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on Experimental Economics |
| By: | Ernst Fehr (Institute for Empirical Research in Economics, University of Zurich, Bluemlisalpstrasse 10, CH-8006 Zurich, Switzerland, email: efehr@iew.unizh.ch); Klaus M. Schmidt (Department of Economics, University of Munich, Ludwigstrasse 28, D-80539 Muenchen, Germany, email: klaus.schmidt@Lrz.uni-muenchen.de) |
| Keywords: | Behavioural Economics, Other-regarding Preferences, Fairness, Reciprocity, Altruism, Experiments, Incentives, Contracts, Competition |
| JEL: | C7 C9 D0 J3 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:66&r=exp |
| By: | Jim Engle-Warnick (McGill University); Javier Escobal (GRADE); Sonia Laszlo (McGill University) |
| Abstract: | We experimentally test for the effect of an additional alternative on the measured risk preferences of farmers in rural Peru. In our experiment, subjects revealed their risk preferences with a series of choices between two gambles. We added a third gamble, which was always dominated by one of the two existing gambles. We found that subjects chose this gamble nearly one quarter of the time, in some cases causing them to appear more risk loving. We conclude that the number of available alternatives should be taken into account for predicting decisions under uncertainty. |
| Keywords: | risk preferences, risk measurement instruments, experimental economics, field experiments |
| JEL: | C91 C93 O33 |
| Date: | 2005–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0511003&r=exp |
| By: | Nabanita Datta Gupta (Danish National Institute of Social Research and IZA Bonn); Anders Poulsen (University of East Anglia); AMarie-Claire Villeval (GATE (CNRS, University Lumière Lyon, ENS) and IZA Bonn) |
| Abstract: | Male and female choices differ in many economic situations, e.g., on the labor market. This paper considers whether such differences are driven by different attitudes towards competition. In our experiment subjects choose between a tournament and a piece-rate pay scheme before performing a real task. Men choose the tournament significantly more often than women. Women are mainly influenced by their degree of risk aversion, but men are not. Men compete more against men than against women, but compete against women who are thought to compete. The behavior of men seems primarily to be influenced by social norms whose nature and origin we discuss. |
| Keywords: | competition, tournament, piece rate, gender, risk-aversion, relative ability, experiment |
| JEL: | C70 C91 J16 J24 J31 M52 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1833&r=exp |
| By: | Anabela Botelho (NIMA, Universidade do Minho); Glenn W. Harrison; Lígia Pinto (NIMA, Universidade do Minho); Elisabet E. Rutstrom (University of South Carolina); Paula Veiga (NIMA, Universidade do Minho) |
| Abstract: | We conduct laboratory experiments in Timor-Leste designed to test if individual discount rates vary with the time horizon for which the rate is elicited. Our experiments test a design that has been successfully employed in field experiments in developed countries, and that avoids several confounds of previous procedures. We find that there is considerable heterogeneity in individual discount rates, and that this heterogeneity is associated with observable demographic characteristics. We also find evidence that is consistent with exponential discounting behavior, although our sample sizes do not allow us to definitively reject alternative specifications. We discuss modifications of our laboratory experiments that would facilitate field experiments in Timor-Leste. |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:nim:nimawp:31/2005&r=exp |
| By: | Joep Sonnemans; Peter Heemeijer (CeNDEF, Dep. of Quantitative Economics University of Amsterdam); Cars Hommes |
| Abstract: | We analyse the results of a laboratory experiment on expectation formation. Participants were asked to predict prices in an artificial single-good economy, and were paid according to their forecasting accuracy. Thirteen markets, with six subjects each, were created, in two different treatments. The first treatment concerns a Cobweb-like commodity market with supply-driven expectations feedback. The second treatment concerns a speculative asset market with demanddriven expectations feedback. In the first treatment price fluctuations are relatively stable, quickly converging to the Rational Expectations fundamental value. In the second treatment prices do not converge quickly, but tend to display a slow oscillation around the fundamental price. An important factor in generating these differences is shown to be the strong coordination of price predictions among participants. This suggests a large degree of homogeneity in the expectation rules applied by the participants, which was confirmed by explicitly fitting the individual predictions to a linear adaptive autoregressive specification |
| Keywords: | experimental economics, expectation formation, feedback |
| JEL: | C91 C92 D84 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:165&r=exp |
| By: | Fehr, Ernst; Näf, Michael; Schmidt, Klaus M. |
| Abstract: | Engelmann and Strobel (AER 2004) question the relevance of inequity aversion in simple dictator game experiments claiming that a combination of a preference for efficiency and a Rawlsian motive for helping the least well-off is more important than inequity aversion. We show that these results are partly based on a strong subject pool effect. The participants of the E&S experiments were undergraduate students of economics and business administration who self-selected into their field of study (economics) and learned in the first semester that efficiency is desirable. We show that for non-economists the preference for efficiency is much less pronounced. We also find a non-negligible gender effect indicating that women are more egalitarian than men. However, perhaps surprisingly, the dominance of equality over efficiency is unrelated to political attitudes. |
