The Max‐Min Group Contest: Weakest‐link (Group) All‐Pay Auction

We investigate a group all‐pay auction in which each group's effort is represented by the minimum among the effort levels exerted by the group members and the prize is a group‐specific public good. We fully characterize the symmetric equilibria for two groups. There are four types of equilibria: the pure strategy equilibria in which all (active) players exert the same effort; the semi‐pure strategy equilibria in which the players in a group play the same pure strategy whereas those in the other group play the same mixed strategy; the nondegenerate mixed strategy equilibria with continuous support; and the nondegenerate mixed strategy equilibria with discontinuous support. We then analyze a general contest with n groups.     

Multi‐battle Contests: An Experimental Study

We examine behavior of subjects in simultaneous and sequential multi‐battle contests, where each individual battle is modeled as an all‐pay auction with complete information. In simultaneous best‐of‐three contests, subjects are predicted to make positive bids in all three battles, but we find that subjects often make positive bids in only two battles. In sequential contests, theory predicts sizable bids in the first battle and no bids in the subsequent battles. Contrary to this prediction, subjects significantly underbid in the first battle and overbid in subsequent battles. Consequently, instead of always ending in the second battle, contests often proceed to the third battle. Finally, although the aggregate bid in simultaneous contests is similar to that in sequential contests, in both settings, subjects make higher aggregate bids than predicted. The observed behavior of subjects can be rationalized by a combination of multidimensional iterative reasoning and a nonmonetary utility of winning.     

Focal Points and Economic Efficiency: The Role of Relative Label Salience

Coordination games represent coordination problems that arise across social science disciplines. Focal points have been found to be an effective way to solve many of these coordination problems. We experimentally analyze the efficiency‐enhancing power of focal points in 2 × 2 Pareto‐ranked coordination games. We find that the power of focal labels, when attached to the Pareto‐efficient strategy, to promote efficiency critically depends upon the alternative strategy's label salience. When the relative salience of our focal labels is considerably weaker, focal labels mostly fail to raise expected efficiency beyond the mixed‐strategy prediction. But when the relative salience of our focal labels is markedly stronger, focal labels raise expected efficiency much beyond the mixed‐strategy prediction. Furthermore, we find that the efficiency‐enhancing power of focal labels decreases as a measure of risk‐dominance increases across games.     

Trust in Second Life

In this article, some issues are raised with regard to conducting economic decision‐making experiments in virtual worlds. I make suggestions for addressing these issues. The issues are illustrated via a visit to an experimental laboratory in Second Life.     

Trust among the Avatars: A Virtual World Experiment,with and without Textual and Visual Cues

We invited “residents” of a virtual world who vary in real‐world age and occupation to play a trust game with stakes comparable to “in‐world” wages. In different treatments, the lab wall was adorned with an emotively suggestive photograph, a suggestive text was added to the instructions, or both a photo and text were added. We find high levels of trust and reciprocity that appear still higher for non‐student and older subjects. Variation of results by treatment suggests that both photographic and textual cues influenced the level of trust but not that of trustworthiness.     

The Effects of Alcohol Use on Economic Decision Making

In a controlled laboratory experiment, we study the causal effect of alcohol on economic decision making. A treatment group was given a dose of alcohol designed to target a blood alcohol concentration (BAC) of 0.08 while the BAC of those in the control group remained 0.00. We investigate the behavior of control and treatment groups in the following types of tasks: math, uncertainty, overconfidence, strategic games, food choice, anchoring, and altruism. Our results indicate that alcohol consumption has little systematic effect on economic behavior, at least for the BAC level considered. Further, there is little evidence that alcohol differentially impacts the choices of male and female subjects.     

When Identifying Contributors is Costly: An Experiment on Public Goods

Studies show that identifying contributors increases contributions to public goods. In practice, viewing identifiable information is costly, which may discourage people from accessing it. We design a public goods experiment in which participants can pay to view information about identities and contributions of group members. We compare this to a treatment in which there is no identifiable information, and a treatment in which all contributors are identified. Our main findings are that: (i) contributions in the treatment with costly information are as high as those in the treatment with free information, (ii) participants rarely choose to view the information, and (iii) being a high contributor is correlated with choosing to view information about others.     

