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on Experimental Economics |
| By: | Esther Gehrke; Friederike Lenel; Claudia Schupp |
| Abstract: | Students in low-income contexts often lack guidance in their career decisions which can lead to a misallocation of educational investments. We report on a randomized field experiment conducted with 1715 students in rural Cambodia and show that a half-day workshop designed to support adolescents in developing occupational aspirations increased educational investments. We document substantial heterogeneity in treatment effects by baseline student performance. While the workshop increased schooling efforts of high-performing students, treated low-performing students reduced their educational investments. We develop a simple model that explains why an information intervention can affect educational aspirations and investments in opposing directions. |
| Keywords: | aspirations, career guidance, education, field experiment |
| JEL: | C93 D83 D90 I21 O15 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10608&r=exp |
| By: | Holden, Stein T. (Centre for Land Tenure Studies, Norwegian University of Life Sciences); Tilahun, Mesfin (Centre for Land Tenure Studies, Norwegian University of Life Sciences) |
| Abstract: | Basic numeracy skills are obviously important for rational decisionmaking when agents are facing choices between risky prospects. Poor and vulnerable people with limited education and numeracy skills live in risky environments and have to make rational decisions in order to survive. How capable are they to understand and respond rationally to economists’ tools for the elicitation of risk preferences? Can we make designs that are simple enough for them to give rational responses that reveal their true preferences? And how much does variation in their limited numeracy skills contribute to decision errors and the estimated sizes of their risk preference parameters? Finally, we ask whether Expected Utility (EU) theory is sufficient or whether Rank Dependent Utility (RDU) does better in the analysis of decision errors and risk preferences in our context. We try to answer these research questions based on a large sample of rural youth business group members from Ethiopia based on two variants of a Certainty Equivalent - Multiple Choice List (CE-MCL) approach with 12 and 10 Choice Lists (CLs) per subject. Numeracy skill scores are constructed based on a math test with 15 contextualized questions. The experiment facilitates the estimation of structural models while separating the effects of numeracy skills on decision errors in a Fechner error specification that is a function of numeracy skills and experimental design characteristics. The structural models estimate alternatively Expected Utility (EU) and Rank Dependent Utility (RDU) models, the latter with two-parameter Prelec probability weighting functions.It allows us to assess whether limited numeracy skills are correlated with EU-type risk tolerance (utility curvature) and RDU-type of probabilistic risk tolerance in the form of probabilistic insensitivity and optimism/pessimism bias. We find that weak numeracy skills are associated with slightly less risk tolerance in EU models, with stronger probabilistic insensitivity in RDU models, and with more random noise (Fechner error) in both types of models. However, even the subjects with the weakest numeracy skills performed quite well in the simple CE-MCL experiments with the binary choice elicitation approach, indicating that it was capable of revealing the risk preferences of such subjects with very low numeracy skills as they produced only marginally more decision errors than subjects with better numeracy skills. |
| Keywords: | Numeracy skills; Risk preferences; Field experiment; Ethiopia |
| JEL: | C93 D81 |
| Date: | 2023–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nlsclt:2023_005&r=exp |
| By: | Tanga Mohr; John C. Whitehead |
| Abstract: | We consider differences in hypothetical and real payoff laboratory experiments using attribute non-attendance methods. Attribute non-attendance is an empirical approach that measures and accounts for when survey respondents ignore attributes in stated preference surveys. We use attribute non-attendance methods with data from an emissions permit experiment with real and hypothetical payments. Our conjecture is that attribute non-attendance may be more pronounced in hypothetical sessions and, once accounted for, hypothetical decisions and real decisions influenced by monetary payoffs will be more similar. In both treatments we find that the effect of the cost of an emissions permit on behavior differs if the cost is implicit or explicit. In inferred attribute non-attendance models with the real treatment data we find two classes of respondents with different behavior but no evidence of attribute non-attendance. With the hypothetical treatment data we find two classes of respondents with different behavior and evidence of attribute non-attendance on two of the four choice attributes. Key Words: attribute non-attendance, emissions permits, laboratory experiment, stated preferences |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:apl:wpaper:23-05&r=exp |
| By: | Brice Corgnet (emlyon business school, GATE UMR 5824, F-69130 Ecully, France); Roberto Hernán González (CEREN EA 7477, Burgundy School of Business, Université Bourgogne Franche-Comté, Dijon, France) |
