(forthcoming) Individual Expectations, Limited Rationality and Aggregate Outcomes Journal of Economic Dynamics and Control PDF-file
Recent studies suggest that the type of strategic environment or expectation feedback may have a large impact on whether the market learns the rational fundamental price. We present an experiment where the fundamental price experiences large unexpected shocks. Markets with negative expectation feedback (strategic substitutes) quickly converge to the new fundamental, while markets with positive expectation feedback (strategic complements) do not converge, but show under-reaction in the short run and over-reaction in the long run. A simple evolutionary selection model of individual learning explains these differences in aggregate outcomes.
(forthcoming) Noisy Signaling: Theory and Experiment Games and Economic Behavior 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.
(forthcoming) An experimental study on expectations and learning in overlapping generations models Studies in Nonlinear Dynamics and Econometrics
A plethora of models of learning has been developed and studied in macro-economic models in recent years. In this paper we will try to discriminate between these learning models by running laboratory experiments with paid human subjects. Participants predict inflation rates for 50 successive periods in a standard overlapping generations model and are rewarded on the basis of their forecasting accuracy. The information set for each participant contains the past inflation rates and the participant’s own past predictions which, in turn, determine the actual inflation rate. We consider two treatments, with a low and a high level of monetary growth, respectively. We find that the level of convergence to the monetary steady state is significantly lower and volatility of inflation rates higher in the second treatment. Constant gain learning algorithms, such as adaptive expectations with a low adjustment parameter, seem to provide a better description of the experimental data than decreasing gain algorithms, such as (ordinary) least squares learning. Moreover, many participants switch between prediction strategies during the experiment on the basis of poor performance of their initial prediction strategy.
(forthcoming) A model of procedural and distributive fairness Theory and Decision PDF-file Link to article
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.
(forthcoming) Social Comparison and Risky Choices Journal of Risk and Uncertainty PDF-file
Theories (and experiments) on decision making under risk typically ignore (and exclude) a social context. We explore whether this omission is detrimental. To do so we experimentally investigate the simplest possible situation with both social comparison and risk: participants choose between two lotteries while a referent faces a fixed payoff. Participants are more risk averse when they can earn at most as much as their referent (loss situation) than when they are ensured they will earn at least as much as their referent (gain situation). Prospect theory with a social reference point would predict the exact opposite behavior. These results show that straightforward extensions of existing theories to allow for social comparison do not provide accurate predictions.
(forthcoming) Input versus Output Taxation in an Experimental International Economy. European Economic Review 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.
(forthcoming) Errors in judicial decisions: experimental evidence Journal of Law, Economics, and Organization Link to article Appendix
In criminal cases the task of the judge is foremost to transform the uncertainty about the facts into the certainty of the verdict. An extensive literature shows that people deviate from rationality when dealing with probability. It seems therefore unavoidable that in difficult criminal cases miscarriages of justice occur, but this is hard to study in the field. In a laboratory experiment we examine the relationship between evidence of which the diagnostic value is known, subjective probability of guilt and errors in verdicts for abstract criminal cases. We look at two situations: (1) all evidence is given and (2) evidence can be acquired. In both situations verdicts are inaccurate. For given evidence, errors are biased towards the most serious type, unfounded conviction. In the situation where evidence can be acquired, participants do not acquire enough which results in many mistakes, evenly divided over unfounded convictions and unfounded acquittals. We suggest ways to reduce error.
(forthcoming) Robustness against indirect invasions Games and Economic Behavior Link to article
Games that have no evolutionarily stable strategy may very well have neutrally stable ones. (Neutrally stable strategies are also known as weakly evolutionarily stable strategies). Such neutrally, but not evolutionarily stable strategies can however still be relatively stable or unstable, depending on whether or not the neutral mutants it allows for - which by definition do not have a selective advantage themselves - can open doors for other mutants that do have a selective advantage. This paper defines robustness against indirect invasions in order to be able to discern between those two very different situations. Being robust against indirect invasions turns out to be equivalent to being an element of a minimal ES set, where this minimal ES set is the set that consists of this strategy and its (indirect) neutral mutants. This is useful, because we know that ES sets are asymptotically stable in the replicator dynamics.
(forthcoming) Multi-player games on the cycle Journal of Theoretical Biology Link to article
In multi-player games n individuals interact in any one encounter and derive a payoff from that interaction. We assume that individuals adopt one of two strategies, and we consider symmetric games, which means the payoff depends only on the number of players using either strategy, but not on any particular configuration of the encounter. On the cycle we assume that any string of n neighbouring players interacts. We study fixation probabilities of stochastic evolutionary dynamics. We derive analytical results on the cycle both for linear and exponential fitness for any intensity of selection, and compare those to results for the well-mixed population. As particular examples we study multi-player public goods games, stag hunt games and snowdrift games.
(forthcoming) Group selection and inclusive fitness are not equivalent; the Price equation vs. models and statistics Journal of Theoretical Biology Link to article
It is often suggested that any group selection model can be recast in terms of inclusive fitness. A standard reference to support that claim is “‘Quantitative genetics, inclusive fitness, and group selection” by Queller (1992) in the American Naturalist 139 (3), 540-558. In that paper the Price equation is used for the derivation of this claim. Instead of a general derivation, we try out a simple model. For this simple example, we find that the result does not hold. The non-equivalence of group selection and kin selection is therefore not only an important finding in itself, but also a case where the use of the Price equation leads to a claim that is not correct. If results that are arrived at with the Price equation are not correct, they can typically be repaired by adding extra assumptions, or explicitly stating implicit ones. We give examples with relatively mild and with less mild extra assumptions. We also discuss why the Price equation is often referred to as dynamically insufficient, and we try to find out what Price's theorem could be.
(2012) Self-selection and the power of incentive schemes: An experimental study Applied Economics 44, 4211–4219 PDF-file Link to article
We examine how self-selection of workers depends on the power of incentive schemes and how it affects team performance if the power of the incentive schemes is increased. In a laboratory experiment, we let subjects choose between (low-powered) team incentives and (high-powered) individual incentives. We observe that subjects exhibiting high trust or reciprocity in the trust game are more likely to choose team incentives. When exposed to individual incentives, subjects who chose team incentives perform worse if both the unobservable interdependency between their efforts and their incentive to cooperate under team incentives are high.
(2011) Medial prefrontal cortex and striatum mediate the influence of social comparison on the decisioon process PNAS Link to article
We compared private and social decision making to investigate the neural underpinnings of the effect of social comparison on risky choices. We measured brain activity using functional MRI while participants chose between two lotteries: in the private condition, they observed the outcome of the unchosen lottery, and in the social condition, the outcome of the lottery chosen by another person. The striatum, a reward-related brain structure, showed higher activity when participants won more than their counterpart (social gains) compared with winning in isolation and lower activity when they won less than their counterpart (social loss) compared with private loss. The medial prefrontal cortex, implicated in social reasoning, was more activated by social gains than all other events. Sensitivity to social gains influenced both brain activity and behavior during subsequent choices. Specifically, striatal activity associated with social gains predicted medial prefrontal cortex activity during social choices, and experienced social gains induced more risky and competitive behavior in later trials. These results show that interplay between reward and social reasoning networks mediates the influence of social comparison on the decision process.
(2011) Cartel Formation and Pricing: The Effect of Managerial Decision Making Rules International Journal of Industrial Organization 29, 126-133 Link to article
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.
(2011) Premium Auctions and Risk Preferences Journal of Economic Theory 146, 2420-2439 PDF-file
In a premium auction, the seller offers some "pay back," called premium, to the highest bidders. This paper investigates how the performance of such premium tactic is related to the participants' risk preferences. By developing an English premium auction model with symmetric interdependent values, where both the seller and the buyers may be risk averse (or preferring), we show that a) the premium reduces the riskiness of revenue regardless of the bidders' risk preferences, and b) the premium causes the expected revenue to increase in the bidders' risk tolerance. A "net-premium effect" and a "second-order stochastic dominance effect" are key to these results.
(2011) Fighting Collusion in Auctions: An Experimental Investigation International Journal of Industrial Organization 29, 84-96 PDF-file
The danger of collusion presents a serious challenge for auctioneers. In this paper, we compare the collusive properties of two standard auctions, the English auction and the first-price sealed-bid auction, and a lesser-known format, the Amsterdam (second-price) auction. In the Amsterdam auction, the highest losing bidder earns a premium for stirring up the price. We study two settings: in one, all bidders can collude, and in another, only a subset is eligible. The experiments show that the Amsterdam auction triggers less collusion than the standard auctions. We compare experimental results to theoretical predictions, and provide an explanation where they differ.
(2011) Incentives versus sorting in tournaments: Evidence from a field experiment Journal of Labour Economics 29, 637-658 Link to article
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.
(2011) Rent-seeking versus productive activities in a multi-task experiment European Economic Review 55, 630-643 PDF-file Link to article
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 these instruments become less attractive when the effectiveness of rent-seeking activities increases. In contrast, theories that emphasize the importance of reciprocity 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.
(2011) How Individuals Choose Health Insurance: An Experimental Analysis European Economic Review 55, 799-819 Link to article
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.
(2011) The interaction between explicit and relational incentives: An experiment Games and Economic Behavior 73, 573-594 Link to article
We consider repeated trust game experiments to study the interplay between explicit and relational incentives. After having gained experience with two payoff variations of the trust game, subjects in the final part explicitly choose which of these two variants to play. Theory predicts that subjects will choose the payoff dominated game (representing a bad explicit contract), because this game better sustains (implicit) relational incentives backed by either reputational or reciprocity considerations. Our main findings are that cooperation is indeed more likely in the payoff dominated game. Moreover, indefinite repetition increases both cooperation rates and the likelihood with which the payoff dominated game is chosen. Overall we conclude that available explicit incentives indeed do affect relational contracting and, anticipating this, agents may choose weak explicit incentives to facilitate implicit agreements.
(2011) A rule is not a rule if it changes from case to case (a reply to Marshall's comment) Journal of Theoretical Biology 270, 189-195 Link to article
In order to circumvent the disagreement about the Price equation and focus on the issue of the predictive power of inclusive fitness for group selection models, I derive Queller's and Marshall's rule without the Price equation. Both rules however need a translation step in order to be able to link them to the group selection model in Van Veelen (2009). Queller's rule applies to games with 2 players and 2 strategies, and is general. Marshall's rule on the other hand applies only to a small subset of 3-player games. His rule is correct, but for other, similarly small subsets we would get other rules. This implies that if we want a rule that applies to all symmetric games with 3 players and 2 strategies, it will have to use a vector of dimension 2 that represents population structure. More in general: for group selection models with groups of size n, a correct and general prediction will need to use a vector of dimension n-1 that represents population structure.
(2011) The replicator dynamics with n players and population structure Journal of Theoretical Biology 276, 78-85 Link to article
The well-known replicator dynamics is usually applied to 2-player games and random matching. Here we allow for games with n players, and for population structures other than random matching. This more general application leads to a version of the replicator dynamics of which the standard 2-player, well-mixed version is a special case, and which allows us to explore the dynamic implications of population structure. The replicator dynamics also allows for a reformulation of the central theorem in Van Veelen (2009), which claims that inclusive fitness gives the correct prediction for games with generalized equal gains from switching (or, in other words, when fitness effects are additive). If we furthermore also assume that relatedness is constant during selection - which is a reasonable assumption in a setting with kin recognition - then inclusive fitness even becomes a parameter that determines the speed as well as the direction of selection. For games with unequal gains from switching, inclusive fitness can give the wrong prediction. With equal gains however, not only the sign, but even the value of inclusive fitness becomes meaningful.
(2011) Selection for positive illusions (News and Views) Nature 477, 282–283 Link to article
Everybody knows that overconfidence can be foolhardy. But a study reveals that having an overly positive self-image might confer an evolutionary advantage if the rewards outweigh the risks.
(2011) Investment, Resolution of Risk, and the Role of Affect Journal of Economic Psychology 32, 918-939 Link to article
This experimental study is concerned with the impact of the timing of the resolution of risk on investment behavior, with a special focus on the role of affect. In a between-subjects design we observe the impact of a substantial delay of risk resolution (2 days) on investment choices. Besides the resolution timing all other factors, including the timing of payout, are held constant across treatments. In addition, state-of-the-art experimental techniques from experimental economics and psychology are used for eliciting preferences and to explicitly measure emotions and personality traits. Participants put their own money at stake. Our main finding is that the timing of the resolution of risk matters for investment, modulated by the probability of investment success. Emotions are found to play a significant role in this respect and explain our main finding. Our results support recent models of decision making under risk trying to incorporate anticipatory emotions but also uncover some important shortcomings related to the dynamics of emotions.
(2010) Inter-Group Conflict and Intra-Group Punishment in an Experimental Contest Game American Economic Review 100, 420-447
We study how conflict in contest games is influenced by rival parties being groups and by group members being able to punish each other. Our motivation stems from the analysis of socio-political conflict. The theoretical prediction is that conflict expenditures are independent of group size and of whether punishment is available or not. We find, first, that conflict expenditures of groups are substantially larger than those of individuals, and both are above equilibrium. Second, allowing group members to punish each other leads to even larger conflict expenditures. These results contrast with those from public goods experiments where punishment enhances efficiency.
(2010) Global Risk, Investment, and Emotions Economica 77, 451-471 Link to article
We investigate a novel dynamic choice problem in an experiment where emotions are measured through self-reports. The choice problem concerns the investment of an amount of money in a safe option and a risky option when there is a ‘global risk’ of losing all earnings, from both options, including any return from the risky option. Our key finding is that global risk can reduce the amount invested in the risky option. This result cannot be explained by Expected Utility or by its main contenders Rank-Dependent Utility and Cumulative Prospect Theory. An explanation is offered by taking account of emotions, using the emotion data from the experiment and recent psychological findings.
(2010) Size Doesn’t Matter! Gift Exchange in Experimental Labor Markets Journal of Economic Behavior and Organization 76, 544-548 Link to article
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. Our large markets are three times as large as our small markets. 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 for both market sizes.
(2010) Public Opinion Polls, Voter Turnout, and Welfare: An Experimental Study American Journal of Political Science 54, 700-717 PDF-file Link to article ; Online Appendix
We experimentally study the impact of public opinion poll releases on voter turnout and welfare in a participation game. We find higher overall turnout rates when polls inform the electorate about the levels of support for the candidates, than when polls are prohibited. Distinguishing be¬tween allied and floating voters, our data show that this increase in turnout is entirely due to floating voters. When polls indicate equal levels of support for the candidates, turnout is high and welfare is low (compared to the situation without polls). In contrast, when polls reveal more unequal levels of support, turnout is lower with than without this information, while the effect of polls on welfare is non-negative. Finally, many of our results are well predicted by quantal re-sponse (logit) equi¬librium.
