(2009) The Moral Costs of Nastiness PDF-file
We introduce two variants of the one-shot joy-of-destruction minigame (mini-JOD). Two players are endowed with the same amount of money. They simultaneously decide whether or not to reduce the payoff of the other player at an own cost. In one treatment there was a probability that Nature would destroy the opponent’s money anyway. We test whether this feature reduces the moral costs of being nasty, and find that destruction rates rise significantly, despite the absence of strategic reasons.
(2009) Pointless Vendettas PDF-file
We introduce the experimental vendetta game. Two groups of four players each interact over ten identical rounds. In each round each player decides whether or not to reduce the payoff of each member of the other group, at an own cost. Reducing payoffs entails no material benefit for either the player or his group and is motivated by nastiness. Over the rounds, however, players can use reductions to avenge earlier transgressions. Fear of retaliation keeps destruction rates low (13%). The introduction of a symbolic reward, however, trebles the frequency of hostile acts (40%).
(2009) Political Autonomy and Independence: Theory and Experimental Evidence. Revised version with new data PDF-file
We study the process by which subordinated regions of a country can obtain a more favourable political status. In our theoretical model a dominant and a dominated region first interact through a voting process that can lead to different degrees of autonomy. If this process fails then both regions engage in a costly political conflict which can only lead to the maintenance of the initial subordination of the region in question or to its complete independence. In the subgame-perfect equilibrium the voting process leads to an intermediate arrangement acceptable for both parts. Hence, the costly political struggle never occurs. In contrast, in our experiments we observe a large amount of fighting involving high material losses, even in a case in which the possibilities for an arrangement without conflict are very salient.
(2009) Inequality and Riots - Experimental Evidence PDF-file
We study the relationship between inequality and inter-groups conflicts (riots), focussing on social inequality. Disadvantaged societal groups experience discrimination and thus have limited access to some social and labour resources like education or employment. The aim of our paper is two threefold. First, we experimentally investigate under which conditions social inequality explains inter-group conflicts. Second, we seek to test to what extent the relationship between inequality and conflict is linear. Third, we investigate the factors that make preferences for riot translate into actions. Riots require coordination. Our experiment consists of a two-stage game. First, subjects play a proportional rent-seeking game to share a prize. Social inequality is modelled exogenously by attributing to some subjects (the advantaged group) a larger share of the price than other subjects (the disadvantaged group) for the same amount of effort. In a second stage players can coordinate with the other members of their group to reduce ("burn") the other group members' payoff. Treatments differ in the degree of social inequality set between the two groups. We observe frequent social conflicts, where, as expected, disadvantaged groups riot more than advantaged groups. Surprisingly, the frequency of riots decreases with the degree of inequality. A control treatment allows us to identify resignation as the driving force behind this phenomenon.
(2009) Understanding Contract Audits: An Experimental Approach PDF-file
Contract audits aimed at reducing information asymmetry and transaction costs are frequently used in imperfect markets such as defense procurement. This contradicts predictions from standard economic theory. We conduct a laboratory experiment to investigate this paradox. Our laboratory setup allows us to investigate the conditions under which individuals decide to initiate a contract audit and to carefully assess its economic value. Our theoretical approach draws upon two distinct literatures. The theory of planned behaviour explains why organizations may engage in contract auditing even when markets are imperfect. Social preference theory explains why traders may adjust prices when a contract audit indicates that the original price yields an inequitable distribution of the surplus. Our results indeed show that audits lead to an increased share of the surplus for the buyer, but this increased welfare is completely offset by the audit costs. To further investigate motivations to initiate contract audits, we measure our subjects’ attitudes towards contract auditing and their level of perceived behavioral control; and we manipulate subjective norms about having contract audits done. These treatments show that a positive attitude toward contract auditing, enhanced perceived behavioral control, and pressure to perform a contract audit all lead to more contract audits.
(2009) Size Doesn’t Matter! Gift Exchange in Experimental Labor Markets PDF-file
We study how the number of traders affects the interaction between a centralized exchange and bilateral negotiations in an experimental labor market with excess supply and incomplete contracts. In bilateral negotiations firms obtain information about employees’ performance in previous jobs. Though market forces put a downward pressure on wages in large markets, reciprocal tendencies do not differ. Hence, the occurrence of bilateral negotiations increases overall efficiency in both market sizes.
