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Trust and trustworthiness are important in social relationships. Levels of trust and trustworthiness are likely to depend on “social” utility; the magnitude of which is influenced by the social context governing individual relationships. Social networks are an example of such a social context. This paper investigates how social networks influence trust and trustworthiness by blending social network analysis with experimental economics methodology in two separate experiments. We show that trust and trustworthiness are higher for individuals who are more closely connected; in both cases, this relationship tapers off beyond second degree friendships. We also find that people tend to trust more central (popular) individuals. However, being more central (popular) has little influence on one's levels of trust and trustworthiness. We find these effects on trust to be only partially driven by the expectation of trustworthiness. We thus document evidence of a bias toward more closely connected and more popular individuals. [ABSTRACT FROM AUTHOR]

We report boundary experiments testing the robustness of price convergence in double auction markets for non-durable goods in which there is extreme earnings inequality at the competitive equilibrium (CE). Following up on a conjecture by Smith (1976a), we test whether the well-known equilibrating power of the double auction institution is robust to the presence of complete information about traders’ values and costs and the presence of symmetric market power. We find that complete information is insufficient to impede convergence to CE prices; however, introducing market power consistently causes prices to deviate from the CE, whether or not subjects possess complete information. Our design highlights the value of boundary experiments in understanding how market institutions shape behavior, and our findings help delineate the limits of the double auction institution to generate competitive outcomes. [ABSTRACT FROM AUTHOR]

The research community in experimental economics has been increasingly encouraged to replicate studies and increase the sample size. While these suggestions have strong advantages, they also potentially increase the financial costs associated with data collection and, as a result, hamper the growth of experimental economics and limit the questions that may be addressed using experimental methods. In this paper, we explore the effectiveness of extra credit as a reward medium as it is financially less taxing and readily available to most researchers as an alternative. We focus on experimental asset markets because data is particularly costly to collect for these experiments, e.g., a market consisting of 8–12 traders interacting over 15 trading periods is an independent observation. Our treatment variable is the reward medium, either extra credit or cash. We compare bubble measures in the two treatments and we find that bubbles observed in the extra-credit sessions are not significantly different from bubbles observed in the cash sessions. These results suggest that extra credit is an effective reward medium in experimental asset markets. [ABSTRACT FROM AUTHOR]

We study in five diverse countries a laboratory social dilemma game in which incentives to steal from others lead to the socially inefficient diversion of resources from production unless the members of a given mini-society can abide by norms of non-theft or engage in low cost collective protection of their members’ wealth accumulations. We compare two treatments in which subjects have opportunities to exchange free-form messages to one without such opportunities, finding that most subjects allocate far less to theft and most groups achieve much greater efficiency in the presence of communication. Ease of identifying who has engaged in theft varies across the two communication treatments, but is of minor importance to the outcome. We find several coding-amenable elements of message content to be statistically significant predictors of group and individual outcomes. Contributing to the literature on culture, norms, and preferences, we find that the degree to which communication fosters cooperation varies among countries in a manner correlated with variation in survey based trust and with desistance from theft at the outset of our communication-free experiment treatment. [ABSTRACT FROM AUTHOR]

We study the relative effectiveness of extrinsic monetary disincentives and intrinsic non-monetary disincentives to corruption, using a harassment bribery game. In doing so, we also test the Beckerian prediction that at the same level of expected payoff, a low probability of detection with high fine is a stronger deterrent to corruption than a high probability of detection with low fine. In Experiment 1, two treatments are designed to study the effect of a low probability of detection with high fine and a high probability of detection with low fine, on bribe taking behavior. In Experiment 2, subjects participate in the same baseline harassment bribery game either without or after having gone through a four-week ethics education program. Results show that: (a) a low probability of detection with high fine reduces both the amount and the likelihood of bribe demand, (b) a high probability of detection with low fine has no effect on bribe demand, (c) normative appeals of ethics education has a small effect on the likelihood but not on the amount of bribe demand, when measured immediately after the intervention, (d) the effect of ethics education vanishes when measured four weeks after the intervention. [ABSTRACT FROM AUTHOR]

