Budget processes: Theory and experimental evidence

This paper studies budget processes, both theoretically and experimentally. We compare the outcomes of bottom-up and top-down budget processes. It is often presumed that a top-down budget process leads to a smaller overall budget than a bottom-up budget process. Ferejohn and Krehbiel [Ferejohn, J., Krehbiel, K., 1987. The budget process and the size of the budget, Amer. J. Polit. Sci. 31, 296–320] showed theoretically that this need not be the case. We test experimentally the theoretical predictions of their work. The evidence from these experiments lends strong support to their theory, both at the aggregate and the individual subject level.     

Higher cognitive ability is associated with lower entries in a p-beauty contest

“Beauty contests” are well-studied, dominance-solvable games that generate two interesting results. First, most behavior does not conform to the unique Nash equilibrium. Second, there is considerable unexplained heterogeneity in behavior. In this work, we explore the relationship between beauty contest behavior and cognitive ability. We find that subjects with high cognitive ability exhibit behavior that is closer to the Nash equilibrium.     

Investor Overconfidence in Experimental Asset Markets across Market States

Abstract

This study explores how individual overconfidence adjusts after receiving extreme feedback that either supports or contradicts previous decision-making when buying or selling stocks. We find that highly contradicting feedback causes overconfidence to vanish as confidence declines sharply while supportive signals cause overconfidence to increase. Further evidence suggests that strong feedback impulses are associated with higher investor disagreement, supporting prior hypotheses that investors interpret such impulses differently. We also find that methodologies that measure overconfidence in prediction tasks systematically overstate confidence scores as respondents tend to fail to internalize stated confidence intervals appropriately.     

Experimental economics under the microscope

Although experimental economics has been one of the most rapidlyexpanding fields in economics in recent years, it has so farattracted little sustained methodological discussion. This paperis intended as a step towards filling the gap, and providespreliminary answers to the following questions. (i) What aredistinctive characteristics of the experimental method in economics?(ii) To what extent are the results obtained in the laboratorytransferable to non-laboratory situations? (iii) What are thelimits of the experimental method in economics? (iv) Why isit that experimentation, which has been so successful in thenatural sciences, remains so controversial in the social sciences.     

Time is money: The effect of clock speed on seller’s revenue in Dutch auctions

We study the role of timing in auctions under the premise that time is a valuable resource. When one object is for sale, Dutch and first-price sealed bid auctions are strategically equivalent in standard models, and therefore, they should yield the same revenue for the auctioneer. We study Dutch and first-price sealed bid auctions in the laboratory, with a specific emphasis on the speed of the clock in the Dutch auction. At fast clock speeds, revenue in the Dutch auction is significantly lower than it is in the sealed bid auction. When the clock is sufficiently slow, however, revenue in the Dutch auction is higher than the revenue in the sealed bid auction. We develop and test a simple model of auctions with impatient bidders that is consistent with these laboratory findings.

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Electronic Supplementary Material  The online version of this article () contains supplementary material, which is available to authorized users.      

Are low-price promises collusion guarantees? An experimental test of price matching policies

In a symmetric differentiated experimental duopoly we test the ability of Price Matching Guarantees (PMG) to raise prices above the competitive levels. PMG are introduced both as a market rule (the selling price is always the lowest posted price) and as a business strategy (subjects decide whether or not to offer them). Our results show that PMG lead to a clear collusive outcome as markets quickly and fully converge to the collusive prediction if PMG are imposed as a market rule. Whenever subjects are allowed to decide whether to adopt PMG or not we observe that almost all subjects decide to adopt them and prices get very close to the collusive ones.      

House money effects in public good experiments: Comment

We reconsider evidence from experiments that claim to show that using “house money” in standard public goods experiments has no effect on behavior. We show that it does have an effect when one examines the data using appropriate statistical methods that consider individual-level responses and account for the error structure of the panel data. JEL Classification D7 · C92 I am grateful for comments from two referees and an editor. All data and statistical code are available for public access at the ExLab Digital Library located at http://exlab.bus.ucf.edu.     

Simon's and Siegel's responses to the 'mixed strategy anomaly': a missed case in the sensitivity of economics to empirical evidence

In some of their papers published in the 1950s, Herbert Simonand Sidney Siegel responded to the so-called mixed strategyanomaly in ways which deserve more attention. They producednot only (i) immediate defences of the economic theory of theirown time, but also (ii) ideas and solutions that have laterturned out to be significant contributions to the developmentof the economic theory of choice and decision-making and theseparation of experimental economics from experimental psychology.These observations suggest that economics can be more responsiveto empirical anomalies than has been assumed. Furthermore, knowledgeof the desirable responsiveness to anomalies can provide meansof avoiding the non-desirable immunity to anomalies.     

Indirect reciprocity and strategic reputation building in an experimental helping game

We study indirect reciprocity and strategic reputation building in an experimental helping game. At any time only half of the subjects can build a reputation. This allows us to study both pure indirect reciprocity that is not contaminated by strategic reputation building and the impact of incentives for strategic reputation building on the helping rate. We find that pure indirect reciprocity exists, but also that the helping decisions are substantially affected by strategic considerations. Finally, we find that strategic do better than non-strategic players and non-reciprocal do better than reciprocal players, casting doubt on previously proposed evolutionary explanations for indirect reciprocity.     

A controlled field experiment on corruption

This paper reports on a controlled field experiment on corruption designed to address two important issues: the experimenter's scrutiny and the unobservability of corruption. In the experiment, a grader is offered a bribe along with a demand for a better grade. We find that graders respond more favorably to bigger bribes, while the effect of higher wages is ambiguous: it lowers the bribe's acceptance, but it fosters reciprocation. Monitoring and punishment can deter corruption, but we cannot reject that it may also crowd-out intrinsic motivations for honesty when intensified. Finally, our results suggest several micro-determinants of corruption including age, ability, religiosity, but not gender.     

On the scope of experiments in economics: comments on Siakantaris

The problem of ‘parallelism’ or external validitycan in principle be solved; I try to show how by means of twosimple examples. I also criticise attempts to dismiss experimentaleconomics that appeal to alleged ontological differences betweenthe natural and the social realm.     

Fixed price plus rationing: an experiment

This paper theoretically and experimentally explores a fixed price mechanism in which, if aggregate demand exceeds supply, bidders are proportionally rationed. If demand is uncertain, in equilibrium bidders overstate their true demand in order to alleviate the effects of being rationed. This effect is the more intense the lower the price, and bids reach their upper limit for sufficiently low prices. In the experiment we observe a significant proportion of equilibrium play. However, subjects tend to overbid the equilibrium strategy when prices are high and underbid when prices are low. We explain the experimental evidence by a simple model in which the probability of a deviation is decreasing in the expected loss associated with it.

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Electronic Supplementary Material  The online version of this article () contains supplementary material, which is available to authorized users.