(2010) Understanding Negotiations: A Video Approach in Experimental Gaming A. Ockenfels and A. Sadrieh (eds) The Selten School of Behavioral Economics Springer 127-165
(2010) A glimpse through the veil of ignorance: equality of opportunity and support for redistribution Journal of Public Economics 94, 131-141 Link to article
This study is an experimental investigation into preference for redistribution of income. It had been hypothesized that (belief in) equality of opportunity in a society diminishes support for the welfare state. This could potentially explain the low taxes and social benefits in the United States vis-a-vis Europe. To verify this hypothesis, participants in an experiment were assigned different "Probabilities of Winning" and matched in groups of four. Next, before finding out who would actually win, they selected preferred transfers to be paid by the winners to the group as a whole. It was found that the average transfers were about 20% lower in the sessions in which winning was determined by performance in a task rather than by sheer luck. This difference cannot be explained by overconfidence in predicting own score. It corroborates the conjecture that perceived determinants of success (i.e. whether poverty results from laziness or bad luck) a¤ect the support for redistribution. On the other hand, greater inequality of opportunity measured simply by dispersion of Probabilities of Winning within a group did not lead to higher transfers.
(2010) Negative Reciprocity and the Interaction of Emotions and Fairness Norms Journal of Economic Psychology 31, 908-922 Link to article
This experimental study investigates how behavior changes after receiving punishment. The focus is on how proposers in a power-to-take game adjust their behavior depending on their fairness perceptions, their experienced emotions, and their interaction with responders. We find that fairness plays an important role: proposers who take what they consider to be an unfair amount experience higher intensities of prosocial emotions (shame and guilt), particularly if they are punished. This emotional experience induces proposers to lower their claims. We also find that fairness perceptions vary considerably between individuals. Therefore, it is not necessarily the case that proposers who considered themselves fair are taking less from responders than other proposers. Lastly, we provide evidence that suggests that eliciting emotions through self-reports does not affect subsequent behavior.
(2010) Identification of Voters with Interest Groups Improves the Electoral Changes of the Challenger Mathematical Social Sciences 60, 210-216 Link to article
This short paper investigates the consequences of voters identifying with special interest groups in a spatial model of electoral competition. We show that by effectively coordinating voting behavior, identification with interest groups leads to an increase in the size of the winning set, that is, the set of policy platforms for the challenger that will defeat the incumbent. Consequently, our paper points at a novel process through which interest groups can enhance the electoral chances of a challenger.
(2010) Information, Bilateral Negotiations, and Worker Recruitment European Economic Review 54, 1035-1058 Link to article
This paper studies experimentally how firms choose between using a centralized market and bilateral negotiations to recruit new personnel. In the market firms interact with several workers but do not have information about workers’ behavior in the past. In the bilateral negotiations firms negotiate bilaterally with prospective workers and learn about workers’ performance in previous jobs. We show that the interaction between social preferences, the incompleteness of contracts and the existence of information about a worker’s past performance provides an explanation for firms forgoing market opportunities and bilaterally negotiating with a worker. We observe that approxi¬mately 30% of all job contracts were bilaterally negotiated when these contracts are incomplete as opposed to only 10% when contracts were complete. The surplus from trade is higher when incomplete contracts can be bilaterally negotiated which can be attributed to the presence of information.
(2010) Positive expectations feedback experiments and number guessing games as models of financial markets Journal of Economic Psychology 31, 964-984 Link to article
(REVISED VERSION WITH EXTRA TREATMENTS) 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.
(2010) It takes grouping and cooperation to get sociality Journal of Theoretical Biology 264, 1240–1253 Link to article
Cooperation and grouping are regularly studied as separate traits. The evolution of sociality however requires both that individuals get together in groups and that they cooperate within them. Because the level of cooperation can influence selection for group size, and vice versa, it is worth studying how these traits coevolve. Using a generally applicable two-trait optimization approach, we provide analytical solutions for three specific models. These solutions describe how cooperative associations of non-relatives evolve, and predict how large and how cooperative they will be. The analytical solutions help understand how changes in parameter values, such as the group carrying capacity and the costs of cooperation, affect group size and the level of cooperation in equilibrium. Although the analytical model makes a few simplifying assumptions - populations are assumed to be monomorphic for grouping as well as for cooperative tendencies, and group size is assumed to be deterministic - simulations show that its predictions are matched quite closely by results for settings where these assumptions do not hold.
(2010) Call for a return to rigour in models (correspondence) Nature 467, 661 Link to article
(2009) The Pleasure of Being Nasty Economics Letters 105, 306-308
We introduce the joy-of-destruction game. Two players each receive an endowment and simultaneously decide on how much of the other player’s endowment to destroy. In a treatment without fear of retaliation, money is destroyed in almost 40% of all decisions.
(2009) Sources of Mistrust: An Experimental Case Study of a Central Asian Water Conflict. Environmental and Resource Economics Link to article
With the disintegration of the USSR a conflict arose between Kyrgyzstan, Uzbekistan and Kazakhstan over the transboundary Syr Darya river. Upstream Kyrgyzstan controls the Toktogul reservoir which generates hydropower demanded mainly in winter for heating. Downstream Uzbekistan and Kazakhstan need irrigation water in summer, primarily to grow an export crop (cotton). Regional agreements obliging Kyrgyzstan to higher summer discharges in exchange for fossil fuel transfers from downstream riparians in winter have been unsuccessful, due to lack of trust between the parties. Striving for self-sufficiency in irrigation water, Uzbekistan initiated new reservoir construction. This paper examines their economic impact. We report a laboratory experiment modelling the Syr Darya scenario as a multi-round, three-player trust game with non-binding contracts. Payoff schemes are estimated using real-life data. While basinwide efficiency maximisation requires regional cooperation, our results demonstrate that cooperation in the laboratory is hard to achieve. Uzbek reservoirs improve cooperation only weakly and their positive impact is limited to low-water years.
(2009) Competitive Rivalry, Social Disposition, and Subjective Well-Being: An Experiment Journal of Public Economics 93, 1158-1167 Link to article
This paper experimentally studies the effects of competitive rivalry in a social dilemma where people’s actions can not be contractually fixed. We find that, in comparison with no rivalry, the presence of rivalry does neither increase efficiency nor does it yield any gains in earnings for the short side of the exchange relation. Moreover, rivalry has a clearly negative impact on the disposition towards others and on the experienced well-being of those on the long side. Since subjective well-being improves only for those on the short side rivalry contributes to larger inequalities in experienced well-being. All in all rivalry does not show up as a positive force in our environment.
(2009) Clientelism and polarized voting: Empirical evidence Public Choice 141, 305-317 PDF-file Link to article
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 regional and cultural polarization that has existed for centuries has evolved to clientelism in the new democracy. We show how clientelistic parties give rise to very particular voting patterns. These reveal major differences across regions not only in party choice but also in voters’ responses to government policies. This is in sharp contrast with results obtained when applying the same model to a large number of more advanced democracies with similar electoral institutions.
(2009) Price Stability and Volatility in Markets with Positive and Negative Expectations Feedback: An Experimental Investigation Journal of Economic Dynamics and Control 33, 1052-1072 Link to article
The evolution of many economic variables is affected by expectations that economic agents have with respect to the future development of these variables. We show, by means of laboratory experiments, that market behaviour depends to a large extent on whether realized market prices respond positively or negatively to average price expectations. In the case of negative expectations feedback, as in commodity markets, prices converge quickly to their equilibrium value, confirming the rational expectations hypothesis. In the case of positive expectations feedback, as is typical for speculative asset markets, large fluctuations in realized prices and persistent deviations from the benchmark fundamental price are likely. We estimate individual forecasting rules and investigate how these explain the differences in aggregate market outcomes.
(2009) The Tragedy of the Commons Revisited: The Importance of Group Decision-Making Journal of Public Economics 93, 785-797 Link to article
We use a laboratory experiment to compare the way groups and individuals behave in an inter-temporal common pool dilemma. The experimental design distinguishes between a non-strategic problem where players (individuals or groups of three) make decisions without interaction and a strategic part where players harvest from a common pool. This allows us to correct for differences between individuals and groups in the quality of decisions when testing for differences in competitiveness. Group decisions are either made by majority rule or unanimity. The results show that groups are less myopic than individuals (i.e., they make qualitatively better decisions) but that they are more competitive than individuals when placed in a strategic setting. The net result for groups deciding by majority rule is that they make less efficient decisions in the strategic game than individuals do. We are able to show that this is caused by the median voter departing from her original preference in early periods with a shrinking pool. When groups have to make unanimous decisions they start playing the strategic game more efficiently then individuals do, but they rapidly become more competitive with repetition of the game.
(2009) Imitation and Luck: An Experimental Study on Social Sampling Games and Economic Behavior 65, 461-502
In this paper, we present the results of two experiments on social sampling. In both experiments, people are asked to make a risky decision in a situation where an idiosyncratic luck term affects their performance. Before they make their decision, people have the opportunity to sample others who have done exactly the same problem before them. These previous participants are ranked on the basis of their success. In the first experiment, we find that, by and large, subjects sample and imitate lucky risk seekers, while they could have sampled others to retrieve information that is valuable to solve their problem rationally. The simple behavioral rule of imitating the best appears to be robust to the setting of the problem. In the second experiment, we find that subjects tend to imitate successful others in both the winner's curse version and the loser's curse version of the Bazerman-Samuelson takeover game. Because of the way these problems are constructed, imitation exacerbates the winner's curse while it alleviates the loser's curse. In all problems, social sampling makes people look more risk seeking than the people who do not have the opportunity to sample.
(2009) A Truth-Serum for Non-Bayesians: Correcting Proper Scoring Rules for Risk Attitudes Review of Economic Studies 76, 1461-1489 Link to article Background material
Proper scoring rules provide convenient and highly efficient tools for incentive compatible elicitations of subjective beliefs. As traditionally used, however, they are valid only under expected value maximization. This paper shows how they can be generalized to modern (“nonexpected utility”) theories of risk and ambiguity, yielding mutual benefits: people using proper scoring rules can benefit from the empirical realism of nonexpected utility, and people analyzing ambiguity attitudes can benefit from the efficient measurements through proper scoring rules. An experiment demonstrates the feasibility of our generalized proper scoring rule.
(2009) Bidding to Give: An Experimental Comparison of Auctions for Charity International Economic Review 50, PDF-file Link to article
We experimentally compare three mechanisms used to raise money for charities: first-price winner-pay auctions, first-price all-pay auctions, and lotteries. We stay close to the characteristics of most charity auctions by using an environment with incomplete information and independent private values. Our results support theoretical predictions by showing that the all-pay format raises substantially higher revenue than the other mechanisms.
(2009) Gender pairing and bargaining—Beware the same sex! Experimental Economics 12, 318-331 Link to article
We study the influence of gender and gender pairing on economic decision making in an experimental two-person bargaining game where the other party’s gender is known to both actors. 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. These findings are consistent with predictions from evolutionary psychology. Implications of our results for real-world organizations are discussed.
(2009) Indirect Punishment and Generosity Toward Strangers Science 326, Link to article supporting online material
Many people incur costs to reward strangers who have been kind to others. Theoretical and experimental evidence suggests that such “indirect rewarding” sustains cooperation between unrelated humans. Its emergence is surprising, because rewarders incur costs but receive no immediate benefits. It can prevail in the long run only if rewarders earn higher payoffs than “defectors” who ignore strangers’ kindness. We provide experimental evidence regarding the payoffs received by individuals who employ these and other strategies, such as “indirect punishment” by imposing costs on unkind strangers. We find that if unkind strangers cannot be punished, defection earns most. If they can be punished, however, then indirect rewarding earns most. Indirect punishment plays this important role, even if it gives a low payoff and is rarely implemented.
(2009) The apples and oranges theorem for price indices Economics Letters 103, 12-14 Link to article
The question is whether or not there is a generally meaningful way to compute price indices. I explore the duality between price and quantity indices, and present an impossibility result that is analogous to the one for quantity indices.
(2009) Group selection, kin selection, altruism and cooperation: when inclusive fitness is right and when it can be wrong Journal of Theoretical Biology 259, 589-600 Link to article
Group selection theory has a history of controversy. After a period of being in disrepute, models of group selection have regained some ground, but not without a renewed debate over their importance as a theoretical tool. In this paper I offer a simple framework for models of the evolution of altruism and cooperation that allows us to see how and to what extent both a classification with and one without group selection terminology are insightful ways of looking at the same models. Apart from this dualistic view, this paper contains a result that states that inclusive fitness correctly predicts the direction of selection for one class of models, represented by linear public goods games. Equally important is that this result has a flip side: there is a more general, but still very realistic class of models, including models with synergies, for which it is not possible to summarize their predictions on the basis of an evaluation of inclusive fitness
(2009) Does It pay to be good? Competing Evolutionary Explanations of Pro-Social Behaviour Jan Verplaetse, Jelle Schrijver, Sven Vanneste and Johan Braeckman (eds) The Moral Brain. Essays on the Evolutionary and Neuroscientific Aspects of Morality Springer 185-200
(2009) Evolution in games with a continuous action space Economic Theory 39, 355-376 Link to article
Allowing for games with a continuous action space, we investigate how evolutionary stability, the existence of a uniform invasion barrier, local superiority and asymptotic stability relate to each other. This is done without restricting the populations of which we want to investigate the stability to monomorphic population states or to strategies with finite support.
(2008) 24 -- Pricing in Bertrand competition with increasing marginal costs Games and Economic Behavior 63, 1-31
Bertrand competition under decreasing returns involves a wide interval of pure strategy Nash equilibrium prices. We first present results of experiments in which two, three and four identical firms repeatedly interact in this environment. More firms lead to lower average prices. However, prices remain substantially above the Walrasian level. With more than two firms the predominant market price is 24, a price not predicted by conventional equilibrium theories. This phenomenon can be captured by a simple imitation model and by a focal point explanation. For the long run, the model predicts that prices converge to the Walrasian outcome. We then use data from three new treatments to properly test the influence of imitation and focality. We find that both forces are present, but that imitation dominates in large markets with a long interaction
(2008) Competition with Forward Contracts:A Laboratory Analysis Motivated by Electricity Market Design The Economic Journal 118, Link to article Appendices
We use experiments to study the efficiency effects for a market as a whole of adding the possibility of forward contracting to a pre-existing spot market. We deal separately with the cases where spot market competition is in quantities and where it is in supply functions. In both cases we compare the effect of adding a contract market with the introduction of an additional competitor, changing the market structure from a triopoly to a quadropoly. We find that, as theory suggests, for both types of competition the introduction of a forward market significantly lowers prices. The combination of supply function competition with a forward market leads to high efficiency levels.