The study of effort provision in a controlled setting is a key research area in experimental economics. There are two major methodological paradigms in this literature: stated effort and real effort. In the stated-effort paradigm the researcher uses an “effort function” that maps choices to outcomes. In the real-effort paradigm, participants work on a task, and outcomes depend on their performance. The advantage of the stated-effort design is the control the researcher has over the cost of effort, which is particularly useful when testing theory. The advantage of the real-effort design is that it may be a better match to the field environment, particularly with respect to psychological aspects that affect behavior. An open question in the literature is the degree to which the results obtained by the two paradigms differ, and if they do, why. We present a review of methods used and discuss the results obtained from using these different approaches, and issues to consider when choosing and implementing a task. [ABSTRACT FROM AUTHOR]

We use a laboratory experiment to compare general equilibrium economies in which agents individually allocate their private goods among consumption, investment in production, and replenishing or refurbishing a depreciating public facility in a dynamic game with long-term investment opportunities. The public facility is financed either by voluntary anonymous contributions (VAC) or taxes. We find that rates of taxation chosen by majority vote remain at an intermediate level close to the finite-horizon optimum, and the experimental economies sustain public goods at levels between the finite- and infinite-horizon optima. This contrasts with a rapid decline of public goods under VAC. Both the payoff efficiency and production of private goods are higher when taxes are set endogenously instead of being fixed at the infinite-horizon optimum level externally. When taxes are adjusted to the respective finite-horizon optimum each period, production levels and efficiency remain as high as in the voting treatments at least in the latter half of the sessions. When subjects choose between VAC and taxation, 23 out of 24 majority votes favor taxation, demonstrating a clear preference for enforceable taxes to finance public goods in this setting. [ABSTRACT FROM AUTHOR]

We investigate the optimal shape of organizations to reduce embezzlement. In a stylized synthesis of a common pool resource and ultimatum game, agents are activated sequentially within an organizational architecture wherein they can take a share of the available resources or choose to “blow the whistle”, an action that sets all payoffs to zero. The resources not taken will grow and benefit all agents. Six basic organizational architectures are tested, including horizontal, vertical, pyramid shaped, and inverted pyramid-shaped structures. Our results suggest that horizontal and pyramid structures are more effective at reducing embezzlement. Rates of embezzlement and whistleblowing increase with the number of levels in the structure. Holding the number of levels constant, embezzlement rates are lower in pyramid shaped structures than inverted-pyramid shaped structures, while whistleblowing rates are unchanged. Our results are relevant to public agencies, foreign aid, charitable non-profits, and other contexts where capital leakage is a common problem and the costs of whistleblowing are borne broadly by the members of the organization. [ABSTRACT FROM AUTHOR]

We study experimentally whether an overlapping membership structure affects the incentives of short-lived organizational members. We compare organizations in which one member is replaced per time period to organizations in which both members are replaced at the same time. We find at best weak support for the hypothesis that an overlapping membership structure is conducive to cooperation in ongoing organizations. Incoming members are sensitive to the organizational history when membership is overlapping, as they should according to the cooperative equilibrium, but this is not enough to substantially increase cooperation levels in the organization. [ABSTRACT FROM AUTHOR]

For both two person teams and individuals unrestricted communication between opponents in a finitely repeated prisoner dilemma game results in stage-one cooperation rates of between 95–100%. Content analysis of between opponent communication focuses on the increased earnings cooperation can achieve, with minimal discussion of punishment for failing to cooperate. Restoring cooperation after an early stage-game defection typically requires compensating the aggrieved agent. [ABSTRACT FROM AUTHOR]

Bubbles are omnipresent in lab experiments with asset markets. Most of these experiments are conducted in environments with only human traders. Since today's markets are substantially determined by algorithmic trading, we use a laboratory experiment to measure how human trading depends on the expected presence of algorithmic traders. We find that bubbles are clearly smaller when human traders expect algorithmic traders to be present. [ABSTRACT FROM AUTHOR]

We design a laboratory experiment to investigate matching in a decentralized market of deferred acceptance. Agents are undifferentiated and may have multiple partners; their payoff depends on who they match with. The experiment is designed in such a way that a stable configuration exists, but cannot be eyeballed by the participants due to the computational complexity of the game. In spite of this, subjects are remarkably good at reaching a stable match, even when the payoffs of others are not publicly observed. More information does, however, speed up convergence thanks to self-censoring. We trace irrational matching choices mostly to two sources: the tendency of over-think in a setting where strategic thinking is not necessary, and the reluctance to accept matching offers from those who have been disloyal in the past. [ABSTRACT FROM AUTHOR]