| Abstract: | Scholars have long emphasized the importance of setting specific goals and providing clear expectations as a key driver of work performance. Yet, a casual observation of actual compensation practices suggests otherwise. Using both lab and field experiments, we show that randomization of bonus targets and piece rates can lead to higher performance than the best-available deterministic scheme. Furthermore, this effect can be sustained over time. We show that part of this effect is explained by regret motives, which lead workers to exert extra effort to avoid missing out on potential pay. |
| Keywords: | Randomized incentives, bonuses and piece rates, regret, experiments |
| JEL: | C91 C93 D86 D91 M52 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:2314&r=exp |
| By: | Michalis Drouvelis; Nobuyuki Hanaki; Natsumi Shimada; Yuta Shimodaira |
| Abstract: | Extending the power-to-take game, we explore the impact of two forces that may shape retaliation. In our 2x2 design, i) in addition to taking, the proposers can give part of their endowment to the responders, and ii) in addition to destroying their own endowment in retaliation, the responders can destroy the proposer’s endowment. Although these added options lead the responders to retaliate more severely, they do not significantly influence the proposers’ behavior. It is only when the proposers can give, and the responders can concurrently destroy the endowment of the proposers that the proposers take significantly less from the responders. |
| Keywords: | power-to-take, giving, emotions, retaliation, experiment |
| JEL: | A12 C72 C91 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10607&r=exp |
| By: | Rustamdjan Hakimov (University of Lausanne); Renke Schmacker (University of Lausanne); Camille Terrier (Queen Mary University of London) |
| Abstract: | This paper investigates the role played by self-confidence in college applications. Using incentivized experiments, we measure the self-confidence of more than 2, 000 students applying to colleges in France. The best female students and students from low socioeconomic status (low-SES) significantly underestimate their rank in the grade distribution compared to male and high-SES students. By matching our survey data with administrative data on real college applications and admissions, we show that miscalibrated confidence affects college choice controlling for grades. We then estimate the impact of a randomized intervention that corrects students’ under-and overconfidence by informing them of their real rank in the grade distribution. The intervention fully offsets the impact of under- and overconfidence for college applications. Providing feedback also makes the best students, who were initially underconfident, apply to more ambitious programs with stronger effects for female and low-SES students. Among top students, our intervention closes 72% of the gender gap in admissions to elite programs, and 95% of the social gap. We conclude that confidence is an important behavioral consideration for the design of college admission markets. |
| Keywords: | college choice, confidence, information treatment, matching mecha-nism, gender and social gap, survey experiment |
| JEL: | I24 J24 D91 C90 |
| Date: | 2023–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:962&r=exp |
| By: | Bernd Hayo; Pierre-Guillaume Méon |
| Abstract: | Using a randomized controlled trial, we study whether showing German respondents a graph plotting the European Central Bank’s inflation target alongside inflation in the euro area from 1999 to 2017 affects respondents’ trust in the ECB. The treatment has, on average, no significant effect on the level of trust in the ECB respondents report, but trust increases among respondents who report no preference for any political party. Within this group, the information about the actual development of the inflation rate, and not information about the inflation target itself, appears to be the main driving force. |
| Keywords: | Central bank trust; European Central Bank; Central bank communication; Monetary policy; Germany; Household survey; RCT |
| JEL: | E52 E58 Z10 |
| Date: | 2023–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/362503&r=exp |
| By: | Gøril L. Andreassen; Steffen Kallbekken; Knut Einar Rosendahl |
| Abstract: | Tax aversion makes it politically challenging to introduce Pigouvian taxes. One proposed solution to overcome this resistance is to package policies. Using an online lab experiment, we investigate whether combining a tax and a subsidy is perceived as more acceptable than the tax or the subsidy alone. The purpose of the policies is to reduce demand for a good with a negative externality to the socially optimal level. We find that support for a combination of a tax and a subsidy equals the simple average of support for the two instruments alone. Combining a tax and a subsidy therefore does not reduce tax aversion, other than through lower tax rates in the combinations. We also examine potential mechanisms behind the tax aversion. Participants hold more pessimistic beliefs about what share of the tax revenue they will receive when the tax is implemented alone than when it is combined with a subsidy. Furthermore, we find that the participants expect the tax to be more effective in reducing demand for the good with a negative externality than both the subsidy alone and the combinations of tax and subsidy. This belief does not, however, translate into support for the tax. |
