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NEP: New Economics Papers
Experimental Economics
Edited by: Daniel Houser
George Mason University
Issue date: 2012-08-23
Papers: 46
Note: Access to full contents may be restricted.
NEP is sponsored by SUNY Oswego.
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In this issue we have:
Measuring the Distribution of Spitefulness
Kimbrough Erik O.; Reiss J. Philipp
Reference Points in Renegotiations: The Role of Contracts and Competition
Bartling, Björn; Schmidt, Klaus M.
Are efficiency wages equality wages? Exogenously induced fairness norms in working environments
Gary Bolton; Peter Werner
The Dark Side of the Vote: Biased Voters, Social Information, and Information Aggregation Through Majority Voting
Rebecca B. Morton; Marco Piovesan; Jean-Robert Tyran
Beliefs and Endogenous Cognitive Levels: An Experimental Study. Games and Economic Behavior, vol. 75, issue 2
Marina Agranov; Elizabeth Potamites; rew Schotter; Chloe Tergiman
Learning, Forecasting and Optimizing: An Experimental Study
Te Bao; John Duffy; Cars Hommes
Relative pay and labor supply
Anat Bracha; Uri Gneezy
It Takes Three to Tango: An Experimental Study of Contracts with Stipulated Damages
Landeo, Claudia; Spier, Kathryn
Wallflowers Doing Good: Field and Lab Evidence of Heterogeneity in Reputation Concerns
Daniel Jones; Sera Linardi
Does good advice come cheap? - On the assessment of risk preferences in the lab and the field
Leuermann, Andrea; Roth, Benjamin
Stereotypes and Risk Attitudes: Evidence from the Lab and the Field
Leuermann, Andrea; Roth, Benjamin
Heterogeneous Ambiguity Attitudes: A Field Experiment Among Small-Scale Stock Investors in China. Review of Economic Design
Elizabeth Potamites; Bei Zhang
Social- and Self-Image Concerns in Fair-Trade Consumption: Evidence from Experimental Auctions for Chocolate
Sabrina Teyssier; Fabrice Etilé; Pierre Combris
A Test Of Social Preferences Theory
Ioannou, Christos A.; Qi, Shi; Rustichini, Aldo
Motives of Sanctioning: Equity and Emotions in a Public Good Experiment with Punishment
Paolo Crosetto; Werner Güth; Luigi Mittone; Matteo Ploner
Irrationality rings!: Experimental evidence on mobile tariff choices
Barth, Anne-Kathrin; Graf, Julia
Cooperation in a Risky Environment: Decisions from Experience in a Stochastic Social Dilemma
Florian Artinger; Nadine Fleischhut; M. Vittoria Levati; Jeffrey R. Stevens
Backward induction or forward reasoning? An experiment of stochastic alternating offer bargaining
Berninghaus, Siegfried K.; Güth, Werner; Schosser, Stephan
To See Is To Believe: Common Expectations In Experimental Asset Market s
Cheung, Stephen L.; Hedegaard, Morten; Palan, Stefan
Risk and Inequality in a Social Decision Making Experiment
Ingrid M.T. Rohde; Kirsten I.M. Rohde
Quasi-Rational R&D Behavior in an Environment with Fundamental Uncertainty
Mathias Erlei; Anne-Kathrin Dimmig
The Influence of Wages on Public Officials' Corruptibility: A Laboratory Investigation
Roel van Veldhuizen
The Effect of Early Entrepreneurship Education: Evidence from a Randomized Field Experiment
Laura Rosendahl Huber; Randolph Sloof; Mirjam van Praag
Level-k Reasoning and Incentives
Larbi Alaoui; Antonio Penta
Should I Stay or Should I Go?: A Laboratory Analysis of Investment Opportunities under Ambiguity
Paul Viefers
The Importance of Knowing Your Own Reputation
Matthias Greiff; Fabian Paetzel
To Choose or Not to Choose: Contracts, Reference Points, Reciprocity, and Signaling
Mathias Erlei; Chistian Reinhold
Impact Evaluation of a Privately Managed Tuition-Free Middle school in a Poor Neighborhood in Montevideo
Ana I. Balsa; Alejandro Cid
Mechanisms behind Substance Abuse and Rugby. Lessons from a Field Experiment with Incarcerated Offenders
Alejandro Cid; Alexander Castleton
Competition as a Savings Incentive: a Field Experiment at a Homeless Shelter
Sera Linardi; Tomomi Tanaka
Co-investments and tacit collusion in regulated network industries: Experimental evidence
Krämer, Jan; Vogelsang, Ingo
Ethnic Diversity and Team Performance: A Field Experiment
Sander Hoogendoorn; Mirjam van Praag
Aircraft Noise, Health, and Residential Sorting: Evidence from Two Quasi-Experiments
Boes, Stefan; Nüesch, Stephan; Stillman, Steven
Competition, cooperation, and collective choice
Thomas Markussen; Ernesto Reuben; Jean-Robert Tyran
Measuring, Explaining, and Controlling Tax Evasion: Lessons from Theory, Experiments, and Field Studies
James Alm
Giving in Dictator Games - Experimenter Demand Effect or Preference over the Rules of the Game?