We design a continuous-time experiment to study how different short-term credit maturities interact with the state of the economy. We find that, when the economy is in a boom, long maturities stabilize the credit market. Yet, when in a downturn, such maturities increase the likelihood of credit freezes. This result has important regulatory implications, as it suggests that a policy aimed at reducing maturity mismatch in short-term credit markets might backfire during a recession. [ABSTRACT FROM AUTHOR]

We study theoretically and in a lab-experiment investment decisions in environments where property rights are absent. In our setting a player chooses an investment level before interacting repeatedly with a given set of agents. The investment stochastically affects the payoffs of the game in every subsequent period. We show that more volatile returns make investment more difficult in the absence of legal protection, and might force the investor to invest more to guarantee cooperation. Experimental results are broadly consistent with the theoretical findings. [ABSTRACT FROM AUTHOR]

In this experiment, voters select a leader who can either act in the public interest, i.e. make efficient and equitable policy choices, or act in a corrupt way, i.e. use public funds for private gain. Voters can observe candidates’ pro-social behavior and their score in a cognitive ability test prior to the election, and this fact is known to candidates. Therefore, self-interested candidates have incentives to act in a pro-social manner, i.e. to pretend to be public-spirited leaders. We find that both truly pro-social and egoistic leaders co-exist, but that political selection is ineffective in choosing public-spirited leaders. The main reason is that egoistic candidates strategically pretend to be pro-social to increase their chances of winning the election. [ABSTRACT FROM AUTHOR]

In this study, we investigate how and why people discriminate among different groups, including their in-group and multiple out-groups. In a laboratory experiment, we use dictator games for five groups to compare actual transfers to in-group and out-group agents with the respective beliefs held by dictators and recipients in these groups. We observe both in-group favoritism and discrimination across multiple out-groups. Individuals expect others to be in-group biased, as well as to be treated differently by different out-groups. We find that dictators’ in-group favoritism is positively related to the degree of in-group favoritism they expect other dictators to exhibit. Moreover, we find that a dictator tends to be relatively more generous toward a specific out-group when he or she expects that dictators belonging to that out-group are generous toward members of his or her in-group. Thus, our study provides evidence for indirect reciprocation expectation. [ABSTRACT FROM AUTHOR]

Recent research has shown that making people’s decisions known to others may enhance cooperation in infinitely repeated prisoner’s dilemma games with random matching. This paper experimentally studies whether people can cooperate with each other by endogenously showing their identities and building cooperative reputations when there is an option to hide the identities. Our experiment shows that a non-negligible fraction of subjects choose to conceal their identities and accordingly subjects fail to cooperate with each other in communities if hiding is cost-free. However, almost all subjects disclose their identities and successfully achieve cooperation if a cost is charged for the act of hiding. This finding has a broad methodological implication for the study of reputation mechanisms when infinitely repeated games are used in an experiment, as people’s behavior may be determined by their ability to hide identities. [ABSTRACT FROM AUTHOR]

We use a novel laboratory experiment involving a die rolling task embedded within a coordination game to investigate whether complicity can emerge when decision-making is simultaneous, the potential accomplices are strangers and neither communication nor signaling is possible. Then, by comparing the behavior observed in this original game to that in a variant in which die-roll reporting players are paired with passive players instead of other die-roll reporters, while everything else is held constant, we isolate the effect of having a potential accomplice on the likelihood of an individual acting immorally. We find that complicity can emerge between strangers in the absence of opportunities to communicate or signal and that having a potential accomplice increases the likelihood of an individual acting immorally. [ABSTRACT FROM AUTHOR]

We test experimentally whether and why principals’ charitable giving affects agents’ efforts. We study a simple principal-agent setting in the lab, where a principal decides whether to donate a fixed amount to a charity and, in the next step, an agent chooses his effort. We argue there are three potential mechanisms that can trigger a higher effort after a donation in this setting: distributional concerns, reciprocal altruism, and shared warm glow utility. We find agents choose higher efforts when principals donate. With respect to the mechanisms, we find evidence for reciprocal altruism and distributional concerns as drivers of agents’ performance reactions in the lab. [ABSTRACT FROM AUTHOR]