| JEL: | D64 D63 C92 C91 C7 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:725&r=exp |
| By: | Anabela Botelho (NIMA, Universidade do Minho); Glenn W. Harrison; Lígia Pinto (NIMA, Universidade do Minho); Elisabet E. Rutstrom (University of South Carolina) |
| Abstract: | Game theory provides predictions of behavior in many one-shot games. On the other hand, most experimenters usually play repeated games with subjects, to provide experience. To avoid subjects rationally employing strategies that are appropriate for the repeated game, experimenters typically employ a "random strangers" design in which subjects are randomly paired with others in the session. There is some chance that subjects will meet in multiple rounds, but it is claimed that this chance is so small that subjects will behave as if they are in a one-shot environment. We present evidence from public goods experiments that this claim is not always true. |
| Keywords: | Game theory, experiments, public goods |
| JEL: | C72 C92 H41 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:nim:nimawp:29/2005&r=exp |
| By: | Andrea Morone; Ulrich Schmidt |
| Abstract: | Experimental research on decision making under risk has until now always employed choice data in order to evaluate the empirical performance of expected utility and the alternative non-expected utility theories. The present paper performs a similar analysis which relies on pricing data instead of choice data. Since pricing data lead in many cases to a different ordering of lotteries than choices (e.g. the preference reversal phenomenon) our analysis may have fundamental different results than preceding investigations. We elicit three different types of pricing data: willingness-to-pay, willingness-to-accept and certainty equivalents under the Becker-DeGroot-Marschak (BDM) incentive mechanism. One of our main result shows that the comparative performance of the single theories differs significantly under these three types of pricing data. |
| Keywords: | expected utility, non-expected utility, experiments, WTP, WTA, BDM |
| JEL: | C91 D81 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:esi:discus:2005-28&r=exp |
| By: | Fehr, Ernst; Kremhelmer, Susanne; Schmidt, Klaus M. |
| Abstract: | We report on several experiments on the optimal allocation of ownership rights. The experiments confirm the property rights approach by showing that the ownership structure affects relationship-specific investments and that subjects attain the most efficient ownership allocation despite starting from different initial conditions. However, in contrast to the property rights approach, the most efficient ownership structure is joint ownership. These results are neither consistent with the self-interest model nor with models that assume that all people behave fairly, but they can be explained by the theory of inequity aversion that focuses on the interaction between selfish and fair players. |
| JEL: | J3 C9 C7 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:727&r=exp |
| By: | Dürsch, Peter (Department of Economics, University of Heidelberg); Kolb, Albert (Department of Economics, University of Bonn); Oechssler, Jörg (Department of Economics, University of Heidelberg); Schipper, Burkhard (University of California, Davis Department of Economics) |
| Abstract: | We use an experiment to explore how subjects learn to play against computers which are programmed to follow one of a number of standard learning algorithms. The learning theories are (unbeknown to subjects) a best response process, fictitious play, imitation, reinforcement learning, and a trial & error process. We test whether subjects try to influence those algorithms to their advantage in a forward-looking way (strategic teaching). We find that strategic teaching occurs frequently and that all learning algorithms are subject to exploitation with the notable exception of imitation. The experiment was conducted, both, on the internet and in the usual laboratory setting. We find some systematic differences, which however can be traced to the different incentives structures rather than the experimental environment. |
| Date: | 2005–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:xrs:sfbmaa:05-36&r=exp |
| By: | Tomomi Tanaka (California Institute of Technology) |
| Abstract: | This paper compares the performance of direct negotiation, double auction, and a two-sided combinatorial call market for consolidating fragmented land. Experimental results suggest direct negotiation produces higher efficiencies than other mechanisms when 1) all commodities need to be traded to achieve efficiency, and 2) subjects are well exposed to various experimental formats. The combinatorial call market performs well when 1) swapping is easily agreeable, and 2) the number of subjects and commodities are increased and the initial endowments are unchallenging. The two-sided combinatorial call market suffers from the holdout problem when the number of subjects and commodities is small. |
| Keywords: | Mechanism design, Two-sided combinatorial auction, Holdout |
| JEL: | C9 |
| Date: | 2005–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0511004&r=exp |
| By: | Werner Güth (Max Planck Institute for Research into Economic Systems); Vittoria Levati (Max Planck Institute for Research into Economic Systems); Rupert Saugruber (University of Innsbruck) |
