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Abteilung Strategische Interaktion

Papers on Strategic Interaction

Cover of 'Papers on Strategic Interaction' Jahrgänge:

Seit 2007 sind unsere Discussionpaper in elektronischer Form bei den Jena Economic Research Papers zu bekommen. JERP ist eine gemeinsame Publikation der Friedrich-Schiller-Universität Jena und des Max-Planck-Instituts für Ökonomik.

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Papers 2014 [back to top] Top

JERP #2014-032 (PDF)
Michael Trost
On the Equivalence between Iterated Application of Choice Rules and Common Belief of Applying these Rules
One central issue tackled in epistemic game theory is whether for a general class of strategic games the solution generated by iterated application of a choice rule gives exactly the strategy profiles that might be realized by players who follow this choice rule and commonly believe they follow this rule. For example, Brandenburger and Dekel (1987) and Tan and Werlang (1988) have established that this coincidence holds for the choice rule of strict undominance in mixtures in the class of finite strategic games, and Mariotti (2003) has established that this coincidence holds for Bernheim’s (1984) choice rule of point rationality in the class of strategic games in which the strategy sets are compact Hausdorff and the payoff functions are continuous. In this paper, we aim at studying this coincidence in a general way. We seek to figure out general conditions of the choice rules ensuring it for a general class of strategic games. We state four substantial assumptions on choice rules. If the players’ choices rules satisfy - besides the technical assumption of regularity - the properties of reflexivity, monotonicity, Aizerman’s property, and the independence of payoff equivalent conditions, then this coincidence applies. This result proves to be strict in the following sense. None of the four substantial properties can be omitted without eliminating the coincidence.
JERP #2014-030 (PDF)
Anna Conte, M. Scarsini, Oktay Sürücü
An Experimental Investigation into Queueing Behavior
We conduct an experiment meant to explore the factors driving customers' decisions in a queueing system. Under different time allowance conditions, the experimental subjects are asked to join one of two queues that differ in their length, server speed, and entry fee. We investigate some aspects of a queue on which subjects base their decision and what is the effect of time pressure on their decision criteria. We find that only a proportion of subjects behave rationally and use the relevant information efficiently. The size of this proportion increases when time limitation is relaxed. The rest of the subjects seem to adopt a rule of thumb that ignores the information on server speed and follows the shorter queue. Consequently, these subjects use less time than rational types when making their decisions. Furthermore, time pressure harms decision performance since the presence of time limitation stresses a great deal of subjects and causes them to use time inefficiently.
JERP #2014-027 (PDF)
Sven Fischer, Werner Güth, Todd R. Kaplan, Ro'i Zultan
Auctions and Leaks: A Theoretical and Experimental Investigation
We study first- and second-price private value auctions with sequential bidding where second movers may discover the first movers' bid. There is a unique equilibrium in the first-price auction and multiple equilibria in the second-price auction. Consequently, comparative statics across price rules are equivocal. We experimentally find that in the first-price auction, leaks benefit second movers but harm first movers and sellers. Low to medium probabilities of leak eliminate the usual revenue dominance of first-price over second-price auctions. With a high probability of a leak, second-price auctions generate higher revenue.
JERP #2014-024 (PDF)
Werner Güth, Hironori Otsubo
Trust in generosity: An experiment of the repeated Yes-No game
This paper reports results of a 100-round Yes-No game experiment conducted under the random matching protocol. In contrast to ultimatum bargaining, the responder in the Yes-No game decides whether to accept without knowing the proposer's offer. Although both games have the same solution outcome (i.e., the proposer offers the smallest possible amount and the responder accepts), the set of equilibria of the ultimatum bargaining game is rather large whereas the equilibrium of the Yes-No game is essentially unique. Avrahami et al. (2013) found an immediate convergence to proposers offering an equal split in their repeated ultimatum bargaining experiment. Our main interest is which dynamics emerge when proposers and responders repeatedly play the Yes-No game. We found neither convergence to offering an equal split nor to the solution outcome. Most participants display a surprising constancy of behavior but the categories of behavior are rather rich.
JERP #2014-022 (PDF)
Anastasios Koukoumelis, M. Vittoria Levati
Does expressing disapproval influence future cooperation? An experimental study
We report on an experiment designed to explore whether a written expression of disapproval affects future levels of cooperation. In between two identical public goods games, participants play a mini dictator game that, depending on the treatment, either gives or does not give the recipient the opportunity to text the dictator. The recipients of an unfair offer contribute significantly less in the second public goods game. Yet, the contribution reductions are significantly smaller in the treatments allowing for recipient communication. To control for belief-based explanations of these findings, we run treatments where we elicit beliefs about the others' contributions. It turns out that the reductions in contributions, but not the reductions in beliefs, of the unfairly treated recipients are notably smaller when messaging is possible. This tends to suggest that allowing for communication opportunities helps to curtail selfishness.
JERP #2014-019 (PDF)
M. Vittoria Levati, Stefan Napel, Ivan Soraperra
Collective choices under ambiguity
We investigate experimentally whether collective choice matters for individual attitudes to ambiguity. We consider a two-urn Ellsberg experiment: one urn offers a 45% chance of winning afixed monetary prize, the other an ambiguous chance. Participants choose either individually or in groups of three. Group decision rules vary. In one treatment the collective choice is taken by majority; in another it is dictated by two group members; in the third it is dictated by a single group member. We observe high proportions of ambiguity averse choices in both individual and collective decision making. Although a majority of participants display consistent ambiguity attitudes across their decisions, collective choice tends to foster ambiguity aversion, especially if the decision rule assigns asymmetric responsibilities to group members. Previous participation in aboratory experiments may mitigate this.
JERP #2014-018 (PDF)
Werner Güth, M. Vittoria Levati, Chiara Nardi, Ivan Soraperra
An ultimatum game with multidimensional response strategies
We enrich the choice task of responders in ultimatum games by allowing them to independently decide whether to collect what is offered to them and whether to destroy what the proposer demanded. Such a multidimensional response format intends to cast further light on the motives guiding responder behavior. Using a conservative and stringent approach to type classification, we find that the overwhelming majority of responder participants choose consistently with outcomebased preference models. There are, however, few responders that destroy the proposer's demand of a large pie share and concurrently reject their own offer, thereby suggesting a strong concern for integrity.
JERP #2014-015 (PDF)
Werner Güth, M. Vittoria Levati, Natalia Montinari, Chiara Nardi
A hybrid game with conditional and unconditional veto power
In the hybrid game, one proposer confronts two responders with veto power: one responder can condition his decisions on his own offer but the other cannot. We vary what the informed responder knows about the offers as well as the uninformed responder's conflict payoff. Neither variation affects behavior: proposers always favor informed responders, who frequently accept minimal offers.
JERP #2014-011 (PDF)
Robert Böhm, Gary Bornstein, Hannes Koppel
Between-group conflict and otherregarding preferences in nested social dilemmas
We investigate experimentally the underlying motivations and individual differences with regard to the participation in between-group conflict in nested social dilemmas. In our nested social dilemmas, the collective is divided into two groups, and individuals allocate tokens between a private, a group-specific, and a collective good. We vary the marginal per capita return of the group-specific and collective good in order to manipulate the motivational within- and between group conflicts. A first experiment shows that a between-group conflict leads to within-group cooperation and particularly individuals with positive other-regarding preferences (prosocials) react to a between-group conflict by contributing to the group-specific good. Hence, paradoxically, individuals with positive other-regarding preferences may foster between-group conflicts. A second experiment reveals that prosocials' contributions to the group-specific or collective good vary as a function of the personal costs of within-group versus collective cooperation, supporting the weighted average social preference theory by Charness & Rabin (2002).
JERP #2014-010 (PDF)
Anna Conte, M. Vittoria Levati, Natalia Montinari
Experience in Public Goods Experiments
We use information on students' past participation in economic experiments, as stored in our database, to analyze whether behavior in public goods games is affected by experience (i.e., previous participation in social dilemma-type experiments) and history (i.e., participation in experiments of a different class than the social dilemma). We have three main results. First, at the aggregate level, the amount subjects contribute and expect others to contribute decrease with experience. Second, a mixture model reveals that the proportion of unconditional cooperators decreases with experience, while that of selfish individuals increases. Finally, history also influences behavior, although to a lesser extent than experience. Our findings have important methodological implications for researchers, who are urged to control for subjects' experience and history in their experiments if they want to improve the external validity and replicability of their results.
JERP #2014-004 (PDF)
Anna Conte, John D. Hey, Ivan Soraperra
The Determinants of Decision Time
This paper estimates the determinants of decision time for different types of decision maker in the context of an experimental investigation of multiple prior models of behaviour under ambiguity. Four models are considered: Expected Utility, Smooth, Rank Dependent Expected Utility and Alpha model. The results of a mixture model which assigns subjects to types enable us to distinguish the factors influencing the decision time of each of these four types. We find that the different types are influenced by different factors. In general, the Rank Dependent type takes more time, followed by the Smooth, the Expected Utility and finally the Alpha type, whose decision time is always the lowest. Our results reflect the relative complexity of the preference functionals used by the different types. Consequently, the importance of looking at the process of pairwise choices rather than simply at the choice made is raised to the attention of theorists and analysts.
JERP #2014-003 (PDF)
Werner Güth, Kerstin Pull, Manfred Stadler, Alexandra Zaby
Compulsory Disclosure of Private Information - Theoretical and Experimental Results for the "Acquiring-a-Company" Game
Based on the "acquiring-a-company" game of Samuelson and Bazerman (1985), we theoretically and experimentally analyze the acquisition of a firm. Thereby we compare cases of symmetrically and asymmetrically informed buyers and sellers. This setting allows us to predict and test the effects of information disclosure as prescribed by two recently implemented directives of the European Union, the Transparency and the Takeover-Bid Directive. Our theoretical and experimental results suggest a welfare-enhancing effect of compulsory information disclosure. Hence, the EU Transparency and the EU Takeover-Bid Directive should both be welfare enhancing.
JERP #2014-002 (PDF)
Federica Alberti, Anna Conte, Kei Tsutsui
Accuracy of proposers' beliefs in an allocation-type game
In the context of an allocation game, this paper analyses the proposer's reported beliefs about the responder's willingness to accept (or reject) the proposed split of the pie. The proposer's beliefs are elicited via a quadratic scoring rule. An econometric model of the proposer's beliefs is estimated. The estimated proposer's beliefs are then compared with the actual responder's choices. As a result of this comparison, we observe that the proposer tends to underestimate the empirical acceptance probability, especially when the slice of the pie allocated to the proposer is large.
JERP #2014-001 (PDF)
Astrid Gamba, Elena Manzoni
Social comparison and risk taking behavior
We study theoretically and experimentally decision making under uncertainty in a social environment. We introduce an interdependent preferences model that assumes that the decision maker evaluates monetary outcomes in relation both with his individual and his social reference point. In the experiment we reproduce a workplace environment whereby subjects interact in an effort task, earn (possibly) different wages from this task and then undertake a risky decision that may give them an extra bonus. Controlling for intrinsic risk attitudes, we find that both downward and upward social comparison strongly influence risk attitudes and that they both generate more risk loving behavior. Moreover, we find that a propension to envy counterposes such effect, by increasing risk aversion.

Papers 2013 [back to top] Top

JERP #2013-052 (PDF)
Federica Alberti, Sven Fischer, Werner Güth, Kei Tsutsui
Concession Bargaining - An Experimental Comparison of Protocols and Time Horizons
Concessions try to avoid conflict in bargaining and can finally lead to an agreement. Although they usually are seen as unfolding in time, concessions can also be studied in normal form or by conditioning only on failure of earlier agreement attempts. We experimentally compare three protocols of concession bargaining, the normal form or static one, the one where concessions only condition on earlier failures and the truly dynamic one. In spite of their considerable differences in conditioning, the three protocols do not differ in agreement ratio, efficiency and inequality of agreements. There are, however, effects of the maximal number of trials to reach an agreement by concession making and of protocol on when to abstain from conceding.
JERP #2013-050 (PDF)
Natalia Montinari, Michela Rancan
Social Preferences under Risk: the Role of Social Distance
In many different contexts individuals take decisions on the behalf of others. However, little is known about how this circumstance affects the decision making process and influences the ultimate individuals' choices. In this paper, we focus on the context of investment decisions and study if (and how) lottery-type investment decisions made on behalf of another person differ i) compared to decisions which do not affect anyone else, and ii) depending on the social distance between who makes the decision and who is affected by it. Our results shows that social distance (i.e., whether the person affected by one's decision is an unknown stranger or a friend) is an important determinant when people decide on the behalf of others. Individuals are heterogeneous in their individual investment strategies but, on average, when deciding on behalf of a friend rather than only for themselves or a stranger, their behavior is closer to expected value maximization, exhibiting less risk taking. We interpret these findings as evidence of other regarding preferences affecting the decision making process in lottery-type decisions when the social distance is shortened.
JERP #2013-048 (PDF)
Siegfried Berninghaus, Stephan Schosser, Bodo Vogt
Equilibrium Selection under Limited Control - An Experimental Study of the Network Hawk-Dove Game
For games of simultaneous action selection and network formation, game-theoretic behavior and experimental observations are not in line: While theory typically predicts inefficient outcomes for (anti-)coordination games, experiments show that subjects tend to play efficient (non Nash) strategy profiles. A reason for this discrepancy is the tendency to model corresponding games as one-shot and derive predictions. In this paper, we calculate the equilibria for a finitely repeated version of the Hawk-Dove game with endogenous network formation and show that the repetition leads to additional equilibria, namely the efficient ones played by human subjects. We confirm our results by an experimental study. In addition, we show both theoretically and experimentally that the equilibria reached crucially depend on the order in which subjects adjust their strategy. Subjects only reach efficient outcomes if they first adapt their action and then their network. If they choose their network first, they do not reach efficient outcomes.
JERP #2013-047 (PDF)
Werner Güth, Matteo Ploner, Ivan Soraperra
Buying and Selling Risk - An Experiment Investigating Evaluation Asymmetries
Experimental studies of the WTP-WTA gap avoid social trading by implementing an incentive compatible mechanism for each individual trader. We compare a traditional random price mechanism and a novel elicitation mechanism preserving social trading, without sacrificing mutual incentive compatibility. Furthermore, we focus on risky goods - binary monetary lotteries - for which asymmetries in evaluations are more robust with respect to experimental procedures. For both elicitation mechanisms, the usual asymmetry in evaluation by sellers and buyers is observed. An econometric estimation sheds new light on its causes: potential buyers are over-pessimistic and systematically underweight the probability of a good outcome.
JERP #2013-046 (PDF)
Anna Conte, M. Vittoria Levati, Chiara Nardi
The Role of Emotions on Risk Preferences: An Experimental Analysis
In the last decades, there has been a large volume of research showing that emotions do have relevant effects on decision-making. We contribute to this literature by experimentally investigating the impact of four specific emotional states - joviality, sadness, fear, and anger - on risk attitudes. In order to do so, we fit two models of behaviour under risk: the Expected Utility model (EU) and the Rank Dependent Expected Utility model (RDEU), assuming several functional forms of the weighting function. Our results indicate that all emotional states instigate risk-seeking behaviour. Furthermore, we show that there are some differences across gender and across participants' experience in lab experiments.
JERP #2013-045 (PDF)
Lisa Bruttel, Werner Güth
Alternating or compensating? An experiment on the repeated sequential best shot game
In the two-person sequential best shot game, first player 1 contributes to a public good and then player 2 is informed about this choice before contributing. The payoff from the public good is the same for both players and depends only on the maximal contribution. Efficient voluntary cooperation in the repeated best shot game therefore requires that only one player should contribute in a given round. To provide better chances for such cooperation, we enrich the sequential best shot base game by a third stage allowing the party with the lower contribution to transfer some of its periodic gain to the other party. Participants easily establish cooperation in the finitely repeated game. When cooperation evolves, it mostly takes the form of "labor division", with one participant constantly contributing and the other constantly compensating. However, in a treatment in which compensation is not possible, (more or less symmetric) alternating occurs frequently and turns out to be almost as efficient as labor division.
JERP #2013-044 (PDF)
Fabian Winter, Mitesh Kataria
You Are Who Your Friends Are: An Experiment on Trust and Homophily in Friendship Networks
We study the existence of homophily (i.e. the tendency for people to make friends with people who are similar to themselves) with respect to trustworthiness. We ask whether two friends show similarly trustworthy behavior towards strangers, and whether this is anticipated by outsiders. We develop a simple model of bayesian learning in trust games and test the derived hypotheses in a controlled laboratory environment. In the experiment, two trustees sequentially play a trust game with the same trustor, where the trustees depending on treatmen are either friends or strangers to each other. We affirm the existence of homophily with respect to trustworthiness. Trustors' beliefs about the trustees' trustfulness are not affected by the knowledge about the (non-)existent friendship between the trustees. Behaviorally, however, they indirectly reciprocate the (un-)trustworthy behavior of one trustee towards his/her friends in later interactions.
JERP #2013-043 (PDF)
Lisa Bruttel, Werner Güth
Tit for Others' Tat Repeated Prisoner's Dilemma Experiments with Third-Party Monitoring and Indirect Punishment
Two pairs of two participants each interact repeatedly in two structurally independent but informationally linked Prisoner's Dilemma games. Neither pair receives feedback about past choices by their own partner but is fully informed about the choices by the other pair. Considering this as a four-person infinite horizon game allows for Folk-Theorem-like voluntary cooperation. We ask whether monitoring and indirect punishment with the help of others are comparable to direct monitoring and punishment in establishing and maintaining voluntary cooperation. The treatment effects we find are rather weak. Others' monitoring of own activities is only an insufficient substitute for direct observability.
JERP #2013-039 (PDF)
Werner Güth, Kerstin Pull, Manfred Stadler, Alexandra Zaby
Endogenous Price Leadership - A Theoretical and Experimental Analysis
We present a model of price leadership on homogeneous product markets where the price leader is selected endogenously. The price leader sets and guarantees a sales price to which followers can adjust according to their individual supply functions. The price leader then clears the market by serving the residual demand. Firms with different marginal costs would induce different prices if they were price leaders. Somewhat counter-intuitively, lower marginal costs of the leader imply higher prices. We compare two mechanisms to determine the price leader in a between-subjects design, majority voting and competitive bidding. The experimental data of later rounds support our theoretical finding that experienced price leaders with lower marginal costs choose higher prices. In the majority voting treatment, participants with higher marginal costs more often establish the lowest cost competitor as price leader in order to induce a higher sales price.
JERP #2013-038 (PDF)
Guido Bünstorf, Christoph Engel, Sven Fischer, Werner Güth
Win Shift Lose Stay - An Experimental Test of Non-Compete Clauses
We experimentally test the effect of enforceable non-compete clauses on working efforts. The employee can invest into the probability of making a profitable innovation. After a successful innovation (Win) the employee may want to leave the firm (Shift) whereas after an innovation failure (Lose) he may remain (Stay). In the treatments with non-compete clause, but not in the baseline, the employer can prevent successful innovators from leaving the firm. With standard preferences, effort should be lower if the worker cannot leave the firm, except if compulsory compensation for having to stay is very high. By contrast we find no reduction in effort even if compensation is low. Employers anticipate the incentive problem and pay a higher wage which employees reciprocate by higher effort.
JERP #2013-035 (PDF)
Werner Güth, Martin G. Kocher
More than thirty years of ultimatum bargaining experiments: Motives, variations, and a survey of the recent literature
Take-it or leave-it offers are probably as old as mankind. Our objective here is, first, to provide a, probably subjectively-colored, recollection of the initial ultimatum game experiment, its motivation and the immediate responses. Second, we discuss important extensions of the standard ultimatum bargaining game in a unified framework, and, third, we offer a survey of the experimental ultimatum bargaining literature containing papers published since the turn of the century. The paper argues that the ultimatum game is an extremely versatile tool for research in bargaining and on social preferences. Finally, we provide examples for open research questions and directions for future studies.
JERP #2013-034 (PDF)
Werner Güth, Hartmut Kliemt, Anastasios Koukoumelis, M. Vittoria Levati, Matteo Ploner
Procedurally fair collective provision: its requirements and experimental functionality
This paper derives and justifies a procedurally fair bidding mechanism and reviews experiments that apply the mechanism to public projects provision. In the experiments, not all parties benefit from provision, and the projects' costs can be negative. The experimental results indicate that the mechanism is conducive to efficiency, despite the multiplicity of equilibria and underbidding incentives. The only condition is that the cost of the most efficient project must be positive.
JERP #2013-033 (PDF)
Ori Weisel, Ro'i Zultan
Social motives in intergroup conflict
We experimentally test the social motives behind individual participation in intergroup conflict by manipulating the framing and symmetry of conflict. We find that behavior in conflict depends on whether one is harmed by actions perpetrated by the out-group, but not on one's own influence on the outcome of the out-group. The way in which this harm is presented and perceived dramatically alters participation decisions. When people perceive their group to be under threat, they are mobilized to do what is good for the group and contribute to the conflict. On the other hand, if people perceive to be personally under threat, they are driven to do what is good for themselves and withhold their contribution. The first phenomenon is attributed to group identity, possibly combined with a concern for social welfare. The second phenomenon is attributed to a novel victim effect. Another social motive—reciprocity—is ruled out by the data.
JERP #2013-032 (PDF)
Tobias Regner, Gerhard Riener
Voluntary Payments, Privacy and Social Pressure on the Internet: A Natural Field Experiment
The emergence of Pay-What-You-Want (PWYW) business models as a successful alternative to conventional uniform pricing brings up new questions related to the task of pricing. We investigate the effect of a reduction of privacy on consumers' purchase decisions (whether to buy, and if so how much to pay) in a natural experiment at an online music store with PWYW-like pricing. Our study extends the empirical evidence of the reduced anonymity effect, previously established for donation or public goods contexts, to a consumption environment. We find that revealing the name of the customer led to slightly higher payments, while it drastically reduced the number of customers purchasing. Overall, the regime led to a revenue loss of 15%. The experiment suggests that even low levels of social pressure without face to face interaction on customers leads to a reduction of welfare.
JERP #2013-030 (PDF)
Mitesh Kataria
One Swallow Doesn't Make a Summer – A Note
Maniadis et al. (2013) present a theoretical framework that aims at providing insights into the mechanics of proper inference. They suggest that a decision about whether to call an experimental finding noteworthy, or deserving of great attention, should be based on the calculated post-study probability. Although I in large agree with most points in Maniadis et al. (2013), this note raises some important caveats.
JERP #2013-029 (PDF)
John Bone, Paolo Crosetto, John D Hey, Carmen Pasca
Chance versus choice: eliciting attitudes to fair compensations
This paper reports an experiment designed to elicit social preferences over income compensation schemes, where income differences between subjects have two independent components: one due to chosen effort and the other due to random chance. These differences can be compensated through social dividends, according to principles chosen beforehand by subjects themselves from behind a stylised Rawlsian veil of ignorance, or outside the society on which the principles will be implemented. We test the attractiveness in particular of Luck Egalitarianism, compensating inequalities due to chance but not those due to choice. We find modest but not overwhelming support for these principles, suggesting that subjects' actual preferences are more complex.
JERP #2013-028 (PDF)
Anastasios Koukoumelis, M. Vittoria Levati, Matteo Ploner
The effect of identifiability on the relationship between risk attitudes and other-regarding concerns
Previous studies have shown that other-regarding concerns are weakened under risky situations. Daily experience also suggests that people care more about an identifiable than about an unidentifiable third person. We report on an experiment designed to explore whether rendering the other identifiable—via a speechless video and the revelation of personal information—affects the relationship between other-regarding concerns and risk preferences when there is risk to one's own and/or the other's payoff. We find that the acquisition of information about the other has no effect on behavior. Regardless of the treatment, most of the participants are other-regarding with respect to expected payoff but self-oriented with respect to risk allocation.
JERP #2013-027 (PDF)
Franz Buscha, Anna Conte
Confirmation:Endogenous variables in non-linear models with mixed effects: Inconsistence under perfect identification conditions?
This paper examines the consequences of introducing a normally distributed effect into a system where the dependent variable is ordered and the explanatory variable is ordered and endogenous. Using simulation techniques we show that a naïve bivariate ordered probit estimator which fails to take a mixed effect into account will result in inconsistent estimates even when identification conditions are optimal. Our results suggest this finding only applies to non-linear endogenous systems.
JERP #2013-025 (PDF)
Mitesh Kataria
Confirmation: What's in the evidence?
In this paper, I discuss the difference between accommodated evidence (i.e. when evidence is known first and a hypothesis is the proposed to explain and fit the observations) and predicted evidence (i.e., when evidence verifies the prediction of a hypothesis formulated before observing the evidence) from a behavioral as well as a statistical perspective. Using a factorial survey on a sample of students, I show that predicted evidence is perceived to constitute stronger confirmation than accommodated evidence. This position deviates from the standard Bayesian epistemological theory of confirmation where accommodated and predicted evidence constitute equally strong confirmation. The findings suggests that trusting a model to predict correctly is intrinsically related to trust in the proposers' (i.e., the scientists') level of knowledge, and relatively more subjects are persuaded by a proposer's abilities if the proposer is successful in predicting rather than accommodating evidence. The existence of an indirect relationship between hypothesis and evidence can be considered to impose undesirable subjectivity and arbitrariness on questions of evidential support.
JERP #2013-024 (PDF)
Alexia Gaudeul
Social preferences under uncertainty
Willingness to take risk depends on whether the risk affects others as well as oneself and on how the risk affects one's position vis-à-vis others. Taking a bet can improve one's position relative to others or threaten it. We present an experiment that explores individual attitudes to lotteries that involve both oneself and another subject. Individuals consistently and strongly dislike obtaining safe but unfair social outcomes rather than playing fair but risky social lotteries. This effect is apparent whether the unfair safe social outcome benefits them or the other. Subjects are also more risk averse when facing social lotteries than when facing lotteries that involve only themselves. There is a small but consistent and significant tendency to avoid social lotteries that impose a risk on the other. An attempt to reconcile those findings with standard models of social preferences shows that a high weight given to considerations of ex-ante inequality goes some way towards explaining the decisions of our subjects. It remains difficult however to account for the magnitude of their aversion to safe but unequal social outcomes.
JERP #2013-021 (PDF)
Werner Güth, Anastasios Koukoumelis, M. Vittoria Levati, Matteo Ploner
Providing negative cost public projects under a fair mechanism: An experimental analysis
This paper experimentally examines a procedurally fair provision mechanism allowing members of a small community to determine, via their bids, which of four alternative public projects to implement. Previous experiments with positive cost projects have demonstrated that the mechanism is efficiency enhancing. Our experiment tests whether the mechanism remains conducive to efficiency when negative cost, but less efficient, projects are made available. We find that this is not the case. On the other hand, we detect no significant difference in bid levels depending on whether mixed feelings are present or absent, and on whether the others' valuations are known or unknown.
JERP #2013-019 (PDF)
Federica Alberti
A note on fashion cycles, novelty and conformity
We develop a model in which novelty and conformity motivate fashion behavior. Fashion cycles occur if conformity is not too high. The duration of fashion cycles depends on individual-specific conformity, novelty, and the number of available styles. The use of individual-specific novelty and conformity allows us to also identify fashion leaders.
JERP #2013-017 (PDF)
Werner Güth, Fabian Winter
Sorting via Screening versus Signaling: A Theoretic and Experimental Comparison
Similar to Kübler et al. (2008, GEB 64, p. 219-236), we compare sorting in games with asymmetric incomplete information theoretically and experimentally. Rather than distinguishing two very different sequential games, we use the same game format and capture the structural difference of screening and signaling only via their payoff specification. The experiment thus relies on the same verbal instructions. Although the equilibrium outcomes coincide, greater efficiency losses off the equilibrium play due to sorting under signaling, compared to screening, is predicted and confirmed experimentally.
JERP #2013-016 (PDF)
Fabian Winter
Fairness norms can explain the emergence of specific cooperation norms in the Battle of the Prisoners Dilemma
Cooperation norms often emerge in situations, where the long term collective benefits help to overcome short run individual interests, for instance in repeated Prisoner's Dilemma (PD) situations. Often, however, there are different paths to cooperation, benefiting different kinds of actors to different degrees. This leads to payoff asymmetries even in the state of cooperation, and consequently can give rise to normative conflicts about which norms should be in place. This norm-coordination problem will be modeled as a Battle of the Sexes game (BoS) with different degrees of asymmetry in payoffs. We combine the PD and the BoS to the 3x3 Battle of the Prisoners Dilemma (BOPD) with several asymmetric cooperative and one non-cooperative equilibria. Bame theoretical and "behavioral" predictions are derived about the kind of norms that are likely to emerge under different shadows of the future and degrees of asymmetry and tested in a lab-experiment. Our experimental data show that game theory fairly well predicts the basic main effects of our experimental manipulations, but "behavioral" predictions perform better in describing the equilibrium selection process of emerging norms.
JERP #2013-013 (PDF)
Werner Güth
Endogenous Community Formation and Collective Provision - A Procedurally Fair Mechanism
A group of actors, individuals or firms, can engage in collectively providing projects which may be costly or generating revenues and which may benefit some and harm others. Based on requirements of procedural fairness (Güth and Kliemt, 2013), we derive a bidding mechanism determining endogenously who participates in collective provision, which projects are implemented, and the positive or negative payments due to the participating members. We justify and discuss this procedural fairness approach and compare it with that of optimal, e.g. welfaristic game theoretic mechanism design (e.g. Myerson, 1979).
JERP #2013-012 (PDF)
Siegfried K. Berninghaus, Werner Güth, Charlotte Klempt, Kerstin Pull
Assessing Mental Models via Recording the Decision Deliberations of Pairs
Two participants have to decide jointly, with the discussions preceding their choice being video/audiotaped. For two tasks, one with and one without strategic interaction, we refer to obvious reasoning styles as mental models. The videotaped discussions are analyzed according to which mental models are mentioned by one or both participants in the same pair and how decisive such arguments were. The mental models for the risky choice task are "analytic approach," "commitment mode," and "avoid chance," and for the outside-option game "equality seeking," "backward induction," and "forward induction." We classify each pair according to their mental constellation in both tasks and assess mental models in addition to collecting choice data. Altogether, this allows for better explanations, especially of heterogeneity in reasoning and deciding.
JERP #2013-009 (PDF)
Paolo Crosetto, Antonio Filippin
A Theoretical and Experimental Appraisal of Five Risk Elicitation Methods
We perform a comparative analysis of five incentivized tasks used to elicit risk preferences. Theoretically, we compare the elicitation methods in terms of completeness of the range of the estimates as well as their precision, the likelihood of triggering loss aversion, and problems arising when multiple choices are required. Using original data from a homogeneous population, we experimentally investigate the distribution of estimated risk preferences, whether they differ by gender, and the complexity of the tasks. We do so using both non-parametric tests and a structural model estimated with maximum likelihood. We find that the estimated risk aversion parameters vary greatly across tasks and that gender differences appear only when the task is more likely to trigger loss aversion.
JERP #2013-007 (PDF)
Astrid Matthey, Tim Kasser
Values, food and bags: A study of consumption decisions in a laboratory supermarket
We study the relation between people's personal values and environmentally friendly consumption behavior. We first assessed subjects' personal values using the Aspiration Index. Then subjects participated in a laboratory supermarket offering organic and conventional food products and different kinds of bags. The results suggest that subjects' personal values are poor predictors of their ecologically-relevant consumption behavior. However, we find that subjects who spontaneously reflected upon power values made less ecologically sustainable consumption decisions than did those who reflected on universalism values. We discuss methodological differences as possible reasons for variations between our results and those of earlier studies.
JERP #2013-003 (PDF)
Werner Güth, Hartmut Kliemt
Fairness That Money Can Buy - Procedural Egalitarianism in Practice
We suggest that procedures of monetarized bidding can facilitate co-operation in Elinor Ostrom type common(s) projects without crowding out communitarian faculties of "self-governance". Axioms securing procedurally egalitarian bidding on the basis of declared monetary evaluations are introduced. They guarantee that all realized changes of a status quo are in an "objective" (pecuniary) sense equally advantageous for all members of the community. Some empirical evidence that procedurally fair bidding can promote communitarian co-operation rather than crowding it out, is presented. The practical scope and limits of procedural egalitarianism need further empirical exploration, though.
JERP #2013-002 (PDF)
Matteo Ploner, Tobias Regner
Self-Image and Moral Balancing - An Experimental Analysis
In our experiment, a dictator game variant, the reported outcome of a die roll determines the endowment (low/high) in a subsequent dictator game. In one treatment the experimenter is present and no cheating is possible, while in another subjects can enter the result of the roll themselves. Moral self-image is also manipulated in the experiment preceding ours. The aim of this experimental set up is to analyze dynamic aspects of moral behavior. When cheating is possible, substantially more high endowments are claimed and transfers of high-endowed dictators are bigger than when cheating is not possible (mediated by the preceding moral self-image manipulation). The preceding manipulations also have a direct effect on generosity, when subjects have to report the roll of the die truthfully. Moral balancing appears to be an important factor in individual decision making.