In a within subjects design we evaluate distributional preferences and reasoning ability to explain choices in the Traveler's Dilemma. We recruit subjects from economics and non-economics majors to have a high variance of preferences and abilities. We find that economists follow the efficiency criterion while non-economists follow maximin. Economists also show a better reasoning ability. We, therefore, confirm the self-selection hypothesis of choosing a major. An equilibrium of an incomplete information version of the Traveler's Dilemma explains the behavior we observe. Subjects with low reasoning ability make choices away from equilibrium. Thus, (non)cooperative behavior might be misinterpreted if subjects’ reasoning ability is not taken into account. [ABSTRACT FROM AUTHOR]

We systematically explore the impact of transparency and punishment on cooperation in the provision of public goods. Motivated by problems of embezzlement, we study variations of a public goods game where one player (the official ) may embezzle from an existing public good, while others ( citizens ) can only contribute. We show that transparency induces increased embezzlement in the absence of a punishment mechanism. The qualitative impact of transparency on contributions to the public good is reversed when a punishment mechanism is introduced. We identify stigmatization of the official when actions are not transparent. Only a combination of transparency of actions and peer-punishment options creates full accountability and increases contributions by all players. [ABSTRACT FROM AUTHOR]

We present results from common pool resource experiments designed to examine the ability of a group of resource users, called insiders, to simultaneously manage their own exploitation and defend their resource from encroachment by outsiders. The insiders can use communication, peer monitoring and sanctions to coordinate their decisions. In addition, they can sanction any outsiders they observe. We vary the insiders’ ability to observe and sanction the outsiders from no observability to partial and full observability. We find a striking non-monotonicity between observability of the outsiders and levels of poaching. Poaching was higher under partial monitoring than zero monitoring, and was lower and more stable under full monitoring. Although full observability allowed the insiders to better coordinate their own harvests, they were unable to fully deter poaching because their sanctions were far too low and they were unwilling to punish low levels of poaching. [ABSTRACT FROM AUTHOR]

We run an experiment to investigate the emergence of excess and synchronised trading activity leading to market crashes. Although the environment clearly favours a buy-and-hold strategy, we observe that subjects trade too much, which is detrimental to their wealth given the implemented market impact (known to them). We find that preference for risk leads to higher activity rates and that price expectations are fully consistent with subjects’ actions. In particular, trading subjects try to make profits by playing a buy low, sell high strategy. Finally, we do not detect crashes driven by collective panic, but rather a weak but significant synchronisation of buy activity. [ABSTRACT FROM AUTHOR]

We study whether coordination failure is more often overcome if players can disclose their actions at a lower cost. In an experiment subjects first choose their action and then choose whether to disclose this action to other group members, and disclosure costs are varied between treatments. We find that no group overcomes coordination failure when action disclosure costs are high, but half of the groups do so when the costs are low. Simulations with a belief learning model can predict which groups will overcome coordination failure, but only if it is assumed that players are either farsighted, risk-seeking or pro-social. To distinguish between these explanations we collected additional data on individual preferences and the degree of farsightedness. We find that in the low cost treatment players classified as more farsighted more often deviate from an inefficient convention and disclose this action, while the effect of risk and social preferences is not significant. [ABSTRACT FROM AUTHOR]

We consider a model where two players compete for n items having different common values in a Blotto game. Players must decide how to allocate their common budgets across all n items. The winner of each item is determined stochastically using a lottery mechanism which yields a unique equilibrium in pure strategies. We analyze behavior under two competing payoff objectives found in the Blotto games literature that have not been previously compared: (i) players aim to maximize their total expected payoff and (ii) players maximize the probability of winning a majority value of all n items. We report results from an experiment where subjects face both payoff objectives and we find support for the differing theoretical predictions. [ABSTRACT FROM AUTHOR]