(2009) Cartel Formation and Pricing: The Effect of Managerial Decision Making Rules PDF-file
We experimentally investigate how the managerial decision making process affects choices in a Bertrand pricing game with an opportunity to form non-binding cartels. To do so we compare the effects of three decision-making rules for the firm (decisions by CEOs, majority rule and consensus) to each other and to decisions in a benchmark consisting of single-individual firms. It has been argued elsewhere that groups behave more competitively than individuals. In this setting this predicts that for all three decision-making rules we should observe fewer cartels and lower prices. This is not what we find. For the formation of cartels, there are no differences across treatments. For prices asked, we find that first, cartels lead to higher prices in al treatments, despite the fact that they are non-binding. Second, the decision-making rules strongly affect the prices asked. One thing that stands out is that firms run by CEOs ask higher prices than observed in the other treatments.
(2009) Let me dream on! Anticipatory emotions and preference for timing lotteries PDF-file
We analyze one of the explanations why people participate in lotteries. Our hypothesis stipulates that part of the value that a unit of money buys in lotteries is consumed before the actual resolution in the form of emotions such as hope. In other words, a person holding a lottery ticket may prefer a delayed resolution of risk due to positive anticipatory emotions. This conjecture is tested in an experiment with real lottery tickets. We show that our theoretical considerations may contribute to explaining empirical puzzles associated with lottery participation, timing of resolution and the spreading of drawings. More specifically, we find that a substantial number of participants prefer delayed resolution, that anticipated thrill is the main variable explaining this choice, that emotions actually experienced during the waiting period are indeed predominantly positive and correlated with predictions. Finally, we find that a great majority prefers to `spread' chances, that is, to obtain one ticket for each of two drawings rather than two for the same drawing.
(2009) Incentives versus sorting in tournaments: Evidence from a field experiment PDF-file
A vast body of empirical studies lends support to the incentive effects of rankorder tournaments. Evidence comes from experiments in laboratories and non-experimental studies exploiting sports or firm data. Selection of competitors across tournaments may bias these non-experimental studies, whereas short task duration or lack of distracters may limit the external validity of results obtained in lab experiments or from sports data. To address these concerns we conducted a field experiment where students selected themselves into tournaments with different prizes. Within each tournament the best performing student on the final exam of a standard introductory microeconomics course could win a substantial financial reward. A standard non-experimental analysis exploiting across tournament variation in reward size and competitiveness confirms earlier findings. We find however no evidence for effects of tournament participation on study effort and exam results when we exploit our experimental design, indicating that the non-experimental results are completely due to sorting. Treatment only affects attendance of the first workgroup meeting following the announcement of treatment status, suggesting a difference between short-run and long-run decision making.
(2009) Social Comparison and Risky Choices PDF-file
This study attempts to combine two traditional fields in microeconomics: individual decision making under risk and decision making in an interpersonal context. The influence of social comparison on risky choices is explored in an experiment in which participants make a series of choices between lotteries with only positive outcomes. Three kinds of choice situations are employed. In the loss and gain context the social referent receives a fixed payoff that is respectively higher and lower than all possible payoffs of the decision maker. In the neutral context social referent and decision maker will always earn the same amount. In the gain and loss contexts the decision maker has no influence on the earnings of the social referent so strategic behavior or social preferences can play no role. We find that decision makers are more risk-averse in the loss context than in the gain context, with the behavior in the neutral context in between. This result is in opposition to the predictions of prospect theory extrapolated to a social context.
(2009) Identification of Voters with Interest Groups Improves the Electoral Changes of the Challenger PDF-file
Interest groups are introduced in a spatial model of electoral competition between two political parties. We show that, by coordinating voting behavior,these interest groups increase the winning set, which is defined as the set of policy platforms for the challenger that will defeat the incumbent. Therefore interest groups enhance the probability of the challenger winning the election.(This paper is a revised version of "On the size of the winning set in the presence of interest groups".)
