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on Experimental Economics |
| By: | Brian Roe (Ohio State University); Steven Y. Wu (Ohio State University) |
| Abstract: | We examine how social preferences affect behavior and surplus in relational contracts. Experimental subjects participate in a contracting environment similar to Brown, Falk, and Fehr [Brown, M., Falk, A. & Fehr, E., “Relational Contracts and the Nature of Market Interactions, Econometrica, 72 (2004):747-780] and in social preference experiments adapted from Charness and Rabin [Charness, G. & Rabin, M. “Understanding Social Preferences with Simple Tests.” The Quarterly Journal of Economics 117(2002): 817-869]. Subjects’ behavior during the Charness and Rabin experiment is a significant predictor of behavior and outcomes observed during the subsequent multi-period, finite-horizon, relational- contracting environment, which features market power, unenforceable performance, reputation formation and endogenous matching of trading partners. Compared to subjects who respond to the Charness-Rabin games in a fashion consistent with purely self-interested, competitive or reciprocal social preferences, buyers and sellers with alternative social preference structures engage in contracts with substantially higher quality and price, which leads to greater surplus for both parties. A key difference is that self-interested, competitive and reciprocal buyers respond to early-period shirking by extending subsequent offers that are less generous to the seller, while buyers with other social preferences extend subsequent offers that are more generous. Reciprocal and competitive sellers and, to a lesser extent, self-interested sellers, deliver sub-contractual levels of quality more often, which substantially lowers buyer and total welfare. We conclude that intentional or ‘cold’ measures of social preferences have considerable predictive power in dynamic, interactive (or ‘hot’) economic settings. |
| Keywords: | Contracts; relational contracts; implicit contracts; market interaction; experimental economics; repeated transaction; social preferences. |
| JEL: | C91 D31 K12 |
| Date: | 2005–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0509006&r=exp |
| By: | Frank Heinemann; Rosemarie Nagel; Peter Ockenfels |
| Abstract: | This paper explores three aspects of strategic uncertainty: its relation to risk, predictability of behavior and subjective beliefs of players. In a laboratory experiment we measure subjects’ certainty equivalents for three coordination games and one lottery. Behavior in coordination games is related to risk aversion, experience seeking, and age. From the distribution of certainty equivalents we estimate probabilities for successful coordination in a wide range of games. For many games, success of coordination is predictable with a reasonable error rate. The best response to observed behavior is close to the global-game solution. Comparing choices in coordination games with revealed risk aversion, we estimate subjective probabilities for successful coordination. In games with a low coordination requirement, most subjects underestimate the probability of success. In games with a high coordination requirement, most subjects overestimate this probability. Estimating probabilistic decision models, we show that the quality of predictions can be improved when individual characteristics are taken into account. Subjects’ behavior is consistent with probabilistic beliefs about the aggregate outcome, but inconsistent with probabilistic beliefs about individual behavior. |
| Keywords: | Belief Formation, Coordination Games, Global Game, Lotteries, Risk Aversion, Strategic Uncertainty |
| JEL: | C72 C91 D81 D84 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:804&r=exp |
| By: | Craig Landry; Andreas Lange; John A. List; Michael K. Price; Nicholas G. Rupp |
| Abstract: | This study develops theory and uses a door-to-door fundraising field experiment to explore the economics of charity. We approached nearly 5000 households, randomly divided into four experimental treatments, to shed light on key issues on the demand side of charitable fundraising. Empirical results are in line with our theory: in gross terms, our lottery treatments raised considerably more money than our voluntary contributions treatments. Interestingly, we find that a one standard deviation increase in female solicitor physical attractiveness is similar to that of the lottery incentive¡ªthe magnitude of the estimated difference in gifts is roughly equivalent to the treatment effect of moving from our theoretically most attractive approach (lotteries) to our least attractive approach (voluntary contributions). |
| JEL: | C93 H41 L30 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11611&r=exp |
| By: | Peeters,Ronald; Strobel,Martin (METEOR) |
| Abstract: | In markets with differentiated products Bertrand-Nash equilibria in pure strategies may not exist. Mixed strategies are difficult to calculate. For these cases Morgan and Shy (2000) suggest an alternative solution concept, the undercut-proof equilibrium (UPE). While the Nash-equilibrium is motivated by the question of how ones own behavior influences one''s payoff, the UPE is motivated by the question of how others'' behavior influence one''s payoff. We report on an experiment where we test these two concepts with respect to their comparative statics. Moreover we investigate the nature of subjects'' underlying thinking process. Our results provide strong evidence against the UPE and in favor of Bertrand-Nash. |
