Showing papers in "Experimental Economics in 2013"

Do people care about social context? Framing effects in dictator games

Abstract: Many previous experiments document that behavior in multi-person settings responds to the name of the game and the labeling of strategies. With a few exceptions, these studies cannot tell whether frames affect preferences or beliefs. In three large experiments, we investigate whether social framing effects are also present in Dictator games. Since only one of the subjects makes a decision, the frame can affect behavior merely through preferences. In all the experiments, we find that behavior is insensitive to social framing. We discuss how to reconcile the absence of social framing effects in Dictator games with the presence of social framing effects in Ultimatum games.

The external validity of giving in the dictator game: A field experiment using the misdirected letter technique.

Abstract: We investigate the external validity of giving in the dictator game by using the misdirected letter technique in a within-subject design. First, subjects participated in standard dictator games (double blind) conducted in labs in two different studies. Second, after four to five weeks (study 1) or two years (study 2), we delivered prepared letters to the same subjects. The envelopes and the contents of the letters were designed to create the impression that they were misdirected by the mail delivery service. The letters contained 10 Euros (20 Swiss Francs in study 2) corresponding to the endowment of the in-lab experiments. We observe in both studies that subjects who showed other-regarding behavior in the lab returned the misdirected letters more often than subjects giving nothing, suggesting that in-lab behavior is related to behavior in the field.

Why do People Tell the Truth? Experimental Evidence for Pure Lie aversion *

Abstract: A recent experimental literature shows that truth-telling is not always motivated by pecuniary motives, and several alternative motivations have been proposed. However, their relative importance in any given context is still not totally clear. This paper investigates the relevance of pure lie aversion, that is, a dislike for lies independent of their consequences. We propose a very simple design where other motives considered in the literature predict zero truth-telling, whereas pure lie aversion predicts a non-zero rate. Thus we interpret the finding that more than a third of the subjects tell the truth as evidence for pure lie aversion. Our design also prevents confounds with another motivation (a desire to act as others expect us to act) not frequently considered but consistent with much existing evidence. We also observe that subjects who tell the truth are more likely to believe that others will tell the truth as well.

Easy come, easy go

Abstract: A growing number of experimental studies focus on the differences between the lab and the field. One important difference between many lab and field experiments is how the endowment is obtained. By conducting a dictator game experiment, we investigate the influences of windfall and earned endowment on behavior in the laboratory and in the field. We find subjects donate more in both environments if the endowment is a windfall gain. However, although the experimental design was intended to control for all effects other than environment, there are significant differences in behavior between the lab and the field for both windfall and earned endowment. This points to the importance of discussing the context when interpreting both laboratory and field experiment results as well as when conducting replication studies.

Preference intensities and risk aversion in school choice: a laboratory experiment

Abstract: We experimentally investigate in the laboratory prominent mechanisms that are employed in school choice programs to assign students to public schools and study how individual behavior is influenced by preference intensities and risk aversion. Our main results show that (a) the Gale–Shapley mechanism is more robust to changes in cardinal preferences than the Boston mechanism independently of whether individuals can submit a complete or only a restricted ranking of the schools and (b) subjects with a higher degree of risk aversion are more likely to play “safer” strategies under the Gale–Shapley but not under the Boston mechanism. Both results have important implications for enrollment planning and the possible protection risk averse agents seek.

Self-selection and variations in the laboratory measurement of other-regarding preferences across subject pools: evidence from one college student and two adult samples

Abstract: We measure the other-regarding behavior in samples from three related populations in the upper Midwest of the United States: college students, non-student adults from the community surrounding the college, and adult trainee truckers in a residential training program. The use of typical experimental economics recruitment procedures made the first two groups substantially self-selected. Because the context reduced the opportunity cost of participating dramatically, 91 % of the adult trainees solicited participated, leaving little scope for self-selection in this sample. We find no differences in the elicited other-regarding preferences between the self-selected adults and the adult trainees, suggesting that selection is unlikely to bias inferences about the prevalence of other-regarding preferences among non-student adult subjects. Our data also reject the more specific hypothesis that approval-seeking subjects are the ones most likely to select into experiments. Finally, we observe a large difference between self-selected college students and self-selected adults: the students appear considerably less pro-social.

