: 2020–01–16
  10. By: Jeremy Clark (University of Canterbury); John Spraggon
    Abstract: We report a group liability microfinance lab experiment that tests a mechanism to raise repayment rates among borrowers whose business plans carry higher exogenous risk and return. The mechanism is optional revenue sharing among the group of borrowers, agreed to before their individual business outcomes are realized and loan repayment decisions are made. Such revenue sharing makes loan repayment optimal under more business outcome states, thus increasing the expected benefit to each borrower of repayment to qualify for future loans. We further test the effect of allowing the borrowers to renege on revenue sharing agreements after learning their business outcomes, prior to making their loan repayment decisions. Our results illustrate the problem that exogenously higher risk/return borrowing groups achieve lower loan repayment rates than lower risk/return borrowing groups. We then find that introducing optional revenue sharing significantly increases the high risk borrowers’ repayment rates, but that most of this gain is lost when successful borrowers can renege on revenue sharing agreements.
    Keywords: Microfinance; Revenue sharing; Profit sharing; Risk; Adverse selection
    JEL: G21 O16 O17 O43
    Date: 2020–01–01
  11. By: Clingingsmith, David (Case Western Reserve University); Sheremeta, Roman M (Case Western Reserve University)
    Abstract: Some researchers argue that social status extracts economic rents. Making a causal inference about this claim is difficult with naturally occurring data. For this reason, we conduct an experiment in which participants are divided into investors and workers. Workers are assigned status and then perform a real-effort task. Investors make investments after observing workers’ status and past task performance. We find that workers of higher status receive higher investments when status is derived from performance but not when it is randomly assigned. Surprisingly, the status effect persists even when, conditioning on past performance, status is not predictive of future performance.
    Date: 2017–12–13
  12. By: Jeremy Bowles; Horacio Larreguy
    Abstract: We examine how candidate selection into the supply of policy information determines its electoral effects. In a nationwide debate initiative designed to solicit and rebroadcast policy promises from Liberian legislative candidates, we randomized the encouragement of debate participation across districts. The intervention substantially increased the debate participation of leading candidates but led to uneven electoral returns for these candidates, with incumbents benefiting at the expense of challengers. These results are driven by differences in compliance: complying incumbents, but not challengers, positively selected into debate participation based on the congruence of their policy priorities with those of their constituents.
    Keywords: accountability, information, selection
    JEL: D72 O12
    Date: 2019–12
  13. By: Christine L. Exley; Judd B. Kessler
    Abstract: In three sets of experiments involving over 4,200 subjects, we show that agents motivated to be selfish make systematic decision errors of the kind generally attributed to cognitive limitations or behavioral biases. We show that these decision errors are eliminated (or dramatically reduced) when self-serving motives are removed. We say that individuals make "motivated errors." They make decision errors, but only when it is self-serving to do so.
    JEL: C91 D64 D91
    Date: 2019–12
  14. By: Moshe A. Barach; John J. Horton
    Abstract: We report the results of a field experiment in which treated employers could not observe the compensation history of their job applicants. Treated employers responded by evaluating more applicants, and evaluating those applicants more intensively. They also responded by changing what kind of workers they evaluated: treated employers evaluated workers with 5% lower past average wages and hired workers with 13% lower past average wages. Conditional upon bargaining, workers hired by treated employers struck better wage bargains for themselves.
    JEL: J0 J23 J48 J7
    Date: 2020–01
  15. By: Duk Gyoo Kim; Wooyoung Lim
    Abstract: Many-player divide-the-dollar games have been a workhorse in the theoretical and experimental analysis of multilateral bargaining. If we are dealing with a loss, that is, if we consider many-player “divide-the-penalty” games for, e.g., the location choice of obnoxious facilities, the allocation of burdensome chores, or the reduction of carbon dioxide emissions at a climate change summit, the theoretical predictions do not merely flip the sign of those in the divide-the-dollar games. We show that the stationary subgame perfect equilibrium (SSPE) is no longer unique in payoffs. The most “egalitarian” equilibrium among the stationary equilibria is a mirror image of the essentially unique SSPE in the Baron-Ferejohn model. That equilibrium is fragile in the sense that allocations are sensitive when responding to changes in parameters, while the most “unequal” equilibrium is not affected by changes in parameters. Experimental evidence clearly supports the most unequal equilibrium: Most of the approved proposals under a majority rule involve an extreme allocation of the loss to a few members. Other observations such as no delay, proposer advantage, and the acceptance rate are also consistent with the predictions based on the most unequal equilibrium.