Papers 2012 [back to top] Top

JERP #2012-067 (PDF)
Mitesh Kataria, Fabian Winter
Third Party Assessments in Trust Problems with Conflict of Interest: An Experiment on the Effects of Promises
Is it possible to elicit reliable assessment from an assessor with conflict of interest (e.g. a professor that writes a recommendation letter for a formal PhD student)? We propose an experimental test and show that compared to a not-incentivized assessment, a promise to give a truthful assessment reduces misreporting to the same extent as incentivized assessment (i.e. when assessor gain higher payoff if assessment is correct).
JERP #2012-066 (PDF)
Luca Di Corato, Natalia Montinari
Flexible Waste Management under Uncertainty
In this paper, we use stochastic dynamic programming to model the choice of a municipality which has to design an optimal waste management program under uncertainty about the price of recyclables in the secondary market. The municipality can, by undertaking an irreversible investment, adopt a ‡flexible program which integrates the existing land…fill strategy with recycling, keeping the option to switch back to land…filling, if pro…fitable. We determine the optimal share of waste to be recycled and the optimal timing for the investment in such a ‡flexible program. We …find that adopting a ‡flexible program rather than a non-‡flexible one, the municipality: i) invests in recycling capacity under circumstances where it would not do so otherwise; ii) invests earlier, and iii) bene…fits from a higher expected net present value.
JERP #2012-062 (PDF)
Paolo Crosetto, Ori Weisel, Fabian Winter
A flexible z-Tree implementation of the Social Value Orientation Slider Measure (Murphy et al. 2011) – Manual –
This manual describes a z-Tree (Fischbacher, 2007) implementation of the paper-based Social Vaule Orientation (SVO) Slider Measure by Murphy et al. (2011). Using the paper-based version instead of the slider-based version (as implemented on the SVO-Website) avoids server-traffic related delays we experienced in the latter implementation.
JERP #2012-061 (PDF)
Mitesh Kataria, Natalia Montinari
Risk, Entitlements and Fairness Bias: Explaining Preferences for Redistribution in Multi-person Setting
Researchers frequently studied the casual relationships of other-regarding preferences by applying experimental methods in bilateral settings (e.g., dictator game and ultimatum game). We use a framed experiment on taxes to study preferences for redistribution in a multi-person setting. We find presence of heterogeneous preferences with a substantial share of tax rate choices in line with both payoff maximization and other-regarding preferences. Notably, our data is not consistent with inequality aversion but points to other forms of other-regarding preferences, as fairness and altruism. By manipulating how subjects are assigned to a given level of pre-tax income, we vary the individual entitlements. We find a difference in the willingness to redistribute income when comparing the treatment where pre-tax income is assigned by relative performance in a production task (a general knowledge quiz) to the treatment where pre-tax income is assigned by luck. We do not find any significant difference in comparison to the intermediate treatment where pre-tax income is assigned by a combination of luck and performance. The perception of a "fair" tax is different depending on whether subjects' pre-tax income is below or above average, which is in line with a fairness bias. Finally, subjects not knowing whether their pre-tax income is below or above the average when choosing the tax rate behave as if they were more other-regarding.
JERP #2012-058 (PDF)
Sascha Füllbrunn, Tibor Neugebauer
Margin Trading Bans in Experimental Asset Markets
In financial markets, professional traders leverage their trades because it allows to trade larger positions with less margin. Violating margin requirements, however, triggers a margin call and open positions are automatically covered until requirements are met again. What impact does margin trading have on the price process and on liquidity in financial asset markets? Since empirical evidence is mixed, we consider this question using experimental asset markets. Starting from an empirically relevant situation where margin purchasing and short selling is permitted, we ban margin purchases and/or short sales using a 2x2 factorial design to a allow for a comparative static analysis. Our results indicate that a ban on margin purchases fosters efficient pricing by narrowing price deviations from fundamental value accompanied with lower volatility and a smaller bid-ask-spread. A ban on short sales, however, tends to distort efficient pricing by widening price deviations accompanied with higher volatility and a large spread.
JERP #2012-057 (PDF)
Gerlinde Fellner, Sebastian Krügel
Judgmental Overconfidence and Trading Activity
We investigate the theoretically proposed link between judgmental overconfidence and trading activity. In addition to applying classical measures of miscalibration, we introduce a measure to capture misperception of signal reliability, which is the relevant bias in the theoretical overconfidence literature. We relate the obtained overconfidence measures to trading activity in call and continuous experimental asset markets. Our results confirm prior findings that classical miscalibration measures are not related to trading activity. However, misperception of signal reliability is significantly linked to trading volume, particularly in the continuous market. In addition, we find that men trade more than women at high levels of risk aversion, but the gender trading gap vanishes as risk aversion lessens. The reason is that the trading activity of women seems to be more sensitive to risk attitudes than that of men.
JERP #2012-053 (PDF)
Natalia Montinari, Antonio Nicolò, Regine Oexl
Mediocrity and Induced Reciprocity
We report evidence from an experiment where a principal chooses an agent out of two to perform a task for a fixed compensation. The principal's payoff depends on the agent's ex-ante ability and on a non-contractible effort that the agent has to exert once employed. We find that a significant share of principals select the mediocre agent (i.e. the one with the lower ex-ante ability). When the principal is allowed to send a message, mediocre agents exert more effort than agents with the higher ability, and principals who chooses mediocre agents on average have a larger payoff than principals who select agents with higher ability. This difference in effort overcompensates the difference in ability. Mediocre agents reciprocate more than agents who have ex-ante higher ability when the principals are able to make them feeling indebted.
JERP #2012-052 (PDF)
Paolo Crosetto, Alexia Gaudeul, Gerhard Riener
Partnerships, Imperfect Monitoring and Outside Options: Theory and Experimental Evidence
We study theoretically and experimentally a two-person partnership game whereby agents only see the uncertain outcome of their joint effort but not how much the other agent contributed to it. The model combines problems of free-riding present in public good production and in teams with imperfect monitoring. We analyse effort and exit behaviour conditional on subjects' beliefs over the action taken by their partners and consider the effect of the availability and profitability of outside options. Our subjects do not adapt effort as a response to changes in their beliefs about the effort of their partner. Subjects display aversion for team work by exiting the partnership even when they believe their partner exerts sufficient effort to sustain it. Higher outside options do not either motivate or discourage effort in joint work but rather result in not only inefficient but also irrational breakdown in partnerships. Overall, social welfare decreases as the incentive to exit increases.
JERP #2012-051 (PDF)
Paolo Crosetto, Marco Mantovani
Availability of Information and Representation Effects in the Centipede Game
The paper presents the results of a novel experiment testing the effects of environment complexity on strategic behavior, using a centipede game.
Behavior in the centipede game has been explained either by appealing to failures of backward induction or by calling for preferences that induce equilibria consistent with observed behavior. By manipulating the way in which information is provided to subjects we show that reduced availability of information is sufficient to shift the distribution of take-nodes further from the equilibrium prediction. On the other hand, similar results are obtained in a treatment where reduced availability of information is combined with an attempt to elicit preferences for reciprocity, through the presentation of the centipede as a repeated trust game.
Our results could be interpreted as cognitive limitations being more effective than preferences in determining (shifts in) behavior in our experimental centipede. Furthermore our results are at odds with the recent ones in Cox and James (2012), suggesting caution in generalizing their results. Reducing the availability of information may hamper backward induction or induce myopic behavior, depending on the strategic environment.
JERP #2012-050 (PDF)
Mitesh Kataria, M. Vittoria Levati, Matthias Uhl
Paternalism With Hindsight - Do protégés react consequentialistically to paternalism?
We investigate experimentally whether the protéegées' reaction to paternalism depends on the consequences of the paternalistic action to their well-being. We find that protéegées punish a paternalist restricting their freedom of choice. Yet, this negative reaction is not based on principled grounds because, with hindsight, protéegées punish the paternalist only if the restriction makes them worse off. Conversely, if the restriction makes them better off, the protéegées on average do not punish and, sometimes, they even reward the paternalist. This suggests that protéegées take a consequentialist stand on paternalism. Controlling for intentions ascribed to the patron does not alter our finding.
JERP #2012-047 (PDF)
Florian Artinger, Nadine Fleischhut, M. Vittoria Levati, Jeffrey R. Stevens
Cooperation in a risky environment: Decisions from experience in a stochastic social dilemma
Cooperation is often subject to environmental risk. We investigate how cooperation is shaped by the way information about risk is presented (from description or from experience) and by differences in the degree of environmental risk. Drawing on research from risky choice, we compare choices in stochastic social dilemmas to those in lotteries with an equivalent degree of environmental risk. In stochastic games with the same expected outcomes, cooperation rates vary with different degrees of risk, mimicking decision patterns observed in lotteries. Risk presentation, however, only affects choices in lotteries, not in stochastic games. Process data suggest that people respond less to probabilities in the stochastic social dilemmas than in the lotteries. These findings highlight how elements of uncertainty in the environment shape cooperation.
JERP #2012-046 (PDF)
Paolo Crosetto, Werner Güth, Luigi Mittone, Matteo Ploner
Motives of Sanctioning: Equity and Emotions in a Public Good Experiment with Punishment
We study conditional cooperation based on a sequential two-person linear public good game in which a trusting first contributor can be exploited by a second contributor. After playing this game the first contributor is allowed to punish the second contributor. The consequences of sanctioning depend on the treatment: whereas punishment can reduce inequality in one treatment, it only creates another inequality in the other. To capture the effect of delay on punishment both treatments are run once with immediate and once with delayed punishment. Moreover, to investigate the effect of pure voice, all four treatments are also run in a virtual condition with no monetary consequences of punishment. Results show the emergence across all conditions of a strong norm of conditional cooperation. Punishment is generally low, it is higher when not delayed and it is not used to reduce inequality in payoffs. The main motive of sanctioning appears to be the need to punish a violation of the reciprocity norm, irrespective of monetary consequences.
JERP #2012-045 (PDF)
Sascha Kurz, Stefan Napel
Heuristic and exact solutions to the inverse power index problem for small voting bodies
Power indices are mappings that quantify the influence of the members of a voting body on collective decisions a priori. Their nonlinearity and discontinuity makes it difficult to compute inverse images, i.e., to determine a voting system which induces a power distribution as close as possible to a desired one. The paper considers approximations to this inverse problem for the Penrose-Banzhaf index by hill-climbing algorithms and exact solutions which are obtained by enumeration and integer linear programming techniques. They are compared to the results of three simple solution heuristics. The heuristics perform well in absolute terms but can be improved upon very considerably in relative terms. The findings complement known asymptotic results for large voting bodies and may improve termination criteria for local search algorithms.
JERP #2012-041 (PDF)
Siegfried K. Berninghaus, Werner Güth, Stephan Schosser
Backward Induction or Forward Reasoning? - An Experiment of Stochastic Alternating Offer Bargaining
Bounded rationality questions backward induction, which however, does not exclude such reasoning when anticipation is easy. In our stochastic (alternating offer) bargaining experiment, there is a certain first-period pie and a known finite deadline. What is uncertain (except for the final period) is whether there is a further period. Whereas backward induction requires information about all later pie sizes and probabilities, forward reasoning is expected to consider only the immediate prospects. Rather than relying only on decision data, we try to assess the cognitive approach such as forward reasoning of backward induction by control of information retrieval. We find that participants who begin with the shortest games before playing possibly longer games, initially resort to backward induction before switching to forward-looking behavior.
JERP #2012-040 (PDF)
Siegfried K. Berninghaus, Werner Güth, Kin King Li
Approximate Truth of Perfectness - An Experimental Test
"Approximate truth" refers to the principle that border cases should be analyzed by solving generic cases and solving border cases as limits of generic ones (Brennan et al., 2008). Our study experimentally explores whether this conceptual principle is also behaviorally appealing. To do so, we focus on perfectness (Selten, 1975) and use his example game with (no) multiplicity of (perfect) equilibria. Distinguishing three uniform perturbation levels, we check for monotonicity (all players react monotonically to the perturbation level) and then explore the behavioral relevance of "approximate truth".
JERP #2012-038 (PDF)
Robert Böhm, Tobias Regner
Charitable Giving Among Females and Males: An Empirical Test of the Competitive Altruism Hypothesis
We conduct a real-effort task experiment where subjects' performance translates into a donation to a charity. In a within-subjects design we vary the visibility of the donation (no/private/public feedback). Confirming previous studies, we find that subjects' performance increases, that is, they donate more to charity, when their relative performance is made public. In line with the competitive altruism hypothesis, a biology-based explanation for status-seeking behavior, especially male subjects increase performance in the public setting.
JERP #2012-035 (PDF)
Paolo Crosetto, Antonio Filippin
The "Bomb" Risk Elicitation Task
This paper presents the Bomb Risk Elicitation Task (BRET), an intuitive procedure aimed at measuring risk attitudes. Subjects decide how many boxes to collect out of 100, one of which containing a bomb. Earnings increase linearly with the number of boxes accumulated but are zero if the bomb is also collected. The BRET requires minimal numeracy skills, avoids truncation of the data, allows to precisely estimate both risk aversion and risk seeking, and is not affected by the degree of loss aversion or by violations of the Reduction Axiom. We validate the task and test its robustness in a large-scale experiment. Choices react significantly to the stakes and to the size of the choice set. Our experiment rationalizes the gender gap that often characterizes choices under uncertainty by means of a higher loss rather than risk aversion.
JERP #2012-034 (PDF)
Werner Güth, Anastasios Koukoumelis, M. Vittoria Levati, Matteo Ploner
Public projects benefiting some and harming others: three experimental studies
Based on an axiomatically derived provision rule allowing community members to endogenously determine which, if any, public project should be provided, we perform experiments where (i) not all parties benefit from provision, and (ii) the projects' "costs" can be negative. In the tradition of legal mechanism design, the proposed provision rule is widely applicable. Additionally, it relies on intuitive fairness and profitability requirements. Our results indicate that the provision rule is conducive to efficiency, despite its multiplicity of equilibria and underbidding incentives. The only condition is that the cost of the most efficient project is positive.
JERP #2012-033 (PDF)
Siegfried K. Berninghaus, Sven Haller, Tyll Krüger, Thomas Neumann, Stephan Schosser, Bodo Vogt
Risk Attitude, Beliefs, and Information in a Corruption Game – An Experimental Analysis
For our experiment on corruption, we designed a coordination game to model the influence of risk attitudes, beliefs, and information on behavioral choices and determined the equilibria. We observed that the participants' risk attitudes failed to explain their choices between corrupt and non-corrupt behavior. Instead, beliefs appeared to be a better predictor of whether or not they would opt for the corrupt alternative. Furthermore, varying the quantity of information available to players (modeled by changing the degree of uncertainty) provided additional insight into the players' propensity to engage in corrupt behavior. The experimental results show that a higher degree of uncertainty in the informational setting reduces corruption.
JERP #2012-032 (PDF)
Mitesh Kataria, Tobias Regner
Honestly, why are you donating money to charity? An experimental study about self-awareness in status-seeking behavior
This study investigates experimentally whether people in retrospective are self-aware that they engage in status-seeking behavior. Subjects participated in a real-effort task where effort translated into a donation to a charity. Within-subjects we varied the visibility of their performance (private/public feedback). On average subjects exerted more effort in the public treatment. After the real effort task subjects were asked to state their retrospective beliefs about their performance in public given feedback about their performance in private, and about the performance of other subjects in public given the average performance in private. Between-subjects we varied the compensation (low/high) for accurate estimates. Our results show a lack of self-awareness about status-seeking behavior that is robust to increased belief compensation. We also found that subjects expected others to be as status-seeking as they are themselves or even less.
JERP #2012-031 (PDF)
Alexia Gaudeul, Caterina Giannetti
The role of reciprocation in social network formation, with an application to blogging
This paper deals with the role of reciprocation in the formation of individuals' social networks. We follow the activity of a panel of bloggers over more than a year and investigate the extent to which initiating a relation brings about its reciprocation. We adapt a standard capital investment model to study how reciprocation affects the build-up of the individual social capital of bloggers, as measured by their links and interactions with others. This allows us to measure the role of content production and relationship building in the dynamics of online social networks and to distinguish between the social networking and media aspects of blogging.
JERP #2012-030 (PDF)
Fabrice Le Lec, Astrid Matthey, Ondřej Rydval
Punishment Fosters Efficiency in the Minimum Effort Coordination Game
Using a laboratory experiment, we examine whether informal monetary sanctions can lead to better coordination in a repeated minimum effort coordination game. While most groups first experience inefficient coordination, the efficiency increases substantially after introducing an ex post sanctioning possibility. Namely, subjects can assign punishment points to other group members upon observing their efforts, which is costly for the punisher but twice as costly for the punished member. By contrast, introducing instead an ex post costless communication possibility fails to permanently increase efficiency. This suggests that decentralized monetary sanctions can play a major role as a coordination device in Pareto-ranked coordination settings, such as teamwork in firms and other organizational contexts.
JERP #2012-029 (PDF)
Werner Güth, Harriet Mugera, Andrew Musau, Matteo Ploner
Intentions and Consequences - An Experimental Investigation of Trust and Reciprocity Determinants
We experimentally manipulate the efficiency of trust and reciprocity in a modified Investment Game. The aim of our manipulation is to test whether reciprocity is mainly affected by payoff consequences of trust or by intentions underlying it. We find that intentions matter and that consequences have an asymmetric impact: trustees reward trust more when trust is more efficient but do not adjust rewards to the efficiency of their own actions. As a result, profitability of trust is fostered by efficiency of trust as well as by efficiency of reciprocity. However, trustors do not fully exploit the high efficiency gains offered by investments and display only moderate trust.
JERP #2012-023 (PDF)
Agnes Bäker, Werner Güth, Kerstin Pull, Manfred Stadler
On the Context-Dependency of Inequality Aversion: Experimental Evidence and a Stylized Model
We consider three-person envy games with a proposer, a responder, and a dummy player. In this class of games, the proposer, rather than allocating a constant pie, chooses the pie size which the responder can then accept or reject while the dummy player can only refuse his own share. While the agreement payoffs for the responder and the dummy are exogenously given, the proposer acts as the residual claimant who - in case of responder acceptance - receives whatever is left after the two exogenously given agreement payoffs have been deducted from the pie. Consistent with earlier findings from three-person generosity games, we find inequality aversion to be strongly context-dependent and affected by the (in)equality of exogenously given agreement payoffs. Motivated by these findings, we present a stylized model on context-dependent inequality aversion that accounts for the observed effects.
JERP #2012-020 (PDF)
Hironori Otsubo
Contests with Incumbency Advantages: An Experiment Investigation of the Effect of Limits on Spending Behavior and Outcome
This paper experimentally investigates the effect of limits on campaign spending and outcome in an electoral contest where two candidates, an incumbent and a challenger, compete for office in terms of the amount of campaign expenditure. The candidates are asymmetric only in that the incumbent wins the contest in case of a tie. Theory predicts that in the presence of such asymmetry spending limits put the challenger at a disadvantage and tightening the limits leads to further entrenchment of the incumbent. The experimental results confirmed the theoretical predictions regarding the effect of limits on campaign spending and outcome but yielded partial support to other predictions.
JERP #2012-016 (PDF)
Philomena M. Bacon, Anna Conte, Peter G. Moffatt
Risk Attitude in Couples
The determinants of risk attitude in couples are explored using data from the German Socio-Economic Panel over the period 2004 to 2009. The focus of the analysis is the repeated responses to the survey question about general willingness to take risk. Responses to this question are provided on a 0-10 Likert scale. We focus on couples in the data set, and we apply the bivariate panel ordered probit model to the analysis of the simultaneous determination of the male's and the female's risk attitude. A number of individual characteristics, including age, height, education and household income, are found to have strong effects on risk attitude, in some cases differing markedly between the male and the female. Both the individual-specific effects and the observation-specific error terms are assumed to have non-zero correlations between the two equations. These correlations are estimated to be +0.27 and +0.28 respectively. We consider the former to be a key parameter, since its positive sign may be interpreted as a form of homophily: individuals tend to form partnerships with others having a similar risk attitude.
JERP #2012-015 (PDF)
Simona Cicognani, Anna D'Ambrosio, Werner Güth, Simone Pfuderer, Matteo Ploner
Community Projects: An Experimental Analysis of a Fair Implementation Process
We define and experimentally test a public provision mechanism that meets three basic ethical requirements and allows community members to influence, via monetary bids, which of several projects is implemented. For each project, participants are assigned personal values, which can be positive or negative. We provide either complete or only private information about others' personal values. This produces two distinct public provision games which are experimentally implemented and analysed for various projects. In spite of the complex experimental task, participants do not rely on truth-telling as an obvious and simple heuristic whose general acceptance would result in fair and effcient outcomes. Rather, they yield to strategic underbidding. Although underbidding is affected by projects' characteristics, the provision mechanism seems quite functional.
JERP #2012-014 (PDF)
Toru Suzuki
Persuasive Silence
In the market where inattentive buyers can fail to notice some feasible choices, the key role of marketing is to make buyers aware of products. However, the effective marketing strategy is often subtle since marketing tactics can make buyers cautious. This paper provides a framework to analyze an effective marketing strategy to persuade an inattentive buyer in an adverse selection environment. We investigate how an attention-grabbing marketing can "back…fire" ”and when it can be effective.
JERP #2012-011 (PDF)
Vera Angelova, Tobias Regner
Do voluntary payments to advisors improve the quality of financial advice? An experimental sender-receiver game
The market for retail financial products (e.g. investment funds or insurances) is marred by information asymmetries. Clients are not well informed about the quality of these products. They have to rely on the recommendations of advisors. Incentives of advisors and clients may not be aligned, when fees are used by financial institutions to steer advice. We experimentally investigate whether voluntary contract components can reduce the conflict of interest and increase truth telling of advisors. We compare a voluntary payment upfront, an obligatory payment upfront, a voluntary bonus afterwards, and a three-stage design with a voluntary payment upfront and a bonus after. Across treatments, there is significantly more truthful advice when both clients and advisors have opportunities to reciprocate. Within treatments, the frequency of truthful advice is significantly higher when the voluntary payment is large.
JERP #2012-010 (PDF)
Michael Trost
An Epistemic Rationale for Order-Independence
The issue of the order-dependence of iterative deletion processes is well-known in the game theory community, and meanwhile conditions on the dominance concept underlying these processes have been detected which ensure order-independence (see e.g. the criteria of Gilboa et al., 1990 and Apt, 2011). While this kind of research deals with the technical issue, whether certain iterative deletion processes are order-independent, or not, our focus is on the normative issue, whether there are good reasons for employing order-independent iterative deletion processes on strategic games. We tackle this question from an epistemic perspective and attempt to figure out, whether order-independence contains some specific epistemic meaning. It turns out that, under fairly general preconditions on the choice rules underlying the iterative deletion processes, the order-independence of these deletion processes coincides with the epistemic characterization of their solutions by the common belief of choice-rule following behavior. The presumably most challenging precondition of this coincidence is the property of the independence of irrelevant acts. We also examine the consequences of two weakenings of this property on our epistemic motivation for order-independence. Although the coincidence mentioned above breaks down for both weakenings, still there exist interesting links between the order-independence of iterative deletion processes and the common belief of following the choice rules, on which these processes are based.
JERP #2012-007 (PDF)
Anastasios Koukoumelis, M. Vittoria Levati
An experiment investigating the spill-over effects of voicing outrage
We report on an experiment designed to explore whether and how anger affects future levels of cooperation. Participants play three consecutive one-shot games. In between two identical two-person public goods games there is a mini dictator game that, depending on the treatment, either gives or does not give the recipient the opportunity to scold the dictator via a text message. We find that the recipients that receive an unfair offer contribute significantly less in the second public goods game. Yet, such contribution cuts are less frequent and notably smaller when messaging is allowed for. We conclude that although anger has a lasting negative effect on cooperation, giving voice to it helps to curtail selfishness.
JERP #2012-006 (PDF)
Anthony Ziegelmeyer, Christoph March, Sebastian Krügel
"Do We Follow Others when We Should? A Simple Test of Rational Expectations": Comment
Weizsäcker (2010) estimates the payoff of actions to test rational expectations and to measure the success of social learning in information cascade experiments. He concludes that participants perform poorly when learning from others and that rational expectations are violated. We show that his estimated payoffs rely on estimates of the publicly known prior and signal qualities which may lead the formulated test of rational expectations to generate false positives. We rely on the true values of the prior and signal qualities to estimate the payoff of actions. We confirm that the rational expectations hypothesis is rejected, but we measure a much larger success of social learning.
JERP #2012-005 (PDF)
Werner Güth, M. Vittoria Levati, Natalia Montinari
Ranking alternatives by a fair bidding rule: a theoretical and experimental analysis
We introduce a procedurally fair rule to study a situation where people disagree about the value of three alternatives in the way captured by the voting paradox. The rule allows people to select a final collective ranking by submitting a bid vector with six components (the six possible rankings of the three alternatives). In a laboratory experiment we test the robustness of the rule to the introduction of subsidies and taxes. We have two main results. First, in all treatments, the most frequently chosen ranking is the socially efficient one. Second, subsidies slightly enhance overbidding. Furthermore, an analysis of individual bid vectors reveals interesting behavioral regularities.
JERP #2012-004 (PDF)
Andreas Leibbrandt, Abhijit Ramalingam, Lauri Sääksvuori, James M. Walker
Broken Punishment Networks in Public Goods Games: Experimental Evidence
Abundant evidence suggests that high levels of contributions to public goods can be sustained through self-governed monitoring and sanctions. This experimental study investigates the effectiveness of decentralized sanctioning institutions where punishment opportunities are restricted to agents who are linked through alternative punishment networks. We find that the structure of the punishment network significantly impacts contributions to the public good, but not overall efficiencies. Contributions collapse over decision rounds in groups with limited punishment opportunities, even if the absolute punishment capacity corresponds to the complete punishment network where all agents are allowed to punish each other. However, after allowing for the costs of sanctions, efficiencies are similar across the different networks that allow for punishment and the no-punishment network.
JERP #2012-003 (PDF)
Werner Güth, Lauri Sääksvuori
Provision of Multilevel Public Goods through Positive Externalities: Experimental Evidence
The provision of public goods regularly embodies interrelated spheres of influence on multiple scales. This article examines the nature of human behavior in a multilevel social dilemma game with positive provision externalities to local and global scales. We report experimental results showing that the behavior in multilevel games is strongly driven by asymmetric conditional cooperation prioritizing local level externalities. Our findings demonstrate how individuals adjust their behavior over time to local conditions. We do not find significant adjustment to the global group average, suggesting that the local group creates a salient reference group for social comparisons in multilevel public goods provision. Our results emphasize the importance of building strong local level commitment when designing institutional responses to promote sustainable provision of globally important public goods like the global climate.
JERP #2012-002 (PDF)
Christoph March, Sebastian Krügel, Anthony Ziegelmeyer
Do We Follow Private Information when We Should? Laboratory Evidence on Naive Herding
We investigate whether experimental participants follow their private information and contradict herds in situations where it is empirically optimal to do so. We consider two sequences of players, an observed and an unobserved sequence. Observed players sequentially predict which of two options has been randomly chosen with the help of a medium quality private signal. Unobserved players predict which of the two options has been randomly chosen knowing previous choices of observed and with the help of a low, medium or high quality signal. We use preprogrammed computers as observed players in half the experimental sessions. Our new evidence suggests that participants are prone to a 'social-confirmation' bias and it gives support to the argument that they naively believe that each observable choice reveals a substantial amount of that person's private information. Though both the 'overweighting-of-private-information' and the 'social-confirmation' bias coexist in our data, participants forgo much larger parts of earnings when herding naively than when relying too much on their private information. Unobserved participants make the empirically optimal choice in 77 and 84 percent of the cases in the human-human and computer-human treatment which suggests that social learning improves in the presence of lower behavioral uncertainty.

Papers 2011 [back to top] Top

JERP #2011-069 (PDF)
Philomena M. Bacon, Anna Conte, Peter G. Moffatt
The Analysis of Risk Attitude Amongst Family Members
The determinants of risk attitude amongst family members are explored using data from the German Socio-Economic Panel over the period 2004 to 2009. The focus of the analysis is the repeated responses to the survey question about general willingness to take risk. Responses to this question are provided on a 0-10 Likert scale. We respect both the ordinality and the panel structure of the data by estimating the random effects ordered probit model. We divide household members into thee types: heads, spouses and offspring. Of the three types, we find that spouses are the most risk averse, and offspring the least risk averse. In view of these findings, we estimate the model separately for the three groups and find different results between the three. For example, household income has a positive effect (on risk-taking) for heads and spouses (particularly strong for spouses), but no effect on offspring. Some effects are similar between the the three groups; for example, risk aversion always increases with age. In the offspring equation, we include both the head's and the spouse's risk attitude as explanatory variables, and find that both have a significantly positive effect on the offspring's risk-attitude, indicating that children tend to inherit the risk attitude of their guardians. We then focus on couples in the data set, and we apply the random effects bivariate ordered probit model to the analysis of the simultaneous determination of the male's and the female's risk attitude. In this model, the individual-specific effects for the male and the female are assumed to have a non-zero correlation, which is estimated to be +0.412. This significantly positive correlation is interpreted as a form of homophily: individuals tend to form partnerships with others having a similar risk attitude. The importance of respecting the ordinality of the data is confirmed when a straightforward (linear) seemingly unrelated model is applied to the same problem; this gives a correlation of only +0.27: a seriously downward-biased estimate of this key parameter.
JERP #2011-068 (PDF)
Anna Conte, John D. Hey
Assessing Multiple Prior Models of Behaviour under Ambiguity
The recent spate of theoretical models of behaviour under ambiguity can be partitioned into two sets: those involving multiple priors (in which the probabilities of the various events are not known but probabilities can be attached to the various possible values for the probabilities) and those not involving multiple priors. This paper concentrates on the first set and provides an experimental investigation into recently proposed theories. Using an appropriate experimental interface, in which the probabilities on the various possibilities are explicitly stated, we examine the fitted and predictive power of the various theories. We first estimate subject-by-subject, and then we estimate and predict using a mixture model over the contending theories. The individual estimates suggest that 24% of our 149 subjects have behaviour consistent with Expected Utility, 56% with the Smooth Model (of Klibanoff et al, 2005), 11% with Rank Dependent Expected Utility and 9% with the Alpha Model (of Ghirardato et al 2004); these figures are close to the mixing proportions obtained from the mixture estimates. If we classify our subjects through the posterior probabilities (given all the evidence) of each of them being of the various types: using the estimates we get 25%, 50%, 20% and 5% (for EU, Smooth, Rank Dependent and Alpha); while using the predictions 22%, 53%, 22% and 3%. Interestingly the Smooth model seems to fare the best.
JERP #2011-067 (PDF)
Johannes Weisser
Leading by example in intergroup competition: An experimental approach
We investigate leading by example in a public goods game in scenarios with and without intergroup competition. Leading by example is implemented via a sequential decision protocol. We examine both one-shot and repeated interaction and make use of the strategy method to characterize followers' conditional responses to the leader's contribution. The results show that only follower but not leader behavior is affected by the introduction of intergroup competition. The change in follower behavior is best described as an increase in cooperation which is not conditional on the leader's decision. When groups interact repeatedly, we do not find that leading by example is able to foster cooperation by itself. It only significantly improves contributions when it is accompanied by intergroup competition.
JERP #2011-066 (PDF)
Johannes Weisser
Leading by Words in Privileged Groups
Koukoumelis et al. (2010, 2012) have shown that one-way communication enhances contributions to public goods. We investigate the effectiveness of one-way communication, when the benefits from the public good are asymmetric and the sender of a message is the main beneficiary of cooperation. Our results show that, in the absence of communication opportunities, contribution behavior may be inversely related to other group members' marginal benefits from the public good. The effectiveness of one-way communication, however, remains unaffected even though compliance with a sender's suggestion to cooperate generates unfavorable payoff inequalities for message receivers. The results also indicate that one-way messages have to relate to the experimental game to enhance cooperation. Merely "giving someone a voice" is not sufficient.
JERP #2011-065 (PDF)
Franziska Brecht, Oliver Günther, Werner Güth, Ksenia Koroleva
An experimental analysis of bounded rationality: Applying insights from behavioral economics to information systems
The paradigm of bounded rationality considers the limited ability of individuals to make consistent and rational choices. Due to the scarcity of research on this phenomenon in information systems, we conducted an experimental study investigating decision-making regarding risk preferences and social preferences. Moreover, we explored the stability of these preferences under different conditions and uncovered the role of information retrieval in individual decision-making. We find that although individuals are generally risk-averse and egoistic, none of these preferences is stable under the conditions tested which provides indices of boundedly rational decision-making. Although the information retrieved by participants generally allows to infer their preferences, the increasing amount and complexity of this information again often results in boundedly rational behavior.
JERP #2011-064 (PDF)
Ondřej Rydval
The Causal Effect of Cognitive Abilities on Economic Behavior: Evidence from a Forecasting Task with Varying Cognitive Load
We identify the causal effect of cognitive abilities on economic behavior in an experimental setting. Using a forecasting task with varying cognitive load, we identify the causal effect of working memory on subjects' forecasting performance, while also accounting for the effect of other cognitive, personality and demographic characteristics. Addressing the causality is important for understanding the nature of various decision-making errors, as well as for providing reliable policy implications in contexts such as student placement, personnel assignment, and public policy programs designed to augment abilities of the disadvantaged. We further argue that establishing the causality of cognitive abilities is a prerequisite for studying their interaction with financial incentives, with implications for the design of efficient incentive schemes.
JERP #2011-063 (PDF)
Federica Alberti, Edward J. Cartwright
Full agreement and the provision of threshold public goods
The experimental evidence suggests that groups are inefficient at providing threshold public goods. This inefficiency appears to reflect an inability to coordinate over how to distribute the cost of providing the good. So, why do groups not just split the cost equally? We offer an answer to this question by demonstrating that in a standard threshold public good game there is no collectively rational recommendation. We also demonstrate that if full agreement is required in order to provide the public good then there is a collectively rational recommendation, namely, to split the cost equally. Requiring full agreement may, therefore, increase efficiency in providing threshold public goods. We test this hypothesis experimentally and find support for it.
updated version (2013/07)
JERP #2011-062 (PDF)
Federica Alberti, Edward Cartwright, Anna Stepanova
Threshold public good games and impulse balance theory
We propose and develop a model of behavior in threshold public good games. The model draws on learning direction theory and impulse balance theory. We …find good support for the model and demonstrate that it can explain the success rates observed in threshold public good experiments. The model is applied in a variety of different settings: we compare games with a full refund to those with no refund, consider changes in relative endowment, and consider changes in the step return and net reward.
JERP #2011-060 (PDF)
Anna Conte, Daniela T. Di Cagno, Emanuela Sciubba
Behavioural patterns in social networks
In this paper, we focus on the analysis of individual decision making for the formation of social networks, using experimentally generated data. We first analyse the determinants of the individual demand for links under the assumption of agents' static expectations. The results of this exercise subsequently allow us to identify patterns of behaviour that can be subsumed in three strategies of link formation: 1) reciprocator strategy - players propose links to those from whom they have received link proposals in the previous round; 2) myopic best response strategy - players aim to profit from maximisation; 3) opportunistic strategy - players reciprocate link proposals to those who have the largest number of connections. We find that these strategies explain approximately 76% of the observed choices. We finally estimate a mixture model to highlight the proportion of the population who adopt each of these strategies.
JERP #2011-059 (PDF)
Urs Fischbacher, Werner Güth, M. Vittoria Levati
Crossing the Point of No Return: A Public Goods Experiment
Participants in a public goods experiment receive private or common signals regarding the so-called "point of no return", meaning that if the group's total contribution falls below this point, all payoffs are reduced. An individual faces the usual conflict between private and collective interests above the point of no return, while he incurs the risk of damaging everyone by not surpassing the point. Our data reveal that contributions are higher if the cost of not reaching the threshold is high. In particular if the signal is private, many subjects are not willing to provide the necessary contribution.
JERP #2011-058 (PDF)
Alessandro Bucciol, Natalia Montinari, Marco Piovesan
Do not Trash the Incentive! Monetary incentives and waste sorting
This paper examines whether monetary incentives are an effective tool for increasing domestic waste sorting. We exploit the exogenous variation in the waste management policies experienced during the years 1999–2008 by the 95 municipalities in the district of Treviso (Italy). We estimate with a panel analysis that pay-as-you-throw (PAYT) incentive schemes increase by 12.3% the sorted-total waste ratio. This increase reflects a change in the behavior of households, who keep unaltered the production of total waste but sort it to a larger extent. Our data show that household behavior is also influenced by the policies of adjacent municipalities.
JERP #2011-057 (PDF)
Siegfried K. Berninghaus, Lora Todorova, Bodo Vogt
A Simple Questionnaire Can Change Everything – Are Strategy Choices in Coordination Games Stable?
This paper presents results from an experiment designed to study the effect of self reporting risk preferences on strategy choices made in a subsequently played 2 X 2 coordination game. The main finding is that the act of answering a questionnaire about one's own risk preferences significantly alters strategic behavior. Within a best response correspondence framework, this result can be explained by a change in either risk preferences or beliefs. We find that self reporting risk preferences induces an increase in subjects' risk aversion while keeping their beliefs unchanged. Our findings raise some questions about the stability of strategy choices in coordination games.
JERP #2011-056 (PDF)
Agnes Bäker, Werner Güth, Kerstin Pull, Manfred Stadler
Creativity, Analytical Skills, Personality Traits, and Innovation Game Behavior in the Lab: An Experiment
Innovative behavior is mostly studied theoretically, e.g., in models of patent races, and empirically, e.g., by using R&D or patent data. This research, however, is only poorly informed about the psychological tradition of creativity research. Our study is an attempt to experimentally collect behavioral data revealing in how far creativity, analytical skills, personality traits and innovation game behavior in the lab are interrelated. With the help of a within-subject design we find that participants' performance in the innovation games is in fact related to their creativity, risk tolerance and self-control. Other personality traits such participants' anxiety, independence, tough-mindedness and extraversion, if any, only play a minor role, and the same is true for participants' analytical skills.
JERP #2011-053 (PDF)
Sven Fischer, Werner Güth
Effects of exclusion on social preferences
In three party ultimatum games the proposer can first decide whether to exclude one responder, what increases the available pie. The experiments control for intentionality of exclusion and veto power of the third party. We do not find evidence for indirect reciprocity of the remaining responder after the exclusion of the other. Similarly, not excluding the second responder is only insignificantly reciprocated by it. Overall, we find little evidence that intentional exclusion has substantial effects on behavior.
JERP #2011-052 (PDF)
Natalia Montinari
The Dark Side of Reciprocity
Whether friendship or competitive relationships deserve to be encouraged in the workplace is not obvious a priori. In this paper we derive the conditions under which a pro…fit-maximizing employer …finds it convenient to induce a rat race among workers exhibiting horizontal reciprocity in order to obtain underpaid or unpaid extra effort. We characterize the optimal compensation scheme under both symmetric and asymmetric information about workers'actions, and we also derive conditions for our result to hold in the presence of vertical reciprocity.
JERP #2011-051 (PDF)
Sandro Casal, Werner Güth, Mofei Jia, Matteo Ploner
Would You Mind if I Get More? An Experimental Study of the Envy Game
Envy is often the cause of mutually harmful outcomes. We experimentally study the impact of envy in a bargaining setting in which there is no conflict in material interests: a proposer, holding the role of residual claimant, chooses the size of the pie to be shared with a responder, whose share is exogenously fixed. Responders can accept or reject the proposal, with game types differing in the consequences of rejection: all four combinations of (not) self-harming and (not) other-harming are considered. We find that envy leads responders to reject high proposer claims, especially when rejection harms the proposer. Notwithstanding, maximal claims by proposers are predominant for all game types. This generates conflict and results in a considerable loss of efficiency.
JERP #2011-050 (PDF)
Ondřej Rydval
The Effect of Financial Incentives and Task-specific Cognitive Abilities on Task Performance
We extend evidence on the interaction between financial incentives and cognitive abilities by focusing on the effect of task-specific abilities. In a memory-intensive task situated in an accounting context, the effect of accounting education on performance is stronger under financial incentives as compared to flat rate pay. Subjects with more accounting education respond stronger to financial incentives. Hence using incentives efficiently may involve targeting them at high-ability individuals. More generally, taking into account the incentive-ability interaction seems important when interpreting observed behavior in cognitively demanding lab and field economic environments.
JERP #2011-049 (PDF)
M. Bigoniy, D. Dragone
An experiment on experimental instructions.
In this paper we treat instructions as an experimental variable. Using a public good game, we study how the instructions' format affects the participants' understanding of the experiment, their speed of play and their experimental behavior. We show that longer instructions do not significantly improve the subjects' understanding of the experiment; onscreen instructions shorten average decision times with respect to on-paper instructions, and requiring forced inputs reduces waiting times, in particular for the slowest subjects. Consistent with cognitive load theory, we find that short, on-screen instructions which require forced inputs improve on subjects' comprehension and familiarity with the experimental task, and they contribute to reduce both decision and waiting times without affecting the overall pattern of contributions.
JERP #2011-048 (PDF)
Siegfried K. Berninghaus, Thomas Neumann, Bodo Vogt
Learning in Networks – An Experimental Study using Stationary Concepts
Our study analyzes theories of learning for strategic interactions in networks. Participants played two of the 2 x 2 games used by Selten and Chmura (2008) and in the comment by Brunner, Camerer and Goeree (2009). Every participant played against four neighbors and could choose a different strategy against each of them. The games were played in two network structures: a lattice and a circle. We compare our results with the predictions of different theories (Nash equilibrium, quantal response equilibrium, action-sampling equilibrium, payoff-sampling equilibrium, and impulse balance equilibrium) and the experimental results of Selten and Chmura (2008). One result is that the majority of players choose the same strategy against each neighbor. As another result we observe an order of predictive success for the stationary concepts that is different from the order shown by Selten and Chmura. This result supports our view that learning in networks is different from learning in random matching.
JERP #2011-047 (PDF)
Dominique Cappelletti, Werner Güth, Matteo Ploner
Unravelling conditional cooperation Reciprocity, inequity aversion, and anchoring in public goods provision
Extensive research on human cooperation in social dilemmas has shown that individuals condition their behaviour upon the behaviour of others. However, few attempts have been made to disentangle the motivations backing conditional cooperation. We try to assess the relative importance of three motives - namely reciprocity, inequity aversion, and anchoring - in a non-linear voluntary contribution experiment. We find that, for those conditionally cooperating, both reciprocity and inequity aversion represent relevant motivational factors, but the impact of inequity aversion is stronger than that of reciprocity. In contrast, anchoring plays only a marginal role. Compared to what previously found in linear voluntary contribution games, overall we find much less conditional cooperation. In a control treatment with a less complex design, conditional cooperation is higher but still comparatively low.
JERP #2011-046 (PDF)
Werner Güth, Hironori Otsubo
Whom to blame? An experiment of collective harming and punishing
In a situation, where it is efficient for one of two parties to pollute but highly inefficient if both parties do so, the harmed third party can freely impose its damage claims on both parties what crucially determines which equilibrium to expect. Whereas "equality before the law" requires equal punishments, efficient equilibria are predicted when holding one party responsible and letting the other escape punishment. After discussing equilibrium selection for the game, we report on an experiment with two treatment variables: one that determines when the harmed party announces its potential damage claims and one varying a game- and justice-unrelated difference between the two culprits. According to our experimental data, "equality before the law" dominates but is weakened by asymmetry in wealth and the possibility to announce sanctions.
JERP #2011-044 (PDF)
Paolo Crosetto, Alexia Gaudeul
Do consumers prefer offers that are easy to compare? An experimental investigation
Consumers make mistakes when facing complex purchasing decision problems but if at least some consumers choose only among offers that are easy to compare with others then firms will adopt common ways to present their offers and thus make choice easier (Gaudeul and Sugden, 2011). We design an original experiment to identify consumers' choice heuristics in the lab. Subjects are presented with menus of offers and do appear to favour offers that are easy to compare with others in the menu. While not all subjects do so, this is enough to deter firms fromintroducing spurious complexity in the way they present products.
JERP #2011-042 (PDF)
Werner Güth, Kerstin Pull, Manfred Stadler
Intrafirm Conflicts and Interfirm Price Competition
We study interfirm price competition in the presence of horizontal and vertical intrafirm conflicts in each firm. Intrafirm conflicts are captured by a principal-agent framework with firms employing more than one agent and implementing a tournament incentive scheme. The principals offer premium incentives in the sense of revenue shares to which agents react by proposing a sales price. Introducing such intrafirm conflicts results in higher prices and lower effort levels. Increasing the number of agents lowers the optimal surplus share of the agents as well as the individual effort and the sales prices. Firm profits first increase and then decrease when employing more and more agents suggesting that principals should employ an intermediate number of agents.
JERP #2011-041 (PDF)
M. Vittoria Levati, Aaron Nicholas, Birendra Rai
Testing the Framework of Other-Regarding Preferences
We assess the empirical validity of the overall theoretical framework of otherregarding preferences by focusing on those preference axioms that are common to all the prominent theories of outcome-based other-regarding preferences. This common set of preference axioms leads to a testable implication: the strict preference ranking of self over a finite number of alternatives lying on any straight line in the space of material payoffs to self and other will be single-peaked. The extent of single-peakedness varies from a high of 79% to a low of 54% across our treatments that are based on dictator and trust games. Positively and/or negatively other-regarding subjects are significantly less likely to report single-peaked rankings relative to self-regarding subjects. We delineate the potential reasons for violations of single-peakedness and discuss the implications of our findings for theoretical modeling of other-regarding preferences.
JERP #2011-040 (PDF)
Eva-Maria Steiger, Ro'i Zultan
See No Evil: Information Chains and Reciprocity in Teams
Transparency in teams can induce cooperation. We study contribution decisions by agents when previous decisions can be observed. We find that an information chain, in which each agent directly observes only the decision of her immediate predecessor, is at least as effective as a fully-transparent protocol in inducing cooperation under increasing returns to scale. In a comparable social dilemma, the information chain leads to high cooperation both when compared to a non-transparent protocol for early movers, and when compared to a fully-transparent protocol for late movers. we conclude that information chains facilitate cooperation by balancing positive and negative reciprocity.
JERP #2011-039 (PDF)
Anna Conte, M. Vittoria Levati
Use of data on planned contributions and stated beliefs in the measurement of social preferences
In a series of one-shot linear public goods game, we ask subjects to report their contributions, their contribution plans for the next period, and their first-order beliefs about their present and future partner. We estimate subjects' preferences from plans data by a finite mixture approach and compare the results with those obtained from contribution data. Our results indicate that preferences are heterogeneous, and that most subjects exhibit conditionally cooperative inclinations. Controlling for beliefs, which incorporate the information about the other's decisions, we are able to show that plans convey accurate information about subjects' preferences and, consequently, are good predictors of their future behavior.
updated version (2012/10)
JERP #2011-034 (PDF)
Werner Güth, Anastasios Koukoumelis, M. Vittoria Levati
"One man's meat is another man's poison." An experimental study of voluntarily providing public projects that raise mixed feelings.
We compare, on the basis of a procedurally fair "provision point" mechanism, bids for a public project from which some gain and some lose with bids for a less efficient public project from which all gain. In the main treatment, participants independently decide which one, if any, of the public projects should be implemented. We also run control treatments where only one of the two projects can be implemented. We find that (a) mixed feelings per se do not affect bidding behavior, and (b) the provision frequency of the project that raises mixed feelings declines significantly when it faces competition from the public good.
JERP #2011-032 (PDF)
Astrid Gamba
On the Evolution of Preferences
A common feature of the literature on the evolution of preferences is that evolution favors nonmaterialistic preferences only if preference types are observable at least to some degree. We argue that this result is due to the assumption that in each state of the evolutionary dynamics some Bayesian Nash equilibrium is played. We show that under unobservability of preference types, conditional on selecting some self-confi…rming equilibrium as a rule for mapping preference into behavior, non-sel…fish preferences may be evolutionarily successful.
JERP #2011-030 (PDF)
Hannes Koppel, Tobias Regner
Corporate Social Responsibility in the work place – Experimental evidence on CSR from a gift-exchange game
We analyze the effect of investments in corporate social responsibility (CSR) on workers' motivation. In our experiment, a gift exchange game variant, CSR is captured by donating a certain share of a firm's profit to charity. We are testing for CSR effects by varying the possible share of profits given to charity. Additionally, we investigate the effect of matching mission preferences, i.e., a worker preferring the same charity the firm donates to. Our results show that, on average, workers reciprocate investments in CSR with increased effort. Matching mission preferences also result in higher effort, independently of the extent of the CSR investment.
updated version (2013/08)
JERP #2011-029 (PDF)
Tobias Regner, Gerhard Riener
Motivational Cherry Picking
We construct a simple three person trust game with one trustor and two trustees. The trustor has the possibility to either trust both trustees or none, while the trustees make their decisions either sequentially or simultaneously, depending on the treatment. When trustees play sequentially, follower trustees who are informed about the leader's choice are significantly less kind than in the simultaneous move treatment as well as the leader trustees. These findings can not be explained by models of inequity aversion, pure guilt aversion, or conformity. Instead, follower trustees cherry pick the motivation that serves them best. When the leader trustee played unkind, they tend to conform and play unkind, too. When the leader made a kind choice, followers seem to perceive the duty of reciprocating to the trustor as already fulfilled by the leader. While guilt works well as a motivational force in a dyadic situation, it gets alleviated easily when there is someone to shift responsibility to, like the leader in our three person game.
JERP #2011-028 (PDF)
Jürgen Bracht, Tobias Regner
Moral Emotions and Partnership
Actual behaviour is influenced in important ways by moral emotions, for instance guilt or shame. The framework of dynamic psychological games allows the economic modeling of such emotions. Our experimental study uses psychological scales to measure individuals' dispositions to experience guilt/shame and analyses the role these emotions play in a partnership situation that features moral hazard. We find that - in addition to second-order beliefs and promises - individuals' disposition to guilt (specifically, their proneness to respond in an evaluative way to personal transgressions) is an important determinant of pro-social behaviour.
updated version (2013/10)
JERP #2011-024 (PDF)
Astrid Matthey, Tobias Regner
More than outcomes: A cognitive dissonance-based explanation of other-regarding behavior
Recent research has cast some doubt on the general validity of outcome-based models of social preferences. We develop a model based on cognitive dissonance that focuses on the importance of self-image. An experiment (a dictator game variant) tests the model. First, we find that subjects whose choices involve two psychologically inconsistent cognitions indeed report higher levels of experienced conflict and take more time for their decisions (our proxies for cognitive dissonance). Second, we find support for the main model components. An individual's self-image, the sensitivity to cognitive dissonance, and expected behavior of others have a positive effect on other-regarding behavior.
JERP #2011-022 (PDF)
Topi Miettinen, Olli Ropponen, Pekka Sääskilahti
Gambling for the Upper Hand – Settlement Negotiations in the Lab
We exploit a controlled non-framed laboratory experiment to study settlement negotiations and the plaintiff's decision to raise a lawsuit in case of an impasse. We find that greater variance in court outcomes increases the litigation rate and the settlement rate when legal costs are high and litigation is suboptimal. When the plaintiff's probability of winning is low, riskiness of court rulings does not impact the litigation rate but increases the conflict rate. This latter finding goes against the received wisdom and earlier experimental evidence (Ashenfelter et al. 1992) that greater risk in arbitration outcomes increases the settlement rate. We find that logit quantal response equilibrium and loss aversion, with respect to ex-ante expected payoffs, help to organize the negotiation patterns. With regards to litigation, disadvantageous social comparison with the defendant induces the plaintiffs to excessive risk-taking in an attempt to narrow the gap.
updated version (2012/08)
JERP #2011-021 (PDF)
M. Vittoria Levati, Jianying Qiu, Prashanth Mahagaonkar
Testing the Modigliani-Miller theorem directly in the lab
We present an experiment designed to test the Modigliani-Miller theorem. Applying a general equilibrium approach and not allowing for arbitrage among firms with different capital structures, we find that, in accordance with the theorem, participants well recognize changes in the systematic risk of equity associated with increasing leverage and, accordingly, demand higher rate of return. Yet, this adjustment is not perfect: subjects underestimate the systematic risk of low-leveraged equity whereas they overestimate the systematic risk of high-leveraged equity, resulting in a U-shaped cost of capital. A (control) individual decision-making experiment, eliciting several points on individual demand and supply curves for shares, provides some support for the theorem.
JERP #2011-020 (PDF)
Werner Güth
Collectively Ranking Candidates – An Axiomatic Approach
Different evaluators typically disagree how to rank different candidates since they care more or less for the various qualities of the candidates. It is assumed that all evaluators submit vector bids assigning a monetary bid for each possible rank order. The rules must specify for all possible vectors of such vector bids the collectively binding rank order of candidates and the "payments" for this bid vector and its implied rank order. Three axioms uniquely define the "procedurally fair" ranking rules. We finally discuss how our approach can be adjusted to situations where one wants to rank only acceptable candidates.
JERP #2011-019 (PDF)
Matthias Uhl
Challenging the Intrapersonal Empathy Gap An Experiment with Self-Commitment Power
Loewenstein (1996, 2005) identifies an intrapersonal empathy gap. In the respective experiments, subjects make choices with delayed consequences. When entering the state where these consequences would unfold, they get the possibility to revise their initial choice. Revisions are more substantial when these two choices are made in different emotional states. The concept of the empathy gap suggests that the initial choice represents a misprediction of future preferences. However, it might alternatively be based on a well understood disagreement with future preferences. In this sense, people would like to add: "But don't ask me again!" To disentangle both explanations, we induce two different emotional states in each subject and offer a self-commitment device in the first state. In one condition, subjects move from a "cold" state of reflection to a "hot" state of impulsiveness. In the other condition, this order is reversed. We find evidence for the hot-to-cold empathy gap, but not for the cold-to-hot empathy gap when subjects can self-commit to their initial choice.
JERP #2011-018 (PDF)
Luis Miller, Heiko Rauhut, Fabian Winter
The emergence of norms from conflicts over just distributions
Why is it that well-intentioned actions can create persistent conflicts? While norms are widely regarded as a source for cooperation, this article proposes a novel theory in which the emergence of norms can be understood as a bargaining process in which normative conflicts explain the finally emerging norm. The theory is tested with a dynamical experiment on conflicts over the consideration of equality, effort or efficiency for the distribution of joint earnings. Normative conflict is measured by the number of rejected offers in a recursive bargaining game. The emerging normative system is analyzed by feedback cycles between micro- and macro-level. It is demonstrated that more normative cues cause more normative conflict. Further, under the structural conditions of either simple or complex situations, the convergence towards a simple and widely shared norm is likely. In contrast, in moderately complex situations, convergence is unlikely and several equally reasonable norms co-exist. The findings are discussed with respect to the integration of sociological conflict theory with the bargaining concept in economic theory.
JERP #2011-016 (PDF)
Werner Güth, Hartmut Kliemt
Procedurally Fair Provision of Public Projects - An axiomatic characterization
Unanimous voting as the fundamental procedural source of political legitimacy grants veto power to each individual. We present an axiomatic characterization of a class of bidding processes to spell out the underlying egalitarian values for collective projects of a "productive state". At heart of such procedures is the determination of payments for all possible bid vectors such that equal "profits" according to bids emerge. Along with other intuitive requirements this characterizes procedurally fair bidding rules for advantageous projects of a collectivity.
JERP #2011-015 (PDF)
Alexia Gaudeula, Caterina Giannettib
The role of reciprocation in social network formation, with an application to blogging
This paper deals with the role of reciprocation in the formation of individuals' social networks. We follow the activity of a panel of bloggers over more than a year and investigate the extent to which initiating a relation brings about its reciprocation. We adapt a standard capital investment model to study how reciprocation affects the build-up of the individual social capital of bloggers, as measured by their links and interactions with others. This allows us to measure the role of content production and relationship building in the dynamics of online social networks and to distinguish between the social networking and media aspects of blogging.
updated version (2012/06)
JERP #2011-013 (PDF)
Toru Suzuki
A Strategic Selection Procedure
A decision maker (DM) wishes to select a competent candidate to fill a position. However, since the wage and task of the position is predetermined, the DM cannot use contract as a screening device. This paper formulates the problem as a class of selection problem and derives the optimal selection procedure. The key element of our selection procedure is voluntary testing. That is, unlike statistical selection procedures, the signal generating process is endogenous. Then, the optimal selection rule takes into account not only the test performances but also signaling element of the test. We analyze the selection procedure as a signaling game and derive the optimal selection rule. Moreover, the optimal size of candidate pool and the selection e¢ ciency are also analyzed. It is shown that, by making the test voluntary, the selection e¢ ciency can be dramatically improved.
JERP #2011-010 (PDF)
Linan Diao
Recognition-Based and Familiarity-Based Portfolio Strategies – An Experimental Study
Empirical evidences show that investors tend to be biased toward investing in domestic (home bias) and local (local bias) stocks. Familiarity is considered to be one of the reasons. A similar concept was proposed by Goldstein and Gigerenzer (1999, 2002), known as the recognition heuristic: "when choosing between two objects, of which only one is recognized, choose the recognized. Investors recognize or are familiar with local stocks, expect them to provide higher returns and, therefore, invest more in such stocks". We conducted an experiment in Jena, Germany to test whether subjects show local bias and use recognition-based and familiarity-based portfolio strategies. We categorized them into an experienced and an inexperienced group; in addition, we used two data periods, i.e., bull market and bear market, to see if they behave differently in the two markets. Results show that all participants invested more of their endowments in the stock market in bull rather than bear market. All participants showed greater familiarity with local stocks. However, the experienced participants only invested more in local rather than recognized and familiar stocks; on the contrary, the inexperienced participants invested more in recognized and familiar but not local stocks. Our experiment shows no evidence that familiarity is a reason for local bias.
JERP #2011-009 (PDF)
Linan Diao, Jörg Rieskamp
Reinforcement Learning in Repeated Portfolio Decisions
How do people make investment decisions when they receive outcome feedback? We examined how well the standard mean-variance model and two reinforcement models predict people's portfolio decisions. The basic reinforcement model predicts a learning process that relies solely on the portfolio's overall return, whereas the proposed extended reinforcement model also takes the risk and covariance of the investments into account. The experimental results illustrate that people reacted sensitively to different correlation structures of the investment alternatives, which was best predicted by the extended reinforcement model. The results illustrate that simple reinforcement learning is sufficient to detect correlation between investments.
JERP #2011-008 (PDF)
Katrin Schmelz
E-nstructions: A Tool for Electronic Instructions in Laboratory Experiments
E-nstructions facilitates the use of electronic instructions in computerized laboratory experiments. In this article I provide a set of guidelines for the installation and the use of E-nstructions.
updated version (2011/02)
JERP #2011-004 (PDF)
Alice Becker
Accountability and the fairness bias in the context of joint production: Effects of bonuses and opportunities
According to the accountability principle a person's fair allocation takes into account the input-relevant variables she can influence, like effort, but not the variables she cannot influence, like a randomly assigned exogenous factor. This study is based on a real effort-task experiment, where the exogenous influence is twofold: it comes either as a production factor or as a bonus. We confirm that in a base treatment, i.e in absence of exogenous factors, subjects base their allocation decisions largely on effort. When exogenous differences are present behavior changes. Whereas bonuses are largely ignored and subjects still mostly base their decisions on effort, production factors render allocations more selfish. Furthermore, we study whether accountability holds for decisions over opportunities. We apply the so-called lottery-points-method, where a binary lottery in the last experimental stage allocates the whole amount to one of the workers. We find that subjects claim more for themselves when allocating opportunities in all treatments.
JERP #2011-002 (PDF)
Ro'i Zultan, Maya Bar-Hillel, Nitsan Guy
When being wasteful appears better than feeling wasteful
"Waste not want not" expresses our culture's aversion to waste. "I could have gotten the same thing for less" is a sentiment that can diminish pleasure in a transaction. We study people's willingness to "pay" to avoid this spoiler. In one scenario, participants imagined they were looking for a rental apartment, and had bought a subscription to an apartment listing. If a cheaper subscription had been declined, respondents preferred not to discover post hoc that it would have sufficed. Specifically, they preferred ending their quest for the ideal apartment after seeing more, rather than fewer, apartments, so that the length of the search exceeds that available within the cheaper subscription. Other scenarios produced similar results. We conclude that people may sometimes prefer to be wasteful in order to avoid feeling wasteful.

