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on Experimental Economics |
| By: | Luis Roberto Martínez; Christian Jaramillo; Nicolas De Roux; Juan-Camilo Cárdenas |
| Abstract: | The house-money effect –people’s tendency to be more daring with easily-gotten money– is a behavioral pattern that poses questions about the external validity of experiments in economics: to what extent do people behave in experiments like they would have in a real-life situation, given that they play with easily-gotten house money? We ran an economic experiment with 66 students to measure the house-money effect on their risk preferences. They received an amount of money with which they made risky decisions involving losses and gains; a treatment group got the money 21 days in advance and a control group got it the day of the experiment. We find that, when facing possible losses, people in the treatment group showed a lower tolerance to risk than people in the control group. If the players are assumed to have a CRRA utility function and to behave according to expected-utility theory, the risk-attitude adjustment corresponds to an average increase of 1 in their risk aversion coefficient. While the exact pattern of this house-money adjustment differs by gender, it is not possible to determine the sign of this gender effect unambiguously. In any case, it is advisable to include credible controls for the house-money effect in experimental work in economics. |
| Date: | 2010–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:006712&r=exp |
| By: | Dannenberg, Astrid; Riechmann, Thomas; Sturm, Bodo; Vogt, Carsten |
| Abstract: | In this paper, we analyse if individual inequality aversion measured with simple experimental games depends on whether the monetary endowment in these games is either a windfall gain (“house money”) or a reward for a certain effort-related performance. Moreover, we analyse whether the way of preference elicitation affects the explanatory power of inequality aversion in social dilemma situations. Our results indicate that individual inequality aversion is not generally robust to the way endowments emerge. Furthermore, the use of money earned by real efforts instead of house money does not improve the generally low predictive power of the inequality aversion model. Hypotheses based on the inequality aversion model lose their predictive power when preferences are elicited with earned money. -- |
| Keywords: | individual preferences,inequality aversion,experimental economics,prisoner's dilemma,house money |
| JEL: | C91 C92 H41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:10006&r=exp |
| By: | Ivo Bischoff (University of Kassel, Nora-Platiel-Straße 4, D-34109 Kassel); Henrik Egbert (University of Gießen, Licher Straße 66, D-35394 Gießen) |
| Abstract: | We present an economic experiment on the impact of social information on voter behaviour and find strong support for bandwagon behaviour in voting decisions. In total, 418 subjects participated in the experiment. Bandwagon behaviour is found among both male and female subjects. |
| Keywords: | C90, D72 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201005&r=exp |
| By: | Pablo Brañas-Garza (Universidad de Granada); María Paz Espinosa (Universidad del País Vasco); Pedro Rey (Universidad Autonoma de Barcelona) |
| Abstract: | This paper uses subjects’ self-reported justifications to explain discrepancies between observed heterogeneous behavior and the unique equilibrium prediction in a one-shot traveler’s dilemma experiment (TD). Principal components (PC) analysis suggests that iterative reasoning, aspiration levels, competitive behavior, attitudes towards risk and penalties and focal points may be behind different choices. Such reasons are coherent with same subjects’ behavior in other tests and experiments in which these particular issues are prominent. Overall, we identify types of subjects whose motivations are consistent across tasks. |
| Keywords: | traveler’s dilemma, self-reports, principal components, experiments |
| JEL: | C72 C91 |
| Date: | 2010–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:dfaeii:201003&r=exp |
| By: | Jasmina Hasanhodzic; Andrew W. Lo; Emanuele Viola |
| Abstract: | We construct a financial "Turing test" to determine whether human subjects can differentiate between actual vs. randomized financial returns. The experiment consists of an online video-game (http://arora.ccs.neu.edu) where players are challenged to distinguish actual financial market returns from random temporal permutations of those returns. We find overwhelming statistical evidence (p-values no greater than 0.5%) that subjects can consistently distinguish between the two types of time series, thereby refuting the widespread belief that financial markets "look random." A key feature of the experiment is that subjects are given immediate feedback regarding the validity of their choices, allowing them to learn and adapt. We suggest that such novel interfaces can harness human capabilities to process and extract information from financial data in ways that computers cannot. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1002.4592&r=exp |
| By: | Konrad, K.A.; Morath, F.; Müller, W. (Tilburg University, Center for Economic Research) |
| Abstract: | We analyze the incidence and welfare e¤ects of unit sales taxes in experimental monopoly and Bertrand markets. We …nd, in line with economic theory, that …rms with no market power are able to shift a high share of a tax burden on to consumers, independent of whether buyers are automated or human players. In monopoly markets, a monopolist bears a large share of the burden of a tax increase. With human buyers, however, this share is smaller than with automated buyers as the presence of human buyers constrains the pricing behavior of a monopolist. |