Nadine Chlaß; Peter G. Moffatt
Individual Expectations, Limited Rationality and Aggregate Outcomes
Te Bao; Cars Hommes; Joep Sonnemans; Jan Tuinstra
Heterogeneity and Cooperation in Privileged Groups: The Role of Capability and Valuation on Public Goods Provision
Felix Koelle
Honesty and Management Control System Design: An Experimental Study
Maria J. Sanchez-Exposito; David Naranjo-Gil
Taking, Punishment and Trust
Simon Halliday
Emotion and Consumer Confidence: A preliminary study (Japanese)
SEKIZAWA Yoichi; KUWAHARA Susumu
Scale, Scope and Cognition: Context Analysis of Multiple Stated Choice Experiments on the Values of Life and Limb
Marija Bockarjova; Piet Rietveld; Erik T. Verhoef
Measuring household spending and payment habits: the role of “typical” and “specific” time frames in survey questions
Marco Angrisani; Arie Kapteyn; Scott Schuh
Barriers to Household Risk Management: Evidence from India
Robert M. Townsend; Petia Topalova; Shawn Cole; Xavier Gine; Jeremy Tobacman; James Ian Vickery
The application of stata multiple inputation command to analyze design of experiments with multiple regression
Clara Novoa; Suleima Alkusari
Managing a duopolistic water market with confirmed proposals : an experiment. Gestión de un duopolio acuífero con propuestas confirmadas : un experimento.
García-Gallego, Aurora; Georgantzís, Nikolaos; Hernán, Roberto; Kujal, Praveen
Contents.
Measuring the Distribution of Spitefulness
Date: 2012
By: Kimbrough Erik O.
Reiss J. Philipp (METEOR)
URL: http://d.repec.org/n?u=RePEc:dgr:umamet:2012040&r=exp
Spiteful, antisocial behavior undermines the moral and institutional fabric of society, producingdisorder, fear and mistrust. Previous research demonstrates the willingness of individuals to harmothers, but little is understood about how far people are willing to go in being spiteful or theirconsistency in spitefulness across repeated trials. Our experiment is the first to provideindividuals with repeated opportunities to spitefully harm anonymous others when the decisionentails zero cost to the spiter and cannot be observed by the object of spite. This method revealsthat the majority of individuals exhibit consistent (non-)spitefulness over time and that thedistribution of spitefulness is bipolar: when choosing whether to be spiteful, most individualseither avoid spite altogether or impose the maximum possible harm on their unwitting victims.
Keywords: microeconomics ;
Reference Points in Renegotiations: The Role of Contracts and Competition
Date: 2012-08-03
By: Bartling, Björn
Schmidt, Klaus M.
URL: http://d.repec.org/n?u=RePEc:trf:wpaper:385&r=exp
Several recent papers argue that contracts provide reference points that affect ex post behavior. We test this hypothesis in a canonical buyer-seller relationship with renegotiation. Our paper provides causal experimental evidence that an initial contract has a highly significant and economically important impact on renegotiation behavior that goes beyond the effect of contracts on bargaining threatpoints. We compare situations in which an initial contract is renegotiated to strategically equivalent bargaining situations in which no ex ante contract was written. The ex ante contract causes sellers to ask for markups that are 45 percent lower than in strategically equivalent bargaining situations without an initial contract. Moreover, buyers are more likely to reject given markups in renegotiations than in negotiations. We do not find that these effects are stronger when the initial contract is concluded under competitive rather than monopolistic conditions.
Keywords: renegotiation; bargaining; reference points; contracts; competition
JEL: C78
Are efficiency wages equality wages? Exogenously induced fairness norms in working environments
Date: 2012-08-03
By: Gary Bolton
Peter Werner
URL: http://d.repec.org/n?u=RePEc:kls:series:0056&r=exp
We investigate how the introduction of a salient norm for pay differentiation influences wage offers and effort exertion in a gift exchange experiment. Exogenously induced claims indeed lead to substantial differentiation in wages. At the same time, unequal wage schemes do not crowd out effort exertion. In particular, we do not observe strong detrimental effects resulting from disadvantageous relative wage positions. Finally, we find that specific communication patterns have a significant impact on effort exertion.
Keywords: Communication, entitlements, fairness norms, gift exchange, relative wages
JEL: J31
The Dark Side of the Vote: Biased Voters, Social Information, and Information Aggregation Through Majority Voting
Date: 2012-08
By: Rebecca B. Morton (Department of Politics, NYU)
Marco Piovesan (Harvard Business School)
Jean-Robert Tyran (Department of Economics University of Vienna)
URL: http://d.repec.org/n?u=RePEc:hbs:wpaper:13-017&r=exp
We experimentally investigate information aggregation through majority voting when some voters are biased. In such situations, majority voting can have a "dark side", i.e. result in groups making choices inferior to those made by individuals acting alone. We develop a model to predict how two types of social information shape efficiency in the presence of biased voters and we test these predictions using a novel experimental design. In line with predictions, we find that information on the popularity of policy choices is beneficial when a minority of voters is biased, but harmful when a majority is biased. In theory, information on the success of policy choices elsewhere de-biases voters and alleviates the inefficiency. In the experiment, providing social information on success is ineffective. While voters with higher cognitive abilities are more likely to be de-biased by such information, most voters do not seem to interpret such information rationally.