Papers 2010 [back to top] Top

JERP #2010-094 (PDF)
Anastasios Koukoumelis, M. Vittoria Levati, Johannes Weisser
A voluntary contribution experiment with one-way communication and income heterogeneity
One-way communication has been found to substantially increase contributions in linear voluntary contribution mechanisms. We confirm the robustness of this result in the presence of income heterogeneity.
JERP #2010-092 (PDF)
Judith Avrahami, Werner Güth, Ralph Hertwig, Yaakov Kareev, Hironori Otsubo
Learning (Not) To Yield: An Experimental Study of Evolving Ultimatum Game Behavior
Whether behavior converges toward rational play or fair play in repeated ultimatum games depends on which player yields first. If responders concede first by accepting low offers, proposers would not need to learn to offer more, and play would converge toward unequal sharing. By the same token, if proposers learn fast that low offers are doomed to be rejected and adjust their offers accordingly, pressure would be lifted from responders to learn to accept such offers. Play would converge toward equal sharing. Here we tested the hypothesis that it is regret — both material and strategic — which determines how players modify their behavior. We conducted a repeated ultimatum game experiment with random strangers, in which one treatment does and another does not provide population feedback in addition to informing players about their own outcome. Our results show that regret is a good predictor of the dynamics of play. Specifically, we will turn to the dynamics that unfold when players make repeated decisions in the ultimatum game with randomly changing opponents, and when they learn not only about their own outcome in the previous round but also find out how the population on average has adapted to previous results (path dependence).
JERP #2010-091 (PDF)
Agnes Bäker, Werner Güth, Kerstin Pull, Manfred Stadler
Does Entitlement Crowd Out Efficiency or Equality Seeking? - Selling the Roles in Generosity Game Experiments
In generosity games, one agreement payoff is exogenously given, whereas the other is endogenously determined by the proposer's choice of the "pie" size. This has been shown to induce pie choices which are either efficiency or equality seeking. In our experiment, before playing the generosity game, participants are asked to buy their role via a random price mechanism. This should entitle them to exploit the chances which their role provides and at the same time avoid the selection bias of competitive auctions. We find that entitlement crowds out equality seeking and strengthens efficiency seeking. Interpreting participants' willingness to pay as an aspiration level of how much they want to earn, our design further allows us to test for satisficing behavior. Indeed, we find evidence for satisficing behavior in the data.

The final publication is available at http://link.springer.com/article/10.1007%2Fs11238-013-9364-5
JERP #2010-090 (PDF)
Maria Vittoria Levati, Topi Miettinen, Birendra K. Rai
Context and Interpretation in Laboratory Experiments: The Case of Reciprocity
The existing literature acknowledges that a mismatch between the experimenter's and the subjects' models of an experimental task can adversely affect the interpretation of data from laboratory experiments. We discuss why the two common experimental designs (between-subjects and within-subjects) used to conduct experiments may fail to sufficiently account for this concern. An alternative design for laboratory experiments is proposed which may alleviate this concern especially in studies of social preferences. The proposed design is used to answer some questions that have attracted continued attention in the literature on social preferences in general and reciprocity in particular.
JERP #2010-089 (PDF)
Fredrik Carlsson, Mitesh Kataria, Elina Lampi, M. Vittoria Levati
Doing good with other people's money: A charitable giving experiment with students in environmental sciences and economics
We augment a standard dictator game to investigate how preferences for an environmental project relate to willingness to limit others' choices. We explore this issue by distinguishing three student groups: economists, environmental economists, and environmental social scientists. We find that people are generally disposed to grant freedom of choice, but only within certain limits. In addition, our results are in line with the widely held belief that economists are more selfish than other people. Yet, against the notion of consumer sovereignty, economists are not less likely to restrict others' choices and impose restrictions closer to their own preferences than the other student groups.
JERP #2010-088 (PDF)
Mitesh Kataria
The Role of Preferences in Disagreements over Scientific Hypothesis: An Empirical Inquiry into Environmental and Economic Decision Making
The Porter hypothesis suggests that environmental regulations, such as restricting firms to reduce pollution, stimulates innovations and create a win-win situation for the environment and for firms. It has received a great deal of attention from academics as well as bureaucrats who disagree about the applicability of the Porter hypothesis. This study tests if part of such disagreement can be explained by a preference-expectation relationship and if people more likely to believe in a scientific hypothesis that appeals to their preferences. The results show that individuals' who care more about the environment are more likely to believe in the Porter hypothesis. Males are also found to believe more in the Porter hypothesis while females are more uncertain. Education is found to be insignificant in explaining beliefs about the Porter hypothesis. Based on our results we also discuss if and how scientific and economic methodology can mitigate a preference-expectation bias.
JERP #2010-087 (PDF)
Marco Casari, Davide Dragone
Impatience, Anticipatory Feelings and Uncertainty: A Dynamic Experiment on Time Preferences
We study time preferences in a real-effort experiment with a one-month horizon. We report that two thirds of choices suggest negative time preferences. Moreover, choice reversal over time is common even if temptation plays no role. We propose and measure three distinct concepts of choice reversal over time to study time consistency. This evidence calls for an important role for anticipatory feelings and uncertainty in intertemporal behavior.
JERP #2010-086 (PDF)
Andreas Freytag, Werner Güth, Hannes Koppel, Leo Wangler
Is Regulation by Milestones Efficiency Enhancing? An Experimental Study of Environmental Protection
Viewing individual contributions as investments in emission reduction we rely on the familiar linear public goods-game to set global reduction targets which, if missed, imply that all payoffs are destroyed with a certain probability. Regulation by milestones does not only impose a final reduction target but also intermediate ones. In our leading example the regulating agency is Mother Nature but our analysis can, of course, be applied to other regulating agencies as well. We are mainly testing for milestone effects by varying the size of milestones in addition to changing the marginal productivity of individual contributions and the probability to lose.
JERP #2010-085 (PDF)
Toru Suzuki
Negative and Positive Effects of Competition in a Preemption Game
Agents compete to acquire a limited economic opportunity of uncertain profitability. Each agent decides how much he acquires public signals before making investment under fear of preemption. I show that equilibria have various levels of efficiency under mild competition. The effect of competition on the equilibrium strategy is different depending on which class of equilibrium we focus on. However, when competitive pressure is sufficiently high, there exists a unique equilibrium. Finally, I show that the effect of competition on efficiency is different between the common value and the private value setting. Strong competition leads to the least efficient equilibrium for the common value setting but efficiency can be improved by competition in the private value setting.
JERP #2010-084 (PDF)
Toru Suzuki
Signaling with Performance and the Effect of Competition
Candidates compete to persuade a decision maker. The decision maker wishes to select a candidate who possesses a certain ability. Then, as a signaling, each candidate decides whether to perform a task whose performance statistically reflects the ability. However, since the cost of the performance is the same across all candidates, the performance is a poor signaling device. This paper analyzes a "signaling game with performance" in which the standard single crossing condition is violated. It is shown that more competition makes the equilibrium signaling more informative when the level of competition is moderate. Moreover, the equilibrium signaling can perfectly reveal the ability under a certain level of competition. On the other hand, too much competition always makes the equilibrium signaling less informative.
JERP #2010-083 (PDF)
Toru Suzuki
Competitive Problem Solving and the Optimal Prize Schemes
Agents compete to solve a problem. Each agent knows own computational capacity as private information and simultaneously chooses either a risky or a safe problem solving method. This paper analyzes the optimal prize schemes from the perspective of the prize designer who wishes to find a solution as quick as possible. It is shown that (i) the winner-take-all scheme can induce excessive risk taking and make problem solving slower (ii) prize schemes with milder competitive pressure induce the optimal risk taking and quicker problem solving.
JERP #2010-082 (PDF)
René Levínský, Abrahan Neyman, Miroslav Zelený
Should I remember more than you? On the best response to factor-based strategies
In this paper we offer a new approach to modeling strategies of bounded complexity, the so-called factor-based strategies. In our model, the strategy of a player in the multi-stage game does not directly map the set of histories H to the set of her actions. Instead, the player's perception of H is represented by a factor φ : H → X; where X reflects the "cognitive complexity" of the player. Formally, mapping φ sends each history to an element of a factor space X that represents its equivalence class. The play of the player can then be conditioned just on the elements of the set X. From the perspective of the original multi-stage game we say that a function φ from H to X is a factor of a strategy σ if there exists a function ω from X to the set of actions of the player such that σ = ω ◦ φ. In this case we say that the strategy σ is φ-factor-based. Stationary strategies and strategies played by finite automata and strategies with bounded recall are the most prominent examples of factor-based strategies. In the discounted infinitely repeated game with perfect monitoring, a best reply to a profile of φ-factor-based strategies need not be a φ-factor-based strategy. However, if the factor φ is recursive, namely its value φ(a1,..., at) on a finite string of action profiles (a1,..., at) is a function of φ(a1,...,at-1) and at, then for every profile of factor-based strategies there is a best reply that is a pure factor-based strategy. We also study factor-based strategies in the more general case of stochastic games.
JERP #2010-081 (PDF)
Tobias Regner
Why Consumers Pay Voluntarily: Evidence from Online Music
Customers at the online music label Magnatune can pay what they want for albums, as long as the payment is within a given price range ($5-$18). Magnatune recommends to pay $8, and on average customers paid $8.20 (Regner and Barria, 2009). We ran an online survey and collected responses from 227 frequent Magnatune customers to gain insights about the underlying motivations to pay more than necessary. We control for individual response- and sample selection-bias, and find that reciprocity and guilt appear to be the major drivers for generous voluntary payments. Being inclined to follow social norms is a positive determinant for payments around the recommended price.
JERP #2010-077 (PDF)
Astrid Matthey, Tobias Regner
Do I really want to know? A cognitive dissonance-based explanation of other-regarding behavior
We investigate to what extent genuine social preferences can explain observed other-regarding behavior. In a dictator game variant subjects can choose whether to learn about the consequences of their choice for the receiver. We find that a majority of subjects showing other-regarding behavior when the payoffs of the receiver are known, choose to ignore these consequences if possible. This behavior is inconsistent with preferences about outcomes. Other-regarding behavior may also be explained by avoiding cognitive dissonance as in Konow (2000). Our experiment's choice data is in line with this approach. In addition, we successfully relate individual behavior to proxies for cognitive dissonance.
JERP #2010-076 (PDF)
Fredrik Carlsson, Mitesh Kataria, Alan Krupnick, Elina Lampi, Åsa Löfgren, Ping Qin, Thomas Sterner, Susie Chung
The Truth, the Whole Truth, and Nothing but the Truth: A Multiple Country Test of an Oath Script
Hypothetical bias is one of the main issues bedeviling the field of nonmarket valuation. The general criticism is that survey responses reflect how people would like to behave, rather than how they actually behave. In our study of climate change and emissions reductions, we took advantage of the increasing bulk of evidence from psychology and economics that addresses the effects of making promises, in order to investigate the effect of an oath script in a contingent valuation survey. The survey was conducted in Sweden and China, and its results indicate that an oath script has significant effects on respondent behavior in answering willingness-to-pay (WTP) questions, some of which vary by country. In both countries, the share of zero WTP responses and extremely high WTP responses decreases when an oath script is used, which also results in lower variance. In China, the oath script also reduces the average WTP, cutting it by half in certain instances. We also found that the oath script has different impacts on various respondent groups. For example, without the oath script, Communist party members in China are more likely than others to have a positive WTP for emissions reductions, but with the oath script, there is no longer any difference between the groups.
JERP #2010-074 (PDF)
Fredrik Carlsson, Mitesh Kataria, Alan Krupnick, Elina Lampi, Åsa Löfgren, Ping Qin, Thomas Sterner, Susie Chung
A Fair Share – Burden-Sharing Preferences in the United States and China
Using a choice experiment, we investigated preferences for distributing the economic burden of decreasing CO2 emissions in the two largest CO2-emitting countries: the United States and China. We asked respondents about their preferences for four burden-sharing rules to reduce CO2 emissions according to their country's 1) historical emissions, 2) income level, 3) equal right to emit per person, and 4) current emissions. We found that U.S. respondents preferred the rule based on current emissions, while the equal right to emit rule was clearly least preferred. The Chinese respondents, on the other hand, preferred the historical rule, while the current emissions rule was the least preferred. Respondents overall favored the rule that was least costly for their country. These marked differences may explain the difficulties countries face in agreeing how to share costs, presenting a tough hurdle to overcome in future negotiations. We also found that the strength of the preferences was much stronger in China, suggesting that how mitigation costs are shared across countries is more important there.
JERP #2010-073 (PDF)
Werner Güth, M. Vittoria Levati, Matteo Ploner
Does procedural fairness crowd out other-regarding concerns? A bidding experiment
Bidding rules that guarantee procedural fairness may induce more equilibrium bidding and moderate other-regarding concerns. In our experiment, we assume commonly known true values and only two bidders to implement a best-case scenario for other-regarding concerns. The two-bytwo factorial design varies ownership of the single indivisible commodity (an outside seller versus collective ownership) and the price rule (first versus second price). Our results indicate more equilibrium behavior under the procedurally fair price rule, what, however, does not completely crowd out equality and efficiency seeking.
JERP #2010-072 (PDF)
Tobias Regner, Nicole S. Harth
Other-regarding behaviour: Testing guilt- and reciprocity-based models
We analyse two types of belief-dependant models of social preferences: guilt aversion and reciprocity. In particular, we test the relevance of their input variables (second-order beliefs and general dispositions for guilt/reciprocity). The data confirm the predictions of belief-dependant models. Both second-order beliefs and a participant's sensitivity to guilt/reciprocity are relevant for the decisions taken. Second-order beliefs appear to have an inverse U-shaped effect on the extent of kind behaviour.
updated version (2011/02)
JERP #2010-071 (PDF)
Thorsten Chmura, Werner Güth, Thomas Pitz, Anthony Ziegelmeyer
The Minority of Three-Game: An Experimental and Theoretical Analysis
We report experimental and theoretical results on the minority of three-game where three players have to choose one of two alternatives independently and the most rewarding alternative is the one chosen by a single player. This coordination game has many asymmetric equilibria in pure strategies that are non strict and payoff-asymmetric, and a unique symmetric mixed strategy equilibrium in which each player's behavior is based on the toss of a fair coin. We show that such a straightforward behavior is predicted by Harsanyi and Selten's (1988) equilibrium selection theory as well as alternative solution concepts like impulse balance equilibrium and sampling equilibrium. Our results indicate that participants rely on various decision rules, and that only a quarter of them decide according to the toss of a fair coin. Reinforcement learning is the most successful decision rule as it describes best the behavior of about a third of our participants.
JERP #2010-068 (PDF)
David Hugh-Jones, David Reinstein
Losing Face
When person A makes an offer to person B and B rejects it, then A may "lose face". This loss of face is assumed to occur only if B knows for sure of A's offer. While under some circumstances loss of face can be rationalized by the consequences for future reputation, it may also enter directly into the utility function. Loss of face concerns can lead to fewer offers and inefficiency in markets that involve matching, discrete transactions, and offers/proposals in both directions, such as the marriage market, certain types of labor markets, admissions to colleges and universities, and joint ventures and collaborations. We offer a simple model of this, and show that under some circumstances welfare can be improved by a mechanism that only reveals offers when both parties say "yes".
JERP #2010-066 (PDF)
David Hugh-Jones, Martin A. Leroch
Group Reciprocity
People exhibit group reciprocity when they retaliate, not against the person who harmed them, but against somebody else in that person's group. Group reciprocity may be a key motivation behind intergroup conflict. We investigated group reciprocity in a laboratory experiment. After a group identity manipulation, subjects played a Prisoner's Dilemma with others from different groups. Subjects then allocated money between themselves and others, learning the group of the others. Subjects who knew that their partner in the Prisoner's Dilemma had defected became relatively less generous to people from the partner's group, compared to a third group. We use our experiment to develop hypotheses about group reciprocity and its correlates.
JERP #2010-065 (PDF)
Andreas Leibbrandt, Lauri Sauri Sääksvuori
More than Words: Communication in Intergroup Conflicts
Numerous studies suggest that communication may be a universal means to mitigate collective action problems. In this study, we challenge this view and show that the communication structure crucially determines whether communication mitigates or intensifies the problem of collective action. We observe the effect of different communication structures on collective action in the context of finitely repeated intergroup conflict and demonstrate that conflict expenditures are significantly higher if communication is restricted to one's own group as compared to a situation with no communication. However, expenditures are significantly lower if open communication within one's own group and between rivaling groups is allowed. We show that under open communication intergroup conflicts are avoided by groups taking turns in winning the contest. Our results do not only qualify the role of communication for collective action but may also provide insights on how to mitigate the destructive nature of intergroup conflicts.
JERP #2010-064 (PDF)
David Hugh-Jones, Ro'i Zultan
Brothers in Arms: Cooperation in Defence
In experiments, people behave more cooperatively when they are aware of an external threat, while in the field, we observe surprisingly high levels of cooperation and altruism within groups in conflict situations such as civil wars. We provide an explanation for these phenomena. We introduce a model in which different groups vary in their willingness to help each other against external attackers. Attackers infer the cooperativeness of a group from its members' behaviour under attack, and may be deterred by a group which bands together against an initial attack. Then, even self-interested individuals may behave cooperatively when threatened, so as to mimic more cooperative groups. By doing so, they drive away attackers and increase their own future security. We argue that a group's reputation is a public good with a natural weakest-link structure. We test the implications of our model in a laboratory experiment.
JERP #2010-062 (PDF)
Franz Buscha, Anna Conte
The Impact of Truancy on Educational Attainment: A Bivariate Ordered Probit Estimator with Mixed Effects
This paper investigates the relationship between educational attainment at age 16 and truancy. Using data from the Youth Cohort Study of England and Wales, we estimate the causal impact that truancy has on GCSE examination outcomes. Problematic is that both truancy and attainment are measured as ordered responses requiring a bivariate ordered probit model to account for the potential endogeneity of truancy. Furthermore, we extent the 'naïve' bivariate ordered probit estimator to include mixed effects which allows us to estimate the distribution of the truancy effect on educational attainment. This estimator offers a more flexible parametric setting to recover the causal effect of truancy on education and results suggest that the impact of truancy on education is indeed more complex than implied by the naïve estimator.
JERP #2010-061 (PDF)
Li King King
Thinking in Chinese vs. Thinking in English: Social Preference and Risk Attitudes of Multicultural Minds
This paper investigates whether language priming activates different cultural identities and norms associated with the language communicated with respect to social preference and risk attitudes. Our contribution is on identifying the conditions where there will be language priming effects. We conduct 10 economic games with bilingual subjects using Chinese and English as instructions. It is found that language priming affects social preference, but only in context involving strategic interactions. In social preference games involving strategic interactions, e.g., the trust game, subjects in the Chinese treatment are more trusting and trustworthy. In individual choice games, such as the dictator game, there is no treatment difference. Further, we also find that language priming affects risk attitudes. Subjects in the Chinese treatment prefer to pick Chinese lucky numbers in Mark Six lottery. These findings suggest that the effect of language priming is context dependent.
JERP #2010-058 (PDF)
Gerlinde Fellner, Sebastian Krügel
Overweighting Private Information: Three Measures, One Bias?
Overweighting private information is often used to explain various detrimental decisions. In behavioral economics and finance, it is usually modeled as a direct consequence of misperceiving signal reliability. This bias is typically dubbed overconfidence and linked to the judgment literature in psychology. Empirical tests of the models often fail to find evidence for the predicted effects of overconfidence. These studies assume, however, that a specific type of overconfidence, i.e., "miscalibration", captures the underlying trait. We challenge this assumption and borrow the psychological methodology of single-cue probability learning to obtain a direct measure for overweighting private information. We find that overweighting private information and measures of "miscalibration" are unrelated, indicating that different kinds of misperceptions are at work. Thus, in order to test the theoretical predictions of the overconfidence literature in economics and finance, one cannot rely on the well-established "miscalibration" bias. We find no gender differences in overconfidence for our measures except for one, where women are more overconfident than men.
JERP #2010-055 (PDF)
Matthias Uhl
Do Self-Committers Mind Commitment by Others? An Experiment on Weak Paternalism
Weak paternalism commits protégés to their own plans. This experiment addresses the question of whether protégés judge weakly paternalistic acts primarily by means of their consequences or on principle grounds. Subjects receive a reward for showing up to the laboratory early the next morning which decreases in time. Protégés can either self-commit to a planned time or self-liberate by preserving spontaneity. By making this binary choice protégés express their preference regarding liberty. Simultaneously, another subject is either paternalistic or liberal by making an analogous choice for them. We analyze protégés' attitudes toward both policy styles via costly reward choices. If only consequences matter, self-committers should appreciate paternalism while self-liberators should condemn it. A deontological aversion against paternalism would negate a difference between both groups. Differing judgments constitute a consequentialist pattern. However, this pattern is driven by self-liberators' clear judgments. For self-committers also a norm of noninterference into others' liberty can be identified.
JERP #2010-053 (PDF)
Jianying Qiu, Eva-Maria Steiger
Understanding the Two Components of Risk Attitudes: An Experimental Analysis
Cumulative Prospect Theory (PT) introduced the weighting of probabilities as an additional component to capture risk attitudes. However, this addition would be a less signifficant challenge to expected utility theory (EU) if utility curvature and probability weighting showed strong positive correlation. In that case the utility curvature in EU alone, while not properly describing risky behavior in general, would still capture most of the variance of individual risk aversion. This study provides experimental evidence that such a strong and positive correlation does not exist. Although most individuals exhibit concave utility and convex probability weighting, the two components show no strong positive correlation.
JERP #2010-047 (PDF)
Katrin Schmelz
E-nstructions: Using Electronic Instructions in Laboratory Experiments
E-nstructions facilitates the use of electronic instructions in computerized laboratory experiments. This tool has been primarily designed to be used in combination with z-Tree (Fischbacher, 2007), but it should work in combination with other experimental softwares which help developing and conducting experiments. This article provides a set of guidelines for the installation and the use of E-nstructions.
JERP #2010-046 (PDF)
Ola Andersson, Marieke Huysentruyt, Topi Miettinen, Ute Stephan
Productivity in Contests: Organizational Culture and Personality Effects
We study the interaction of organizational culture and personal prosocial orientation in team work where teams compete against each other. In a computerized lab experiment with minimal group design, we assign subjects to two alternative subliminally primed organizational cultures emphasizing either self-enhancement or self-trancendence. We find that effort is highest in self-trancendent teams and prosocially oriented subjects perform better than proself-oriented under that culture. In any other value-culture-mechanism constellation, performance is worse and/or prosocials and proselves do not differ in provided effort. These findings point out the importance of a 'triple-fit' of preferences, organizational culture and incentive mechanism.
JERP #2010-042 (PDF)
Anna Conte, Peter G. Moffatt
The econometric modeling of social Preferences
Experimental data on social preferences present a number of features that need to be incorporated in econometric modelling. We explore a variety of econometric modelling approaches to the analysis of such data. The approaches under consideration are: the random utility approach (in which it is assumed that each possible action yields a utility with a deterministic and a stochastic component, and that the individual selects the action yielding the highest utility); the random behavioural approach (which assumes that the individual computes the maximum of a deterministic utility function, and that computational error causes their observed behaviour to depart stochastically from this optimum); and the random preference approach (in which all variation in behaviour is attributed to stochastic variation in the parameters of the deterministic component of utility). These approaches are applied in various ways to an experiment on fairness conducted by Cappelen et al. (2007). At least two of the models that we estimate succeed in capturing the key features of the data set.
JERP #2010-041 (PDF)
Andreas Haupt, Tobias Uske
Effects of Information on Intentionality Attributions and Judgments - Punishing Negligence and Praising the Caring for Information
Understanding how observers attribute intentionality to people in the focus of their attention helps in shedding light on punishment behavior. In this paper we approach impartial observers' attributions of intentionality and the attachment of praise and blame to perpetrators of external effects. In line with findings of Joshua Knobe (Knobe, 2003, 2006), we argue that intentionality attributions to these perpetrators are more likely, if observers consider the externality as morally bad instead of good. Due to this asymmetry, people punish the perpetrators of negative externalities more severely than they reward those of positive ones. In this paper we extend this explanation of the praise-blame bias by arguing that not only moral considerations but also the information setting of perpetrators of externalities are taken into account by observers. To that end, we analyze the answers to vignettes of 240 undergraduate students of Friedrich Schiller University of Jena. We take advantage of ordinary least square, logistic, and multinomial-logistic regression models to predict increases in chances to attribute intentionality and to attach praise or blame. We show that the awareness of, and the caring for, information related to the side effects of actions crucially affect the judgments of impartial observers.
JERP #2010-040 (PDF)
Fernando Aguiar, Alice Becker, Luis Miller
Whose impartiality? An experimental study of veiled stakeholders, impartial spectators and ideal observers
This article defines in a precise manner three different mechanisms to achieve impartiality in distributive justice and studies them experimentally. We consider a first-person procedure, the Rawlsian veil of ignorance, and two third-party procedures, the impartial spectator and the ideal observer. As a result, we find striking differences in the chosen outcome distributions by the three methods. Ideal observers that do not have a stake in the allocation problem nor information about their position in society propose significantly more egalitarian distributions than veiled stakeholders or impartial spectators. Risk preferences seem to explain why participants that have a stake in the final allocation propose less egalitarian distributions. Impartial spectators that are informed about their position in society tend to favor stakeholders holding the same position.
JERP #2010-039 (PDF)
Werner Güth, René Levínský, Kerstin Pull, Ori Weisel
Tournaments and Piece Rates Revisited: A Theoretical and Experimental Study of Premium Incentives
Tournaments represent an increasingly important component of organizational compensation systems. While prior research focused on fixed-prize tournaments, i.e., on tournaments where the prize or prize sum to be awarded is set in advance, we introduce a new type of tournament into the literature: premium incentives. While premium incentives, just like fixed-prize tournaments, are based on relative performance, the prize to be awarded is not set in advance but is a function of the firm's success: the prize is high if the firm is successful and low if it is not successful. Relying on a simple model of cost minimization, we are able to show that premium incentives outperform fixed-prize tournaments as well as piece rates. Our theoretical result is qualitatively confirmed by a controlled laboratory experiment and has important practical implications for the design of organizational incentive systems.
JERP #2010-038 (PDF)
Ben Greiner, Werner Güth, Ro'i Zultan
Social Communication and Discrimination: A Video Experiment
We report on an experiment using video technology to manipulate pre-play communication protocols in the lab and to study purely social effects of communication on donations and discrimination between potential receivers. The experimental design eliminates strategic factors by allowing two receivers to unilaterally communicate with an anonymous dictator before the latter decides on her gifts. Through the use of three communication setups (none, audio, and audio-visual) we show and analyze the existence of purely social effects of communication. We find that a silent channel leads to discrimination between potential receivers based on impression formation, but does not affect average levels of donations. When the auditory channel is added, average donations increase. The social processes invoked are heterogeneous and communicator-specific but not unsystematic.
JERP #2010-037 (PDF)
Florian Artinger, Filippos Exadaktylos, Hannes Koppel, Lauri Sääksvuori
Unraveling Fairness in Simple Games? The Role of Empathy and Theory of Mind
Economists have been theorizing that other-regarding preferences influence decision making. Yet, what are the corresponding psychological mechanisms that inform these preferences in laboratory games? Empathy and Theory of Mind (ToM) are dispositions considered to be essential in social interaction. We investigate the connection between an individual's preference type and her disposition to engage in empathy and ToM in neutrally framed Dictator and Ultimatum Game. For that purpose, cognitive and emotional psychometric scales are applied to infer the dispositions of each subject. We find that a disposition for empathy does not influence the behavior in the games. ToM positively correlates with offers in the Dictator Game. Integral to ToM are beliefs about others. Both, other-regarding and selfish types, show a strong correlation between what they belief others do and their own action. These results indicate that expectations about the prevalent social norm might be central in informing behavior in one-shot games.
JERP #2010-036 (PDF)
Vera Popova
What renders financial advisors less treacherous? – On commissions and reciprocity
An advisor is supposed to recommend a financial product in the best interest of her client. However, the best product for the client may not always be the product yielding the highest commission (paid by product providers) to the advisor. Do advisors nevertheless provide truthful advice? If not, will a voluntary or obligatory payment by a client induce more truthful advice? According to the results, only the voluntary payment reduces the conflict of interest faced by advisors.
JERP #2010-035 (PDF)
M. Vittoria Levati, Matthias Uhl, Ro'i Zultan
Imperfect Recall and Time Inconsistencies: An experimental test of the absentminded driver "paradox"
Absentmindedness is a special case of imperfect recall that according to Piccione and Rubinstein (1997b) may lead to time inconsistencies, since the optimal strategy of an absentminded player, as calculated before entering the game tree, is not consistent with maximization of expected payoffs given consistent beliefs once called upon to act. Aumann, Hart and Perry (1997a) question their analysis and argue that optimization at the action stage must be carried out with respect to the strategy at the current node only, hence resolving the possible dynamic inconsistency. The present paper explores this issue from a behavioral point of view by creating an experimental game involving absentmindedness. Participants' strategies are elicited separately in a planning stage and in an action stage in different games sharing the same game form. The behavior observed in the experiment exhibits time inconsistencies, as suggested by Piccione and Rubinstein's analysis. We introduce a cognitive principle, which best explains the data.
updated version (2011/07)
JERP #2010-022 (PDF)
Werner Güth, Lauri Sääksvuori
The Provision of Public Goods with Positive Group Interdependencies
This article examines the nature of human behavior in a nested social dilemma referred to as the Spillover Game. Players are divided into two groups with positive production interdependencies. Based on theoretically derived opportunistic, local, and global optima, our experimental results demonstrate the importance of in-group beneficiaries over global efficiency. We find that the observed behavior is primarily determined by an imperfect conditional cooperation that prioritizes local level feedback. Results stress the importance of building strong local level commitment to encourage the provision of public goods with positive externalities.
JERP #2010-021 (PDF)
Florian Artinger, Filippos Exadaktylos, Hannes Koppel, Lauri Sääksvuori
Applying Quadratic Scoring Rule transparently in multiple choice settings: A note
The quadratic scoring rule (QSR) is often used to guarantee an incentive compatible elicitation of subjective probabilities over events. Experimentalists have regularly not been able to ensure that subjects fully comprehend the consequences of their actions on payoffs given the rules of the games. In this note, we present a procedure that allows the transparent use of the QSR even in multiple-choice scenarios. For that purpose, two methodological means are applied: an alternative representation of the score and a short learning period to familiarize subjects with the payoff mechanism. The results suggest that both means were necessary and successful in facilitating subjects' understanding of the rule.
JERP #2010-019 (PDF)
Fredrik Carlsson, Mitesh Kataria, Elina Lampi, Åsa Löfgren, Thomas Sterner
Is Fairness Blind? – The effect of framing on preferences for effort-sharing rules
By using a choice experiment, this paper focuses on citizens' preferences for effort-sharing rules of how carbon abatement should be shared among countries. We find that Swedes do not rank the rule favoring their own country highest. Instead, they prefer the rule where all countries are allowed to emit an equal amount per person, a rule that favors Africa at the expense of high emitters such as the U.S. The least preferred rule is reduction proportional to historical emissions. Using two different treatments, one where the respondents were informed about the country names and one where the country names were replaced with anonymous labels A-D, we also test whether people's preferences for effort-sharing rules depend on the framing of the problem. We find that while the ranking of the principles is the same in both treatments, the strength of the preferences is significantly increased when the actual names of the countries are used.
JERP #2010-018 (PDF)
Werner Güth, Kerstin Pull, Manfred Stadler, Agnes Stribeck
Equity versus Efficiency? – Evidence from Three-Person Generosity Experiments –
In two-person generosity games the proposer's agreement payoff is exogenously given whereas that of the responder is endogenously determined by the proposer's choice of the pie size. Earlier results for two-person generosity games show that participants seem to care more for efficiency than for equity. In three-person generosity games equal agreement payoffs for two of the players are either exogenously excluded or imposed. We predict that the latter crowds out - or at least weakens - efficiency seeking. Our treatments rely on a 2x3 factorial design differing in whether the responder or the third (dummy) player is the residual claimant and whether the proposer's agreement payoff is larger, equal, or smaller than the other exogenously given agreement payoff.
JERP #2010-016 (PDF)
Werner Güth, Martin G. Kocher, Vera Popova
Co-employment of permanently and temporarily employed agents
One-shot interaction and repeated interaction often co-exist in the real world. We study possible behavioral effects of this co-existence in a principal-agent setting, in which a principal simultaneously employs a permanent and a temporary agent. Our experimental results indicate that there is "discrimination" between the two agents and that the available information for agents determines the extent of this discrimination, even though the theoretical solution of the game implies equal treatment of agents. Discrimination is, thus, a consequence of reciprocity. Agents that are discriminated against react negatively by withholding effort.
JERP #2010-014 (PDF)
Werner Güth
Rules (of Bidding) to Generate Equal Stated Profits - An Axiomatic Approach
Although one may hope to achieve equality of stated profits without enforcing it, one may not trust in such voluntary equality seeking and rather try to impose rules (of bidding) guaranteeing it. Our axiomatic approach is based on envy-free net trades according to bids which, together with the equality requirement, characterize the first-prize auction and fair division game.
JERP #2010-013 (PDF)
Charlotte Klempt, Kerstin Pull
Committing to Incentives: Should the Decision to Sanction be Revealed or Hidden?
Sanctions are widely used to promote compliance in principal-agent-relationships. While there is ample evidence confirming the predicted positive incentive effect of sanctions, it has also been shown that imposing sanctions may in fact reduce compliance by crowding-out intrinsic motivation. We add to the literature on the hidden costs of control by showing that these costs are restricted to situations where principals ex ante reveal their decision to sanction low compliance. If this decision is not revealed and agents do not know whether they will be sanctioned or not in case of low compliance, we do not find evidence of crowding-out - not even in those cases where agents firmly believe that they will be sanctioned in case of low performance.
JERP #2010-007 (PDF)
Matteo Ploner, Katrin Schmelz, Anthony Ziegelmeyer
Hidden Costs of Control: Three Repetitions and an Extension
We report three repetitions of Falk and Kosfeld's (2006) low and medium control treatments with 364 subjects. Each repetition employs a sample drawn from a standard subject pool of students and demographics vary across samples. Our results largely conflict with those of the original study. We mainly observe hidden costs of control of low magnitude that lead to low-trust principal-agent relationships. Our subjects were asked, at the end of the experimental session, to complete a questionnaire in which they had to state their work motivation in hypothetical scenarios. Our questionnaires are identical to the ones administered in Falk and Kosfeld's (2006) questionnaire study. In contrast to the game play data, our questionnaire data are similar to those of the original questionnaire study. In an attempt to solve this puzzle, we report an extension with 228 subjects where performance-contingent earnings are absent i.e. both principals and agents are paid according to a flat participation fee. We observe that hidden costs outweigh benefits of control which shows that control aversion is more prevalent under hypothetical than under real incentives. Still, in the low control treatment, we observe much weaker negative responses to control in our extension than in the original study. This observation, the fact that the original study uses real incentives, and preliminary findings on the relationship between demographics and the degree of control aversion lead us to conclude that Falk and Kosfeld's (2006) experimental regularities originate from the characteristics of their subjects.
JERP #2010-004 (PDF)
Li King King
Preference towards Control in Risk Taking: Control, No Control, or Randomize?
This paper experimentally investigates preference towards different methods of control in risk taking. Participants are asked to choose between different ways for choosing which numbers to bet on for a gamble. They can choose the numbers themselves (control), let the experimenter choose (no control), or randomize. It is found that in addition to the more conventional preference for control, some participants prefer not to control, or randomization. These preferences are robust as participants are willing to pay a small amount of money to implement their preferred method. Most of the participants believe that the winning probability under different methods is the same. Thus, their preferences are not driven by bias in probability belief such as those induced by illusion of control. Participants tend to invest less in the risky gamble when they are not offered their preferred method.
updated version (2010/08)
JERP #2010-003 (PDF)
Mitesh Kataria, Jason F. Shogren
Incomplete Preferences in Choice Experiments: A note on avoidable noise and bias in welfare estimates
How does a choice experiment (CE) model derived under standard preference axioms perform for respondents with incomplete preferences? Using simulated data, we show how such miss-specification results in unnecessary noise and bias in welfare estimates, and can be avoided.