In cooperative endeavors among economically heterogeneous parties, the contribution decisions can often be framed in different ways. But do such framing differences affect behavior? We report the results of a laboratory experiment on threshold public goods with heterogeneous endowments and different frames. Four treatments frame two variables, each in one of two ways: the contribution metric is expressed either in absolute terms or relative to endowments, and the contribution choice is framed as either keeping or contributing some of one’s endowment. Subjects can exchange proposals and counterproposals. Our results reveal a broad consensus that high endowed subjects contribute more in absolute terms than the low endowed, which we trace to subjects’ reported distributive preferences. Both high and low endowed subjects contribute about two-thirds of their endowments in all treatments – save when the metric is framed as “contributing” in “absolute” terms: then the low endowed contribute significantly more, around 80%. This last result suggests the possibility that the most frequently used frame in public good experiments induces higher contributions among the less affluent than economically equivalent alternate frames. [ABSTRACT FROM AUTHOR]

Do groups exhibit more or less inequality aversion than individuals? Although the previous literature has shown that in many environments individuals in groups make more selfish decisions than when deciding in isolation, we find that individuals express more inequality aversion when making initial proposals in a group decision-making environment compared to an individual decision-making environment. This may be driven by a change in the decision-making environment and by beliefs about the prevailing norm in the group, but we exclude that it is driven by a loss of anonymity or by efficiency concerns. By investigating how groups aggregate individual preferences under a unanimity rule, we show that the members with median social preferences lead the group decisions and a higher inequality aversion compared to the median slows down the convergence process. Overall, final decisions in groups reveal the same level of inequality aversion than individual decisions. [ABSTRACT FROM AUTHOR]

We experimentally explore the way political preferences shape giving behavior. We find no difference in average giving between the Left and the Right in a Dictator game environment. However, we find the reasons for giving to be different. Right-leaning individuals give according to a norm-dependent utility that takes into account the beliefs of the receiver. The behavior of left-leaning individuals is not shaped by such an interaction between norms and beliefs. We conclude that right-wingers choose in accordance with a “small world” view, where giving is shaped by social interaction, while left-wingers appear rigid in their reaction to social context. [ABSTRACT FROM AUTHOR]

An important methodological issue in experimental research is the extent to which one should use context-rich or abstract language in the instructions for an experiment. The traditional use of abstract context in experimental economics is commonly viewed as a way to achieve experimental control. However, there are some advantages to using context-framed instructions, such as “employer and worker” instead of “player 1 and player 2.” Meaningful context can enhance understanding of an environment and reduce confusion among participants, particularly when a task requires sophisticated reasoning, and hence may yield responses of better quality. In emotionally-charged research questions, such as pollution or bribes, contextual instructions may affect behavior in the experiment, but this effect may be appropriate as it relates to the research question. Our review of the evidence from the literature indicates that in the great majority of cases meaningful language is either useful or produces no change in behavior. Nevertheless, a few important considerations are worth keeping in mind when using rich context. Finally, we see the choice of context as being an expansion of the experimenter’s toolkit and a factor to consider in experimental design. [ABSTRACT FROM AUTHOR]

This paper investigates the effectiveness of offering rewards for self reports as a means of combating collusive bribery. Rewarding self reporting theoretically sows distrust between parties tempted to exchange bribes and may reduce bribery even where authorities are otherwise ineffective in uncovering corruption. We test regimes where both the client and official may self-report and regimes where only one party may self report. We find that enabling both parties to self report is highly effective in deterring bribes being exchanged and corrupt favours being granted. Permitting only one party to self-report does not significantly deter corruption. The effect is most pronounced when agents are uncertain of whether they will interact with one another in future. [ABSTRACT FROM AUTHOR]

The experimental literature has shown the tendency for experimental trading markets to converge to neoclassical predictions. Yet, the extent to which theory explains the equilibrating forces in markets remains under-researched, especially in the developing world. We set up a laboratory in 94 villages in rural Sierra Leone to mimic a real market. We implement several treatments, varying trading partners and the anonymity of trading. We find that when trading with co-villagers average efficiency is somewhat lower than predicted by theory (and observed in different contexts), and markets do not fully converge to theoretical predictions across rounds of trading. When participants trade with strangers efficiency is reduced more. Anonymizing trade within the village does not affect efficiency. This points to the importance of behavioral norms for trade. Intra-village social relationships or hierarchies, instead, appear less important as determinants of trading outcomes. This is confirmed by analysis of the trader-level data, showing that individual earnings in the experiment do not vary with one’s status or position in local networks. [ABSTRACT FROM AUTHOR]