| Abstract: | We consider an economy composed of two regions. Each of them provides a public good whose benefits reach beyond local boundaries. In case of decentralization, taxes collected by members of a region are spent only on that region's public good. In case of centralization, tax receipts from the two regions are pooled and used to finance both public goods according to the population size of each region. The experiment shows that centralization induces lower tax morale and less efficient outcomes. The reasons are that centralization gives rise to an interregional incentive problem and creates inequalities in income between regions. |
| Keywords: | Tax morale; Fiscal federalism; Public goods experiments |
| JEL: | C91 H26 H41 H70 |
| Date: | 2005–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwppe:0511014&r=exp |
| By: | Alexander Elbittar (alexander.elbittar@cide.edu); Andrei Gomberg (gomberg@itam.mx); Laura Sour (laura.sour@cide.edu) |
| Abstract: | Many rent-sharing decisions in a society result from a bargaining process between groups of individuals (such as between the executive and the legislative branches of government, between legislative factions, between corporate management and shareholders, etc.). We conduct a laboratory study of the effect of different voting procedures on group decision-making in the context of ultimatum bargaining. Earlier studies have suggested that when the bargaining game is played by unstructured groups of agents, rather than by individuals, the division of the payoff is substantially affected in favor of the ultimatum-proposers. Our theoretical arguments suggest that one explanation for this could be implicit voting rules within groups. We explicitly structure the group decision-making as voting and study the impact of different voting rules on the bargaining outcome. The observed responder behavior is consistent with preferences depending solely on payoff distribution. Furthermore, we observe that proposers react in an expected manner to changes in voting rule in the responder group. |
| Keywords: | Bargaining games, group decision making and experimental design. |
| JEL: | C92 D44 D82 |
| Date: | 2005–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0511002&r=exp |
| By: | Anabela Botelho (NIMA, Universidade do Minho); Glenn W. Harrison; Lígia Pinto (NIMA, Universidade do Minho); Elisabet E. Rutstrom (University of South Carolina) |
| Abstract: | Experiments can provide rich information on behavior conditional on the institutional rules of the game being imposed by the experimenter. We consider what happens when the subjects are allowed to choose the institution through a simple social choice procedure. Our case study is a setting in which sanctions may or may not be allowed to encourage "righteous behavior". Laboratory experiments show that some subjects in public goods environments employ costly sanctions against other subjects in order to enforce what appears to be a social norm of contribution. We show that this artificial society is not an attractive place to live, by any of the standard social choice criteria. If it came about because of evolutionary forces, as speculated, then The Blind Watchmaker was having one of his many bad days at the workbench. In fact, none of our laboratory societies with perfect strangers matching ever chose to live in such a world. Our findings suggest that the conditions under which a group or a society would choose a constitution that is based on voluntary costly sanctions are very special. |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:nim:nimawp:30/2005&r=exp |
| By: | Ernst Fehr (Institute for Empirical Research in Economics, University of Zurich, Bluemlisalpstrasse 10, CH-8006 Zurich, Switzerland, email: efehr@iew.unizh.ch and Collegium Helveticum, Schmelzbergstrasse 25, CH-8092 Zürich, Switzerland); Alexander Klein (Department of Economics, University of Munich, Ludwigstrasse 28, D-80539 Muenchen, Germany); Klaus M. Schmidt (Department of Economics, University of Munich, Ludwigstrasse 28, D-80539 Muenchen, Germany, email: klaus.schmidt@Lrz.uni-muenchen.de) |
| Abstract: | We show experimentally that fairness concerns may have a decisive impact on the actual and optimal choice of contracts in a moral hazard context. Bonus contracts that offer a voluntary and unenforceable bonus for satisfactory performance provide powerful incentives and are superior to explicit incentive contracts when there are some fair-minded players. But trust contracts that pay a generous wage upfront are less efficient than incentive contracts. The principals understand this and predominantly choose the bonus contracts. Our results are consistent with recently developed theories of fairness, which offer important new insights into the interaction of contract choices, fairness and incentives. |
| Keywords: | Moral Hazard, Incentives, Bonus Contract, Trust Contract, Fairness, Inequity Aversion |
| JEL: | C7 C9 J3 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:67&r=exp |
| By: | Potters,Jan; Sefton,Martin; Heijden,Eline van der (Tilburg University, Center for Economic Research) |
| Abstract: | We use experiments to compare two institutions for allocating the proceeds of team production. Under revenue-sharing, each team member receives an equal share of team output; under leader-determined shares, a team leader has the power to implement her own allocation. Both arrangements are vulnerable to opportunistic incentives: under revenuesharing team members have an incentive to free-ride, while under leader-determined shares leaders have an incentive to seize team output. We find that most leaders forego the temptation to appropriate team output and manage to curtail free-riding. As a result, compared to revenue-sharing, the presence of a team leader results in a significant improvement in team performance. |
