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on Experimental Economics |
| By: | Jörg Oechssler (University of Heidelberg, Department of Economics); Carsten Schmidt (University of Mannheim, Sonderforschungsbereich 504); Wendelin Schnedler (University of Heidelberg, Department of Economics) |
| Abstract: | Bubbles in asset markets have been documented in numerous experimental studies. However, all experiments in which bubbles occur pay dividends after each trading day. In this paper we study whether bubbles can occur in markets without dividends. We investigate the role of two features that are present in real markets. (1) The mere possibility that some traders may have inside information, and (2) the option to communicate with other traders. We find that bubbles can indeed occur without dividends. Surprisingly, communication turns out to be counterproductive for bubble formation, whereas the possibility of inside information is, as expected, crucial. |
| Keywords: | asset markets, bubbles, experiment, mirages, dividends |
| JEL: | C92 G12 D8 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0439&r=exp |
| By: | Ainhoa Jaramillo Gutiérrez (Universitat Jaume I); Nikolaos Georgantzis (Universitat Jaume I); Aurora García Gallego (Universitat Jaume I); Miguel Ginés Vilar (Universitat Jaume I) |
| Abstract: | We study culture and risk aversion as causes of gender differences in ultimatum bargaining. It has often been conjectured in the literature that gender differences in bargaining experiments are partly due to differences in risky decision making. Using the data obtained from our experimental sessions with Spanish subjects, we are able to disentangle risk-related and genuinely gender-specific effects in ultimatum games framed as salary negotiation between an employer and an employee. First, we confirm the broadly accepted result that women are more risk averse than men. Gender differences in both employer and employee-subjects' behavior remain significant after risk attitudes are accounted for. In fact, we show that the reported gender differences are not because of but rather despite females' higher risk aversion. Gender effects are found to depend also on cultural differences. Greek and Spanish females reject more and offer lower wages than males. British subjects exhibit gender effects only with respect to employee behavior, but the sign of the effect is opposite to that observed in the case of Greece and Spain. |
| Keywords: | Ultimatum bargaining, salaries, gender, risk attitudes, experiments |
| JEL: | J30 C91 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2007-08&r=exp |
| By: | Grether, David M.; Plott, Charles R. |
| URL: | http://d.repec.org/n?u=RePEc:clt:sswopa:1253&r=exp |
| By: | Friederike Mengel (Universidad de Alicante); Veronika Grimm (Universidad de Alicante) |
| Abstract: | We experimentally investigate the effect of imperfect separation of groups on group selection and cooperation in a standard prisoner¿s dilemma environment. Subjects can repeatedly choose between two groups, where in one of them an institutionalized norm fosters cooperation. The degree of separation of the two groups is varied between treatments. We find that both, the share of participants that choose into the group where the norm is implemented and the share of participants that cooperate, rise monotonously with the degree of group separation. Furthermore with higher group separation significantly more subjects support the enforcement of the norm. |
| Keywords: | Experiments, Cooperation, Group Selection, Social Norms, Population Viscosity. |
| JEL: | L13 L23 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2007-06&r=exp |
| By: | Thomas Dohmen (IZA); Armin Falk (IZA, University of Bonn and CEPR); David Huffman (IZA); Uwe Sunde (IZA, University of Bonn and CEPR) |
| Abstract: | Is the way that people make risky choices, or tradeoffs over time, related to cognitive ability? This paper investigates whether there is a link between cognitive ability, risk aversion, and impatience, using a representative sample of the population and incentive compatible measures. We conduct choice experiments measuring risk aversion, and impatience over an annual time horizon, for a randomly drawn sample of roughly 1,000 German adults. Subjects also take part in two different tests of cognitive ability, which correspond to sub-modules of one of the most widely used IQ tests. Interviews are conducted in subjects' own homes. We find that lower cognitive ability is associated with significantly more impatient behavior in the experiments, and with greater risk aversion. This relationship is robust to controlling for personal characteristics, educational attainment, income, and measures of credit constraints. We perform a series of additional robustness checks, which help rule out other possible confounds. |
| Keywords: | risk preference, time preference, cognitive ability, field experiment |
| JEL: | C93 D01 D80 D90 J24 J62 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2735&r=exp |
| By: | Luca Corazzini (Department of Economics, University of Milan-Bicocca); Marco Faravelli (Department of Economics, University of Milan-Bicocca); Luca Stanca (Department of Economics, University of Milan-Bicocca) |
| Abstract: | This paper investigates fund-raising mechanisms based on a prize as a way to overcome free riding in the private provision of public goods, under the assumptions of income heterogeneity and incomplete information about income levels. We compare experimentally the performance of a lottery, an all-pay auction and a benchmark voluntary contribution mechanism. We find that prize-based mechanisms perform better than voluntary contribution in terms of public good provision after accounting for the cost of the prize. Comparing the prize-based mechanisms, total contributions are significantly higher in the lottery than in the all-pay auction. Focusing on individual income types, the lottery outperforms voluntary contributions and the all-pay auction throughout the income distribution. |