(2008) Creating Competition Out of Thin Air: An Experimental Study of Right-to-Choose Auctions Games and Economic Behavior 62, 383-416 PDF-file
This paper presents an experimental study of a mechanism that is commonly used to sell multiple heterogenous goods. The novel feature of this procedure is that instead of selling each good in a separate auction, the seller executes a single auction in which buyers, who may be interested in completely different goods, compete for the right to choose a good. We provide experimental evidence that a Right-to-Choose (RTC) auction can generate more revenue than the theoretically optimal auction. Moreover, in contrast to the "optimal" auction, the RTC auction is approximately efficient in the sense that the surplus it generates is close to the maximal one. Furthermore, a seller who would like to retain some of his goods can generate more revenue with a restricted RTC auction in which not all rights-to-choose are sold, than with the theoretically optimal auction.
(2008) On the Nature, Modeling, and Neural Bases of Social Ties Daniel E. Houser and Kevin A. McCabe (eds) Neuroeconomics, Vol. 20 Advances in Health Economics and Health Services Research Emerald Insight Publishing 125-159 PDF-file
Purpose This paper addresses the nature, formalization, and neural bases of (affective) social ties and discusses the relevance of ties for health economics. A social tie is defined as an affective weight attached by an individual to the well-being of another individual (‘utility interdependence’). Ties can be positive or negative, and symmetric or asymmetric between individuals. Characteristic of a social tie, as conceived of here, is that it develops over time under the influence of interaction, in contrast with a trait like altruism. Moreover, a tie is not related to strategic behavior such as reputation formation but seen as generated by affective responses.
Methodology/approach A formalization is presented together with some supportive evidence from behavioral experiments. This is followed by a discussion of related psychological constructs and the presentation of suggestive existing neural findings. To help prepare the grounds for a modelbased neural analysis some speculations on the neural networks involved are provided, together with suggestions for future research.
Findings Social ties are not only found to be important from an economic viewpoint, it is also shown that they can be modeled and related to neural substrates.
Originality/value of the paper By providing an overview of the economic research on social ties and connecting it with the broader behavioral and neuroeconomics literature, the paper may contribute to the development of a neuroeconomics of social ties.
(2008) Expectations and Bubbles in Asset Pricing Experiments Journal of Economic Behavior and Organization 67, 116-133 Link to article
We present results on expectation formation in a controlled experimental environment. In each period subjects are asked to predict the next price of a risky asset. The realized market price is derived from an unknown market equilibrium equation with feedback from individual forecasts. In most experiments prices deviate from the benchmark fundamental and bubbles emerge endogenously. These bubbles are inconsistent with rational expectations and seem to be driven by trend chasing behavior or positive feedback expectations. of the participants. We also analyze individual predictions of participants and find that participants within a group tend to coordinate on a common prediction strategy.
(2008) Dynamic Choice, Independence and Emotions Theory and Decision 64, 249–300 Link to article
From the viewpoint of the independence axiom of expected utility theory, an interesting empirical dynamic choice problem involves the presence of a “global risk,” that is, a chance of losing everything whichever safe or risky option is chosen. In this experimental study, participants have to allocate real money between a safe and a risky project. Treatment variable is the particular decision stage at which a global risk is resolved: (i) before the investment decision; (ii) after the investment decision, but before the resolution of the decision risk; (iii) after the resolution of the decision risk. The baseline treatment is without global risk. Our goal is to investigate the isolation effect and the principle of timing independence under the different timing options of the global risk. In addition, we examine the role played by anticipated and experienced emotions in the choice problem. Main findings are a violation of the isolation effect, and support for the principle of timing independence. Although behavior across the different global risk cases shows similarities, we observe clear differences in people’s affective responses. This may be responsible for the conflicting results observed in earlier experiments. Dependent on the timing of the global risk different combinations
(2008) An Endogenous Policy Model of Hierarchical Government European Economic Review 52, 133-149 Link to article
Endogenous policy models usually neglect that government policies are frequently the result of decisions taken at different tiers by different agents, each enjoying some degree of autonomy. In this paper, policies are the outcome of the choices made by two agents within a hierarchy. A legislator decides on the budget to be successively spent by a bureaucrat. Both agents are lobbied by one or two interest groups. The combination of sequential decisionmaking and lobbying implies that the interaction between the agent at one tier and the interest group(s) depends on the exchange between the same interest group(s) and the agent at the other tier. Our results concerning multi-tier lobbying and legislatorial oversight substantially qualify the conventional wisdom related to one-tier lobbying. In particular, the reaction of the legislator to lobbying at the bureaucratic tier may make lobbying wasteful even when there is no competition from other lobbies. Moreover, the legislator benefits from lobbying only when there is competition between interest groups at the upper tier. It is also shown that competition for influence at the bureaucratic tier may work as a perfect substitute for legislatorial oversight. Extensions of the model indicate its usefulness for the analysis of decisionmaking in other multilevel governance structures, like federations or firms.
(2008) Fairness and Reciprocity in the Hawk-Dove game. Journal of Economic Behavior and Organization 66, 243-250 Link to article
We study fairness and reciprocity in a Hawk-Dove game. A variety of recent models gives the same predictions for this game. This allows us to provide a general classification of individuals? types. Contrary to a large number of studies on different games over the last decade, we observe a large group of subjects behaving in a selfinterested and rational way in the Hawk-Dove game.
(2008) Social Ties and Coordination on Negative Reciprocity: The Role of Affect Journal of Public Economics 92, 34-53 Link to article
This is an experimental study of negative reciprocity in the case of multiple reciprocators. We use a three-player power-to-take game where a proposer is matched with two responders. We compare a treatment in which responders are anonymous to each other (strangers) with one in which responders know each other from outside the lab (friends). We focus on the responders’ decisions, beliefs, and emotions. Our main findings are: (1) friends punish the proposer more than strangers, (2) friends are more likely to coordinate their punishment (without communication), and (3) both punishment and coordination are explained by the responders’ emotional reactions.
(2008) An experimental investigation of wage taxation and unemployment in closed and open economies (Revised version of Tinbergen Institute Discussion Paper 00112) European Economic Review 51, 871-900 Link to article
We investigate experimentally the economic effects of wage taxation to finance unemployment benefits for a closed economy and an international economy. The main findings are the following. (i) There is clear evidence of a vicious circle in the dynamic interaction between the wage tax and unemployment. (ii) Employment is boosted by budget deficits but subsequent tax rate adjustments to balance the budget lead to employment levels substantially lower than theoretically predicted. (iii) A sales risk for producers due to price uncertainty on output markets appears to cause a downward pressure on factor employment. For labor the wage tax exacerbates this adverse effect.
(2008) Participation game experiments: Explaining voter turnout C.R. Plott and V.L. Smith (eds) The Handbook of Experimental Economics Results volume 1 Amsterdam: North-Holland 888-901
(2008) Explaining the comparative statistics in step-level public good games C.R. Plott and V.L. Smith (eds) The Handbook of Experimental Economics Results volume 1 Amsterdam: North-Holland 817-824
(2008) A note on different approaches to index number theory American Economic Review 98, 1722–1730 Link to article
In the literature, two approaches to index numbers are distinguished: the axiomatic approach and the economic approach. In this note we discuss the way in which these two approaches differ and how that affects what the numbers mean. The difference is regularly described as one between an approach that does and an approach that does not assume that quantities arise from optimizing behaviour. We argue that a more accurate description is that the difference lies in whether or not optimizing agents, or representative consumers, are assumed to optimize the same utility function. It is exactly this distinction that sets the (different) limitations of both approaches for constructing a meaningful indicator of real income.
(2008) On the Nature, Modeling and Neural Bases of Social Ties Daniel E. Houser and Kevin A. McCabe (eds) Neuroeconomics, Vol. 20, Advances in Health Economics and Health Services Research, 2008 Emerald Insight Publishing 125-159
This paper addresses the nature, formalization, and neural bases of (affective) social ties and discusses the relevance of ties for health economics. A social tie is defined as an affective weight attached by an individual to the well-being of another individual (‘utility interdependence’). Ties can be positive or negative, and symmetric or asymmetric between individuals. Characteristic of a social tie, as conceived of here, is that it develops over time under the influence of interaction, in contrast with a trait like altruism. Moreover, a tie is not related to strategic behavior such as reputation formation but seen as generated by affective responses. A formalization is presented together with some supportive evidence from behavioral experiments. This is followed by a discussion of related psychological constructs and the presentation of suggestive neural findings, based on the existing literature. We conclude with some suggestions for future research.
(2008) Intrinsic Motivation in a Public Good Environment C.R. Plott and V.L. Smith (eds) The Handbook of Experimental Economics Results Volume 1 Amsterdam: North-Holland 836-845
(2007) Reciprocity and Emotions in Bargaining: Using Physiological and Self-Report Measures Journal of Economic Psychology 314-323 Link to article
Although reciprocity is a key concept in the social sciences, it is still unclear why people engage in costly reciprocation. In this study, physiological and self-report measures were employed to investigate the role of emotions, using the Power-to-Take Game. In this 2-person game, player 1 can claim any part of player 2's resources, and player 2 can react by destroying some (or all) of these resources thus preventing their transfer to player 1. Both physiological and self-report measures were related to destruction decisions. The observed pattern of emotional arousal and its correlation with self-reported anger provides support for using both techniques to study reciprocity.
(2007) Learning in Cobweb Experiments Macroeconomic Dynamics 11, 8-33 Link to article
Different theories of expectation formation and learning usually yield different outcomes for realized market prices in dynamic models. The purpose of this paper is to investigate expectation formation and learning in a controlled experimental environment. Subjects are asked to predict next periods aggregate price in a dynamic commodity market model with feedback from individual expectations. Subjects have no information about underlying market equilibrium equations, but can learn by observing past price realizations and predictions. We conduct both a stable, an unstable and a strongly unstable treat-ment. In the stable treatment rational expectations (RE) yields a good description of observed aggregate price fluctuations: prices remain close to the RE steady state. In the unstable treatments prices exhibit large fluctuations around the RE steady state. Although the sample mean of realized prices is close to the RE steady state, the amplitude of the price fluctuations as measured by the variance is significantly larger than the amplitude under RE, implying persistent excess volatility. However, agents? forecasts are boundedly rational in the sense that fluctuations in aggregate prices are unpredictable and exhibit no forecastable structure that could easily be exploited.
(2007) Gift exchange in a multi-worker firm. Economic Journal 117, 1025-1050 Link to article
One of the main findings of a large body of gift exchange experiments is that in an incomplete contracts environment workers on average do not shirk and usually provide more than the minimum enforceable effort level. In general, 40 to 60 percent of the workers reward higher wages with higher effort. These results are observed for simple one-employer − one-worker relationships. In this paper we investigate whether they generalize to the more realistic situation in which the employer employs several workers. We compare a bilateral gift exchange game with a treatment in which each employer has four workers. We find that effort levels in the latter treatment are only marginally lower. Gift exchange thus appears to be robust to increases in the size of the workforce.
(2007) Who should invest in firm specific training? Journal of Population Economics 20, 329-357 Link to article
We study experimentally whether employers or workers should in- vest in firm specific training. Workers have an alternative trading opportunity that either takes the form of an outside option or of a threat point. Theory predicts that with outside options employers have (weakly) better investment incentives than workers and should therefore be the investing party. With threat points employers and workers are predicted to invest the same. Our results are by and large in line with these predictions. Due to offsetting inefficiencies in the bargaining stage, however, realized inefficiencies are remarkably similar across the different situations considered.
(2007) Promotion rules and skill acquisition: An experimental study. Economica 74, 259-297 Link to article
Gibbons (1998) identifies a tradeoff between up-or-stay and up-or-out promotion rules. Up-or- stay never wastes skills of those not promoted but may provide insufficient incentives to invest in skills. Up-or-out on the other hand can always induce investment in skill acquisition but may waste the skills of those not promoted. This paper reports an experiment designed to study this tradeoff. Under the up-or-out rule parties behave (almost) just as theory predicts them to do. But under up-or-stay (and stay-or-stay) rules results differ markedly from theoretical predictions. Workers invest rather frequently although the subgame perfect prediction is that they should not do so. Deviations from theoretical predictions can be explained by reference to different reciprocity mechanisms.
(2007) Multilateral indices: conflicting approaches? Review of Income and Wealth 53, 372-378
This short paper focusses on an apparent conflict between two results from different approaches to the problem of finding multilateral index numbers. The impossibility theorem of Van Veelen (2002) is an axiomatic result that rules out the existence of a multilateral index that satisfies four modest requirements. This also implies that no bilateral index can consistently be generalized to a multilateral setting. Adopting a revealed preference approach, Dowrick and Quiggin (1997) however construct a multilateral extention of Fisher's ideal index, which preserves a range of desirable properties. This note shows what it is that drives the divergence between those two results. It also gives implications for practical use of results from either approach.
(2007) Does making specific investments unobservable boost investment incentives? Journal of Economics and Management Strategy 16, 911-942 PDF-file webappendix, extended equilibrium analyses
Standard theory predicts that holdup can be alleviated by making specific investments unobservable; private information creates an informational rent that boosts investment incentives. Empirical findings, however, indicate that holdup is attenuated by fairness and reciprocity motivations. Private information may interfere with these, as it becomes impossible to observe whether the investor behaved fair or not. In that way unobservability could crowd out an informal fairness/reciprocity mechanism in place. This paper reports on an experiment to investigate this issue empirically. Our results are in line with standard predictions when there is limited scope for social preferences. But with sufficient scope for these motivational factors, unobservability does not boost specific investments.
(2007) On the Importance of Default Breach Remedies Journal of Institutional and Theoretical Economics 163, 5-22 Link to article webappendix, instructions, extended equilibrium analyses
Economic theory predicts that default breach remedies are immaterial whenever contracting and bargaining cost sare negligible. Parties will then always incorporate the efficient remedy in to their contract. Some experimental studies, however, suggest that in practice default rules do matter, because they may affect parties’ preferences over the various breach remedies. This paper presents results from an experiment designed to address the (un)importance of default breach remedies for actual contract outcomes. In contrast to previous studies the focus is on a setting with both explicit interaction between contracting parties and explicit monetary incentives. We find that default rules do have an impact on actual contract choices. The reason for this is not that proposals and/or responses are biased towards the default contract, but rather that parties often disagree over what the best contract is and therefore end up with the default.