JEL: C92
Beliefs and Endogenous Cognitive Levels: An Experimental Study. Games and Economic Behavior, vol. 75, issue 2
Date: 2012-07-30
By: Marina Agranov
Elizabeth Potamites
rew Schotter
Chloe Tergiman
URL: http://d.repec.org/n?u=RePEc:mpr:mprres:7497&r=exp
Keywords: Guessing game, Beliefs, Level-k theory
JEL: I
Learning, Forecasting and Optimizing: An Experimental Study
Date: 2012-02-17
By: Te Bao (University of Amsterdam)
John Duffy (University of Pittsburgh)
Cars Hommes (University of Amsterdam)
URL: http://d.repec.org/n?u=RePEc:dgr:uvatin:20120015&r=exp
Rational Expectations (RE) models have two crucial dimensions: 1) agents correctly forecast future prices given all available information, and 2) given expectations, agents solve optimization problems and these solutions in turn determine actual price realizations. Experimental testing of such models typically focuses on only one of these two dimensions. In this paper we consider both forecasting and optimization decisions in an experimental cobweb economy. We report results from four experimental treatments: 1) subjects form forecasts only, 2) subjects determine quantity only (solve an optimization problem), 3) they do both and 4) they are paired in teams and one member is assigned the forecasting role while the other is assigned the optimization task. All treatments converge to Rational Expectation Equilibrium (REE), but at very different speeds. We observe that performance is the best in treatment 1) and worst in the treatment 3). Most forecasters use a n adaptive expectations rule. Subjects are less likely to make conditionally optimal production decision for given forecasts in treatment 3) where the forecast is made by themselves, than in treatment 4) where the forecast is made by the other member of their team, which suggests that "two heads are better than one" in finding REE.
Keywords: Learning; Rational Expectations; Optimization; Experimental Economics; Bounded Rationality
JEL: C91
Relative pay and labor supply
Date: 2012
By: Anat Bracha
Uri Gneezy
URL: http://d.repec.org/n?u=RePEc:fip:fedbwp:12-6&r=exp
The authors use a labor supply; relative pay; experimental economics laboratory experiment to examine the impact of relative wages on labor supply. They test the hypothesis that, ceteris paribus, making a given wage high (low) relative to other wage levels will lead to an increase (decrease) in labor supply. They find that labor supply does respond significantly to relative pay, and in the expected direction. However, when a strong enough reason is given for the relative low pay, this difference disappears.
Keywords: Labor supply ; Wages
It Takes Three to Tango: An Experimental Study of Contracts with Stipulated Damages
Date: 2012-07-01
By: Landeo, Claudia (University of Alberta, Department of Economics)
Spier, Kathryn (Harvard Law School)
URL: http://d.repec.org/n?u=RePEc:ris:albaec:2012_014&r=exp
Can incumbent sellers and buyers use contracts with stipulated damages to extract surplus from entrants? We experimentally study the strategic environments of Aghion and Bolton (1987)and Spier and Whinston (1995). As predicted, contract renegotiation weakens the commitment power of stipulated damage clauses. Behavioral deviations, including more generous offers from sellers and entrants, suggest non-monetary preferences. A dictator-seller environment indicates the limited role of inequity aversion. With communication, equitable allocations are more frequent and exclusion less frequent. Our results underscore the importance of payoff aspirations influenced by social norms of fairness. A theoretical extension accommodates our experimental findings.
Keywords: stipulated damages; contract renegotiation; three-player bargaining games; non-monetary preferences; payoff aspirations; experiments; antitrust; buyer-seller exchange environment; dictator environment; ultimatum games; unstructured communication; fairness; regards for others; exclusive dealing
JEL: C72
Wallflowers Doing Good: Field and Lab Evidence of Heterogeneity in Reputation Concerns
Date: 2012-06
By: Daniel Jones (Department of Economics, University of Pittsburgh)
Sera Linardi (Graduate School of Public and International Affairs (GSPIA), University of Pittsburgh)
URL: http://d.repec.org/n?u=RePEc:pit:wpaper:485&r=exp
An extensive literature on reputation signaling has focused on the desire for positive reputation. In our paper we provide field and lab evidence that some individuals are averse to any form of reputation; this aversion correlates with gender in a prosocial setting. We formalize our hypotheses of these “wallflower” types in a theoretical model. Our experimental results are consistent with the model’s prediction that wallflowers will deflect unwanted attention by signaling that they are an “average altruism type” relative to their audience. Our findings suggest caution in using public observation to incentivize intrinsically motivated behavior among females.
Keywords: altruism, reputation, signaling, gender, field experiment, lab experiment
JEL: A13
Does good advice come cheap? - On the assessment of risk preferences in the lab and the field
Date: 2012-08-03
By: Leuermann, Andrea
Roth, Benjamin
URL: http://d.repec.org/n?u=RePEc:awi:wpaper:0534&r=exp
Advice is important for decision making, especially in the financial sector. We investigate how individuals assess risk preferences of others given sociodemographic information or pictures. Both non-professionals and financial professionals participate in this artefactual field experiment. Subjects mainly rely on the other's self-assessment of risk preferences and on gender when forming the belief about someone else's risk preferences. On average, subjects consider themselves to be more risk-tolerant than the person they evaluate. Subjects use their own risk attitude as a reference point for predicting others' risk preferences. This false consensus effect is less pronounced for young professionals than for senior and non-professionals. Furthermore, financial professionals predict risk preferences more accurately compared to non-professionals.