(2008) The Relevance of a Rules-Based Maize Marketing Policy: An Experimental Case Study of Zambia PDF-file
Strategic interaction between public and private actors is increasingly recognized as an important determinant of agricultural market performance in Africa and elsewhere. Trust and consultation tends to positively affect private activity while uncertainty of government behavior impedes it. This paper reports on a laboratory experiment based on a stylized model of the Zambian maize market. The experiment facilitates a comparison between discretionary interventionism and a rules-based policy in which the government pre-commits itself to a future course of action. A simple precommitment rule can, in theory, overcome the prevailing strategic dilemma by encouraging private sector participation. Although this result is also borne out in the economic experiment, the improvement in private sector activity is surprisingly small and not statistically significant due to irrationally cautious choices by experimental governments. Encouragingly, a rules-based policy promotes a much more stable market outcome thereby substantially reducing the risk of severe food shortages. These results underscore the importance of predictable and transparent rules for the state’s involvement in agricultural markets.
(2008) Noisy Signaling: Theory and Experiment PDF-file instructions
We investigate a noisy signaling game, in which nature adds random noise to the message chosen. Theoretically, with an unfavorable prior the separating equilibrium vanishes for low noise. It reappears for intermediate and high noise, where messages increase with noise. A pooling equilibrium always exists. In our experiment, noise works as an empirical equilibrium selection device. When noise increases, the separating equilibrium loses ground to the pooling equilibrium. Subjects separate for low noise where no separating equilibrium exists. Conditional on aiming for separation, high-quality senders choose messages that increase monotonically with noise. A simple behavioral explanation organizes the data well.
(2008) Clan-based Polarized Voting: Empirical Evidence PDF-file
One must take country-specific institutional features into account when analyzing former communist countries’ transformation process to new political institutions. We do so for post-communist Albania, where the political influence of clans that has existed for centuries continues to be prominent, even today. By studying the consequences of clans on the regional and political polarization through estimated vote function, we incorporate both formal and informal institutions. The results show major differences across regions in response to government policies. A proper evaluation of democratization in Albania thus requires looking beyond elections per se and taking this clan-based polarization into account.
(2008) Public Opinion Polls, Voter Turnout, and Welfare: An Experimental Study PDF-file ; Online Appendix
We experimentally study the impact of public opinion poll releases on voter turnout and welfare in a participation game. We find higher turnout rates when polls inform the electorate about the levels of support for various candidates than when polls are prohibited. Distinguishing between allied and floating voters, our data show that this increase in turnout is entirely due to floating voters. Very high turnout (and relatively low welfare) is observed when polls indicate equal support levels for the candidates. Though in aggregate social welfare hardly changes, majorities generally benefit from polls whereas minorities are unaffected or lose. Finally, many of our results are well predicted by quantal response (logit) equilibrium.
(2008) Lies, Damned Lies and Statistics. What You Can Do if Your p Value exceeds .05 PDF-file
In this project I investigate the use and misuse of p values in papers published in five (high-ranked) journals in experimental psychology. I use a data set of over 135 thousand p values from more than five thousand papers. I inspect (1) the way in which the p values are reported and (2) their distribution. The main findings are following: first, the authors choose the mode of reporting their results in an arbitrary and strategic way, that is, to make them seem more statistically significant than they really are (which is well known to improve the chances for publication). Specifically, they frequently report p values “just above” significance thresholds directly, whereas other values are reported by means of inequalities (e.g. “p<.1”), they round the p values down more eagerly than up and choose between the significance thresholds and between one- and two-sided tests after seeing the data. Further, about 8% of reported p values are inconsistent with their underlying statistics (e.g. F or t) and it appears that there are “too many” “just significant” values, suggesting use of data or model manipulation techniques to bring the p value to the right side of the threshold.
(2008) How Individuals Choose Health Insurance: An Experimental Analysis PDF-file
An individual choosing a health insurance policy faces a complex decision environment where a large set of alternatives differ on a variety of dimensions. There is uncertainty and the choice is repeated at least once a year. We study decisions and decision strategies in a laboratory experiment where we create a controlled environment that closely mirrors this setting. We use an electronic information board that allows to carefully monitor the individual’s decision strategy. The number of alternatives, switching costs, and the speed at which health deteriorates are varied across treatments. We find that most subjects’ search is based more on attributes than on policies. Moreover, we find that an increase in the number of alternatives increases decision-making time; makes subjects consider a lower fraction of the available information; makes it more likely that subjects will switch; and decreases the quality of their decisions. The introduction of positive costs of switching make people switch less often but improve the quality of their decisions. Finally, if health deteriorates only gradually, individuals tend to stick to their current policy too long.