(2007) Underinvestment in training? Joop Hartog and Henriette Maassen van den Brink (eds) Human Capital; Advances in Theory and Evidence Cambridge University Press 113-133 PDF-file
(2007) Distant relations, a review of "Social Psychology and Economics" Social Justice Research 20, 388-399 Link to article
An essay on the relation between (social) psychology and (experimental) economics and a review of the recent book "Social Psychology and Economics".
(2007) Hamilton's missing link Journal of Theoretical Biology 246, 551-554 Link to article
Hamilton's famous rule was presented in 1964 in a paper called "The genetical theory of social behaviour (I and II)," Journal of Theoretical Biology 7, 1-16, 17-32. The paper contains a mathematical genetical model from which the rule supposedly follows, but it does not provide a link between the paper's central result, which states that selection dynamics take the population to a state where mean inclusive fitness is maximized, and the rule, which states that selection will lead to maximization of individual inclusive fitness. This note provides a condition under which Hamilton's rule does follow from his central result.
(2007) In Love and War; altruism, norm formation, and two different types of group selection Journal of Theoretical Biology 249, 667-680 Link to article
We analyse simulations reported in "The co-evolution of individual behaviors and social institutions" by Bowles, Choi & Hopfensitz (2003) in the Journal of Theoretical Biology 223, 135-147 and begin with distinguishing two types of group selection models. The literature does not provide different names for them, but they are shown to be fundamentally different and have quite different empirical implications. The working of the first one depends on the answer to the question `is the probability that you also are an altruist large enough', while the other needs an affirmative answer to `are our interests enough in line'. The first one therefore can also be understood as a kin selection model, while the working of the second can also be described in terms of direct benefits. The actual simulation model is a combination of the two. It is also a Markov chain, which has important implications for how the output data should be handled.
(2007) Affective Public Choice José Casas Pardo and Pedro Schwartz (eds) Public Choice and the Challenges of Democracy Edward Elgar 45-61 PDF-file
This paper argues that due to the neglect of the affective side of human decision making we find it hard to explain political economic phenomena such as tax revolts, voting, political rituals, terrorism, and entitlements. Taking into account the action tendencies of emotions like resentment, hatred, shame, fear, and hope, makes these kinds of behavior better understandable and predictable. To phrase the argument of this paper in a more polemical way: Who cannot stand the heat should stay out of politics and public choice!
(2007) Affect and Fairness in Economics Social Justice Research 35-52 Link to article
A strained relationship exists between mainstream economics and ethics. Over the last decade, behavioral economists have strongly argued for the importance of fairness in motivating behavior, based on substantial experimental evidence. Two main approaches to the modelling of fairness have been proposed: the outcome-based inequity aversion approach, and the intention-based reciprocity approach. Both approaches have been quite successful in explaining the experimental evidence. Nonetheless, this paper questions the role that is assigned to fairness in these models and the way fairness is incorporated, using recent experimental findings concerning emotions and fairness perceptions. The analysis supports the view that feelings are important for justice, also from a policy perspective, and pleads for closer attention being paid to the functioning of emotional brain systems.
(2006) Exploring Group Decision Making in a Power-to-Take Experiment Experimental Economics 9, 35-51 Link to article
Most studies that compare individual and group behavior neglect the in-group decision making process. This paper explores the decision making process ithin groups in a strategic setting: a two player power-to-take experiment. Discussions preceding group decisions are video taped and analyzed. We find the following: (1) no impact of the group setting as such on individual behavior; (2) heterogeneity of individual types; (3) perceptions of fairness are hardly discussed and are prone to the self-serving bias; (4) groups ignore the decision rule of other groups and typically view them as if they were single agents. (5) We also show that to explain group outcomes two factors have to be taken into account that are often neglected: the distribution of individual types over groups and the decision rules that groups use to arrive at their decision.
(2006) Small- and Large-Stakes Risk Aversion: Implications of Concavity Calibration for Decision Theory Games and Economic Behaviour 45-60 Link to article
A growing literature reports the conclusions that: (a) expected utility theory does not provide a plausible theory of risk aversion for both small-stakes and large-stakes gambles; and (b) this decision theory should be replaced with an alternative theory characterized by loss aversion. This paper explains that the arguments in previous literature fail to support these conclusions. Either concavity calibration has no general implication for expected utility theory or it has problematic implications for all decision theories that involve concave transformations (utility or value functions) of positive money payoffs, which makes loss aversion irrelevant to the argument.
(2006) Tax Evasion and Income Source: A Comparative Experimental Study. Journal of Economic Psychology 27, 402-422 Link to article Appendix with experimental instructions
We compare tax evasive behavior in a country in transition from communism to that in a developed economy by running an experiment across distinct social groups in Albania and the Netherlands. Aside from the tax compliance decision, subjects choose a source of income, where one type enables subsequent tax evasion. We show that they take the possibility of evasion into account when deciding on the income source. This yields potential allocative inefficiency in the labor market. In addition, Dutch subjects evade more than the Albanians. We argue that the different levels of tax evasion outside of the laboratory in the two types of countries can be attributed to distinct formal tax institutions.
(2006) Using First-Price Auctions to Sell Heterogeneous Licenses International Journal of Industrial Organization 24, 555-581 PDF-file
This paper considers three alternative ways to sell heterogenous licenses via a first-price format when there is single unit demand. It has been suggested that incorporating a first-price element may bolster competition in this case (Klemperer, 2002). In a controlled laboratory setting, we compare the performance of the simultaneous first-price auction, the sequential first-price auction and the simultaneous descending auction with that of the simultaneous ascending auction. The experiments involve several bidding environments of varying complexity. We find that the simultaneous ascending auction achieves the highest levels of efficiency but also has drawbacks: (i) its revenues are low and variable, (ii) per-license profits vary, and (iii) the incidence of winner's curse outcomes is high. Seller's revenues are highest when the licenses are sold in a sequential first-price auction, in decreasing order of quality.
(2006) Neighborhood Information Exchange And Voter Participation: An Experimental Study American Political Science Review 100, 235-248 PDF-file ; Online Appendices
We study the effect of social embeddedness on voter turnout by investigating the role of information about other voters? decisions. We do so in a participation game, in which we distinguish between early and late voters. Each late voter is told about one early voter?s turnout decision. Cases are distinguished where the voters are allies (support the same group) or adversaries (with opposing preferences) and where they are uncertain about each other?s preferences. Our experimental results show that the social embeddedenss matters: this information increases aggregate turnout by approximately 50%. The largest effect is observed for allies. Early voters strategically try to use their first mover position and late voters respond to this.
(2006) Does Auctioning of Entry Licenses Induce Collusion? An Experimental Study Review of Economic Studies 73, 769-791 PDF-file
We use experiments to examine whether the auctioning of entry rights affects the behavior of market entrants. Standard economic arguments suggest that the license fee paid at the auction will not affect pricing since it constitutes a sunk cost. This argument is not uncontested though and this paper puts it to an experimental test. Our results indicate that an auction of entry licenses may affect prices in oligopoly but not in monopoly. In oligopoly, the payment of an entry fee increases the probability that the market entrants tacitly coordinate on a collusive price path.
(2006) A computational electoral competition model with social clustering and endogenous interest groups as information brokers Public Choice Link to article
We extend the basic model of spatial competition in two directions. First, political parties and voters do not have complete information but behave adaptively. Political parties use polls to search for policy platforms that maximize the probability of winning an election and the voting decision of voters is influenced by social interaction. Second, we allow for the emergence of interest groups. These interest groups transmit information about voter preferences to the political parties, and they coordinate voting behavior. We use simulation methods to investigate the convergence properties of this model. We find that the introduction of social dynamics and interest groups increases the separation between parties platforms, prohibits convergence to the center of the distribution of voter preferences, and increases the size of the winning set.
(2006) Social Status and Group Norms: Indirect Reciprocity in a Helping Experiment. European Economic Review 50, 581-602 Link to article
In the economic literature, reciprocity is typically studied in situations of repeated interaction between two individuals. It refers to one individual rewarding kind acts of the other or punishing hostile acts. In contrast, this paper studies indirect reciprocity, where a cooperative action is rewarded by a third actor, not involved in the original exchange. We provide experimental evidence on indirect reciprocity. The experiment is based on the ?repeated helping game? developed by Nowak and Sigmund (J. Theoret. Biol. 194 (1998) 561; Nature 393 (1998) 573), involving random pairing in large groups. Pairs consist of a donor and a recipient. Donors decide whether or not to provide costly ?help? to the recipients they are matched with, based on information about the recipient's behavior in encounters with third parties. We observe clear evidence of indirect reciprocity. Many decision-makers respond to the information about previous decisions (whether or not to help others) of the recipients. In our experiments, this indirect reciprocity is largely based on norms about how often the recipient should have helped others in the past. We show that these norms develop similarly within groups of interacting subjects, but distinctly across groups. This leads to the emergence of group norms.
(2006) Breach remedies, reliance and renegotiation. International Review of Law and Economics 26, 263-296 Link to article
Breach remedies can be used to protect specific investments and are therefore a remedy against holdup. Yet some commonly used remedies are predicted to provide too much protection, thereby inducing overinvestment. Two motives drive this prediction: the insurance motive and the separation prevention motive. This paper presents results from an experiment designed to test whether these two motives show up in practice. In contrast to previous experiments the focus is on a setting where ex post renegotiations are possible. Our results indicate that also in this case the insurance motive and the separation prevention motive are at work, as predicted. A second main finding is that there is much less need for sophisticated breach remedies based on compensatory money damages than is suggested by theory.
(2006) Price clustering and natural resistance points in the Dutch stock market: a natural experiment European Economic Review 50, 1937-1950 Link to article Appendix
This paper focuses on the tendency of stock prices to cluster at round numbers (like 10, 20, 30 etc and to a lesser extend 5, 15, 25, etc) and the related effect of round number price barriers (prices pass less frequently round numbers than other numbers). These effects are against any strict definition of the efficient market theory. Two competing hypotheses are tested, using data from the Dutch stock market during 1990-2001. After January 1, 1999 stock prices were listed in euros, while guilders were still the currency of daily life until 2002. According to the aspiration level hypothesis investors will have target prices for the stocks they own. This hypothesis predicts that round number effects in guilders will only slowly disappear. The odd price hypothesis originates from cognitive psychology and marketing. Humans have to tendency to compare numbers digit by digit from left to right, and therefore consider an odd price of 19.90 as considerable less than 20.00. This hypothesis predicts an abrupt change in round number effects after January 1, 1999. The results reject the aspiration level hypothesis and support the odd price hypothesis.
(2006) On the dynamics of social ties structures in groups (An earlier version of this paper was titled: Group formation in a public good experiment) Journal of Economic Psychology 27, 187-204 Link to article
Economic behavior often takes place in small groups of people interacting with each other (like work teams and boards of directors, but also social networks and neighborhoods). Characteristic of such interaction is the development of (affective) interpersonal relationships, or social ties. The embeddedness of economic behavior in networks of social ties seems to have a profound impact on the outcome of economic processes. In this paper we investigate experimentally the development of social ties structures through economic interaction in a public good environment. It turns out that complicated dynamics arise from individual differences in social value orientation and affective response patterns.
(2006) Why kin and group selection models may not be enough to explain human other-regarding behaviour Journal of Theoretical Biology 242, 790-797 Link to article
Models of kin or group selection usually feature only one possible fitness transfer. The phenotypes are either to make this transfer or not to make it and for any given fitness transfer, Hamilton's rule predicts which of the two phenotypes will spread. In this article we allow for the possibility that different individuals or different generations face similar, but not necessarily identical possibilities for fitness transfers. In this setting, phenotypes are preference relations, which concisely specify behaviour for a range of possible fitness transfers (rather than being a specification for only one particular situation an animal or human can be in). For this more general setup, we find that only preference relations that are linear in fitnesses can be explained using models of kin selection and that the same applies to a large class of group selection models. This provides a new implication of hierarchical selection models that could in principle falsify them, even if relatedness - or a parameter for assortativeness - is unknown. The empirical evidence for humans suggests that hierarchical selection models alone are not enough to explain their other-regarding or altruistic behaviour.
(2006) Social Science In The Making: An economist?s view Paul A.M. van Lange (eds) Bridging Social Psychology: Benefits of Transdisciplinary Approaches Mahwah, NJ: Erlbaum 415-420 PDF-file
Recent developments in economics and psychology suggest that productivity in the social sciences will benefit from crossing existing academic barriers, and that such crossing is more and more likely. Social science is in the making, but its success seems particularly conditioned on the willingness to put experimentation and formalization on an equal footing. Economists will have to be satisfied with theoretical highways instead of malfunctioning superhighways, while social psychologists will have to adventure more fast-track formal theory building. Institutional changes would facilitate the integration.
(2005) Conformity and reprocity in public good provision. Journal of Economic Psychology 26, 664-681 Link to article
(2005) The impact of real effort and emotions in the power-to-take game. Journal of Economic Psychology 26, 407-429 Link to article
This paper experimentally examines the impact of real effort and emotions on behavior in the power-to-take game of Bosman and van Winden [Bosman, R., & van Winden, F. (2002). Emotional hazard in a power-to-take experiment. The Economic Journal, 112, 146?169]. In this game, one player (the take authority) can claim as a take rate any part of the endowment of another player (the responder). Then, the responder can destroy any part of his endowment. We examine whether agents behave differently if their own earnings are at stake (?effort?) or a budget allocated to them by the experimenter (?no-effort?). A key feature of this work is that emotions and their behavioral significance are measured. Our main findings are: (1) responders destroy more often and a greater amount on aggregate with no-effort; (2) responders frequently choose an intermediate amount of destruction with no-effort, in contrast with the all or nothing finding for effort; (3) the behavior of take authorities does not depend on effort; (4) responders expect substantially lower take rates with no-effort; (5) actual as well as expected take rates have a significant effect on the probability of destruction, both in case of effort and no-effort; (6) emotional factors explain these results.
(2005) Moral Property Rights in Bargaining with Infeasible Claims Management Science 51, 249-263 PDF-file Link to article Experimental instructions
(2005) A strategy experiment in dynamic asset pricing. Journal of Economic Dynamics and Control 29, 823-843 Link to article
This study presents a strategy experiment is asset pricing. In a simple dynamic asset pricing model the price in the present period is determined by the expectations of next period's price. After participating in an introductory laboratory experiment on expectation formation participants formulate a complete forecasting strategy. These strategies are programmed and markets are simulated. Participants receive feedback from the results of these simulations and can adapt their strategy. Four rounds are played. A final laboratory experiment compares predictions of participants with the predictions of the submitted strategy. We find that most of the participants submit complicated strategies and that strategies become more complicated over the rounds. Most markets converge to a steady state price only after many periods, if at all. The number of converging price sequences increases over the rounds. These results suggest in general slow convergence and learning of the subjects over the rounds. Even in a stationary environment it turns out to be difficult to learn the correct fundamental price level. An important part of the non-convergence seems to be caused not by individual strategies but by the interaction of several strategies together. From the final experiment we conclude that the strategies are a good representation of what participants do in a laboratory experiment.
