nep-exp New Economics Papers
on Experimental Economics
Issue of 2021‒05‒10
thirty-two papers chosen by

  1. Gender and Psychological Pressure in Competitive Environments By Booth, Alison L; Nolen, Patrick
  2. Individual Discount Rates: A Meta-Analysis of Experimental Evidence By Havranek, Tomas; Irsova, Zuzana; Matousek, Jindrich
  3. Homophily, Peer Effects, and Dishonesty By Liza Charroin; Bernard Fortin; Marie Claire Villeval
  4. Self-Set Goals Are Effective Self-Regulation Tools -- Despite Goal Revision By Kaiser, Jonas P.; Koch, Alexander K; Nafziger, Julia
  5. The Fetters of the Sib - An Experimental Study in Burkina Faso By Hadnes, Myriam; Kosfeld, Michael; Nilgen, Marco; Vollan, Björn
  6. The Influence of Anger on Strategic Cooperative Interactions By Sergio Alessandro Castagnetti; Sebastiano Massaro; Eugenio Proto
  7. Credibility in Second-Price Auctions: An Experimental Test By Ahrash Dianat; Mikhail Freer
  8. Reducing Parent-School Information Gaps and Improving Education Outcomes: Evidence from High-Frequency Text Messages By Berlinski, Samuel; Busso, Matias; Dinkelman, Taryn; Martinez A., Claudia
  9. Why Are Rational Expectations Violated in Social Interactions? By Mohsen Foroughifar
  10. Testing Willingness to Pay Elicitation Mechanisms in the Field: Evidence from Uganda By Burchardi, Konrad B.; de Quidt, Jonathan; Gulesci, Selim; Lerva, Benedetta; Tripodi, Stefano
  11. Employment Contracts and Stress: Experimental Evidence By Allan, Julia L.; Andelic, Nicole; Bender, Keith A.; Powell, Daniel; Stoffel, Sandro; Theodossiou, Ioannis
  12. Informed Choices: Gender Gaps in Career Advice By Gallen, Yana; Wasserman, Melanie
  13. Experimental evidence on gender bias in an occupational choice: the role of parents By Smyk Magdalena
  14. Self-Signaling in Moral Voting By Mechtenberg, Lydia; Perino, Grischa; Treich, Nicolas; Tyran, Jean-Robert; Wang, Stephanie
  15. Biases in Information Selection and Processing: Survey Evidence from the Pandemic By Faia, Ester; Fuster, Andreas; Pezone, Vincenzo; Zafar, Basit
  16. Who nudges whom? Field experiments with public partners By Fels, Katja M.
  17. Myopic Loss Aversion and Investment Decisions: from the Laboratory to the Field By Kazi Iqbal; Asadul Islam; John A. List; Vy Nguyen
  18. Selection and Behavioral Responses of Health Insurance Subsidies in the Long Run: Evidence from a Field Experiment in Ghana By Patrick Opoku Asuming; Hyuncheol Bryant Kim; Armand Sim
  19. Can role models influence female's decision to participate in the labor market? Evidence from a field experiment By Martini, Christina; Urueña, Viviana
  20. Optimal Targeting in Fundraising: A Machine-Learning Approach By Tobias Cagala; Ulrich Glogowsky; Johannes Rincke; Anthony Strittmatter
  21. Hybrid Collusion: Algorithmic Pricing in Human-Computer Laboratory Markets By Hans-Theo Normann; Martin Sternberg
  22. Does Mentoring Increase the Collaboration Networks of Female Economists? An Evaluation of the CeMENT Randomized Trial By Donna K. Ginther; Rina Na
  23. Cheap Talk is not Cheap: Free versus Costly Communication By Aghadadashli, Hamid; Kirchsteiger, Georg; Legros, Patrick
  24. A Scientific Approach to Innovation Management: Evidence from Four Field Experiments By Camuffo, Arnaldo; Gambardella, Alfonso; Messinese, Danilo; Novelli, Elena; Paolucci, Emilio; Spina, Chiara
  25. Be kind or take it on the chin? Political narratives, pandemics, and social distancing By Kartik Anand; Prasanna Gai; Edmund Lou; Sherry X. Wu
  27. Promotions and Productivity: The Role of Meritocracy and Pay Progression in the Public Sector By Deserranno, Erika; León-Ciliotta, Gianmarco
  28. Asset-based Microfinance for Microenterprises: Evidence from Pakistan By Bari, Faisal; Malik, Kashif; Meki, Muhammad; Quinn, Simon
  29. An Experimental Analysis of the Prize-Probability Tradeoff in Stopping Problems By Antler, Yair; Arad, Ayala
  30. Fearless Woman: Financial Literacy and Stock Market Participation By Alessie, Rob; Bucher-Koenen, Tabea; Lusardi, Annamaria; Van Rooij, Maarten
  31. Are we strategically naïve or guided by trust and trustworthiness in cheap-talk communication? By Li, Xiaolin; Özer, Özalp; Subramanian, Upender
  32. Malleability of Preferences for Honesty By Johannes Abeler; Armin Falk; Fabian Kosse

  1. By: Booth, Alison L; Nolen, Patrick