(2008) Errors in judicial decisions: experimental evidence PDF-file Appendix
In criminal cases the task of the judge is to transform the uncertainty of the facts into the certainty of the verdict. In this experiment we examine the relationship between evidence of which the strength is known, subjective probability of guilt and verdict for abstract cases. We look at two situations: (1) all evidence is given and (2) evidence can be acquired. Roughly half of the participants do not base their decision on a subjective belief of the probability of guilt. The others underestimate in general the probability of guilt, but this is more than compensated by a tendency to convict at too low probability of guilt. In the situation where evidence can be acquired, participants do not acquire enough evidence.
(2008) Positive expectations feedback experiments and number guessing games as models of financial markets PDF-file
In repeated number guessing games choices typically converge quickly to the Nash equilibrium. In positive expectations feedback experiments, however, convergence to the equilibrium price tends to be very slow, if it occurs at all. Both types of experimental designs have been suggested as modeling essential aspects of financial markets. In order to isolate the source of the differences in outcomes we present several new treatments in this paper. We conclude that the feedback strength (i.e. the ‘p-value’ in standard number guessing games) is essential for the results. Furthermore, positive expectations feedback experiments may provide good representations of highly speculative markets while standard number guessing games model financial markets with more emphasis on dividend yield and value stocks.
(2008) Strategic Use of Fiscal Deficit: an Experimental Study PDF-file instructions
I extend Sutter’s (2003) experimental study on the strategic use of fiscal deficit by adding a panel structure to his design. The results strengthen Sutter’s conclusions. Panel estimates are strong and with the expected signs. Generally, the results support the political-economic theory applied to fiscal deficits. In particular, the impact of polarization and reelection probability on deficit levels is as predicted.
(2008) Information and Strategic Voting PDF-file
I study voter behavior in a setting characterized by majority rule and mandatory voting, where voters choose from three options. Because of the possibility of Arrow’s cycle, strategic behavior may emerge. In particular, I focus on how information contained in election poll results affects voter’s choices. By normalizing the utilities of the best and worst options, each voter’s preferences across the three options are characterized by the relative value attributed to the intermediate option. I also test how this relative importance impacts voting behavior and how this interacts with information. Quantal response equilibrium analysis is used to analyze the game and proves to be a good predictor for the experimental data. The main results are: (i) sincere voting increases as the importance of the intermediate option decreases; (ii) information yields coordination in favor of the candidate with the highest level of support (i.e., the ‘majoritarian’ candidate); (iii) voters who have the ‘majoritarian’ candidate as the second preferred option vote strategically for this candidate if the relative benefit is high enough.
(2008) Investment, Resolution of Risk, and the Role of Affect PDF-file
This experimental study is concerned with the impact of the timing of the resolution of risk on people’s willingness to take risks, with a special focus on the role of affect. While the importance of anticipatory emotions has so far been only inferred from decisions regarding hypothetical choice problems, we had participants put their own money at risk in a real investment task. Moreover, emotions were explicitly measured, including anticipatory emotions experienced during the waiting period under delayed resolution (which involved two days). Affective traits and risk attitudes were measured through a web-based questionnaire before the experiment and participants’ preferences for resolution timing, risk, and time were incentive compatibly measured during the experiment. Main findings are that delayed resolution can affect investment, that the effect depends on the risk involved, and that (among all the measures considered) only emotions can explain our results, albeit in ways that are not captured by existing models.
(2007) Guilt Driven Reciprocity in a Psychological Signaling Game PDF-file
We propose a theory of reciprocity according to which reciprocal behavior is driven by a donor's guilt. Through an experiment we show that subjects respond to factors which induce guilt but do not reflect allocative equity or intention. When the guilt inducing factor is privately observed by the donor, a psychological signaling game results. We solve for the separating and pooling equilibria. In a separating equilibrium, the donor distorts her gift to signal a low level of the guilt inducing factor, leading to a lower average gift than under full information. Our experiment confirms this implication of the separating equilibrium.