Keywords: Risk Preferences; Financial Advice; Artefactual Field Experiment; Behavioral Finance
JEL: D81
Stereotypes and Risk Attitudes: Evidence from the Lab and the Field
Date: 2012-08-03
By: Leuermann, Andrea
Roth, Benjamin
URL: http://d.repec.org/n?u=RePEc:awi:wpaper:0533&r=exp
Recent studies have found correlations between risk attitudes and several sociodemographic characteristics. In this paper, we deploy an artefactual field experiment and study whether subjects - non-professionals and financial professionals - are aware of these correlations. This is largely confirmed by our results for all subject groups. We show that the subjects attach informational value to sociodemographic information when assessing others' risk attitudes. This provides external validity to the correlations found between risk preferences and sociodemographics. A person's self-assessment of risk attitudes is the most helpful device for the subjects' assessments of others, although experienced professionals make use of it to a minor extent than all other subjects.
Keywords: Risk Preferences; Financial Advice; Artefactual Field Experiment; Behavioral Finance
JEL: D81
Heterogeneous Ambiguity Attitudes: A Field Experiment Among Small-Scale Stock Investors in China. Review of Economic Design
Date: 2012-06-05
By: Elizabeth Potamites
Bei Zhang
URL: http://d.repec.org/n?u=RePEc:mpr:mprres:7496&r=exp
Keywords: Field Experiment, Ambiguity attitudes, Ambiguity aversion , Individual investors
JEL: F
Social- and Self-Image Concerns in Fair-Trade Consumption: Evidence from Experimental Auctions for Chocolate
Date: 2012-08
By: Sabrina Teyssier (ALISS - Alimentation et sciences sociales - INRA : UR1303)
Fabrice Etilé (ALISS - Alimentation et sciences sociales - INRA : UR1303, EEP-PSE - Ecole d'économie de Paris - Paris School of Economics - Ecole d'économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA)
Pierre Combris (ALISS - Alimentation et sciences sociales - INRA : UR1303)
URL: http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-00722592&r=exp
Can social interactions be used to encourage the consumption of fair-trade products? Social interactions may alter purchase behavior by triggering either self-image concerns (when one sees others' decisions without being seen) or social-image concerns (when everybody sees everyone else). A laboratory experiment is designed to identify separately these concerns, using real auctions for normal and fair-trade chocolate, controlling for taste and packaging differences. The analysis of the willingness-to-pay (WTP) for both types of chocolate reveals that both social- and self-image matter: subjects pay a higher premium for fair-trade chocolate when their decisions are made public. This premium is sensitive to information received about the premia paid by other subjects, even when decisions are private. The higher premium in public auctions results from a lower WTP for normal chocolate, rather than a higher WTP for fair-trade chocolate. Subjects are also much more sensitive to information about others' choices that relaxes the moral or social norm constraining their own choice. We thus conclude that social interactions cannot be used to nudge consumers into fair-trade consumption, at least for ordinary products such as chocolate.
Keywords: Fair-trade ; Image Motivations ; Willingness-to-pay ; Experiment ; Chocolate
A Test Of Social Preferences Theory
Date: 2012-06-08
By: Ioannou, Christos A.
Qi, Shi
Rustichini, Aldo
URL: http://d.repec.org/n?u=RePEc:stn:sotoec:1207&r=exp
Theories of social preferences assume that individuals have a utility over monetary outcome profiles, that depends on their and other players' payments. Behavior in strategic interactions is explained as a Nash equilibrium of the game where final payoffs are paid in these utility units. These theories predict the estimated preferences to be independent of the subject's position in the game if in the experiment the allocation to a role is randomly determined, since subjects in each role have the same preferences ex-ante. We test and reject this hypothesis. We use the Quantal Response Equilibrium (QRE) of McKelvey and Palfrey (1995) to study first mover behavior in the Trust game. As standard in this literature we assume that first mover beliefs are consistent with the observed probability distribution of actions of the second movers. On the other hand, second mover behavior can be extrapolated without any a priori rational expectation assumptions. Our results show that the estimated preferences of first movers attach a significantly higher weight to their own payoff compared to the weight attached by second movers on their own payoff. This finding is inconsistent with the assumption that subjects approach a game with the same (that is, independent of the allocation to roles in the game) ex-ante preferences over monetary outcome profiles.
Motives of Sanctioning: Equity and Emotions in a Public Good Experiment with Punishment
Date: 2012-08-20
By: Paolo Crosetto (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany)
Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany)
Luigi Mittone (Department of Economics - CEEL, University of Trento, Italy)
Matteo Ploner (Department of Economics - CEEL, University of Trento, Italy)
URL: http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2012-046&r=exp
We study conditional cooperation based on a sequential two-person linear public good game in which a trusting first contributor can be exploited by a second contributor. After playing this game the first contributor is allowed to punish the second contributor. The consequences of sanctioning depend on the treatment: whereas punishment can reduce inequality in one treatment, it only creates another inequality in the other. To capture the effect of delay on punishment both treatments are run once with immediate and once with delayed punishment. Moreover, to investigate the effect of pure voice, all four treatments are also run in a virtual condition with no monetary consequences of punishment. Results show the emergence across all conditions of a strong norm of conditional cooperation. Punishment is generally low, it is higher when not delayed and it is not used to reduce inequality in payoffs. The main motive of sanctioning appears to be the need to punish a violation of the reciprocity norm, irrespective of monetary consequences.