We extend the recent experimental literature on incomplete punishment networks in linear public goods games. In these games, we use an exogenous network to restrict both monitoring and the set of feasible punishment flows. In addition to two baseline structures (the Complete network and the Circle network), we examine a novel Asymmetric network in which both punishment responsibility and exposure differ across players. Average contributions are significantly lower in the Asymmetric network, driven entirely by the under-monitored player who faces only one potential punisher. We formulate and examine the hypothesis that asymmetry among a player's potential punishment targets may lead to discriminatory patterns of punishment. In particular, players might wish to punish targets for whom they are solely responsible discriminately more than targets for whom they share responsibility. The experimental data do not support this hypothesis, although they do suggest a compelling explanation as to why. Specifically, we find that the under-monitored player in the network retaliates against previous punishment significantly more often than others in the group, which deters their only potential punisher from issuing stronger sanctions. Thus, an additional complication of asymmetry in the network is that it may lead to more instances of anti-social retaliation, inhibiting the effectiveness of the decentralized punishment institution. [ABSTRACT FROM AUTHOR]

The public goods game has been studied extensively in the lab as the quintessential model of a social dilemma. Several mechanisms have been demonstrated to promote group cooperation in linear voluntary contribution experiments – such as communication, costly punishment, and centralized bonuses and fines. However, lab experiments have largely neglected a central obstacle to efficient public good provision: Individuals typically have different, private demands for consumption, hindering the ability of either a central authority or the group members themselves to calculate and enforce the optimal behavior. I adapt the standard public goods game to incorporate heterogeneous incentives and provide an assessment of each mechanism in this richer environment. I find that baseline cooperation is similar to that in the standard linear game. Sanctions are weak and generally ineffective. Communication, however, does promote cooperation, especially when subjects are given the opportunity to reveal their demand or demand is observable. Finally, a centralized fine/bonus scheme is most effective at increasing contributions, but low demanders must pay a fine in equilibrium. [ABSTRACT FROM AUTHOR]

We investigate the impact of asymmetry on behavior in inter-team contests. In asymmetric environments, one team has a greater probability of winning given the same contribution level (unfair contests) or has a lower cost of contributing (uneven contests). We explore how such asymmetries impact behavior, asking how being advantaged or disadvantaged influences contributions. We find both advantaged and disadvantaged teams contribute much more than theory predicts, but in such a way that ex-post winning probabilities of the contests are consistent with theoretical predictions. At the individual level, contributions are predicted by beliefs about own team and opponent team contributions. The determinants of contribution by members of the disadvantaged team differ depending on the nature of asymmetry. Contributions by the disadvantaged team members are responsive to beliefs about contribution by opponents in unfair contests while in uneven contests they are responsive to beliefs about the contribution by teammates. [ABSTRACT FROM AUTHOR]

In a repeated public goods setting, we explore whether individuals, acting unilaterally, will provide an effective sanctioning institution. Subjects first choose independently whether they will participate in a sanctioning stage that follows a contribution stage. Only those who gave themselves the “right” to sanction can do so. We find that the effectiveness of the institution may not require provision of the institution at the level of the group. Individuals acting unilaterally are able to provide sanctioning institutions that effectively raise cooperation. The effectiveness of the institution, however, depends on whether the “right” to sanction entails a monetary cost or not. [ABSTRACT FROM AUTHOR]

People benefit from being perceived as trustworthy. Examples include sellers trying to attract buyers, or candidates in elections trying to attract voters. In a laboratory experiment using exchange games, in which the trustor can choose the trustee, we study whether trustees can signal their trustworthiness by giving to charity. Our results show that donors are indeed perceived as more trustworthy and they are selected significantly more often as interaction partners. As a consequence of this sorting pattern, relative payoffs to donors and non-donors differ substantially with and without partner choice. However, we do not find donors to be significantly more trustworthy than non-donors. Our findings suggest that publicly observable generosity, such as investments in corporate social responsibility or donations to charity during a political campaign, can induce perceptions of trustworthiness and trust. [ABSTRACT FROM AUTHOR]

Contract enforcement does not only affect single transactions but the market as a whole. We compare alternative institutions that allocate enforcement rights to the different parties to a credit transaction: either lenders, borrowers, or judges. Despite all parties having incentives to enforce and transact, the market flourishes or disappears depending on the treatment: paying judges according to lenders’ votes maximizes total surplus and equity; and a similar result appears when judges are paid according to average earnings in society. In contrast, paying judges according to borrowers’ votes generates the poorest and most unequal society. These results suggest that parties playing the role of borrowers understand poorly the systemic consequences of their decisions, triggering under-enforcement, and hence wasting profitable trade opportunities. [ABSTRACT FROM AUTHOR]