| Keywords: | Pigouvian taxes, policy packaging, public support, lab experiment, tax aversion |
| JEL: | D72 H23 Q54 Q58 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10610&r=exp |
| By: | Fasolo, Barbara; Misuraca, Raffaella; Reutskaja, Elena |
| Abstract: | Consumer satisfaction and customer experience are key predictors of an organization’s future market growth, long-term customer loyalty, and profitability but are hard to maintain in marketplaces with abundance of choice. Building on self-determination theory, we experimentally test a novel intervention that leverages consumer need for autonomy. The intervention is a message called a “freedom cue” (FC) which makes it salient that consumers can “choose as much as they wish.” A 4-week field experiment in a sporting gear store establishes that FCs lead to greater consumer satisfaction compared to when the store displays no FC. A large (N = 669) preregistered process-tracing experiment run with a consumer panel and a global e-commerce company shows that FCs at point-of-sale improve consumer satisfaction and customer experience compared to an equivalent message that does not make freedom to choose any amount salient. Perceived freedom mediates the effect. FCs do not change the time spent or clicks on the website overall but do change the focus of the choice process. FCs lead to greater focus on what is chosen than on what is not chosen. We discuss practical implications for organizations and future research in consumer choice. (PsycInfo Database Record (c) 2023 APA, all rights reserved) |
| Keywords: | freedom cue; customer experience; consumer satisfaction; field study; process tracing; IESE Business School; American Psychological Association deal |
| JEL: | J50 |
| Date: | 2023–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:118780&r=exp |
| By: | Gary Charness; Brian Jabarian; John List |
| Abstract: | We investigate the potential for Large Language Models (LLMs) to enhance scientific practice within experimentation by identifying key areas, directions, and implications. First, we discuss how these models can improve experimental design, including improving the elicitation wording, coding experiments, and producing documentation. Second, we discuss the implementation of experiments using LLMs, focusing on enhancing causal inference by creating consistent experiences, improving comprehension of instructions, and monitoring participant engagement in real time. Third, we highlight how LLMs can help analyze experimental data, including pre-processing, data cleaning, and other analytical tasks while helping reviewers and replicators investigate studies. Each of these tasks improves the probability of reporting accurate findings. Finally, we recommend a scientific governance blueprint that manages the potential risks of using LLMs for experimental research while promoting their benefits. This could pave the way for open science opportunities and foster a culture of policy and industry experimentation at scale. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:feb:artefa:00777&r=exp |
| By: | Marco Catola; Pietro Guarnieri; Veronica Pizziol; Chiara Rapallini |
| Abstract: | We use a multilevel public goods game to investigate attitudes towards national public budgets and a European public budget in six Member States of the European Union: Italy, Germany, France, The Netherlands, Poland, and Portugal. We test to what extent propensities to contribute to public goods differ across countries. Using two efficiency treatments, we also test whether each country group adjusts its contribution when the relative efficiency of the public goods changes. We find no differences across countries in the propensity to contribute to either public budget. Moreover, all country groups level up their contribution to the European public good following an increase in its relative efficiency. We also devise a questionnaire to assess the impact of a sense of identity on contribution decisions and to control for the impact of COVID-19 and the current war in Ukraine on country and EU perceptions. |
| Keywords: | multilevel public goods game, public budget, European Union, online experiment, efficiency; social dilemma |
| JEL: | C90 H41 H61 |
| Date: | 2023–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2023/300&r=exp |
| By: | Cary Frydman; Lawrence J. Jin |
| Abstract: | We propose and experimentally test a new theory of probability distortions in risky choice. The theory is based on a core principle from neuroscience called efficient coding, which states that information is encoded more accurately for those stimuli that the agent expects to encounter more frequently. As the agent's prior beliefs vary, the model predicts that probability distortions change systematically. We provide novel experimental evidence consistent with the prediction: lottery valuations are more sensitive to probabilities that occur more frequently under the subject's prior beliefs. Our theory generates additional novel predictions regarding heterogeneity and time variation in probability distortions. |