Keywords: Public good games, Punishment, Experiments, Conditional cooperation
JEL: C70
Irrationality rings!: Experimental evidence on mobile tariff choices
Date: 2012
By: Barth, Anne-Kathrin
Graf, Julia
URL: http://d.repec.org/n?u=RePEc:zbw:itse12:60376&r=exp
This paper investigates why consumers choose calling plans that are not always cost-minimizing. Our approach is twofold: we account for general difficultiesfacing a tariff choice, as well as for biased preferences. We provide evidence froman experiment among German university students and staff, finding that participants are often not aware of their actual consumption. In line with the findings on at-rate biases, respondents systematically overestimate their consumption. On the other hand, they are generally able and willing to detect optimal tariffs. Furthermore, with increasing usage level, consumers' performance improves. However, some participants hold preferences for certain tariff forms, seducing them to choose cost-dominated offers. In our setup, we find that respondents prefer tariffs involving subsidies or hire-purchase options for handsets over contracts with buy now options. --
Keywords: Behavioral Economics,Mobile phone tariffs,Handset subsidy,Hirepurchase of device
Cooperation in a Risky Environment: Decisions from Experience in a Stochastic Social Dilemma
Date: 2012-08-20
By: Florian Artinger (Max Planck Institute for Human Development, Berlin)
Nadine Fleischhut (Max Planck Institute for Human Development, Berlin)
M. Vittoria Levati (Max Planck Institute of Economics, Jena, and Department of Economics, University of Verona)
Jeffrey R. Stevens (Department of Psychology, Nebraska)
URL: http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2012-047&r=exp
Often in cooperative situations, many aspects of the decision-making environment are uncertain. We investigate how cooperation is shaped by the way information about risk is presented (from description or from experience) and by differences in risky environments. Drawing on research from risky choice, we compare choices in stochastic social dilemmas to those in lotteries with equivalent levels of risk. Cooperation rates in games vary with different levels of risk across decision situations with the same expected outcomes, thereby mimicking behavior in lotteries. Risk presentation, however, only affected choices in lotteries, not in stochastic games. Process data suggests that people respond less to probabilities in the stochastic social dilemmas than in the lotteries. The findings highlight how an uncertain environment shapes cooperation and call for models of the underlying decision processes.
Keywords: Decisions from Experience, Social Dilemma, Cooperation, Risky Choice, Public Good.
JEL: C72
Backward induction or forward reasoning? An experiment of stochastic alternating offer bargaining
Date: 2012
By: Berninghaus, Siegfried K.
Güth, Werner
Schosser, Stephan
URL: http://d.repec.org/n?u=RePEc:zbw:kitwps:42&r=exp
Bounded rationality questions backward induction, which however, does not exclude such reasoning when anticipation is easy. In our stochastic (alternating offer) bargaining experiment, there is a certain first-period pie and a known finite deadline. What is uncertain (except for the final period) is whether there is a further period. Whereas backward induction requires information about all later pie sizes and probabilities, forward reasoning is expected to consider only the immediate prospects. Rather than relying only on decision data, we try to assess the cognitive approach such as forward reasoning of backward induction by control of information retrieval. We find that participants who begin with the shortest games before playing possibly longer games, initially resort to backward induction before switching to forward-looking behavior. --
Keywords: backward induction,forward reasoning,bargaining
JEL: C70
To See Is To Believe: Common Expectations In Experimental Asset Market s
Date: 2012-05
By: Cheung, Stephen L.
Hedegaard, Morten
Palan, Stefan
URL: http://d.repec.org/n?u=RePEc:syd:wpaper:2123/8368&r=exp
Experimental asset markets of the type introduced by Smith, Suchanek and Williams (1988) are known to produce price bubbles and crashes with inexperienced subjects. We investigate whether this phenomenon may be explained by trader uncertainty about the behavior of others. In particular, we induce individual rationality by requiring participants to correctly answer an extensive set of control questions. With this in place, common expectations are then manipulated by varying the knowledge that traders have regarding the fact that all other market participants are also required to answer these questions. We find that markets in which this common knowledge is absent do not differ significantly from baseline markets in which traders do not answer control questions. However, when it is common knowledge that all must answer the questions correctly, we find that mispricing is essentially eliminated in four out of six markets and is small in the remaining two.
Keywords: common knowledge of rationality; price bubbles; asset market experimen t
Risk and Inequality in a Social Decision Making Experiment
Date: 2012-04-26
By: Ingrid M.T. Rohde (Maastricht University, Bilgi Economics Lab of Istanbul)
Kirsten I.M. Rohde (Erasmus School of Economics, Erasmus University Rotterdam)
URL: http://d.repec.org/n?u=RePEc:dgr:uvatin:20120045&r=exp
As societies are increasingly concerned with social risks, it is important to evaluate risks not only from an individual perspective, but also from a societal one. Many increases in social risk involve a simultaneous increase in risk and inequality. This paper presents an experiment which disentangles concerns for risk and inequality in a social risk context. Subjects choose between different types of allocations of risks over 10 other participants. The allocations differ only in terms of dispersion. We disentangle four types of dispersion: ex ante inequality, ex post inequality, individual risk, and collective risk. The results show that people are averse towards ex ante inequality and individual risk, whereas they are ex post inequality and collective risk seeking.