Papers 2009 [back to top] Top

JERP #2009-107 (PDF)
Sven Fischer, Eva-Maria Steiger
Exploring the Effects of Unequal and Secretive Pay
We experimentally test whether intentional and observable discriminatory pay of symmetric agents in the Winter (2004) game causes low paid agents to reduce effort. We control for intentionality of wages by either allowing a principal to determine wages or by implementing a random process. Our main observations are that discrimination has no negative effect on efforts and principals do not shy away from using discriminatory pay if it is observable. Rather, with experience discrimination enhances efficiency as it facilitates coordination among agents. The only evidence for reciprocity is that subjects receiving a low payment from a principal (discriminatory or not) exert signifficantly less effort.
JERP #2009-106 (PDF)
Anastasios Koukoumelis, M. Vittoria Levati, Johannes Weisser
Leading by Words: A Voluntary Contribution Experiment With One-Way Communication
In this paper, we study a voluntary contribution mechanism with one-way communication. The relevance of one person's words is assessed by assigning exogenously the role of the 'communicator' to one group member. Contrary to the view that the mutual exchange of promises is necessary for the cooperation-enhancing effect of communication, we find that, compared to a standard voluntary contribution mechanism with no communication, one-way communication significantly increases contributions and renders them stable over time. Moreover, the positive effects of one-way communication persist even when communication is one-shot.
updated version (2010/07)
JERP #2009-105 (PDF)
Christoph March, Anthony Ziegelmeyer
Behavioral Social Learning
We revisit the economic models of social learning by assuming that individuals update their beliefs in a non-Bayesian way. Individuals either overweigh or underweigh (in Bayesian terms) their private information relative to the public information revealed by the decisions of others and each individual's updating rule is private information. First, we consider a setting with perfectly rational individuals with a commonly known distribution of updating rules. We show that introducing heterogeneous updating rules in a simple social learning environment reconciles equilibrium predictions with laboratory evidence. Additionally, a model of social learning with bounded private beliefs and sufficiently rich updating rules corresponds to a model of social learning with unbounded private beliefs. A straightforward implication is that heterogeneity in updating rules is efficiency-enhancing in most social learning environments. Second, we investigate the implications of heterogeneous updating rules in social learning environments where individuals only understand the relation between the aggregate distribution of decisions and the state of the world. Unlike in rational social learning, heterogeneous updating rules do not lead to a substantial improvement of the societal welfare and there is always a non-negligible likelihood that individuals become extremely and wrongly confident about the state of the world.
JERP #2009-104 (PDF)
Anna Conte, Peter G. Moffatt, Fabrizio Botti, Daniela T. Di Cagno, Carlo D´Ippoliti
A Test of the Rational Expectations Hypothesis using data from a Natural Experiment
Data on contestants' choices in Italian Game Show Affari Tuoi are analysed in a way that separates the effect of risk attitude (preferences) from that of beliefs concerning the amount of money that will be offered to contestants in future rounds. The most important issue addressed in the paper is what belief function is actually being used by contestants. The parameters of this function are estimated freely along with the parameters of a choice model. Separate identification of the belief function and preferences is possible by virtue of the fact that at a certain stage of the game, beliefs are not relevant, and risk attitude is the sole determinant of choice. The rational expectations hypothesis is tested by comparing the estimated belief function with the "true" offer function which is estimated using data on offers actually made to contestants. We find that there is a significant difference between these two functions, and hence we reject the rational expectations hypothesis. However, when a simpler "rule-of-thumb" structure is assumed for the belief function, we find a correspondence to the function obtained from data on actual offers. Our overall conclusion is that contestants are rational to the extent that they make use of all available relevant information, but are not fully rational because they are not processing the information in an optimal way. The importance of belief-formation is confirmed by the estimation of a mixture model which establishes that the vast majority of contestants are forward-looking as opposed to myopic.
JERP #2009-103 (PDF)
Franz Buscha, Anna Conte
A Bivariate Ordered Probit Estimator with Mixed Effects
In this paper, we discuss the derivation and application of a bivariate ordered probit model with mixed effects. Our approach allows one to estimate the distribution of the effect (gamma) of an endogenous ordered variable on an ordered explanatory variable. By allowing gamma to vary over the population, our estimator offers a more flexible parametric setting to recover the causal effect of an endogenous variable in an ordered choice setting. We use Monte Carlo simulations to examine the performance of the maximum likelihood estimator of our system and apply this to a relevant example from the UK education literature.
JERP #2009-098 (PDF)
Mitesh Kataria, Tobias Regner
A note on the relationship between television viewing and individual happiness
In a recently published article, Bruni and Stanca (2008) suggest that television viewing has a negative impact on life satisfaction. In this note we argue that the empirical approach they use (an approach that omits the main effect of TV viewing in life satisfaction) is problematic. We estimate a microeconomic life satisfaction function and find mixed support for the claim that television viewing in general has a negative impact on individual happiness. Using a large cross-country comparison we find that there is a substantial heterogeneity across countries, which needs to be taken into account when concluding about television's effect on life satisfaction.
JERP #2009-096 (PDF)
Maija Halonen-Akatwijuka, Tobias Regner
Digital Technology and the Allocation of Ownership in the Music Industry
We apply the property rights theory of Grossman-Hart-Moore in the music industry and study the optimal allocation of copyright between the artists who create music and the labels who promote and distribute it. Digital technology opens up a role for new intermediaries. We find that entry of online platforms occurs only if they are sufficiently more productive in distribution than the incumbent label. Furthermore, entry leads to a change in bargaining positions and it can become optimal for the copyright to be shifted from the label to the artist.
JERP #2009-095 (PDF)
Anna Conte, Daniela Di Cagno, Emanuela Sciubba
Strategies in Social Network Formation
We run a computerised experiment of network formation where all connections are beneficial and only direct links are costly. Players simultaneously submit link proposals; a connection is made only when both players involved agree. We use both simulated and experimentally generated data to test the determinants of individual behaviour in network formation. We find that approximately 40% of the network formation strategies adopted by the experimental subjects can be accounted for as best responses. We test whether subjects follow alternative patterns of behaviour and in particular if they: propose links to those from whom they have received link proposals in the previous round; propose links to those who have the largest number of direct connections. We find that together with best response behaviour, these strategies explain approximately 75% of the observed choices. We estimate individual propensities to adopt each of these strategies, controlling for group effects. Finally we estimate a mixture model to highlight the proportion of each type of decision maker in the population.
JERP #2009-094 (PDF)
Siegfried Berninghaus, Sabrina Bleich, Werner Güth
Going on the Long Race? – Employment Duration and (De)Regulation of Experimental Stochastic Labor Markets
If the future market wage is uncertain, engaging in long-term employment is risky, with the risk depending on how regulated the labor market is. In our experiment long-term employment can result either from offering long-term contracts or from repeatedly and mutually opting for rematching. Treatments differ in how regulations restrict the employer's exibility in adapting the employment contract to changes of the market (wage). All treatments allow for longer contract duration as well as for mutually opting to be rematched. Effort is chosen by employees after a contract is concluded. Treatments vary from no exibility to no restriction at all. Will more (downward) exibility be used in ongoing employment but reduce efficiency? If so, deregulation may weaken rather than promote labor market efficiency. And will regulation crowd out long{term employment, either in the form of long{term contracts or voluntary rematching?
JERP #2009-090 (PDF)
Alice Becker, Tobias Brünner
Bidding in common value fair division games: The winner's curse or even worse?
A unique indivisible commodity with an unknown common value is owned by group of individuals and should be allocated to one of them while compensating the others monetarily. We study the so-called fair division game (Güth, Ivanova-Stenzel, Königstein, and Strobel (2002, 2005)) theoretically and experimentally for the common value case and compare our results to the corresponding common value auction. Whereas symmetric risk neutral Nash equilibria are rather similar for both games, behavior differs strikingly. Implementing auctions and fair division games in the lab in a repeated setting under first- and second-price rule, we find that overall behavior is much more dispersed for the fair division games than for the auctions. Winners' profit margins and shading rates are on average slightly lower for the fair division game. Moreover, we find that behavior in the fair division game separates into extreme overand underbidding.
JERP #2009-089 (PDF)
Fredrik Carlsson, Mitesh Kataria, Elina Lampi
Dealing with ignored attributes in choice experiments on valuation of Sweden's environmental quality objectives
Using a choice experiment, this paper investigates how Swedish citizens value three environmental quality objectives. In addition, a follow-up question is used to investigate whether respondents ignored any attributes when responding. The resulting information is used in the model estimation by restricting the individual parameters for the ignored attributes to zero. When taking the shares of respondents who considered both the environmental and the cost attributes (52-69 percent of the respondents) into account, then the WTPs for each attribute change if the respondents who ignored the attributes have a zero WTP. At the same time, we find evidence that not all respondents who claimed to have ignored an attribute really did. However, the most commonly ignored non-monetary attributes always have the lowest rankings in terms of WTP across all three environmental objectives. Thus, our results show that instead of ignoring, respondents seem to put less weight on the attributes they claimed to have ignored.
JERP #2009-088 (PDF)
Jianying Qiu, Eva-Maria Steiger
Understanding the Two Components of Risk Attitudes: An Experimental Analysis
Economics and management science share the tradition of ordering risk aversion by fitting the best expected utility (EU) model with a certain utility function to individual data, and then using the utility curvature for each individual as the sole index of risk attitude. (Cumulative) Prospect theory (CPT) has demonstrated various empirical deficiencies of EU and introduced the weighting of probabilities as an additional component to capture risk attitude. However, if utility curvature and probability weighting were strongly correlated, the utility curvature in EU alone, while not properly describing risky behavior in general, would still capture most of the variance regarding degrees of risk aversion. This study shows, however, that such a strong correlation does not exist. Though, most individuals exhibit concave utility and convex probability weighting, the two components show no correlation. Thus neglecting one component entails a loss.
JERP #2009-087 (PDF)
Fabian Winter, Heiko Rauhut, Dirk Helbing
How norms can generate conflict
Norms play an important role in establishing social order. The current literature focuses on the emergence, maintenance and impact of norms with regard to coordination and cooperation. However, the issue of norm-related conflict deserves more attention. We develop a general theory of "normative conflict" by differentiating between two different kinds of conflict. The first results from distinct expectations of which means should be chosen to fulfil the norm, the second from distinct expectations of how strong the norm should restrain the selfinterest. We demonstrate the empirical relevance of normative conflict in an experiment that applies the "strategy method" to the ultimatum game. Our data reveal normative conflict among different types of actors, in particular among egoistic, equity, equality and "cherry picker" types.
JERP #2009-075 (PDF)
Morimitsu Kurino
House Allocation with Overlapping Agents: A Dynamic Mechanism Design Approach
Many real-life applications of house allocation problems are dynamic. For example, in the case of on-campus housing for college students, each year freshmen apply to move in and graduating seniors leave. Each student stays on campus for a few years only. A student is a "newcomer" in the beginning and then becomes an "existing tenant". Motivated by this observation, we introduce a model of house allocation with overlapping agents. In terms of dynamic mechanism design, we examine two representative static mechanisms of serial dictatorship (SD) and top trading cycles (TTC), both of which are based on an ordering of agents and give an agent with higher order an opportunity to obtain a better house. We show that for SD mechanisms, the ordering that favors existing tenants is better than the one that favors newcomers in terms of Pareto efficiency. Meanwhile, this result holds for TTC mechanisms under time-invariant preferences in terms of Pareto efficiency and strategy-proofness. We provide another simple dynamic mechanism that is strategy-proof and Pareto efficient.
JERP #2009-074 (PDF)
Astrid Matthey, Tobias Regner
On the Independence of Observations between Experiments
In experimental economics there exists a lively debate about the independence of observations. Although opinions on the issue differ widely, all concerns regard the independence of subjects' behavior within one session or experiment. This paper attempts to shed some light on the independence of observations between experiments, if they are generated by the same subjects. We analyze experiments with an allocation decision and find that participation in previous experiments tends to increase the amount subjects allocate to themselves. Hence, independence between experiments cannot be presumed if subjects participate repeatedly. The finding has implications for the interpretation of previous allocation decision results and deserves attention when running future experiments.
JERP #2009-073 (PDF)
Ahmed Doghmi, Abderrahmane Ziad
Faulty Nash Implementation in Exchange Economies with Single-peaked Preferences
In this paper, we reexamine Eliaz's results (2002) of fault tolerant implementation on one hand and we extend theorems 1 and 2 of Doghmi and Ziad (2008 a) to bounded rationality environments, on the other. We identify weak versions of the k-no veto power condition, in conjunction with unanimity and variants of k-monotonicity, are sufficient for implementability in k- Fault Tolerant Nash equilibria (k-FTNE). In addition, these new conditions are stable by intersection which makes it possible to check directly the k-FTNE implementability of the social choice correspondences. We apply these results to exchange economies with single -peaked preferences, to finite allocation problems, and to equilibrium theory. Firstly, we note that our conditions are satisfied by all monotonic solutions contrary to Eliaz's results (2002). Secondly, in exchange economy when preferences are single-peaked, the k-monotonicity is sufficient for the k-FTNE implementation for the correspondences and both necessary and sufficient for the functions. However, the results are negatives for the no-monotonic solutions.
JERP #2009-072 (PDF)
Ahmed Doghmi, Miloudi Kobihy
On reciprocal Behavior in Prisoner Dilemma game
In this paper, we introduce the concept of payoff distortion in the standard prisoner's dilemma game when strategies are driven by psychological behaviors. This concept enables to take account each player's assessment of the other player's behavior and the asymmetry of information. We determine the conditions which allow that mutual cooperation constitutes the equilibrium. we particularly focus on the reciprocity in case of complete and incomplete information about the payoff distortion. We show that mutual cooperation is a Nash equilibrium with complete information and is a Bayesian equilibrium when each player believes that his opponent behaves with "large" reciprocity in incomplete information environment.
JERP #2009-071 (PDF)
Werner Güth, M. Vittoria Levati, Matteo Ploner
Making the World a better Place: Experimental evidence from the generosity Game
We study ultimatum and dictator experiments where the first mover chooses the amount of money to be distributed between the players
within a given interval, knowing that her own share is fixed. Thus, the first mover is faced with scarcity, but not with the typical trade-off between her own and the other's payoff. Removing the trade-off inspires significant generosity, which is not affected by the second mover's veto power. On the whole our results confirm heterogeneity in behavior, but point to efficiency concerns as the predominant motive.
JERP #2009-069 (PDF)
Nadine Chlaß, Werner Güth, Topi Miettinen
Purely Procedural Preferences - Beyond Procedural Equity and Reciprocity
We study a new type of preference. We test whether parties hold preferences purely over the procedure which generates specfic outcomes. In order to characterize procedures as independent of their outcome, we design procedures which yield the same expected outcomes or carry the same information on parties' intentions while they have dfferent outcome-invariant properties. Experimentally, individuals show preferences over these properties. The preferences we report link to attributes of individuals' moral judgement. We also illustrate that individuals alter their behaviour under procedures which violate individuals' preferred moral principles.
updated version (2014/10)
JERP #2009-067 (PDF)
David Hugh-Jones
Internal and external political competition
All rulers face political competition, both from rivals within their state, and from other states to which their subjects may exit. In a simple model, both kinds of competition are substitutes. Internal competition (democracy) benefits citizens by allowing them to replace rent-seeking rulers. But it also weakens these rulers' incentives to invest. External competition forces rent-seeking rulers to invest so as to prevent migration. As a result, citizens are less willing to fight for democracy, and rulers are less eager to oppose it, when external competition is high. In a panel of countries, there are fewer changes towards democracy when states have low GDP relative to their neighbours.
JERP #2009-062 (PDF)
M. Vittoria Levati, Andrea Morone
Voluntary contributions with risky and uncertain marginal returns: the importance of the minimal value
Previous research indicates that risky and uncertain marginal returns from the public good significantly lower contributions. This paper presents experimental results illustrating that the effects of risk and uncertainty depend on the employed parameterization. Specifically, if the value of the marginal per capita return under the worst state of nature allows for some efficiency gains, the presence of risk and uncertainty about the public good's value is not detrimental to cooperation. This finding casts doubt on the hypothesis that risk and uncertainty, per se, weaken people's willingness to contribute.
JERP #2009-060 (PDF)
Dimitri Migrow, Matthias Uhl
The Resolution Game - A Multiple Selves Perspective
The notion of choice inconsistency is widely spread in the literature on behavioral economics. Several approaches were used to account for the observation that people reverse their choices over time. This paper aims to explain the formation of resolutions regarded as internal self-binding devices. It moves away from anthropocentric neoclassicism and embraces a more atomistic notion of a player by defining intrapersonal agents as strategic actors. The magnitude of state-dependency is seen as a key driver of intrapersonal conflict modelled by the incongruity of the preferences of two opposing agents. The sequential conceptualisation basically allows for experimental testing.
JERP #2009-057 (PDF)
Fredrik Carlsson, Mitesh Kataria, Elina Lampi
Do EPA administrators recommend environmental policies that citizens want?
We investigate whether Swedish Environmental Protection Agency (EPA) administrator recommendations regarding improvements in environmental quality differ from citizen preferences. The scope and significance of the possible difference are assessed by conducting identical choice experiments on a random sample of Swedish citizens and a random sample of administrators working at the Swedish EPA. The experiment concerns two environmental quality objectives: a Balanced Marine Environment and Clean Air. The EPA administrators were asked to choose the alternatives they would recommend as a policy, while the citizens were asked to act as private persons. We find that the rankings of attributes differ between the two groups and that the willingness to pay (WTP) obtained from the choices made by the administrators is higher for five out of the seven attributes, and in some cases the difference between the WTPs is not only significant but also substantial. We also asked the administrators to motivate their choices in the experiment, and the main motive was ecological sustainability.
JERP #2009-054 (PDF)
Heiko Rauhut, Fabian Winter
A sociological perspective on measuring social norms by means of strategy method experiments
The measurement of social norms plays a pivotal role in many social sciences. While economists predominantly conduct experiments, sociologists rather employ (factorial) surveys. Both methods, however, suffer from distinct weaknesses. Experiments, on the one hand, often fall short in the measurement of more complex elements, such as the conditionality or the level of consensus of social norms. Surveys, on the other, lack the ability to measure actual behavior. This paper argues that the so-called "strategymethod" compensates for these weaknesses by combining the observational characteristic of experiments with the conditionality of factorial surveys. We can demonstrate the applicability of the strategy method for the measurement of conditional bargaining norms in the case of ultimatum games. To substantiate our claim, we conduct a methodological experiment in which we compare results for the strategy ultimatum game with those from a "conventional" ultimatum game. The strategy method yields higher levels of normative compliance in terms of rejecting "unfair" offers. We conclude that the strategy method rather measures normative expectations whereas the "conventional" ultimatum game the willingness to sacrifice own profits to adhere to these expectations. Our results are consistent with previous comparative research between factorial surveys and observational data.
updated version (2010/06)
JERP #2009-048 (PDF)
David Hugh-Jones, David Reinstein
Secret Santa: Anonymity, Signaling,and Conditional Cooperation
Costly signaling of commitment to a group has been proposed as an explanation for participation in religion and ritual. But if the signal's cost is too small, freeriders will send the signal and behave selfishly later. Effective signaling may then be prohibitively costly. If the average level of signaling in a group is observable, but individual effort is not, then freeriders can behave selfishly without being detected, and group members will learn about the average level of commitment among the group. We develop a formal model, and give examples of institutions that enable anonymous signaling, including ritual, religion, music and dance, voting, charitable donations, and military institutions. We explore the value of anonymity in the laboratory with a repeated two-stage public goods game with exclusion. When first-stage contributions are anonymous, subjects are better at predicting second-stage behavior, and maintain a substantially higher level of cooperation.
JERP #2009-043 (PDF)
Werner Güth, Loreto Llorente Erviti, Anthony Ziegelmeyer
Inconsistent Incomplete Information: A Betting Experiment
We study two person-betting games with inconsistent commonly know beliefs, using an experimental approach. In our experimental games, participants bet against one another, each bettor choosing one of two possible outcomes, and payoff odds are know at the time bets are placed. Bettors' beliefs are always commonly known. Participants play a series of betting games, in some of which the occurrence probabilities of the two outcomes differ between bettors (inconsistent beliefs) while in others the same occurrence probabilities prevail for both bettors (consistent beliefs). In the betting games with consistent commonly know beliefs, we observe that participants refrain from betting. In the betting games with inconsistent commonly know beliefs, we observe significant betting rates and the larger the discrepancy between the two bettors' subjective expectations the larger the volume of bets. Our experimental results contrast with the existing evidence on zero-sum betting games according to which participants' irrational inclination to bet is difficult to eliminate.
JERP #2009-036 (PDF)
Clive Bell, Anastasios Koukoumelis
AIDS and Dualism: Ethiopia's Burden under Rational Expectations
An AIDS epidemic threatens Ethiopia with a long wave of premature adult mortality, and thus with an enduring setback to capital formation and economic growth. The authors develop a two-sector model with three overlapping generations and intersectorally mobile labor, in which young adults allocate resources under rational expectations. They calibrate the model to the demographic and economic data, and perform simulations for the period ending in 2100 under alternative assumptions about mortality with and without the epidemic. Although the epidemic does not bring about a catastrophic economic collapse, which is hardly possible in view of Ethiopia's poverty and high background adult mortality, it does cause a permanent, downward displacement of the path of output per head, amounting to 10 percent in 2100. An externally funded program to combat the disease is socially very profitable.
JERP #2009-035 (PDF)
Tobias Regner
Social Preferences? Google Answers!
We analyse pricing, effort and tipping decisions at the online service "Google Answers". Users set a price for the answer to their question ex ante, and they can additionally tip the researcher who provided the answer ex post. A positive wage-effort relationship is frequently found in laboratory gift-exchange games, yet field evidence for reciprocity in two-stage settings is mixed. Our field data confirms lab findings for the three-stage design (wage, effort, bonus). Tipping is motivated by reciprocity, but also by reputation concerns among frequent users. Moreover, researchers seem to adjust their effort based on the user's previous tipping behaviour. An efficient sorting takes place when enough tip history is available. In addition, we analyse how tipping is adopted when the behavioural default is not to tip and estimate a minimum level for the fraction of genuine reciprocator types.
JERP #2009-032 (PDF)
Astrid C. Buba, Natascha de Hoog
On the relationship between social distance and threat
We investigated the dependence of threat perception and reaction on social distance estimation. Social identity threat was imposed within a 2x2 between subjects design, with N=163 students reading a criticising comment about their ingroup assigned to originate from one of two possible outgroups. The participants completed parts of the scale Overlap of self, ingroup and outgroup (OSIO, Schubert and Otten, 2002) as a measure of social distance either before or after the threat manipulation. Results show significantly differing social distance estimations as a reaction towards the threatening comment depending on the criticising outgroup. The implications of these findings and the possibility of social distancing being another kind of defensive mechanism towards social identity threat are discussed.
#0914 (PDF)
Werner Güth, Hartmut Kliemt
Sozial-ökologische Dilemmata und ihre experimentelle Analyse
Die menschliche Art ist eine Spezies, die durch Einsatz von Institutionen und Normensystemen kollektive Güter (oder Übel) bereitzustellen vermag. Kollektive Güter bilden typischerweise Antworten auf Kollektivgut-Probleme. Eine besonders wichtige Klasse solcher Kollektivgut-Probleme entsteht im Rahmen von so genannten "Allmenden" (oder "commons"). In diesem Beitrag gehen wir zunächst skizzenhaft auf die Grundlagen einer spieltheoretisch informierten Behandlung von "Allmende-Problemen" und deren Lösung ein (2.). Dann werden wir exemplarisch einige wenige neuere experimentelle Studien zu Allmendeproblemen exemplarisch skizzieren (3.). Den Abschluss bilden allgemeine Reflektionen (4.).
#0913 (PDF)
Werner Güth, Hartmut Kliemt
Evolutionstheorie und Ökonomik
Werner Gueth, Loreto Llorente Erviti, Anthony Ziegelmeyer
Inconsistent Incomplete Information: A Betting Experiment
We study two person-betting games with inconsistent commonly know beliefs, using an experimental approach. In our experimental games, participants bet against one another, each bettor choosing one of two possible outcomes, and payoff odds are know at the time bets are placed. Bettors' beliefs are always commonly known. Participants play a series of betting games, in some of which the occurrence probabilities of the two outcomes differ between bettors (inconsistent beliefs) while in others the same occurrence probabilities prevail for both bettors (consistent beliefs). In the betting games with consistent commonly know beliefs, we observe that participants refrain from betting. In the betting games with inconsistent commonly know beliefs, we observe significant betting rates and the larger the discrepancy between the two bettors' subjective expectations the larger the volume of bets. Our results contradict the existing evidence on zero-sum betting games according to which participants' irrational inclination to bet is difficult to eliminate.
JERP #2009-030 (PDF)
Lisa V. Bruttel, Werner Güth, Ulrich Kamecke, Vera Popova
Voluntary Cooperation Based on Equilibrium Retribution – An Experiment Testing Finite-Horizon Folk Theorems
Unlike previous attempts to implement cooperation in a prisoners' dilemma game with an infinite horizon in the laboratory, we focus on extended prisoners' dilemma games in which a second (pure strategy) equilibrium allows for voluntary cooperation in all but the last round. Our four main experimental treatments distinguish long versus short horizon and strict versus non-strict additional equilibrium compared to the control treatment, a standard prisoners' dilemma. Quite surprisingly, according to our results, only a strict additional equilibrium increases cooperation rate for a given time horizon. As expected a longer time horizon promotes cooperation.
JERP #2009-029 (PDF)
M. Vittoria Levati, Ro'i Zultan
Cycles of conditional cooperation in a real-time voluntary contribution mechanism
This paper provides a new way to identify conditional cooperation in a real-time version of the standard voluntary contribution mechanism. Our approach avoids most drawbacks of the traditional procedures because it relies on endogenous cycle lengths, which are defined by the number of contributors a player waits before committing to a further contribution. Based on hypothetical distributions of randomly generated contribution sequences, we provide strong evidence for conditionally cooperative behavior. Moreover, notwithstanding a decline in contributions, conditional cooperation is found to be stable over time.
JERP #2009-022 (PDF)
Christiane Bradler
Social Preferences under Risk – An Experimental Analysis
The literature on social preferences provides overwhelming evidence of departures from pure self-interest of individuals. Experiments show that people care about others' well-being and their relative standing. This paper investigates whether this type of behavior persists when risk comes into play. I devise an experiment which sheds light on the interrelation of risk and social preferences by measuring (1) individual risk preferences, (2) interpersonal risk preferences, and (3) social preferences under certainty. The results reveal that a large share of subjects choose to accept more risk or less potential gain than individually preferred in order to increase another subject's payoff. Further, the willingness to do so appears to be influenced by the "need" of the other person and her potential relative standing. Surprisingly, the results do not suggest that a subject's social behavior under risk is related to his exhibited social concerns exhibited under certainty.
JERP #2009-021 (PDF)
Charlotte Klempt, Kerstin Pull
Generosity, Greed and Gambling: What difference does asymmetric information in bargaining make?
We analyze the effects of asymmetric information concerning the size of a pie on proposer behavior in three different bargaining situations: the ultimatum game, the Yes-No-game and the dictator game. Our data show that (a) irrespective of the information condition, proposer generosity increases with responder veto power, (b) informed proposers in the ultimatum game try to exploit their superior information and hide their greed by a seemingly fair offer, and (c) uninformed proposers in the dictator game exhibit gambling behavior by asking for more than potentially is at stake. While the results of our experimental analysis are interesting as such, they may also yield interesting practical implications.
JERP #2009-017 (PDF)
Hermann Brandstätter, Werner Güth, Hartmut Kliemt
Psychology and Economics rather than Psychology versus Economics: Cultural differences but no barriers!
During the last three decades the ascent of behavioral economics clearly helped to bring down artificial disciplinary boundaries between psychology and economics. Noting that behavioral economics seems still under the spell of the rational choice tradition – and, indirectly, of behaviorism – we scrutinize in an exemplary manner how the development of some kind of "cognitive economics" might mirror the rise of "cognitive psychology" without endangering the advantages of the division of labor and of disciplinary specialization.
JERP #2009-008 (PDF)
Alice Becker, Luis M. Miller
Promoting Justice by Treating People Unequally: An Experimental Study
Which inequalities among individuals are considered unjust? This paper reports the results of an experiment designed to study distributive choices dealing with arbitrarily unequal initial endowments. In a three-person distribution problem where subjects either know or do not know their endowments, we find impartial behavior to be a stable pattern. Subjects either compensate for initial inequalities fully or not at all in both conditions, and they do so more often when they do not know their endowment than when they know it. Moreover, the type and the size of the good to be distributed also affect the frequency of impartial behavior.
#0905 (PDF)
Werner Güth, Hartmut Kliemt
What Ethics Can Learn From Experimental Economics – If Anything
Relying on the specific example of ultimatum bargaining experiments this paper explores the possible role of empirical knowledge of behavioural "norm(ative) facts" within the search for (W)RE – (Wide) Reflective Equilibria on normative issues. Assuming that "pro-social" behaviour "reveals" moral orientations, it is argued that these "norm-facts" can and should be used along with stated preferences in justificatory arguments of normative ethics and economics of the "means to given ends" variety. At the same time behavioural norm-facts are so heterogeneous that any hopes to reach an inter-personally agreed (W)RE in matters moral seem futile.
This is an updated version of JERP 2008-062.
JERP #2009-007 (PDF)
Werner Güth, Kerstin Pull, Manfred Stadler
Intra-firm Conflicts and Interfirm Competition
We study interaction effects between intra-firm conflicts and interfirm competition on a duopolistic market with seller firms employing one or more agents and implementing tournament incentives. We show that inter-firm competition leads to higher incentive intensity, higher efforts and output levels but lower profits.
JERP #2009-006 (PDF)
Jianying Qiu, Eva-Maria Steiger
Relating the two Dimensions of Risk Attitudes: An Experimental Analysis
In the framework of expected utility theory, risk attitudes are entirely captured by the curvature of the utility function. In cumulative prospect theory (CPT) risk attitudes have an additional dimension: the weighting of probabilities. With this modification, one question arises naturally: since both utility and probability weighting determine the attitude towards risk, what is the relation between them? We ran a controlled laboratory experiment to answer this question. Our findings suggest that the two dimensions capture different characteristics of individual risk attitude. Though individuals who are risk averse in one dimension are likely to be risk averse in the other, the two dimensions show no significant correlation. Moreover, a significant proportion of subjects are risk averse in one dimension but risk seeking in the other.
JERP #2009-005 (PDF)
Amnon Rapoport, Hironori Otsubo, Bora Kim, William E. Stein
Unique Bid Auction Games
Two auction mechanisms are studied in which players compete with one another for an exogenously determined prize by independently submitting integer bids in some discrete and commonly known strategy space specified by the auctioneer. In the unique lowest (highest) bid auction game, the winner of the prize is the player who submits the lowest (highest) bid provided that this bid is unique, i.e., unmatched by other bids. Assuming a commonly known finite population of players, a non-negative cost of entry, and an option to stay out of the auction if the entry cost is deemed too high, we propose an algorithm for computing symmetric mixed-strategy equilibrium solutions to the two variants of the auction game, illustrate them, and examine their properties.
JERP #2009-002 (PDF)
Ondřej Rydval, Andreas Ortmann, Sasha Prokosheva, Ralph Hertwig
Uncertainty effect revisited using physical lottery format
We replicate three pricing tasks of Gneezy, List and Wu (2006) for which they document the so called uncertainty effect, namely that people value a binary lottery over non-monetary outcomes less than other people value the lottery's worse outcome. Unlike the authors who implement a verbal lottery description, we use a physical lottery format which rules out any misinterpretation of the lottery structure. Contrary to Gneezy, List and Wu, we systematically observe that subjects' willingness to pay for the lottery is significantly higher than other subjects' willingness to pay for the lottery's worse outcome.

Papers 2008 [back to top] Top

JERP #2008-096 (PDF)
Topi Miettinen
Learning Foundation for the Cursed Equilibrium
Recent literature has questioned the existence of a learning foundation for the partially cursed equilibrium. This paper closes the gap by showing that a partially cursed equilibrium corresponds to a particular analogy-based expectation equilibrium.
JERP #2008-094 (PDF)
Frédéric Koessler, Anthony Ziegelmeyer, Juergen Bracht, Eyal Winter
Fragility of Information Cascades: An Experimental Study using Elicited Beliefs
This paper examines the occurrence and fragility of information cascades in laboratory experiments. One group of low informed subjects make predictions in sequence. In a matched pairs design, another set of high informed subjects observe the decisions of the first group and make predictions. According to the theory of information cascades (Bikhchandani, Hirshleifer, and Welch, 1992), if initial decisions coincide, an information cascade should occur: it is rational for subsequent players with low quality information to follow the observed pattern regardless of their private information. However, an information cascade should be fragile: it is always rational for subsequent players with high quality information to follow their private information. In line with existing experiments on information cascades, we find some evidence that low informed subjects follow the herd when it is rational, and this herding behavior occurs more frequently if there is a pronounced imbalance. The main finding of this paper is that information cascades are not fragile. We find strong evidence that highly informed subjects follow the herd regardless of their private information. In accordance with those observations we show, by explicitly eliciting subjects' beliefs about the state, that beliefs are not constant in the number of previous decisions that coincide, whether or not an information cascade already occurred. Subjects' behavior can be understood with a statistical model that allows for the possibility of errors in earlier decisions.
JERP #2008-092 (PDF)
Werner Güth, Hartmut Kliemt, M. Vittoria Levati
(Over-)Stylizing experimental findings and theorizing with sweeping generality
Human decision making is a process guided by different and partly competing motivations that can each dominate behavior and lead to different effects depending on strength and circumstances. "Over-stylizing" neglects such competing concerns and context-dependence, although it facilitates the emergence of elaborate general theories. We illustrate by examples from social dilemma experiments and inequality aversion theories that sweeping empirical claims should be avoided.
JERP #2008-090 (PDF)
Tobias Brünner, René Levínský
Do prices in the unmediated call auction reflect insider information? – An experimental analysis
The unmediated call auction is a useful trading mechanism to aggregate dispersed information. Its ability to incorporate information of a single informed insider, however, is less well understood. We analyse this question by presenting a simple call auction game where both auction prices and limit prices of uninformed traders reflect potential insider information. The predictions of the model are tested in the laboratory. While an insider improves the call auction outcomes in terms of increasing trading volume, uninformed traders fail to incorporate the (potential) insider information in their limit prices. We also derive an equilibrium relationship between auction returns and transaction costs similar to the relations that can be found in market microstructure models of continuous markets and which are commonly applied to estimate transaction costs. The experiment provides a good environment to assess the usefulness of this method to estimate transaction costs.
JERP #2008-088 (PDF)
Topi Miettinen
Contracts and Promises – An Approach to Pre-play Agreements
In line with the widely applied principle of just deserts, we assume that the severity of the penalty on a contract offender increases in the harm on the other. When this principle holds, the influence of the efficiency of the agreement on the incentives to abide by it crucially depends on whether actions are strategic complements or substitutes. With strategic substitutes, there is a conflict between Pareto-efficiency and the incentives to abide. The opposite tends to be true when actions are strategic complements. The results are interpreted in the context of legal contracts and in that of informal mutual promises.
JERP #2008-087 (PDF)
Werner Güth, Christian Paul
Downsizing the Labor Force by Low and High Profit Firms – An Experimental Analysis
One may hope to capture the behavioral and emotional effects of downsizing the labor force in rather abstract settings as an ultimatum game (see Fischer et al. (2008)), or try to explore downsizing in its more natural principal-agent scenario with a labor market background. We pursue the latter approach and test experimentally whether downsizing occurs whenever (game) theoretically predicted and whether effort reactions question its profitability. Our main findings are that downsizing seems to happen less often than predicted and that its frequency does not depend on whether, theoretically, its gains are rather large or small. Interestingly, we also find strong evidence that piece-rate offers are used in a suboptimal way.
JERP #2008-086 (PDF)
Thomas Gehrig, Werner Güth, René Levínský, Vera Popova
Do investors optimize, follow heuristics, or listen to experts?
In the experimental scenario several agents repeatedly invest in n (n ≥ 2) state-specific assets. The evolutionarily stable and equilibrium (Blume and Easley, 1992) portfolio for this situation requires to distribute funds according to the constant probabilities of the various states. The different treatments endow none, one, three, or all subjects in groups of eight investors each with probability information. Will investments follow the theoretical benchmark or the 1/n-heuristic of equal investments in all assets? Further, will agents with probability information be asked and paid for advice on how to invest? Although investment does not converge as predicted, portfolios of informed agents reflect the probabilities of states, and even uninformed agents do not invest according to the 1/n-heuristic. Advice is demanded and readily paid for. Surprisingly, clients do not always follow the recommendation. Competition among advisors reduces their fees as expected.
JERP #2008-085 (PDF)
David Hugh-Jones
Explaining Institutional Change: Why Elected Politicians Implement Direct Democracy
In existing models of direct democratic institutions, the median voter benefits, but representative politicians are harmed since their policy choices can be overridden. This is a puzzle, since representative politicians were instrumental in creating these institutions. I build a model of direct democracy that explains why a representative might benefit from tying his or her own hands in this way. The key features are (1) that voters are uncertain about their representative's preferences; (2) that direct and representative elections are complementary ways for voters to control outcomes. The model shows that some politicians benefit from the introduction of direct democracy, since they are more likely to survive representative elections: direct democracy credibly prevents politicians from realising extreme outcomes. Historical evidence from the introduction of the initiative, referendum and recall in America broadly supports the theory, which also explains two empirical results that have puzzled scholars: legislators are trusted less, but reelected more, in US states with direct democracy. I conclude by discussing the potential for incomplete information and signaling models to improve our understanding of institutional change more generally.
JERP #2008-078 (PDF)
Werner Güth, M. Vittoria Levati, Matteo Ploner
Satisficing in strategic environments: a theoretical approach and experimental evidence
The satisficing approach is generalized and applied to finite n-person games. Based on direct elicitation of aspirations, we formally define the concept of satisficing, which does not exclude (prior-free) optimality but includes it as a border case. We also review some experiments on strategic games illustrating and partly supporting our theoretical approach.
JERP #2008-075 (PDF)
Matthias Sutter
Individual behavior and group membership: Comment
Charness et al. (2007b) have shown that group membership has a strong effect on individual decisions in strategic games when group membership is salient through payoff commonality. In this comment I show that their findings also apply to non-strategic decisions, even when no outgroup exists, and I relate the effects of group membership on individual decisions to joint decision making in teams. I find in an investment experiment that individual decisions with salient group membership are largely the same as team decisions. This finding bridges the literature on team decision making and on group membership effects.
JERP #2008-067 (PDF)
Werner Güth, M. Vittoria Levati, Matteo Ploner
Satisficing and prior-free optimality in price competition: a theoretical and experimental analysis
On a heterogeneous experimental oligopoly market, sellers choose a price, specify a set-valued prior-free conjecture about the others' behavior, and form their own profit-aspiration for each element of their conjecture. We formally define the concepts of satisficing and prior-free optimality and check if seller participants behave in accordance with them. We find that seller participants are satisficers, but fail to be "prior-free" optimal.
JERP #2008-062 (PDF)
Werner Güth, Hartmut Kliemt
What Ethics Can Learn From Experimental Economics – If Anything
Relying on the specific example of ultimatum bargaining experiments this paper explores the possible role of empirical knowledge of behavioural "norm(ative) facts" within the search for an inter-personal (W)RE – (Wide) Reflective Equilibrium on normative issues. Assuming that pro-social behaviour "reveals" ethical orientations, it is argued that these "norm-facts" can and should be used along with stated preferences in justificatory arguments of normative ethics and economics of the "means to given ends" variety.
JERP #2008-061 (PDF)
Werner Güth, Hartmut Kliemt
The Impossibility of Social Choice and the Possibilities of Individual Values: Political and Philosophical Liberalism Reconsidered
Though the social choice of social institutions or social results is impossible – there is, strictly speaking, no social choice – individual evaluations of social institutions or results trivially are possible. Such individual evaluations can be deemed liberal either because they emphasize political institutions that embody liberal values (political liberalism) or because individuals make up their mind in a specifically "liberal" way of forming ethical judgment (philosophical liberalism). Seen in this light the Paradox of Liberalism is of theoretical or philosophical interest but not a practical problem of political (institutional) liberalism.
JERP #2008-057 (PDF)
Tobias Uske
Tournament Fever and the Perception of Strategic Uncertainty in Performance Contests
As firms implement tournament bonus reward schemes, mainly the idea is to introduce competition amongst their agents in the order to promote their performance. Tournaments in which agents compete for a bonus by investing effort, are frequently applied, e.g., in development races, political contests, and promotion tournaments. The fallibility of evaluation processes and the inherent variability of competitors' effort choices introduce uncertainty to tournament settings with respect to the outcome. If heterogeneous agents interact in such a setting, experimental results suggest that increasing uncertainty leads to more excess of effort if compared to optimality (Avrahami et al., 2007). This paper experimentally investigates whether the observed overperformance in the tournament is similar to overbidding in auctions. Furthermore, it disentangles two possible sources of over-performance: either biased responses to, or wrong beliefs of, opponents' effort choices. We show that over-performance can be explained by "tournament fever": agents overreact to own beliefs, if compared to best responses, and mainly overestimate their opponents. Leveling uncertainty influences both overshooting and the precision of beliefs.
JERP #2008-056 (PDF)
Prashanth Mahagaonkar, Jianying Qiu
Testing the Modigliani-Miller theorem directly in the lab: a general equilibrium approach
In this paper, we experimentally test the Modigliani-Miller theorem. Applying a general equilibrium approach and not allowing for arbitrage among firms with different capital structure, we are able to address a question fundamental to the valuation of firms: does capital structure affect the value of the firm? If so, how? We find that, consistent with the Modigliani-Miller theorem, experimental subjects well recognized the increased systematic risk of the equity with increasing leverage and accordingly demanded higher rate of return. Yet, this adjustment was not perfect: subjects underestimated the systematic risk of low leveraged equity whereas overestimated the systematic risk of high leveraged equity, resulting in a U shape weighted average cost of capital.
JERP #2008-055 (PDF)
Werner Güth
Prior-Free Optimality and Satisficing - A Common Framework and its Experimental Implementation
Similar to welfare economics where with(out) interpersonal comparisons one defines unique (set-valued) welfare (Pareto) optima, we present a framework for one-person decision making where with(out) a prior probability distribution individual optimality prescribes usually a unique (set of) choice(s). Satisfiable aspirations in the sense that there exists some choice guaranteeing them define a much larger choice set whose intersection with the set of prior-free optimal choices is never empty. We also review experimental procedures and results which incentivize aspiration formation and reject even prior-free optimality experimentally.
JERP #2008-048 (PDF)
Dominique Cappelletti, Werner Güth, Matteo Ploner
Being of two minds: an ultimatum experiment investigating affective processes
We experimentally investigate how affective processes influence proposers' and responders' behaviour in the Ultimatum Game. Using a dualsystem approach, we tax cognitive resources through time pressure and cognitive load to enhance the influence of affective processes on behaviour. We find that proposers offer more under time pressure and this seems to be due to strategic considerations rather than to other-regarding concerns. We also find that responders are more likely to reject under time pressure. Surprisingly, both proposers and responders appear to be unaffected by cognitive load manipulation.
JERP #2008-046 (PDF)
Werner Güth, Matteo Ploner, Tobias Regner
Determinants of In-group Bias: Group Affiliation or Guilt-aversion?
In-group favoritism in social dilemma situations is one of the main findings of studies in Social Identity Theory. We investigate what causes the in-group bias: is it due to mere group affiliation or, alternatively, is guilt-aversion a possible explanation? We induce group membership in a minimal group setting, observe in-/out-group transfers and elicit respective beliefs. We find that mere group affiliation affects beliefs and explains a substantial part of the bias, but we also find evidence in favor of guilt-aversion as a source of motivation.
JERP #2008-044 (PDF)
Astrid Matthey
Manipulating Reference States: The Effect of Attitudes on Utility
In economic theory, utility depends on past, present and future outcomes. The experiment described in this paper suggests that utility also depends on people's attitudes, and that it can easily be manipulated through these attitudes. The results imply, first, that purely outcome-based models of individual utility may be incomplete. Second, that reference-states are not determined completely endogenously but can be influenced from outside. And third, that experiments in economics may be sensitive to subtle details of the experimental design.
JERP #2008-011 (PDF)
Sven Fischer, Werner Güth, Christoph Köhler
Effects of Profitable Downsizing on Collective Bargaining
We experimentally test how acceptance thresholds react to the decision of the proposer in a three party ultimatum game to exclude one of two responders with veto power from the game. We elicit responder acceptance thresholds in case the proposer decides to exclude one of them, what increases the available pie, and in case he doesn't exclude him despite strong monetary incentives. We find that on the aggregate level the proposer's decision has no effect on acceptance thresholds. However, if the proposer excludes one responder, the distribution of thresholds becomes bimodal, indicating a polarization in behavior.
JERP #2008-004 (PDF)
Gerlinde Fellner, Matthias Sutter
Causes, consequences, and cures of myopic loss aversion - An experimental investigation
We examine in an experiment the causes, consequences and possible cures of myopic loss aversion (MLA) for investment behaviour under risk. We find that both, investment horizons and feedback frequency contribute almost equally to the effects of MLA. Longer investment horizons and less frequent feedback lead to higher investments. However, when given the choice, subjects prefer on average shorter investment horizons and more frequent feedback. Exploiting the status quo bias by setting a long investment horizon or low feedback frequency as a default turns out to be a successful behavioural intervention that increases investment levels.
JERP #2008-004 (PDF)
Astrid Matthey
Yesterday's expectation of tomorrow determines what you do today: The role of reference-dependent utility from expectations
The paper introduces the concept of adjustment utility, that is, referencedependent utility from expectations. It offers an explanation for observed preferences that cannot be explained with existing models, and yields new predictions for individual decision making. The model gives a simple explanation for, e.g., why people are reluctant to change their plans even when these turn out to be unexpectedly costly; people's aversion towards positive but false information, which cannot be explained with previous models; and the increasing acceptance of risks when people get used to them.