Shifting the blame to a powerless intermediary

Abstract: We extend the results of Bartling and Fischbacher (Rev. Econ. Stud. 79(1):67–87, 2012) by showing that, by delegating to an intermediary, a dictator facing an allocation decision can effectively shift blame onto the delegee even when doing so necessarily eliminates the possibility of a fair outcome. Dictators choosing selfishly via an intermediary are punished less and earn greater profits than those who do so directly. Despite being powerless to influence the fairness of the outcome, an intermediary given the choice between two unfair outcomes is punished more than when the dictator chooses one directly. This is not the case when the intermediary merely can initiate the random selection of one of the outcomes. Our findings reinforce and clarify the usefulness of agency as a tool to evade perceived culpability.

The evolution of sanctioning institutions: an experimental approach to the social contract

Abstract: A vast amount of empirical and theoretical research on public good games indicates that the threat of punishment can curb free-riding in human groups engaged in joint enterprises. Since punishment is often costly, however, this raises an issue of second-order free-riding: indeed, the sanctioning system itself is a common good which can be exploited. Most investigations, so far, considered peer punishment: players could impose fines on those who exploited them, at a cost to themselves. Only a minority considered so-called pool punishment. In this scenario, players contribute to a punishment pool before engaging in the joint enterprise, and without knowing who the free-riders will be. Theoretical investigations (Sigmund et al., Nature 466:861–863, 2010) have shown that peer punishment is more efficient, but pool punishment more stable. Social learning, i.e., the preferential imitation of successful strategies, should lead to pool punishment if sanctions are also imposed on second-order free-riders, but to peer punishment if they are not. Here we describe an economic experiment (the Mutual Aid game) which tests this prediction. We find that pool punishment only emerges if second-order free riders are punished, but that peer punishment is more stable than expected. Basically, our experiment shows that social learning can lead to a spontaneously emerging social contract, based on a sanctioning institution to overcome the free rider problem.

Is there selection bias in laboratory experiments? The case of social and risk preferences

Abstract: Laboratory experiments are frequently used to examine the nature of individuals’ social and risk preferences and inform economic theory. However, it is unknown whether the preferences of volunteer participants are representative of the population from which the participants are drawn, or whether they differ due to selection bias. To answer this question, we measured the preferences of 1,173 students in a classroom experiment using a trust game and a lottery choice task. Separately, we invited all students to participate in a laboratory experiment using common recruitment procedures. To evaluate whether there is selection bias, we compare the social and risk preferences of students who eventually participated in a laboratory experiment to those who did not, and find that they do not differ significantly. However, we also find that people who sent less in a trust game were more likely to participate in a laboratory experiment, and discuss possible explanations for this behavior.

Do core-selecting Combinatorial Clock Auctions always lead to high efficiency? An experimental analysis of spectrum auction designs

Abstract: For many years the Simultaneous Multi-Round Auction (SMRA) has been the primary auction design for spectrum sales worldwide. Recently, the core-selecting Combinatorial Clock Auction (CCA) has been used as an alternative to the SMRA in a number of countries promising strong incentives for truthful bidding and high efficiency as a result. We analyze the efficiency and auctioneer revenue of the CCA in comparison to SMRA and examine bidding behavior in both formats. The experiments are based on two value models, which resemble single- and multiband spectrum sales in the field. Such applications often allow for thousands of possible bundles. Bidders in the CCA submitted bids for only a fraction of all bundles with a positive valuation. Bundles were selected based on synergies and payoff after the primary bid rounds. As a consequence, we found efficiency of the CCA to be significantly lower than that of SMRA in the multi-band value model and auctioneer revenue of the CCA to be lower in both value models. In addition, we characterize several properties of the auction format, which result from the two-stage design and the payment and activity rules.

Estimating the causal effect of beliefs on contributions in repeated public good games

Abstract: We use instrumental variables for estimating the causal effect of beliefs on contributions in repeated public good games. The effect is about half as large as suggested by ordinary least squares. Thus, we present evidence that beliefs have a causal effect on contributions, but also that beliefs are endogenous. We compare the causal, belief-based model of contributions to alternative models based on matching the previous contributions of others and responding to one’s deviation from the average in the previous round. The causal, belief-based model performs well, indicating that beliefs have a central role in determining contributions.