(2007) A model of procedural and distributive fairness PDF-file
This paper presents a new model aimed at predicting behavior in games involving a randomized allocation procedure. It is designed to capture the relative importance and interaction between procedural justice (defined crudely in terms of the share of one's expected outcome in the sum of all expected outcomes) and distributive justice (reflecting the relation of the actual outcome to the sum of all outcomes). The model is applied to experimental games, including "randomized" variations of simple sequential bargaining games, and delivers qualitatively correct predictions. I also show that in view of the model redistribution of income can be seen as a substitute for (lacking) vertical social mobility. This contributes to the explanation of greater demand for redistribution in European countries vis-a-vis the United States. I conclude with suggestions for further verification of the model and possible extensions.
(2007) Gift exchange and the separation of ownership and control. PDF-file
Abstract Numerous gift exchange experiments have found a positive wage-effort relationship. In (almost) all these experiments the employer both owns and controls the firm. This paper explores to what extent the separation of ownership and control affects the wage-effort relationship. We compare the standard bilateral gift exchange game between an owner-manager and a worker with two trilateral ones where the firm is owned by a shareholder and controlled by a manager. The wage-effort relationship is similar in all three situations. Most strikingly, workers reward higher wages with higher effort, even when the manager does not share in the firm’s profits.
(2007) INFORMATION NETWORKS AND WORKER RECRUITMENT PDF-file
This paper studies experimentally how the existence of social information networks affects the ways in which firms recruit new personnel. Through such networks firms learn about prospective employees’ performance in previous jobs. Assuming individualistic preferences social networks are predicted not to affect overall labor market behavior, while with social preferences the prediction is that when bilaterally negotiated: (i) wages will be higher and (ii) that workers in jobs with incomplete contracts will respond with higher effort. Our experimental results are consistent with the social preferences view, both for the case of excess demand and excess supply of labor. In particular, the presence of information networks leads to more efficient allocations.
(2006) A Parameter-Free Analysis of the Utility of Money for the General Population under Prospect Theory PDF-file
Extensive data have convincingly shown that expected utility, the reigning economic theory of rational decision making, fails descriptively. The descriptive inadequacy of expected utility questions the validity of classical utility measurements. This paper presents the results of an experiment that completely measures the utility function for different positive and negative monetary outcomes, using a representative sample of N = 1932 from the general public, in a completely parameter-free way. Hence, the present paper provides a parameter-free measurement of the rational component of risk attitudes from the general population. This information is crucial for policy decisions on important economic problems such as equitable taxation and the cost benefit analysis of education, health care, and retirement. In addition, we obtain individual parameter-free measurements of loss aversion. The results give empirical support to a recent conjecture by Rabin, being that utility curvature is less pronounced then suggested by classical utility measurements, using a large representative sample. Also, females are more risk averse than males, which confirms frequent findings, but our results give more background and show that this finding is primarily driven by utility for gains and loss aversion, and not by utility of losses.
(2006) Demand Reduction and Preemptive Bidding in License Auctions PDF-file
Multi-unit ascending auctions allow for equilibria in which bidders strategically reduce their demand and split the market at low prices. At the same time, they allow for preemptive bidding by incumbent bidders in a coordinated attempt to exclude entrants from the market. We consider an environment where both demand reduction and preemptive bidding are supported as equilibrium phenomena of the ascending auction. In a series of experiments, we compare its performance to that of the discriminatory auction. Strategic demand reduction is quite prevalent in the ascending auction even when entry imposes a (large) negative externality on incumbents. As a result, the ascending auction performs worse than the discriminatory auction both in terms of revenue and efficiency, while entrants' chances are similar across the two formats.
(2006) Estimating Demand in Treasury Auctions: A Normal Cumulative Distribution Function Approach PDF-file
In this paper I introduce a new approach to modeling aggregate bidding functions (demand functions) submitted by bidders in share auctions, one based on (scaled) normal cumulative distribution functions (cdf). First, I provide a simple model that illustrates how normal cdf-shaped demand arises in case of normally distributed signals available to the bidders. Second, using new data from the Polish Treasury securities auctions, I show that normal cdf approach generates a better ?t than approximation by logistic function utilized so far. This paper contributes also to the discussion on performance of auction mechanisms. I compute the average di?erence between yield on primary and secondary market (which is found to be substantially higher than in most other studies) and relate the resulting rents expropriated by primary dealers to economic variables known prior to the auction. As this is obtained via prediction of the shape of the bidding function, we obtain a simple and powerful tool for early detection of slumps in performance of a particular auction design.