Papers 2007 [back to top] Top

JERP #2007-109 (PDF)
Astrid Matthey, Tobias Regner
Is observed other-regarding behavior always genuine?
We investigate to what extent genuine social preferences can explain observed other-regarding behavior. In a social dilemma situation (a dictator game variant), people can choose whether to learn about the consequences of their choice for the receiver. We find that a majority of the people that show other-regarding behavior when the payoffs of the receiver are known chose to ignore them if possible. This behavior is inconsistent with genuine other-regarding preferences. Our model explains other-regarding behavior as avoiding cognitive dissonance: People do not behave fairly because they genuinely care for others, but because they like to think of themselves as being fair. The model can explain our data as well as earlier experimental data.
JERP #2007-105 (PDF)
Nadine Chlaß, Werner Güth
Competition on Common Value Markets with Naive Traders - A Theoretical and Experimental Analysis
Theoretically and experimentally, we generalize the analysis of acquiring a company (Samuelson and Bazerman 1985) by allowing for competition of both, buyers and sellers. Naıvety of both is related to the idea that higher prices exclude worse qualities. While competition of naive buyers increases prices, competition of naive sellers promotes efficiency enhancing trade. Our predictions are tested experimentally.
JERP #2007-104 (PDF)
Luis G. González, M. Vittoria Levati
Planning ahead: eliciting intentions and beliefs in a public goods game
In a two-person finitely repeated public goods experiment, we use intentions data to interpret individual behavior. Based on a random-utility model specification, we develop a relationship between a player's beliefs about others' behavior and his contributions' plans, and use this relationship to identify the player's most likely preference "type". Our estimation analysis indicates that players are heterogeneous in their preferences also at the intentional level. Moreover, our data show that deviations from intended actions are positively related to changes in beliefs, thereby suggesting that people are able to plan.
JERP #2007-100 (PDF)
Astrid Matthey
Do Public Banks have a Competitive Advantage?
Private banks often blame state guarantees to distort competition by giving public banks the advantage of lower funding costs. In this paper I show that if borrowers perceive the public bank as supporting economic development, private banks may be able to separate firms by self selection, enter the market, and obtain profits in equilibrium despite their cost disadvantage. The public bank's competitive advantage may be offset, independently of what its true objective function is. Even perfect competition between private banks does not lead to zero profits.
JERP #2007-099 (PDF)
Werner Güth
(Non-) Behavioral Economics – A Programmatic Assessment
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 neoclassical 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.
JERP #2007-098 (PDF)
Lisa Bruttel, Werner Güth, Ulrich Kamecke
Time to Defect: Repeated Prisoners' Dilemma Experiments with Uncertain Horizon
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.
JERP #2007-097 (PDF)
Astrid Matthey, Nadja Dwenger
Don't aim too high: the potential costs of high aspirations
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 first 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 significant, 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.
JERP #2007-096 (PDF)
Werner Güth, M. Vittoria Levati
Listen: I am angry! An experiment comparing ways of revealing emotions
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 offer, 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.
JERP #2007-093 (PDF)
Judith Avrahami, Werner Güth, Yaakov Kareev, Tobias Uske
On the Incentive Effects of Uncertainty in Monitoring Agents - A Theoretical and Experimental Analysis
When two or more agents compete for a bonus and the agents' productivity in each of several possible occurrences depends stochastically on (constant) effort, the number of times that are checked to assign the bonus affects the level of uncertainty in the selection process. Uncertainty, in turn, is expected to increase the efforts made by competing agents (Cowen and Glazer (1996), Dubey and Haimanko (2003), Dubey and Wu ( 2001)). Theoretical predictions were derived and experimental evidence collected for the case of two competing agents, with the bonus awarded to that agent who outperforms the other. Levels of uncertainty (sampling occasions of productions, 1 or 3), cost of production (high or low), cost symmetry (asymmetric or symmetric), and piece-rate reward were manipulated factorially to test the robustness of the effects of uncertainty. For control, a single-agent case was also theoretically analyzed and empirically tested. The results indicate that, for tournaments, greater uncertainty does indeed lead to greater than expected effort and lower unit variable costs.
JERP #2007-092 (PDF)
Ondřej Rydval, Andreas Ortmann, Michal Ostatnický
Three Very Simple Games and What It Takes to Solve Them
We study the nature of dominance violations in three minimalist dominance-solvable guessing games, featuring two or three players choosing among two or three strategies. We examine how subjects' reported reasoning translates into their choices and beliefs about others' choices, and how reasoning and choices relate to their measured cognitive and personality characteristics. Only about a third of our subjects reason in accord with dominance; they always make dominant choices and almost always expect others to do so. By contrast, around 60% of subjects describe reasoning processes inconsistent with dominance, yet a quarter of them actually make dominant choices and a fifth of them expect others to do so. Dominance violations seem to arise mainly due to subjects misrepresenting the strategic nature of the guessing games. Reasoning errors are more likely for subjects with lower ability to maintain and allocate attention, as measured by working memory, and for subjects with weaker intrinsic motivation and premeditation attitudes.
JERP #2007-083 (PDF)
Birendra K. Rai
Your Conscience You Must Keep, or it Must be Kept for You
Parents in several cultures 'discipline' their daughters to inculcate the supposedly feminine virtues. The measures taken by parents range from the benign to the brutal across societies. The paper formalizes the idea that this process can be understood as an equilibrium outcome of a signaling game between parents of girls and prospective suitors. We identify the conditions that make a society-wide norm feasible, and those that determine the extent of restrictions faced by girls in equilibrium. The predictions of the model can help understand the persistence of extreme practices like foot-binding and genital mutilation of young girls.
JERP #2007-082 (PDF)
Birendra K. Rai, Rajiv Sarin
Generalized Contest Success Functions
The key element of models of contest is the Contest Success Function (CSF) which specifies the winning probabilities of agents. The existing axiomatizations of CSFs assume that contestants can make only one type of investment. This paper generalizes these axiomatizations to the case where each agent can have multiple types of investments. This allows us to provide a unified framework to extend and interpret the results of Skaperdas (1996) and Clark and Riis (1998), and rationalize some seemingly ad hoc CSFs used by applied researchers.
JERP #2007-081 (PDF)
Kene Boun My, Cochard François, Anthony Ziegelmeyer
On the Acceptability of the Ambient Tax Mechanism: An Experimental Investigation
Our objective in this paper is to assess the acceptability of the ambient tax. Concretely, we ask subjects to choose between (A) an ambient tax and (B) an individual tax system. In case (A), they actually participate in a game in which their payoff depends on all participants' decisions and on natural variability as would be the case in the real world if an ambient tax was implemented. In case (B) they simply earn a sure payoff, which is supposed to reflect their maximal profit under the individual tax system. We take the percentage of agents preferring the ambient tax to a given sure payoff level as an indicator of the acceptability of the ambient tax given this sure payoff level. Our experimental results mitigate the common belief that ambient taxes are totally unacceptable. If the "sure" alternative to the ambient tax policy is very costly for the polluters, for example because it involves high inspection costs, polluters might eventually prefer being liable to an ambient tax.
JERP #2007-079 (PDF)
Tobias Brünner, René Levínský, Jianying Qiu
A Note on Skewness Seeking: An Experimental Analysis
In this paper we experimentally test skewness seeking at the individual level. Several prospects that can be ordered with respect to the third-degree stochastic dominance (3SD) criterion are ranked by the participants of the experiment. We find that the skewness of a distribution has a significant impact on the decisions. Yet, while skewness has an impact, its direction differs substantially across subjects: 39% of our subjects act in accordance with skewness seeking and 10% seem to avoid skewness. On the level of individual decisions we find that the variance of the prospects and subjects' experience increase the probability of their choosing the lottery with greater skewness.
JERP #2007-074 (PDF)
Matteo Ploner, Anthony Ziegelmeyer
The Hidden Costs of Control: An Unsuccessful Repetition Study
This note reports a repetition study of Falk and Kosfeld's (2006) medium control treatment. In the experimental game, an agent has an endowment of 120 experimental currency units and decides how much to transfer to a principal. For every unit that the agent gives up, the principal receives two units. Before the agent decides how much to transfer voluntarily, the principal decides whether or not to control the agent by imposing a compulsory transfer of 10 units. Like the original study, we do observe that control entails hidden costs. Unlike the original study, we do not observe that the hidden costs of control outweigh the benefits and we observe that most of the principals decide to control the agent.
updated version
JERP #2007-073 (PDF)
René van den Brink, René Levínský, Miroslav Zelený
The balanced solution for cooperative transferable utility games
The Shapley value of a cooperative transferable utility game distributes the dividend of each coalition in the game equally among its members. Given exogenous weights for all players, the corresponding weighted Shapley value distributes the dividends proportionally to their weights. In this contribution we define the balanced solution which assigns weights to players such that the corresponding weighted Shapley value of each player is equal to her weight. We prove its existence for all monotone transferable utility games, discuss other properties of this solution, and deal with its characterization through a reduced game consistency.
JERP #2007-072 (PDF)
Siegfried K. Berninghaus, Sabrina Bleich, Werner Güth
Wage Flexibility in Ongoing Employment Relations - An Experiment with a Stochastic Labor Market
Facing a stochastic market wage, which is independent of their own hiring policy, employers offer contracts specifying fixed wage, revenue share and employment duration. In ongoing employment relations it depends on the treatment whether fixed wages can be only increased or also decreased. Will the uncertainty of the future market wage and less wage flexibility lead to temporary employment? And, if not, will employers adjust wages to changing market wages and will workers in ongoing employment relations react to wage decreases via effort choices? Our results partly question empirical claims, e.g. of Bewley (1995), and confirm the tendency to establish ongoing employment relations. Granting more wage flexibility to employers altogether questions rather than enhances efficiency since it induces opportunistic wage cuts to which employees react with lower efforts.
JERP #2007-071 (PDF)
Yael Meroz, Andrea Morone, Piergiuseppe Morone
Eliciting Environmental Preferences of Ghanaians: an Experimental Approach
In this paper we aim - through an 'experimentally-adapted' Contingent Valuation survey - to look into the attributes of Ghanaians' willingness-to-pay for green products. This would help us addressing two main issues: first, from a theoretical point of view, we shall assess whether Ghanaians show a preference towards environmental goods - hence, countering the 'too poor to be green' argument. Secondly, from a methodological point of view, we shall try to see if the incentive compatible CV analysis provides a good measurement of subjects' willingness-to-pay for environmental premium. Our investigation provides an answer to both issues, showing how using an incentive compatible experiment produces, in the case of Ghana, reliable results and that Ghanaians consistently show that they are willing to pay an extra premium for green products.
JERP #2007-70 (PDF)
Pablo Branas-Garza, Ana Leon-Mejia, Luis M. Miller
Response Time under Monetary Incentives: the Ultimatum Game
This paper studies the response times of experimental subjects playing the Ultimatum game in a laboratory setting using monetary incentives. We find that proposals are not significantly correlated with response time, whereas responders' behavior is positively and significantly correlated. Hence, consistent with Rubisntein (forthcoming) we find that response times may capture relevant cognitive processes. However, the use of monetary incentives causes a reversal of his findings. These results have implications for the information about cognitive mechanisms that can be obtained from response times.
JERP #2007-069 (PDF)
Ana Leon-Mejia, Luis M. Miller
"The Devil is in the Details" - Sex Differences in Simple Bargaining Games
The study of gender differences in social preferences has shown mixed results, preventing economists and other social scientists from drawing definitive conclusions on this topic. Several original investigations and experimental reviews have hypothesized that the main reason of this heterogeneity of results is the myriad of experimental designs used to study gender differences. In this paper we test this hypothesis by making male and female participants to face two different but related experimental games and two different information treatments. Through this 2x2 factorial design, we obtain results in line with some recent papers: women are sensitive to the design and context of the experiment in ways that men are not. In addition, we go further providing a well-grounded ccount on the importance of the context for female decision-making.
JERP #2007-068 (PDF)
Thomas Gehrig, Werner Güth, René Levínský
On the Co-evolution of Insider Information and Idiosyncratic Beliefs
In a market with stochastic demand at most one seller can acquire costly information about demand. Other sellers entertain idiosyncratic beliefs about the market demand and the probability that an informed seller is trading in the market. These idiosyncratic beliefs co-evolve with the potential insider's inclination to acquire information. True demand expectations are not evolutionarily stable when beliefs, via revelation, can be used to commit to more aggressive behavior. The commitment effect fades away in large markets and has the same direction for both strategic substitutes and complements. Whether one observes an insider, in the long run, depends on information costs. For strategic substitutes insider activity benefits the whole population whereas the uninformed sellers could gain even more than the insider.
JERP #2007-067 (PDF)
M. Vittoria Levati, Matteo Ploner, Stefan Traub
Are cooperators efficiency- or fair-minded? Evidence from a public goods experiment
We use a two-person public goods experiment to distinguish between efficiency and fairness as possible motivations for cooperative behavior. Asymmetric marginal per capita returns allow only the high-productivity player to increase group payoffs when contributing positive amounts. Asymmetric contributions, however, yield unequal individual payoffs. To assess a priori cooperative preferences, we measure individual 'value-orientations' by means of the decomposed game technique. Overall, our results indicate that fairness (or inequality aversion) is more influential than efficiency in driving behavior.
JERP #2007-049 (PDF)
Werner Güth, M. Vittoria Levati, Matteo Ploner
Scenario-Based Satisficing in Saving: A Theoretical and Experimental Analysis
Contrary to the models of deterministic life cycle saving, we take it for granted that uncertainty of one's future is the essential problem of saving decisions. However, unlike the stochastic life cycle models, we capture this crucial uncertainty by a non-Bayesian scenario-based satisficing approach. Decision makers first form aspirations for a few relevant scenarios, and then search for saving plans satisficing these aspirations. In addition to formally specifying scenario-based satisficing in saving, we explore it experimentally. The results confirm that optimal intertemporal allocations are difficult to derive, and suggest that satisficing allocations can be reached easily when aspirations are incentivized.
JERP #2007-048 (PDF)
Werner Güth, M. Vittoria Levati, Torsten Weiland
Cheap Talk and Secret Intentions in a Public Goods Experiments
In a public goods experiment, subjects can vary over a period of stochastic length two contribution levels: one is publicly observable (their cheap talk stated intention), while the other is not seen by the others (their secret intention). When the period suddenly stops, participants are restricted to choose as actual contribution either current alternative. Based on the two types of choice data for a partners and a perfect strangers condition, we confirm that final outcomes strongly depend on the matching protocol. As to choice dynamics, we distinguish different types of adaptations.
JERP #2007-047 (PDF)
Fernando Aguiar, Pablo Branas-Garza, Luis M. Miller
Moral Distance and Moral Motivations in Dictator Game
We perform an experimenta linvestigation using a dictator game in which individuals must make a moral decision - to give or not to give an amount of money to poor people in the Third World. A questionnaire in which the subjects are asked about the reasons for their decision shows that, at least in this case, moral motivations carry a heavy weight in the decision: the majority of dictators give the money for reasons of a consequentialist nature. Based on the results presented here and of other analogous experiments, we conclude that dicator behavior can be understood in terms of moral distance rather than social distance and that it systematically deviates from the egoism assumption in economic models and game theory.
JERP #2007-040 (PDF)
Ondřej Rydval
Financial Incentives and Cognitive Abilities: Evidence from a Forecasting Task with Varying Cognitive Load
I examine how financial incentives interact with intrinsic motivation and especially cognitive abilities in explaining heterogeneity in performance. Using a forecasting task with varying cognitive load, I show that the effectiveness of high-powered financial incentives as a stimulator of economic performance can be moderated by cognitive abilities in a causal fashion. Identifying the causality of cognitive abilities is a prerequisite for studying their interaction with financial and intrinsic incentives in a unifying framework, with implications for the design of efficient incentive schemes.
JERP #2007-039 (PDF)
Ondřej Rydval
The Interaction between Financial Incentives and Task-specific Cognitive Capital: More Evidence in Support of Camerer and Hogarth (1999)
This paper extends existing evidence on the interaction between financial incentives and cognitive capital. I focus on the impact of task-specific cognitive capital, the role of which is central to the capital-labor-production framework of Camerer and Hogarth (1999) and has long been studied in cognitive science and behavioral decision research. Using a task situated in an accounting setting, I show that both financial incentives and task-specific cognitive capital, and especially their interaction, matter for performance. In particular, the effect of task-specific cognitive capital on performance is stronger under performance-based financial incentives as compared to flat-rate incentives. The interaction effect arises because performance-based financial incentives lead to better performance only for individuals with more task-specific cognitive capital. I draw implications for compensation practices in experiments as well as work settings.
JERP #2007-038 (PDF)
Andreas Ortmann, Alexandra Prokosheva, Ondřej Rydval, Ralph Hartwig
Valuing A Risky Prospect Less Than Its Worst Outcome: Uncertainty Effect or Task Ambiguity?
Gneezy, List and Wu [Q. J. Econ. 121 (2006) 1283-1309] document that lotteries are often valued less than the lotteries' worst outcomes. We show how to undo this result.
JERP #2007-037 (PDF)
Tore Ellingsen, Topi Miettinen
Disagreement and Authority
Can two negotiators fail to agree when both the size of the surplus and the rationality of the negotiators are common knowledge? We show that the answer is affirmative. When the negotiators can make irrevocable commitments at a low but positive cost, the unique symmetric equilibrium entails disagreement with high probability. In the unique pair of pure strategy equilibria, one party gets all the surplus. Even though we impose no constraints on side-payments, efficient compromises are unattainable. A strongly asymmetric authority relationship is thus the only viable alternative to costly conflict.
JERP #2007-036 (PDF)
Christoph Vanberg
Voting on a sharing norm in a dictator game
I conduct an experiment to assess whether majority voting on a non-binding sharing norm affects subsequent behavior in a dictator game. In a baseline treatment, subjects play a one shot dictator game. In a voting treatment, subjects are first placed behind a 'veil of ignorance' and vote on the amount that those chosen to be dictators 'should' give. The outcome of the vote is referred to as a 'non-binding agreement.' The results show that a norm established in this fashion does not induce more 'fairness' on the part of those subsequently chosen to be dictators. In fact, dictators were significantly more likely to offer nothing under the treatment. I outline a simple model to account for this 'crowding out' effect of a norm that may demand 'too much' of some subjects.
JERP #2007-035 (PDF)
Werner Güth
A Non-Bayesian Approach to (Un)Bounded Rationality
Can one define and test the hypothesis of (un)bounded rationality in stochastic choice tasks without endorsing Bayesianism? Similar to the state specificity of assets, we rely on state-specific goal formation. In a given choice task, the list of state-specific goal levels is optimal if one cannot increase the goal level for one state without having to decrease that for other states. We show that this allows to relate optimality more easily to bounded rationality where we interpret goal levels as aspirations. If for the latter there exist choices satisfying all state-specific aspirations and if one such choice is used, we speak of satisficing which may or may not be optimal.
JERP #2007-034 (PDF)
Ozlem Ozdemir
Valuation of Self-Insurance and Self-Protection under Ambiguity: Experimental Evidence
This experimental study, first, compares the individual valuations of two risk reduction mechanisms: self-insurance and self-protection. Second, it investigates these valuations when the loss amount is ambiguous, and compare these values with valuations when loss amounts are known. results confirm that there exists no "framing effect" due to the two risk reduction mechanisms. Ambiguity in the loss amount has a weak impact on the valuation, and using different representations of ambiguity does not change the valuation. Moreover, the mean ratios of ambiguous to risky bids are greater than one for low loss amounts indicating ambiguity aversion. These ratios are not significantly different from one for high loss amounts regardless of the probability of loss levels. Finally, 28 percent of the sample behaved consistent with the predictions of "anchoring and adjustment", while only 6 percent supported the "maximin" predictions.
JERP #2007-033 (PDF)
Frédéric Koessler, Charles Noussair, Anthony Ziegelmeyer
Information Aggregation and Beliefs in Experimental Parimutuel Betting Markets
We study sequential parimutuel betting markets with asymmetrically informed bettors, using an experimental approach. In one treatment, groups of eight participants play twenty repetitions of a sequential betting game. The second treatment is identical, except that bettors are observed by other participants who assess the winning probabilities of each potential outcome. In the third treatment, the same individuals make bets and assess the winning probabilities of the outcomes. A favorite-longshot bias is observed in the first and second treatments, but does not exist in the third treatment. Information aggregation is better in the third than in the other two treatments, and contrarian betting is almost completely eliminated by the belief elicitation procedure. Making bets improves the accuracy of stated beliefs. We propose a theoretical model, the Adaptive Model, to describe individual behavior and we find that it effectively explains betting decisions, especially in the third treatment.
JERP #2007-032 (PDF)
Nadine Chlaß, Jens J. Krüger
Small Sample Properties of the Wilcoxon Signed Rank Test with Discontinuous and Dependent Observations
This Monte-Carlo study investigates sensitivity of the Wilcoxon signed rank test to certain assumption violations in small samples. Emphasis is put on within-sample-dependence, between-sample dependence, and the presence of ties. Our results show that both assumption violations induce severe size distortions and entail power losses. Surprisingly, these consequences do vary substantially with other properties the data may display. Results provided are particularly relevant for experimental settings where ties and within-sample dependence are frequently observed.
JERP #2007-017 (PDF)
Jianying Qiu
Loss aversion and mental accounting: the favorite longshot bias in parimutuel betting
Parimutuel betting markets are simplified financial markets, and can thus provide a clearer view of pricing issues which are more complicated elsewhere. Though empirical studies generally conclude that the parimutuel betting markets are surprisingly efficient, it is also found that for horses with lowest odds (favorites), market estimates of winning probabilities are smaller than objective winning probabilities; for horses with highest odds (longshot), the opposite is observed. This phenomenon, called the favorite longshot bias, has many explanations such as risk seeking preference, transaction costs, and non-linear transformation of probabilities into decision weights, etc. This paper combines loss aversion with mental accounting, and provides a new explanation for the favorite longshot bias. We show that the bias exists in the absence of all above mentioned reasons, and the degree of the bias differs depending on the type of the mental accounting process that bettors apply.
JERP #2007-16 (PDF)
Sebastian J. Georg, Werner Güth, Gari Walkowitz, Torsten Weiland
Interregional diversity of fairness concerns - An online ultimatum experiment
Does geographic distance or the perceived social distance between subjects significantly affect proposer and responder behavior in ultimatum bargaining? To answer this question, subjects play a one-shot ultimatum game with three players (proposer, responder, and a passive dummy player) and asymmetric information (only the proposer knows what can be distributed). Treatments differ in their geographic scope by involving either one or three different locations in Germany. Observed behavior reflects the robust stylized facts of this class of ultimatum experiments and can be adequately explained by other-regarding preferences. While responder behavior does not condition on co-players' location of residence, self-interest of proposers varies significantly with the latter. Altogether, we do not detect strong discrimination based on geographic distance.
JERP #2007-10 (PDF)
Birendra K. Rai, Rajiv Sarin
Parametric Contest Success Functions
The key element of models of contest is the Contest Success Function (CSF) which specifies the winning probabilities of agents. We provide an axiomatization of two parametric families of CSF's. In the first, the winning probability of each agent depends on the investments and a vector of parameters, where each parameter is specific to one of the contestants. In the second, the winning probabilities depend on investments and a scalar parameter common to all contestants.
JERP #2007-08 (PDF)
Topi Miettinen
Moral Hazard and Clear Conscience
We consider guilt averse agents and principals and study the effects of guilt on optimal behavior of the principal and the agent in a moral hazard model. The principal's contract proposal contains a target effort in addition to the monetary incentive scheme. By accepting the agreement, the parties agree on both the wage scheme and the target. The agent suffers from guilt when failing to provide the target effort, the principal when paying less than the contract requires or when setting an unreasonably high target effort. In equilibrium, a guilt-prone agent chooses a higher effort than an agent who only cares about monetary incentives. The target effort level is always set above the equilibrium effort. Both the agent and the principal gain from the agent's guilt aversion. A principal who lacks power to commit to the proposed incentive scheme benefits from having a positive proneness to guilt. However, a guilt-prone principal who suffers when setting an unreasonable target is worse off than one with merely monetary motivations.
JERP #2007-07 (PDF)
F. Agiar, P. Branas-Garza, M. P. Espinosa, L. M. Miller
Personal Identity in the Dictator Game
This paper aims to analize the role of personal identity in decision making. To this end, it starts by reviewing critically the growing literature on economics and identity. Considering the ambiguities that the concept of social identity poses, our proposal focuses on the concept of personal identity. A formal model to study how personal identity enters in individuals' utility function when facing a Dictator Game decision is then presented. Finally, this "identity-based" utility function is studied experimentally. The experiment allows us to study the main parameters of the model, suggesting that we should move with caution when attributing identities to individuals.
JERP #2007-05 (PDF)
Werner Güth, M. Vittoria Levati, Matteo Ploner
Let Me See You! A Video Experiment on the Social Dimension of Risk Preferences
Previous studies have shown that decision makers are less other-regarding when their own payoff is risky than when it is sure. Empirical observations also indicate that people care more about identifiable than unidentifiable others. In this paper, we report on an experiment designed to explore whether rendering the other identifiable - via a short speechless video - can affect the relation between other-regarding concerns and attitudes toward social risk. For this sake, we elicit risk attitudes under two treatments differing in whether the actor can see the other or not. We find that seeing the other does not affect behavior significantly: regardless of the treatment, individuals are mainly self-oriented as to social allocation of risk, though they are other-regarding with respect to expected payoff levels.