| JEL: | D03 G02 G41 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31573&r=exp |
| By: | Carneiro, Pedro (University College London); Cruz Aguayo, Yyannu (Inter-American Development Bank); Salvati, Francesca (University of Essex); Schady, Norbert (World Bank) |
| Abstract: | We study the impact of classroom rank on children's learning using a unique experiment from Ecuador. Within each school, students were randomly assigned to classrooms in every grade between kindergarten and 6th grade. Students with the same ability can have different classroom ranks because of the (random) peer composition of their classroom. Children with higher beginning-of-grade classroom rank have significantly higher test scores at the end of that grade. The impact of classroom rank is larger for younger children and grows over time. Higher classroom rank also improves executive function, child happiness, and teacher perceptions of student ability. |
| Keywords: | classroom rank, test scores |
| JEL: | I20 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16384&r=exp |
| By: | Joanna Rachubik (University of Warsaw, Faculty of Economic Sciences) |
| Abstract: | In this study, we investigated how performance in a number of puzzles (decisions under risk) depended on the framing. The puzzles, drawn and adapted from existing literature, were designed to expose well-established cognitive biases could lead respondents to select intuitive yet incorrect answer. Subjects were randomly assigned to one of three treatments: a third of the sample saw puzzles framed in terms of COVID-19, another third about a common cold, and the remaining group about unemployment. Across five continents, we collected over 8, 000 observations. We found that framing of the puzzles affected performance, prompting questions regarding the external validity of these puzzles. Treatments associated with more severe threats, such as COVID and Unemployment, elicited stronger (negative) emotions compared to the common cold. Moreover, these emotional reactions were also linked to performance, and their levels correlated negatively with the number of correctly solved puzzles. |
| Keywords: | decision-making under risk, framing, emotions, cognitive biases, cognitive tasks, COVID-19 |
| JEL: | C91 C99 D01 D81 D91 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2023-22&r=exp |
| By: | Ajzenman, Nicolas (McGill University); Elacqua, Gregory (Inter-American Development Bank); Jaimovich, Analía (Inter-American Development Bank); Pérez-Núñez, Graciela (Inter-American Development Bank) |
| Abstract: | Empirical results in economics often stem from success in controlled experimental settings, but often fail when scaled up. This study presents a behavioral intervention and a scalable equivalent aimed at reducing teacher shortages by motivating high school students to pursue an education degree. The intervention was delivered through WhatsApp chats by trained human promoters (humans arm) and rule-based Chatbots programmed to closely replicate the humans program (bots arm). Results show that the humans arm successfully increased high-school students' demand for and enrollment in education majors, particularly among high-performing students. The bots arm showed positive but smaller and statistically insignificant effects. These findings indicate that a relatively low-cost intervention can effectively reduce teacher shortages, but scaling up such interventions may have limitations. Therefore, testing scalable solutions during the design stage of experiments is crucial. |
| Keywords: | teachers, teacher policy, teacher shortages, scale-up, behavioral, bots |
| JEL: | D91 I23 I25 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16404&r=exp |
| By: | Jon Atwell; Marlon Twyman II |
| Abstract: | Quality information can improve individual judgments but nonetheless fail to make group decisions more accurate; if individuals choose to attend to the same information in the same way, the predictive diversity that enables crowd wisdom may be lost. Decision support systems, from business intelligence software to public search engines, present individuals with decision aids -- discrete presentations of relevant information, interpretative frames, or heuristics -- to enhance the quality and speed of decision making, but have the potential to bias judgments through the selective presentation of information and interpretative frames. We redescribe the wisdom of the crowd as often having two decisions, the choice of decision aids and then the primary decision. We then define \emph{metawisdom of the crowd} as any pattern by which the collective choice of aids leads to higher crowd accuracy than randomized assignment to the same aids, a comparison that accounts for the information content of the aids. While choice is ultimately constrained by the setting, in two experiments -- the prediction of inflation (N=947, pre-registered) and a tightly controlled estimation game (N=1198) -- we find strong evidence of metawisdom. It comes about through diverse errors arising through the use of diverse aids, not through widespread use of the aids that induce the most accurate estimates. Thus the microfoundations of crowd wisdom appear in the first choice, suggesting crowd wisdom can be robust in information choice problems. Given the implications for collective decision making, more research on the nature and use of decision aids is needed. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.15451&r=exp |