    Abstract: Gender differences in paid performance under competition have been found in many laboratory-based experiments, and it has been suggested that these may arise because men and women respond differently to psychological pressure in competitive environments. To explore this further, we conducted a laboratory experiment comprising 444 subjects, and measured gender differences in performance in four distinct competitive situations. These were as follows: (i) the standard tournament game where the subject competes with three other individuals and the winner takes all; (ii) an anonymized competition in which an individual competes against an imposed production target and is paid only if s/he exceeds it; (iii) a 'personified' competition where an individual competes against a target based on the previous performance of one anonymised person of unknown gender; and (iv) a 'gendered' competition where an individual competes against a target based on the previous performance of one anonymised person whose gender is known. We found that only men respond to pressure differently in each situation; women responded the same to pressure no matter the situation. Moreover, the personified target caused men to increase performance more than under an anonymized target and, when the gender of the person associated with the target was revealed, men worked even harder to outperform a woman but strived only to equal the target set by a male.
    Keywords: psychological pressure, tournament, piece rate, gender, competitive behaviour; experiment; competitive behaviour; gender; piece rate; psychological pressure; randomized experiment; tournament
    JEL: C91 C92 J16 J33 M52
    Date: 2021–03
  2. By: Havranek, Tomas; Irsova, Zuzana; Matousek, Jindrich
    Abstract: A key parameter estimated by lab and field experiments in economics is the individual discount rate--and the results vary widely. We examine the extent to which this variance can be attributed to observable differences in methods, subject pools, and potential publication bias. To address the model uncertainty inherent to such an exercise, we employ Bayesian and frequentist model averaging. We obtain evidence consistent with publication bias against unintuitive results. The corrected mean annual discount rate is 0.33. Our findings also suggest that discount rates are independent across domains: people tend to be less patient when health is at stake compared to money. Negative framing is associated with more patience. Finally, the results of lab and field experiments differ systematically, and it also matters whether the experiment relies on students or uses broader samples of the population.
    Keywords: Bayesian model averaging; Discount rate; Experiment; frequentist model averaging; meta-analysis; Publication bias
    JEL: C83 C90 D01
    Date: 2021–01
  3. By: Liza Charroin (Centre d'Economie de la Sorbonne - Université Paris 1); Bernard Fortin (Laval University (Québec), CIRPEE, CIRANO and IZA (Bonn)); Marie Claire Villeval (Université de Lyon, CNRS, GATE and IZA (Bonn))
    Abstract: If individuals tend to behave like their peers, is it because of conformity, that is, the preference of people to align behavior with the behavior of their peers; homophily, that is, the tendency of people to bond with similar others; or both? We address this question in the context of an ethical dilemma. Using a peer effect model allowing for homophily, we designed a real-effort laboratory experiment in which individuals could misreport their performance to earn more. Our results reveal a preference for conformity and for homophily in the selection of peers, but only among participants who were cheating in isolation. The size of peer effects is similar when identical peers were randomly assigned and when they were selected by individuals. We thus jointly reject the presence of a self-selection bias in the peer effect estimates and of a link strength effect
    Keywords: Peer Effects; Homophily; Dishonesty; Self-Selection Bias; Experiment
    JEL: C92 D83 D85 D91
    Date: 2021–04
  4. By: Kaiser, Jonas P.; Koch, Alexander K; Nafziger, Julia
    Abstract: We test in an experiment whether and why non-binding, self-set goals are effective even though individuals can easily revise such goals. Depending on the treatment, subjects either set a goal a few days before working on an online task or right at the start of the task. In the former case, they may or may not be explicitly asked to revise their goal at the start of the task. Consistent with the hypothesis that goals are self-regulation tools, we observe that goals set before the task are larger than goals set at the start of the task. And they are effective: Subjects work more when a goal was set a few days before the task than when it was set at the start of the task. Importantly, these results arise even though subjects revise their initial goals. They do so no matter whether goal revision is made explicit or not -- suggesting that goal revision is an important factor for goal non-achievement.