Papers 2006 [back to top] Top

#0641 (PDF)
Werner Güth, M. Vittoria Levati, Matteo Ploner
Social identity and trust - An experimental investigation
We experimentally examine how group identity affects trust behavior in an investment game. In one treatment, group identity is induced purely by minimal groups. In other treatments, group members are additionally related by outcome interdependence established in a prior public goods game. Moving from the standard investment game (where no group identity is prompted) to minimal group identity to two-dimensional group identity, we find no significant differences in trust decisions. However, trust is significantly and positively correlated with contribution decisions, suggesting that "social" trust is behaviorally important.
This is an updated version of discussion paper #06-2005.
#0640 (PDF)
Topi Miettinen
Learning Foundations and Complexity of the Cursed Equilibrium
Recent literature has questioned the existence of a learning foundation for the partially cursed equilibrium. This paper closes the gap by showing that a partially cursed equilibrium is a particular analogy-based expectation equilibrium and a particular selfconfirming equilibrium. In the partially cursed equilibrium, each player conjectures that opponents adopt more complex strategies than they actually do. The opposite holds true for the fully cursed equilibrium. Therefore, the fully but not the partially cursed equilibrium can be justified as players trading off lower complexity with higher precision.
updated version (2007/11)
#0639 (PDF)
Siegfried K. Berninghaus, Werner Güth, Christian Hoppe, Christian Paul
International Competition in Hiring Labor and Selling Output - A Theoretical and Experimental Analysis
Two firms, firm A in country A and firm B in country B, compete in hiring two types of workers. Type 1-workers would be less productive when working abroad whereas type 2-workers are equally productive when working abroad or at home. Employers compete by offering employment contracts for both types of workers as well as for workers in both countries. Hiring determines output and thus the sales on the homogenous international sales market. We show that the scenario with firm A(B) hiring only workers from country A(B) is an equilibrium, i.e., there exists a parameter region with this equilibrium outcome. For our experiment with a specific parameter constellation we want to explore some qualitative hypotheses, related to this equilibrium scenario.
#0638 (PDF)
Werner Güth, Hartmut Kliemt
Vertrauen und Unternehmen
Bereits im Jahre 1980 wählte Horst Albach einen spieltheoretischen und experimentellökonomischen Zugang zum Vertrauensproblem in der Ökonomik. Dieser Weg wird erneut beschritten. Es wird aufgezeigt, dass neuere spieltheoretische und experimentelle Arbeiten nicht nur die explanativen Grenzen des ökonomischen Standardmodells opportunistisch rationalen Verhaltens verdeutlichen, sondern auch wesentliche Einsichten zur Rolle des Vertrauens in Organisationen bieten. Das wirft neues Licht auf die Leistungsfähigkeit, aber auch die Grenzen einer koordinativen Konzeption organisatorischer Zusammenarbeit, welches das Opportunismusproblem eher herunterspielt.
#0637 (PDF)
Werner Güth, Loreto Llorente Erviti, Anthony Ziegelmeyer
Asymmetric Information without Common Priors: An Indirect Evolutionary Analysis of Quantity Competition
The common prior assumption justifies private beliefs as posterior probabilities when updating a common prior based on individual information. Common priors are pervasive in most economic models of incomplete information and oligopoly models with asymmetrically informed firms. We dispose of the common prior assumption for a homogeneous oligopoly market with uncertain costs and firms entertaining arbitrary priors about other firms' cost-type to analyze which priors will be evolutionarily stable when truly expected profit measures (reproductive) success. When firms believe that all other firms entertain the same beliefs Nature's priors are not the only evolutionarily stable priors. In a second model allowing for asymmetric priors Nature's priors are not even evolutionarily stable.
#0636 (PDF)
Nadine Chlaß, Werner Güth, Christoph Vanberg
Social Learning of Efficiency Enhancing Trade With(out) Market Entry Costs - An experimental study
We investigate experimentally whether entry costs have an impact on the evolution of cooperation in a social dilemma game. In particular, subjects repeatedly play the so-called takeover game with anonymous partners randomly drawn from a fixed population of participants. The game represents a social dilemma because selfishly rational players can fail to make efficient trades due to information asymmetries. In order to create a potential for social learning, we provide subjects with feedback about average results in the population. Our interest lies in observing the extent to which cooperative behaviors facilitating trade are adopted. Our main conjecture is that market entry costs inspire more trade. This is only partly confirmed by the data.
#0635 (PDF)
Werner Güth, M. Vittoria Levati, Matthias Sutter, Eline van der Heijden
Leading by example with and without exclusion power in voluntary contribution experiments
We examine the effects of leading by example in voluntary contribution experiments. Leadership is implemented by letting one group member contribute to the public good before followers do. Such leadership increases contributions in comparison to the standard voluntary contribution mechanism, especially so when it goes along with authority in the form of granting the leader exclusion power. Whether leadership is fixed or rotating among group members has no significant influence on contributions. Only a minority of groups succeeds in endogenously installing a leader, even though groups with leaders are much more efficient than groups without a leader.
#0634 (PDF)
Andrea Morone, Ozlem Ozdemir
Valuing Protection against Low Probability, High Loss Risks: Experimental Evidence
The study investigates protective responses in low probability and high loss risk situations. Particularly, it (1) detects individual protection valuations to variations in probability versus to variations in loss for payment decisions and choice decisions, (2) elicits the threshold probability in individualsҠminds that make them consider having protective measure, (3)calculates relative risk aversion. The results of the experiment indicate that as the probability of loss and loss amount increases, individuals tend to buy/pay more for protection. They are more responsive to the variation in probabilities than to the variation in loss amounts when they decide whether to buy the protective measure or not: choice decision. Yet, the opposite is true when they decide the amount of willingness to pay for buying the protective measure: payment decision. In addition, bid expected loss values have a bimodal distribution. Consistent with previous studies, individuals (particularly women) are found to be risk averse for low probabilities.
#0633 (PDF)
Andrea Morone, Serena Sandri, Tobias Uske
On the absorbability of the Guessing Game Theory - A Theoretical and Experimental Analysis
Theory absorption, a notion introduced by Morgenstern and Schwödiauer (1972) and further elaborated by Güth and Kliemt (2004), discusses the problem whether a theory can survive its own acceptance. Whereas this holds for strategic equilibria according to the assumptions on which they are based, the problem if theories are absorbable by at most boundedly rational decision makers is hardly discussed. Based on guessing game experiments we discuss the requirements of equilibrium theory absorption and test experimentally the effects of informing none, some or all players about how to derive equilibrium predictions.
#0632 (PDF)
Siegfried Berninghaus, Werner Güth, M. Vittoria Levati, Jianying Qiu
Satisficing in sales competition: experimental evidence
In a stochastic duopoly market, sellers must form state-specific aspirations expressing how much they want to earn given their expectations about the other's behavior. We define individually and mutually satisficing sales behavior for given individual beliefs and aspiration profiles. In a first experimental phase, whenever satisficing is not possible, beliefs or aspirations have to be adapted, or other strategy profiles must be found. In a second phase, participants are free to select non-satisficing sales profiles. The results reveal that most people are satisficers who, either mandatorily or deliberately, tend to adjust aspiration levels if they cannot be satisfied.
#0631 (PDF)
Siegfried Berninghaus, Sven Fischer, Werner Güth
Social Networks and Employment - An Experimental Analysis
There is robust field data showing that a frequent and successful way of looking for a job is via the intermediation of friends and relatives. Here we want to explore this experimentally. Participants first play a simple public good game with two interaction partners ("friends"), and share whatever they earn this way with two different sharing partners ("cousins") who in turn have different friends. Thus a participant's social network contains two "friends" and two "cousins". In the second phase of the experiment participants learn about a job opportunity for themselves and one additional vacancy and decide whom of their network they want to recommend and, if so, in which order. In case of coemployment, both employees compete for a bonus. Will others be recommend for the additional job in spite of this competition, will "friends" or "cousins" be preferred and how does this depend on contributions (of "friends") or shared profits (with "cousins")? Our findings are partly puzzling. Most participants, for instance, recommend quite actively but compete very fiercely for the bonus.
#0630 (PDF)
Annamaria Fiore, M. Vittoria Levati, Andrea Morone
Voluntary contributions with imperfect information: An experimental study
We use a two-person linear voluntary contribution mechanism with stochastic marginal benefits from the public good to examine the effect of imperfect information on contributions levels. To assess prior risk attitudes, individual valuations of several risky prospects are elicited via a second-price auction. We find that limited information about the productivity of the public good lowers significantly initial contributions in comparison to a setting with perfect information, whereas different information conditions do not result in qualitatively different contribution patterns. Moreover, our results show clear evidence of risk aversion, and of a negative relationship between the latter and willingness to cooperate.
#0629 (PDF)
Topi Miettinen
Promises and Conventions - An Approach to Pre-play Agreements
Experiments suggest that communication increases the contribution to public goods (Ledyard, 1995). There is also evidence that, when contemplating a lie, people trade off their private benefit from the lie with the harm it inflicts on others (Gneezy, 2005). We develop a model of bilateral pre-play agreements that assumes the latter and implies the former. A preference for not lying provides a partial commitment device that enables informal agreements. We establish some general properties of the set of possible agreements in normal form games and characterize the smallest and largest such set. In symmetric games, pre-play agreements crucially depend on whether actions are strategic complements or substitutes. With strategic substitutes, commitment power tends to decrease in efficiency whereas the opposite may be true with strategic complements.
#0628 (PDF)
Topi Miettinen, Panu Poutvaara
Political Parties and Rent-seeking through Networks
We argue that anti-corruption laws may provide an efficiency rationale for why political parties should meddle in the distribution of non-ideological political nominations. Anti-corruption laws forbid trade in nominations made by politicians. However, citizens may pay for gaining access to politicians, thereby becoming potential candidates for nominations. Such rent-seeking results in excessive network formation. Political parties may reduce wasteful network formation, thanks to their ability to enter into exclusive membership contracts. This holds even though anti-corruption laws also bind political parties.
#0627 (PDF)
Birendra K. Rai
Evolution of Division Rules
Several division rules have been proposed in the literature regarding how an arbiter should divide a bankrupt estate. Different rules satisfy different sets of axioms, but all rules satisfy claims boundedness which requires that no contributor be given more than her initial contribution. This paper takes two non-cooperative bargaining games - the contracting game (Young, 1998a), and the Nash demand game, and adds the axiom of claims boundedness to the rules of these games. Outcomes prescribed by all the division rules are strict Nash equilibria in the one-shot version of both these augmented games. We show that the division suggested by the truncated claims proportional rule is the unique long run outcome if we embed the augmented contracting game in Young's (1993b) evolutionary bargaining model. With the augmented Nash demand game as the underlying bargaining game, the long run outcome is the division prescribed by the constrained equal awards rule.
#0626 (PDF)
Werner Güth, Ev Martin, Torsten Weiland
Aspiration formation and satisficing in isolated and competitive search
We experimentally explore individual and interactive decision making in a sequential search task and test whether generally accepted principles of bounded rationality (aspiration formation, satisficing, and aspiration adjustment) adequately explain the observed search behavior. Subjects can, at a cost, employ screening and selection methods facilitating their search and revealing their aspirations. The majority of subjects seems to follow the single threshold heuristic after extensive experimentation. Contrary to popular theories of sequential search, aspiration levels are set below the maximum value of all previously inspected alternatives. In a competitive search subjects tend to experiment less before engaging in satisficing and generally state lower aspirations. Finally, systematic satisficing seems to significantly enhance payoffs.
#0624 (PDF)
Gelkha Buitrago, Werner Güth, M. Vittoria Levati
Does anticipated aid create the need it wants to avoid? An experimental investigation
A novel two-person "charity game" is used to experimentally investigate whether anticipation of help crowds out incentives to work, and therefore impulses to help. We distinguish two treatments differing in whether the causes of neediness are verifiable or not. Helping behavior does not vary significantly between treatments, but is positively correlated with dictator giving, suggesting idiosyncratic attitudes to help. Needy subjects are unaffected by anticipated help, but react optimally to chance.
#0623 (PDF)
Dennis Dittrich, Martin Kocher
Monitoring and Pay: An Experiment on Employee Performance under Endogenous Supervision
We present an experimental test of a shirking model where monitoring intensity is endogenous and effort a continuous variable. Wage level, monitoring intensity and consequently the desired enforceable effort level are jointly determined by the maximization problem of the firm. As a result, monitoring and pay should be complements. In our experiment, between and within treatment variation is qualitatively in line with the normative predictions of the model under selfishness assumptions. Yet, we also find evidence for reciprocal behavior. The data analysis shows, however, that it does not pay for the employer to rely on the reciprocity of employees.
#0622 (PDF)
André de Palma, Nathalie Picard, Anthony Ziegelmeyer
Individual and Couple Decision Behavior under Risk: The Power of Ultimate Control
This paper reports results of an experiment designed to analyze the link between risky decisions made by couples and risky decisions made separately by each spouse. We estimate both the spouses and the couples' degrees of risk aversion and we assess how the risk preferences of the two spouses aggregate when they make risky decisions. This enables us to investigate the decision process that takes place when couples make risky decisions. We find that in most couples men have more decision-making power than women and that women's decision-making power increases when they ultimately implement the joint decisions.
Appendix: ftp://papers.econ.mpg.de/esi/discussionpapers/2006-22-appendix.pdf
updated version (2008/09)
#0621 (PDF)
Werner Güth, René Levínský, Tobias Uske, Thomas Gehrig
I want to know: Willingness to pay for unconditional veto power
In the Yes/No game, like in the ultimatum game, proposer and responder can share a monetary reward. In both games the proposer suggests a reward distribution which the responder can accept or reject (yielding 0-payoffs). The games only differ in that the responder does (not) learn the suggested reward distribution in the Ultimatum (Yes/No) game. Although an opportunistic responder would always accept and therefore should not be willing to pay for knowing the proposal, earlier results (Güth, Levati, Ockenfels, and Weiland, 2005) show that offers in the Yes/No game are less generous and that responders, on average, earn less in the Yes/No game. By experimentally eliciting the willingness to pay for learning the proposal, we investigate whether these effects are adequately anticipated or whether they are overstated, as observed in an earlier related study (Gehrig, Güth, Levinsky, 2003).
#0620 (PDF)
Kene Boun My, Laurent Denant-Boèmont, Frédéric Koessler, Marc Willinger, Anthony Ziegelmeyer
Road Traffic Congestion and Public Information: An Experimental Investigation
This paper reports two laboratory studies designed to study the impact of public information about past departure rates on congestion levels and travel costs. Our experimental design is based on a discrete version of Arnott, de Palma, and Lindsey's (1990) bottleneck model where subjects have to choose their departure time in order to reach a common destination. Experimental treatments in our first study differ in terms of the level of public information on past departure rates and the relative cost of delay. In all treatments, congestion occurs and the observed total travel costs match the predicted ones. In other words, subjects' capacity to coordinate is neither affected by the availability of public information on past departure rates nor by the relative cost of delay. This absence of treatment effects is confirmed by our finding that a parameter-free reinforcement learning model best characterizes individual behavior. The number of experimental subjects taking the role of drivers is four times larger in our second study than in our first study. We observe that subjects' capacity to coordinate is not affected by the size of the population.
#0619 (PDF)
Werner Güth, Hartmut Kliemt, , Stefan Napel
Democratic Defenses and Destabilisations
The so-called paradox of democracy is approached as a variant of a more general class of so-called paradoxes of self-amendment. It is studied from a legal philosophy and a game theoretic point of view. Special attention is devoted to the risks and chances of inducing the foes of democracy to accept democratic rules by granting them a share in power. The upshot is that admitting democratic competition there are no foolproof defenses against democratic self-destabilisation.
#0618 (PDF)
Werner Güth, Hartmut Kliemt, M. Vittoria Levati, Geog von Wangenheim
On the Co-evolution of Retribution and Trustworthiness: An (Indirect) Evolutionary and Experimental Analysis
Standard economic explanations of good conduct in trade rely almost exclusively on future-directed extrinsic motivations induced by material incentives. But intrinsic motives to behave trustworthy and to punish untrustworthiness do support trade. In our model, intrinsically motivated players are aware of their own type and observe the population share of other types. The material success of various types and their co-evolution are analyzed, and it is checked whether the dynamics of the indirect evolutionary analysis are replicated in the laboratory.
#0617 (PDF)
Eva-Maria Steiger
Ex-Ante vs. Ex-Post Efficiency in Personal Bankruptcy Proceedings
Amidst a sharp increase in household debt levels, many countries have substantially reformed their consumer bankruptcy regulations. I first classify the mechanisms triggered by current U.S. and European bankruptcy regulations and then evaluate these mechanisms within a hidden action model. I analyze the consumer's incentives prior to distress and during a 'period of good conduct' following bankruptcy, appraising the capacity of existing regulations to implement those conflicting objectives. Though the institution of debt release provides adequate bankruptcy regulation ex-post, the prospect of debt release also distorts the debtor's choices prior to distress. I propose alternative regulations that provide superior incentives, minimizing the overall distortions at both dates. A numerical example illustrates the findings.
#0616 (PDF)
Werner Güth
Satisficing in Portfolio Selection - Theoretical Aspects and Experimental Tests
The satisficing approach with its three constituent processes, aspiration formation, satisficing, and aspiration adjustment, is formally elaborated for a specific class of portfolio selection tasks. It is partly poorly confirmed by experimental data, indicating that bounded rationality requires teaching or, respectively, consulting, and learning. It is also discussed and tested experimentally whether satisficing is task transcending (are there individual constants in satisficing behavior for related tasks?) and absorbable (do we stick to satisficing behavior when becoming aware of it?).
#0615 (PDF)
Werner Güth
Anspruchserfüllung und Portfolioauswahl - Theoretische Diskussion und experimentelle Evidenz
Das Anspruchserfüllungskonzept mit seinen Bausteinen "Anspruchsbildung, Anspruchserfüllung und Anspruchsanpassung" ist die zentrale Idee in der Theorie des eingeschränkt rationalen Entscheidens. Ähnlich wie die Rationalwahltheorie, die ohne kühne Einschränkungen, zum Beispiel der Präferenzen, kaum Schlussfolgerungen zulässt, offeriert das Anspruchserfüllungskonzept im wesentlichen nur eine – wenn auch überaus intuitive – Terminologie, aber kaum informative Vorhersagen über menschliches Entscheidungsverhalten. Unser Versuch, diesen Mangel zu beheben, verzichtet bewusst auf Allgemeinheit, ist dafür aber eng verknüpft mit parallelen experimentellen Studien.
#0614 (PDF)
Jeannette Brosig, Werner Güth, Torsten Weiland
Collusion mechanisms in procurement auctions: An experimental investigation
Collusive agreements are often observed in procurement auctions. They are probably more easily achieved when competitors' costs are easily estimated. If, however, the individual costs of bidders are private information, effective ring formation is difficult to realize. We compare experimentally different coordination mechanisms in a first-price procurement auction in how they promote the prospects of collusive arrangements. One mechanism allows bidders to coordinate by means of unrestricted pre-play communication. The second one enables bidders to restrict their bidding range and the last one gives them the opportunity to implement mutual shareholding. According to our results firstprice procurement is quite collusion-proof when allowing for the latter two coordination mechanisms whereas, on average, pre-play communication increases bidders' profits.
#0613 (PDF)
Sven Fischer, Andreas Nicklisch
Ex Interim Voting in Public Good Provision
We report the results of an experimental study that compares voting mechanisms in the provision of public goods. Subjects can freely decide how much they want to contribute. Whether the public good is finally provided is decided by a referendum under full information about all contributions. If provision is rejected, contributions are reduced by a fee and reimbursed. We compare unanimity with majority voting and both to the baseline of cheap talk. Contributions are highest under unanimity. Yet, results concerning overall efficiency are mixed. When provision occurs, only unanimity enhances efficiency. Overall, however, unanimity leads to too many rejections.
#0612 (PDF)
Werner Güth, Hartmut Kliemt, Georg v. Wangenheim
Verstehen, Verständigung, Vertrag - Ökonomik als Geistes-, Natur- und Staatswissenschaft
#0611 (PDF)
Gerlinde Fellner, Werner Güth, Ev Martin
Satisficing or Optimizing? - An Experimental Study
This experimental study investigates whether individuals prefer bounded rationality over rational choice theory when facing simple investment tasks. First, participants state some personal parameters that serve as an input to render a theoretical approach, namely satisficing or optimality, applicable. Then, they are guided through the decision making process where either 'satisficing' or 'optimality' is suggested and has to be implemented. The behavioral appeal of the two approaches is measured by the adjustments of personal parameters until accepting the investment decision suggested by theory. Additionally, a questionnaire is administered to elicit subjective contentment with the two approaches.
#0610 (PDF)
Werner Güth, M. Vittoria Levati, Matteo Ploner
Is Satisficing Absorbable? - An Experimental Study
We experimentally investigate whether the satisficing approach is absorbable, i.e., whether it still applies after participants become aware of it. In a setting where an investor decides between a riskless bond and either one or two risky assets, we familiarize participants with the satisficing calculus applied to specific portfolio selection tasks. After experiencing this calculus repeatedly, participants are free to use it or to select their portfolio freely. The results support, to some extent, the absorbability of the satisficing approach.
#0609 (PDF)
Gerlinde Fellner, Werner Güth, Ev Martin
Task Transcending Satisficing - An Experimental Study
The paper explores the applicability of bounded rationality theory. In particular, we investigate whether basic principles of aspiration formation and satisficing behavior are transferable between similar situations. Individuals are sequentially confronted with two risky investment tasks, a simple and a more complex one. Initially elicited state-contingent aspirations can be used to predict actual portfolio selection in both tasks. We explore whether individual characteristics of satisficing apply to both scenarios. Results indicate that stated aspirations frequently cannot be fulfilled. However, aspiration formation itself is highly transferable between tasks.
#0608 (PDF)
Werner Güth, Hartmut Kliemt, Stefan Napel
Population-Dependent Costs of Detecting Trustworthiness - An Indirect Evolutionary Analysis
If the (un)trustworthy are rare, people will talk about them, making their detection more reliable and / or less costly. When, however, both types appear in large numbers, detecting (un)trustworthiness will be considerably more difficult and possibly too costly. Based on Güth and Kliemt (2000) we analyze how the composition of a population of trustworthy, resp. untrustworthy individuals evolves if the cost and reliability of type detection depend on the population composition.
Luis M. Miller
The Double Nature of Conventions - An Experimental Analysis
This paper aims to integrate both economic and sociological notions of conventions in a single analytical framework. To this end, it starts by distinguishing conceptually between behavioral convention, i.e. an arbitrary but stable social regularity, and normative convention, i.e. a principle of action prescribing how to behave in a certain class of situations. A game theoretical framework to represent the interrelation between both concepts is then introduced. Finally, this relation is studied experimentally. The main results of the experiment are: (1) normative conventions have to be commonly known and accepted among subjects in order to work as guides to coordinate on behavioral conventions; (2) once subjects follow a normative convention they are highly consistent with it in a repeated environment; (3) efficiency concerns are focal in the class of games studied in this paper.
#0606 (PDF)
Max Albert
Product Quality in Scientific Competition
The paper presents a linear model of product quality in scientific competition. The only outputs of research are published papers; the only inputs are labor and papers by other researchers, which are cited when used. Researchers compete for status, measured as their rank in a citations count. If quality is hereditary in the production process, competition and self-fulfilling expectations can establish a quality scale.
#0605 (PDF)
Frédéric Koessler, Charles Noussair, Anthony Ziegelmeyer
Parimutuel Betting under Asymmetric Information
This paper examines simple parimutuel betting games under asymmetric information, with particular attention to differences between markets in which bets are submitted simultaneously versus sequentially. In the simultaneous parimutuel betting market, all (symmetric and asymmetric) Bayesian-Nash equilibria are generically characterized as a function of the number of bettors and the quality of their private information. There always exists a separating equilibrium, in which all bettors follow their private signals. This equilibrium is unique if the number of bettors is sufficiently large. In the sequential framework, earlier bets have information externalities, because they may reveal private information of bettors. They also have payoff externalities, because they affect the betting odds. One effect of these externalities is that the separating equilibrium disappears if the number of betting periods is sufficiently large.
This is an updated version of discussion paper #34-2003.
#0604 (PDF)
Werner Güth, Carsten Schmidt, Matthias Sutter
Bargaining Outside the Lab - A Newspaper Experiment of a Three-Person Ultimatum Game
In a large scale newspaper experiment 5,132 readers of the German weekly, Die Zeit, participated in a three-person bargaining game. In our data analysis we focus on (1) the influence of age, gender, profession and the medium chosen for participation on bargaining behavior and on (2) the external validity of student behavior (inside and outside the lab). We find that older participants and women care more about equal distributions and that Internet users are more self-regarding than those using mail or fax. Decisions made by students in the lab are rather similar to those made by students in the newspaper experiment. Furthermore, student behavior is not different from non-student behavior when the same age group is considered, indicating a high degree of external validity of student data.
This is an updated version of discussion paper #11-2002.
#0603 (PDF)
Werner Güth, Friederike Mengel, Axel Ockenfels
The Dynamics of Trust and Trustworthiness on EBay. An Evolutionary Analysis of Buyer Insurance and Seller Reputation
Applying an evolutionary framework, we investigate how a reputation mechanism and a buyer insurance (as used on Internet market platforms such as eBay) interact to promote trustworthiness and trust. Our analysis suggests that the costs involved in giving reliable feedback determine the gains from trade that can be obtained in equilibrium. Buyer insurance, on the other hand, can affect the trading dynamics and equilibrium selection. We find that, under reasonable conditions, buyer insurance crowds out trust and trustworthiness.
#0602 (PDF)
Johann Behrens, Werner Güth, Hartmut Kliemt, M. Vittoria Levati
Games that Doctors Play - Two-layered agency problems in a medical system
Medical doctors act as agents of their patients by either treating them directly or referring them to other more or differently specialized doctors, who thereby become "agents of agents". The main aim of this paper is to model central aspects of such two-layered agency relations in the medical sector. On the basis of our model, we draw some tentative conclusions concerning policy issues. In particular, we suggest relying on a strict separation of roles between diagnostic and therapeutic agents with counseling practitioners acting as gate-keepers of the medical system.
#0601 (PDF)
Eric Danan, Anthony Ziegelmeyer
Are preferences complete? An experimental measurement of indecisiveness under risk
We propose an experimental design allowing a behavioral test of the axiom of completeness of individual preferences. The central feature of our design consists in enabling subjects to postpone commitment at a small cost. Our main result is that preferences are significantly incomplete. We use lotteries as choice alternatives and we find that risk aversion is globally robust to preference incompleteness.

Papers 2005 [back to top] Top

#0541 (PDF)
Sven Fischer, Luis G. González, Werner Güth
(Un)Reliable Concessions in Static and Dynamic Bargaining Experiments
A two-persons bargaining problem often consists of initially incompatible demands that can be unilaterally reduced by sequential concessions. In a 2 x 2 x 2 - factorial design we distinguish between reliable and unreliable concessions, between a static and dynamic settings and between symmetric and asymmetric initial demands. Whereas reliable concessions change the threat point, unreliable concessions do not. In the dynamic setting each player's concession can be conditional on the previous history of play; in the static setting a player's concessions for all bargaining trials are determined at the beginning of the game. In all situations conflict is triggered if neither gives in, or if a maximum number of trials is reached without a feasible agreement. Although our results indicate that conflict is more likely if concessions are reliable, the overall effciency of both institutions is similar.
#0540 (PDF)
Andrea Morone, Ozlem Ozdemir
Measuring the Degree of Ambiguity about Probability: Experimental Evidence
Different from previous studies that use a best estimate, interval, or sets of probabilities, we represent the degree of ambiguity through levels of information provided to subjects. The willingness to pay is higher when more amount of information is provided.
#0539 (PDF)
Werner Güth, M. Vittoria Levati, Axel Ockenfels, Torsten Weiland
"Buying a pig in a poke": An experimental study of unconditional veto power
We study an ultimatum experiment in which the responder does not know the offer when accepting or rejecting. Unconditional veto power leads to acceptances, although proposers are significantly greedier than in standard ultimatum games, and this is anticipated by responders.
#0538 (PDF)
Katinka Pantz, Anthony Ziegelmeyer
Collaborative Networks in Experimental Triopolies
This paper experimentally investigates the interdependence between market competition and endogenously emerging inter-firm collaboration. We restrict attention to arrangements resulting from bilateral collaboration agreements that typically characterize real world applications in which the activity concerned is a core activity of the partnering firms and risk sharing, contract enforcement and protection of proprietory knowledge are central issues. We rely on a baseline model by Goyal and Joshi (2003) which formalizes the strategic formation of collaborative networks between firms that are competing on the same product market. This model predicts strategically stable patterns of inter-firm collaboration which are empirically observed but have been ruled out in the previous theoretical literature. In a two-stage game, firms decide to form bilateral collaboration links, whose formation is costly but reduces marginal production costs, before they compete in quantity on the market. We report the results of a series of experiments. The first experiment is designed as a straightforward theory-test simulating a one-shot interaction. We manipulate the cost of link formation in different treatments. Our data almost perfectly match the predictions for both stages whenever the link formation costs are extreme and the predicted networks symmetric (empty or complete networks). In the case of intermediate link formation costs where the predicted networks are asymmetric, subjects rarely form asymmetric networks. When they do, observed and predicted quantities are less in accordance than for symmetric networks. Collusion cannot account for the observed behavior. In our second experiment we reject the conjecture that these findings are driven out by experience in a setting in which we increase the implemented number of repetitions of the two-stage game. Finally, in our third experiment we reduce the complexity of the setting by transforming the original two-stage game into a one-stage game where the formation of inter-firm networks directly determines firms' payoffs. These are derived from assumed equilibrium market outputs on the here absent competition stage. In this case, observed networks coincide with the predicted ones indicating that experimental subjects' limited capacity to foresee the outcomes of the market stage may be driving the earlier discrepancies.
#0537 (PDF)
Kene Boun My, Francois Cochard, Anthony Ziegelmeyer
The Regulation of Nonpoint Emissions in the Laboratory: A Stress Test of the Ambient Tax Mechanism
We investigate the ability of the damage based tax mechanism to induce socially optimal outcomes in a controlled laboratory environment which incorporates important aspects of nonpoint pollution problems. Our experimental setting combines a strictly convex damage function with uncertainty in measuring the ambient level of pollution, indefinitely repeated interactions among heterogeneous polluters, limited information on the regulator's side about the polluters' profit functions, and, in half of the experimental conditions, limited information on the polluters' side about the strategic environment. We additionally investigate whether the relative position of the social optimum in the polluters' emission space has an impact on the efficiency of the fiscal instrument. In almost all implemented conditions, the observed total pollution level is not significantly different from the socially optimal level but compliance at the individual level is rarely observed. Experimental conditions in which polluters have to dramatically reduce their emissions in order to comply with the fiscal instrument lead to higher efficiency levels than those where compliance implies less dramatic reductions. Our most striking result is that less information on the polluters' side is beneficial from a social point of view as the performance of the damage based tax mechanism is higher the less information polluters have about the strategic environment.
#0536 (PDF)
Sven Fischer
Inequality Aversion in Ultimatum Games with Asymmetric Conflict Payoffs - A Theoretical and Experimental Analysis
Assuming inequality averse subjects as modeled by Fehr and Schmidt (1999) or in the ERC model by Bolton and Ockenfels (2000) in ultimatum games with asymmetric conflict payoffs allows to make predictions especially concerning responder acceptance thresholds. These predictions are tested in a laboratory experiment eliciting proposer offers and respondent's acceptance thresholds using the strategy vector method. By and large both models make good predictions. However, they are unable to convincingly explain the observed selfishness on behalf of responders in ultimatum games favoring them in conflict. Overall, observed behavior gives rise to a context dependent interpretation of inequality aversion and to Knez and Camerer's 1995 observation that subjects form 'egocentric assessments of fairness'.
#0535 (PDF)
Kene Boun My, Jean-Christophe Vergnaud, Marc Willinger, Anthony Ziegelmeyer
Strategic Delay and Rational Imitation in the Laboratory
This paper investigates market failures due to strategic delays. We test experimentally a discrete model of dynamic investment, where two privately informed agents have an option to invest at the time of their choice in the presence of waiting costs. The equilibrium outcome of our experimental game is characterized by efficient imitation but complete revelation of information is time consuming. In accordance with the equilibrium solution, subjects better informed take investment decision before subjects who are less informed and subjects' decisions exhibit rational imitation. Still, subjects do not play exactly in accordance with the equilibrium sequence and we interpret their deviations from equilibrium play as an attempt to internalize the information externalities.
#0534 (PDF)
Dennis A.V. Dittrich, Anthony Ziegelmeyer
Laboratory Bilateral Gift Exchange: The Impact of Loss Aversion
We present a systematic robustness test of the persistence of gift-exchanges in the laboratory. Our data clearly establish that the effect of social forces is dramatically crowded out by loss aversion. This was not observed before, as in other studies that allow for nominal losses participants were endowed with a substantial lump sum payment. We did not endow our participants with some initial wealth (they also got no show-up fee). Instead, participants were required to sign an agreement before the start of the experimental session in which they agreed to cover losses by either incomes from future participation in experimental sessions or by their own money. We conjecture that by providing some initial endowment to their participants, previous experimental studies have clearly failed to investigate the impact of losses on the level of gift exchange reported. Further, we observe a considerable between treatment variability in the effort-wage relation. Small lump-sum payments to the first-mover reduce the effort-wage slope significantly. A reduction in the profitability of effort increases the effort-wage slope.
#0533 (PDF)
Werner Güth, Kurt-Dieter Koschmieder, M. Vittoria Levati, Ev Martin
How to Preserve a Fortune: An Experimental Comparison of Foundations and Direct Transfers to the Heir
Direct transfers allow heirs to freely use what has been passed on to them. Bequeathers who do not trust their descendants to make proper use of the fortune may prefer investing it in a safe foundation, thereby limiting their descendants' autonomy. In our study we compare experimentally these two institutional arrangements. Although bequeather and descendant have specific personal interests, they agree in their concern for preserving the fortune. Our results show that bequeathers tend to trust their descendant. When transfers to the descendant are less efficient than investments in a foundation, due to, e.g., inheritance taxation, overall bequests decrease significantly.
#0532 (PDF)
Katinka Pantz, Anthony Ziegelmeyer
Cooperative Networks: Theory and Experimental Evidence
We consider a modified pure public good game characterized by a pre-play negotiation stage, on which pairs of players can form binding cooperation commitments. As the introduced mechanism only supports pairwise rather than more inclusive commitments, it does not implement the efficient outcome. We theoretically derive the incentive compatible and efficient cooperative networks and evaluate the behavioral efficacy of the suggested mechanism to promote and stabilize cooperation. We present the results of two separate experiments. The first experiment serves to provide necessary methodological prerequisites and establishes that neither repetition with an unknown end nor voluntary costly monitoring are behaviorally sufficient to induce cooperative outcomes. In the second experiment we introduce the pairwise commitment mechanism. We show that the mechanism induces aggregate cooperation rates not only beyond the rates observed under the voluntary contribution mechanism operationalized in the first experiment, but also beyond the rate which is supported by the formation of incentive compatible networks. We observe a large heterogeneity between groups: while some groups converge to full cooperation by managing to coordinate on the formation of efficient networks over time, both networks and cooperation rates unravel in other groups. An extended version of our theoretical setting with inequity averse players in the form suggested by Fehr and Schmidt (1999) captures the stylized facts of both experiments.
#0531 (PDF)
Christoph Vanberg
"One Man, One Dollar"? Examining the equalization argument in support of campaign contribution limits
Arguably the most important campaign finance regulations in U.S. federal elections are limits imposed on the amount that an individual or organization may donate to a federal campaign. Such contribution limits are advocated on two separate grounds. The first is that they prevent corruption, the second is that they democratize the financing of campaigns by equalizing the relative influence of donors. According to the latter argument, an equalization of donor influence is desirable because it causes campaign resources to more accurately reflect public support for candidates and their political ideas. I construct a formal model to illustrate this equalization argument in support of contribution limits. The analysis calls attention to a number of implicit assumptions underlying the corresponding money primary analogy for campaign fund-raising. The central assumption is that 1 a candidate's reliance on large contributions is an indicator of negative characteristics not revealed through her campaign communication. The model also suggests a method for testing this assumption, as it implies a negative relationship between a candidate's reliance on large contributions and her electoral success. Using data on elections to the House of Representatives between 1990 and 2002, I find no evidence that such a negative relationship exists. This empirical result casts doubt on the equalization argument in support of campaign contribution limits.
#0530 (PDF)
Susanne Büchner, Andreas Freytag, Luis G. González, Werner Güth
Bribery and Public Procurement - An Experimental Study
A procurement contract is granted by a bureaucrat (the auctioneer) who is interested in a low price and a bribe from the provider. The optimal bids and bribes are derived based on an iid private cost assumption. In the experiment, bribes are negatively framed (betweensubjects treatment) to capture that society is better off if bribes are rare or low. Although bids are lower than predicted, behavior is qualitatively in line with the linear equilibrium prediction. When bribes generate a negative externality, there is a significant increase in the variability of the data.
#0529 (PDF)
Robert E. Goodin, Werner Güth, Duncan Snidal
Strategic Aspects of Hegemony
Hegemony is a central feature of contemporary international politics but it remains seriously under-theorized. We draw on cooperative game theory to represent and analyze different aspects of hegemony. After developing a general conception of hegemony, we analyze the circumstances under which a Hegemon needs assistance from allies, examine when prospective allies have incentives to cooperate with or challenge Hegemon and evaluate the prospects for exploitation by Hegemon. Throughout, we connect the analytic analysis to the existing theories of international hegemony and illustrate the models with real world examples.
#0528 (PDF)
Andrea Morone, Ulrich Schmidt
An Experimental Investigation of Alternatives to Expected Utility Using Pricing Data
Experimental research on decision making under risk has until now always employed choice data in order to evaluate the empirical performance of expected utility and the alternative non-expected utility theories. The present paper performs a similar analysis which relies on pricing data instead of choice data. Since pricing data lead in many cases to a different ordering of lotteries than choices (e.g. the preference reversal phenomenon) our analysis may have fundamental different results than preceding investigations. We elicit three different types of pricing data: willingness-to-pay, willingness-to-accept and certainty equivalents under the Becker-DeGroot-Marschak (BDM) incentive mechanism. One of our main result shows that the comparative performance of the single theories differs significantly under these three types of pricing data.
#0527 (PDF)
Andrea Morone
Financial Market in the Laboratory, an Experimental Analysis of some Stylized Facts
This paper purports to provide experimental evidence explaining a number of stylized facts associated with the behaviour of financial returns, in particular, the fat tailed nature of their distribution and the persistence in their volatility. By means of a laboratory experiment, we will investigate the effect of quantity and quality of information, present in a financial market, upon its stylized facts, showing how both quality and quantity of information might have an impact on volatility clustering and the emergence of fat tail returns.
#0526 (PDF)
Werner Güth, M. Vittoria Levati, Matteo Ploner
On the social dimension of time and risk preferences: An experimental study
We report on an experiment designed to explore the interrelation of other-regarding concerns with attitudes towards risk and delay when the latter have a social dimension, i.e., pertain to one's own and another person's payoffs. For this sake, we compare evaluations of several prospects, each of which allocates either certain or risky and either immediate or delayed payoffs to the actor and to another participant. We find that individuals are mainly self-oriented as to social allocation of risk and delay, although they are other-regarding with respect to expected payoff levels.
#0525 (PDF)
Werner Güth, Wieland Müller, Jan Potters
Endogenous preemption on both sides of a market
We study a market in which both buyers and sellers can decide to preempt and set their quantities before market clearing. Will this lead to preemption on both sides of the market, only one side of the market, or to no preemption at all? We find that preemption tends to be asymmetric in the sense that it is restricted to only one side of the market (buyers or sellers).

published in: Economics Letters 93, 2006, 126-131.
#0524 (PDF)
Werner Güth
On Inequity Aversion
In close interaction, group allocations are often fair due to our desire to be treated fairly and to act fairly. When this desire conflicts with other strong motivations a typical reaction is to trade off fairness against these other concerns. Inequ(al)ity aversion allows capturing such trade off considerations in various ways (Bolton, 1991, Bolton and Ockenfels, 1998 and 2000, Fehr and Schmidt, 1999, are examples). Such trade off analysis measures how far one deviates from fairness what requires a unique fairness benchmark. More often than not there exist, however, multiple standards. In our view, this should not discourage using inequ(al)ity aversion altogether but limit it to where its prerequisites are granted.
#0523 (PDF)
Gerlinde Fellner, Werner Güth, Boris Maciejovsky
Satisficing in Financial Decision Making A Theoretical and Experimental Attempt to Explore Bounded Rationality
In this paper, we apply the bounded rationality approach to an investment situation. In a simple setting where an investor decides between a riskless bond and a risky asset, we distinguish three aspiration levels: a lowest threshold which one wants to guarantee, the aspiration level given by investing all risk-free, and an even higher return level representing a real success. The ranges for such aspirations are naturally determined by the parameters. These three aspirations allow us to classify investors as actual or only potential satisficers, as well as risk shy or more open to risk. In the experiment, participants are first asked for their lowest and highest aspiration before investing. Thus, we can test whether they behave as predicted by their aspiration type. By presupposing specific cardinal utility functions, we also compare the bounded rationality approach to the rational choice-approach.
#0522 (PDF)
Geoffrey Brennan, Luis G. Gonzalez, Werner Güth, M. Vittoria Levati
Attitudes toward Private and Collective Risks in Individual and Strategic Choice Situations
Idiosyncratic risk attitudes are usually assumed to be commonly known and restricted to own payoffs. However, the alternatives faced by a decision maker often involve risks for others' payoffs as well. Motivated by the importance of other-regarding preferences in social interactions, this paper explores idiosyncratic attitudes toward own and others' risks. We elicit risk attitudes in an experiment involving choices with and without strategic interaction.
#0521 (PDF)
Susanne Büchner, Werner Güth, Luis M. Miller
Conventions for Implementing Conventions An Evolutionary and Experimental Analysis
Conventions are interpreted in the narrow sense of coordinated equilibrium selection, i.e. a behavioral convention tells all players in a game with multiple strict equilibria which strict equilibrium to play. What we are interested in are more realistic environments where coordination takes place before learning about the games to be played. Here coordination aims at a normative convention, i.e. a principle of equilibrium selection, which selects a strict equilibrium for all games with multiple equilibria. In a subclass class of 2x2-bimatrix games with two strict equilibria we analyze the evolutionary stability of various normative conventions. In our experiment, we allow participants to first coordinate on a normative convention before playing various games. Agents in different treatments do this behind a complete (they know neither their role nor the game parameters), a partial (they know either their role or the game parameters) veil of ignorance, or with no ignorance (they know their role and the game parameters).
#0520 (PDF)
Andrea Morone
Comparison of Mean-Variance Theory and Expected-Utility Theory through a Laboratory Experiment
In the 40's and early 50' two decision theories were proposed and have since dominated the scene of the fascinating field of decision-making. In 1944 - when von Neumann and Morgenstern showed that if preferences are consistent with a set of axioms then it is possible to represent these preferences by the expectation of some utility function - Expected Utility theory provides a natural way to establish "measurable utility". In the early 50's Markowitz introduced the Mean-Variance theory that is the basis of modern portfolio selection theory. Even if both models were analyzed from virtually all possible points of view; although they were tested against several generalizations; even though they seem to be the most attractive theories of decision making, they were never tested against each other. This paper will try to fill this gap. It investigates, using experimental data, which of these two models represent a better approximation of subjects' preferences.
#0519 (PDF)
Werner Güth, M. Vittoria Levati, Matteo Ploner
The impact of payoff interdependence on trust and trustworthiness
In one-shot investment game experiments where each player's payoff is a convex combination of own and other's profit, trust remains unaffected by the extent of interdependence whereas trustworthiness reacts positively to it.
#0518 (PDF)
Ben Greiner, Werner Güth, Ro'i Zultan
Let the Dummy Talk! - Unilateral Communication and Discrimination in Three-Person Dictator Experiments
To explain why pre-play communication increases cooperation in games, one refers to a) strategic causes such as efficient communication or reputation effects, and b) changes in the utilities due to social processes. Hitherto experimental support for both explanations is mixed and confounded. Our experimental design eliminates all strategic factors and allows to focus on the effects of communication processes. We clearly find social effects, but none of revealed anonymity or salient communication. The social processes invoked are very heterogeneous but not irregular for different communicators.
#0517 (PDF)
M. Vittoria Levati, Matthias Sutter, Eline van der Heijden
Leading by example in a public goods experiment with heterogeneity and incomplete information
We study the effects of leadership on the private provision of a public good when group members are heterogeneously endowed. Leadership is implemented as a sequential public goods game where one group member contributes first and all the others follow. Our results show that the presence of a leader increases average contribution levels, but less so than in case of homogeneous endowments. Leadership is almost ineffective, though, if subjects do not know the distribution of endowments. Granting the leaders exclusion power does not lead to significantly higher contributions.
#0516 (PDF)
James B. Davies, Martin G. Kocher, Matthias Sutter
Economics research in Canada: A long-run assessment of journal publications
We examine the publications of authors affiliated with an economics research institution in Canada in (i) the Top-10 journals in economics according to journals' impact factors, and (ii) the /Canadian Journal of Economics/. We consider all publications in the even years from 1980 to 2000. Canadian economists contributed about 5% of publications in the Top-10 journals and about 55% of publications in the /Canadian Journal of Economics /over this period. We identify the most active research centres and identify trends in their relative outputs over time. Those research centres successful in publishing in the Top-10 journals are found to also dominate the /Canadian Journal of Economics/. Additionally, we present data on authors' Ph.D.-origin, thereby indicating output and its concentration in graduate education.
#0515 (PDF)
Gerlinde Fellner, Matthias Sutter
Causes, consequences, and cures of myopic loss aversion - An experimental investigation
Myopic loss aversion (MLA) has been established as one prominent explanation for the equity premium puzzle. In this paper we address two issues related to the effects of MLA on risky investment decisions. First, we assess the relative impact of feedback frequency and investment flexibility (via the investment horizon) on risky investments. Second, given that we observe higher investments with a longer investment horizon, we examine conditions under which investors might endogenously opt for a longer investment horizon in order to avoid the negative effects of MLA on investments. We find in our experimental study that investment flexibility seems to be at least as relevant as feedback frequency for the effects of myopic loss aversion. When subjects are given the choice to opt for a long or short investment horizon, there is no clear preference for either. Yet, if subjects face a default horizon (either long or short), there is rather little switching from the one to the other horizon, showing that a default might work to attenuate the effects of MLA. However, /if/ subjects switch, they are more often willing to switch from the long to the short horizon than vice versa, suggesting a preference for higher investment flexibility.
#0514 (PDF)
Uwe Cantner, Andreas Nicklisch, Torsten Weiland
Innovation races: An experimental study on strategic research activities
In an experimental setting, firms in a duopoly market engage in a patent tournament and compete for profit-enhancing product advancements. The firms generate income by matching exogenously defined demand preferences with an appropriately composed product portfolio of their own. Demand preferences are initially unknown and first need to be revealed by an investigation of the possible product variations. The better firms approximate demand preferences, the higher their profits. In the ensuing innovation race, firms interact through information spillovers resulting from the imperfect appropriability of research successes. In the random period of the experiment, the continuity of the search process is disturbed by an exogenous shock that affects both the supply and demand side and again spurs research competition. Firms may henceforth explore an enlarged product space in attempting to match the equally modified demand preferences. In our analysis, we explore the behavioral regularities of agents who are engaged in innovation activities. As a key element we test to what extend relative economic performance exercises a stimulating effect on the implementation of innovation and imitation strategies.
#0513 (PDF)
Jürgen Huber, Michael Kirchler, Matthias Sutter
Is more information always better? Experimental financial markets with asymmetric information
We study the value of information in financial markets by asking whether having more information always leads to higher returns. We address this question in an experiment where single traders have different information levels about an asset's intrinsic value. In our treatments we vary the nature of the information and the trading mechanism. We find that only the very best informed traders (i.e. insiders) significantly outperform less informed traders. However, there is a wide range of information levels (from zero information to an average information level) where additional information does not yield higher returns. The latter result implies that the value of information is not strictly monotonic.
#0512 (PDF)
Frédéric Koessler, Charles Noussair, Anthony Ziegelmeyer
Individual Behavior and Beliefs in Experimental Parimutuel Betting Markets
We study experimental parimutuel betting markets with asymmetrically informed bettors. We propose a theoretical model, the Adaptive Model, which serves as our source of null hypotheses about individual behavior and the capacity of the markets to aggregate information. In one treatment, groups of eight participants bet against each other in twenty repetitions of a sequential betting market. The second treatment is identical, except that bets are observed by other participants who assess the winning probabilities of each outcome. In the third treatment, the same individuals place bets and assess the winning probabilities of the outcomes. A favorite-longshot bias is observed in the first and second treatments, but it is sharply reduced in the third treatment. Information aggregation is better in the third than in the other two treatments, because contrarian betting is almost completely eliminated by the belief elicitation procedure. Placing bets improves the accuracy of belief statements. A statistical generalization of the Adaptive Model explains the data very effectively.
#0511 (PDF)
Werner Güth, Nikos Nikiforakis, Hans-Theo Normann
Vertical Cross-Shareholding Theory and Experimental Evidence
This paper analyses vertical cross-shareholding, that is, the mutual holding of a minority of shares between vertically related firms. We investigate the conditions under which cross-shareholding improves efficiency. First, we explore the issue in a game-theoretic model and find that cross-shareholding is sufficient to obtain the first-best solution. We then proceed by testing these predictions experimentally. Our findings are that the theory predicts the sellers' decisions accurately and to some extent the price of the buyers. Cross-shareholding appears to occur more frequently than predicted and it enhances efficiency even where not predicted.
#0510 (PDF)
Robert E. Goodin, Werner Güth, Rupert Sausgruber
When to Coalesce: Early versus Late Coalition Announcement in an Experimental Democracy
In multi-party democracies, several parties usually have to join together in coalition to form government. Many aspects of that process have been fairly fully investigated, others less so. Among the latter is the timing of the formation and announcement of coalitions. While the dominant popular image may be one of parties meeting together after the election to hammer out a coalition agreement, pre-election coalitions of one sort or another are actually quite common. In almost half of the elections in OECD countries since World War II, at least one pair of parties had pre-announced their intention to join together in government. A quarter of governments formed were based wholly (and another quarter in part) on pre-election agreements. To date, such studies as there have been of pre-election coalitions have concentrated primarily on system-level explanations - features of the electoral system (majoritarian or proportional, and so on) that make such arrangements more or less likely. Here we shall instead look more at the agent-level logic of 'early' (preelection) versus 'late' (post-election) coalition formation, from the point of view of voters and parties.
#0509 (PDF)
Annamaria Fiore, Andrea Morone
Is playing alone in the darkness sufficient to prevent informational cascades?
Seminal models of herd behaviour and informational cascades point out the existence of information negative externalities, and propose to destroy information in order to achieve social improvements. Although in the last years many features of herd behaviour and informational cascades have been studied, this particular aspect has never been extensively analysed. In this article we investigate, both theoretically and experimentally, whether and to which extent destroying information can improve welfare.
#0508 (PDF)
Dorothea Alewell, Colette Friedrich, Werner Güth, Wiebke Kuklys
Fair Wages and the Co-Employment of Hired and Rented Hands - An Experimental Study
A firm with stochastic demand can rely on hired hands when demand is low and rent additional labour when demand is higher. For high demand this implies the co-employment of hired hands, paid directly by the firm, and of rented hands who are paid by a rental agency. This may cause severe problems if wages differ systematically between hired and rented hands. Will rented hands accept lower wages than hired hands? Or will rented hands demand higher wages as a compensation for flexibility? Fairness norms might play an important role in wage-setting decisions. We will explore theoretically and experimentally possible fairness considerations of the involved parties.
#0507 (PDF)
Andreas Nicklisch, Leon Zucchini
Dynamic Efficiency of Emission Trading Markets: An Experimental Study
This study investigates the dynamic efficiency of an emission regulation regime where companies competitively pay for emission licences. We embed the emission licence market in a Cournot model where the price of emission licences is subject to strategic tradeoff between licences and abatement technologies. Unlike the standard Cournot model, agents have two action parameters, quantities bought on the licence market and investments into abatement technology. We want to investigate the implications of this market design on the strategic behavior regarding companies' incentives to invest in those technologies. Data from a series of laboratory experiments supports the theoretical predictions for subjects' investment into abatement technology. With respect to the adaptation process of individual quantities for licences we find that a majority of subjects adjusts on the market by imitation while a minority entertains a trial and error notion.
#0506 (PDF)
Werner Güth, M. Vittoria Levati, Matteo Ploner
The Effect of Group Identity in an Investment Game
The present research experimentally examines the influence of group identity on trust behavior in an investment game. In one treatment, group identity is manipulated only through the creation of artificial (minimal) groups. In other treatments group members are additionally related by outcome interdependence established in a prior public goods game. In moving from the standard investment game (where no group identity is prompted) to minimal group identity to two-dimensional group identity, we find no significant differences in trust decisions. However, trust is significantly positively correlated with contribution decisions. This suggests that cooperative attitudes are idiosyncratic preferences, which are not affected by the creation of an arbitrary group identity.

published in: Boicho Kokinov (ed.), Advances in Cognitive Economics, 2005, 262-270, NBU Press.
#0505 (PDF)
Luis G. González, Graciela González-Farías, Vittoria Levat
Logit estimation of conditional cooperation in a repeated public goods experiment
A conditional cooperator in a public goods game wants to match his partners' expected contribution. We investigate theoretically and empirically whether (and to what extent) conditional cooperation can explain how individual contributions evolve in a repeated two-person public goods experiment using a perfect strangers design. To identify a random utility model including non-pecuniary preferences we elicit participants' beliefs. Our econometric results show that the distribution of preferences in the population can be captured by a latent-class mixed logit specification with three subpopulations, and that 55% of participants can be regarded as conditional cooperators. Thus, the decline in average contribution levels may be attributed to the presence of conditional cooperators who have to revise their expectations about the others' behavior.
#0504 (PDF)
Werner Güth, Judit Kovács
Effective equity experiences from an ultimatum experiment
According to our results more than half of the responders did not buy reward information (30 out of 55). Buying reward information on average did not help the responder nor did it improve efficiency. Surprisingly, commonly known reward information resulted in a lower share of efficient offers. A possible explanation is that mistrust distracts attention.
#0503 (PDF)
Dennis A. V. Dittrich, Werner Güth, Martin Kocher, Paul Pezanis-Christou
Loss aversion and learning to bid
Bidding challenges learning theories since experiences for the same bid vary stochastically: the same choice can result in a gain or a loss. In such an environment the question arises how the nearly universally documented phenomenon of loss aversion affects the adaptive dynamics. We analyze the impact of loss aversion in a simple auction for different learning theories. Our experimental results suggest that a version of reinforcement learning which accounts for loss aversion fares as well as more sophisticated alternatives.
#0502 (PDF)
Gary Bornstein, Martin G. Kocher, Tamar Kugler, Matthias Sutter
Trust between individuals and groups: Groups are less trusting than individuals but just as trustworthy
We compared the behavior of groups and individuals in a two-person trust game. The first mover in this game, the sender, receives an endowment and can send any part of it to the responder; the amount sent is tripled, and the responder can then return to the sender any portion of the tripled sum. In a 2x2 design, the players in the roles of sender and responder were either individuals or groups of three players (who conducted face-to-face discussions to decide on a collective group strategy). We found that groups in the role of sender sent smaller amounts than individuals, and expected lower returns. In particular, groups sent nothing more often than individuals did (and were more likely to do so when the responder was another group). Groups and individuals in the role of responder returned on average the same fraction of the amount sent. Hence, we conclude that groups are less trusting than individuals, but just as trustworthy.
#0501 (PDF)
Luis G. González
Approximate Quantal Response Equilibria in Bargaining
The Nash Bargaining problem in the context of a random utility model yields a stochastic demand for each player, conditional on his or her beliefs regarding the other player's behavior. We derive a symmetric logit equilibrium under naive expectations that converges to the Nash axiomatic solution as noise in utility vanishes. A numerical approximation to the symmetric logit equilibrium under rational expectations (Quantal Response Equilibrium) solution is also computed.