Pairwise stability ( Jackson and Wolinsky, 1996 ) is the standard stability concept in network formation. It is a myopic notion in the sense that it only considers the immediate benefits of the players. A different perspective investigates perfect farsightedness, proposing related stability concepts. We design a simple network formation experiment to test these extreme theories, but find evidence against both of them: both myopically and farsightedly stable networks fail to emerge when they are not immune to limitedly farsighted deviations. The selection among multiple pairwise stable networks (and the performance of farsighted stability) crucially depends on the level of farsightedness needed to sustain them, and not on efficiency or cooperative considerations. [ABSTRACT FROM AUTHOR]

The willingness to punish norm violation is an important component of many legal and social institutions, and much prior research demonstrates an apparent willingness to incur costs to punish individuals who act unfairly. But, will people rely on “excuses” to get out of having to act on costly punishment intentions, as they do with other costly pro-social acts? And how may the answer to this question depend on whether the punisher is the victim of a norm violation or an independent third party? We conduct an experiment and find that third parties punish reluctantly: although they indicate a preference to punish, they choose to avoid the opportunity to punish when they can do so without explicitly revealing that this is their preference. In contrast, second parties, who have been directly wronged, are resolute punishers—they actively seek out the opportunity to punish, even misrepresenting random outcomes in order to ensure that punishment is implemented. Our findings highlight important differences in the motives underlying second- and third-party punishment. [ABSTRACT FROM AUTHOR]

Affirmative action rules are often implemented to promote women on labor markets. Little is known, however, about how and whether such rules emerge endogenously in groups of potentially affected subjects. We experimentally investigate whether subjects vote for affirmative action rules, against, or abstain. If approved by the vote, a quota rule is implemented that favors women in one treatment, but members of an artificially created group based on random color assignment in another treatment. We find that quota rules based on gender are implemented frequently and do not affect the performance of men and women in a contest. Quota rules based on an arbitrary criterion, however, are less often approved and lead to strong individual reactions of advantaged and disadvantaged group members and to efficiency losses. These results show that the effects of affirmative action policies largely depend on whether these policies are viewed favorably within the affected groups. [ABSTRACT FROM AUTHOR]

Alcohol drinking during business negotiation is a very common practice, particularly in some East Asian countries. Does alcohol consumption affect negotiator's strategy and consequently the outcome of the negotiation? If so, what is the mechanism through which alcohol impacts negotiator's behavior? We investigate the effect of a moderate amount of alcohol on negotiation using controlled experiments. Subjects are randomly matched into pairs to play a bargaining game with adverse selection. In the game, each subject is given a private endowment. The total endowment is scaled up and shared equally between the pair provided that they agree to collaborate. It is found that a moderate amount of alcohol consumption increases subjects’ willingness to collaborate, thus improving their average payoff. We find that alcohol consumption increases neither subjects’ preference for risk nor altruism. A possible explanation for the increase in the likelihood of collaboration is that subjects under the influence of alcohol are more “cursed” in the sense of Eyster and Rabin (2005) , which is supported by the estimation results of a structural model of quantal response equilibrium. [ABSTRACT FROM AUTHOR]

We experimentally investigate a Bertrand market with homogenous goods in which sellers can announce the donation of a share of their profits to an existing non-profit organization. In a 2 × 2 design, we vary the credibility of announcements and the efficiency of the contributions to the public fund. We find that sellers’ donations are strictly positive independently of the credibility of the announcements, and their donations are higher if announcements are credible and efficiency is high. However, market outcomes in terms of prices and profits do not differ significantly in any treatment that allows for contributions to a public fund. Analysis of buyer decisions reveals that prices are the main driver of purchase decisions while higher donations only affect purchase decisions when they are credible and price differences are negligible. Our results indicate that under intense competition the possibility of attracting customers through corporate social responsibility activities is limited, although the constant positive level of contributions suggests that norms lead to a certain minimum level of corporate social responsibility. [ABSTRACT FROM AUTHOR]