Keywords: inequality; risk; experiment
JEL: D03
Quasi-Rational R&D Behavior in an Environment with Fundamental Uncertainty
Date: 2012
By: Mathias Erlei
Anne-Kathrin Dimmig (Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal))
URL: http://d.repec.org/n?u=RePEc:tuc:tucewp:0008&r=exp
The objective of our paper is to study R&D investments and pricing behavior in an environment with fundamental uncertainty. We designed a multi-period experiment in which each period consisted of two stages, an R&D phase and a pricing stage. Participants in the experiment had almost no information about the underlying functions, parameters, and probabilities. Subjects’ behavior in the fundamentally uncertain environment of our experiment may best be characterized as some kind of procedural rationality which we call quasi-rationality. Pricing decisions are particularly close to equilibrium values. Although we do find some hints of the existence of behavioral effects in R&D decisions, only reinforcement effects are significant across both treatments and different model specifications. The introduction of patents has only a minor impact on R&D behavior. Overall, subjects learn to adapt remarkably well to a rather complex and fundamentally uncertain environment.
Keywords: bounded rationality, duopoly, innovation, experiment, R&D competition
JEL: C90
The Influence of Wages on Public Officials' Corruptibility: A Laboratory Investigation
Date: 2012-04-13
By: Roel van Veldhuizen (University of Amsterdam)
URL: http://d.repec.org/n?u=RePEc:dgr:uvatin:20120038&r=exp
Previous studies have proposed a link between corruption and wages in the public sector. This paper investigates this link using a laboratory experiment. In the experiment, public officials have the opportunity to accept a bribe and can then decide between a neutral and a corrupt action. The corrupt action benefits the briber but poses a large negative externality on a charity. The results show that increasing public officials' wages greatly reduces their corruptibility. In particular, experienced low wage public officials accept 91% of bribes on average, whereas high wage public officials accept 38%. Moreover, high wage public officials are less likely to choose the corrupt option.
Keywords: bribery; corruption; experimental economics; laboratory experiment
JEL: D73
The Effect of Early Entrepreneurship Education: Evidence from a Randomized Field Experiment
Date: 2012-04-20
By: Laura Rosendahl Huber (University of Amsterdam)
Randolph Sloof (University of Amsterdam)
Mirjam van Praag (University of Amsterdam)
URL: http://d.repec.org/n?u=RePEc:dgr:uvatin:20120041&r=exp
The aim of this study is to analyze the effectiveness of early entrepreneurship education. To this end, we conduct a randomized field experiment to evaluate a leading entrepreneurship education program that is taught worldwide in the final grade of primary school. We focus on pupils' development of relevant skill sets for entrepreneurial activity, both cognitive and non-cognitive. The results indicate that cognitive entrepreneurial skills are unaffected by the program. However, the program has a robust positive effect on non-cognitive entrepreneurial skills. This is surprising since previous evaluations found zero or negative effects. Because these earlier studies all pertain to education for adolescents, our result tentatively suggests that non-cognitive entrepreneurial skills are best developed at an early age.
Keywords: Skill formation; field experiment; entrepreneurship education; entrepreneurship
JEL: L26
Level-k Reasoning and Incentives
Date: 2012-07
By: Larbi Alaoui
Antonio Penta
URL: http://d.repec.org/n?u=RePEc:bge:wpaper:653&r=exp
Level-k theories are agnostic over whether individuals stop the iterated reasoning because of their own cognitive constraints, or because of their beliefs over the cognitive constraints of their opponents. In practice, individual level of play may be a function both of their own constraints and their beliefs over their opponents' reasoning process. Moreover, the rounds of introspection that players perform may depend on their incentives to think more deeply. We develop a theory which explicitly models players' reasoning procedure. The rounds of introspection that individuals perform and their actual level of play both follow endogenously. This model delivers testable implications as payoff s and opponents change, and it allows for comparisons across games. It also disentangles the cognitive bound of players for a given game from their beliefs about the play of their opponents. In conjunction with the framework, we present an experiment designed to test its predictions. We modify the Arad and Rubinstein (2012) '11-20' game to serve this precise purpose, and administer different treatments which vary beliefs over payoff s and opponents. The results of this experiment are consistent with the model, and appear to lend support to our theory. This experiment also confirms the central premise that individuals change their level of play as incentives to think more and beliefs over opponents vary.
Keywords: beliefs, bounded rationality, cognitive cost, higher order beliefs, incentives, level-k reasoning, value of reasoning
JEL: C72
Should I Stay or Should I Go?: A Laboratory Analysis of Investment Opportunities under Ambiguity
Date: 2012
By: Paul Viefers
URL: http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1228&r=exp
This paper investigates the impact of uncertainty on an irreversible investment decisions in the laboratory. Subjects own the option to seize a claim on the future sum of realizations from an (ambiguous) random walk. I contrast model predicitions of the Subjective Expected Utility model (SEU, Savage, 1954) with model predictions made by Multiple-prior Expected Utility models (MEU, Gilboa & Schmeidler, 1989; Epstein & Schneider, 2003b). I present an experimental design that allows to identify behaviorally meaningful deviations from SEU. Observed behavior is at odds with the SEU prediction. On average, subjects in a treatment group, facing an ambiguous random walk, exhibit an ambiguity premium that presents a mark-up on average reservation profits in a control group. Hence, subjects shun to expose themselves to an ambiguous payoff process and invest later than participants facing a risky payoff process.