| By: | Xu Han; Zengqing Wu; Chuan Xiao |
| Abstract: | Firm competition and collusion involve complex dynamics, particularly when considering communication among firms. Such issues can be modeled as problems of complex systems, traditionally approached through experiments involving human subjects or agent-based modeling methods. We propose an innovative framework called Smart Agent-Based Modeling (SABM), wherein smart agents, supported by GPT-4 technologies, represent firms, and interact with one another. We conducted a controlled experiment to study firm price competition and collusion behaviors under various conditions. SABM is more cost-effective and flexible compared to conducting experiments with human subjects. Smart agents possess an extensive knowledge base for decision-making and exhibit human-like strategic abilities, surpassing traditional ABM agents. Furthermore, smart agents can simulate human conversation and be personalized, making them ideal for studying complex situations involving communication. Our results demonstrate that, in the absence of communication, smart agents consistently reach tacit collusion, leading to prices converging at levels higher than the Bertrand equilibrium price but lower than monopoly or cartel prices. When communication is allowed, smart agents achieve a higher-level collusion with prices close to cartel prices. Collusion forms more quickly with communication, while price convergence is smoother without it. These results indicate that communication enhances trust between firms, encouraging frequent small price deviations to explore opportunities for a higher-level win-win situation and reducing the likelihood of triggering a price war. We also assigned different personas to firms to analyze behavioral differences and tested variant models under diverse market structures. The findings showcase the effectiveness and robustness of SABM and provide intriguing insights into competition and collusion. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.10974&r=exp |
| By: | Suzanne Bellue; Adrien Bouguen; Marc Gurand; Valerie Munier; André Tricot |
| Abstract: | Although in-service teacher training programs are designed to enhance the performance of several cohorts of students, there is little evidence on the persistence of their effects. We present the two-year results of a large-scale randomized study of an intensive in-service teacher training program conducted in France during and after the training program’s implementation year. Our results highlight the short-run effectiveness of the training program: it successfully improves students’ performance but only during the implementation year. A detailed analysis of teachers’ outcomes indicates that teachers changed their pedagogical vision and practices but struggled to apply skills to contents not directly covered during training. |
| Keywords: | in-service teacher training, professional development, teacher effect |
| JEL: | I20 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_455&r=exp |
| By: | Quentin Cavalan (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Vincent de Gardelle (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Jean-Christophe Vergnaud (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Many studies report that following feedback, individuals do not update their beliefs enough (a conservatism bias), and react more to good news than to bad news (an asymmetry bias), consistent with the idea of motivated beliefs. In the literature on conservatism and asymmetric updating, however, only one prior study focuses on judgments on absolute performance (Grossman & Owens, 2012), which finds that belief updating is well described by the Bayesian benchmark in that case. Here, we set out to test the replicability of these results and their robustness across several experimental manipulations, varying the uncertainty of participants' priors, the tasks to perform, the format of beliefs and the elicitation rules used to incentivize these beliefs. We also introduce new measures of ego-relevance of these beliefs, and of the credibility of the feedback received by participants. Overall, we confirm across various experimental conditions that individuals exhibit no conservatism and asymmetry bias when they update their beliefs about their absolute performance. As in Grossman & Owens (2012), most observations are well-described by a Bayesian benchmark in our data. These results suggest a limit to the manifestation of motivated beliefs, and call for more research on the conditions under which biases in belief updating occur. |
| Keywords: | asymmetry, feedback, biased updating, conservatism |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:pseptp:hal-04197586&r=exp |