Reservation Values and Regret in Laboratory First‐Price Auctions: Context and Bidding Behavior

Recent articles 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 that are not essential to the auction environment.     

Social Information “Nudges”: An Experiment with Multiple Group References

Social information “nudges” concerning how others perform typically boost individual performances in experiments with one group reference point. However, in many natural settings, sometimes due to policy, there are several such group reference points. We address the complications that such multiple group social information might introduce through an experiment. The boost to average performance is significant and comparable to the one group case. Between‐group inequality does not change. Individual inequality falls, however, because the boost is largest among the pre‐“nudge” very poor performers. Finally, the boost to average performance is highest when individuals freely choose their group affiliations.     

The Effect of Subtracting a Constant from all Payoffs in a Hawk‐Dove Game: Experimental Evidence of Loss Aversion in Strategic Behavior

Economists and psychologists have documented patterns of individual decision‐making behavior (e.g., loss aversion) whereby losses and gains are treated differently. However, there has been little evidence of such patterns in multiplayer games. I report results showing the strongest evidence I know of that this phenomenon is present in games. Experimental subjects play two hawk‐dove games that are identical up to a constant; in one, all payoffs are positive, while in the other, payoffs are negative if and only if both players choose “hawk.” Under both fixed pairs and random matching, differences between the games are substantial, significant, and consistent with loss aversion.     

Regulating the Anticommons: Insights from Public‐Expenditure Theory

This article offers a new interpretation of the traditional Cournot complements problem, or anticommons, by using the theory of public goods to gain a perspective on the problem. Specifically, I examine the pricing strategies and regulation of multiple monopolies that produce products which consumers view as perfect complements. I show that collusion by the firms increases total social welfare and that the collusion problem can be reinterpreted as a problem of provision of public goods from the point of view of the firms. I take this insight further and derive the familiar concepts of the Samuelson marginal condition and the ratio equilibrium for the firms. I compare these outcomes to the first best solution and then apply incentive‐compatible mechanisms to strategically implement the Pareto superior ratio‐equilibrium outcome and the optimal marginal‐cost pricing outcome. Finally, I show how this methodology can be applied to the more familiar Cournot model of oligopoly.     

Provision versus Appropriation in Symmetric and Asymmetric Social Dilemmas

Social dilemmas characterize decision environments in which individuals' exclusive pursuit of their own material self‐interest can produce inefficient allocations. Social dilemmas are most commonly studied in provision games, such as public goods games and trust games, in which the social dilemma can be manifested in foregone opportunities to create surplus. Appropriation games are sometimes used to study social dilemmas that can be manifested in destruction of surplus, as is typical in common‐pool resource extraction games. A central question is whether social dilemmas are more serious for inhibiting creation of surplus or in promoting its destruction. This question is addressed in this study with an experiment involving three pairs of payoff‐equivalent provision and appropriation games. Some game pairs are symmetric, whereas others involve asymmetric power relationships. We find that play of symmetric provision and appropriation games produces comparable efficiency. In contrast, power asymmetry leads to significantly lower efficiency in an appropriation game than in a payoff‐equivalent provision game. This outcome can be rationalized by reciprocal preference theory but not by models of unconditional social preferences.     

The All‐Pay Auction with Nonmonotonic Payoff

I model innovation contests as an all‐pay auction in which it is possible not to achieve successful innovation despite costly R&D investments, and as a result, there is no winner. In such a case, the winning payoff turns out to be nonmonotonic in own bid. I derive the sufficient conditions for the existence of pure strategy equilibria, and fully characterize the nondegenerate mixed strategy equilibrium. In the mixed strategy equilibrium, the support of the low‐value bidder is not continuous, and both the high‐value and the low‐value bidders place an atom in the (distinct) lower bound of their respective support. Under symmetric valuation, both bidders place an atom at zero. These results can explain why one does not observe very low quality innovation in real life, or why even symmetric firms may stay out of an innovation contest.     