    Keywords: commitment devices; goal revision; Goals; Online Experiment; Present-Biased Preferences; Real effort; Self-Control
    JEL: D03 D81 D91
    Date: 2021–01
  5. By: Hadnes, Myriam; Kosfeld, Michael; Nilgen, Marco; Vollan, Björn
    Abstract: We conducted a field experiment in Burkina Faso to investigate the impact of sharing obligations within kin networks on entrepreneurial effort. The overall treatment effect we find is insignificant and goes in the opposite direction than previous literature suggests. Ex-post explorative analysis reveals that entrepreneurs in the two experimental groups reacted differently in their production process, with some entrepreneurs in the treatment group being able to utilize their kin network to their joint advantage.
    Keywords: Burkina Faso; Business Development; field experiment; Redristributive pressure; Sharing norms; Social norms
    JEL: C93 D13 H24 H26 O12
    Date: 2021–03
  6. By: Sergio Alessandro Castagnetti; Sebastiano Massaro; Eugenio Proto
    Abstract: We investigate the effect of anger on performance and strategic cooperative interactions. In a laboratory experiment, we induced anger in participants playing an indefinite repeated Prisoner's Dilemma game against each other, showing resulting declines in performance and individual profit. We assess the dynamics of strategic cooperative decisions and behaviors, revealing that anger-induced subjects used suboptimal strategies. We further describe the underpinning mechanism of automatic emotional regulation by analyzing participants' heart rate variability indexes. Finally, we extend our findings in an online experiment with an independent sample, increasing generalizability and helping explain how anger influences participants' ways of strategizing. Altogether, our contribution advances theoretical and practical implications regarding the impact of discrete emotions on strategic outcomes.
    Keywords: anger; behavioral strategy; heart rate variability; indefinite repeated Prisoner’s Dilemma; strategic cooperative interactions
    JEL: C7 C9 D9
    Date: 2021–04
  7. By: Ahrash Dianat; Mikhail Freer
    Abstract: We provide the first direct test of how the credibility of an auction format affects bidding behavior and final outcomes. To do so, we conduct a series of laboratory experiments where the role of the seller is played by a human subject who receives the revenue from the auction and who (depending on the treatment) has agency to determine the outcome of the auction. We find that a large majority of bids in the non-credible version of the second-price auction lie between the theoretical benchmarks of the first-price auction and the credible second-price auction. While sellers in the non-credible second-price auction often break the rules of the auction and overcharge the winning bidder, they typically do not maximize revenue. We provide a behavioral explanation for our results based on incorrect beliefs (on the part of bidders) and aversion to rule-breaking (on the part of sellers), which is confirmed by revealed preference tests.
    Date: 2021–05
  8. By: Berlinski, Samuel; Busso, Matias; Dinkelman, Taryn; Martinez A., Claudia
    Abstract: Grade retention and early dropout are two of the biggest challenges facing education systems in middle-income countries today, representing waste in school resources. We investigate whether reducing parent-school information gaps can improve outcomes that are early-warning signals for grade retention and dropout. We conducted an experiment in low-income schools in Chile to test the effects and behavioral changes triggered by a program that sends attendance, grade, and classroom behavior information to parents via weekly and monthly text messages. Our 18-month intervention raised average math GPA by 0.09 of a standard deviation and increased the share of students satisfying attendance requirements for grade promotion by 4.5 percentage points. Treatment effects were larger for students at higher risk of later grade retention and dropout. We find some evidence of positive classroom spillovers. Leveraging existing school inputs to implement a light-touch, cost-effective information intervention can improve education outcomes in lower-income settings.
