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on Experimental Economics |
| By: | Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); M. Vittoria Levati (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany) |
| Abstract: | We report on an experiment designed to explore whether allowing individuals to voice their anger prevents costly punishment. For this sake, we use an ultimatum minigame and distinguish two treatments: one in which responders can only accept or reject the other, and the other in which they can also scold the proposer. By an unannounced successive two-person public goods game, with either the same partner or a different one, we additionally explore how "having a voice" affects later behavior. The evidence supports the conclusion that voicing one's outrage crowds out the need to harm oneself and the other. Yet, this emotional reaction does not lead to increased future cooperation. |
| Keywords: | Ultimatum bargaining, Public goods game, Outrage, Punishment |
| JEL: | C72 C78 C92 H41 |
| Date: | 2007–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-096&r=exp |
| By: | Pierre-Yves Geoffard; Stéphane Luchini |
| Abstract: | In this paper, we consider that our experience of time (to come) depends on the emotions we feel when we imagine future pleasant or unpleasant events. A positive emotion such as relief or joy associated with a pleasant event that will happen in the future induces impatience. Impatience, in our context, implies that the experience of time up to the forthcoming event expands. A negative emotion such as grief or frustration associatedwith an unpleasant event thatwill happen in the future triggers anxiety. This will give the experience of time contraction. Time, therefore, is not exogeneously given to the individual and emotions, which link together events or situations, are a constitutive ingredient of time experience. Our theory can explain experimental evidence which shows that people tend to prefer to perform painful actions earlier than pleasurable ones, contrary to the predictions yielded by the standard exponential discounting framework. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pse:psecon:2007-32&r=exp |
| By: | Ellingsen, Tore (Dept. of Economics, Stockholm School of Economics); Östling, Robert (Dept. of Economics, Stockholm School of Economics) |
| Abstract: | Using the level-k model of boundedly rational interaction, we fully characterize the effects of pre-play communication in symmetric and generic 2x2 games. We find that one-way communication weakly increases coordination on Nash equilibrium outcomes in all such games. Although one-way communication entails Nash equilibrium when relatively sophisticated players meet, there are games in which average payoffs fall when one-way communication is allowed. Two-way communication can yield higher average payoffs than one-way communication in coordination games such as Stag Hunt, but in other games two-way communication reduces both average payoffs and the degree of coordination below the no-communication level. Extending our analysis to larger and less symmetric games, we find that communication facilitates coordination in all two-player common interest games. However, we also identify games in which communication hampers coordination. |
| Keywords: | Pre-play communication; coordination games; Stag Hunt; level-k; bounded rationality |
| JEL: | C72 |
| Date: | 2007–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hastef:0680&r=exp |
| By: | Lisa Bruttel (Humboldt-Universität zu Berlin, Department of Business and Economics); Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); Ulrich Kamecke (Humboldt-Universität zu Berlin, Department of Business and Economics) |
| Abstract: | Using a symmetric 2-person prisoners' dilemma as the base game, each player receives a signal for the number of rounds to be played with the same partner. The actual number of rounds (the length of the supergame) is determined by the maximal signal where each player expects the other's signal to be smaller, respectively larger, by a fixed number of rounds with 50% probability. In the tradition of Folk Theorems we show that both, mutual defection and mutual cooperation until the individually perceived last round, are subgame perfect equilibrium outcomes. We find experimental evidence that many players do in fact cooperate beyond their individual signal period. |
| Keywords: | Prisoners' dilemma, Continuation probability, Uncertainty, Experiment |
| JEL: | C91 D82 D84 |
| Date: | 2007–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-098&r=exp |
| By: | David L. Dickinson; Marie-Claire Villeval |