| Keywords: | microeconomics ; |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2005020&r=exp |
| By: | John A. List |
| Abstract: | The role of the market in mitigating and mediating various forms of behavior is perhaps the central issue facing behavioral economics today. This study designs a field experiment that is explicitly linked to a controlled laboratory experiment to examine whether, and to what extent, social preferences influence outcomes in actual market transactions. While agents drawn from a well-functioning marketplace behave in accord with social preference models in tightly controlled laboratory experiments, when observed in their naturally occurring settings their behavior approaches what is predicted by self-interest theory. In the limit, much of the observed behavior in the marketplace that is consistent with social preferences is due to reputational concerns: suppliers who expect to have future interactions with buyers provide higher product quality only when the buyer can verify quality via a third-party certifier. The data also speak to theories of how reputation effects enhance market performance. In particular, reputation and the monitoring of quality are found to be complements, and findings suggest that the private market can solve the lemons problem through third party verification. |
| JEL: | C93 D63 D64 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11616&r=exp |
| By: | Vyrastekova,Jana; Onderstal,Sander (Tilburg University, Center for Economic Research) |
| Abstract: | We analyse gender differences in the trust game in a "behind the veil of ignorance" design. This method yields strategies that are consistent with actions observed in the classical trust game experiments. We observe that, on averge, men and women do not differ in "trust", and that women are slightly more "trustworthy". However, men's strategies are bimodal, peaking at the subgame perfect Nash equilibrium and the Pareto efficient frontier, while women's strategies are single peaked at moderate tranfers. Moreover, if a man [woman] exhibits low trust, he [she] is likely to be a money-maximizer [a risk or betrayal averse reciprocator]. |
| Keywords: | trust game;experiment;strategy method behind the veil of ignorance; gender differences |
| JEL: | C72 C91 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200596&r=exp |
| By: | Yan Chen (University of Michigan - Ann Arbor); Tayfun Sönmez (Boston College) |
| Abstract: | We present an experimental study of three school choice mechanisms. The Boston mechanism is influential in practice, while the two alternative mechanisms, the Gale-Shapley and Top Trading Cycles mechanisms, have superior theoretical properties in terms of incentives and efficiency. Consistent with theory, this study indicates a high preference manipulation rate under the Boston mechanism. As a result, efficiency under Boston is significantly lower than that of the two competing mechanisms in the designed environment. However, contrary to theory, Gale-Shapley outperforms the Top Trading Cycles mechanism and generates the highest efficiency. Our results suggest that replacing the Boston mechanism with either Gale-Shapley or Top Trading Cycles mechanism might significantly improve efficiency, however, the efficiency gains are likely to be more profound when parents are educated about the incentive compatibility of these mechanisms. |
| Keywords: | school choice, Boston mechanism, mechanism design, Gale-Shapley mechanism, Top Trading Cycles mechanism |
| JEL: | C78 C92 D82 |
| Date: | 2004–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:622&r=exp |
| By: | Pablo Brañas-Garza (Department of Economic Theory and Economic History, University of Granada); Ramón Cobo-Reyes (Department of Economic Theory and Economic History, University of Granada); Natalia Jiménez (Universidad de Alicante); Giovanni Ponti (Universidad de Alicante) |
| Abstract: | Experiments of social networks basically focus on coordination and cooperation games. Surprisingly, the economic literature does not provide a useful procedure to obtain existent networks. This paper proposes an innovative mechanism to elicit latent social networks. Subjects belonging to three different groups are invited to reveal their friends’ name and surname. In addition, they also have to define a score for each relationship. The latter, is one of the main innovations of our device. We obtained that a very large percentage of links sent are corresponded. According to our original purpose, this mechanism largely captures friendship relations and practically ignores weak relations. In order to further analyze individuals behavior, a model of friend—regarding preferences is developed. |
| Keywords: | friendship, networks, experiments, other—regarding preferences. |
| JEL: | C93 D85 Z13 |
| Date: | 2005–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:gra:wpaper:05/19&r=exp |
| By: | Mercè Roca; Robin Hogarth; A. John Maule |
| Abstract: | Several factors affect attitudes toward ambiguity. What happens, however, when people are asked to exchange an ambiguous alternative in their possession for an unambiguous one? We present three experiments in which individuals preferred to retain the former. This status quo bias emerged both within- and between-subjects, with and without incentives, with different outcome distributions, and with endowments determined by both the experimenter and the participants themselves. Findings emphasize the need to account for the frames of reference under which evaluations of probabilistic information take place as well as modifications that should be incorporated into descriptive models of decision making. |