    Keywords: Chile; Education; information experiment; parent-school communication
    JEL: D8 I25 N36
    Date: 2021–03
  9. By: Mohsen Foroughifar
    Abstract: Individuals often interact with each other through observation -- they observe the choices of other people who possess private information. In such social interactions, it is typically assumed that decision makers have rational expectations, therefore they can infer what other decision makers know via observation of their choices. In this study, I assess the validity of the rational expectations assumption in a social interaction experiment. I use a simple and transparent experimental setting to show that decision makers often fail to exhibit rational expectations in social interactions and this behavior is independent of commonly documented errors in statistical reasoning: subjects exhibit a higher level of irrationality in the presence than in the absence of social interaction, even when they receive informationally equivalent signals across the two conditions. A series of treatments aimed at identifying mechanisms suggests that the behavior of other people are often "ambiguous" to a decision maker who observes their choices. So, the decision maker behaves as if she has limited ability to infer the relationship between what other people choose and what they know.
    Date: 2021–05
  10. By: Burchardi, Konrad B.; de Quidt, Jonathan; Gulesci, Selim; Lerva, Benedetta; Tripodi, Stefano
    Abstract: Researchers frequently use variants of the Becker-DeGroot-Marschak (BDM) mechanism to elicit willingness to pay (WTP). These variants involve numerous incentive-irrelevant design choices, some of which carry advantages for implementation but may deteriorate participant comprehension or trust in the mechanism, which are well-known problems with the BDM. We highlight three such features and test them in the field in rural Uganda, a relevant population for many recent applications. Comprehension is very high, and 86 percent of participants bid optimally for an induced-value voucher, with little variation across treatments. This gives confidence for similar applications, and suggests the comprehension-expediency trade-off is mild.
    Keywords: Becker-DeGroot-Marschak; field experiment; Willingness to pay
    JEL: C90 C93 D44 O12
    Date: 2021–02
  11. By: Allan, Julia L.; Andelic, Nicole; Bender, Keith A.; Powell, Daniel; Stoffel, Sandro; Theodossiou, Ioannis
    Abstract: A growing literature has found a link between performance-related pay (PRP) and poor health, but the causal direction of the relationship is not known. To address this gap, the current paper utilises a crossover experimental design to randomly allocate subjects into a work task paid either by performance or a fixed payment. Stress is measured through self-reporting and salivary cortisol. The study finds that PRP subjects had significantly higher cortisol levels and self-rated stress than those receiving fixed pay, ceteris paribus. By circumventing issues of self-report and self-selection, these results provide novel evidence for the detrimental effect PRP may have on health.
    Keywords: performance-related pay,stress,experiment,cortisol
    JEL: J33 I0 C91
    Date: 2021
  12. By: Gallen, Yana; Wasserman, Melanie
    Abstract: This paper estimates gender differences in access to informal information regarding the labor market. We conduct a large-scale field experiment in which real college students seek information from 10,000 working professionals about various career paths, and we randomize whether a professional receives a message from a male or a female student. We focus the experimental design and analysis on two career attributes that prior research has shown to differentially affect the labor market choices of women: the extent to which a career accommodates work/life balance and has a competitive culture. When students ask broadly for information about a career, we find that female students receive substantially more information on work/life balance relative to male students. This gender difference persists when students disclose that they are concerned about work/life balance. In contrast, professionals mention workplace culture to male and female students at similar rates. After the study, female students are more dissuaded from their preferred career path than male students, and this difference is in part explained by professionals' greater emphasis on work/life balance when responding to female students. Finally, we elicit students' preferences for professionals and find that gender differences in information provision would remain if students contacted their most preferred professionals.
    Keywords: career information; correspondence study; discrimination; Gender
    JEL: C93 J16 J24 J71
    Date: 2021–01
  13. By: Smyk Magdalena (Group for Research in Applied Economics (GRAPE))
    Abstract: Gender occupational segregation, as one of the main sources of gender pay gap, is still strongly present. The stagnation of gender inequality in the labor market raises questions. One of them is how this situation is affected by sticky gender norms and inter-generational transmission of these norms. We conducted a vignette experiment in which subjects were advising fictional character in a job choice. Characters, as subjects were informed, already receive some advice from a parent or Internet occupational advisor. We find that subjects are in general more likely to follow some advice, but less likely to advise male-typed offer if the advisor is a parent. Also subjects with more traditional gender norms are less likely to advice risky, competitive, and inflexibly but better paid offers.