| Abstract: | The Peter Principle states that, after a promotion, the observed output of promoted employees tends to fall. Lazear (2004) models this principle as resulting from a regression to the mean of the transitory component of ability. Our experiment reproduces this model in the laboratory by means of various treatments in which we alter the variance of the transitory ability. We also compare the efficiency of an exogenous promotion standard with a treatment where subjects self-select their task. Our evidence confirms the Peter Principle when the variance of the transitory ability is large. In most cases, the efficiency of job allocation is higher when using a promotion rule than when employees are allowed to self-select their task. This is likely due to subjects’ bias regarding their transitory ability. Naïve thinking, more than optimism/pessimism bias, may explain why subjects do not distort their effort prior to promotion, contrary to Lazear’s (2004) prediction. Key Words: Promotion, Peter Principle, Sorting, Experiment |
| JEL: | C91 J24 J33 M51 M52 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:apl:wpaper:07-16&r=exp |
| By: | Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany) |
| Abstract: | Economic theory has evolved without paying proper attention to behavioral approaches, especially to social, economic, and cognitive psychology. This has recently changed by including behavioral economics courses in many doctoral study programs. Although this new development is most welcome, the typical topics of the behavioral economics courses are not truly behavioral. More specifically, we question whether eoclassical repairs or game fitting exercises as well as more or less mechanic adaptation processes qualify as behavioral approaches. To avoid criticizing without offering alternatives, we suggest some truly behavioral concepts, especially the satisficing approach. |
| Keywords: | (Un)Bounded rationality, Satisficing, Learning, Experimental and Behavioral Economics |
| JEL: | A11 B41 B52 C72 C91 |
| Date: | 2007–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-099&r=exp |
| By: | Astrid Matthey (Max-Planck-Institute of Economics Jena, Germany); Nadja Dwenger (DIW Berlin, Germany) |
| Abstract: | The higher our aspirations, the higher the probability that we have to adjust them downwards when forming more realistic expectations later on. This paper shows that the costs induced by high aspirations are not trivial. We ?rst develop a theoretical framework to identify the factors that determine the effect of aspirations on expected utility. Then we present evidence from a lab experiment on the factor found to be crucial: the adjustment of reference states to changes in expectations. The results suggest that the costs of high aspirations can be signi?cant, since reference states do not adjust quickly. We use a novel, indirect approach that allows us to infer the determinants of the reference state from observed behavior, rather than to rely on cheap talk. |
| Keywords: | aspirations, reference state, expectations, individual utility, experiments |
| JEL: | D11 D84 C91 |
| Date: | 2007–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-097&r=exp |
| By: | A. V. Muthukrishnan (Hong Kong University of Science and Technology); Luc Wathieu (ESMT European School of Management and Technology) |
| Abstract: | This paper investigates situations where a sizeable sub-set of consumers prefer an inferior (dominated) offer made by an established brand to a superior (dominating) offer made by a less-established brand. Established brands are those for which consumers hold more confident beliefs concerning overall quality. Through a series of eight experiments, we test the hypothesis that the preference for a dominated established brand is linked to ambiguity aversion, a seemingly unrelated pattern of choice behavior between monetary gambles. We first show a correlation between ambiguity aversion and the preference for dominated established brands. We then demonstrate that the preference for established brands is enhanced when ambiguity aversion is made more salient in unrelated preceding choices. To further study the ambiguity-reducing properties of established brands, the last experiments assign brand names to monetary gambles, and it appears that (a priori unrelated) established brand names increase the likelihood of choosing ambiguous gambles. Overall, this research argues that brand equity for longstanding brands derives (at least in part) from consumers’ tendency to avoid ambiguity. |
| Keywords: | branding, brand choice, consumer behavior, decision making under uncertainty |
| JEL: | C91 D10 D80 M31 |
| Date: | 2007–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:esm:wpaper:esmt-07-005&r=exp |
| By: | David, Cesarini (Department of Economics, Massachusetts Institute of Technology); Dawes, Christopher T. (Political Science Department, University of California, San Diego); Johannesson, Magnus (Dept. of Economics, Stockholm School of Economics); Lichtenstein, Paul (Department of Medical Epidemiology and Biostatistics, Karolinska Institutet); Wallace, Björn (Dept. of Economics, Stockholm School of Economics) |