    Keywords: multilateral bargaining, loss division, laboratory experiments
    JEL: C78 D72 C92
    Date: 2019
  16. By: Clingingsmith, David (Case Western Reserve University); Sheremeta, Roman M (Case Western Reserve University)
    Abstract: Some economists argue that consumption of publicly visible goods is driven by social status. Making a causal inference about this claim is difficult with observational data. We conduct an experiment in which we vary both whether a purchase of a physical product is publicly visible or kept private and whether the income used for purchase is linked to social status or randomly assigned. Making consumption choices visible leads to a large increase in demand when income is linked to status, but not otherwise. We investigate the characteristics that mediate this effect and estimate its impact on welfare
    Date: 2017–12–13
  17. By: Federica Alberti (Portsmouth Business School); Anna Conte (Sapienza University of Rome); Daniela T. Di Cagno (LUISS Guido Carli University); Emanuela Sciubba (Birkbeck University of London)
    Abstract: Our social lives are governed by trust. But how do we choose whom to trust? In this work, based on a laboratory experiment, we explore whether building relationships in a social network increases individuals' level of trust. We find that social interactions direct trust, but their impulse is not sufficiently strong to result beneficial.
    Keywords: Social network, Trust, Lab experiment
    JEL: C72 C91 C92 D82 D85
    Date: 2020–01–24
  18. By: Bonan, Jacopo; Kazianga, Harounan; Mendola, Mariapia
    Abstract: Why adoption rate of potentially profitable agricultural technologies in Africa remains low is still puzzling. This paper uses a randomized control trial to study Ugandan subsistence smallholders' decisions to adopt cash crops. A unique way of eliciting farmers price and yield expectations allows us to investigate the role of farmers' ex-ante beliefs about crop profitability on adoption decisions. We find that the provision of extension services increases oilseeds adoption by 15%, and farmers who under-estimate oilseeds price at baseline are the most likely to adopt the new crops. The results suggest that changes in expectations drive agricultural technology take-up.
    Keywords: Technology Adoption,Commercial Farming,Randomized Controlled Trial,Uganda
    JEL: O13 O33 Q14 Q15 Q16
    Date: 2020
  19. By: Blake Dunkle (Caldwell and Kerr Advertising); R. Mark Isaac (Department of Economics, Florida State University); Philip C. Solimine (Department of Economics and Department of Scientific Computing, Florida State University)
    Abstract: In this paper we conduct a market experiment with the opportunity for sellers to send a nonbinding advertisement of their product quality, and examine the effects of including a reputation aggregation system for sellers in these markets. In order to closely match the setting of real life markets, we simulate a high-frequency online trading environment in which sellers are given unique identi ers. Ideally, a fi xed identity for the sellers should allow them to build a reputation for delivering high-quality goods to the market, increasing the efficiency of market outcomes. In some sessions, we prompt buyers to respond to their purchases with a canonical "five-star" rating. We demonstrate the robustness of classic experimental results to a more technologically advanced market environment; using a design which both remains true to the spirit of these original experimental tests and reflects more of the features which are present in newly-ubiquitous online markets. Additionally, we fi nd substantial efficiency gains from the addition of the ratings system. Even with the ratings, however, the gains were not enough to obtain perfectly efficient market outcomes. Furthermore, we examine the formation of reputations by the sellers (with and without ratings) and the effect of these reputations on the decisions of buyers and sellers in the market.
    Keywords: Product Quality, Seller Reputation, Ratings, Experimental Market Design
    JEL: D4 D9 L1
    Date: 2020–01
  20. By: Castillo, Geoffrey; Choo, Lawrence; Grimm, Veronika
    Abstract: Groups are often found to be more rational than individuals. In lying games, this implies that groups are more dishonest. We scrutinise this conclusion in a setup where there are true moral concerns associated with dishonest behaviour. In contrast to prior studies, we do not find groups to be more dishonest than individuals when a passive third party, such as a charity, is harmed by the dishonest behaviour. Instead, we find that groups can help to moderate the extent of dishonest behaviour.