| Keywords: | Auctions, Lotteries, Public Goods, Laboratory Experiments |
| JEL: | C91 D44 H41 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:108&r=exp |
| By: | Tatsuyoshi Saijo (Osaka University); Junyi Shen (Osaka University); Xiangdong Qin (Shanghai Jiao Tong University); Kenju Akai (Osaka University) |
| Abstract: | This paper studies Chinese choice behavior in the provision of public goods via the voluntary contribution mechanism. The laboratory experiment conducted in China adopts the same design as the one used in Saijo and Nakamura (1995), i.e. either cooperating (full contribution) or free riding (no contribution) is predicted as the unique Nash equilibrium with a high (larger than one) or low (smaller than one) marginal return of contribution. Comparing the results of Chinese subjects with their Japanese counterparts, we find significant differences between these two countries in terms of their choice behavior, despite the similarities in their cultures and the proximity in geographical positions. Japanese subjects are more likely to act spitefully, and, in contrast, Chinese subjects are more likely to perform cooperatively. In addition, concerning the deviations from the Nash equilibria with different marginal returns, the statistical results indicate that Chinese subjects behave more consistent with the theoretical prediction in the high marginal return case, while Japanese choice behavior seems less different from the theoretical expectation in the low marginal return case. |
| Keywords: | Voluntary contribution mechanism, Spite dilemma, Chinese, Japanese |
| JEL: | C91 H41 D71 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:osp:wpaper:07e004&r=exp |
| By: | Emrah Arbak (CNRS-GATE, University of Lyon); Marie-Claire Villeval (CNRS-GATE, University of Lyon, and IZA) |
| Abstract: | In social dilemmas, leading a team by making heroic efforts may prove costly, especially if the followers are not adequately motivated to make similar sacrifices. Attempting to understand what motivates these seemingly selfless individuals to lead, we report the results of a two-stage public good experiment with endogenous timing. Even though it turns out to be costly on average, a large proportion of our subjects volunteer to lead. Our findings suggest that a fraction of these leaders are socially concerned, while others expect to distill some personal gain, possibly of non-pecuniary nature. The composition of the team also matters, as publicizing certain attributes of a subject’s teammates has an impact on her decision to lead. Lastly, though voluntary leaders improve efficiency in their team, they are not necessarily more influential than randomly imposed leaders. |
| Keywords: | leadership, endogenous selection, influence, voluntary contribution, experiment |
| JEL: | M54 J33 A13 C92 D63 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2732&r=exp |
| By: | Manfred Königstein (University of Erfurt and IZA); Gabriele K. Ruchala (ELSE, University College London) |
| Abstract: | Within a laboratory experiment we investigate a principal-agent game in which agents may, first, self-select into a group task (GT) or an individual task (IT) and, second, choose work effort. In their choices of task and effort the agents have to consider pay contracts for both tasks as offered by the principal. The rational solution of the game implies that contract design may not induce agents to select GT and provide positive effort in GT. Furthermore it predicts equal behavior of agents with different productivities. In contrast, considerations of trust, reciprocity and cooperation - the social-emotional model of behavior - suggest that contract design can influence the agents’ willingness to join groups and provide effort. We analyze the data by applying a two-step regression model (multinomial logit and tobit) and find that counter to the rational solution, contract design does influence both, task selection and effort choice. The principal can increase participation in work groups and can positively influence group performance. Larger payment increases the share of socially motivated agents in work groups. The selection effect is larger than the motivation effect. |
| Keywords: | principal-agent, experiment, work group, selection, motivation |
| JEL: | M5 J3 C7 C9 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2697&r=exp |
| By: | Dean Karlan; Xavier Giné |
| Abstract: | This working paper by CGD non-resident fellow Dean Karlan explores whether group liability in lending practices improves lender's overall profitability and the poor's access to financial markets. Group liability is a common microcredit lending mechanism that makes a group, rather than an individual recipient, responsible for repayment. It claims to improve repayment rates by providing incentives for peer's to screen, monitor and enforce each other's loans. But some argue that group liability actually discourages good clients from borrowing by creating tension among group members and causing dropouts, jeopardizing growth and sustainability. Also, bad clients can "free ride" off of good clients causing default rates to rise. In this paper, Karlan and his co-authors discuss the results of a field experiment at a bank in the Philippines, where they randomly reassigned half of the existing group liability centers as individual liability centers. They find that converting group liability to individual liability, while keeping aspects of group lending like weekly repayments and common meeting place, does not affect the repayment rate, and actually attracts new clients. This paper is one in a series of six CGD working papers by Dean Karlan on various aspects of microfinance (Working Paper Nos. 106 –111). |