The influence of spouses on household decision making under risk: an experiment in rural China

Abstract: We study household decision making in a high-stakes experiment with a random sample of households in rural China. Spouses have to choose between risky lotteries, first separately and then jointly. We find that spouses’ individual risk preferences are more similar the richer the household and the higher the wife’s relative income contribution. A couple’s joint decision is typically very similar to the husband’s preferences, but women who contribute relatively more to the household income, women in high-income households, and women with communist party membership have a stronger influence on the joint decision.

How sensitive are bargaining outcomes to changes in disagreement payoffs

Abstract: We use a human-subjects experiment to investigate how bargaining outcomes are affected by changes in bargainers’ disagreement payoffs Subjects bargain against changing opponents, with randomly drawn asymmetric disagreement outcomes that vary over plays of the game, and with complete information about disagreement payoffs and the cake size We find that subjects only respond about half as much as theoretically predicted to changes in their own disagreement payoff and to changes in their opponent’s disagreement payoff This effect is observed in a standard Nash demand game and a related unstructured bargaining game, in both early and late rounds, and is robust to moderate changes in stake sizes We show theoretically that standard models of expected utility maximisation are unable to account for this under-responsiveness, even when generalised to allow for risk aversion We also show that quantal-response equilibrium has, at best, mixed success in characterising our results However, a simple model of other-regarding preferences can explain our main results

Payment schemes in infinite-horizon experimental games

Abstract: We consider payment schemes in experiments that model infinite-horizon games by using random termination. We compare paying subjects cumulatively for all periods of the game; with paying subjects for the last period only; with paying for one of the periods, chosen randomly. Theoretically, assuming expected utility maximization and risk neutrality, both the cumulative and the last period payment schemes induce preferences that are equivalent to maximizing the discounted sum of utilities. The last period payment is also robust under different attitudes toward risk. In comparison, paying subjects for one of the periods chosen randomly creates a present-period bias. We further provide experimental evidence from infinitely repeated prisoners’ dilemma games that supports the above theoretical predictions.

Confusion and Learning in the Voluntary Contributions Game

Abstract: We use a limited information environment to assess the role of confusion in the repeated voluntary contributions game. A comparison with play in a standard version of the game suggests, that the common claim that decision errors due to confused subjects biases estimates of cooperation upwards, is not necessarily correct. Furthermore, we find that simple learning cannot generate the kind of contribution dynamics commonly attributed to the existence of conditional cooperators. We conclude that cooperative behavior and its decay observed in public goods games is not a pure artefact of confusion and learning.

Demand reduction and preemptive bidding in multi-unit license auctions

Abstract: Multi-unit ascending auctions allow for equilibria in which bidders strategically reduce their demand and split the market at low prices. At the same time, they allow for preemptive bidding by incumbent bidders in a coordinated attempt to exclude entrants from the market. We consider an environment where both demand reduction and preemptive bidding are supported as equilibrium phenomena of the ascending auction. In a series of experiments, we compare its performance to that of the discriminatory auction. Strategic demand reduction is quite prevalent in the ascending auction even when entry imposes a (large) negative externality on incumbents. As a result, the ascending auction performs worse than the discriminatory auction both in terms of revenue and efficiency, while entrants’ chances are similar across the two formats.

The pivotal mechanism revisited: some evidence on group manipulation

Abstract: This paper studies the vulnerability of the pivotal mechanism with respect to manipulation by groups. In a lab experiment, groups decide on the implementation of various alternatives, some of which imply opposite interests for the two subgroups. We investigate the occurrence of tacit and explicit collusion by allowing for communication within subgroups in one treatment and prohibiting it in another. Even though all agents’ preferences are common knowledge and there exists a simple symmetric collusive strategy for one subgroup, we find little evidence for tacit collusion. Only when explicit communication is allowed, collusion is established. A behavioral model using quantal response equilibrium in which subjects have beliefs over the correlation of errors of same-type subjects helps explain the main features of our data.

