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on Experimental Economics |
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Issue of 2011‒03‒12
nineteen papers chosen by |
| By: | Alessandro Bucciol (University of Verona); Daniel Houser (George Mason University, Interdisciplinary Center for Economic Science.); Marco Piovesan (Harvard Business School) |
| Abstract: | To encourage worker productivity offices prohibit Internet use. Consequently, many employees delay Internet activity to the end of the workday. Recent work in social psychology, however, suggests that using willpower to delay gratification can negatively impact performance. We report data from an experiment where subjects in a Willpower Treatment are asked to resist the temptation to join others in watching a humorous video for 10 minutes. In relation to a baseline treatment that does not require willpower, we show that resisting this temptation detrimentally impacts economic productivity on a subsequent task. |
| Keywords: | temptation, willpower, lab experiment. |
| JEL: | C93 D01 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:11-090&r=exp |
| By: | Tausch Franziska; Potters Jan; Riedl Arno (METEOR) |
| Abstract: | Redistribution is an inevitable feature of collective pension schemes. It is still largely an open question what people‘s preferences are regarding redistribution—both through pensions schemes as well as more generally. It would seem that economists have little to say about this question, as they routinely assume that people are predominantly selfish. Economic experiments have revealed, however, that most people do in fact have redistributional preferences that are not merely inspired by self-interest. This paper reviews this experimental evidence. For that purpose we distinguish between three fundamentally different types of situations. The first deals with distributional preferences behind a veil of ignorance. What type of income distribution do people prefer when they do not know whether they will end up in an advantaged or disadvantaged position? A main result here is that, contrary to what John Rawls suggested, people do not prefer the maximin rule, but rather favor a utilitarian justice concept appended with a safety net for the poorest. Another result is that people are willing to accept income inequalities—as long as these are due to choices for which people can be held accountable. In the second type of situation, individuals make choices in front of the veil of ignorance and know their position. Experiments show that preferences for redistribution are strongly dependent on a person‘s own position. People in a relatively disadvantaged position want more redistribution than those in a relatively advantaged position, which shows that preferences for redistribution are clearly affected by self-interest. Still, even many of those in an advantaged position display a preference forredistribution. This holds, in particular, if inequality is due to chance rather than effort. There are also significant differences in preferences between the genders and between people with different political orientations. Finally, we discuss situations in which income is determined by interdependent rather than individual choices. People are dependent upon the cooperation of others for the achievement of their (income) goals. Experiments show that behavioral factors such as trust and reciprocity play a crucial role, and they also indicate that these factors are strongly affected by the institutional setting. In the closing parts of the paper we discuss whether and how these experimental results speak to the redistribution issues of pensions. For example, do they argue for or against mandatory participation? Should we have less redistribution and more actuarial fairness? How does this depend on the type of redistribution involved? |
| Keywords: | public economics ; |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2011014&r=exp |
| By: | Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group) |
| Abstract: | A long time ago most economists would have limited themselves to stating that agreements should be individually rational and efficient and that selecting a specific agreement from that set depends on bargaining and negotiation power whatever that may be. Nowadays hardly any economist will argue that way. The change has been brought about by the strategic approach to bargaining and cooperation and the parallel experimental studies of bargaining and negotiation. When arguing what should be explored more thoroughly, we will point out directions where previous efforts may have been misdirected, where importing new methods may be helpful or even needed, and where new research questions need to be asked and answered. |
| Keywords: | (un)bounded rationality, (non-)cooperative game theory, bargaining and negotiation (theory and experiments) |
| JEL: | C90 C92 C93 D63 D64 D71 D74 |
| Date: | 2011–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2011-012&r=exp |
| By: | Seda Ertac (Koc University); Balazs Szentes (London School of Economics) |
| Abstract: | An important line of recent literature has found gender differences in attitudes toward competition, with men being more likely to choose competitive incentive schemes, even when factors such as ability and risk aversion are controlled for. This paper examines the effect of information on the gender gap in tournament entry. We present experimental evidence that the competitiveness difference between men and women declines significantly when individuals are given performance feedback before making their incentive scheme choice. The result suggests that policies that reduce uncertainty can reduce the gender gap in tournament entry. |
| Keywords: | Experiments, gender, competition, information, incentive schemes. |
| JEL: | C91 D83 J16 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1104&r=exp |
| By: | Syngjoo Choi; Shachar Kariv; Wieland Mueller; Dan Silverman |