    Keywords: dishonesty,group decisions,communication,social norms
    JEL: C91 C92 D71
    Date: 2020
  21. By: Holzmeister, Felix (University of Innsbruck); Holmén, Martin; Kirchler, Michael; Stefan, Matthias; Wengström, Erik (Lund University)
    Abstract: We run an online experiment with 408 finance professionals (money managers) and 550 subjects from the general population in Sweden (clients). We examine drivers of clients' delegation decisions, differences in decision-making quality between both groups, and professionals' ability to implement investment portfolios that suit the clients' risk attitudes. We find that clients' trust in money managers increases the likelihood of delegating their investment decisions, whereas decision-making quality is associated with a decrease. We further show that decision-making quality of finance professionals is not significantly higher compared to their clients' when controlling for risk taking. Finally, we observe high variability among professionals' perception of delegated risk levels and overlaps in portfolio risk across self-reported risk-levels of clients. This finding indicates that communicating risk between clients and professionals constitutes a potential pitfall in delegated investment decisions.
    Date: 2019–12–03
  22. By: Blaufus, Kay; Schöndube, Jens Robert; Wielenberg, Stefan
    Abstract: We examine whether tax audit regimes become more efficient if (i) there are audited financial statements and (ii) tax auditors have access to the internal statutory audit report revealing information about statutory audit adjustments. Our analysis is based on a standard tax compliance game that we extend to model the strategic interaction among a firm issuing financial and tax reports, a statutory auditor, and a tax auditor. We find that the efficiency effects of additional information depend on the strength of tax auditor incentives and the weight that firms place on book income. For high-powered tax auditor incentives, we obtain no information effect on our efficiency measures. For low-powered tax auditor incentives, we find an ambiguous effect, and for mediumpowered tax auditor incentives and firms that place a high weight on book income, tax audit efficiency increases if the tax auditor has access to additional information. In the latter case, we find that granting the tax auditor access to the internal statutory audit report increases firms' tax compliance, raises tax revenues, and decreases tax audit frequency.
    Keywords: Tax compliance game,Tax audit,Statutory audit,Tax audit efficiency,Strategic auditing
    JEL: H26 M41 M42
    Date: 2020
  23. By: Crawford, Vincent P
    Keywords: Behavioral game theory, Experimental game theory, Strategic thinking, Level-k models, Coordination, Salience, Applied Economics, Economics
    Date: 2018–12–01
  24. By: Dennis Egger; Johannes Haushofer; Edward Miguel; Paul Niehaus; Michael W. Walker
    Abstract: How large economic stimuli generate individual and aggregate responses is a central question in economics, but has not been studied experimentally. We provided one-time cash transfers of about USD 1000 to over 10,500 poor households across 653 randomized villages in rural Kenya. The implied fiscal shock was over 15 percent of local GDP. We find large impacts on consumption and assets for recipients. Importantly, we document large positive spillovers on non-recipient households and firms, and minimal price inflation. We estimate a local fiscal multiplier of 2.7. We interpret welfare implications through the lens of a simple household optimization framework.
    JEL: E62 H3 O12 O23 R13
    Date: 2019–12
  25. By: Schlag, Karl; Tremewan, James
    Abstract: We present a method for eliciting beliefs about probabilities when multiple realisations of an outcome are available, the "frequency'' method. The method is applicable for any reasonable utility function. Unlike existing techniques that account for deviations from risk-neutrality, this method is highly transparent to subjects and easy to implement. Rather than identifying point beliefs these methods identify bounds on beliefs, thus trading off precision for generality and simplicity. An experimental comparison of this method and a popular alternative, the Karni method, shows that subjects indeed find the frequency method easier to understand. Significantly, we show that confusion due to the complexity of the Karni method leads to less cognitively able subjects erroneously stating a belief of 50%, a bias not present in the frequency method.
    Keywords: Belief elicitation; experiment
    JEL: C91
    Date: 2020–01–17
  26. By: Clingingsmith, David (Case Western Reserve University)
    Abstract: Neoclassical theory holds that different sources of income are fungible at the margin. In contrast, mental accounting holds that appropriate uses for income vary by source, making them infungible. This study investigates which theory better describes giving at the margin when income may have multiple sources. Dictators accrue differing amounts of (1) earned income from a real-effort task, (2) windfall income, or (3) both. I find that dictators treat marginal earned and windfall income as partially infungible, supporting mental accounting. Dictators who had a single income source gave 14% of a marginal windfall token and 5% of a marginal earned token. Strikingly, dictators who had income from both sources were sharply less generous with each, giving only 2% and 1%, respectively. Multiple accounts enabled greater selfishness at the margin. A follow-up experiment shows that two accounts must be qualitatively different, not just multiple in number, to produce this effect.
