Are You Risk Averse over Other People's Money?

Decisions with uncertain outcomes are often made by one party in settings where another party bears the consequences. Whenever an individual is delegated to make decisions that affect others, such as in the typical corporate structure, does the individual make decisions that reflect the risk preferences of the party bearing the consequences? We examine this question in two simple settings, lottery choices and sealed‐bid auctions, using controlled laboratory experiments. We find that when an individual makes a decision for an anonymous stranger, there is a tendency to exhibit less risk aversion. This reduction in risk aversion is relative to his or her own preferences, and it is also relative to his or her belief about the preferences of others. This result has significant implications for the design of contracts between principals and agents.     

The effects of competition on the nature of cheating behavior

Competition among individuals comes in a variety of forms: for mates, for resources, and for prestige and recognition. Such competitive pressure can lead individuals to engage in unethical behavior in an effort to get ahead. There are several forms of cheating in which individuals may engage to improve their own outcome: they may lie about their own performance in a task and they may lie about others’ performance in a task. Our research is the first to examine how competition affects each of these two types of cheating behavior. We find that individuals are much more willing to cheat by lying about themselves than they are willing to sabotage another when under competitive pressure.     

The Sound of Others: Surprising Evidence of Conformist Behavior

In this article we use the “Click” version of the Bomb Risk Elicitation Task to explore preferences for conformism. In the task subjects can infer the behavior of others from the mass of clicks heard. This signal is uninformative about the precise choices of the other participants, and never mentioned in the instructions. We control the exposure of subjects to clicks by implementing treatments with and without earmuffs. We further test the effect of the introduction of a common rather than individual resolution of uncertainty, still keeping individual payoffs independent of other subjects’ choices. We find strong evidence of conformist behavior even in such an inhospitable environment. Simply hearing the others clicking marginally affects subjects behavior. Introducing a common random draw results in a dramatic shift of the average choices toward risk loving, in particular by women, which is consistent with social preference considerations.     

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.     

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.     

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.     

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.     

Sabotaging Another: Priming Competition Increases Cheating Behavior in Tournaments

Trophy. Goal. Dominated . Does priming individuals with competitive concepts such as these influence the temptation to cheat? We utilize a standard laboratory cheating task in a tournament setting and test whether nonconscious priming impacts the nature of cheating behavior. The results demonstrate an asymmetry in a winner‐take‐all setting: a competitive prime does not increase cheating to improve one's own outcome, but does significantly increase the willingness of an individual to sabotage a competitor.     

Do risk and time preferences have biological roots?

We revisit the claims about the biological underpinnings of economic behavior by specifically exploring if observed gender differences in risk/time preferences can be explained by natural fluctuations in progesterone/estradiol levels during the menstrual cycle and by prenatal exposure to testosterone and estrogen levels. We find no effect of the menstrual cycle (and thereby, of associated fluctuations in progesterone and estradiol levels) or of the digit ratio on either risk or time preferences.     

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.     

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.     

Stopping on Nine: Evidence of Heuristic Managerial Decision‐Making in Major League Baseball Pitcher Substitutions

Economic agents who exhibit left digit bias over‐emphasize round numbers. Using data on managers' pitcher substitution decisions in Major League Baseball, I find that managers remove starting pitchers more often when the next pitch will result in a pitch count ending in zero. Unlike counts ending in nine, pitch counts ending in eight do not exhibit higher substitution rates despite the fact that pitchers usually throw multiple pitches before the manager's next decision opportunity. Managers apparently use rules‐of‐thumb that emphasize leftmost digits and ignore at least some future consequences of present actions. However, these significant biases disappear when the stakes are high. I find no evidence of disproportionate substitutions on the nine's in close games, and the final digit of the pitch count does not discontinuously affect the probability of winning. Managers act in a manner consistent with rational inattention, using heuristics only when the stakes are low.     

Sabotage versus Discouragement: Which Dominates Post Promotion Tournament Behavior?

We explore the behavior of losers of promotion tournaments after the tournament is concluded. We do so with an experiment in which we vary the design of the promotion tournament to determine how tournament design affects post tournament effort. Our design allows us to discriminate between two possible reasons tournaments might lead to decreased work effort among the tournament losers: strategic sabotage and a worker becoming discouraged by the tournament outcome. We examine behavior after the tournament and find evidence suggesting that bad tournament design can lead to workers being discouraged. This discouragement effect is strong for low ability workers but not for high ability workers. Conversely, we do find evidence that some high ability workers engage in strategic sabotage but the incidence does not vary with the design of the promotion tournament and the incidence of it is low.     

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.     

Social Learning in Beauty‐Contest Games

We study the impact of social learning on the depth of reasoning in an experimental beauty‐contest game. Naive advice and observation of others' decisions as two forms of social learning trigger faster convergence to the equilibrium. We find that subjects who receive advice outperform uninformed subjects permanently, whereas subjects who observe others' past behavior before making their decision only have a temporary advantage over uninformed subjects. A series of control‐treatments and simulations indicate that the latter result is due to subjects failing to make the most out of observing others.     

The Impact of Political Influence on Appointees: Evidence from the Small Business Administration Disaster Loan Program

Presidential disaster declarations provide disaster aid through the Federal Emergency Management Agency (FEMA) and are known to be motivated by political factors as well as by need. The extent to which politics influence the Small Business Administration (SBA) disaster declaration decision, made by a presidential appointee, has not been previously measured. We use new data covering 1960–2013 to show that SBA declarations are subject to the same political influences as presidential declarations. Disasters occurring during reelection years, as well as those occurring in electorally important states, are more likely to receive SBA declarations. The effect of politics is stronger in the period prior to the passage of the Stafford Act in 1988, showing that the two types of declarations are substitutes for political purposes.     

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.     

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.     

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.