| By: | Quentin Cavalan (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Vincent de Gardelle (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Jean-Christophe Vergnaud (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Many studies report that following feedback, individuals do not update their beliefs enough (a conservatism bias), and react more to good news than to bad news (an asymmetry bias), consistent with the idea of motivated beliefs. In the literature on conservatism and asymmetric updating, however, only one prior study focuses on judgments on absolute performance (Grossman & Owens, 2012), which finds that belief updating is well described by the Bayesian benchmark in that case. Here, we set out to test the replicability of these results and their robustness across several experimental manipulations, varying the uncertainty of participants' priors, the tasks to perform, the format of beliefs and the elicitation rules used to incentivize these beliefs. We also introduce new measures of ego-relevance of these beliefs, and of the credibility of the feedback received by participants. Overall, we confirm across various experimental conditions that individuals exhibit no conservatism and asymmetry bias when they update their beliefs about their absolute performance. As in Grossman & Owens (2012), most observations are well-described by a Bayesian benchmark in our data. These results suggest a limit to the manifestation of motivated beliefs, and call for more research on the conditions under which biases in belief updating occur. |
| Keywords: | asymmetry, feedback, biased updating, conservatism |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:hal-04197586&r=exp |
| By: | Brice Corgnet (emlyon business school, GATE UMR 5824, F-69130 Ecully, France); Roberto Hernán González (CEREN EA 7477, Burgundy School of Business, Université Bourgogne Franche-Comté, Dijon, France) |
| Abstract: | Recent works have emphasized the role of complexity as a critical constraint on human behavior following Herbert Simon’s original proposal (complexity-cost hypothesis). By contrast, we propose, in line with recent neuroscience models, that complexity can often be appealing (complexity-value hypothesis). Complexity can attract decision makers because it is associated with a large diversity of outcomes, thus offering many opportunities for the resolution of uncertainty, which is inherently appealing to humans. Using incentivized experiments, we show that, in the absence of immediate feedback on lottery outcomes, decision makers prefer lotteries with less outcomes (low-entropy) in line with the complexity-cost hypothesis. However, when feedback is provided and opportunities for resolving uncertainty are thus offered, this effect disappears in line with the complexity-value hypothesis. We discuss various implications of these findings in human resource management, marketing, and finance. |
| Keywords: | Complexity, entropy, experiments |
| JEL: | C91 D01 D81 D87 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:2312&r=exp |
| By: | Brice Corgnet (Emlyon Business School, GATE UMR 5824, 23 Avenue Guy de Collongue, 69130 Ecully, France); Mark DeSantis (Chapman University, Argyros School of Business and Economics; Economic Science Institute, One University Drive, Orange, CA 92866, USA); Christoph Siemroth (University of Essex, Department of Economics, Wivenhoe Park, Colchester, CO4 3SQ, UK) |
| Abstract: | We develop a novel experimental paradigm to study the causal impact of two classes of trading algorithms on price efficiency, trading volume, liquidity, and welfare. In our design, public information about the asset value is revealed during trading, which gives algorithms a reaction speed advantage. We distinguish market-order (aggressive) and limit-order (passive) algorithms, which replace human traders from the baseline markets. Relative to human-only markets, limit-order algorithms improve welfare, although human traders do not benefit, as the surplus is captured by the algorithms. Market-order algorithms do not change welfare, though they do lower human traders’ profits. Both types of algorithms improve price efficiency, lower volatility, and increase the share of profits for unsophisticated human traders. Our results offer unique evidence that non-exploitative algorithms can enhance welfare and be beneficial to unsophisticated traders. |
| Keywords: | Algorithmic Trading, Experimental Markets, High-Frequency Trading, Price Efficiency, News Announcements, Welfare |
| JEL: | C92 D61 G12 G14 G41 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:2313&r=exp |
| By: | Marine Hainguerlot (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Thibault Gajdos (LPC - Laboratoire de psychologie cognitive - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique); Jean-Christophe Vergnaud (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Vincent de Gardelle (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | In perceptual decision making, it is often found that human observers combine sensory information and prior knowledge suboptimally. Typically, in detection tasks, when an alternative is a priori more likely to occur, observers choose it more frequently to account for the unequal base rate but not to the extent they should, a phenomenon referred to as "conservative decision bias" (i.e., observers do not shift their decision criterion enough). One theoretical explanation of this phenomenon is that observers are overconfident in their ability to interpret sensory information, resulting in overweighting the sensory information relative to prior knowledge. Here, we derived formally this candidate model, and we tested it in a visual discrimination task in which we manipulated the prior probabilities of occurrence of the stimuli. We measured confidence in decisions and decision criterion placement in two separate experimental sessions for the same participants (N = 69). Both overconfidence bias and conservative decision bias were found in our data, but critically the link that was predicted between these two quantities was absent. Our data suggested instead that when informed about the a priori probability, overconfident participants put less effort into processing sensory information. These findings offer new perspectives on the role of overconfidence bias to explain suboptimal decisions. |