    Keywords: gender norms, choice of occupation, family, gender occupational segregation
    JEL: J16 J13 J24
    Date: 2021
  14. By: Mechtenberg, Lydia; Perino, Grischa; Treich, Nicolas; Tyran, Jean-Robert; Wang, Stephanie
    Abstract: This paper presents a two-wave survey experiment on self-image concerns in moral voting. We elicit votes on the so-called Horncow Initiative. This initiative required subsidization of farmers who refrain from dehorning. We investigate how non-consequentialist and non-deontological messages changing the moral self-signaling value of a Yes vote affect selection and processing of consequentialist information, and reported voting behavior. We find that a message enhancing the self-signaling value of a Yes vote is effective: voters agree more with arguments in favor of the initiative, anticipate more frequently voting in favor, and report more frequently having voted in favor of the initiative.
    Keywords: information avoidance; moral bias; multi-wave field experiment; voting
    JEL: C93 D72 D91
    Date: 2021–01
  15. By: Faia, Ester; Fuster, Andreas; Pezone, Vincenzo; Zafar, Basit
    Abstract: How people form beliefs is crucial for understanding decision-making under uncertainty. This is particularly true in a situation such as a pandemic, where beliefs will affect behaviors that impact public health as well as the aggregate economy. We conduct two survey experiments to shed light on potential biases in belief formation, focusing in particular on the tone of information people choose to consume and how they incorporate this information into their beliefs. In the first experiment, people express their preferences over pandemic-related articles with optimistic and pessimistic headlines, and are then randomly shown one of the articles. We find that respondents with more pessimistic prior beliefs about the pandemic are substantially more likely to prefer pessimistic articles, which we interpret as evidence of confirmation bias. In line with this, respondents assigned to the less preferred article rate it as less reliable and informative (relative to those who prefer it); they also discount information from the article when it is less preferred. We further find that these motivated beliefs end up impacting incentivized behavior. In a second experiment, we study how partisan views interact with information selection and processing. We find strong evidence of source dependence: revealing the news source further distorts information acquisition and processing, eliminating the role of prior beliefs in article choice.
    Keywords: Belief updating; confirmatory biases; COVID-19; endogenous informa- tion acquisition; media polarization; source dependence
    JEL: D84 D91 E71 I12
    Date: 2021–02
  16. By: Fels, Katja M.
    Abstract: Field experiments which test the application of behavioural insights to policy design have become popular to inform policy decisions. This study is the first to empirically examine who and what drives these experiments with public partners. Through a mixed-methods approach, based on a novel dataset of insights from academic researchers, behavioural insight team members, and public servants, I derive three main results: Firstly, public servants have a considerable influence on study setup and sample design. Secondly, behavioural insight team members report concerns regarding scientific rigor and limitations imposed by risk-aversion of their public partners significantly more often than academic researchers. Thirdly, transparency and quality control in collaborative research are low with respect to pre-analysis plans, the publication of results, and medium or long term effects. To remedy the current weaknesses, the study sketches out several promising ways forward, such as setting up a matchmaking platform for researchers and public bodies to facilitate cooperation, and using time-embargoed pre-analysis plans.
    Keywords: Behavioural public policy,field experiments,Behavioural Insights Team (BIT),research transparency,expert interviews
    JEL: C93 D04 D90 H11
    Date: 2021
  17. By: Kazi Iqbal; Asadul Islam; John A. List; Vy Nguyen
    Abstract: Whether, and to what extent, behavioral anomalies uncovered in the lab manifest themselves in the field remains of first order importance in finance and economics. We begin by examining behavior of retail traders/investors making investment decisions in constructed laboratory markets. Our results show that the behaviors of the traders are consistent with myopic loss aversion. We combine the lab results with a unique individual-level matched dataset on daily stock market transactions and portfolio positions over a two year period. We find that lab behaviors help to predict, but do not fully capture, the essential real-world trading analogs of retail traders.