    Date: 2017–12–13
  27. By: Azhar Hussain Potia; Juliana Silva-Goncalves; Benno Torgler; Uwe Dulleck
    Abstract: We introduce a novel incentive program aimed at decreasing school absenteeism based on the effect of voluntary promises in motivating desirable behaviour. In contrast to a standard program, in which students receive a reward conditional on having achieved a school attendance rate of at least 90 percent, in the promise program, they receive the reward up front, conditional on their commitment to invest their best efforts to reach the attendance target. We assess the effectiveness of the promise program through a field study involving Indigenous Australian high school students, a population who tends to have lower education achievement and socioeconomic advantage than their non-Indigenous counterparts. We find that the promise program significantly decreased unexplained absences compared to the standard program but that it did not influence overall school absences. Our findings suggest that voluntary promises coupled with small gifts are effective in influencing behaviour of disadvantaged students. At the same time, we need further research on how to best design such programs to achieve positive effects in reducing school absenteeism.
    Keywords: school absenteeism, promises, upfront rewards, Aboriginal and Torres Strait Islander students
    JEL: I24 I25 I28
    Date: 2019
  28. By: Clingingsmith, David (Case Western Reserve University); Shane, Scott
    Abstract: Accredited investors finance more than 75,000 U.S. start-ups annually. We explain how training aspiring entrepreneurs to pitch their new business ideas to these investors affects their odds of continued funding discussions. We model accredited investors’ decision to continue investigation as a real option whose value is a function of their experience and the information contained in the entrepreneurs’ pitches. We derive four hypotheses from the model, which we test through a field experiment that randomly assigns pitch training at four elevator pitch competitions. The data support all four hypotheses, and are inconsistent with alternative explanations.
    Date: 2017–12–13
  29. By: Clingingsmith, David (Case Western Reserve University); Shane, Scott
    Abstract: The start-ups with the most potential to innovate and generate employment are the ones most likely to rely on capital provided by outside investors. Several institutional developments including the rise of business accelerators, angel groups, and startup competitions, have meant that founders seeking this type of capital increasingly pitch their business ideas to investors in group settings, raising the question of whether the order in which ideas are pitched affects outcomes. Research on order effects in other competitive environments indicates that judges often have high expectations and calibrate their evaluations to the lower average performance of competitors at the beginning of competition, making it difficult for those going early to do as well as those performing later. We test empirically whether this calibration effect is also present for efforts by founders to pitch investors by conducting a field experiment. Entrepreneurs participating in elevator pitch competitions were randomly assigned the position in which they pitched. We find evidence of this calibration effect: investor-judges expressed substantially lesser interest in pursuing investment in the first and second ventures pitched to them.
    Date: 2017–12–13
  30. By: Gaddis, S. Michael (UCLA)
    Abstract: An audit study is a specific type of field experiment primarily used to test for discriminatory behavior when survey and interview questions induce social desirability bias. In this chapter, I first review the language and definitions related to audit studies and encourage adoption of a common language. I then discuss why researchers use the audit method as well as when researchers can and should use this method. Next, I give an overview of the history of audit studies, focusing on major developments and changes in the overall body of work. Finally, I discuss the limitations of correspondence audits and provide some thoughts on future directions.
    Date: 2018–01–01
  31. By: Alexander Frug
    Abstract: The main insight of the literature on strategic information transmission is that even a small conflict of interest between a fully informed sender (e.g., a financial adviser) and an uninformed receiver (an investor) often poses considerable difficulties for effective communication. However, in many real-life situations, the sender is not fully informed at the outset but gradually studies the case before offering advice. The gradual arrival of information to the sender weakens the strategic barriers between the players and significantly improves communication.
    JEL: D82 D83
    Date: 2019–12
  32. By: Uwe Dulleck
    Abstract: This chapter discusses the basis for and concepts of implementing performance based measures in financial regulation. Drawing on empirical methods and insights generated in the field of behavioural economics theoretical considerations and alternative measurements of services and disclosure performance are presented. The behavioural economics inspired approaches rely on control and treatment group comparisons and come in three shapes: concepts analysing existing administrative and financial data counting the number of dominated choices; data from laboratory experiments simulating consumer decisions given provided services counting the frequency of dominated choices and products and data from randomized controlled trials/field experiments in the form of mystery shopper experiments, again counting dominated choices. Each of these are discussed in detail. These concepts differ from alternative, more traditional, approaches that would include economic analysis of incentives and or direct measures of confusion created by information provided, such as computational linguistics, to capture financial service performance.
