Working papers
How Salient is Inefficient Equality in Bargaining? An Experimental Note
Anders Poulsen Odile Poulsen Zoe Betts
Date: February 2013 Reference Number: CBESS-13-02
How salient is an equal outcome in a bargaining game if it is inefficient? We vary the inefficiency of the equal earnings equilibrium, and observe that this equilibrium is much more salient when there are two rather than one efficient unequal equilibrium alternative. This suggests that equality is salient in coordination and bargaining games primarily because it offers players a way to avoid a coordination failure in selecting between efficient unequal equilibria, and less because subjects have a strong inherent preference for equality.
Private provision of public goods in a second-best world: Cap-and-trade schemes limit green consumerism
Date: January 2013 Reference Number: CBESS-13-01
Private provision of public goods can only supplement government provision if individual actions affect the level of the public good. Cap-and-trade schemes reduce the overuse of common resources such as a stable climate or fish stocks by imposing a binding cap on total use by regulated agents. Any private contributions provided by means of e.g. green consumerism or life-style choices within such a scheme only impacts on who uses the resource but leaves total use unaffected. Perfect offsetting of marginal contributions is a key design element of cap-and-trade schemes. As real world cap-and-trade policies like the EU Emission Trading System have incomplete coverage, understanding what they cover is crucial for individuals aiming to contribute. Otherwise contribution efforts backfire.
A Popperian Test of Level-k Theory
Hargreaves Heap, Shaun Rojo Arjona, David Sugden, Robert
Date: October 2012 Reference Number: CBESS-12-06
We report an experimental test of level-k theory, applied to three simple games with non-neutral frames – Coordination, Discoordination and Hide and Seek. Using the same frame for all three games, we derive hypotheses that apply across the games and are independent of prior assumptions about salience. Those hypotheses are not confirmed by our experimental results. Our findings contrast with previous research which has fitted parameterised level-k models to Hide and Seek data. We show that, as a theory-testing criterion, the existence of a plausible model that replicates the main patterns in these data has a high probability of false positives.
The behavioural economist and the social planner: to whom should behavioural welfare economics be addressed?
Date: October 2012 Reference Number: CBESS-12-05
This paper compares two alternative answers to the question ‘Who is the addressee of welfare economics?' These answers correspond with different understandings of the status of the normative conclusions of welfare economics, and have different implications for how welfare economics should be adapted in the light of the findings of behavioural economics. The conventional welfarist answer is that welfare economics is addressed to a ‘social planner' whose objective is to maximise the overall well-being of society; the planner is imagined as a benevolent despot, receptive to the economist's advice. The alternative contractarian answer is that welfare economics is addressed to individuals who are seeking mutually beneficial agreements; a contractarian recommendation has the form ‘It is in the interests of each of you separately that all of you together agree to do x'. Each of these answers should be understood as a literary convention which uses a highly-simplified model of politics. I defend the contractarian approach and show that it is less supportive of ‘soft paternalism' than is the welfarist approach.
Income Effect and Altruism
Modak Chowdhury, Subhasish Jeon, Joo Young
Date: September 2012 Reference Number: CBESS-12-04
We investigate the consequences of a pure income effect on the altruistic behavior of donors. Inequity aversion theories predict either no effect or a decrease in giving, whereas warm-glow theory predicts an increase in giving with an increase in the common income of donor and receiver. Theoretical predictions being contradictory, we run a dictator game in which we vary the common show-up fee of both the dictator and the recipient, but keep an extra amount to be shared the same. The prediction of the warm-glow theory is supported.
Trust and Trustworthiness with Singleton Groups
Galeotti, Fabio Zizzo, Daniel John
Date: February 2012 Reference Number: CBESS-12-03
We present an experiment investigating the effects of having an individual identified as a singleton group. The presence of a singleton group reduces trustworthiness. The majority group members discriminate against the singled out group member when they are not responsible of the distinct status of this person. When the singleton group member is identified based on negative characteristics, he or she returns significantly less. Overall, having singleton groups has no benefits for trust and is potentially disruptive for trustworthiness.
Are tax-financed contributions to a public good completely crowded-out? Experimental evidence
Gronberg, Timothy J. Luccasen, R. Andrew Turocy, Theodore L. Van Huyck, John B.