(2005) Coordination of Expectations in Asset Pricing Experiments Review of Financial Studies 18, 955-980 Link to article Appendix
We investigate expectation formation in a controlled experimental environment. Subjects are asked to predict the price in a standard asset pricing model. They do not have knowledge of the underlying market equilibrium equations, but they know all past realized prices and their own predictions. Aggregate demand of the risky asset depends upon the forecasts of the participants. The realized price is then obtained from market equilibrium with feedback from individual expectations. Each market is populated by six subjects and a small fraction of fundamentalist traders. Realized prices differ significantly from fundamental values. In some groups the asset price converges slowly to the fundamental price, in other groups there are regular oscillations around the fundamental price. In all groups participants coordinate on a common prediction strategy. The individual prediction strategies can be estimated and correspond, for a large majority of participants, to simple linear autoregressive forecasting rules.
(2005) Inefficiency and Social Exclusion in a Coalition Formation Game: Experimental Evidence. Games and Economic Behavior 50, 278-311 PDF-file Link to article Experimental instructions
(2005) Tax Liability Side Equivalence in Gift Exchange Labor Markets. Fortcoming Journal of Public Economics 89, 2369-2382 Link to article
Tax Liability Side Equivalence (tax LSE) claims that the statutory incidence of a tax is irrelevant for its economic incidence. Tax LSE is predicted to hold in gift-exchange labor markets if workers? effort choices exclusively depend on the net wage, but breaks down if they partially depend on the gross wage paid to workers. This is the case if the tax is perceived to be external to the gift-exchange relationship. We experimentally test tax LSE in a gift-exchange labor market and find that it holds very well.
(2005) Interest Group Size Dynamics and Policymaking. Public Choice 125, 271-303 Link to article
We present a dynamic model of endogenous interest group sizes and policymaking.The model integrates top-down(policy) and bottom-up(individual and social-structural) influences on the development of interest groups. Comparative statics results show that the standard assumption of fixed-sized interest groups can be very misleading. Furthermore, dynamic analysis of the model demonstrates that reliance on equilibrium results can be misleading as well since equiibria may not be stable. In fact, complicated dynamics may emerge naturally, leading to erratic and path dependent time patterns for policy and interest group sizes. We show that our model can endogenously generate the types of spurts and declines in organizational density that are reported in empirical studies.
(2005) Artificiality: the tension between internal and external validity in economic experiments. Journal of Economic Methodology 12, 225-237 Link to article
The artificiality of a laboratory situation is placed in the context of the tension between external and internal validity. Most economists consider internal validity to be most important. A proper evaluation of the 'artificiality criticism' (a lack of external validity) requires distinguishing the various goals experimentalists pursue. External validity is relatively more important for experiments searching for empirical regularities than for theory-testing experiments. As experimental results are being used more often in the development of new theories, a methodological discussion of their external validity is becoming more important.
(2005) On the use of the Price equation Journal of Theoretical Biology 237, 412-426 Link to article
This paper distinguishes two categories of questions that the Price equation can help us answer. The two different types of questions require two different disciplines that are related, but nonetheless move in opposite directions. These disciplines are probability theory on the one hand and statistical inference on the other. In the literature on the Price equation, this distinction is not made. As a result of this, questions that require a probability model are regularly approached with statistical tools. In this paper we examine the possibilities of the Price equation for answering questions of either type. By spending extra attention on mathematical formalities, we avoid that the two disciplines get mixed up. After that, we look at some examples, both from kin selection and from group selection, that show how the inappropriate use of statistical terminology can put us on the wrong track. Statements that are 'derived' with the help of the Price equation, are therefore in many cases not the answers they seem to be. Going through the derivations in reverse can however be helpful as a guide how to build proper (probabilistic) models that do give answers.
(2004) Do Democracies breed Chickens? R. Suleiman, D. Budescu, I. Fischer and D. Messick (eds) Contemporary Psychological Research on Social Dilemmas Cambridge University Press 248-268
Our interest is in assessing the effect of different group decision-rules (or ?regimes?) on conflict resolution. Toward this goal, we model intergroup conflict as a two-stage Chicken game between two groups (teams) of players and distinguish two decision-making procedures for determining a team's choice: democracy (majority rule) and dictatorship (one individual makes the team's decision). In an experiment with three individuals per team, we found that (i) decision-making procedures had no effect on choices at the team level; (ii) decision-making procedures did not affect first-stage choices by individuals; (iii) in the second stage, individuals in democracies were more likely to concede than dictators; (iv) dictators facing a democratic team were least likely to concede, whereas individuals in a democratic team facing a dictator were most likely to concede.
(2004) How Universal is Behavior? A Four Country Comparison of Spite and Cooperation in Voluntary Contribution Mechanisms. Public Choice 119, 381-424 Link to article
This paper studies behavior in experiments with a linear voluntary contributions mechanism for public goods conducted in Japan, the Netherlands, Spain and the USA. The same experimental design was used in the four countries. Our 'contribution function' design allows us to obtain a view of subjects? behavior from two complementary points of view. It yields information about situations where, in purely pecuniary terms, it is a dominant strategy to contribute all the endowment and about situations where it is a dominant strategy to contribute nothing. Our results show, first, that differences in behavior across countries are minor. We find that when people play ?the same game? they behave similarly. Second, for all four countries our data are inconsistent with the explanation that subjects contribute only out of confusion. A common cooperative motivation is needed to explain the data.
(2004) The Amsterdam Auction. Econometrica 72, 281-94
The Amsterdam auction has been used to sell real estate in the Dutch capital for centuries. By awarding a premium to the highest losing bidder, the Amsterdam auction favors weak bidders without having the implementation difficulties of Myerson s (1981) optimal auction. In a series of experiments, we compare the standard first-price and English auctions, the optimal auction, and two variants of the Amsterdam auction. With strongly asymmetric bidders, the second-price Amsterdam auction raises substantially more revenues than standard formats and only slightly less than the optimal auction.
(2004) What's Causing Overreaction? An Experimental Investigation of Recency and the Hot Hand Effect Scandinavian Journal of Economics 106, 533-553 Link to article
A substantial body of empirical literature provides evidence for overreaction in markets. Past losers outperform past winners in stock markets as well as in sports markets. Two hypotheses are consistent with this observation. The recency hypothesis states that traders overweight recent information. Thus, they are too optimistic about winners and too pessimistic about losers. According to the hot hand hypothesis, traders try to discover trends in the past record of a firm or a team, and thereby overestimate the autocorrelation in the series. An experimental design allows us to distinguish between these hypotheses. The evidence is consistent with the hot hand hypothesis. Experience slightly reduces the observed phenomenon of overreaction.
(2004) Cultural differences in ultimatum game experiments: evidence from a meta-analysis. Experimental Economics 7, 171-188 Link to article
This paper reports the findings of a meta-analysis of 37 papers with 75 results from ultimatum game experiments. We find that on average the proposer offers 40% of the pie to the responder. This share is smaller for larger pie sizes and larger when a strategy method is used or when subjects are inexperienced. On average 16% of the offers is rejected. The rejection rate is lower for larger pie sizes and for larger shares offered. Responders are less willing to accept an offer when the strategy method is employed. As the results come from different countries, meta-analysis provides an alternative way to investigate whether bargaining behavior in ultimatum games differs across countries. We find differences in behavior of responders (and not of proposers) across geographical regions. With one exception, these differences cannot be attributed to various cultural traits on which for instance the cultural classifications of Hofstede (1991) and Inglehart (2000) are based.
(2004) Specific investments, holdup, and the outside option principle. European Economic Review 48, 1399-1410 Link to article
According to the outside option principle the holdup problem can be solved when the non-investor has a binding outside option. The investor then becomes residual claimant, creating efficient investment incentives. This paper reports about an experiment designed to test this. We find that when the outside option is binding investment levels fall short of the efficient level, but holdup is less of a problem than predicted when the outside option is non-binding.
(2004) The Instability of a Heterogeneous Cobweb Economy:a Strategy Experiment on Expectation Formation Jounal of Economic Behavior and Organization 54, 453-481 Link to article
Which strategies do agents use when forming expectations about future prices, and how often do combinations of these strategies lead to stable or unstable outcomes? To answer these questions we performed a four-round strategy experiment in a 20 period cobweb economy with expectations feedback. Subjects did not know the underlying market equilibrium equations, but only observed past prices. All strategies were programmed and after each round the subjects received feedback about the relative performance of their strategy, and were allowed to revise their strategy for the next round. Over the rounds quadratic forecasting errors decrease and realized market prices move to a neighborhood of the rational expectations (RE) steady state, but at the same time the complexity of the price fluctuations increases. Convergence to the unique RE steady state occurs in less than 10% of all cases. In the final round 60% of the price fluctuations appears to be chaotic. Strategy simulations with homogeneous agents typically show regular behavior, with prices converging to a steady state or to a 'far from the steady state' stable cycle. Heterogeneous interaction of simple prediction strategies thus seems to be the main source of the endogenous price fluctuations, frequently leading to a boundedly rational equilibrium of 'close to the steady state chaos'.
(2003) The co-evolution of individual behaviors and social institutions. Journal of Theoretical Biology 223, 135-147 Link to article
We present agent-based simulations of a model of a deme-structured population in which group differences in social institutions are culturally transmitted and individual behaviors are genetically transmitted. We use a standard extended tness accounting framework to identify the parameter space for which this co-evolutionary process generates high levels of group-beneficial behaviors. We show that intergroup conflicts may explain the evolutionary success of both:(a)altruistic forms of human sociality towards unrelated members of one's group; and (b) group-level institutional structures such as food sharing which have emerged and diffused repeatedly in a wide variety of ecologies during the course of human history. Group-beneficial behaviors may evolve if (a) they inflict sufficient fitness costs on outgroup individuals and (b) group-level institutions limit the individual fitness costs of these behaviors and thereby attenuate within-group selection against these behaviors. Thus, the evolutionary success of individually costly but group-beneficial behaviors in the relevant environments during the first 90,000 years of anatomically modern human existence may have been a consequence of distinctive human capacities in social institution building.
(2003) Risk Averse Behavior in Generalized Matching Pennies Games Games and Economic Behavior 45, 97-113 Link to article
(2003) Bidding for the Future: Signaling in Auctions with an Aftermarket Journal of Economic Theory 108, 345-364 Link to article
(2003) A Model of Noisy Introspection Games and Economic Behavior 46, 365-382 Link to article
(2003) Competitive Bidding in Auctions with Private and Common Values. Economic Journal 113, 598-613 Link to article
The objects for sale in most auctions possess both private and common value elements. This salient feature has not yet been incorporated into a strategic analysis of equilibrium bidding behaviour. This paper reports such an analysis for a stylised model in which bidders receive a private value signal and an independent common value signal. We show that more uncertainty about the common value has a negative effect on efficiency. Information provided by the seller decreases uncertainty, which raises efficiency and seller s revenues. Efficiency and revenues are also higher when more bidders enter the auction.
(2003) Winner s Curse without Overbidding. European Economic Review 47, 625-44 Link to article
We report the results of a series of second-price auction experiments where each bidder s signal is given by a normally distributed value plus a normally distributed error. While bidders values differ in one treatment they are the same in another, which allows for a direct test of the winner s curse irrespective of confounding factors. Bidders may also fall prey to a news curse when they do not sufficiently take into account that signals and errors are correlated. We find that the effects of the winner s curse are mitigated by a news curse and loss or risk aversion.
(2003) The Need for Marriage Contracts: An Experimental Study. Journal of Population Economics 16, 431-53 Link to article
A spouse who invests in relationship specific human capital enlarges the size of a couple s total surplus. Such investments typically also weaken the outside opportunities of the specializing spouse and thereby her bargaining position. Realizing this, underinvestment in relationship specific human capital may result. This reduces the couple s potential surplus. Private or public marriage contracts can stipulate conditions to solve this holdup underinvestment problem. This paper reports about an experiment that addresses the practical relevance of this problem. We find that although underinvestment in home production occurs, it is less frequent than game theory predicts. That is: players are prepared to specialize in home production when backwards induction predicts them not to do so. Furthermore, we find that the non-investing spouses are less opportunistic towards their partners when the large surplus has been created by the spouse than when the size of the surplus is determined exogenously.
(2003) Emotionen bestimmen wirtschaftliches Handeln: Experimentelle Befunde. R. Sturn, M. Held and G. Kubon-Gilke (eds) Experimentelle Wirtschaftsforschung Marburg/Lahn, Metropolis Verlag 191-216
(2003) Information and the Creation and Return of Social Capital: An Experimental Study. H. Flap and B. Volker (eds) Creation and Returns of Social Capital Routledge 77-103
(2003) Experimental Public Choice C. K. Rowley and F. Schneider (eds) Encyclopedia of Public Choice Boston:Kluwer Academic Publishers 96-104
(2003) An experimental comparison of reliance levels under alternative breach remedies. Rand Journal of Economics 34, 205-222
Breach remedies serve an important role in protecting relationship-specific investments. Theory predicts that some common remedies protect too well and induce overinvestment because of complete insurance against potential separation, and the possibility to prevent breach by increasing the damage payment due through the investment made. In this paper we report on an experiment designed to address whether these two motives show up in practice. In line with theoretical predictions we find that overinvestment does not occur under liquidated damages. In case of expectation damages the full insurance motive indeed appears to be operative. In case of reliance damages both motives are at work, as is predicted.
(2003) On the Distribution of Calls in a Wireless Network driven by Fluid Traffic. European Journal of Operational Research 147, 146-155 Link to article
(2003) CLIP Indentifies Nova-Regulated RNA Networks in the Brain SCIENCE 302, 1212-1215
(2003) The Data of Levy and Levy Management Science 49, 979-981
(2003) Interest group behavior and influence C. K. Rowley and F. Schneider (eds) Encyclopedia of Public Choice Vol. I Boston: Kluwer Academic Publishers 118-129 PDF-file
(2002) Emotional Hazard in a Power-to-Take Experiment. Economic Journal 112, 147-69
In this experimental study of a two player power-to-take game, players earn an income in an individual effort task preceding the game. The game has two stages. First, one player can claim any part of the other s income take rate. Then, the latter player can respond by destroying own income. We focus on how emotions influence responses and show:1 a higher take rate increases (decreases) intensity of negative (positive) emotions;2 negative emotions drive destruction;3 at high emotional intensity, responders destroy everything;4 expectations affect the probability of punishment. Emotional hazard is identified as a new source of efficiency costs.