In a laboratory experiment, we investigate the interaction of two prominent firm strategies to increase worker effort: team building and control. We compare a team-building treatment where subjects initially play a coordination game to gain common experience (CE) with an autarky treatment where subjects individually perform a task (NCE). In both treatments, subjects then play two-player control games where agents provide costly effort and principals can control to secure a minimum effort. CE agents always outperform NCE agents. Conditional on control, however, CE agents’ effort is crowded out more strongly, with the effect being most pronounced for agents who successfully coordinated in the team-building exercise. Differential reactions to control perceived as excessive is one explanation for our findings. [ABSTRACT FROM AUTHOR]

In many organizations the measurement of job performance cannot rely on easily quantifiable information. In such cases, supervising managers often use subjective performance evaluations. We use laboratory experiments to study whether the way employees are assigned to a manager affects managers’ and co-employees’ subjective evaluations of employees. Employees can either be hired by the manager, explicitly not hired by him and nevertheless assigned to him or exogenously assigned to him. We present data from three different treatments. For all three treatments we find escalation bias by managers. Managers exhibit a positive bias towards those employees they have hired or a negative one towards those they have explicitly not hired. For three treatments we find that managers’ and employees’ biases are connected. Exogenously assigned employees are biased in favor of employees hired by the manager and against those explicitly not hired. [ABSTRACT FROM AUTHOR]

We investigate patterns of information transmission and the evolution of behaviour in standard trust games where reputational information can be exchanged between individual agents within a population, but does not become public. We vary the nature of information that could be transmitted (either a subjective rating or the objective details of a transaction), as well as the cost of information transmission (either zero or positive). We find that information transmission is heavily used if it is costless but only moderately if it has positive cost. Objective information effectively increases the average amount sent in the trust game (and thus, efficiency and average profits) as well as the return rate only if transmission is costless and therefore is heavily used. Subjective information (a rating) only increases transfer and return rates in a control treatment where it becomes publicly available, but not for private communication. A detailed analysis of the determinants of information transmission shows a positive influence of (a) the transfer made to a receiver, (b) experience of exploitation, and (c) points to reciprocity in information transmission. [ABSTRACT FROM AUTHOR]

When a legislature bargains over funds for pork and public goods, and the funds come from a common budget, increased spending on the public good means greater payoff equality since it comes at the expense of pork. This paper explores whether inequity aversion then leads to greater public goods spending. Using both theory and a laboratory experiment we show inequity aversion generally decreases inequity within a coalition by limiting proposer power. However, this does not always mean greater public goods contributions because the types of proposals passed change in equilibrium. In addition, the experiment investigates the theoretical prediction that increasing players’ relative preference for pork can increase public goods contributions. We show that while average public goods contributions remain unchanged, there is evidence at the individual level that subjects hold out for higher public goods contributions as predicted. [ABSTRACT FROM AUTHOR]

Does the type of posterior feedback affect how people decide in one-shot environments? We revisit this question in first-price auction markets. We consider three feedback types: minimal (only knowing whether winning or not), loser (also knowing the winning bid) and winner (knowing the second highest bid if winning). Filiz-Ozbay and Ozbay (2007) find that loser as opposed to minimal or winner feedback increases bids. We use three novel protocols and additionally replicate theirs. Using a sample of 624 subjects, we find that bidders’ ex ante knowledge of posterior feedback type has no systematic effect on the average bid/value ratios. [ABSTRACT FROM AUTHOR]

The hypothesis that price stability would reliably increase with the fraction of women operating in financial markets has been frequently suggested in policy discussions. To test this hypothesis we conducted 10 male-only, 10 female-only and 10 mixed-gender experimental asset markets, and compared the effects of gender composition, confidence, risk attitude and cognitive skills. Male and female markets have comparable volatility and deviations from fundamentals, whereas mixed-gender markets are substantially more stable. On the other hand, higher average cognitive skills of the group are associated with reduced market volatility. Individual-level analysis shows that subjects with higher cognitive skills trade at prices closer to fundamental values and earn significantly higher profits; similarly, mixed markets exhibit lower mispricing, particularly for traders with lower cognitive skills. Our results are demonstrated to hold in other experimental asset market studies, suggesting that a mixed-gender composition reduces mispricing across different types of asset markets. [ABSTRACT FROM AUTHOR]