Date: February 2012 Reference Number: CBESS-12-02
We report the results of a laboratory experiment on crowd-out in a voluntary contribution mechanism public goods game. In our setting, a standard argument states that a tax should not be effective in raising contributions, because agents respond by reducing voluntary contributions by the amount of the tax. Our experimental design focuses in on this intuition by abstracting away from several potential confounds. We use a specification for the payoff function in which there is a dominant strategy for own-earnings maximizing agents, located interior to and in the upper half of the strategy space. The dominant strategy ensures that changes in contributions are attributable to the tax directly, rather than second-order effects due to responses to out-of-equilibrium play by other agents. The dominant strategy is made more transparent by the use of a novel graphical decision interface. We find that individuals robustly choose at or above the own-earnings dominant strategy level. Even with the controls of the design, crowd-out is incomplete, but the degree of crowd-out is higher than in previous studies. Analysis of individual-level decisions provides evidence of different player types. Behavior of subjects not choosing the dominant or Pareto-efficient contributions is well-organized by a model of warm-glow giving with a logit decision error.
Inducing Natural Group Identity: A RDP Analysis
Date: January 2012 Reference Number: CBESS-12-01
A relevance, distinctiveness and plausibility (RDP) analysis is a conceptual framework that can be used to identify when potential confounds are a problem for interpreting experimental results. We illustrate this analysis using the creation or enhancement of natural group identity by the means of priming manipulations as employed in the experiments of five target papers. Such priming manipulations may lead to experimenter demand effects and may spuriously induce behavior change. Using a RDP analysis, we show how these potential confounds are likely to be problematic for all but one of the target papers.
Do Dictator Games Measure Altruism?
Date: August 2011 Reference Number: CBESS-11-15
This note paper has been prepared for inclusion as a book chapter in a forthcoming Handbook on the Economics of Philanthropy, Reciprocity and Social Enterprise edited by Luigino Bruni and Stefano Zamagni and to be published by Edward Elgar.
Reservation Values and Regret in Laboratory First Price Auctions: Context and Bidding Behavior
Turocy, Theodore L. Watson, Elizabeth
Date: August 2011 Reference Number: CBESS-11-14
Recent papers hypothesize that an asymmetry in regret motivates aggressive bidding in laboratory first-price auctions. Subjects emphasize potential earnings foregone from being outbid. Proposed motivators of this asymmetry include the one-to-one relationship in the auction between winning and positive earnings and the ex-post knowledge that bidders who do not win the auction know they earned less than the winning bidder. We design a novel implementation of the first-price auction environment in which these characteristics are not present, while leaving unchanged the expected-earnings maximizing bidding strategy against any fixed beliefs about the bidding behavior of others. Bidding is significantly less aggressive in this treatment. These findings support the hypothesis that aggressive bidding is motivated in part by features of the protocol for incentivizing subjects which are not essential to the auction environment.
Envy and Agricultural Innovation: An Experimental Case Study from Ethiopia
Kebede, Bereket Zizzo, Daniel John
Date: March 2011 Reference Number: CBESS-11-12
The underlying motivations for envy or related social preferences and their impact on agricultural innovations are examined by combining data from money burning experimental game and household survey from Ethiopia. In the first stage of the money burning experimental game, income inequality is induced by providing different endowments and playing a lottery. In the second, people are allowed to decrease ('burn') other players' money at their own expense. Conditional on individual behaviour, experimentally measured envious preferences from others have a negative effect on real life agricultural innovation.
Emotions and Chat in a Financial Markets Experiment
Hargreaves Heap, Shaun Zizzo, Daniel John
Date: March 2011 Reference Number: CBESS-11-11
This paper examines experimentally two common conjectures in the popular literature on financial markets: that they are swayed by emotion and that they behave like a ‘crowd'. We find consistent evidence that deviations of prices from fundamental value depend on the emotion of excitement and on the presence of independently identified ‘irrational' traders. Other than through ‘irrational' traders, there is no evidence, however, that non-price communication (‘chat') influences prices. Subjects with an economics background make better traders.
Crowding-in, Crowding-out and Over-crowding: The Interaction between Price and Quantity Based Instruments and Intrinsic Motivation
Perino, Grischa Panzone, Luca A Swanson, Timothy
Date: March 2011 Reference Number: CBESS-11-10
We conduct a field experiment involving real purchasing decisions in a large supermarket chain to test the effect of different regulatory interventions aiming to induce a more climate-friendly diet on intrinsic motivation. Focusing on shoppers who prefer the dirty variety, we compare labeling, a subsidy, a product ban and neutrally framed versions of the latter two in their ability to induce shoppers to switch to cleaner varieties. Carbon footprint labels and bans activate intrinsic motivation of shoppers (crowding-in). Remarkably, a subsidy framed as an explicit intervention is less effective than both a label and an equivalent but neutrally framed price change. The effects of information and changes in relative prices are not only not additive (crowding-out) but combined perform worse than each individually (over-crowding). We therefore find markedly different effects of price and quantity based instruments on intrinsic motivation.