(2002) Competition For vs On the Rails: A Laboratory Experiment International Economic Review 43, 709-736
Several European countries and Japan are in various stages of privatizing and/or introducing more competition in passenger rail service. This process has been furthered by a directive from the Commission of the European Communities (1991) requiring member states to separate operations from infrastructure on the books and give international groupings of trains access to their infrastructure. In the Netherlands, the Ministry of Transport, Public Works, and Water Management was assigned responsibility for making a recommendation to Parliament for choosing between competition for the rails and competition on the rails in increasing competition in the supply of passenger rail service. The Ministry commissioned the experiments reported here in order to acquire better understanding of the properties of the two alternative types of competition in the context of a simple stylized rail network. The experimental rail network includes station complementarity and time slot substitutability. It also includes tradeoffs between local and express trains. Competition on the rails involves allocation of rights to use station and time slot routes by price bids in a combinatorial auction. Competition for the rails involves allocation of rights to regional monopolies by fare-structure bids for supplying a pre-specified minimum transport schedule. The experiments include both allocation of rights and scheduling of trains on the network. The two forms of competition are evaluated with various criteria developed by the Ministry, including market prices and allocative efficiency.
(2002) Dutch Books: Avoiding Strategic and Dynamic Complications, and a Comonotonic Extension. Mathematical Social Sciences 43, 135-49 Link to article
This paper formalizes de Finetti s book-making principle as a static individual preference condition. It thus avoids the confounding strategic and dynamic effects of modern formulations that consider games with sequential moves between a bookmaker and a bettor. This paper next shows that the book-making principle, commonly used to justify additive subjective probabilities, can be modified to agree with nonadditive probabilities. The principle is simply restricted to comonotonic subsets which, as usual, leads to an axiomatization of rank-dependent utility theory. Typical features of rank-dependence such as hedging, ambiguity aversion, and pessimism and optimism can be accommodated. The model leads to suggestions for a simplified empirical measurement of nonadditive probabilities.
(2002) Social Ties in a Public Good Experiment. Journal of Public Economics 85, 275-99 Link to article
The formation of social ties is examined in an experimental study of voluntary public good provision. The experiment consists of three parts. In the first part the value orientation (attitude to a generalized other) is measured. In the second part couples play 25 periods of a public good game. In the third part the attitudes of subjects to their partners in the public good game is measured. The concept of a social tie is operationalized as the difference between the measurements in the first and third parts. Evidence for the occurrence of social ties is found. These ties depend on the success of the interaction in the public good game.
(2002) Are family transfers crowded out by public transfers? Scandinavian Journal of Economics 104, 587-604
(2002) Utility in Case-Based Decision Theory. Journal of Economic Theory 105, 483-502 Link to article
(2002) Efficiency in Auctions with Private and Common Values: An Experimental Study. American Economic Review 92, 625-43
Auctions are generally not efficient when the object s expected value depends on private and common value information. We report a series of first-price auction experiments to measure the degree of inefficiency that occurs with financially motivated bidders. While some subjects fall prey to the winner s curse, they weigh their private and common value information in roughly the same manner as rational bidders, with observed efficiencies close to predicted levels. Increased competition and reduced uncertainty about the common value positively affect revenues and efficiency. The public release of information about the common value also raises efficiency, although less than predicted.
(2002) Does Centralization Increase the Size of Government? The Effects of Separation of Powers and Lobbying. International Tax and Public Finance 9, 379-89 Link to article
Difficulties faced by the Economic and Monetary Union have strengthened the position of those who advocate a process of (further) political integration in the European Union (EU). A widespread fear is, though, that such a process would favor powerful interest groups able to lobby the EU policymakers. Persson and Tabellini (1994) argue that political centralization will increase the size of the government through lobbying because of free-riding incentives created by federally funded programs with localized benefits. We extend their analysis by presenting a model where the budgeting process is divided into two stages, instead of one, which better captures the EU institutional framework. A federal legislator (the Council) chooses the size of the budget at one stage, while a federal agency (the Commission) chooses the allocation of the budget at the next stage. We show that separation of powers in the budgeting process restricts free riding and, therefore, reduces the incentives to lobby. The result is an unchanged budget under centralization. Moreover, it is shown that if the lobbying activity is directed to both policymakers, competitive lobbying may actually reduce the size of the public sector under centralized policymaking
(2002) Hurting Hurts More Than Helping Helps. European Economic Review 46, 1423-37 Link to article
Previous experimental work suggests that both a dislike for an unequal division of payoffs and intentionality play a role to explain reciprocal behavior. This paper focuses on intentionality, and in particular on the question of whether negative intentionality matters more than positive intentionality. Experimental evidence obtained in the
(2002) Imitation and Belief Learning in an Oligopoly Experiment. Review of Economic Studies 69, 973-97
We examine the force of three types of behavioural dynamics in quantity-setting triopoly experiments: (1) mimicking the successful firm, (2) rules based on following the exemplary firm, and (3) rules based on belief learning. Theoretically, these three types of rules lead to the competitive, the collusive, and the Cournot-Nash outcome, respectively. In the experiment we employ three information treatments, each of which is hypothesized to be conducive to the force of one of the three dynamic rules. To a large extent, the results are consistent with the hypothesized relationships between treatments, behavioural rules, and outcomes.
(2002) Essays on Political and Experimental Ecnonomics.
(2002) A Simple Preference Foundation of Cumulative Prospect Theory with Power Utility. European Economic Review 46, 1253-71 Link to article
Most empirical studies of rank-dependent utility and cumulative prospect theory have assumed power utility functions, both for gains and for losses. As it turns out, a remarkably simple preference foundation is possible for such models: Tail independence (a weakening of comonotonic independence which underlies all rank-dependent models) together with constant proportional risk aversion suffice, in the presence of common assumptions(weak ordering, continuity, and first stochastic dominance), to imply these models. Thus, sign dependence, the different treatment of gains and losses, and the separation of decision weights and utility are obtained free of charge.
(2002) Experimental investigation of collective action S.L. Winer and H. Shibata (eds) Political Economy and Public Finance: The Role ofPolitical Economy in the Theory and Practice of Public Economics Edward Elgar,Cheltenham 178-196 PDF-file
(2001) Control Without Deception: Individual Behaviour in Free-Riding Experiments Revisited. Experimental Economics 3, 215-240 Link to article
(2001) Emotions and Economic Behavior: An Experimental Investigation
(2001) Cooperation and Noise in Public Goods Experiments: Applying the Contribution Function Approach. Journal of Public Economics 79, 399-427 Link to article
We introduce a new design for experiments with the voluntary contributions mechanism for public goods. Subjects report a complete contribution function in each period, i.e. a contribution level for various marginal rates of transformation between a public and a private good. The results show that subjects behavior cannot be explained exclusively as the result of errors. Individuals exhibit essentially one of two types of behavior. One group of subjects behaves in a way consistent with some kind of other-regarding motivation. Some features of the data indicate that these subjects behavior is interdependent. Another group of subjects behaves in accordance with a utility function that depends only on their own earnings. The interaction between these two groups may be important when explaining behavior over time.
(2001) On the Intuition of Rank-Dependent Utility. Journal of Risk and Uncertainty 23, 281-98 Link to article
Among the most popular models for decision under risk and uncertainty are the rank-dependent models, introduced by Quiggin and Schmeidler. Central concepts in these models are rank-dependence and comonotonicity. It has been suggested that these concepts are technical tools that have no intuitive or empirical content. This paper describes such contents. As a result, rank-dependence and comonotonicity become natural concepts upon which preference conditions, empirical tests, and improvements in utility measurement can be based. Further, a new derivation of the rank-dependent models is obtained. It is not based on observable preference axioms or on empirical data, but naturally follows from the intuitive perspective assumed. We think that the popularity of the rank-dependent theories is mainly due to the natural concepts used in these theories.
(2001) Incentive Systems in a Real Effort Experiment. European Economic Review 45, 187-214 Link to article
In the reported experiment different payment schemes are examined on their incentive effects. Payments based on individual, team and relative performance are compared. Subjects conducted computerized tasks that required substantial effort. The results show that individual and team payment induced the same effort levels. In team production free-riding occurred, but it was compensated by many subjects providing more effort than in case of individual pay. Effort was higher, but more variable in tournaments, while in case of varying abilities workers with relatively low ability worked very hard and drove up effort of the others. Finally, attitudes towards work and other workers differed strongly between conditions.
(2001) Cooperation in an Overlapping Generations Experiment. Games and Economic Behavior 36, 264-75 Link to article
Recent theoretical work shows that folk theorems can be developed for infinite overlapping generations games. Cooperation in such games can be sustained as a Nash equilibrium. But, of course, there are other equilibria. This paper investigates experimentally whether cooperation actually occurs in a simple overlapping generations game. Subjects both play the game and formulate strategies. Our main finding is that subjects fail to exploit the intertemporal structure of the game. Even when we provided subjects with a recommendation to play the grim trigger strategy, most of the subjects still employed safe history-independent strategies.
(2001) Expectation Formation in Step-Level Public Good Games. Economic Inquiry 39, 250-69 Link to article
This article focuses on the process of expectation formation. Specifically, the question is addressed whether individuals think strategically when they form beliefs about other players behavior. Most belief learning models assume that people abstract from strategic considerations. Using an incentive-compatible mechanism, experimental data are obtained on subjects expectations in a step-level public good game and in a game against nature. Beliefs in the interactive games develop in the same way as in the game against nature, providing evidence that strategic considerations do not play a role. The evidence is consistent with predictions derived from the naive Bayesian model.
(2001) Does the Wage Tax System cause Budget Deficits? Public Choice 109, 371-394 Link to article
In this paper we investigate experimentally the economic functioning of a wage tax financed unemployment benefit system in an international economy, in particular in reaction to budget deficits and tax adjustment. Our results support the hypothesis that due to out-of-equilibrium price uncertainty producers are reluctant to employ inputs. We also observe a downward pressure on wages exacerbated by an over-supply of labor by consumers. These observations can explain the budget deficits found. Furthermore, we find that tax adjustments in order to facilitate a balancing of the budget has strong adverse effects on unemployment and real GDP.
(2001) On the Relation between Asset Ownership and Specific Investments. Economic Journal 111, 791-820 Link to article
Experimental results are presented for a simplified version of Hart s(1995) theory of the firm. Theory predicts that investment levels remain constant when investors no-trade pay-offs increase, if these pay-offs are threat points. While they may decrease when no-trade pay-offs are outside options. Our results support these predictions in a relative sense. Average investment levels exceed the predicted level. Actual investment behaviour is consistent with the outcomes of the bargaining stage. The play of the game is supported by a reciprocity mechanism in which non-investors consider higher investment levels as fair behaviour which deserves a reward. Investors anticipate this.
(2001) Nonmonotonic Choquet Integrals. Journal of Mathematical Economics 36, 45-60 Link to article
This paper shows how the signed Choquet integral, a generalization of the regular Choquet integral, can model violations of separability and monotonicity. Applications to intertemporal preference, asset pricing, and welfare evaluations are discussed.
(2001) Testing and Characterizing Properties of Nonadditive Measures through Violations of the Sure-Thing Principle. Econometrica 69, 1039-59
In expected utility theory, risk attitudes are modeled entirely in terms of utility. In the rank-dependent theories, a new dimension is added: chance attitude, modeled in terms of nonadditive measures or nonlinear probability transformations that are independent of utility. Most empirical studies of chance attitude assume probabilities given and adopt parametric fitting for estimating the probability transformation. Only a few qualitative conditions have been proposed or tested as yet, usually quasi-concavity or quasi-convexity in the case of given probabilities. This paper presents a general method of studying qualitative properties of chance attitude such as optimism, pessimism, and the inverse-S shape pattern, both for risk and for uncertainty. These qualitative properties can be characterized by permitting appropriate, relatively simple, violations of the sure-thing principle. In particular, this paper solves a hitherto open problem: the preference axiomatization of convex pessimistic or uncertainty averse nonadditive measures under uncertainty. The axioms of this paper preserve the central feature of rank-dependent theories, i.e. the separation of chance attitude and utility.
(2001) Emotional Hazard Exemplified by Taxation-Induced Anger. Kyklos 54, 491-506
Emotional hazard in case of taxation refers to the risk of an efficiency loss due to emotional responses. In this paper, first, emotional hazard is discussed and empirically illustrated using results from experimental studies concerning the power-to-take game. In this game, one player can claim any part of another player's endowment and, subsequently, the second player can respond by destroying any part of her endowment. Next, based on emotion theory, a tentative model is developed of the second player's behavior which integrates cognition and emotion. Finally, some implications for theory and policy are explored.
(2000) Interpersonal interaction and economic theory: the case of public goods. Annals of Public and Cooperative Economics 71, 1-37
(2000) Politics in Transition Economies: Consequences of a Clan Culture. Journal for Institutional Innovation, Development and Transition. 4, 5-14
We study the politico-economic interaction in a country in transition from a communist regime to a democratic, free market system, to wit, Albania. It is argued that the politico-economic system there is characterized by the existence of clans. Both the communists and the first democratically chosen government applied policies that favored specific clans. Moreover, a popularity function estimation shows that voters related to different clans react in a distinct way to party policies.
(2000) Expectation Formation in a Cobweb Economy; some one-person experiments. D.Delli Gatti, M. Gallegati and A. Kirman (eds) Market Structure, Aggregation and Heterogeneity Springer Verlag 253-266 PDF-file
In economics expectations play an important role. In making decisions agents form expectations about future values of variables. Therefore, in any dynamic economic model, agents beliefs about the future have to be modeled. Do people form expectations using a simple rule of thumb or do they use a continually updated forecasting rule? Can people learn a rational expectations equilibrium ? This paper describes experiments where we investigate how people form expectations in the simplest dynamic economic model, the cobweb model, without any knowledge of the underlying market equilibrium equations. We found that only about 35% of the subjects seemed to be able to learn the unique rational expectations equilibrium. We also found that many individuals deviate from rational expectations for long periods of time, sometimes with 'systematic forecasting errors'.
(2000) (In)accuracy of a European political stock market: The influence of common value structures European Economic Review 44, 205-230 Link to article
This paper presents the results of a political stock market in the Netherlands: PAM94. The exchange covered three consecutive elections, allowing trade on five different markets. The predictions at PAM94 appear to be less accurate than those of previous markets of comparable size. Of the possible explanations that we examine, one in particular survives closer scrutiny. It concerns a type of judgement failure related to the winner's curse in common value auctions. Theoretical as well as empirical support is offered. Apart from qualifying the attractiveness of such markets as an alternative for opinion polls, this explanation may also be relevant for the analysis of other asset markets. Moreover, this judgement failure may be more important for European political stock markets than for the U.S., because the structure of the common values (vote shares) at multiparty elections make them especially vulnerable to it.