| Keywords: | group liability, lending practices, financial markets, repayment rates, free ride, Philippines |
| JEL: | G10 G21 M20 D81 D71 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:111&r=exp |
| By: | Siddiqi, Hammad |
| Abstract: | The lure of choice is a behavioral bias with important implications for financial markets. The question of whether this bias survives in market equilibrium is an issue that can be tackled with experimental economics methods. Here, we use the 4-door Monty Hall as a tool to measure the lure of choice both at the individual as well as the market level. We find that if individuals exhibit this bias then market prices also reflect this bias, hence, trading activity alone is not sufficient to reduce or eliminate the lure of choice. The bias, both at the individual as well as the market level, is robust to learning. If at least two traders strongly exhibit this bias, then competition between them is sufficient to outweigh the impact of other biases in judgment. This result has important implications for models with heterogeneous traders. Furthermore, the lure of choice is found to be compatible with event-style market efficiency |
| Keywords: | Judgment Errors; Lure of Choice; Monty Hall; Group Experiments; Event Efficiency; Asset Pricing; Behavioral Bias Behavioral Bias; Asset Pricing |
| JEL: | G10 C92 G12 |
| Date: | 2007–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2749&r=exp |
| By: | Konow, James |
| Abstract: | This paper presents theoretical and empirical analyses of experiments that test competing theories of altruism, including pure altruism (a preference for the well-being of others), warm glow (a good feeling from giving) and impure altruism (a combination of pure altruism and warm glow). These theories produce different predictions regarding crowding out, i.e., the reduction in private donations due to public spending. Variations on dictator experiments involving both students and charities examine the incidence of crowding out and provide a new direct measure of the effect of giving on feelings. The results indicate that crowding out is incomplete, i.e., less than dollar for dollar. The evidence on warm glow suggests mixed feelings: giving may be associated with good or bad feelings, depending on the context. As a way to resolve apparent inconsistencies and reconcile the evidence on crowding out and feelings, this paper proposes a theory of conditional altruism, which extends previous models to incorporate social norms that arise in the workplace, marketplace and laboratory. |
| Keywords: | Altruism; Warm-Glow; Happiness; Efficiency; Fairness; Justice; Need |
| JEL: | D64 D63 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2727&r=exp |
| By: | Dean Karlan; Jonathan Zinman |
| Abstract: | Information asymmetries--which occur when one party to a transaction has more or better information than the other party--such as moral hazard or adverse selection, can cause inefficiency, overinvestment, or poverty traps. Unfortunately, they are difficult to identify in practice. This working paper by Dean Karlan, CGD non-resident fellow, and his co-author provides a microfoundation for studying the real effects of credit constraints by identifying the presence (or absence) of two specific credit market failures: adverse selection adverse selection (where sellers lack information) and moral hazard (where buyers or borrowers lack information). The experiment identifies information asymmetries by randomizing loan pricing using 58,000 direct mail offers along three dimensions: an initial "offer interest rate" featured on the direct mail solicitation, the actual interest rate on the loan contract revealed only after the borrower agreed to the initial offer rate, and the interest rate on future loans offered only to those who remained in good standing. Findings show evidence of moral hazard with weaker evidence of adverse selection. A rough calibration shows that approximately 7% to 16% of default is due to asymmetric information problems. This paper is one in a series of six CGD working papers by Dean Karlan on various aspects of microfinance (Working Paper Nos. 106 –111). |
| Keywords: | Information asymmetries, adverse selection, moral hazard, microfinance, credit market |
| JEL: | G21 M20 E51 D82 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:109&r=exp |
| By: | Marco Faillo; Lorenzo Sacconi |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpde:0704&r=exp |
| By: | Gert Cornelissen; Siegfried Dewitte; Luk Warlop |
| Abstract: | We studied the decision making process in the Dictator Game and showed that decisions are the result of a two-step process. In a first step, decision makers generate an automatic, intuitive proposal. Given sufficient motivation and cognitive resources, they adjust this in a second, more deliberated phase. In line with the social intuitionist model, we show that one’s Social Value Orientation determines intuitive choice tendencies in the first step, and that this effect is mediated by the dictator’s perceived interpersonal closeness with the receiver. Self-interested concerns subsequently lead to a reduction of donation size in step 2. Finally, we show that increasing interpersonal closeness can promote pro-social decision-making. |
| Keywords: | Dictator game; social dilemma; decision-making; two stage model; social value orientation, interpersonal closeness |
| JEL: | C91 D81 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1028&r=exp |