    JEL: C9 C93 D03 N97
    Date: 2021–04
  18. By: Patrick Opoku Asuming; Hyuncheol Bryant Kim; Armand Sim
    Abstract: We conduct a randomized experiment that varies one-time health insurance subsidy amounts (partial and full) in Ghana to study the impacts of subsidies on insurance enrollment and health care utilization. We find that both partial and full subsidies promote insurance enrollment in the long run, even after the subsidies expired. Although the long run enrollment rate and selective enrollment do not differ by subsidy level, long run health care utilization increased only for the partial subsidy group. We show that this can plausibly be explained by stronger learning-through-experience behavior in the partial than in the full subsidy group.
    Date: 2021–05
  19. By: Martini, Christina; Urueña, Viviana
    Abstract: In this paper we experimentally test the effect of an intervention aimed at encouraging females to enter the labor market in Madagascar. We randomly assigned students in their last year of secondary education to watch a role model or a placebo video. In the role model videos, a female or a male narrate how they succeeded in achieving a goal they set for themselves. After video exposure, we gave female and male students the opportunity to apply for one of two types of jobs in our research team - assistant or coordinator. We find that the female role model encourages both females and males to apply for the advertised positions, compared to the placebo video. This positive treatment effect can partly be explained by participants' aspirations and current level of achievements. Moreover, we find that female students apply more often to the coordinator position compared to the control in the male role model treatment. Our results suggest that not only individuals from the in-group (females), but also males can serve as role models for females and foster behavioral changes.
    Keywords: Aspirations,Role models,Performance,Competition,Gender
    JEL: J16 C9 I25 N37
    Date: 2021
  20. By: Tobias Cagala; Ulrich Glogowsky; Johannes Rincke; Anthony Strittmatter
    Abstract: Ineffective fundraising lowers the resources charities can use for goods provision. We combine a field experiment and a causal machine-learning approach to increase a charity’s fundraising effectiveness. The approach optimally targets fundraising to individuals whose expected donations exceed solicitation costs. Among past donors, optimal targeting substantially increases donations (net of fundraising costs) relative to benchmarks that target everybody or no one. Instead, individuals who were previously asked but never donated should not be targeted. Further, the charity requires only publicly available geospatial information to realize the gains from targeting. We conclude that charities not engaging in optimal targeting waste resources.
    Keywords: Fundraising; charitable giving; gift exchange; targeting; optimal policy learning; individualized treatment rules
    JEL: C93 D64 H41 L31 C21
    Date: 2021–04
  21. By: Hans-Theo Normann (Heinrich Heine University, Düsseldorf); Martin Sternberg (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: We investigate collusive pricing in laboratory markets when human players interact with an algorithm. We compare the degree of (tacit) collusion when exclusively humans interact to the case of one firm in the market delegating its decisions to an algorithm. We further vary whether participants know about the presence of the algorithm. We find that threefirm markets involving an algorithmic player are significantly more collusive than human-only markets. Firms employing an algorithm earn significantly less profit than their rivals. For four-firm markets, we find no significant differences. (Un)certainty about the actual presence of an algorithm does not significantly affect collusion.
    Keywords: algorithms, collusion, human-computer interaction, laboratory experiments
    JEL: C90 L41
    Date: 2021–05–06
  22. By: Donna K. Ginther; Rina Na
    Abstract: Previous research has shown that women in the treatment group of the CeMENT randomized controlled trial increased their publications and the likelihood that they were tenured in top 50 economics departments. This paper examines one potential mechanism, namely, that CeMENT expanded the collaboration networks of the participants. Our analysis finds that women who received the mentoring treatment had three additional pre-tenure coauthors, 1.6 more pre-tenure publications and 43 additional citations to those publications. After controlling for additional coauthors, the CeMENT program increased publications, and top-tier publications. These results suggest that the information conveyed at the workshop facilitated participants’ career success.