| Abstract: | Revealed preference theory o¤ers a criterion for decision-making quality: if decisions are high quality then there exists a utility function that the choices maximize. We conduct a large-scale ?eld experiment that enables us to test subjects?choices for consistency with utility maximization and to combine the experimental data with a wide range of individual socioeco-nomic information for the subjects. There is considerable heterogeneity in subjects?consistency scores: high-income and high-education subjects display greater levels of consistency than low- income and low-education subjects, men are more consistent than women, and young subjects are more consistent than older subjects. We also ?nd that consistency with utility maximization is strongly related to wealth: a standard deviation increase in the consistency score is associated with 15-19 percent more wealth. This result conditions on socioeconomic variables including current income, education, and family structure, and is little changed when we add controls for past income, risk tolerance and the results of a standard personality test used by psychologists. |
| JEL: | C93 D01 D12 D81 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:1105&r=exp |
| By: | Schikora, Jan Theodor |
| Abstract: | Whistle-blowing is seen as a powerful tool in containing corruption, although theoretical findings and experimental evidence cast doubt on its effectiveness. We expand a standard corruption model by allowing both, briber and official to initiate corruption actively, in order to assess the full effect of whistle-blowing. In our laboratory experiment we find that the effect of symmetrically punished whistle-blowing is ambiguous since it reduces the impact of corruption on productive activity, but also increases its stability. We show that asymmetric leniency for the official offsets the negative effect. The results can be explained by simple arguments about belief structures within the self-interested model of payoff maximizing. |
| Keywords: | Corruption; Experiments; Whistle-blowing; Punishment |
| JEL: | C72 C92 D73 |
| Date: | 2011–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:12161&r=exp |
| By: | Radu Vranceanu (Economics Department - ESSEC Business School); Angela Sutan (ESC Dijon Bourgogne - ESC Dijon Bourgogne); Delphine Dubart (ESSEC Business School - ESSEC Business School) |
| Abstract: | In this paper we show that if a very small, exogenously given probability of terminating the exchange is introduced in an elementary investment game, reciprocators play more often the defection strategy. Everything happens as if they "hide behind probabilities" in order to break the trust relationship. Investors do no not seem able to internalize the reciprocators' change in behavior. This could explain why trades involving an exogenous risk of value destruction, such as financial transactions, provide an unfavorable environment for trust-building. |
| Keywords: | Experimental Economics ; Financial Transactions ; Investment Game ; Objective Risk ; Trust |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00572384&r=exp |
| By: | Schickora, Jan Theodor |
| Abstract: | The ‘Four-Eyes-Principle’ is considered as one of the most potent measures against corruption although it lacks both theoretical and empirical justification. We show in a laboratory experiment using a standard corruption game that introducing the 4EP increases corrupt behaviour, casting doubt on its usefulness as a general recommendation. Combining data on final choices with observations on the decision making processes in teams, including a content analysis of exchanged messages, provides insights into the dynamics of team decision making and shows that the individual profit maximizing motive dominates group decision making and crowds out altruistic arguments. |
| Keywords: | Corruption; Laboratory Experiments; Group Decision Making |
| JEL: | C72 C92 D73 |
| Date: | 2011–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:12160&r=exp |
| By: | Feigenberg, Benjamin (MIT); Field, Erica M. (Harvard University); Pande, Rohini (Harvard University) |
| Abstract: | A number of development assistance programs promote community interaction as a means of building social capital. Yet, despite strong theoretical underpinnings, the role of repeat interactions in sustaining cooperation has proven difficult to identify empirically. We provide the first experimental evidence on the economic returns to social interaction in the context of microfinance. Random variation in the frequency of mandatory meetings across first-time borrower groups generates exogenous and persistent changes in clients' social ties. We show that the resulting increases in social interaction among clients more than a year later are associated with improvements in informal risk-sharing and reductions in default. A second field experiment among a subset of clients provides direct evidence that more frequent interaction increases economic cooperation among clients. Our results indicate that group lending is successful in achieving low rates of default without collateral not only because it harnesses existing social capital, as has been emphasized in the literature, but also because it builds new social capital among participants. |
| JEL: | C81 C93 O12 O16 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp10-019&r=exp |
| By: | Sudipta Sarangi; Tibor Besedes; Cary Deck; Mikhael Shor |
| Abstract: | Using paper and pencil experiments administered in senior centers, we examine decision-making performance in multi-attribute decision problems. We find a significant decline in performance with age due to reduced reliance on common heuristics among our oldest subjects. Subjects in their early sixties incorporate a wide array of heuristics, septuagenarians employ progressively fewer strategies, and subjects in their 80s make nearly random selections. However, we find that increasing the number of options in a decision problem increases the number of heuristics brought to the task. This challenges the choice overload view that people give up when confronted with too much choice. |
| URL: | http://d.repec.org/n?u=RePEc:lsu:lsuwpp:2011-08&r=exp |
| By: | Giuseppe Attanasi; Samuele Centorrino; Ivan Moscati |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:ler:wpaper:11.03.337&r=exp |