| Keywords: | overconfidence bias, perceptual decision making, suboptimality, signal detection theory, conservative decision bias, sensitivity |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:pseptp:hal-04197403&r=exp |
| By: | Marine Hainguerlot (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Thibault Gajdos (LPC - Laboratoire de psychologie cognitive - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique); Jean-Christophe Vergnaud (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Vincent de Gardelle (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | In perceptual decision making, it is often found that human observers combine sensory information and prior knowledge suboptimally. Typically, in detection tasks, when an alternative is a priori more likely to occur, observers choose it more frequently to account for the unequal base rate but not to the extent they should, a phenomenon referred to as "conservative decision bias" (i.e., observers do not shift their decision criterion enough). One theoretical explanation of this phenomenon is that observers are overconfident in their ability to interpret sensory information, resulting in overweighting the sensory information relative to prior knowledge. Here, we derived formally this candidate model, and we tested it in a visual discrimination task in which we manipulated the prior probabilities of occurrence of the stimuli. We measured confidence in decisions and decision criterion placement in two separate experimental sessions for the same participants (N = 69). Both overconfidence bias and conservative decision bias were found in our data, but critically the link that was predicted between these two quantities was absent. Our data suggested instead that when informed about the a priori probability, overconfident participants put less effort into processing sensory information. These findings offer new perspectives on the role of overconfidence bias to explain suboptimal decisions. |
| Keywords: | overconfidence bias, perceptual decision making, suboptimality, signal detection theory, conservative decision bias, sensitivity |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:hal-04197403&r=exp |
| By: | Tesary Lin; Avner Strulov-Shlain |
| Abstract: | We study how choice architecture that companies deploy during data collection influences consumers' privacy valuations. Further, we explore how this influence affects the quality of data collected, including both volume and representativeness. To this end, we run a large-scale choice experiment to elicit consumers' valuation for their Facebook data while randomizing two common choice frames: default and price anchor. An opt-out default decreases valuations by 14-22% compared to opt-in, while a \$0-50 price anchor decreases valuations by 37-53% compared to a \$50-100 anchor. Moreover, in some consumer segments, the susceptibility to frame influence negatively correlates with consumers' average valuation. We find that conventional frame optimization practices that maximize the volume of data collected can have opposite effects on its representativeness. A bias-exacerbating effect emerges when consumers' privacy valuations and frame effects are negatively correlated. On the other hand, a volume-maximizing frame may also mitigate the bias by getting a high percentage of consumers into the sample data, thereby improving its coverage. We demonstrate the magnitude of the volume-bias trade-off in our data and argue that it should be a decision-making factor in choice architecture design. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.13496&r=exp |
| By: | Corgnet, Brice; DeSantis, Mark; Siemroth, Christoph |
| Abstract: | We develop a novel experimental paradigm to study the causal impact of two classes of trading algorithms on price efficiency, trading volume, liquidity, and welfare. In our design, public information about the asset value is revealed during trading, which gives algorithms a reaction speed advantage. We distinguish market-order (aggressive) and limit-order (passive) algorithms, which replace human traders from the baseline markets. Relative to human-only markets, limit-order algorithms improve welfare, although human traders do not benefit, as the surplus is captured by the algorithms. Market-order algorithms do not change welfare, though they do lower human traders’ profits. Both types of algorithms improve price efficiency, lower volatility, and increase the share of profits for unsophisticated human traders. Our results offer unique evidence that non-exploitative algorithms can enhance welfare and be beneficial to unsophisticated traders. |
| Keywords: | Algorithmic Trading, Experimental Markets, High-Frequency Trading, Price Efficiency, News Announcements, Welfare |
| Date: | 2023–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:36273&r=exp |