(2006) Rent-seeking versus productive activities in a multi-task experiment PDF-file
Incentive instruments like asset ownership and performance pay often have to strike a balance between the productive incentives and the rent-seeking incentives they provide. Standard theory predicts that a given instrument becomes less attractive when the effectiveness of rent-seeking activities increases. More recent theories that emphasize the importance of reciprocity, however, suggest that this relationship may go the other way around. In this paper we test these predictions by means of a laboratory experiment. By and large our findings confirm standard theory. Incentive instruments typically become less attractive when the scope for rent-seeking activities increases. However, reciprocity motivations do seem to mitigate the adverse effects of rent-seeking opportunities to a considerable extent.
(2006) A Midpoint Technique for Easily Measuring Prospect Theory?s Probability Weighting PDF-file
Prospect theory can better describe risky choices than classical expected utility because it makes the plausible assumption that risk aversion is driven as much by the way people feel about probabilities (probability weighting) as about outcomes (utility). This leads to better predictions but, as a price to pay, probability weighting is more difficult to measure than utility, which may explain why many economists today continue to use expected utility. This paper mitigates the drawback mentioned by introducing a new method for measuring probability weighting that is simpler and more efficient than methods used before. The new method is implemented in an experiment. Most participants exhibited a convex weighting function, implying pessimism and enhancing risk aversion. This finding supports recent claims that utility is less concave than was traditionally thought in studies that ascribed all risk aversion to concave utility.
(2006) Evolution of strategies in repeated games with discounting PDF-file
In repeated games there is in general a large set of equilibria. We also know that in the repeated prisoners dilemma there is a profusion of neutrally stable strategies, but no strategy that is evolutionarily stable. This paper investigates whether and how neutrally stable strategies can be upset in a process of mutation and selection. While neutral stability excludes that mutants have a selective advantage themselves, it does not rule out the possibility that mutants that are neutral can enter a population and create a selective advantage for other mutants. A succession of mutants will be called an indirect invasion and the central results show that, for high enough continuation probability, there is no strategy that is robust against indirect invasions. Such stepping stone paths out of equilibrium generally exist both in the direction of more and in the direction of less cooperation.
(2005) Let Me Vote! An experimental study of the effects of vote rotation in committees. PDF-file
We conduct an experiment to investigate (i) whether rotation in voting increases a committee's efficiency, and (ii) the extent to which rotation is likely to critically influence collective and individual welfare. The experiment is based on the idea that voters have to trade-off individual versus common interests. Our findings indicate that the choice of a rotation scheme has important consequences: it 'pays' to be allowed to vote, as voting committee members earn significantly more than non-voting members. Hence, rotation is not neutral. We also find that smaller committees decide faster and block fewer decisions. This reduces frustration among committe members.
(2005) The Economics of Altruistic Punishment and the Demise of Cooperation PDF-file
Explaining the evolution and maintenance of cooperation among unrelated individuals is one of the fundamental problems in biology and the social sciences. Recent experimental evidence suggests that altruistic punishment is an important mechanism to maintain cooperation among humans. In this paper we explore the boundary conditions for altruistic punishment to maintain cooperation by systematically varying the cost and impact of punishment, using a subject pool which extends beyond the standard student population. We find that the economics of altruistic punishment lead to the demise of cooperation when punishment is relatively expensive and/or has low impact. Our results indicate that the 'decision to punish' comes from an amalgam of emotional response and cognitive cost-benefit analysis. Additionally, earnings are lowest when punishment promotes cooperation, suggesting that the scope for altruistic punishment as a means to maintain cooperation is limited.
(2005) Preference Uncertainty, Voter Participation and Electoral Efficiency: An Experimental Study PDF-file Proofs of propositions in appendix
We experimentally study the impact of preference uncertainty on voter turnout and electoral efficiency in a participation game. We find higher participation rates when the electorate is informed about the level of support for various candidates than when group sizes remain uncertain. Moreover, despite higher free riding incentives majorities win more often than minorities. In aggregate, whether or not group sizes are known hardly affects welfare. We also distinguish between allied and floating voters and our data show that the lower turnout under uncertainty can be attributed to floating voters participating less. Finally, our results match better the predictions by quantal response (logit) equilibria than by (Bayesian-) Nash equilibria.