The representation of alienable and inalienable rights: Games in transition function form
Date: February 2011 Reference Number: CBESS-11-09
We propose a new type of cooperative game - a game in transition function (TF) form - as a means of representing social decision making procedures that is suitable for the analysis of rights. The TF form is a generalisation of the effectivity function (EF) form, and in particular it tells us (where the EF form does not) about the alienability of a right. We describe procedures for generating a (unique) EF game from a TF game, and for generating a (non-unique) TF game from an EF game. We make some specific proposals about the representation of rights as properties of TF games and comment on some implications about the relationship between rights and Pareto efficiency.
Implementing theoretical models in the laboratory, and what this can and cannot achieve
Date: February 2011 Reference Number: CBESS-11-08
We investigate the methodology used in a significant genre of experimental economics, in which experiments are designed to test theoretical models by implementing them in the laboratory. Using two case studies, we argue that such an experiment is a test, not of what the model says about its target domain, but of generic theoretical components used in the model. The properties that make a model interesting as a putative explanation of phenomena in its target domain are not necessarily appropriate for such tests. We consider how this research strategy has been legitimised within the community of experimental economists.
Salience as an emergent property
Alberti, Federica Sugden, Robert Tsutsui, Kei
Date: February 2011 Reference Number: CBESS-11-07
We offer an evolutionary model of the emergence of concepts of salience through similarity-based learning. When an individual faces a new decision problem, she chooses an action that she perceives as similar to actions that, when chosen in similar previous problems, led to favourable outcomes. If some similarities are more reliably perceived than others, this process will favour the emergence of conventions that are defined in terms of reliably-perceived similarities. We present experimental evidence of such learning in recurrent play of similar but not identical pure coordination games.
Mutual advantage, conventions and team reasoning
Date: February 2011 Reference Number: CBESS-11-06
This paper proposes a conception of mutual advantage as a motivation for cooperative behaviour. This motivation is contrasted with the ‘emotional' reciprocity that is represented in current theories of social preferences. The paper explores parallels between mutual advantage and Humean analyses of convention, and between mutual advantage and theories of team reasoning.
Common reasoning in games: a Lewisian analysis of common knowledge of rationality
Date: February 2011 Reference Number: CBESS-11-05
The game-theoretic assumption of ‘common knowledge of rationality' leads to paradoxes when rationality is represented in a Bayesian framework as cautious expected utility maximisation with independent beliefs (ICEU). We diagnose and resolve these paradoxes by presenting a new class of formal models of players' reasoning, inspired by David Lewis's account of common knowledge, in which the analogue of common knowledge is derivability in common reason. We show that such models can consistently incorporate any of a wide range of standards of decision-theoretic practical rationality. We investigate the implications arising when the standard of decision-theoretic rationality so assumed is ICEU.
How the market responds to dynamically inconsistent preferences
Date: February 2011 Reference Number: CBESS-11-04
This paper responds to the ‘soft paternalist' argument that the findings of behavioural economics make traditional objections to paternalism incoherent. We show that there is a normatively significant sense in which, even if individuals lack coherent preferences, competitive markets are efficient in providing them with opportunities to get what they want. Extending earlier analysis by Sugden, we model a multi-period ‘storage economy' and explore the implications of dynamically inconsistent preferences. We show that, despite apparent conflicts of judgement between an individual's ‘selves', competitive markets provide maximal opportunity, and that they do so by facilitating voluntary exchanges between selves.
Do markets reveal preferences – or shape them?
Brookes, Peter Isoni, Andrea Loomes, Graham Sugden, Robert
Date: February 2011 Reference Number: CBESS-11-03
Standard economic analysis assumes that preferences are independent of markets. However, there is evidence suggesting that price information can influence preferences. We investigate the hypothesis that markets do not simply allow agents to reveal their preferences, but actually help to shape them. Using a demand-revealing market institution, we find strong support for this shaping hypothesis. Monetary valuations are significantly affected by price feedback and divergent price expectations. These effects are not entirely eliminated by further market experience. Our results suggest that preferences may be characterised by considerable imprecision and may be influenced by market prices in predictable ways.