    Date: 2019
  33. By: Clingingsmith, David (Case Western Reserve University); Shane, Scott
    Abstract: We review the empirical literature on the effects of individual income tax policy on entrepreneurship. We find no evidence of consensus, even on relatively narrow questions such as whether individual income tax rates deter or encourage entrepreneurial entry. We believe the absence of consensus reflects both the complexity of mechanisms connecting tax policy to entrepreneurial decision making and the infeasibility of employing the most reliable empirical methods, such as experiments, in this domain.
    Date: 2017–12–13
  34. By: Gregory A. PORUMBESCU; Nicola BELLE; Maria CUCCINIELLO; Greta NASI
    Abstract: Theory linking transparency to good governance predicts that greater disclosure will render public organizations more responsive by encouraging citizens to engage in processes that govern the delivery of public services. Yet, increasingly, empirical research indicates our theoretical understanding of this relationship is limited. We reason this is because extant theory overlooks mechanisms responsible for link transparency to citizen engagement. Accordingly, we predict that effects of transparency on citizen engagement depend on whether content is presented in ways that are conducive to citizen understanding. Specifically, we hypothesize that negatively framed information resonates more with citizens, thus contributing to greater understanding and, subsequently, engagement. We estimate the indirect effect of transparency on citizen engagement using a parallel encouragement experimental design and representative sample of US citizens (n=836). Counter to predictions, participants understood positively framed information better than negatively framed information. Further, understanding has a strong effect on engagement. Finally, we identify an indirect effect (via understanding) and no direct effects of transparency, ruling out alternative causal mechanisms.
    Keywords: Transparency, Citizen engagement in coproduction, Good governance, Public services
    JEL: H83
    Date: 2019–06
  35. By: Leonardo Bursztyn; Georgy Egorov; Ruben Enikolopov; Maria Petrova
    Abstract: We study the causal effect of social media on ethnic hate crimes and xenophobic attitudes in Russia using quasi-exogenous variation in social media penetration across cities. Higher penetration of social media led to more ethnic hate crimes, but only in cities with a high pre-existing level of nationalist sentiment. Consistent with a mechanism of coordination of crimes, the effects are stronger for crimes with multiple perpetrators. We implement a national survey experiment and show that social media persuaded young and low-educated individuals to hold more xenophobic attitudes, but did not increase respondents' openness to expressing these views. Our results are consistent with a simple model of social learning where penetration of social networks increases individuals' propensity to meet like-minded people.
    JEL: D7 H0 J15
    Date: 2019–12
  36. By: Muhammad Meki (Post-doctoral research fellow in development economics at Pembroke College, University of Oxford)
    Abstract: Access to finance is often listed as one of the most important constraints on the expansion of small firms in low-income countries. However, several recent studies reveal that most microcredit-funded businesses rarely grow beyond subsistence-level entrepreneurship. Other evidence shows that cash and capital grants have delivered high returns to some microenterprises, and that small changes to contract structure can have a long-term effect on investment and profits. In this paper, I investigate the potential of ‘microequity’ contracts, which can be viewed as lying at some point on a spectrum between credit and grants, and provide a more flexible form of capital with performance-contingent repayments and a greater sharing of risk and reward. I present results from work with two of the largest microfinance institutions in Pakistan to investigate the effects of microequity contracts on microenterprises. In the first part of the paper, I describe an artefactual field experiment, designed using a simple model of investment choice under different financial contracts. This is tested with microenterprise owners who are part of a related field experiment that provides them with shared-ownership financing to expand their business. Results reveal that equity-financed microenterprise owners chose investment options with a greater expected profit than those under debt financing, with heterogeneity analysis suggesting a larger effect for the most riskaverse individuals, who also exhibit a stronger preference for equity contracts when offered a choice. In the final part of the paper, I describe qualitative insights for why most microfinance institutions do not implement microequity products, using a field survey and manager interviews, which reveal the practical implementation challenges due to costly state verification, adverse selection into profit-sharing contracts and moral hazard caused by inappropriately-tailored sharing ratios
    Date: 2019–09–20

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.