WHAT'S IN A NAME? RACIAL IDENTITY AND ALTRUISM IN POST‐APARTHEID SOUTH AFRICA

This paper reports the results of an economic experiment which was designed to test the effect of racial identity on generosity in a non-strategic setting. A sample of undergraduate university students was recruited to participate in a dictator game, where surnames of individuals were revealed to convey information about racial identity. Results indicate that compared to a set of control experiments where participant identity was kept anonymous, revealing racial identity has a significant and positive impact on the size of the offers made. However, while Black participants did not vary their offers based on the racial identity of their partners, White participants were more generous towards White partners than Black partners, exhibiting insider favouritism in their offers.     

Do People Accurately Anticipate Sanctions?

We provide lab data from four different games that allow us to study whether people have accurate expectations regarding monetary sanctions (punishment/reward) and nonmonetary sanctions (disapproval/approval). Although the strength of the sanction is always predicted with some error (particularly in the case of monetary sanctions), we observe that (i) most subjects anticipate correctly the sign of the average sanction, (ii) expectations covary with sanctions, (iii) the average expectation is very often not significantly different than the average actual sanction, and (iv) the errors exhibit no systematic bias, except in those situations where rewards are frequent. In this line, we find some evidence that punishment is better anticipated than rewards.     

The over‐weighting of unfair tie in all‐pay contest: An experimental study

This paper examines experimentally a contest in which the organizer takes a share of the prize if there is a tie. Our hypothesis is that contestants perceive this as unfair and that this perception has a non‐proportional effect on the bids. The results indicate that despite the very low probability of a tie, contestants over‐weight its importance and sharply decrease their bids if the organizer takes a share. We show that a fair contest is the optimal strategy for the organizer since the increase in the average bid in a “fair” contest is higher than the organizer's decrease in expected value from losing his share in a tie.     

Does Manufacturer Advertising Crowd‐in or Crowd‐out Retailer Advertising? An Application of an Endogenous Prize Contest with Asymmetric Players

When a manufacturer advertises, what is the impact on retailer advertising? I analyze a contest model of advertising where total advertising by the manufacturer and by retailers determines market size, and the relative level of advertising by each retailer determines market share. If retailers are symmetric I show that there is a crowding‐in effect so increased manufacturer advertising increases retail advertising. But if one retailer is stronger, then marginal increases in manufacturer advertising have a crowding‐out effect on retailer advertising, while sufficiently large increases have a crowding‐in effect by “jump‐starting” competition between retailers for the larger market. Furthermore, asymmetric abilities in such contests can lead the weaker player to effectively drop out of the contest, thereby undermining the ability of increased prizes to increase effort by intensifying competition.     

Effects of a Management–Labor Context and Team Play on Ultimatum Game Outcomes

Laboratory experiments are usually done on individuals, but many business decisions involve groups. Therefore, we ran ultimatum games using individuals and two‐person teams. We primed business roles with the labels “labor” and “management,” or we used the generic labels of “proposer” and “responder.” With business labels, individuals offered lower shares at higher stakes with no significant differences in acceptance rates. For teams, business labels had no significant effect on shares offered, with significantly lower acceptance rates at higher stakes. Teams offered less than individuals, along with higher acceptance rates with generic labels, compared to no significant differences with business labels.     

The Short‐Term Economic Impact of Levying E‐Tolls on Industries

TERM is used to analyse the short‐term regional economic impact of an increase in industries' transport costs when paying E‐Tolls. Market‐clearing and accounting equations allow regional economies to be represented as an integrated framework, labour adjusts to accommodate increasing transportation costs, and investments change to accommodate capital that is fixed. 1 1 TERM is a bottom‐up CGE model designed for highly disaggregated regional data. The Enormous Regional Model's originate from Horridge et al. ( 2005 ) and are better explained in Horridge ( 2011 ).
We concluded that costs from levying E‐Tolls on industries are small in comparison to total transport costs, and the impact on economic aggregates and most industries are marginal: investments (?0.404%), gross domestic product (GDP) (?0.01) and consumer price inflation (?0.10%). This is true even when considering costs and benefits on industries as well as consumers. Industries that experienced the greatest decline in output were transport, construction and gold. Provinces that are closer to Gauteng and have a greater share of severely impacted industries experienced larger GDP and real income reductions. Mpumalanga's decrease in GDP was 17% greater than Gauteng's.