Asymmetric memory recall of positive and negative events in social interactions

Abstract: Previous studies have suggested that negative emotion can enhance memory accuracy. However, they were not conducted in the context of social interactions using the methodology of experimental economics. Based on the present study, we find that in such a context, individuals’ memory recall accuracy depends on the kindness of acts and who performed them, and negative emotion may lower memory accuracy. A victim of an unkind act is more likely to forget than someone who benefited from a kind act. This result supports the hypothesis that individuals may strategically manipulate their memory by forgetting an unpleasant experience. We also find that individuals who committed an unkind act tend to perceive it as less unkind as time moves on. They also tend to believe that a higher percentage of players have also committed the unkind act. Overall, the results support the hypothesis that individuals strategically manipulate their memory and beliefs to maintain self-esteem or feel less guilty.

Coordination and learning in dynamic global games: experimental evidence

Abstract: Coordination problems are ubiquitous in social and economic life. Political mass demonstrations, the decision whether to join a speculative currency attack, investment in a risky venture, and capital flight from a particular country are all characterized by coordination problems. Furthermore, all these events have a dynamic nature which has been largely omitted from previous experimental studies. Here I use a two-stage variant of a dynamic global game to study experimentally how the arrival of information in a dynamic setting affects the relative aggressiveness of speculators. In the first stage, subjects exhibit excess aggressiveness, which appears to be driven by beliefs about others’ actions rather than an intrinsic taste for attacking. However, following a failed first-stage attack, subjects learn to be less aggressive in the second stage. On the other hand, the arrival of new, more precise information after a failed attack leads to an increase in subjects’ aggressiveness. Beliefs, again, play a crucial role in explaining how the arrival of information affects attacking behavior.

Finitely repeated games with social preferences

Abstract: A well—known result from the theory of finitely repeated games states that if the stage game has a unique equilibrium, then there is a unique subgame perfect equilibrium in the finitely repeated game in which the equilibrium of the stage game is being played in every period. Here I show that this result does in general not hold anymore if players have social preferences of the form frequently assumed in the recent literature, for example in the inequity aversion models of Fehr and Schmidt (1999) or Bolton and Ockenfels (2000). In fact, repeating the unique stage game equilibrium may not be a subgame perfect equilibrium at all.

Equity vs. efficiency vs. self-interest: on the use of dictator games to measure distributional preferences

Abstract: We conduct modified dictator games in which price of giving varies across choice situations, and examine responses to price changes in two contexts—one where dictators divide their own earnings, and another where they divide the earnings of others. Varying the price of giving allows us to decompose social preferences into two components: the level of altruism when the price of giving is one, and the willingness to reduce aggregate payoffs to enhance equity. Changing the source of a dictator’s budget impacts her decisions because it affects the weight that she places on others’ payoffs. However, we find no impacts on the willingness to trade off equity and efficiency.

The gift of advice: communication in a bilateral gift exchange game

Abstract: We augment a standard bilateral gift exchange game so employees can send messages at the same time as choosing an effort level. Employee effort (controlling for wages) is unaffected by allowing messages, but wages dramatically increase. Messages affect wages because employees give managers advice to set higher wages, usually explaining that this will result in higher effort. This advice prompts managers to try higher wages, helping them learn that raising wages increases their payoffs. In a follow-up experiment, we directly provide managers with additional information about the relationship between wages and effort. This too causes wages to increase, but to a lesser extent than allowing messages. Our results highlight the critical role of learning in generating gains from positive gift exchange.

Testing revealed preferences for homotheticity with two-good experiments

Abstract: It is shown that for two dimensional commodity spaces any homothetic utility function that rationalizes each pair of observations in a set of consumption data also rationalizes the entire set. The result is used to provide a simplified nonparametric test for homotheticity of demand and a measure for homothetic efficiency. The article thus provides a useful tool to screen data for severe violations of homotheticity before estimating parameters of homothetic utility functions. The new test and measure are applied to previously published data.

Costless discrimination and unequal achievements in an experimental tournament

Abstract: We investigate the emergence of discrimination in an experiment where individuals affiliated to different groups compete for a monetary prize, submitting independent bids to an auctioneer The auctioneer receives perfect information about the bids (there is no statistical discrimination), and she has no monetary incentive to favor the members of her own group (the bidders are symmetric) We observe nonetheless some discrimination by auctioneers, who tend to assign the prize more frequently to a member of their own group when two or more players put forward the highest bid Out-group bidders react to this bias and reduce significantly their bids, causing an average decay of their earnings throughout the game, with cumulative effects that generate unequal outcomes Because the initial bias is costless, such mechanism can survive even in a competitive market, providing a rationale for the long-run persistence of discrimination