    JEL: A11 J16 J4
    Date: 2021–04
  23. By: Aghadadashli, Hamid; Kirchsteiger, Georg; Legros, Patrick
    Abstract: The paper studies the effectiveness of communication in a two-player two-sided asymmetric information context. Both players choose simultaneously between two actions, with action L leading to a lower payoff for the co-player than action H. There are two types of players: D-types for whom L is dominant, and C-types for whom the optimal action is the same as the one chosen by the co-player, with both player choosing H providing the C-type a higher payoff than both players choosing L. Before the actions are chosen, each player can signal his/her intention to choose H. We consider three communication environments: No communication (NC), cheap talk (CT), and an environment with extrinsic communication costs (FC). For this game the range of equilibrium payoffs of both types is the same in NC and CT, while for C-types the equilibrium payoff is highest in FC due to the Spence mechanism (Spence 1973). When we tested these predictions experimentally, the C-type payoffs were the highest in CT. In this environment the average observed C-type payoff was even higher than the maximum equilibrium payoff. In CT about half of the D-types did not mimic the communication behavior of C-types, and hence even cheap talk revealed some information to the C-types. This indicates that half of the D-types were reluctant to make promises they would break. We introduce a theoretical model with promise-keepers. When the probability of an agent being promise-keeper is around 50%, the signaling rate will be higher in CT than in FC. On the other hand, for the same signal structure C-types choose more often H in the FC than in CT. These predictions are confirmed by the experimental results. Overall, the effect of the higher signalling rate in CT dominates: Together with presence of promise-keepers the higher signalling rate allows the C-types to coordinate more often on the \good" (H;H) outcome in CT, resulting in higher C-type payoffs in CT than in FC.
    Keywords: Asymmetric information; coordination; credible communication
    JEL: C7 C9
    Date: 2021–02
  24. By: Camuffo, Arnaldo; Gambardella, Alfonso; Messinese, Danilo; Novelli, Elena; Paolucci, Emilio; Spina, Chiara
    Abstract: Our model shows that managers and entrepreneurs make better decisions under uncertainty if they adopt a scientific approach in which they formulate and test theories. The model predicts that they are more likely to terminate projects with negative returns, commit to projects with positive returns, or pivot to projects with higher returns. We test these implications by combining the results of four Randomized Control Trials (RCTs) involving 754 start-ups and small-medium enterprises and 10,730 data points over time. The empirical analysis corroborates the predictions of the model.
    Keywords: field experiments; Management Practices; Scientific entrepreneurship; strategic decision-making; uncertainty
    JEL: L21 L26 M13 M21
    Date: 2021–03
  25. By: Kartik Anand; Prasanna Gai; Edmund Lou; Sherry X. Wu
    Abstract: How does a political leader's messaging during a pandemic influence social distancing by citizens? We model the strategic choice of narrative in a beauty contest setting where the leader seeks to eliminate the disease. The leader's resolve to eliminate the disease affects her narrative in a non-linear way. A resolute leader adopts a highly partisan narrative that identifies strongly with her followers, albeit at the expense of her payoff, while an ambivalent leader with low resolve for eliminating the disease is less partisan. Our result speaks to the debate on the voluntary acceptance of limits to individual liberty during a pandemic.
    Keywords: Beauty contests, pandemic, COVID-19, political narratives, leadership
    JEL: D7 D84 D91 H12 I12
    Date: 2021–03
  26. By: Loic Berger (CNRS, IESEG School of Management, Univ. Lille, UMR 9221–LEM, F-59000 Lille, France; and Bocconi University, Italy)
    Abstract: This paper reflects on the notion of partial ambiguity. Using a framework de-composing ambiguity into distinct layers of analysis, among which are risk and model uncertainty, and allowing for different attitudes toward these layers, I show that partial ambiguity may prove less desirable thanfull ambiguity, even under ambiguity aversion. This observation poses difficulties for interpreting the notion of partial ambiguity in relation to the partial information available to determine the potential compositions of an ambiguous urn. Two Ellsberg-style thought experiments are described to challenge the meaning of partial ambiguity further, and an alternative interpretation, based on a more ambiguous relation, is discussed.
    Keywords: Ambiguity, model uncertainty, smooth ambiguity aversion, Ellsberg para-dox
    JEL: D81
    Date: 2021–04
  27. By: Deserranno, Erika; León-Ciliotta, Gianmarco
    Abstract: We study promotion incentives in the public sector by means of a field experiment with the Ministry of Health in Sierra Leone. The experiment creates exogenous variation in meritocracy by linking promotions to performance and variation in perceived pay progression among the lowest tier of health workers. We find that meritocratic promotions lead to higher productivity, and more so when workers expect a steep pay increase. However, when promotions are not meritocratic, increasing the pay gradient reduces productivity through negative morale effects. The findings highlight the importance of taking into account the interactions between different tools of personnel policy.