(2005) The Importance of Emotions for the Effectiveness of Social Punishment PDF-file
This paper experimentally explores how the enforcement of cooperative behavior in a social dilemma is facilitated through institutional as well as emotional mechanisms. Recent studies emphasize the importance of negatively valued emotions, such as anger, which motivate individuals to punish free riders. However, these types of emotions also trigger retaliatory behavior by the punished individuals. This makes the enforcement of a cooperative norm more costly. We show that in addition to anger, ?social? emotions like shame and guilt need to be present for punishment to be an effective deterrent of uncooperative actions. They play a key role by subduing the desire of punished individuals to retaliate and by motivating them to behave more cooperatively in the future.
(2005) Negative Reciprocity and the Interaction of Emotions and Fairness Norms PDF-file
This experimental study investigates how behavior changes after punishment for an unkind action. It also studies how fairness perceptions affect the reaction to punishement and whether this effect is consistent across repeated play and role experiences. A repeated version of the power-to-take game is used. In this game, the proposer van make a claim on the resources of a responder. Then the responder can destroy any part of her own resources. The focus is on how proposers adjust their behavior depending on their fainess perceptions, their experienced emotions, and their interaction with responders. We find that fairness plays and important role in the behavior of proposers. Specifically, deviations from a perceived fairness norm trigger feelings of shame and guilt, which induce proposers to lower their claims. However, we also find that the perceived fairness norm varies considerably between individuals. Therefore, it is not the case that proposers who considered they were acting fairly were particularly nice responders. Our results also show that the different types of individuals predicted by models of social preferences, can be traced among the subjects that played the same role in both periods, but fail to describe the behavior of subjects who switched from one role to the other.
(2004) Dividing justly in bargaining problems with claims: Normative judgments and actual negotiations PDF-file
Theoretical research on claims problems has concentrated on normative properties and axiomatizations of solution concepts. We complement these analyses by empirical evidence on the predictability of three classical solution concepts in a bankruptcy problem. We examine both people's impartial normative evaluations as well as their actual negotiation behavior in a bargaining with claims environment. We measure people's judgments on the normative attractiveness of solution concepts with the help of a survey and also observe actual agreements in a bargaining experiment with real money at stake. We find that the proportional solution is the normatively most attractive rule, whereas actual negotiation agreements are closest to the 'constrained equal award' solution.
(2004) The Design of (De)centralized Punishment Institutions for Sustaining Cooperation PDF-file
(2004) Learning in the Allais paradox PDF-file
Whereas both the Allais paradox, the most well-known violation of expected utility, and learning have been the focus of many experimental investigations, no experimental study into learning in the context of purely the Allais paradox exists today. This paper examines experimentally whether individual choice behavior in the Allais paradox converges to expected utility maximization if subjects are given the opportunity to learn by both thought and experience. This paper also analyses whether mere repetition without feedback induces behavior to converge to expected utility predictions. The results confirm such a convergence in the case where the decision makers are able to learn by both thought and experience, but less so when they are able to learn by thought only. Keywords: learning, Allais paradox, feedback
(2003) Emotions and Economic Shocks in a First-price Auction: an Experimental Study PDF-file
We investigate experimentally whether emotions affect bidding behavior in a first price auction. To induce emotions, we confront subjects after a first auction series with a positive or negative random economic shock. We then explore the relation between emotions and bidding behavior in a second auction series. Our main results are: (i) the economic shock has a substantial impact on the experienced emotions of bidders; (ii) the emotional state systematically ifluences bidding behavior. In particular, negative emotions induce more competitive bidding. Our findings show that for a good understanding of bidder behavior the emotions have to be taken into account.
(2003) Costly Voting with Correlated Preferences PDF-file
We consider a process of costly majority voting where people anticipate that others have similar preferences. This perceived consensus of opinion is the outcome of a fully rational Bayesian updating process where individuals consider their own tastes as draws from a population. We show that the correlation in preferences lowers expected turnout. In one extreme when preferences are independent, the amount of voting is excessive, while it is less than socially optimal when preferences are perfectly aligned. The intuition is that with correlation in preferences, votes have a positive externality on those who don?t participate, which reduces incentives to participate. We study the e?ects of the public release of information (?polls?) on participation levels. We find that polls raise expected turnout but reduce expected welfare. Finally, we discuss the merits of delegating voting authority to a committee. We show that a selfishly interested committee may improve welfare and that the optimal committee size is necessarily odd.