| Keywords: | team production;leadership;opportunism;experiments |
| JEL: | C9 D2 H4 J3 L2 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2005109&r=exp |
| By: | Hirota, Masayoshi; Hsu, Ming; Plott, Chrales R.; Rogers, Brian W. |
| Keywords: | general equilibrium, stability, experiments |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:clt:sswopa:1239&r=exp |
| By: | Leigh Tesfatsion (Economics Iowa State University) |
| Abstract: | Computational laboratories (CLs) are computational frameworks that facilitate the study of complex system behaviors by means of controlled and replicable experiments. CLs permit students to engage in open-ended creative research, to explore interesting questions of their own devising for which answers are not known in advance. Students can tweak key parameters and get immediate run-time feedback of results through tables, charts, and other forms of graphical visualization with no original programming required. Moreover, students with programming backgrounds can modify and extend CL features to adapt them more closely to their desired applications. This talk will discuss the development of CLs as computer-based instructional materials for an agent-based computational economics (ACE) course, Econ 308, offered each Spring as part of the undergraduate economics curriculum at Iowa State University. ACE is the computational study of economies modeled as dynamic systems of interacting agents. Topics covered in this ACE course include: the complexity of decentralized market economies; learning and the embodied mind; network economics; and the experimental study of specific types of market processes (labor, financial, electricity, and general auction markets). CLs have been successfully used in this ACE course for take-home exercises, for in-class exercises, and as the basis for student course projects. REFERENCES: On-Line Syllabus for ACE Course (Econ 308): www.econ.iastate.edu/classes/econ308/tesfatsion/syl308.htm L. Tesfatsion, "Computational Laboratories for the Experimental Exploration of Complex System Behaviors: Phase II," Preliminary Project Report for LASCAS Grant, October 2004, available at www.econ.iastate.edu/tesfatsi/LASCAC.Pre lRep2.pdf |
| Keywords: | Computational laboratory; Agent-based; Complex economic systems; Computer-aided instruction |
| JEL: | A20 B4 C6 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:72&r=exp |
| By: | Benjamin A. Olken |
| Abstract: | This paper uses a randomized field experiment to examine several approaches to reducing corruption. I measure missing expenditures in over 600 village road projects in Indonesia by having engineers independently estimate the prices and quantities of all inputs used in each road, and then comparing these estimates to villages' official expenditure reports. I find that announcing an increased probability of a government audit, from a baseline of 4 percent to 100 percent, reduced missing expenditures by about 8 percentage points, more than enough to make these audits cost-effective. By contrast, I find that increasing grass-roots participation in the monitoring process only reduced missing wages, with no effect on missing materials expenditures. Since materials account for three-quarters of total expenditures, increasing grass-roots participation had little impact overall. The findings suggest that grass-roots monitoring may be subject to free-rider problems. Overall, the results suggest that traditional top-down monitoring can play an important role in reducing corruption, even in a highly corrupt environment. |
| JEL: | D73 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11753&r=exp |
| By: | Glaser, Markus (Sonderforschungsbereich 504); Langer, Thomas (Westfälischen Wilhelms-Universität Münster Lehrstuhl für BWL, insbesondere Finanzierung); Reynders, Jens; Weber, Martin (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre) |
| Abstract: | In this study, we analyze whether individual expectations of stock returns are influenced by the specific elicitation mode (i.e. whether forecasters have to state future price levels or directly future returns). We thus examine whether there are framing effects in stock market forecasts. We present questionnaire responses of about 250 students from two German universities. Participants were asked to state median forecasts as well as confidence intervals for seven stock market time series. Using a between subject design, one half of the subjects was asked to state future price levels, the other group was directly asked for returns. The main results of our study can be summarized as follows. There is a highly significant framing effect. For upward sloping time series, the return forecasts given by investors who are asked directly for returns are significantly higher than those stated by investors who are asked for prices. For downward sloping time series, the return forecasts given by investors who are asked directly for returns are significantly lower than those stated by investors who are asked for prices. Furthermore, our data shows that subjects underestimate the volatility of stock returns, indicating overconfidence. As a new insight, we find that the strength of the overconfidence effect in stock market forecasts is highly significantly affected by the fact whether subjects provide price or return forecasts. Volatility estimates are lower (and the overconfidence bias is thus stronger) when subjects are asked for returns compared to price forecasts. Moreover, we find that financial education improves answers of subjects. The observed framing effect and the overconfidence bias are less pronounced for subjects with higher financial education. |
| Date: | 2005–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:xrs:sfbmaa:05-40&r=exp |