    Keywords: Meritocracy; Pay Progression; promotions; Worker productivity
    JEL: D73 J31 M51 M52
    Date: 2021–02
  28. By: Bari, Faisal; Malik, Kashif; Meki, Muhammad; Quinn, Simon
    Abstract: We conduct a field experiment offering graduated microcredit clients the opportunity to finance a business asset worth four times their previous borrowing limit. We implement this using a hire-purchase contract; our control group is offered a zero-interest loan. We find large, significant and persistent effects from asset finance contracts: treated microenterprise owners run larger businesses and enjoy higher profits; consequently, household consumption increases, particularly on food and children's education. A dynamic structural model with non-convex capital adjustment costs rationalises our results; this highlights the potential for welfare improvements through large capital injections that are financially sustainable for microfinance institutions.
    Keywords: Capital Adjustment Costs; Microfinance; Randomized field experiment
    Date: 2021–02
  29. By: Antler, Yair; Arad, Ayala
    Abstract: We experimentally examine how individuals stop risky processes such as the evolution of prices when they have commitment power. We find types who consistently choose stopping rules with large potential losses and small potential gains to induce a high winning probability (L-types), although such choices entail a considerable downside risk. A smaller proportion of types choose stopping rules with the opposite characteristics. While the latter pattern is consistent with cumulative prospect theory, the former pattern is inconsistent with prominent decision theories. We suggest that L-types solve the prize-probability tradeoff in a qualitative manner, putting more emphasis on the winning probability.
    Keywords: commitment; risky processes; stopping problems; type classification
    Date: 2021–03
  30. By: Alessie, Rob; Bucher-Koenen, Tabea; Lusardi, Annamaria; Van Rooij, Maarten
    Abstract: Women are less financially literate than men. It is unclear whether this gap reflects a lack of knowledge or, rather, a lack of confidence. Our survey experiment shows that women tend to disproportionately respond "do not know" to questions measuring financial knowledge, but when this response option is unavailable, they often choose the correct answer. We estimate a latent class model and predict the probability that respondents truly know the correct answers. We find that about one-third of the financial literacy gender gap can be explained by women's lower confidence levels. Both financial knowledge and confidence explain stock market participation.
    Keywords: confidence; financial decision making; financial knowledge; finite mixture model; Gender Gap; latent class model; Measurement error
    JEL: C81 D91 G53
    Date: 2021–03
  31. By: Li, Xiaolin; Özer, Özalp; Subramanian, Upender
    Abstract: Cheap-talk communication between parties with conflicting interests is common in many business and economic settings. Two distinct behavioral economics theories, the trust-embedded model and the level-k model, have emerged to explain how cheap talk works between human decision makers. The trust-embedded model considers that decision makers are motivated by nonpecuniary motives to be trusting and trustworthy. In contrast, the level-k model considers that decision makers are purely self-interested but limited in their ability to think strategically. Although both theories have been successful in explaining cheap-talk behaviors in separate contexts, they point to contrasting drivers for human behaviors. In this paper, we provide the first direct comparison of both theories within the same context. We show that, in a cheap-talk setting that well represents many practical situations, the two models make characteristically distinct and empirically distinguishable predictions. We leverage past experiment data from this setting to determine what aspects of cheap-talk behavior each model captures well and which model (or combination of models) has better explanatory power and predictive performance. We find that the trust-embedded model emerges as the dominant explanation. Our results, thus, highlight the importance of investing in systems and processes to foster trusting and trustworthy relationships in order to facilitate more effective cheap-talk interactions.
    Keywords: behavioral economics; bounded rationality; cheap talk; level-k thinking; trust; trustworthiness
    JEL: J50
    Date: 2021–03–22
  32. By: Johannes Abeler (University of Oxford); Armin Falk (briq and the University of Bonn); Fabian Kosse (LMU Munich)
    Abstract: Reporting private information is a key part of economic decision making. A recent literature has found that many people have a preference for honest reporting, contrary to usual economic assumptions. In this paper, we investigate whether preferences for honesty are malleable and what determines them. We experimentally measure preferences for honesty in a sample of children. As our main result, we provide causal evidence on the effect of the social environment by randomly enrolling children in a year-long mentoring programme. We find that, about four years after the end of the programme, mentored children are significantly more honest.
    Keywords: honesty, lying, truth-telling, Formation of preferences, experiments with children
    JEL: C90 D90 D64 D82 J13
    Date: 2021–04

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.