(2000) Conditional Cooperation and Voluntary Contributions to Public Goods. Scandinavian Journal of Economics 102, 23-39
(2000) Professionals and Students in a Lobbying Experiment: Professional Rules of Conduct and Subject Surrogacy. Journal of Economic Behavior and Organization 43, 499-522 Link to article
Lobbying is studied in a series of signaling game experiments. Students as well as professional lobbyists are used as subjects. In contrast with some earlier studies, comparing students and professionals, we find significant differences in the behavior of the two subject pools. Professional subjects appear to behave more in line with the game-theoretic predictions, display a higher degree of separation, and earn more money. We show that professional rules of conduct and professionalization can explain these differences. Although our results suggest that subject surrogacy is a relevant issue in this field of research, arguments are provided why experimentation with student subjects remains useful to study lobbying.
(2000) The influence of banking and borrowing under different penalty regimes in tradable green certificate markets - resulst from an experimental laboratory experimen Energy & Environment 11, 407-422 PDF-file
(2000) Sorting Out the Seeking: The Economics of Individual Motivations. Public Choice 103, 231-58 Link to article
Various models of individual motivations are confronted with evidence from different kinds of laboratory experiments. The motivations distinguished are categorized as selfish, other regarding, or cooperative. The experimental evidence shows that the traditional, selfish model is too limited, but that the alternative models that have been suggested each have shortcomings of their own.
(2000) Interest group lobbying and the delegation of policy authority Economics and Politics 12, 247-274
In a signalling model of lobbying the politicians' decision whether to delegate policy authority and an interest group's choice between lobbying politicians or bureaucrats are investigated. Only bureaucrats are able to assess policy-relevant information coming from the interest group, but their interests may differ from those of politicians. In equilibrium politicians weigh the benefits of an informed policy decision against bureaucratic drift. We obtain that delegation occurs only when the bureaucracy is not too much biased and when the stakes of the interest group are not too high. Still, politicians sometimes prefer a biased bureaucracy and the interest group to have a larger stake. The model also predicts that interest groups typically lobby politicians to further delegation.
(2000) Show Them Your Teeth First! A Game-Theoretic Analysis of Lobbying and Pressure. Public Choice 104, 81-120 Link to article
This paper investigates the choice of an interest group between lobbying words and pressure actions in order to influence a policymaker. Both lobbying and pressure are modeled as strategic means of transmitting information that is relevant to the policymaker. However, only pressure is directly costly to the policymaker. The interaction between the interest group and the policymaker is framed as a repeated signaling game. In equilibrium pressure--in contrast to lobbying--only occurs when the interest group s reputation is sufficiently low, and always improves its reputation. It is shown that repeated lobbying cannot completely substitute for pressure, and that the interest group may be forced to sustain its reputation through lobbying. We conclude that pressure is typically used to build up a reputation, lobbying to maintain a reputation.
(2000) Decisions and Strategies in a Sequential Search Experiment. Journal of Economic Psychology 21, 91-102 Link to article
The strategy method is becoming an important tool in experimental methodology. This study examines how well this method works in an individual decision experiment. Subjects are faced with a sequential search problem. After extensive practice in solving the problem and formulating strategies, they play 20 periods for money. In each period the subjects first make decisions by hand, after that their strategy operates on the same sequence of bids. In each period, only one of the results is paid out (randomly determined). After each period, subjects can change their strategy. This method makes a direct comparison between strategies and decisions possible.
(1999) Government decisions on income redistribution and public production.
(1999) Campaign contributions and the desirability of full disclosure laws Economics and Politics 11, 83-107
In a signaling game model of costly political campaigning in which a candidate is dependent on a donor for campaign funds it is verified whether the electorate may benefit from campaign contributions directly observed. By purely focusing on the informational role of campaign contributions the model seems somewhat biased against the potential benefits of direct observation. Still, the conclusion can be drawn that directly observable contributions allow for more information being revealed in equilibrium. Using this result, from an informational perspective a case can be built for the desirability of full disclosure laws.
(1999) Strategic Behavior in Public Good Games: When Partners Drift Apart. Economics Letters 62, 35-41 Link to article Expanded working paper
(Abstract of the expanded Working Paper) We use a new design to (re)examine the occurrence of strategic behavior in voluntary contributions mechanism experiments. Subjects are in groups that remain constant for a number of periods before they change. The change is public knowledge and always consists of one member switching to another group. Moreover, everyone knows that this individual will not be grouped with any of the members again. In this sense 'partners' really become 'strangers'. We find considerable evidence of strategic behavior in these relatively simple games. Subjects who leave their group contribute less than in the previous period and less than in the next period in their new group. Contribution levels decline with the number of periods remaining for the group. The results can be explained by the occurrence of conditional cooperators, who are willing to contribute if and only if enough others do the same. The presence of these subjects elicits strategic (forward looking) behavior from others.
(1999) On the Economic Theory of Interest Groups: Towards a Group Frame of Reference in Political Economics. Public Choice 100, 1-29 Link to article
This paper evaluates the development of the economic theory of interest groups. Although there is important progress, many substantial lacunae in our knowledge exist. I argue that part of the problem is the way Public Choice theory developed. Methodological individualism has led to an overindividualized a-social view of human behavior. Furthermore, the importance of imperfect information has been underexposed. Acknowledging the essentially social character of human behavior and the lack of information leads to the conclusion that a more prominent place should be given to the role of social groups. A shift towards a group frame of reference is advocated.
(1999) Social Learning in a Common Interest Voting Game. Games and Economic Behavior 26, 131-156 Link to article
(1998) Private support and social security Journal of Population Economics 11, 345-371
The issue is adressed whether assistance to persons in need can be left to the ?family? and the ?community?. In that case people depend on their social networks. The support a person receives through a given network of social ties is examined. However, ties are diverse and subject to change. By means of a model of the dynamics of social ties, the conditions for adequate private support are analyzed. The sustainability of private support over time is examined by incorporating the impact on social ties of lending and receiving support. It is shown that support is only an effective alternative in a limited number of situations.
(1998) Gift Exchange and Reciprocity in Competitive Experimental Markets. European Economic Review 42, 1-34 Link to article
One of the outstanding results of three decades of laboratory market research is that under rather weak conditions prices and quantities in competitive experimental markets converge to the competitive equilibrium. Yet, the design of these experiments ruled out gift exchange or reciprocity motives, that is, subjects could not reciprocate for a gift. This paper reports the results of experiments which do not rule out reciprocal interactions between buyers and sellers. Sellers have the opportunity to choose quality levels which are above the levels enforceable by buyers. In principle they can, therefore, reward buyers who offer them high prices. Yet, such reciprocating behavior lowers sellers monetary payoff and is, hence, not subgame perfect. The data reveal that many sellers behave reciprocally. This generates a positive relation between prices and quality at the aggregate level which is anticipated by the buyers. As a result, buyers are willing to pay prices which are substantially above sellers reservation prices. These results indicate that reciprocity motives may indeed be capable of driving a competitive experimental market permanently away from the competitive outcome. The data, therefore, support the gift exchange approach to the explanation of involuntary unemployment.
(1998) Learning by Experience and Learning by Imitating Successful Others. Journal of Economic Behavior and Organization 34, 559-75 Link to article
It is examined whether individuals learn from experience and/or by imitation. Usually individual judgmental learning displays systematic biases against the ideal Bayesian model. Imitation of successful others may decrease such effects. In an experiment, subjects make investment decisions and report expectations. The profitability of an investment depends on the realization of a stationary distribution of states of the world. In the baseline, subjects do not receive information about others expectations; in the other conditions, subjects perceive the expectations of others who observed either exactly the same events or different events from the same distribution. The results indicate that people learn both from experience and by imitating successful others.
(1998) Quantal Response Models in Step-Level Public Good Games. European Journal of Political Economy 14, 89-100 Link to article
The effect of adding noise to both an equilibrium model and a naive Bayesian model of behavior in step-level public good games is studied. Quantal response equilibria are derived for these games and a naive Bayesian quantal response function is presented. The models are fit for experimental data from such a game and compared. The results seem more promising for the naive Bayesian model than for the equilibrium model.
(1998) An ExperimentalReexamination of Rational Rent-seeking European Journal of PoliticalEconomy 14, 783-800
The theoretical literature exploring various ramifications and applications of Tullock's (1980) rent-seeking model is extensive and rapidly growing. In contrast, there exist as yet only a few experimental evaluations of this model, with ambiguous results. Moreover, these studies focus on one particular case (proportional probabilities) and use a problematic experimental design. With an appropriate design we investigate the extreme cases of proportional probabilities and perfect discrimination, which offer the starkest contrast in theoretical predictions. We find substantial evidence for the predictive power of the rent-seeking model, particularly if one allows for the fact that people sometimes make mistakes or are confused about what to do.
(1998) Game-theorectic models of the political influence of interest groups. (eds) Kluwer, Boston 263
(1998) Strategies of Search. Journal of Economic Behavior and Organization 35, 309-32 Link to article
Two experiments are designed to examine the strategies people use in search behavior. In the first experiment, an electronic information board is used to register on which aspects of the situation subjects focus their attention and after that subjects also submit a formal strategy. Although efficiency is rather high, most subjects do not use the theoretical optimal strategy. Many subjects seem to focus on the total earnings instead of the marginal return of another draw. On an average, subjects stop searching too early. This cannot totally be explained by risk aversion. The second experiment shows that the tendency to search too little can be(partly) explained by learning processes.
(1998) Public Good Provision and Public Bad Prevention: The Effect of Framing. Journal of Economic Behavior and Organization 34, 143-61 Link to article
An experimental analysis of voluntary, binary contributions for step-level public goods/bads is presented. Alternatively, the situation is presented as the provision of a public good or the prevention of a public bad. From a strategic point of view, these presentations are equivalent. In early periods of the twenty round experiments, behavior is indeed observed to be similar in both cases but, after about five periods, differences start to occur that grow larger. A simple learning model is developed that replicates the patterns in the experiments. Extrapolation beyond twenty periods show that the pattern observed reflects an equilibrium selection.
(1998) Quantifying the effects of sow-herd management information systems on farmers' decision making using experimental economics American Journal of Agricultural Economy 80, 821-829 Link to article
A pilot experiment was conducted to yield insight into whether laboratory experiments can be used as an alternative to surveys for determining the profitability of management information systems (MIS) in sow farming. In total, eighty-six sow farmers, including fifty-one farmers from an earlier survey study, participated in an individual decision experiment, which was executed in a quasi-experimental, nonequivalent control, pretest/posttest design. In a MIS group, MIS estimates were derived by within-subjects comparisons of decision quality with and without MIS features. A baseline group was included to control for learning or exhaustion effects during an experimental session. Subjects receiving MIS features significantly improved their decision making whereas subjects without MIS features did not. Correlation between MIS estimates of the survey study and MIS estimates of the experiments was not significant.
(1998) Experimental Studies of Signaling Games L. Luini (eds) Uncertain Decisions, Bridging Theory and Experiments Kluwer, Boston 147-173
In this paper a survey and evaluation is presented of experiments dealing with signaling games.
(1998) Rational choice and the Condorcet jury theorem. Games and Economic Behavior 22, 364-376 Link to article
(1997) An Experimental analysis of the bandit problem Economic Theory 10, 55-57
We investigate, in an experimental setting, the behavior of single decision makers who at discretetime intervals over an "infinite" horizon may choose one action from a set of possible actions where this set is constant in time, i.e. a bandit problem. Two bandit environments are examined, one in which the predicted behavior should always be myopic (the two-armed bandit) and the other in which the predicted behavior should never be myopic (the one-armed bandit). We also investigate the comparitive static predictions as the underlying parameters of the bandit environments are changed. The aggregate results show that the behavior in the two bandit environments are quantitatively different and in the direction of the theoretical predictions.
(1997) Dynamics of social ties and local public good provision Journal of Public Economics 64, 323-341 Link to article
A model is presented in which social ties between individuals and private contributions to a local public good are interrelated. Ties are formalized by means of utility interdependence, and depend on the history of social interaction, in this case the joint provision of the public good. The resulting dynamic model generates equilibrium values of the intensity of ties and the private provision level. The impact of public provision on these variables is analyzed. Our results are very different from those obtained with the standard model, where individuals are only interested in the utility from own consumption.
(1997) Is old-fashioned private assistance an alternative to modern social security? De Jong,P.R. and Marmor, T.R. (eds) Social policy and the labor market. International studies on social security Aldershot: Avebury Publishing Company 307-330
(1997) Beliefs and Decision Rules in Public Good Games (eds) Theory and Experiments Kluwer, Dordrecht/Boston/London
(1997) Sequential and Multinomial Logit: A Nested Model. Empirical Economics 22, 131-52
A nested model is presented which has both the sequential and multinomial logit model as special cases. This model provides a simple test to investigate the validity of these specifications. Some theoretical properties of the model are discussed. During the analysis a distribution function is derived, which, to the best of our knowledge, has not been used before. This distribution is shown to be a generalization of the type I extreme-value distribution. Monte Carlo experiments and empirical applications of the model are presented.
(1997) Campaign Expenditures, contributions and direct endorsement: The strategic use of information and money to influence voter behavior European Journal of Political Economy 13, 1-31
A costly signaling model is presented in which we show how campaign expenditures can buy votes. The model shows that the amount of campaign expenditures may convey the electorate information about the candidate?s intended policy. When this model is extended to allow for a contributing interest group, it appears that for campaigning to be informative it is sometimes crucial that campaign funds are supplied by informed third parties. The extension also provides an explanation why interest groups contribute to the candidate?s campaign, rather than using direct endorsements; they may need the candidate as an intermediary to filter their opposing interests.
(1997) Do people care about Democracy? Public Choice 91, 49-51 Link to article
(1997) Competitive lobbying for a legislator s vote :A comment Social Choice and Welfare 14, 449-464
This comment deals with some imperfections of the analysis presented by Austen-Smith and Wright [1]. It is argued that in [1] being informed is incorrectly identified with being informative, yielding an incomplete equilibrium analysis, and leading to bias in the kind of equilibrium behavior predicted. After correcting for this bias, the results obtained corroborate their main conclusion- legislators are often lobbied by just one of two competing groups, typically the a priori disadvantaged group. The comment also strenghtens their case for counteractive lobbying; the a priori favored group typically only lobbies to counteract the influence of an opposing group. Another conclusion, however, is qualified; an increase in the groups' stakes can make it less, rather than more, likely that the legislator makes the correct decision.