Keywords: Ambiguity aversion, multiple priors, optimal stopping, irreversible investment
JEL: D80
The Importance of Knowing Your Own Reputation
Date: 2012
By: Matthias Greiff (University of Giessen)
Fabian Paetzel (University of Bremen)
URL: http://d.repec.org/n?u=RePEc:mar:magkse:201236&r=exp
We experimentally investigate a ?nitely repeated public good game with varying partners. Within each period, participants are pairwise matched and contribute simultaneously. Participants are informed about contributions and each participant evaluates her partner’s contribution. At the beginning of the next period, participants are re-matched and, except for the two control treatments, receive information resulting from the previous period’s evaluations. There are three information treatments: Participants receive information either about their own evaluation or about their partner’s evaluation or both. Although participants condition their contributions on their partners’ evaluations, this information alone is insuf?cient to raise contributions. Only if participants also know their own evaluation, we do ?nd a signi?cant increase in contributions relative to the control treatments.
Keywords: Conditional Cooperation, Evaluation, Public Good Games, Prisoner’s Dilemma, Repeated games with varying partners, Reputation, Second-order beliefs.
JEL: C72
To Choose or Not to Choose: Contracts, Reference Points, Reciprocity, and Signaling
Date: 2012
By: Mathias Erlei
Chistian Reinhold (Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal))
URL: http://d.repec.org/n?u=RePEc:tuc:tucewp:0007&r=exp
Hart and Moore (2008) argue that varying degrees of flexibility in contracts induce differing reference points and aspiration levels for parties’ shares of a transaction’s total surplus. As a consequence, a trade-off between adaptational flexibility and the prevention of distributional conflicts emerges. In a recent paper, Fehr et al. (2009b) analyze a buyer-seller-relationship with incomplete contracts and ex ante uncertainty regarding the sellers’ cost level to test these effects. We re-run their experiment and introduce another treatment with exogenously determined contract types. Like FHZ we find reference point effects in both treatments. However, uncooperative shading behavior in our treatments differs substantially from that described in FHZ. Furthermore, it makes a significant difference whether contract types are determined by buyers or determined exogenously. We explain this by introducing two further effects, a reciprocity effect and a signaling effect.
Keywords: contracts, reference points, experiment
JEL: C91
Impact Evaluation of a Privately Managed Tuition-Free Middle school in a Poor Neighborhood in Montevideo
Date: 2012
By: Ana I. Balsa
Alejandro Cid
URL: http://d.repec.org/n?u=RePEc:mnt:wpaper:1202&r=exp
Using a randomized trial, we evaluate the impact of a free privately-managed middle school in a poor neighborhood. The research compares over time adolescents randomly selected to enter Liceo-Jubilar and those that were not drawn in the lottery. Besides positive impacts on expectations, we find better educational outcomes in the treatment group relative to control subjects. The features of Liceo-Jubilar -autonomy of management, capacity for innovation, and adaptation to the context- contrast with the Uruguayan highly centralized and inflexible public education system. Our results shed light on new approaches to education that may contribute to improve opportunities for disadvantaged adolescents in developing countries. Unlike the experiences of charter schools in developed countries, Liceo-Jubilar does not have autonomy regarding the formal school curricula nor depends on public funding by any means.
Keywords: Education; Field Experiment; Poverty; Impact Evaluation
JEL: I21
Mechanisms behind Substance Abuse and Rugby. Lessons from a Field Experiment with Incarcerated Offenders
Date: 2012
By: Alejandro Cid
Alexander Castleton
URL: http://d.repec.org/n?u=RePEc:mnt:wpaper:1201&r=exp
There are a broad range of rehabilitation programs but results differ significantly among them, from positive to no-effect programs –and even to negative-effect programs. Hence, in order to guide policy, it is necessary to find out the features that should be present in programs for inmates to guarantee positive effects. We used a random assignment to evaluate an innovative rehabilitation program –rugby classes offered by players of the national team- for incarcerated offenders in an overcrowded prison in Uruguay. We find the program positively influences inmates’ behavior, lowering the consumption of drugs. Also, studying the mechanisms behind these findings, our results suggest that the program fosters healthier conduct and positive social attitudes. After studying the criminogenic attitudes addressed by this rugby program, we suggest lines for policy.
Keywords: prison; rehabilitation; impact evaluation; randomized experiment
JEL: I38
Competition as a Savings Incentive: a Field Experiment at a Homeless Shelter
Date: 2012-06
By: Sera Linardi (Graduate School of Public and International Affairs (GSPIA), University of Pittsburgh)
Tomomi Tanaka (School of Global Studies, Arizona State University)
URL: http://d.repec.org/n?u=RePEc:pit:wpaper:484&r=exp
This paper describes a randomized field experiment testing the impact of a savings competition on the behavior of homeless individuals staying at a transitional shelter. When monetary prizes were offered for achieving the highest savings rates within a particular month, savings increased while income and attendance at case management meetings remained unchanged. However, repeating the competition in the following month had no effect. This is because individuals who increased their savings rate in response to the competition left the shelter after the first month. In general, while income is positively correlated with continued stay at the shelter, saving at high rates appears to predict early exit.