| Keywords: | Ambiguity, risk, status quo bias, decision making, uncertainty |
| JEL: | C91 D81 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:882&r=exp |
| By: | Klaus Abbink; Matthew Ellman |
| Abstract: | Donors often rely on local intermediaries to deliver benefits to target beneficiaries. Each selected recipient observes if the intermediary under-delivers to them, so they serve as natural monitors. However, they may withhold complaints when feeling unentitled or grateful to the intermediary for selecting them. Furthermore, the intermediary may distort selection (e.g. by picking richer recipients who feel less entitled) to reduce complaints. We design an experimental game representing the donor’s problem. In one treatment, the intermediary selects recipients. In the other, selection is random - as by an uninformed donor. In our data, random selection dominates delegation of the selection task to the intermediary. Selection distortions are similar, but intermediaries embezzle more when they have selection power and (correctly) expect fewer complaints. |
| Keywords: | Development, Entitlement, Experiments, Fairness, Intermediaries, Monitoring, Targeting, Punishment. |
| JEL: | C90 D63 O12 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:796&r=exp |
| By: | Goeree,Jacob K.; Riedl,Arno; Ule,Aljaz (METEOR) |
| Abstract: | This paper reports the results of a laboratory experiments on network formation among heterogeneous agents. The experimental design extends the basic Bala-Goyal (2000) model of network formation with decay and two-way flow of benefits by allowing for agents with lower linking costs or higher benefits to others. We consider treatments where agents’ types are common knowledge and treatments where agents’ types are private information. In all treatments, the (efficient) equilibrium network has a “star” structure. We find that with homogeneous agents, equilibrium predictions fail completely. In Contrast, with heterogeneous agents stars frequently occur, often with the high-value or low- cost agent in the center. Stars are not borne but rather develop: in treatments with a high-value agents, the network’s centrality, stability, and efficiency all increase over time. Our results suggest that agents’ heterogeneity is a major determinant for the predominance of star-like structures in real-life social networks. |
| Keywords: | microeconomics ; |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2005032&r=exp |
| By: | Abele, S.; Stasser, G. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University) |
| Abstract: | We will firstly outline the rationale of a public good game and explain the distinction between a continuous public good game and a threshold public good game. As a vast majority of experimental research in social psychology on public good games has used threshold public good games, we will then outline the structure of a dilemma game with a provision point. Our point is that dilemma games with a provision point violate two important assumptions commonly held for public good games: a) there is always a conflict between the group’s interest and the individual’s interest; and b) an individual is always better off defecting. A threshold dilemma game is a dilemma with a coordination game embedded in it. Hence it provides focal point solutions and may as a consequence leave less room for other factors to affect behavior. Moreover, games with a provision point might yield different results than games without a provision point. We will argue that above that threshold dilemma games do not provide good models of many the public goods problems that are encountered in real life. We will propose that a public good game with a tilted S function provides a more appropriate model of real life dilemmas while fulfilling the defining properties of public good games. |
| Keywords: | Step-level Public Good Game;Continuous Public Good Game; |
| Date: | 2005–04–03 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:30002102&r=exp |
| By: | Marco Casari; John C. Ham; John H. Kagel |
| Abstract: | We find clear demographic and ability effects on bidding in common value auctions: inexperienced women are much more susceptible to the winner's curse than men, controlling for SAT/ACT scores and college major; economics and business majors substantially overbid relative to other majors; and those with superior SAT/ACT scores are much less susceptible to the winner's curse, with the primary effect coming from those with below median scores doing worse, as opposed to those with very high scores doing substantially better, and with composite SAT/ACT score being a more reliable predictor than either math or verbal scores by themselves. There are strong selection effects in bid estimates for both inexperienced and experienced subjects that are not identified using standard econometric techniques but rather through our experimental design effects. Ignoring these selection effects is most misleading for inexperienced bidders, as the unbiased estimates of the bid function indicate much faster learning and adjustment to the winner's curse for individual bidders than do the biased estimates. |
| Keywords: | Demography ; Auctions |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:213&r=exp |
| By: | Thomas Dohmen; Armin Falk; David Huffman; Uwe Sunde; Jürgen Schupp; Gert G. Wagner |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp511&r=exp |