| Keywords: | tax incidence;monopoly;Bertrand competition;experiment |
| JEL: | H22 L12 L13 C72 C92 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:201003&r=exp |
| By: | Holt, Charles A.; Johnson, Cathleen; Mallow, Courtney; Sullivan, Sean P. |
| Abstract: | This paper uses laboratory experiments to investigate the effects of alternative solutions to a common-pool resource with a unidirectional flow. The focus is on the comparative economic efficiency of communications, bilateral “Coasian” bargaining, auctions and price-based allocations. All treatments improve allocative efficiency relative to a baseline environment. Communication and bilateral bargaining are not generally as effective as market allocations. An exogenously imposed, optimal fee results in the greatest efficiency gain, followed by auction allocations that determine the usage fee endogenously. |
| Keywords: | externalities; experiments; auctions; Coasian bargaining; common pool resource |
| JEL: | C92 H23 |
| Date: | 2010–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20838&r=exp |
| By: | Fumagalli L (Institute for Social and Economic Research); Laurie H (Institute for Social and Economic Research); Lynn P (Institute for Social and Economic Research) |
| Date: | 2010–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:ese:iserwp:2010-04&r=exp |
| By: | Meier, Stephan (Columbia University); Sprenger, Charles (University of California, San Diego) |
| Abstract: | Individuals frequently face intertemporal decisions. For the purposes of economic analysis, the preference parameters assumed to govern these decisions are generally considered to be stable economic primitives. However, evidence on the stability of time preferences is notably lacking. In a large field study conducted over two years with about 1,400 individuals, time preferences are elicited using incentivized choice experiments. The aggregate distributions of discount factors and the proportion of present-biased individuals are found to be unchanged over the two years. At the individual level, the one year correlations in measured time preference parameters are found to be high by existing standards, though some individuals change their intertemporal choices potentially indicating unstable preferences. By linking time preference measures to tax return data, we show that identified instability is uncorrelated with socio-demographics and changes to income, future liquidity, employment and family composition. |
| Keywords: | experimental economics, time preferences, preference stability |
| JEL: | C93 D01 D11 D91 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4756&r=exp |
| By: | Schieffer, Jack; Wu, Steven Y. |
| Abstract: | The paper develops a model of repeated interaction between a buyer and a seller, which is then tested via laboratory experiments. The model allows for both formal and informal incentives in the contractual relationship between the parties. Formal incentives are explicit, performance-conditioned obligations enforced by third parties, such as a binding bonus paid for meeting an objectively measurable criterion. Informal incentives are non-binding promises to reward good performance. Although they are not enforced by external institutions, parties engaged in long-term interactions have incentives to “keep their words” about these promises and such payments can provide motivation for desirable performance. The current literature posits that these two types of incentives can function either as complements, so that joint use leads to better outcomes than either alone, or as substitutes, so that the availability of formal incentives may actually undermine the effectiveness of informal incentives. This study uses laboratory experiments to provide a rigorous test of hypotheses about the interaction of these incentives. The observed results suggest that the complementarity effect occurs in certain situations, but that the substitution effect does not occur as predicted, possibly because people do not punish transgressions in the manner that the theoretical model assumes. |
| Keywords: | Relational contracts; experimental economics |
| JEL: | L14 C92 D02 |
| Date: | 2010–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20891&r=exp |
| By: | Azar, Ofer H.; Bar-Eli, Michael |
| Abstract: | Mixed-strategy Nash equilibrium (MSNE) is a commonly-used solution concept in game-theoretic models in various fields in economics, management, and other disciplines, but the experimental results whether the MSNE predicts well actual play in games is mixed. Consequently, evidence for naturally-occurring games in which the MSNE predicts the outcome well is of great importance, as it can justify the vast use of MSNE in models. The game between the kicker and goalkeeper in soccer penalty kicks is a real-world game that can be used to examine the application of the MSNE concept or its accuracy because payoffs are a common knowledge, the players have huge incentives to play correctly, the game is simple enough to analyze, its Nash equilibrium is in mixed strategies, and players' actions can be observed. We collected and analyzed data on the direction of kicks and jumps in penalty kicks in various top leagues and tournaments. Our analysis suggests that the MSNE predictions are the closest to the actual sample data, even though some other prediction methods use information on the marginal distribution of kicks or jumps whereas the MSNE does not. |
| Keywords: | Soccer; Football; MSNE; Mixed-strategies; Mixed-strategy Nash equilibrium; Sports; Penalty kicks |
| JEL: | L83 C70 D00 C93 C72 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20964&r=exp |