Papers 2004 [back to top] Top

#0438 (PDF)
Geoffrey Brennan, Werner Güth, Hartmut Kliemt
Approximate Truth in Economic Modelling
Economic intuitions concerning rational behaviour in interactive social situations are shaped by idealized models which are regarded as "approximately true". But ideal models cannot be meaningfully deemed approximately true unless asymptotically convergent processes imply them as limit cases. We illustrate by various examples - infinitely patient customers on durable monopoly markets, homogeneity of commodities, super-games etc. - how this necessary methodological requirement is almost routinely neglected. On this basis we draw some conclusions concerning the continuity between abstract and less abstract models on the one and the world modelled by them on the other hand.
#0437 (PDF)
Siegfried Berninghaus, Werner Güth, Hartmut Kliemt
Conventions - Some Conventional and Some Not So Conventional Wisdom
In this paper we consider conventions as regularities in behavior which help to solve coordination problems in a society. These problems can be formalized as non-cooperative games with several equilibria. We know that in such situations serious problems of equilibrium selection arise which cannot be solved by traditional game theoretical reasoning. Conventions seem to be a powerful tool to solve equilibrium selection problems in real world societies. Essentially, two questions will be addressed in this paper: a) Which conventions will emerge in a society? b) How can a society break away from an inferior and reach a superior convention? It turns out that "risk dominance" of a convention plays a crucial role in dealing with both questions and generally in the evolution of conventions.

published in: Homo Oeconomicus 22(2), 2005, 148-168.
#0436 (PDF)
Andreas Nicklisch
Express Yourself: The Price of Fairness in a Simple Distribution Game
A simple two-person distribution game similar to the ultimatum game is introduced. However, unlike the standard ultimatum game, responders can determine the payoff for the proposer in case of rejection. Therefore, they can express their concerns in monetary quantities. The experimental data are analyzed with respect to inequity aversion and intended punishment. The analysis casts doubt on a single motivation of responders' actions, but supports a combination of reciprocity and inequity aversion. Based on these findings, the data support a simple model for distribution preferences based on an increasing price for exposing responders to unkind offers.
#0435 (PDF)
Carsten Schmidt, Ro'i Zultan
Unilateral face-to-face communication in ultimatum bargaining - A video experiment
It is commonly accepted that face-to-face communication induces cooperation. The experiment disentangles communication and social effect (replication of Roth, 1995) and examines the components of the social effect with the help of unilateral communication. Results suggest that separate processes, both of a strategic and of an affective-social nature may induce cooperative outcomes in ultimatum bargaining with pre-play communication, depending on the communication protocol. Unilateral communication is found to have weaker effects than bilateral communication, and affects especially the recipient of the communication.
#0434 (PDF)
Werner Güth, Hartmut Kliemt
The rationality of rational fools - The role of commitments, persons and agents in rational choice modeling
Subjective payoffs that represent given preferences "all things considered" together with strictly uncommitted opportunity taking cannot account for the behavior of personal actors. It is shown how agent based approaches can explicitly capture internal commitments of persons while sticking to conventional utility cum probability representations of desires and beliefs. However, if rational choice modeling is taken to this extreme, conventional analyses in terms of reasoning become implausible since sub-personal agents are not persons endowed with higher cognitive faculties. Starting from preference representations without looking into the black box of mental processes will hinder theoretical progress.
#0433 (PDF)
Werner Güth, M. Vittoria Levati, Georg von Wangenheim
Relatives Versus Neighbors - An Experiment Studying Spontaneous Social Exchange
Social institutions regulating group conduct have been regarded as necessary for human cooperation to transcend family bonds. However, many studies in economics and biology indicate that reciprocity based on repeated interaction su_ces to establish cooperation with non-kin. We shed light on the issue by a voluntary social exchange experiment where related (via mutual shareholding) players coexist with unrelated ones. Systematically varying the degree of shared interests and the length of the time horizon, we provide evidence that repeated interactions play a crucial role in human cooperation, although humans remain attentive to relatedness.
#0432 (PDF)
Boris Maciejovsky, David V. Budescu
The Effect of Monetary Feedback and Information Spillovers on Cognitive Errors: Evidence from Competitive Markets
A vast literature shows that individuals frequently violate normative principles in reasoning. In evaluating the relevance of these findings for psychology, economics, and related disciplines, it is natural to ask whether reasoning errors reflect random aberrations or systematic biases. One straightforward way to approach this question is to test their persistence at the aggregate level. In this paper, we report results of four studies designed to determine if information dissemination in competitive auctions can reduce, or even eliminate, logical errors in the Wason selection task. Our results show that payoff feedback and exposure to the information flow drive the aggregate behavior toward the normative solution. We also found evidence of spillover effects from informed to uninformed traders in one-sided combinatorial auctions as well as positive transfer effects from competitive to individual settings. We discuss the implication of our results for future research at the interface of psychology and economics.

published as: "The effect of payoff feedback and information pooling on reasoning errors: Evidence from experimental markets" in: Management Science, 51(12), 2005, 1829-1843.
#0431 (PDF)
Martin Kocher, Sabine Strauß, Matthias Sutter
Individual or team decision-making - Causes and consequences of self-selection
Even though decision-making in small teams is pervasive in business and in private life, little is known about subjects' preferences with respect to individual and team decision-making and about the consequences of respecting these preferences. We report the results from an experimental beauty-contest game, where subjects could endogenously choose their preferred way of decision-making. About 60% of subjects prefer to act in a team, and teams win the game significantly more often than individuals. Nevertheless, both individuals and team members are highly satisfied with their chosen role, but for different reasons.Even though decision-making in small teams is pervasive in business and in private life, little is known about subjects' preferences with respect to individual and team decision-making and about the consequences of respecting these preferences. We report the results from an experimental beauty-contest game, where subjects could endogenously choose their preferred way of decision-making. About 60% of subjects prefer to act in a team, and teams win the game significantly more often than individuals. Nevertheless, both individuals and team members are highly satisfied with their chosen role, but for different reasons.

published in: Games and Economic Behavior, vol. 56/2, 2006, 259-270.
#0430 (PDF)
Tanga McDaniel, Andreas Nicklisch
Prices as indicators of scarcity - an experimental study of a multistage auction
The price mecanism is the primary means of information transfer in decentralized economic systems. High prices indicate high demand, whereas low prices indicate low demand. Thus prices are the signals for accelerating or slowing production. However, using sequential, multi-unit auctions, we show that the price mechanism fails to be beneficial for producers in every case. As an example we discuss auctions for future access rights to a network. We use experiments to show that the incentives for free-riding inherent in auctions for future access provide inaccurate signals for investment.
#0429 (PDF)
Werner Güth, M. Vittoria Levati, Matthias Sutter, Eline van der Heijden
Leadership and cooperation in public goods experiments
Leadership is important for the well-functioning of organizations. We examine the effects of leadership on contributions in public goods experiments. Leadership by example is implemented by letting one group member contribute to the public good before followers do. Such leadership increases contributions in comparison to the standard voluntary contribution mechanism, especially so when it goes along with authority, which we implement by granting the leader ostracism power. Whether leadership is fixed or rotating among group members has no significant influence on contributions. Only a minority of groups succeeds in endogenously installing a leader, even though groups with leaders are much more efficient than groups without a leader.
#0428 (PDF)
Gerlinde Fellner
Illusion of control as a source of poor diversification: An experimental approach
This paper investigates factors influencing individual portfolio allocations with particular focus on the role of illusion of control. By forming their portfolio of two risky lotteries and one risk-less alternative, subjects are requested to reach a target investment profit, whereby equal diversification between the two risky lotteries is part of the solution space. Subjects however excessively invest in the lottery for which they can determine the outcome by rolling the die themselves indicating that they are prone to illusion of control. However, the effect vanishes with experience. In contrast, presenting random sequences of prior outcomes reduces biased investments. In line with the excessive extrapolation hypothesis, the more positive outcomes observed from past draws, the more likely is a positive prediction for this lottery, which is then followed by higher investment. Also, offering a default portfolio strongly determines final allocations.
#0427 (PDF)
Werner Güth, Hartmut Kliemt
Bounded Rationality and Theory Absorption
In plausible theories of bounded rationality actors are not stimulus-response machines but human beings. As such they are guided by theories that predict the course of the world and prescribe how they should try to intervene in that course. Since boundedly rational human beings cannot only observe but can also modify their theories, in particular if they are not satisfied with the results, a self-application of concepts of boundedly rational behavior to theory choice and an inquiry of theory absorption seems natural. The paper explores by means of specific examples some issues that are raised by combining the concept of satisficing behavior with that of theory absorption.

published in: Homo Oeconomicus, 21(3/4), 2004, 521-540
#0426 (PDF)
Andreas Nicklisch
Perceiving strategic environments - An experimental study of strategy formation and transfer
Within the setting of two simple two-person coordination games the formation of subjective strategies is observed experimentally. Though the structure of the game is unknown players use their actions in order to coordinate on a specific equilibrium. Strategies enable them to interpret the opponent's behavior in an appropriate way. It turns out that more informed players coordinate faster while the strategy of less informed players is more robust with respect to changes in the game structure.
#0425 (PDF)
G. González, Werner Güth, Wiebke Kuklys
The Consistency Axiom - An Experimental Study
If a strict equilibrium is suggested as the solution of a strategic game in normal form and if some but not all players are committed to their solution strategy, a reduced game results with only the still non-committed as active players. The reduced game property (or consistency axiom) demands that the solution of the reduced game is given by the original solution strategies of its active players. However, postulating the reduced game property is asking for too much: consistent equilibrium selection in general is not possible if certain other requirements (existence and optimality) are granted (Norde et al., 1996). Does the reduced game property have at least some behavioral appeal? We test this experimentally by confronting players with a solution proposal before letting them decide both for the original game and for its reduced games.
#0424 (PDF)
Luis G. González, Ruslan Gurtoviy
How Much to Pay in Cash? Employee Retention via Stock Options
We model deferred compensation as a share of an uncertain future profit granted by a financially constrained employer to her employee in mutual agreement. Deferred compensation serves as a retention mechanism, helping the employer to avoid bankruptcy. The optimal combination of cash and deferred payments that a firm can use to retain qualified personnel depends on the cost of new credit and bank-ruptcy risk: If interest rates are greater (smaller) than the ex-ante odds of bankruptcy, the employer will to defer compensation (pay in cash) to the employee. The employee always improves his position in the labor market if imminent bankruptcy is avoided.
updated version (2008/08)
#0423 (PDF)
Eric Danan, Anthony Ziegelmeyer
Are preferences incomplete? An experimental study using flexible choices
Completeness, the most commonly assumed axiom in preference theory, has not received much attention from the experimental literature. Indeed, incomplete preferences model a cognitive phenomenon (an agent's inability to compare alternatives), and therefore cannot be directly revealed through choice behavior. Implementing a solution to this methodological issue recently proposed by Danan [A behavioral model of individual welfare, mimeo EUREQua University Paris 1, 2003], we build an experimental protocol involving choices among menus of lotteries, and reveal cognitive preferences' incompleteness by means of the concept of preference for flexibility. Our experimental protocol is designed to assess the descriptive validity of the completeness axiom, as well as to relate its possible violations to lotteries' riskiness. Two-thirds of the subjects whose choices reveal preferences in accordance with the underlying theory exhibit a strictly positive measure of incompleteness. The observed average measure of incompleteness equals approximately 17 percent and it is significantly greater than 10 percent. We do not find a significant relationship between a lottery's riskiness and its cognitive comparability with certain payoffs.
#0422 (PDF)
Siegfried K. Berninghaus, Werner Güth, Annette Kirstein
Trading Goods versus Sharing Money - An Experiment Testing Whether Fairness and Efficiency are Frame Dependent
Systematic experiments with distribution games (for a survey, see Roth, 1995) have shown that participants are strongly motivated by fairness and efficiency considerations. This evidence, however, results mainly from experimental designs asking directly for sharing monetary rewards. But even when not just one kind of monetary tokens is distributed efficiency and fairness are less influential. We investigate and confirm this frame dependency more systematically by comparing net-trade-proposals and payoff-proposals for the same exchange economy with two traders, two commodities and multi-period-negotiations.
#0421 (PDF)
Werner Güth, Hartmut Kliemt
The evolution of trust(worthiness) in the net
Due to the shadow of the future, exchange and the division of labor can be self-organizing on a small scale while it seems impossible for large interaction systems. The paper indicates that the survival conditions for trustworthiness can be met even in large interaction systems and large markets can emerge or be created without the helping hand of the state and its legal staff. Relying on an "indirect evolutionary approach" necessary conditions for the evolutionary stability of trustworthiness in large interaction systems in general are characterized. More specifically, the main results of our indirect evolutionary approach to trust suggest that trustworthiness must exist and be detectable if good conduct in trust-relationships is to survive. If so there is a niche for an organization offering the costly service of facilitating transactions and of keeping track of the conduct of participants on the net. We compare traits of an organizational design as suggested by economic reasoning with those that actually emerged in form of, for instance, eBay and ask whether eBay will increasingly have to "economize on virtue" although it so far could rely on its spontaneous provision.

published in: Analyse & Kritik 26, 2004, 203-219.
#0420 (PDF)
Luis G. González, Werner Güth, M. Vittoria Levati
The Blues Goes On But When Does It Stop? Public Goods Experiments with Non-Definite and Non-Commonly Known Time Horizons
A robust finding of repeated public goods experiments is that high initial contribution rates sharply decline towards the end. This paper reports on an exploratory experiment designed to discover whether such a decline is simply triggered by the usual experimental practice of publicly informing participants about the exact number of periods to be played. The experiment compares punctual to interval information about the number of repetitions, whereby interval information can be privately or commonly known as well as symmetric or asymmetric. The results indicate that, while the overall average contribution levels do not change significantly across treatments, asymmetric information about the time horizon reduces the frequency of end-game effects.

published as: "When does the game end?" in: Economics Letters 88(2), 2005, 221-226.
#0419 (PDF)
Martin Dufwenberg , Werner Güth
The Psychological Game of Trust
Two traditional assumptions in neo-classical economics have been material self-interest and (commonly known) decision rationality. Since there is ample contradictory empirical evidence, many recent attempts have been made to remodel the situation so that rational behavior is more in line with actual results (game fitting). Here we concentrate on intrinsic let-down aversion whose strength can depend on the relative frequency of such concerns, i.e. on a sociological aspect, and examine how these ideas apply to a game of trust. We discuss whether the flexibility of the approach is a virtue or a vice.
#0418 (PDF)
Dennis A.V. Dittrich
Wages, Length of Relationship and Bargaining Power: An experimental study in a world of complete contracts
To explain potential sources of wage rigidity this article analyzes a model of reciprocal kindness applied to a repeated ultimatum game with changing and nonzero conflict payoffs. The model is also tested in a laboratory experiment. The results are compatible with the rentsharing approach to wage rigidity. Wages adjust to 'market pressure' but are less flexible when employees demand their wages, i. e. when they are in a relatively strong bargaining position.
#0417 (PDF)
S. K. Berninghaus, Werner Güth, Katinka Pantz, Bodo Vogt
Evolution of Spontaneous Social Exchange - An Experimental Study
Each of several exchange partners is the monopoly owner of a specific commodity which she can share with others. It is optimal to keep the own endowment, but all would gain by mutual gift exchange. Participants play the game repeatedly in constant groups (partner design) and can establish stable exchange relations over time. Will they include all group members, as suggested by efficiency, will early exploiters be permanently isolated (ostracism) and will groups become more efficient over time? To answer these questions the game is repeated once with a new group. We also vary the group size.
#0416 (PDF)
Erich Kirchler, Boris Maciejovsky, Martin Weber
Framing Effects, Selective Information and Market Behavior ­ An Experimental Analysis
The results of an asset market experiment, in which 64 subjects trade two assets on eight markets in a computerized continuous double auction, indicate that objectively irrelevant information influences trading behavior. Moreover, positively and negatively framed information leads to a particular trading pattern, but leaves trading prices and trading volume unaVected. In addition, we provide support for the disposition eVect. Participants who experience a gain sell their assets more rapidly than participants who experience a loss, and positively framed subjects generally sell their assets later than negatively framed subjects.

published in: Journal of Behavioral Finance 6(2), 2005, 90-100.
#0415 (PDF)
Matthias Sutter
Are four heads better than two? An experimental beauty-contest game with teams of different size
We examine the influence of team size on decision making in a beauty-contest experiment. Teams with four members outperform teams with two members and single persons significantly, whereas the latter two types of decision makers do not differ.

published in: Economics Letters 88(1), 2005, 41-46.
#0414 (PDF)
Victoria Büsch, Svenn-Age Dahl, Dennis A.V. Dittrich
Age Discrimination in Hiring Decisions - A Comparison of Germany and Norway
The workforce in all industrialized countries is aging. To forecast future challenges, it is important to understand the impact of a worker's age on the labor market. In this paper, we analyze whether older workers in Germany and Norway are treated differently in the hiring process. Students and personnel managers from both countries answered a questionnaire regarding the evaluation of three different applicants with varying age specifications and the respective hiring decisions. The investigation clearly shows that in Germany older applicants have a much lower hiring probability. In Norway, age does play a smaller role in hiring decisions.
#0413 (PDF)
Carsten Schmidt, Tobias Uske (Friedrich-Schiller-Universität Jena)
Reputationsmechanismen für Informationsgüter auf Internet-Meinungsportalen
In dieser Arbeit wird die gemeinschaftliche Produktion eines Informationsgutes unter besonderer Berücksichtigung des Reputationsmechanismus am Beispiel von Ciao.com empirisch untersucht. Es werden die Mechanismen der erfolgreichen Interaktion zwischen privaten Personen, die zur gemeinschaftlichen Bereitstellung von Informationsgütern führen, dargestellt und mit den bekannten Mechanismen des Handels von physischen Gütern im Internet verglichen. Insbesondere wird festgestellt, dass sich Investition in Reputation durch eine höhere Leserate der verfassten Produktevaluierungen monetär auszahlt. Es zeigt sich, dass die direkte Bewertung des Produktberichts durch die Leser nur bedingt informativ ist, da erfahrene Autoren fast ausschließlich besonders nützlich bewertete Produktevaluierungen verfassen. Die Leseraten von Produktberichten von unerfahrenen Autoren werden durch die direkte Bewertung des Produktberichts nicht signifikant beeinflusst und lassen insbesondere neuen Mitgliedern Spielraum für Freifahrertum.
#0412 (PDF)
Werner Güth, Rupert Sausgruber (University of Innsbruck)
Tax Morale and Optimal Taxation
We study experimentally how taxpayers choose between two tax regimes to fund a public good. The first-best tax regime imposes a general, distorsion-free income tax. However, this tax cannot be enforced. The second-best alternative supplements the income tax by a specific commodity tax. This tax cannot be evaded but distorts optimal consumption choices, instead. The result is that a large majority of subjects prefer the general income tax regime. The bulk of votes is consistent with actual payoffs. We isolate tax morale as cause for payoffs above theoretical predictions.
#0411 (PDF)
Wiebke Kuklys
Measuring Standard of Living in the UK - An Application of Sen's Functioning Approach Using Structural Equation Models
This paper contributes to the multidimensional welfare measurement literature inspired by Sen's functioning approach. After reviewing the different statistical techniques used in multidimensional welfare measurement, we suggest structural equation modelling as an appropriate alternative to measure and model the achievement of welfare. Functionings are conceptualised as latent variables which can only be measured with error. We assess what determines the achievement of these functionings, and compare the numerical functionings values with income in a simple poverty analysis.
#0410 (PDF)
Matthias Sutter
Tournaments for the endogenous allocating of prizes within workteams - Theory and experimental evidence
We present a model where compensation within a workteam is determined endogenously by the use of a rank-order tournament. Team members compete in their efforts for the right to propose the distribution of a prize within the team. The implementation of a proposal requires the approval of other team members. Failure to reach an agreement is costly and the role of proposer rotates in the order of members' efforts. We show in an experiment that tournaments elicit higher efforts than random determination of the proposer role. Proposers get a significantly larger share of the prize than non-proposers.

published as: "Endogenous versus exogenous allocation of prizes in teams - Theory and experimental evidence" in: Labour Economics 13, 2006, 519-549
#0409 (PDF)
Martin G. Kocher (University of Innsbruck), Matthias Sutter
The Decision Maker Matters: Individual versus Group Behaviour in Experimental Beauty-Contest Games
Economics has devoted little attention so far as to whether the type of decision maker matters for economic decisions. However, many important decisions like those on monetary policy or a company's business strategy are made by (small) groups rather than an individual. We compare behaviour of individuals and small groups in an experimental beauty-contest game. Our findings suggest that groups are not smarter decision makers per se, but that they learn faster than individuals. When individuals compete against groups, the latter significantly outperform the former in terms of payoff.
#0408 (PDF)
Wiebke Kuklys (University of Cambridge)
Monetary Approach to Capability Measurement of the Disabled - Evidence from the UK
In this paper we attempt to assess empirically the capability set of the disabled. We formulate the assumptions under which capability can be interpreted as needs-adjusted disposable household income, and use equivalence scales methodology to estimate it for households in the UK. We identify a positive cost of disability to the households and state, to what extent a disability can reduce an individual's capability set. The use of the derived capability measure instead of traditional income in poverty measures leads to a dramatic increase of poverty among the families with disabled members.
#0407 (PDF)
Werner Güth, Manfred Stadler
Path Dependence Without Denying Deliberation - An Exercise Model Connecting Rationality and Evolution
Traditional game theory usually relies on commonly known decision rationality meaning that choices are made in view of their consequences (the shadow of the future). Evolutionary game theory, however, denies any cognitive deliberation by assuming that choice behavior evolves due to its past success (the shadow of the past) as typical in evolutionary biology. Indirect evolution does not consider the two opposite approaches as mutually exclusive but allows to combine them in various ways (Berninghaus et al., 2003). Here we provide a simple application allowing any linear combination of rational deliberation and path dependence, i.e. of the two "shadows".
#0406 (PDF)
Thomas Baumann, Carsten Schmidt
The Jena video laboratory for economic experiments
This paper describes the video laboratory at the Max Planck Institute of Economics Jena. The idea is to give the experiment designer an overview on the functionality of the video laboratory, to provide the first time user a quick overview of the control system and preset experiment configurations, and the advanced user finds references for programming the central video-/audio hardware. The laboratory allows conducting video experiments using 8 soundproof cabins with up to 4 subjects in each cabin. Each cabin provides in- and output for video- and audio signals. In addition, each cabin is equipped with a personal computer for subjects' decisions. The equipment allows the researcher to run a computerized experiment with additional recording of audio/video communication between cabins or video recording of group discussions in single cabins.
#0405 (PDF)
Martin G. Kocher (University of Innsbruck), Matthias Sutter
Time is money - Time pressure, incentives, and the quality of decision-making
Many decisions in economics and finance have to be made under severe time pressure. Furthermore, payoffs frequently depend on the speed of decision-making, like, for instance, when buying and selling stocks. In this paper, we examine the influence of time pressure and time-dependent incentive schemes on the quality of decision-making in an experimental beauty-contest game. We find that convergence to equilibrium is faster and payoffs are higher under low time pressure than under high time pressure. Interestingly, time-dependent payoffs under high time pressure lead to significantly quicker decision-making without reducing the quality of decisions.

published in: Journal of Economic Behavior and Organization 61, 2006, 375-392.
#0404 (PDF)
Werner Güth, Martin Kocher, Katinka Pantz, Matthias Sutter
Public Choice by Referenda or Delegation. An Experimental Comparison of Direct and Indirect Democracy
Direct democracy with its use of referenda avoids the prototypical principal-agent problems of delegation in indirect democracies, especially since elected representatives are usually not committed by law to keep their promises. Sequential or more complex referenda may, however, result in an inferior combination of realized policy measures. Thus, it is an open question which type of institution (direct or indirect democracy) will be more efficient. Our experimental study explores this issue and finds that direct democracy seems to perform better.
#0403 (PDF)
Wiebke Kuklys, Ingrid Robeyns
Sens's Capability Approach to Welfare Economics
We describe Amartya Sen's Capability Approach to welfare evaluation in the language of standard welfare economics, and assess to what extent it provides a genuine alternative for individual welfare measurement and policy evaluation. We review the nascent empirical literature on the capability approach and assess whether it makes a genuine difference with standard welfare evaluation.
#0402 (PDF)
Uwe Cantner, Werner Güth, Andreas Nicklisch, Torsten Weiland
Competition in Innovation and Imitation - A Theoretical and Experimental Study
For given product specifications by two competing firms the demand levels are determined by a randomly generated ideal composition of aspects. Firms can vary some demand. Although the product space is much too large to be explored systematically, we expect (and test for) rather reasonable innovative success and welfare levels due to own innovative attempts and imitation of a successful other. Parameter variations concern the pioneer advantage and search costs.
#0401 (PDF)
Matthias Sutter, Martin G. Kocher
Age and the development of trust and reciprocity
We examine the degree of trust and reciprocity in an experimental trust game with 662 participants from six different age groups, ranging from 8 year old primary school children to retired persons in their late sixties. Although both trust and reciprocity have been identified as fundamental pillars for smooth and efficient economic interactions, economic research has devoted surprisingly little attention to their development with age. Our results provide clear evidence that trust in anonymous partners increases almost linearly from early childhood to early adulthood, but stays constant afterwards. Reciprocity prevails in all age groups, although its degree also seems to increase with age.

Papers 2003 [back to top] Top

#0335 (PDF)
Jose Apesteguia, Katinka Pantz, Anthony Ziegelmeyer
Membership Rule and Strategic Alliances: An Experimental Approach
Recently, new game theoretic approaches have been suggested that address the emergence of inter-firm collaborative agreements (strategic alliances) that are situated between standard market transactions of unrelated companies and their integration by means of mergers and acquisitions. This paper experimentally investigates the interdependence between two membership rules and the endogenously emerging interfirm collaborative structures. In the implemented frameworks, the formation of coalitions between competing firms is modelled as a two-stage non-cooperative game. On a first stage firms form collaborative coalitions in order to decrease their marginal costs of production. Consecutively, firms compete on the market. More precisely, we look at the coalition formation models of Bloch [RAND Journal of Economics, 26, 1995; Games and Economic Behavior, 14, 1996] who applies an exclusive membership rule and contrast it with a setting in which an open membership rule such as suggested in Yi [RAND Journal of Economics, 29, 1998] prevails. While in the former setting a firm can enter into a coalition only if all existing members of the coalition agree, in the latter setting a firm does not need the consent of anybody to join a coalition. In addition to comparing the behavior under the regimes of the two mentioned membership rules, we compare these baseline settings to others into which we introduce coalition formation costs increasing linearly with coalition size.
#0334 (PDF)
Frederic Koessler, Anthony Ziegelmeyer
Parimutuel Betting under Asymmetric Information
This paper examines finite parimutuel betting games with asymmetric information, with particular attention to differences between sequential and simultaneous settings, and between fully rational and myopic ("price taking") behavior. In the simultaneous parimutuel market, all (symmetric and asymmetric) Bayesian-Nash equilibria are generically characterized depending on the number of bettors and the quality of their private information. There always exists a separating equilibrium, where all bettors follow their private signal. This equilibrium becomes unique as the number of bettors increases, and it corresponds to the strategy profile used by myopic bettors. In the sequential framework, the perfectly revealing equilibrium disappears as the number of betting periods increases, whether or not bettors fully anticipate their impact on future odds. In both cases (rational and myopic betting), due to the interaction between information externalities generated by observational learning and payoff externalities generated by betting odds, bettors arbitrate between following their private signal, following the choices of previous bettors, and betting against the trend. Extreme effects based on herd behavior occur in identifiable states of the world, leading to significant short run mispricing.
#0333 (PDF)
Francois Cochard, Anthony Ziegelmeyer, Kene Boun My
Regulation of Nonpoint Emissions under Limited Information: A Stress Experimental Test of the Ambient Tax Mechanism.
We provide a stress experimental test of the ability of (a damaged based version) the ambient tax mechanism to induce socially optimal outcomes in a nonpoint pollution context. To mirror the features of naturally occurring environments, we consider a convex damage function, uncertainty in measuring the ambient level of pollution, polluters with heterogeneous profit functions competing against the same opponents for the duration of the experiment (which runs for an indeterminate length), and in half of our treatments polluters do not know others profit functions. In almost all implemented conditions, the observed total pollution level is not significantly different from the socially optimal level whereas, in none of the conditions, compliance at the individual level is observed. The efficiency performance of the ambient tax mechanism is higher (though not significantly) under limited information than under complete information as subjects comply more with the socially optimal level the less information about the profit functions of others they have.
#0332 (PDF)
Werner Güth, Loreto Llorente Erviti, Anthony Ziegelmeyer
Quantity Competition under Asymmetric Information without Common Priors: An Indirect Evolutionary Approach
The common prior assumption asserts that the beliefs of agents in different states of the world are their posteriors based on a common prior and possibly some private signal. Common priors are pervasive in most economic models of incomplete information, oligopoly models with asymmetrically informed firms being no exception. We dispose of the common prior assumption in a Cournot oligopoly with uncertain costs and allow firms to entertain arbitrary priors about the other firms' cost-types. Only Nature is aware of the true probability distribution of the costs and determines via the true distribution which priors will be evolutionarily stable. To check whether the evolutionarily stable priors satisfy the commonness requirement we present two alternative models. In the first model, firms believe that all other firms entertain the same beliefs about the distribution of marginal costs and Nature's priors are not the only evolutionarily stable priors. In a second model with the possibility of asymmetric priors Nature's priors are not evolutionarily stable.
#0331 (PDF)
Siegfried K. Berninghaus, Luis G. González, Werner Güth
Firm Specific Investments Based on Trust and Hiring Competition: A Theoretical and Experimental Study of Firm Loyalty
Two firms, each consisting of a team with the owner and just one employee, compete on the labor market with free labor mobility. After observing the investment decisions by firm owners their employees can engage in costly training, thus increasing their general and firm-specific productivity, which also depends on capital endowment. The trust problem is mutual since firm owners, when investing, do not know employees' willingness to engage in training, while employees must hope that future wage offers will reward training. The experimental results show that higher firm-specificity of human capital makes employees more willing to engage in training, while low specificity triggers over-investment by firm owners. Firm loyalty is found to be usually low.

published in: Franz, W., Ramser, H.J., Stadler, M. (eds), Schriftenreihe des Wirtschaftswissenschaftlichen Seminars Ottobeuren, Bd. 33, 2004, 89-114, Bildung, Tübingen, Mohr Siebeck.
#0330 (PDF)
Susanne Büchner, Giorgio Coricelli, Ben Greiner
New Experimental Results on the Solidarity Game
This paper revisits and extends the experiment on the solidarity game by Selten and Ockenfels (1998). We replicate the basic design of the solidarity game and extend it in order to t test the robustness of the 'fixed total sacrifice' effect and the applied strategy method. Our results only partially confirm the validity of the fixed total sacrifice effect. In a treatment with constant group-endowment rather than constant winner-endowment the predominance of the 'fixed total sacrifice' behavior is replaced by 'fixed relative gift' behavior. We additionally introduce a measure of personality characteristics and compare its specific components with pro-social gift behavior in our experiments. We don't find correlations between actual gift behavior and measures of empathy-driven pro-social behavior used in social science.
#0329 (PDF)
G. Coricelli, L. G. Morales, A. Mahlstedt
The investment game with asymmetric information
We analyze the effects of introducing asymmetric information and expectations in the investment game (Berg et al., 1995). In our experiment, only the trustee knows the size of the surplus. Subjects' expectations about each other's behavior are also elicited. Our results show that average payback levels increase with the average amount sent. Asymmetric information does not reduce the amounts sent and returned, as compared with previous experimental studies. The first movers' choices increase with their expectations about the second movers' payback, whose choices depend in turn on the difference between expected and actual amounts received.

published in: Metroeconomica, 57(1), 2006, 68-92.
#0328 (PDF)
Ralph-C. Bayer, Matthias Sutter
The excess burden of tax evasion - An experimental detection-concealment contest
We present an experimental study on the wasted resources associated with tax evasion. This waste arises from taxpayers and tax authorities, investing costly effort in concealment, respectively detect ion, of tax evasion. We show that (socially inefficient) efforts depend positively on the prevailing tax rate, but not on the fine which is imposed in case of detected tax evasion. The frequency of evasion increases with tax rates. Additionally, we observe less tax evasion than a model with risk neutral taxpayers predicts. We find evidence that this is rather due to individual moral constraints than due to risk aversion.
#0327 (PDF)
Matthias Sutter, Ronald Bosman, Martin Kocher, Frans van Winden
Experimental evidence of the importance of gender pairing in bargaining
We study the influence of gender on economic decision making in a two-person bargaining game. By testing hypotheses derived from evolutionary psychology and social role theory, we find that (1) gender per se has no significant effect on behavior, whereas (2) gender pairing systematically affects behavior. In particular, we observe much more competition and retaliation and, thus, lower efficiency when the bargaining partners have the same gender than when they have the opposite gender. Implications for real-world organizations are discussed.
#0326 (PDF)
Verena Waldner, Martin Kocher, Matthias Sutter
Rotation schemes in politics - An experimental examination
Rotation schemes in political organizations imply the temporary exclusion of some organization's members (outsiders) from decision-making. Consequently, only a fraction of members (insiders) has a direct influence in the decision-making process, whose results, however, concern and affect all members of the organization. Even though rotation schemes have been implemented in some political organizations - and are about to become more important in the European Union in the course of future enlargements - the political and economic consequences of rotation schemes, compared to an encompassing representation system, have not been thoroughly studied. We examine the effects of rotation schemes on the provision of a public good in groups. In particular, we study the degree of cooperation of (rotating) insiders and outsiders in an experiment and compare cooperation in rotation schemes with cooperation levels without rotation.
#0325 (PDF)
Matthias Sutter
On the nature of fair behavior and its development with age
Economic decisions have been shown to depend on actual outcomes as well as perceived intentions. In this paper, we examine whether and how the relative importance of outcomes or intentions for economic decision develops with age. We report the result of ultimatum games with children, teens and students. We find that children and teens react systematically to perceived intentions, like students do. However, children and teens reject unequal offers much more often than students, indicating that outcomes are relatively more important than intentions for younger subjects.
#0324 (PDF)
Christiane Schwieren, Matthias Sutter
Trust in cooperation or ability? - An experimental study on gender differences
We examine experimentally two different types of trust: trust in another party's cooperation and trust in ability. In the cooperation condition, player A sends x {0, X} to player B. The amount x is multiplied by c = 3, and B can return y {0,3x}. In the ability condition, c depends on B's performance in a mathematical test, with c = 5/3/1 for above average/average/below average performance. We examine the influences of gender on economic decisions. We find that gender has a strong effect in the ability condition, but no significant effect in the cooperation condition.
#0323 (PDF)
Gerlinde Fellner, Magdalena Margreiter, Nuria Oses Eraso
When the past is present - The ratchet effect in the local commons
The indirect evolutionary approach integrates forward-looking evaluation of opportunities and adaptation in the light of the past. Subjective motivation determines behavior, but long-run evolutionary success of motivational types depends on objective factors only, what can justify intrinsic aversion to inequality in reward allocation games. Whereas earlier analysis has typically been restricted to a particular game, we consider a more complex environment by combining different games which - studied in isolation - yield opposite implications for the survival of inequality aversion. Persistent divergence between intrinsic motivation and true material success is possible depending on the type of inequality aversion considered as well as on agents' ability to discriminate between the different games they face.
#0322 (PDF)
Jens Grossklags, Carsten Schmidt
Interaction of Human and Artificial Agents on Double Auction Markets: Simulations and Laboratory Experiments
This paper provides an overview on the simulations and experiments we have done in order to better understand human-agent interaction in a market environment. We find that the introduction of software agents does not necessarily induce a more efficient market. More surprisingly, information on the existence of software agents in the market environment results in more efficient behavior of human traders.

published in: Proceedings of the Third International Workshop on Computational Intelligence in Economics and Finance (CIEF 2003), Cary, North Carolina, US.
#0320 (PDF)
Sven Fischer, Werner Güth, Kerstin Pull
Evolution in Imperfect Commitment Bargaining - Strategic versus Ignorant Types
To commit credibly in bargaining is crucial: In the ultimatum game with its one-sided early commitment power the "proposer" gets (nearly) the whole pie while the "responder" is left with (almost) nothing. When both parties commit simultaneously the (a)symmetric Nash(1950)-bargaining solution, however, predicts (more or less) equal shares. Relying on a continuous connection of these two games by a one parameter-family of games (Fischer et al. 2003), we distinguish two behavioral dispositions, namely (1) neglecting early commitment and (2) reacting to it strategically. Based on their payoff implications we derive the evolutionarily stable behavioral disposition. This sheds new light on the hypothesis that in experiments participants neglect subtle aspects like the sequence of moves.
#0319 (PDF)
Stefan Traub, Christian Seidl, Ulrich Schmidt, M. Vittoria Levati
Friedman, Harsanyi, Rawls, Boulding - Or Somebody Else? An Experimental Investigation of Distributive Justice
This paper investigates distributive justice using a fourfold experimental design: The ignorance and the risk scenarios are combined with the self-concern and the umpire modes. We study behavioral switches between self-concern and umpire mode and investigate the goodness of ten standards of behavior. In the ignorance scenario, subjects became, on average, less inequality-averse as umpires. A within-subjects analysis shows that about one half became less inequality-averse, one quarter became more inequality-averse and one quarter remained unchanged as umpires. In the risk scenario, subjects become on average more inequality-averse in their umpire roles. A within-subjects analysis shows that about half became more inequality-averse, one quarter became less inequality-averse, and one quarter remained unchanged as umpires. As to the standards of behavior, several prominent ones (leximin, leximax, Gini, Cobb-Douglas) were not supported, while expected utility, Boulding's hypothesis, the entropy social welfare function, and randomization preference enjoyed impressive acceptance. For the risk scenario, the tax standard of behavior joins the favorite standards of behavior.

published in: Social Choice and Welfare, 24(2), 2005, 283-309.
#0318 (PDF)
Werner Güth, Hartmut Kliemt
Zur ökonomischen Modellierung der Grundlagen und Wurzeln menschlicher Kulturfähigkeit

published in: G. Blümle, R. Klump, B. Schauenberg, H. v. Senger (eds.): "Kulturelle Ökonomik", Bd.1, 2004, 127-138.
#0317 (PDF)
Thomas Gehrig, Werner Güth, René Levínský
The commitment effect in belief evolution
In this note we establish that rational demand expectations will typically not evolve in an evolutionary model. In an evolutionary model, beliefs act like a commitment device to more aggressive behavior. This commitment effect has the same direction for strategic substitutes and complements and fades away in large markets.