(2003) Should I organize the conference? Cut-point belief reciprocity in an experimental public goods game with alternating, single decision makers PDF-file
We study a public goods experiment where just one decision maker of a group (?organizer?) has to decide whether or not to provide the good. The others in the group (?visitors?) do not make a decision. We find that organizers update their beliefs about the next organizer providing the public good based on their own decisions in accordance with learning direction theory. This calls for a more sophisticated learning model than those of adaptive learning. Moreover, our results show that the additional information of reported beliefs about others providing the public good can explain decisions more accurate. We show that a reciprocal decision rule involving a cut-point belief of 50% performs astonishingly well in all treatments.
(2003) Input versus Output Taxation in an Experimental International Economy. PDF-file
This paper presents the results of a policy oriented macroeconomic experiment involving an 'international' economy with a relatively small 'home' country and a large 'foreign' country. It compares the economic performance of two alternative tax sustems as a means to finance unemployment benefits: a wage tax system versus a sales-tax-cum-labor-subsidy system. The two systems are applied to the small country, while the wage tax system always obtains in the large country. The main result is that the sales tax system clearly outperforms the wage tax system, using standard economic indicators. Moreover, it turns out that under the sales tax system economic activities appear to be attracted by the 'better' of two theoretical equilibria. It is argued that producers' reluctance to incur costs up-front while being uncertain about product prices can explain these results. Several pieces of evidence are provided to support this claim. The results strongly suggest that behavioral aspects have to be taken into account also in applied macroeconomic models.
(2003) Responder Behavior in Three-Person Ultimatum Game Experiments PDF-file
We extend the standard ultimatum game to a three person game where the proposer chooses a three-way split of a pie and two responders independently and simultaneously choose to accept or reject the proposal. We investigate whether a responder perceives the other responder as a reference person. We do this by varying the other responder's payo in case the responder rejects. Hence, we explore whether reciprocal behavior towards the proposer is a ected by the presence of the third player. In three treatments, the third player is either negatively a ected, una ected, or positively a ected by the responder's choice to punish the proposer. We nd that responders are very heterogeneous in their actions. Around one half of subjects submit strategies showing no concern for the other responder's payo s. Another half of the subject pool submits strategies sensitive to the distribution of the pie among all three players. Preferences for equal splitting of the pie are expressed by less than 10 percent of all responders.
(2001) Global risk, Effort, and Emotions in an Investment Experiment. PDF-file
This paper experimentally investigates investment behavior. We find that global risk - i.e. risk independent of an agent's investment decision (like political risk) - substantially decreases investment. Also, if the captial used for investment is based on previous earnings (effort) instead of an endowment,investment decreases substantially. These results are neither in line with expected utility theory nor with some alternative theories of decision making under risk (like prospect theory or regret theory). We offer an explanation that takes the role of experienced and anticipated emotions into account. In addition, an emotion-based explanation is provided for related experimental findings concerning the common ratio effect.
(2001) Risk Aversion and Expected Utitlity Theory: Coherence for Small- and Large-Stakes Gambles. PDF-file
(2001) Trust, Fear, Reciprocity, and Altruism. PDF-file
(1999) When Culture does not matter, Discussion paper Tinbergen Institute TI-99-043/1 PDF-file
(1999) Social (In)stability, Distributive Conflicts, and Investment in Poor and Rich Countries, Discussion Paper Tinbergen Institute TI 99-084/1 PDF-file
(1999) Informed and Uninformed Investors in an Experimental Ponzi Scheme PDF-file
We study subject behavior in a laboratory Ponzi scheme. Two types of investors exist: informed and uninformed. Besides having a first mover advantage, the informed have specific knowledge about the viability of the scheme, i.e., they know when it is time to withdraw. We derive theoretical predictions for this experimental game. Our experiments study three treatments, to wit, group size, interest rate and the relative number of informed. The results show that group size does not matter in our case but that both the interest rate and the number of informed affect behavior. Especially the behavior of the uninformed is affected in a way that is not predicted by theory: they tend to show a kind of ?herd? behavior by reacting to the choices of the informed.
(1994) The Duration of Party Preference, Discussion paper Tinbergen Institute TI 94-44