Poverty and probability: aspiration and aversion to compound lotteries in El Salvador and India

Abstract: Some experimental participants are averse to compound lotteries: they prefer simple lotteries that depend on only one random event, even when the simple lotteries offer lower expected value. This paper proposes that many behavioral “investments” represent more compound risk for poorer people—who often face multiple dimensions of deprivation—than for richer people. As a result, identical aversion to compound lotteries can prevent investment among poorer people, but have no effect on richer people. The paper reports five studies: two initial studies that document that aversion to compound lotteries operates as an economic preference, two “laboratory experiments in the field” in El Salvador, and one Internet survey experiment in India. Poorer Salvadoran women who choose a compound lottery are 27 percentage points more likely to have found formal employment than those who chose a simple lottery, but lottery choice is unrelated to employment for richer women. Poorer students at the national Salvadoran university choose more compound lotteries than richer students, on average, implying that aversion to compound lotteries screened out poorer aspirants but not richer ones. Poorer and lower-caste Indian participants who choose compound lotteries are more likely than those who choose simple lotteries to have a different occupation than their parents, which is not the case for better-off participants. These findings suggest that the consequences of aversion to compound lotteries are different in the context of poverty and disadvantage.

Heterogeneity, Coordination and the Provision of Best-Shot Public Goods

Abstract: In a best-shot public good, where the provision level is determined by the highest contribution instead of the sum of all contributions, there is potential for waste and underprovision due to coordination failure. These failures are exacerbated when agents are identical because there is no focal point to guide coordination. In most real-world best-shot public-good situations, however, heterogeneity exists in the ability to contribute and the benefits received from the good. With such differences, shared expectations might emerge to improve coordination and increase efficiency. Using laboratory experiments, we find significant behavioral responses to heterogeneity that improve efficiency, but not always from increased coordination.

Splitting leagues: promotion and demotion in contribution-based regrouping experiments

Abstract: The paper reports an experimental study on a promotion-demotion mechanism to mitigate the free-rider problem in a voluntary contribution setting. The mechanism hierarchically splits a group in two; we refer to one subgroup as the Major league and to the other as the minor league. The most cooperative subject of the minor league is switched with the least cooperative subject in the Major league. The results reveal a significant increase of cooperation levels in both leagues relative to the standard voluntary contribution mechanism. We argue that a lack of sequentially-rational beliefs about continuation payoffs in Major and minor leagues leads to higher equilibrium contributions. The data suggest beyond that, the promotion-demotion mechanism regroups subjects deliberately according to their cooperativeness.

A portmanteau experiment on the relevance of individual decision anomalies for households

Abstract: Although households are responsible for many important decisions, they have rarely been the subject of economics experiments. We conduct a series of linked and incentivized experiments on decision-making, designed to see if the anomalies typically found in individual choice experiments are found when the subjects are couples from long-term relationships. Specifically we investigate the endowment effect, the compromise effect, asymmetric dominance and the ‘more is less’ phenomena. Comparing the results with two control groups (students and non-student individuals) we find broadly the same pattern of anomalies in individuals as we do in couples. Thus behavioural patterns that appear in individual choices appear relevant for decisions made by established couples.

For those about to talk we salute you: an experimental study of credible deviations and ACDC

Abstract: We test the Average Credible Deviation Criterion (ACDC), a stability measure and refinement for cheap talk equilibria introduced in De Groot Ruiz et al. (Equilibrium selection in cheap talk games: ACDC rocks when other criteria remain silent, Working paper, University of Amsterdam 2012a). ACDC has been shown to be predictive under general conditions and to organize data well in previous experiments meant to test other concepts. In a new experimental setting, we provide the first systematic test of whether and to which degree credible deviations matter for the stability of cheap talk equilibria. Our principal experimental result is that in a setting where existing concepts are silent, credible deviations matter and matter gradually, as predicted by ACDC.

My five pounds are not as good as yours, so I will spend them

Abstract: An experimental approach is used to examine how money denomination and the choice between or availability of coins and banknotes may influence consumers’ purchasing behaviour. Evidence shows that for small amounts of money, consumers may prefer a smaller monetary value in banknotes rather than a higher value in coins. Findings also suggest that people carrying coins are more likely to make a purchase of small value than people not carrying coins.