published in: Economics Letters, vol. 85/2, 2004, 163-166.
#0316 (PDF)
Thomas Gehrig, Werner Güth, René Levínský
Ultimatum Offers and the Role of Transparency: An Experimental Study of Information Acquisition
This paper analyses individual information acquisition in an ultimatum game with a-priori unknown outside options. We find that while individual play seems to accord reasonably well with the distribution of empirical behavior, contestants seem to grossly overweigh the value of information. While information acquisition seems to be excessive in all of our scenarios we identify a significant difference in behavior related to market transparency. In transparent markets, when respondents can observe whether bidders have acquired information, acceptance rates are higher. Accordingly, information is more valuable in transparent markets, both individually and socially.
#0315 (PDF)
Ben Greiner, Maria Vittoria Levati
Indirect Reciprocity in Cyclical Networks - An Experimental Study
A cyclical network of indirect reciprocity is derived organizing 3- or 6-person groups into rings of social interaction where the first individual can help the second, the second the third, and so on till the last, who in return can help the first. Mutual cooperation is triggered by assuming that what one passes on to the next is multiplied by a factor of 3. Participants play repeatedly either in a partner or in a stranger condition, and take their decisions first simultaneously and then sequentially. We find that pure indirect reciprocity enables mutual cooperation although strategic considerations and group size are important too.

published in: Journal of Economic Psychology 26(5), 2005, 711-731.
#0314 (PDF)
Erich Kirchler, Boris Maciejovsky, Herbert Schwarzenberger
Specious Confidence after Tax Audits: A Contribition to the Dynamics of Compliance
Dynamics of compliance, depending on audit probability, sanctions, and the time lag between audits, are investigated in a tax experiment. Compliance varied significantly over time: it decreased immediately after an audit and increased afterwards, especially if audits were frequent and sanctions high.
#0313 (PDF)
Giorgio Coricelli, Dietmar Fehr, Gerlinde Fellner
Partner selection in public goods experiments
This paper studies the e_ect of introducing costly partner selection for the voluntary contribution to a public good. Subjects participate in six sequences of five rounds of a two-person public good game in partner design. At the end of each sequence subjects can select a new partner out of six group members. Unidirectional and bidirectional partner selection mechanisms are introduced and compared to controls with random partner rematching. Results demonstrate significantly higher contributions in correspondence to unidirectional partner selection than to bidirectional selection and random rematching. Average monetary valuation of being able to choose a partner is substantially high and remains stable.

published in: Journal of Conflict Resolution, 48 (3), 2004, 356-378.
#0312 (PDF)
Gary E. Bolton, Axel Ockenfels
The Behavioral Tradeoff between Efficiency and Equity when a Majority Rules
Voting is a natural context to investigate how democratic societies balance claims of economic efficiency against claims of distributive equity. We examine data from a series of simple experimental voting games; in each, voters are confronted with two distributional policies, one that promotes efficiency versus one that promotes equity. We find that as a social good, equity has more attraction than efficiency by about a two-to-one margin, even though those who deviate for efficiency pay on average less for it than those who deviate for equity. Strikingly, nearly half those who do not benefit (nor lose) from the Pareto choice vote against it; yet the same choice finds wide support when a fair random draw determines who captures the gain.
#0311 (PDF)
Torsten Decker, Andreas Stiehler, Martin Strobel
A Comparison of Punishment Rules in Repeated Public Good Games - An Experimental Study
In this experimental study we analyze one individual and three collective punishment rules in a public good setting. We present evidence and explanations for differences between the rules concerning punishment intensity, contribution and profit levels, as well as justice. Finally, we investigate influences crucial to participants' support for a collective rule when the individual rule is the status quo. We show that besides profit differences the degree of consent required by the collective rule is essential for the degree of support by the participants.

published in: Journal of Conflict Resolution, 47 (6), 2003, 751-772.
#0310 (PDF)
Ben Greiner
The Online Recruitment System ORSEE - A Guide for the Organization of Experiments in Economics
We discuss several issues of organizing economic laboratory experiments like subject pool, recruitment, scheduling and show how we solved them with the help of the Online Recruitment System for Economic Experiments (ORSEE). This paper may serve as a manual for the system. A test system has been installed in order to visually support the reader while reading the manual.

published as: "An Online Recruitment System for Economic Experiments" in: Kurt Kremer, Volker Macho (Hrsg.): Forschung und wissenschaftliches Rechnen 2003: Beiträge zum Heinz-Billig-Preis 2003. GWDG Bericht, Göttingen: Ges. für Wiss. Datenverarbeitung, Göttingen, 79-93.
#0309 (PDF)
Jeannette Brosig, Axel Ockenfels, Joachim Weimann
Information and Communication in Sequential Bargaining
In experimental bargaining with incomplete information, we vary the information distribution (symmetric and asymmetric), the direction of electronic pre-play communication (no, one-way, and two-way), and the electronic communication medium (email and video) Bargaining out-comes are influenced by the information and communication configurations, but not by the communication medium. In particular, sellers earn more when being informed about buyers' reservation prices (though they are willing to allocate more to buyers than theoretically pre-dicted), but less when communication opportunities are provided.
#0308 (PDF)
Siegfried Berninghaus, Werner Güth, Hartmut Kliemt
Reflections on Equilibrium - Ideal Rationality and Analytic Decomposition of Games
Taking seriously the philosophical foundations of classical strategic theories of choice-making we scrutinize to what extent planning on equilibrium strategies can be justified "eductively" among rational players and how this can be utilized to analyze games by their "game-like" sub-structures, in particular by their sub-games in the extensive and by their cells in (agent) normal form. "Material" principles of rational choice and "formal" methodological requirements of consistent theory formation are considered and it is claimed that there can be consistent "conventions of rationality". Which of the possible conventions will prevail and define rationality may depend though on which of the theories of ideal rationality will be absorbed among rational agents. Once established "conventional rationality" can lead to unique solutions for strategic games.

published in: Homo Oeconomicus XX(2/3), 2003, 257–302.
#0307 (PDF)
Sven Fischer, Werner Güth, Wieland Müller
From Ultimatum to Nash Bargaining: Theory and Experimental Evidence
We examine the strategic behavior of first and second movers in a two party bargaining game with uncertain information transmission. When the first mover states her demand she does only know the probability with which the second mover will be informed about it. If the second mover is informed, she can either accept or reject the offer and payoffs are determined as in the ultimatum game. If she is not informed, the second mover states her own demand and payoffs are determined as in the Nash demand game. In the experiment we vary the commonly known probability of information transmission. Our main finding is that first movers' and uninformed second movers' demands adjust to this probability as qualitatively predicted, that is, first movers' (uninformed second movers') demands are lower (higher) the lower the probability of a signal.

published in: Experimental Economics 9, 2006, 17-33.
#0306 (PDF)
Hermann Brandstätter, Werner Güth, Hartmut Kliemt
Philosophical, Psychological and Economic Aspects of Choice Making
This paper brings together views on choice making as have been developed in philosophy, psychology, and economics. Starting from specific examples the relative merits of different approaches are discussed. The conclusion that models of boundedly rational behavior are the future of social science research is strongly endorsed. But we also admit that it is not completely clear what this implies and take the liberty to speculate on where future research might go.

published in: Homo Oeconomicus XX(2/3), 2003, 303 - 356.
#0305 (PDF)
Werner Güth, M. Vittoria Levati, Rupert Sausgruber
Tax Morale and (De-)Centralization - An Experimental Study
We consider a society composed of two regions. Each of them provides a public good whose benefits reach beyond local boundaries. In case of decentralization, taxes collected by members of a region are spent only on that region's public good. In case of centralization, tax receipts from the two regions are pooled and used to finance both public goods according to the population size of each region. The experiment shows that centralization induces lower tax morale and less efficient outcomes. The reasons are that centralization gives rise to an interregional incentive problem and creates inequalities in income between regions.

published in: Public Choice 125, 2005, 171-188.
#0304 (PDF)
David V. Budescu, Boris Maciejovsky
Reasoning and Institutions: Do Markets Facilitate Logical Reasoning in the Wason Selection Task?
A vast literature shows that individuals frequently fail to identify the normative solutions in logical reasoning tasks. Much attention has been devoted to the study of these deviations at the individual level; less eVort was exerted to investigate whether institutional settings might facilitate and improve reasoning. In this paper we address this question by embedding theWason selection task in a competitive market: each of the four cards of the task was traded over multiple periods in anonymous continuous double auctions, and with real financial incentives. The results of two experiments involving 28 markets, with eight subjects each, indicate that errors in logical reasoning persist, and are present in a wide variety of trading variables, such as prices, volume and liquidity. The market's behavior reflects the normatively correct outcome only when a substantial number of traders know the correct solution.
#0303 (PDF)
Gerlinde Fellner, Boris Maciejovsky
The Equity Home Bias: Contrasting an Institutional with a Bevhavioral Explanation
An empirically well-established finding is that equity portfolios are concentrated in the domestic equity market of the investor. Previous theoretical and empirical analyses have mainly focused on institutional explanations and largely neglected individual behavior. In this study we report the results of an experiment in which we contrast institutional with behavioral explanations by comparing asymmetric information to social identity. Our results show that social forces, triggered by group a_liation, drive underdiversified and domestically biased portfolio allocations. Moreover, social identity explains the observed behavior equally well as asymmetric information. We also find that individuals are spuriously more optimistic toward the performance of domestic firms.
#0302 (PDF)
Andreas Stiehler
Do Individuals Recognize Cascade Behavior of Others? - An Experimental Study
In a cascade experiment subjects are confronted with artificial predecessors predicting in line with the BHW model (Bikhchandani, Hirshleifer and Welch, 1992). Using the BDM mechanism we study subjects' probability assignments based on price limits for participating in the prediction game. We find increasing price limits the more coinciding predictions of predecessors are observed and regardless of whether additional information is actually revealed by predecessors' predictions. Individual price patterns of more than two thirds of the participants indicate that cascade behavior of predecessors is not recognized.
#0301 (PDF)
Clemens Oberhammer, Andreas Stiehler
Does Cascade Behavior Reflect Bayesian Updating? - An Experimental Study
We examine the explanatory power of cascade models by implementing the BDM-mechanism in a simple cascade experiment in which subject have to decide on the prediction of a randomly chosen urn. Assigned price limits to participate in the prediction game are used as indicators of subjective probabilities. We are thus able to test the explanatory power of the standard BHW model (Bickchandani, Hirshleifer and Welch, 1992) in comparison to cascade models which incorporate individual decision errors. Focusing on stated price limits corresponding to urn predictions in line with both, standard and error BHW models our data indicate that the inclusion of errors does not significantly improve the explanatory power of the standard approach.

Papers 2002 [back to top] Top

#0249 (PDF)
Werner Güth, Hartmut Kliemt
Die Ökonomie der Wünsche aus Sicht der Ökonomik

published as: "Der kalte Stern der Knappheit - Der Beitrag zweier Ökonomen" in: Schweizer Monatshefte, 12/1,2002/2003, 22–24.
#0248 (PDF)
Werner Güth
On the Inconsistency of Equilibrium Refinement
Consistency and optimality together with converse consistency provide an illuminating and novel characterization of the equilibrium concept (Peleg and Tijs, 1996). But (together with non-emptiness) they preclude refinements of the equilibrium notion and selection of a unique equilibrium (Norde et al., 1996). We suggest two escape routes: By generalizing the concept of strict equilibrium we question the practical relevance of the existence requirement for refinements. To allow for equilibrium selection we suggest more complex reduced games which capture the inclinations of "players who already left".

published in: Theory & Decision 53, 2002, 371–392, correction of the article in Theory & Decision 55, 2003, 85-86.
#0247 (PDF)
Dan Ariely, Axel Ockenfels, Alvin E. Roth
An Experimental Analysis of Ending Rules in Internet Auctions
A great deal of late bidding has been observed on internet auctions such as eBay, which employ a second price auction with a fixed deadline. Much less late bidding has been observed on internet auctions such as those run by Amazon, which employ similar auction rules, but use an ending rule that automatically extends the auction if necessary after the scheduled close until ten minutes have passed without a bid. This paper reports an experiment that allows us to examine the effect of the different ending rules under controlled conditions, without the other differences between internet auction houses that prevent unambiguous interpretation of the field data. We find that the difference in auction ending rules is sufficient by itself to produce the differences in late bidding observed in the field data. The experimental data also allow us to examine how individuals bid in relation to their private values, and how this behavior is shaped by the different opportunities for learning provided in the auction conditions.

published in: RAND Journal of Economics, 36(4), 2005, 890-907, [Reprinted in Enrica Carbone and Chris Starmer (eds.): The International Library of Critical Writings in Economics, Volume on New Developments in Experimental Economics, Northampton: Edgar Elgar Publishing Ltd.].
#0246 (PDF)
Axel Ockenfels
Reputationsmechanismen auf Internet-Marktplattformen - Theorie und Empirie
Spieltheoretische Überlegungen zeigen, dass Reputationsmechanismen, wie sie auf Internet-Marktplattformen zur Anwendung kommen, prinzipiell geeignet sind, Handel in großen anonymen Märkten zu erleichtern. Dies gilt selbst dann, wenn die Marktteilnehmer ihre Identität jederzeit und kostenlos wechseln können. Voraussetzung ist jedoch, dass die Anbieter die Plattform auch zukünftig für Transaktionen nutzen möchten. Zudem müssen neue Anbieter als Konsequenz des kostenlosen Identitätswechsels Preisabschläge hinnehmen. Bei einer Analyse von 14.467 CD-Angeboten auf der Marktplattform Half.com zeigt sich im Einklang mit den theoretischen Überlegungen, dass Plattformneulinge signifikant geringere Preise fordern als Anbieter, über die bereits Reputationsinformationen vorliegen.

published in: Zeitschrift für Betriebswirtschaft 73(3), 2003, 295 - 315.
#0245 (PDF)
Jens Grossklags, Carsten Schmidt
Artificial Software Agents on Thin Double Auction Markets - A Human Trader Experiment
This paper studies how software agents influence the market behavior of human traders. Programmed traders with a passive arbitrage seeking strategy are introduced in a double auction market experiment with human subjects in the laboratory. As a treatment variable, the influence of information on the existence of software agents is investigated. We found that common knowledge about the presence of software agents triggers more efficient market prices in the presence of the programmed strategy whereas an effect of the information condition on behavioral variables could not be observed. Surprisingly, the introduction of software agents results in lower market efficiency in the no information treatment when compared to the baseline treatment without software agents.

published in: Proceedings of the IEEE/WIC International Conference on Intelligent Agent Technology (IAT-2003), Halifax, Canada, 13 -17.
#0244 (PDF)
Maria Vittoria Levati
Explaining Private Provision of Public Goods by Conditional Cooperation - An Evoltuionary Approach
We adopt an evolutionary approach to investigate whether and when conditional cooperation can explain the voluntary contribution phenomenon often observed in public goods experiments and real life. Formally, conditional cooperation is captured by a regret parameter describing how much an individual regrets to contribute less than average. We find that the evolutionary stability of conditional cooperation depends on what is known about the (individual) regret parameters of other group members.

published in: Metroeconomica 57(1), 2006, 86-92.
#0243 (PDF)
Gary E. Bolton, Jordi Brandts, Elena Katok, Axel Ockenfels, Rami Zwick
Testing Theories of Other-regarding Behavior
#0242 (PDF)
Gary E. Bolton, Axel Ockenfels
Self-centered fairness in games with more than tow players
We adopt an evolutionary approach to investigate whether and when conditional cooperation can explain the voluntary contribution phenomenon often observed in public goods experiments and real life. Formally, conditional cooperation is captured by a regret parameter describing how much an individual regrets to contribute less than average. We find that the evolutionary stability of conditional cooperation depends on what is known about the (individual) regret parameters of other group members.
#0241 (PDF)
Werner Güth, Hartmut Kliemt, Axel Ockenfels
Retributive Responses
Retributive responses do play a role in human behavior. Whether they are primarily triggered by supposed intentions or by observed consequences of actions is an important question. It can be addressed by experimental studies of retributive responses in situations in which the individual actor may inflict harmful consequences without intending and intend harmful consequences without inflicting them. Our experimental results indicate that retributive responses are more strongly influenced by observed consequences than by ascribed intentions. However, individual retributive motivations seem to be overshadowed by concerns that are non-retributive altogether in that they focus on end state distributions independently of who brought them about.

published in: Journal of Conflict Resolution, 45(4), 2001, 453 - 469.
#0240 (PDF)
Werner Güth, Hartmut Kliemt, Axel Ockenfels
Fairness Versus Efficiency - An Experimental Study of (Mutual) Gift Giving
Fairness is a strong concern as shown by dictator and ultimatum experiments. Efficiency, measured by the sum of individual payoffs, is a potentially competing concern in games such as the prisoners' dilemma. In our experiment participants can increase efficiency by gift giving. In the one-sided treatment this is only possible for one of the two partners. The tow-sided treatment allows for mutual gift giving. In both cases decisions can be conditioned on whether there is or there is not an efficiency gain by gift giving. Our results indicate that efficiency concerns are dominated by fairness concerns that are less stringent in mutual exchanges than in one-sided gift-relationships.

published in: Journal of Economic Behavior and Organization, vol. 50(4), 2003, 465 - 475.
#0239 (PDF)
Siegfried K. Berninghaus, Werner Güth
Buying Versus Hiring - An Indirect Evolutionary Approach
On an otherwise symmetric oligopoly market with stochastic demands for heterogeneous products firms can either hire an employee or partner or buy the required labor input on the labor market. Whereas the wage of hired labor does not depend in the realization of stochastic demand, the price of bought labor input reacts positively to product demand. We first solve the market by deriving the equilibrium price vector. We then assume that the number of hiring firms will tend to increase when hiring firms make higher profits than non-hiring firms. We explicitly derive the stationary distribution of the thus defined stochastic adaptation process.
#0238 (PDF)
Siegfried K. Berninghaus, Werner Güth
NOW OR LATER? - An Analysis of the Timing of Threats in Bargaining
The variable threat-bargaining model of Nash (1953) assumes that threats in the sense of binding commitments as to what one will do if bargaining ends in conflict, are chosen before bargaining. By comparision, late threats to be chosen after bargaining end in conflict, appear more natural and would be self-enforcing, i.e., require no commitment power. Instead of exogenously imposing the timing of threats, they are derived endogenously as in indirect evolution or endogenous timing. Based on a duopoly market, we first derive the equilibrium for all possible constellations regarding the timing of threats. From these results we can show that the evolutionary analysis surprisingly justifies the early timing of threats as suggested by Nash (1953).

published as: "NOW OR LATER? - Endogenous Timing of Threats" in: Theory & Decision 55, 2004, 235-256.
#0237 (PDF)
Werner Güth, Sabine Strauß, Matthias Sutter
Tax evasion and state productivity - An experimental study
In an overlapping generations-experiment with multiple families participants can either support their parents directly and thereby reduce their tax burden or hope for tax-financed old age support. State productivity is captured by the factor with which total tax revenues are multiplied to determine old age support. This factor is systematically varied from 0.75 to 1.25. Tax payments depend in declared endowment. Tax evasion is possible, but monitored. Surprisingly state productivity influences neither direct support of own parents nor tax evasion. The main effect is that rich endowment triggers relatively low support of own parents and high (and more frequent) tax evasion.

published in: Metroeconomica 56:1, 2005, 85-100.
#0236 (PDF)
Werner Güth, Radosveta Ivanova-Stenzel
Asymmetric Auction Experiments With(out) Commonly Known Beliefs
Are commonly known beliefs essential for bidding behavior in asymmetric auctions? Our experimental results suggest that not informing participants how values are randomly generated does not change behavior much and may even make it appear more rational.

published in: Economics Letters 80, 2003, 195 - 199.
#0235 (PDF)
Ben Greiner, H.-Arno Jacobsen, Carsten Schmidt
The Virtual Laboratory Infrstructure for Online Economic Experiments
The goal of this paper is to provide an overview on the Virtual Laboratory infrastructure for online economic experiments. We summerize our experience gained from performing serveral economic experiments on the Internet. The experiments we have run range from electronic markets to individual decision making. From there we synthesize and evaluate a set of methodological issues in performing economic experiments on the Internet. As a result for further exploration we sketch the design of an infrastructure that allows the automated execution of Internet experiments including marketing of experiments, control of application and participation, payment system integration, and evaluation of results. The infrastructure also aims at providing a generic interface for third parties to register and run experiments. We have prototyped the components of this infrastructure and ultimately aim at providing an Internet experiment service for the experimental economic research community.

published as: "The Virtual Laboratory Infrastructure for Controlled Online Economic Experiments (2003)" in: Forschung und wissenschaftliches Rechnen 2002: Beiträge zum Heinz-Billing-Preis 2002, Kurt Kremer, Volker Macho (Hrsg.). GWDG Bericht 62, Göttingen : Ges. für Wiss. Datenverarbeitung, 59-73.
#0234 (PDF)
Gerlinde Fellner, Boris Maciejovsky
Risk Attitude and Market Behavior: Evidence from Experimental Asset Markets
In this paper we relate individual risk attitude as elicited by binary lotteries and certainty equivalents to market behavior. By analyzing 26 independent markets with a total of 280 paticipants we show that binary lottery choices and certainty equivalents are poorly correlated. Only lottery choices are related to market behavior: the higher the degree of risk aversion the lower the observed market activity. Females are more risk averse than males according to binary lotteries, submit fewer offers and engage less often in trades.
#0233 (PDF)
Axel Ockenfels, Alvin E. Roth
The Timing of Bids in Internet Auctions: Market Design, Bidder Behavior, and Artificial Agents
Many bidders in eBay employ bidding strategies that involve late bids, incremental bids, or both. Based on field evidence, we discuss the manner in which late bids are caused both by sophisticated, strategic reasoning and by irrationality and inexperience, the interaction of late bidding and incremental bidding, and the relation between market design and artificial agent design.

published in: Artificial Intelligence Magazine, 2002, 79-87.
#0232 (PDF)
Alvin E. Roth, Axel Ockenfels
Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet
Werner Güth, Marc Willinger, Anthony Ziegelmeyer
Agency Problems and Market Competition - A Survey (withdrawn)
Werner Güth, S. Kröger, Hans-Theo Normann
Durable-Goods Monopoly with Privately Known Impatience

published in: Economic Inquiry, 42(3), 2004, 413-424.
#0229 (PDF)
Gary E. Bolton, Axel Ockenfels
A stress test of fairness measures in models of social utility

published as: "A Stress Test of Fairness Measures in Theories of Social Utility" in: Economic Theory, 25(4), 2005, 957-982.
#0228 (PDF)
Matthias Sutter, Martin G. Kocher
Favoritism of agents - The case of referees' home bias
We study the behavior of football (soccer) referees in the German Bundesliga. Referees are requested to act as impartial agents. However, they may be tempted to allocate benefits and rewards in a biased way. Agency theory has long neglected this form of malfeasance of economic agents, but has rather concentrated on agents exerting suboptimal effort levels. Favoritism or biased behavior of referees can be investigated by examining their decisions on awarding penalties or extra time at the end of a football match. We can confirm a systematic home bias of referees.

published in: Journal of Economic Psychology,2004, vol. 25, 461-469.
#0227 (PDF)
Martin G. Kocher, Matthias Sutter
Individual versus group behavior and the role of the decision making procedure in gift-exchange experiments
We test for behavioral differences between groups and individuals in gift-exchange experiments. Related studies establish group behavior as typically closer to the game-theoretic equilibrium. We show that this result may depend crucially on the decision making procedure within groups. A novel decision making protocol opens up the black box of group decision making and allows to track important features of the group interaction process. We are able to show that the mere fact of being a group member shifts initial individual choices towards the game-theoretic equilibrium.
#0226 (PDF)
Gary Bolton, Elena Katok, Axel Ockenfels
Bridging the Trust Gap in Electronic Markets
Trust that suppliers and buyers will keep their word is a necessary ingredient to a well functioning marketplace. Nowhere is the issue trickier than for electronic markets, where transactions tend to be geographically diffuse and anonymous, putting them out of the reach of the legal safeguards and the long-term relationships that build trust in the brick-and-mortar world. Many online platforms have turned to automated reputation systems as a way of giving traders a heads-up on who they are dealing with. Here we describe a strategic framework for thinking about these systems. We also describe some lab data that provides an initial sense of effectiveness. We find that reputation has substantial positive effect, but not enough to be a close substitute for personal relationships; this is so even though our laboratory test abstracts away from many of the problems reputation systems must confront in the field. The evidence suggests directions for improving automated reputation system performance.

published in: E. Akcali, J. Geunes, P.M. Pardalos, H.E. Romeijn and Z.J. Shen (eds.). Applications of Supply Chain Management and E-Commerce Research Industry, Kluwer Academic Publishers, 2004.
#0225 (PDF)
Gary Bolton, Elena Katok, Axel Ockenfels
How Effective are Online Reputation Mechanisms?
Online reputation - "feedback" - mechanisms aim to mitigate the moral hazard problem associated with spatially distant exchange among strangers by providing traders with the type of information available in small groups, where members are frequently involved in one another's dealings. We compare trading in a market with feedback to a market without, as well as to a market in which the same people interact with one another repeatedly (partners market). We find that, while the feedback mechanism induces quite a substantial improvement in transaction efficiency, it also exhibits a kind of public goods problem in that, unlike the partners market, the benefits of trust and trustworthy behavior go to the whole community and are not completely internalized. We discuss the implications of this perspective for improving these systems.

published in: Management Science 50(1), 2004, 1587-1602.
#0224 (PDF)
Siegfried Berninghaus, Werner Güth, Hartmut Kliemt
From Teleology to Evolution
This paper focuses on the uneasy alliance of rational choice and evolutionary explanations in modern economics. While direct evolutionary explanations of "optimality" rule out "purposeful" rational choice by assuming zero-intelligence and pure rational choice explanations leave no room for "selective" adaptation the indirect evolutionary approach integrates both perspectives. Subsequently we go stepwise "from teleology to evolution" and thereby study the model spectrum ranging from pure rational choice over indirect to direct evolutionary approaches. We believe that knowledge of this spectrum can help to choose more adequate models of economic behavior that incorporate both teleological and evolutionary elements.

published in: Journal of Evolutionary Economics, 13(4), 2003, 385 - 410.
#0223 (PDF)
Werner Güth, Stefan Napel
Inequality Aversion in a Variety of Games - An Indirect Evolutionary Analysis
The indirect evolutionary approach integrates forward-looking evaluation of opportunities and adaptation in the light of the past. Subjective motivation determines behavior, but long-run evolutionary success of motivational types depends on objective factors only. This can justify intrinsic aversion to inequality in reward allocation games, though earlier analysis has typically been restricted to a particular game. We consider a more complex environment by combining two games that - studied in isolation - yield opposite implications for inequality aversion. Persistent divergence between intrinsic motivation and true material success is possible. It depends in the type of inequality aversion considered and, importantly, agents' ability to discriminate between the qualitatively different games they face.

published in: The Economic Journal, 116, 2006, 1037-1056.
#0222 (PDF)
Werner Güth, Kerstin Pull
Will Equity Evolve? - An Indirect Evolutionary Approach
It has been claimed that people often prefer equity-like considerations and tend to ignore strategic aspects in fair division problems. Here, this is explored by analyzing whether or not such behavioral disposition is evolutionarily stable. The answer, however, is ambiguous: Both, reacting to and neglecting strategic aspects can be evolutionarily stable strategies when power discrepancies are minor. Equity, in particular, is restricted to situations where structural asymmetries are subtle.

published in: The European Journal of Political Economy, 20, 2004, 273-282.
#0221 (PDF)
Werner Güth, Hartmut Kliemt
Experimentelle Ökonomik, Modell-Platonismus in neuem Gewand?
In diesem Beitrag lassen wir herkömmliche Kritikpunkte an der ökonomischen Neo-Klassik Revue passieren und untersuchen, inwieweit die heutige experimentelle Ökonomik diesen durch gesteigerte Realwissenschaftlichkeit entgeht. Eine induktive Vorgehensweise, bei der im Labor Ergebnisse unter möglichst "reinen Bedingungen" gesammelt werden sollen, schwebt zwar vielen Experimentatoren vor. Sie hat jedoch zum einen keinen geltungslogischen, sondern nur heuristischen Wert. Zum anderen gelten die so gewonnenen Ergebnisse zunächst nur für die idealen, nicht für die realen Bedingungen. Um den Versuch einer unabhängigen Formulierung allgemeiner Theorien, die im Labor nur getestet werden, kommt deshalb nicht herum, wer Experimenten einen Status wie etwa in den Naturwissenschaften verleihen will.

published in: M. Held, G. Kubon-Gilke, R. Sturm (eds.): Experimente in der Ökonomik. Jahrbuch Normative und institutionelle Grundfragen der Ökonomik. Band 2. Marburg: Metropolis, 2003, 315–342.
#0220 (PDF)
Susanne Büchner, Luis Gonzalez, Werner Güth, M. Vittoria Levati
Incentive Contracts versus Trust in Three-Person Ultimatum Games - An Experimental Study
Whether incentive contracts perform better than trust in terms of productive efficiency is usually explored by principal-agent experiments (most involving only one agent). We investigate this issue in the context of a three-person ultimatum experiment, which is simpler and more neutrally framed than traditional principal-agent designs. Contrary to the game theoretic prediction, we find that (mutual) trust is as good as incentive contracts in inducing costly actions by employees. Moreover, we observe an interesting order effect when switching from one regime to the other. This could be important when considering institutional change since (according to our data) early behavioral patterns may be irreversible.

published in: The European Journal of Political Economy 20, 2004, 673-694.
#0219 (PDF)
Werner Güth, Hartmut Kliemt, Stefan Napel
Wie Du mir, so ich Dir! - Ökonomische Theorie und Experiment am Beispiel der Reziprozität
Economists usually treat human behavior as being determined by the shadow of the future, while most other social scientists point to the shadow of the past. This paper considers experimental evidence relevant to the controversy and tries to reconcile both explanations of human behavior with each other by integrating them in a unified evolutionary framework. The possible emergence and survival of intrinsically motivated resentment against being treated "unfairly" is analyzed as a case in point. The results shed light on the (in-)stability of different combinations of plain opportunism and social or ethical motives behind human behavior.

published in: M. Held, G. Kubon-Gilke, R. Sturm (eds.): Experimente in der Ökonomik. Jahrbuch Normative und institutionelle Grundfragen der Ökonomik. Band 2. Marburg: Metropolis, 2003, 113-139.
#0218 (PDF)
Erich Kirchler, Boris Maciejovsky
Steuermoral und Steuerhinterziehung
#0217 (PDF)
Jeannette Brosig, Axel Ockenfels, Joachim Weimann
The Effect of Communication Media on Cooperation
We examine how communication affects cooperation with the help of seven standard public goods experiments that only differ with respect to the medium of pre-play communication. Our treatments include bi-directional and unidirectional communication via (mostly electronic) auditory and/or visual channels. The results suggest that successful cooperation is attributable to the opportunity of 'coordinating' behavior in the communication phase. Furthermore, both the level and the stability of cooperation significantly interact with the communication medium, even though the content of communication is remarkably similar across the communication treatments.

published in: German Economic Review 4(2), 2003, 217 - 241.
#0216 (PDF)
Tarek El-Sehity, Hans Haumer, Christian Helmenstein, Erich Kirchler, Boris Maciejovsky
Hindsight bias and inidividual risk attitude within the context of experimental asset markets.
This paper investigates (i) the robustness of hindsight bias in experimental asset markets, (ii) the time invariance of the different experimental risk elicitation methods of certainty equivalents and binary lottery choices, and (iii) their correspondence. The results of our within-subjects approach with 133 traders do not support the conjecture that hindsight bias is a general phenomenon. Furthermore, our findings challenge the presumption of time-stable risk preferences and of procedural invariance with respect to different experimental risk elicitation methods.

published in: Journal of Psychology and Financial Markets, 2002, 3, 227-235.
#0215 (PDF)
Max Albert, Werner Güth, Erich Kirchler, Boris Maciejovsky
Are we nice(r) to nice(r) people? - An Experimental Analysis
We experimentally investigate whether individuals can reliably detect cooperators in an anonymous decision environment by allowing participants to condition their choices in an asymmetric prisoner's dilemma and a trust game (i) on their partners' donation share to a self-selected charity, and (ii) on whether their partner belongs to a group with high or low average donations (group affiliation). We find that high donators achieve a higher-than-average expected payoff by cooperating predominantly with other high donators. The group affiliation proved to be irrelevant.
#0214 (PDF)
Susanne Büchner, Dennis A. V. Dittrich
I will survive! -- Gender discrimination in a household saving decisions experiment
We investigate the gender specific intertemporal allocation behavior of spouses with different deterministic life expectations in an experiment where the gender of one's partner is known. In each period of their life both partners propose a consumption level one of which is then randomly implemented. To allow for learning one experiences many "lives". Participants achieve a rather high degree of optimality that does not change over time. Independent of the own gender a participant is nicer to women and acts more selfishly if the partner is a man. Participants are not aware of their discriminating behavior.
#0213 (PDF)
Jordi Brandts, Werner Güth, Andreas Stiehler
I want YOU! An experiment studying the selection effect when assigning distributive power
In our experiment subjects first answer a personality questionnaire. They then take part in a 3-person game. In the game one player chooses between two possibilities. The first is an outside option which assigns a positive amount to that player, but leaves the two others empty-handed. The second option consists in the assignment of power over the distribution of pie among three players to one of the other two players. Our main treatments differ with respect to the selection procedure by which distributive power is assigned: to a randomly determined or to a knowingly selected partner. When making her decisions the choosing player could consult the answers to the personality questionnaire of the other two players. Our results show, that, as a first reaction, knowingly selected players keep less for themselves than randomly selected ones. We also find that, in both treatments, they allocate more to the players that have given them distributive power than to third players. In our data competition has motivational and not only allocative consequences.

published in: Labour Economics 13(1), 2006, 1-17.
#0212 (PDF)
Axel Ockenfels, Reinhard Selten
Impulse Balance Equilibrium and Feedback in First Price Auctions
Experimental sealed bid first price auctions with private values in which feedback on the losing bids is provided yield lower revenues than auctions where this feedback is not given. Furthermore, bids tend to be above the equilibrium predictions for risk neutral bidders. While the latter observation has been rationalized in terms of risk aversion, rational bidding is invariant to feedback on losing bids. We propose the concept of weighted impulse balance equilibrium that is based on learning direction theory and that incorporates a concern for social comparison. The one-parameter model captures both overbidding and the feedback effect.

published in: Games and Economic Behavior 51, 2005, 155-170.
#0211 (PDF)
Werner Güth, Carsten Schmidt, Matthias Sutter
Bargaining Outside the Lab - A Newspaper Experiment of a Three-Person Ultimatum Game
In a large scale newspaper experiment 5,132 readers of the German weekly, Die Zeit, participated in a three-person bargaining game. In our data analysis we focus on (1) the influence of age, gender, profession and the medium chosen for participation on bargaining behavior and on (2) the external validity of student behavior (inside and outside the lab). We find that older participants and women care more about equal distributions and that Internet users are more self-regarding than those using mail or fax. Decisions made by students in the lab are rather similar to those made by students in the newspaper experiment. Furthermore, student behavior is not different from non-student behavior when the same age group is considered, indicating a high degree of external validity of student data.
#0210 (PDF)
Werner Güth, Wieland Müller, Yossi Spiegel
Noisy leadership: An experimental approach
We examine the strategic behavior of leaders and followers in sequential duopoly experiments in which followers either perfectly observe the leaders' actions or else observe nothing. Our experiments show that consistent with the theory, leaders enjoy a greater first-mover advantage when followers observe their actions with higher probability. However, the results also show that (i) leaders do not fully exploit their first-mover advantage, (ii) when informed, followers tend to overreact slightly (i.e., choose quantities above their best-response to the leaders' quantities), and (iii) when uniformed, followers try to predict leaders' quantities and react optimally. This suggests that followers view the symmetric Cournot outcome as "fair" and whenever they observe leaders who are trying to exploit their first-mover advantage, they "punish" them by overreacting. Such punishments in turn induce leaders to behave more softly than the theory predicts.

published in: Games and Economic Behavior 57, 2006, 37-62.
#0209 (PDF)
Carsten Schmidt, Axel Werwatz
How Accurate do Markets Predict the Outcome of an Event? The Euro 2000 Soccer Championships Experiment
For the Euro 2000 Soccer Championships an experimental asset market was conducted, with traders buying and selling contracts on the winners of individual matches. Market-generated probabilities are compared to professional bet quotas, and factors that are responsible for the quality of the market prognosis are identified. The comparison shows, that the market is more accurate than the random predictor and slightly better than professional bet qutas, in the sense of mean square error. Moreover, the more certain the market predicts the outcome of an event the more accurate is the prediction.
#0208 (PDF)
Axel Ockenfels
New Institutional Structures on the Internet: The Economic Design of Online Auctions
The internet facilitates interactive and asynchronous communication among human and artificial agents in large bilateral markets. As a consequence, new institutional structures are emerging in the new economy. I discuss a few core problems associated with the economic design of internet markets and the way they are approached by eBay.com, a popular online auction platform.

published in: M.J. Holler, H. Kliemt, D. Schmidtchen and M. Streit (eds.), Jahrbuch für Neue Politische Ökonomie, Tübingen: Mohr Siebeck, 21, 2003, 57-78.
#0207 (PDF)
Werner Güth, Axel Ockenfels
The Coevolution of Trust and Institutions in Anonymous and Non-anonymous Communities
We report on a research program that employs the indirect evolutionary approach to analyze how the institutional environment drives the evolution of trust and trustworthiness through the evolution of moral preferences, and how in turn the evolution of preferences shapes the evolution of the rules of the game. In particular, we describe how the ability to detect trustworthiness in non-anonymous communities supports the evolution of trust and thus crowds out legal institutions. If anonymous interaction prevents type detection, legal institutions such as courts and legal insurance may play a decisive role for the emergence of trust.

published in: M.J. Holler, H. Kliemt, D. Schmidtchen and M. Streit (eds.), Jahrbuch für Neue Politische Ökonomie, Tübingen: Mohr Siebeck, 21, 2003, 157-174.
#0206 (PDF)
Werner Güth, Axel Ockenfels
The Coevolution of Morality and Legal Institutions - An indirect evolutionary approach
Evolutionary game theory is often used to analyze the evolution of moral preferences. A few studies also examine the coevolution of preferences and an institutional aspect of the decision environment. Allowing the adaptation of just one institutional aspect such as litigation or legal insurance to coevolve with morality, however, may be inadequate. If court rulings coevolve with morality the need for legal insurance may vary over time. Applying the indirect evolutionary approach, we therefore analyze the coevolution of morality in the sense of trustworthiness, court rulings (based on rational belief formation), and the population share which is legally insured. If type detection is not possible, the evolutionary interaction of the legal institutions may play a decisive role for the emergence of morality.

published in: Journal of Institutional Economics1:1, 2005, 155-174.
#0205 (PDF)
Luis González, Werner Güth, Maria Vittoria Levati
Speeding up Bureaucrats by Greasing Them - An Experimental Study
#0204 (PDF)
Gerlinde Fellner, Werner Güth
Putting Limits to Emotional Behavior - An Ultimatum Experiment Varying Threat Efficiency
Threat power is the ability to impose a great loss on someone else at relatively low own cost and can be measured by the ratio of other's and own loss. It can be varied by assuming that rejecting an ultimatum reduces the payoff of the proposer to its λ-share and that of the responder to its (1- λ)-share where 0 = λ =1. Results demonstrate that proposers become more greedy when λ is high whereas responders adjust to threat power, but punish greed to a high extent irrespective of own rejection cost.

published as: "What limits escalation? - Varying threat power in an ultimatum experiment" in: Economics Letters 80 (2003), 53-60.
#0203 (PDF)
Dennis Dittrich, Boris Maciejovsky
Information Dissemination on Markets with Endogenous and Exogenous Information - An Experimental Approach
In this paper we study information revelation on asset markets with endogenous and exogenous information. Our results indicate that superior information can only be exploited in the beginning of trading. Information disseminates on the market and informational advantages are counter-balanced over time. This result holds true for both, exogenous and precise endogenous information. Vogue endogenous information, however, has no impact on individual payoff. Furthermore, we find that excessive trading decreases individual earnings.
#0202 (PDF)
Vital Anderhub, Dennis A. V. Dittrich, Werner Güth, Nadège Marchand
Interpersonal allocation behavior in a household saving experiment
We investigate the intertemporal allocation behavior of spouses with different deterministic life expectations in an experiment. In each period of their life both partners propose a consumption level of which one is then randomly implemented. In spite of the complex dynamics optimal behavior is rather simple and straightforward in the sense of conditional consumption smoothing. A substantial number of participants does not care whether their partner receives any payoff. This selfish behavior is punished by their partners.On average participants stay on egoistic consuption paths, although in later periods their behavior shifts in the direction of consumption paths leading to equal payoffs.
#0201 (PDF)
Werner Güth, Maria Vittoria Levati, Andreas Stiehler
Privately Contributing to Public Goods over Time - An Experimental Study
Similar to Levati and Neugebauer (2001), a clock is used by which participants can vary their individual contributions for voluntarily providing a public good. As time goes by, participants either in(de)crease their contribution gradually or keep it constant. Groups of two poorly and two richly endowed participants encounter repeatedly the weakest link-, the usual average contribution - and the best shot-technology of public good provision in a within subject-design. Some striking findings are that the weakest link-technology fares much better than the other two technologies in terms of welfare, and that the willingness of people to voluntarily contribute is greatly affected by the (increasing or decreasing) clock mechanism.

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#0104 (PDF)
Maria Vittoria Levati, Tibor Neugebauer
An Application of the English Clock Market Mechanism to Public Goods Games

published in: Experimental Economics, 7:2, 2004, 153-169.
#0103 (PDF)
Dennis Dittrich, Werner Güth, Boris Maciejovsky
Overconfidence in Investment Decisions - An Experimental Approach

published in: The European Journal of Finance 11(6), 2005, 471-491.
#0102 (PDF)
Gerlinde Fellner, Werner Güth, Boris Maciejovsky
Illusion of Expertise in Portfolio Decisions - An Experimental Approach

published in: Journal of Economic Behavior and Organization, 55, 2004,355-376.
#0101 (PDF)
Werner Güth, Maria Vittoria Levati, Boris Maciejovsky
Deadline Effects in Ultimatum Bargaining - An Experimental Study of Concession Sniping with Low or no Costs of Delay

published as: "Deadline Effects in Sequential Bargaining - An Experimental Study" in: International Game Theory Review 7(2), 2005, 117-135.

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