Keywords: field experiment, savings, income, competition, poverty, social services, homelessness, time inconsistency, participation
JEL: C93
Co-investments and tacit collusion in regulated network industries: Experimental evidence
Date: 2012
By: Krämer, Jan
Vogelsang, Ingo
URL: http://d.repec.org/n?u=RePEc:zbw:itse12:60389&r=exp
With the use of a laboratory experiment, we show the effects of co-investments on coverage, competition and price collusion in regulated network industries. On the one hand, co-investments turn out not to be a significant driver of new infrastructure investments beyond the level achieved by access regulation and they seem to facilitate tacit price collusion. On the other hand, co-investments economize on infrastructure investment costs and necessitate communication, which partially offset the aforementioned effects. In fact, communication between the firms on their future coverage, especially outside co-investments, seems to have a positive effect on investments. However, the surprising message of the experiment is that tacit collusion happens under co-investment although there is no reason to believe that it should and although we made almost every effort to prevent it. Our results indicate that regulators should evaluate co-investments with scrutiny as there are definite drawbacks that must be considered. --
Keywords: experimental economics,network industries,co-investment,collusion,regulation
JEL: C92
Ethnic Diversity and Team Performance: A Field Experiment
Date: 2012-07-13
By: Sander Hoogendoorn (University of Amsterdam)
Mirjam van Praag (University of Amsterdam)
URL: http://d.repec.org/n?u=RePEc:dgr:uvatin:20120068&r=exp
One of the most salient and relevant dimensions of team heterogeneity is ethnicity. We measure the causal impact of ethnic diversity on the performance of business teams using a randomized field experiment. We follow 550 students who set up 45 real companies as part of their curriculum in an international business program in the Netherlands. We exploit the fact that companies are set up in realistic though similar circumstances and that we, as outside researchers, had the unique opportunity to exogenously vary the ethnic composition of otherwise randomly composed teams. The student population consists of 55% students with a non-Dutch ethnicity from 53 different countries of origin. We find that a moderate level of ethnic diversity has no effect on team performance in terms of business outcomes (sales, profits and profits per share). However, if at least the majority of team members is ethnically diverse then more ethnic diversity has a positive impact on the performance of teams. In line with theoretical predictions, our data suggest that this positive effect could be related to the more diverse pool of relevant knowledge facilitating (mutual) learning within ethnically diverse teams.
Keywords: Ethnic diversity; team performance; field experiment; entrepreneurship; (mutual) learning
JEL: J15
Aircraft Noise, Health, and Residential Sorting: Evidence from Two Quasi-Experiments
Date: 2012-07
By: Boes, Stefan (University of Bern)
Nüesch, Stephan (University of Zurich)
Stillman, Steven (University of Otago)
URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp6744&r=exp
We explore two unexpected changes in flight regulations to identify the causal effect of aircraft noise on health. Detailed yearly noise metrics are linked with panel data on health outcomes using exact address information. Controlling for individual and spatial heterogeneity, we find that aircraft noise significantly increases sleeping problems, weariness and headaches. Our pooled models substantially underestimate the detrimental health effects, which suggests that individuals self-select into residence based on their unobserved noise sensitivity and idiosyncratic vulnerability. Generally, we show that the combination of fixed effects and quasi-experiments is very powerful to identify causal effects in epidemiological field studies.
Keywords: health, noise pollution, selection bias, fixed effects, quasi-experimental data
JEL: I10
Competition, cooperation, and collective choice
Date: 2012-05-01
By: Thomas Markussen (Department of Economics)
Ernesto Reuben (Columbia University and IZA)
Jean-Robert Tyran (University of Vienna, University of Copenhagen, and CEPR)
URL: http://d.repec.org/n?u=RePEc:kud:kuiedp:1204&r=exp
The ability of groups to implement efficiency-enhancing institutions is emerging as a central theme of research in economics. This paper explores voting on a scheme of intergroup competition which facilitates cooperation in a social dilemma situation. Experimental results show that the competitive scheme fosters cooperation. Competition is popular but the electoral outcome depends strongly on specific voting rules of institutional choice. If the majority decides, competition is almost always adopted. If likely losers from competition have veto power, it is often not, and substantial gains in efficiency are foregone.
Keywords: public goods; competition; tournament; cooperation; voting
JEL: D72
Measuring, Explaining, and Controlling Tax Evasion: Lessons from Theory, Experiments, and Field Studies
Date: 2012-07
By: James Alm (Department of Economics, Tulane University)
URL: http://d.repec.org/n?u=RePEc:tul:wpaper:1213&r=exp
In this paper, I assess what we have learned about tax evasion since Michael Allingham and Agnar Sandmo launched the modern analysis of tax evasion in 1972. I focus on three specific questions and the answers to these questions that have emerged over the years. First, how do we measure the extent of evasion? Second, how can we explain these patterns of behavior? Third, how can we use these insights to control evasion? In the process, I illustrate my own answers to these questions by highlighting various specific examples of research. My main conclusion is that we have learned many things but that we also still have many gaps in our understanding of how to measure, explain, and control tax evasion. I also give some suggestions a
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