| By: | Cohn, Alain (University of Zurich); Fehr, Ernst (University of Zurich); Herrmann, Benedikt (University of Nottingham); Schneider, Frédéric (University of Zurich) |
| Abstract: | We conducted a randomized field experiment to examine how workers respond to wage cuts, and whether their response depends on the wages paid to coworkers. Workers were assigned to teams of two, performed identical individual tasks, and received the same performance – independent hourly wage. Cutting both team members' wages caused a substantial decrease in performance. When only one team member's wage was cut, the performance decrease for the workers who received the cut was more than twice as large as the individual performance decrease when both workers' wages were cut. This finding indicates that social comparison processes among workers affect effort provision because the only difference between the two wage cut conditions is the other team member's wage level. In contrast, workers whose wage was not cut but who witnessed their team member's pay being cut displayed no change in performance relative to the baseline treatment in which both workers' wages remained unchanged, indicating that social comparison exerts asymmetric effects on effort. |
| Keywords: | compensation, fairness, field experiment, social comparison |
| JEL: | C93 J33 M53 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5550&r=exp |
| By: | Dean Spears (Princeton University) |
| Abstract: | Economic theory and common sense suggest that time preference can cause or per- petuate poverty. Might poverty also or instead cause impatient or impulsive behavior? This paper reports a randomized lab experiment and a partially randomized field ex- periment, both in India, and analysis of the American Time Use Survey. In all three studies, poverty is associated with diminished behavioral control. The primary contri- bution is to isolate the direction of causality from poverty to behavior; three theoretical mechanisms from psychology cannot be deffinitively separated. One supported expla- nation is that poverty, by making economic decision-making more difficult for the poor, depletes cognitive control. |
| Keywords: | impatient, impulsive behavior, poverty, psychology, cognative control |
| JEL: | D19 D63 I39 J19 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:1293&r=exp |
| By: | Alistair Munro (National Graduate Institute for Policy Studies); Bereket Kebede; Marcela Tarazona-Gomez; Arjan Verschoor |
| Abstract: | Dyson and Moore (1983) posit that women in South India enjoy relatively more agency than in the North. Their conclusions have become part of the standard picture of Indian rural society. In this paper, we examine using experimental data the implications of the regional contrast in female autonomy for the efficiency of family decision-making. We take a sample of 1200 couples from one rural and one urban area in the north of India (Uttar Pradesh) and one area in the south (Tamil Nadu) that are often taken to exemplify differences in the autonomy of women and the nature of marital relationships. Generally, we find large-scale and robust evidence of inefficiency and the hiding of assets when this is possible. Men invest more and are more generous to their partners. Women are more willing to invest in a common pool when their income is earned through working and when assets are publicly observable. Regarding the focus of our paper, we find continuing significant differences between North and South and we find relatively little evidence that urban living is associated with changes in the nature of marital behaviour. There are some differences between response to treatment but the key and striking difference between the North and the South is that in both rural and urban sites in the former region household efficiency is considerably greater than in the latter, which does on the face of it suggest a tradeoff between autonomy and efficiency. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:ngi:dpaper:10-33&r=exp |
| By: | Nicolas Jacquemet (Centre d'Economie de la Sorbonne - Paris School of Economics); Constantine Yannelis (Department of Economics - Stanford University) |
| Abstract: | The extent of racial discrimination in the labor market is now clearly identified, but its nature largely remains an open question. This paper reports results from an experiment in which fabricated resumes are sent to help-wanted advertisements in Chicago newpapers. We use three groups of identical resumes : one with Anglo-Saxon names, one with African-American names and one with fictitious foreign names whose ethnic origin is unidentifiable to most Americans. We find that resumes with Anglo-Saxon names generate nearly one half more call-backs than identical resumes with African-American or Foreign names. Resumes with non-Anglo-Saxon names, whether African-American or Foreign, show no statistically significant difference in the number of callbacks they elicit. We also find that discrimination is significantly higher in the Chicago suburbs - where ethnic homogenity is high - as opposed to the city proper. We take this as evidence that discriminatory behavior is part of a larger pattern of unequal treatment of any member of non-majority groups - ethnic homophily. |
| Keywords: | Correspondence testing, racial discrimination. |
| JEL: | J71 J64 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:11013&r=exp |
| By: | Sule Alan (Faculty of Economics and CFAP, University of Cambridge, United Kingdom.); Ruxandra Dumitrescu (Faculty of Economics and CFAP, University of Cambridge, United Kingdom.); Gyongyi Loranth (Faculty of Business, Economics and Statistics and University of Vienna and CEPR.) |