(1997) Lobbying when the decisionmaker can acquire independent information: A comment Public Choice 91, 199-207 Link to article
In this comment it is argued that the game-theoretical analysis presented by Rasmusen (1993, PuCh, 77(4): 899-913) is incomplete. First, a short description of his model is given, then a proposition stating all equilibria of the model is presented. The proposition supplements the analysis of Rasmusen by showing that an, in our view plausible, equilibrium is ignored. Thereupon a comprehensive equilibrium analysis leads us to qualify his argument; lobbying does not always fully substitute for independent investigation, truthful lobbying is not necessarily successful, and a lobbyist having the 'right' information does not always gets his way.
(1997) Game-theoretic Models of the Political influence of interest Groups.
(1997) Dynamics and information.
(1996) Voluntary contributions to a public good when partial contribution is a dominant strategy Economic Letters 50, 359-366 Link to article
(1996) A political economic analysis of labor migration and income redistribution Public Choice 89, 333-363
We present a two-country political economic model of income redistribution with internationally mobile labor. Migration can be exogenous and/or endogenous (i.e. determined by labor income differentials). Political influence is determined by the size and homogeneity of the groups, where the latter can be affected by immigration. We show that immigration can increase the transfers to, and the income of, the mobile group. We also investigate the possibility of migration regulation, tax-transfer policy competion and coordination and, finaaly, coordination of regulation policies. It is shown that the selection of any of those regimes will depend on the particular distribution of political influence among the relevant social groups in the two countries.
(1996) Value Orientations, Expectations and Voluntary Contributions in Public Goods. Economic Journal 106, 817-45 Link to article
An experimental analysis of voluntary, binary contributions for step-level public goods is presented. Independent information is obtained on individual value orientation and expectations about the behavior of other subjects using incentive compatible mechanisms. The effects of increasing payoffs for the public good and of decreasing groupsize are investigated. Attention is focused on the determination of expectations, the use of expectations when deciding on behavior, and differences in expectations and behavior between individuals with different value orientations.
(1996) Comparative Statics of a Signaling Game: An Experimental Study. International Journal of Game Theory 25, 329-53
A basic signaling game is studied in an experimental environment. First, we want to check whether we can replicate some of the findings in the literature (concerning the use and impact of costly signals, and equilibrium selection). Second, and foremost, the comparative statics implications of the (hybrid) equilibrium of the game are studied. The experimental outcomes replicate the finding in the literature that costly messages are sent more frequently by 'higher' sender types (i.e., types whose information is such that persuasion is also profitable to the responder), and that such messages have an impact on the behavior of the responder. The discrepancies between predictions and observations are discussed and related to weak payoff incentives and gradual adjustment to regime switches.
(1996) Models of Interest Groups Schofield, N., (eds) Collective Decision-Making, Social Choice andPolitical Economy Kluwer, Boston 337-362
(1996) Interest groups: A survey of empirical models that try to assess their influence European Journal of Political Economy 12, 403-442
(1996) Voter Turnout as a Participation Game: An Experimental Investigation. International Journal of Game Theory 25, 385-406 PDF-file
This paper reports the results of a series of experiments in which participation games are analyzed. Voter turnout is an example of an application of this game. Hypotheses derived from a game theoretic analysis are systematically elaborated, analyzed, and tested. The results are used to explore future paths of research. A distinction is made in two parameter configurations (representing winner-takes-all elections and elections with proportional representation).
(1996) Why People Vote: Experimental Evidence. Journal of Economic Psychology 17, 417-42 Link to article
This paper reports the results of a series of experiments in which the voter turnout decision was analyzed as a participation game. The experiments were inspired by the model of Schram and Van Winden(1991). In the model, individuals favoring the same policy or candidate are members of a common reference group, and the vote decision is determined by inter- and intragroup relations. Our experimental data supported three hypotheses derived from this model. First, participation increased with group identity. Second, communication enhanced participation. Finally, participation was strongly related to individual characteristics. A simple analysis of the way people learn from their experiences in previous periods is used to argue that any model of voter turnout should take account of myopic adaptive behavior and inertia.
(1995) The Determinants Of Subjective Emotional Intensity. Cognition Emotion 9, 483-506 PDF-file
Tested the hypothesis that emotional intensity is determined jointly by variables from the following 4 classes: concerns (strength and relevance), appraisal, regulation, and individual response propensities. For 6 wks, 37 college students reported an emotion every week and answered questions on a computer. All 4 classes were correlated with emotional intensity, and the concern variables showed the highest correlations. The importance of the determinants was not always the same. There were differences between the emotions and between the dimensions of emotional intensity. The relation between regulation and emotional intensity is a complex and reciprocal one. Emotional intensity presumably determines how much regulation is needed, but successful regulation will decrease that intensity.
(1995) On european economics Kyklos 48, 1995
In this paper the following issues are addressed: (1) Does the output of economists working in Europe have an own identity in terms of questions posed and analytical approach? (2) Is it desirable to create an incentive system as in the U.S., including a large competitive market?; What is to be expected? Specific attention is paid to the institutional environment of academic economists in Europe.
(1995) Government, Institutional Dynamics and Competitive A. Rugman et al. (eds) Beyond the Diamond JAI Press(Research in Global Strategic Management, vol. 5), Greenwich, 1995 141-167
(1994) On the Convergence of Formal Rules H.J. Wagener (eds) The Political Economy of Transformation Physica-Verlag,Berlin 61-94
(1994) European Constitutional Patriotism D. Miliband (eds) Reinventing the Left Polity Press, Cambridge 231-237
(1994) Debating the quality of life Government and Opposition 29, 515-535
(1994) Social Ties, Economic Performance and Public Intervention.
(1994) An experimental examination into the design Economic Theory 4, 11-40
(1994) The Role of Inter-and Intragroup Brandstätter, H. &
Güth, W. (eds) Essays on economic psychology Springer-Verlag, Berlin 213-250
(1994) The Structure Of Subjective Emotional Intensity. Cognition & Emotion 8, 329-350 PDF-file
Examined whether the subjective intensity of emotion is one dimensional, and, if not, what are its dimensions? 222 instances of emotions were studied and for each instance 37 Ss completed a questionnaire. Ss also drew a diagram of the course of their emotion over time. A factor analysis of the intensity questions and the diagram variables yielded 6 factors: (1) duration of the emotion and delay of its onset and peak; (2) perceived bodily changes and strength of felt passivity; (3) recollection and re-experience of the emotion; (4) strength and drasticness of action tendency, and drasticness of actual behavior; (5) belief changes and influence upon long-term behavior; and (6) overall felt intensity. Most specific dimensions correlated moderately with overall felt intensity.
(1993) A General Equilibrium Model with Endogenous Government Institutions Behavior. An Analytical Approach William Barnett, Melvin Hinich and Norman Schofield (eds) PoliticalEconomy; Institutions, Information and Competition Cambridge UniversityPress, Cambridge
A general equilibrium is constructed that (a) builds on a microeconomic foundation regarding the behavioral of consumers and producers (including their reactions to government policy changes), (b) is rooted in a positive political economic approach to government behavior that is not restricted to the political setting of a direct democracy, (c) allows for redistribution as well as the production and consumption of public goods, and (d) is nevertheless analytically solvable. The analysis focusses on the effects of endogenous government policies, comparative statics and tax reform.
(1993) Does Fairness Prevent Market Clearing? An Experimental Investigation. Quarterly Journal of Economics 108, 437-59
This paper reports the results of an experiment that was designed to test the impact of fairness on market prices. Prices were determined in a one-sided oral auction, with buyers as pricemakers. Upon acceptance of an offer, sellers determined the quality of the good. Buyers offered prices that were substantially above the market-clearing level and expected sellers to respond with high quality levels. This expectation was, on average, confirmed by the behavior of sellers. These results provide, therefore, experimental support for the fair wage-effort theory of involuntary unemployment.
(1993) Some Results of Experimental Duoploy Markets with Demand Inertia The Journal of Industrial Economics 41, 133-152
Subjects played twice a multistage duopoly game with demand inertia. Their actual behavior is different from the unique subgame perfect equilibrium solution of the game. In the second plays of the game, subjects tend to behave more cooperatively than in the first plays: profits, prices and price stability are significantly higher. The individual markets in the second plays are classified into strongly cooperative, weakly cooperative and aggressive markets. Each market type shows a particular pattern of behavior. Average price and price instability of a market can be used as indicators for classification
(1993) Weimar Economic Decline, Nazi Economic Recovery, and the Stabilization of Political Dictatorship. Journal of Economic History 53, 71-105
A politicoeconomic model of the relationship between economic and structural variables and government popularity is developed and applied to the Weimar Republic. The authors obtained d ata from decentralized election results in the 1924 to 1933 period using a weighted panel estimation method. Parameter estimates show a strong relationship between the development of economic variables and the decline in electoral support that confronted every government in thi s period. The authors link this finding to existing historiographic theories and extrapolate from it to estimate the effects of the economic recovery in the first years of the Nazi regime.
(1993) The Political Economy of Government Debt: A Survey H. Verbon and Winden, F. van (eds) The Political Economy of Government Debt North-Holland, Amsterdam 3-36
(1993) Some Reflections on the Next 25 Years of Public Choice Public Choice 77, 213-223
(1993) Nomenklatura, state monopoly and private Public Choice 77, 573-594
(1992) Applying first world political economy to the second world s march into civil society Broeck, J. van den & Bulcke D. van (eds) Changing Economic Order. Wolters-Noordhoff, Groningen 67-89
(1992) Social security in a general equilibrium model with endogenous government behavior. D. Bos and S. Cnossen (eds) Fiscal Implications of an Aging Population Springer, Berlin 1-22
(1992) The complexity of intensity. Issues concerning the structure of emotion intensity. Margaret S. Clark (eds) Emotion, Review of Personality and Social Psychology vol. 13. Newbury Park London New Delhi: SAGE Publications 60-89 PDF-file
(1992) Fixed cost messages Economics Letters 38, 43-47 Link to article
(1992) Lobbying and Asymmetric Information. Public Choice 74, 269-92
(1992) Testing Economic Theories of Voter Behaviour Using Micro-data. Applied Economics 24, 419-28
Three hypotheses often encountered in economic analyses of voter behavior are tested using an extensive data set derived from six consecutive national election studies in the Netherlands in the period 1971-1986. These hypotheses are: (i) the party choice and turnout decisions are taken sequentially and independently by voters; (ii) social groups play a central role in the decisionmaking processes in the political sphere; (iii) the effect of individual-level variables on party choice is stable over time. The results provide support for the first hypothesis and partial support for the second, where the specific categorization of individuals to be chosen is a matter that needs further investigation. The third hypothesis is rejected by the data: the relationship between the variables chosen and party choice proved to be unstable.
(1992) Rational choice models of individual political behavior in the Netherlands; European Journal of Political Research 21, 423-452
A review is given of Dutch papers in a subfield of rational choice theory: those applied to individual behavior in the political sphere. A number of fields of individual behavior are discussed. Most attention is paid to papers that appeared in the Dutch language.
(1991) Comments on The rise and decline of political economy by Bruce Yandle European Journal of Political Economy 6, 563-573
(1991) The ecological social contract Kraan, O.J.& Veld, R. in t (eds) Environmental Protection: Public or PrivateChoice Kluwer Academic Publishers, Dordrecht 181-205
(1991) Decisionmaking about the environment: the role Kraan, O.J. & Veld, R. in t (eds) Environmental
Protection: Public or Private Choice Kluwer Academic Publishers, Dordrecht 71-87
(1991) Social security in a general equilibrium Journal of Population Economics 4, 89-110
(1991) Does concession always prevent pressure? Selten, R. (eds) Game Equilibrium IV, Social and political interaction Springer Verlag, Berlin 41-63
(1991) Behavior and budgetary atonomy EuropeanJournal of Political Economy 7, 547-577
(1991) A theoretical model of a multi-level Prud homme, R. (eds) Public Finance with Several Levels of Government Foundation Journal of Public Finance, The Hague 263-277
(1991) Voter behavior in economic perspectives (eds) Springer Verlag, Berlin-Heidelberg 272
(1991) Why people vote: free riding and the production and consumption of social pressure Journal of Economic Psychology 12, 575-620 Link to article
A model is presented which places the decision to vote or abstain in a rational choice framework. It is shown that casting a vote may well be a rational act, following from an individual cost-benefit analysis. It is argued that (reference-)group interests play an important role when an individual determines actions in the political sphere. Through its (relative) turnout, a group can affect future tax rates to which its members are liable, and an optimal turnout-level is derived for each group. Using this optimal level, within-group processes are analyzed, where certain group members ('producers of social pressure') try to convince others to go and vote. For these producers, voting is shown to be a rational act. Other members may give in to this pressure and be induced to cast a vote. These members may be thought to vote out of a sense of 'civic duty'. Equilibria for the model, characterized by positive turnout, are derived, an example is presented, and the results are discussed.
(1991) The Structure and Determinants of Emotional Intensity
(1991) A positive model of tax reform PublicChoice 72, 61-86
(1991) An m-sector N-group behavioral model of self-employment Small Business Economics 3, 49-66
A behavioral model is developed to determine the number of self-employed individuals in an economy characterized by different production sectors and social groups of which the individuals differ by their risk-aversion, their evaluation of job characteristics other than income, their expected managerial ability, the variance of their managerial ability and their productive performance as employee. The model leads to a linear complementarity problem that can be solves by the Lemke-algorithm. The 1-sector, n-group model and the m-sector, 2-group model are singled out for an extensive comparative static analysis.
(1990) A Dynamic Model of Voter Behavior and the Demand for Public Goods among Social Groups in Great Britain. Journal of Public Economics 41, 147-82 Link to article
A dynamic model of voter behavior is discussed, explaining transitions in party choice by imputed party responsibilities with respect to public and private consumption possibilities. The model uses a group framework to explicitly describe voter interests. It allows for an estimation of the relative preference for public goods, as determined by the revealed preference mechanism of voting. The model is compared to popularity functions in their general form. An empirical application to Great Britain is presented. It appears that retired individuals have the highest relative preferences for public goods, followed by housewives/men, manual workers, self-employed, and nonmanual workers.
(1990) An Empirical Analysis of Self-Employment in the Netherlands. Economics Letters 32, 97-100
Using an endogenous switching model, applied to a unique data set, it is found that the choice between self-employment and paid-employment depends - among others - on the score of an IQ test applied at the age of 12, the employment status of the father, and the income differential.