| Abstract: | We use the classical twin design to provide estimates of genetic and environmental influences on experimentally elicited preferences for risk and altruism. Our estimates provide strong prima facie evidence that economic preferences are heritable. Approximately 30 percent of the variation in behavior is explained by genetic effects in the best-fitting models. The results suggest a modest role for common environment as a source of phenotypic variation. Based on the findings, we encourage economists to move beyond a black-box treatment of preference formation and suggest that the further study of the codetermination of preferences by genes and environment will lead to a more comprehensive economic science. |
| Keywords: | Genetics; Altruism; Risk Aversion; Preferences; Experiments |
| JEL: | C90 D01 D64 |
| Date: | 2007–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hastef:0679&r=exp |
| By: | Ottone, Stefania; Ponzano, Ferruccio |
| Abstract: | The model by Fehr and Schmidt introduces envy and altruism in the utility function of a representative agent. The aim of this paper is to provide two extensions – non linearity and non self-centredness – to this model. This extension turns out to be more consistent with experimental evidence than the original model. |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:uca:ucapdv:91&r=exp |
| By: | Eva Camacho-Cuena (Autonomous University of Madrid, Spain); Tibor Neugebauer (University of Hanover, Germany); Christian Seidl (University of Kiel, Germany) |
| Abstract: | Leaky-bucket transactions can be regarded as income transfers allowing for transaction costs. In its most rudimentary form, leaky-bucket transactions trace out the maximum “leakage” of transaction costs before income inequality is exacerbated, or—alternatively—before a welfare loss is experienced. This notion suggests that part of the income transfer should reach the transferee in order to keep the degree of income inequality or social welfare intact. However, in general, this conjecture is theoretically wrong. Rather there exists a unique benchmark such that it holds only for transfers among income recipients below the benchmark. When both are above the benchmark, the transferee has to be given more than the amount taken from the transferor, and when they are on opposite sides of the benchmark, both should experience an income loss. These three cases cover progressive transfers only. Three more cases apply to regressive transfers, and six more cases apply to income gains. Each of these twelve cases is covered by the present paper. Yet experimental research shows poor empirical evidence for this theory. Subjects’ perceptions of maintaining the degree of income inequality rather follow a simple precept: If someone gains income, the other person involved should be positively compensated, and if someone loses income, the other person involved should be negatively compensated. This expresses sort of compensating justice rather than restoration of the former degree of income inequality according to the orthodox theory. Compensating justice is, however, at variance with the transfer principle. |
| JEL: | D31 D63 C91 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2007-74&r=exp |
| By: | Klaus Moeltner (Department of Resource Economics, University of Nevada, Reno); James J. Murphy (Department of Resource Economics & Center for Public Policy and Administration, University of Massachusetts-Amherst); John K. Stranlund (Department of Resource Economics, University of Massachusetts-Amherst); Maria Alejandra Velez (Center for Research on Environmental Decisions, Columbia University) |
| Abstract: | Economists have to date not been very discriminating in selecting parametric models to analyze experimental data. In this study we propose two parametric estimators tailored to accommodate both the bounded integer outcomes and the latent subject heterogeneity typically observed for Social Dilemma games. The two estimators are the Hierarchical Ordered Probit and the Hierarchical Doubly-Truncated Poisson. We illustrate how both specifications can be implemented in a Bayesian estimation framework, which circumvents estimation hurdles and allows for maximum flexibility in model comparison and model selection. We apply this framework to data from a Common Pool Resource game implemented in rural communities. We find that both estimators capture the essential effects and patterns present in the data. As expected, the truncated count data framework exhibits higher efficiency in estimation and prediction. |
| Keywords: | Social Dilemma Games; Hierarchical Bayesian Modeling; Ordered Probit; Truncated Poisson; Common Property Resource |
| JEL: | C11 C24 C93 Q22 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:unr:wpaper:07-013&r=exp |