| Abstract: | We test the interest rate sensitivity of subprime credit card borrowers using a unique panel data set from a UK credit card company. What is novel about our contribution is that we were given details of a randomized interest rate experiment conducted by the lender between October 2006 and January 2007. We find that individuals who tend to utilize their credit limits fully do not reduce their demand for credit when subject to increases in interest rates as high as 3 percentage points. This finding is naturally interpreted as evidence of binding liquidity constraints. We also demonstrate the importance of truly exogenous variation in interest rates when estimating credit demand elasticities. We show that estimating a standard credit demand equation with nonexperimental variation leads to seriously biased estimates even when conditioning on a rich set of controls and individual fixed effects. In particular, this procedure results in a large and statistically significant 3-month elasticity of credit card debt with respect to interest rates even though the experimental estimate of the same elasticity is neither economically nor statistically different from zero. JEL Classification: D11, D12, D14. |
| Keywords: | subprime credit, randomized trials, liquidity constraints. |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111304&r=exp |
| By: | Kolstad, Julie Riise (University of Bergen); Lindkvist, Ida (CMI (Chr. Michelsen Institute) |
| Abstract: | There is growing interest in the role of pro-social motivation in public service delivery. In general, economists no longer question whether people have social preferences, but ask how and when such preferences will influence their economic and social decisions. Apart from revealing that individuals on average share and cooperate even when such actions lower their own material pay-off, economic experiments have documented substantial individual heterogeneity in the strength and structure of social preferences. In this paper we study the extent to which these differences are related to career choices, by testing whether preferences vary systematically between Tanzanian health worker students who prefer to work in the private health sector and those who prefer to work in the public health sector. Despite its important policy implications, this issue has received hardly any attention to date. By combining data from a questionnaire and two economic experiments, we find that students who prefer to work in the public health sector have stronger pro-social preferences than those who prefer to work in the private sector. We also show that the extent to which these students care about others can be conditional and linked to inequality aversion. A systematic selfselection of pro-socially motivated health workers into the public sector suggests that it is a good idea to have two sectors providing health services: this can ensure efficient matching of individuals and sectors by allowing employers in the two sectors to use different payment mechanisms tailored to attract and promote good performance from different types of health workers. |
| Keywords: | pro-social preferences; career choice; economic experiments; health workers |
| JEL: | H40 I18 J33 J45 |
| Date: | 2010–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bergec:2010_004&r=exp |
| By: | Sule Alan (Faculty of Economics and CFAP University of Cambridge, UK and Koc University, Turkey); Ruxandra Dumitrescu (Faculty of Economics and CFAP University of Cambridge, UK); Gyongyi Loranth (Faculty of Business, Economics and Statistics University of Vienna and CEPR) |
| Abstract: | We test the interest rate sensitivity of subprime credit card borrowers using a unique panel data set from a UK credit card company. We were given details of a randomized interest rate experiment conducted by the lender between October 2006 and January 2007. Access to such information is rare. We first calibrate an intertemporal consumption model to show that the experimental design has sufficient statistical power to detect economically plausible responses among borrowers. We then find that individuals who tend to utilize their credit limits fully do not reduce their demand for credit when subject to increases in interest rates as high as 3 percentage points. This finding is naturally interpreted as evidence of binding liquidity constraints. We also demonstrate the importance of isolating exogenous variation in interest rates when estimating credit demand elasticities. We show that estimating a standard credit demand equation with the nonexperimental variation in the data leads to severely biased estimates. This is true even when conditioning on a rich set of controls and individual fixed effects. |
| Keywords: | subprime credit; randomized trials; liquidity constraints |
| JEL: | D11 D12 D14 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1105&r=exp |
| By: | Domenico Colucci (Dipartimento di Matematica per le Decisioni - Università degli Studi di Firenze); Simone Salotti (Department of Economics - National University of Ireland, Galway); Vincenzo Valori (Dipartimento di Matematica per le Decisioni - Università degli Studi di Firenze) |
| Abstract: | Electronic reputation mechanisms aim at signaling the quality of traders and at hampering misbehavior. When a buyer rates a seller, according to official policies of leading online marketplaces, the main aspect to keep into account should be the consistency between the advertised good and its real characteristics. On the other hand, the buyer’s satisfaction is obviously related to the surplus stemming from the transaction, which also depends on the price paid. This determines a possible distortion in the way sellers are rated. Using an experimental investigation, we find that the surplus from the transaction is in fact the principal factor driving the feedback. This emerges even in treatments where the incentives suggest ignoring the gains in favor of other elements. In particular, the match (or lack of) between the ex-ante advertised description and the item received, which should in principle be the primary lever affecting the buyers’ rating of the sellers, is comparatively less important. This result supports the intuition that in online auctions or e-marketplace purchases, a sufficient quality price ratio can make up for inflated descriptions of the goods on sale and guarantee a positive rating from the buyers (or at least their silence). |
| Keywords: | Reputation systems, feedback behavior, electronic markets, electronic commerce |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:flo:wpaper:2011-04&r=exp |