Search

We provide a novel experimental auction design, in which (i) an exogenous decrease in the probability of winning, conditional on the bid, reduces the optimal bid of a loss averse agent whose reference point is expectations based; (ii) observed bid distributions uniquely identify the participants' latent value distribution and loss-aversion parameter. Experimental evidence affirms the presence of such reference points. We show that at the estimated magnitudes of loss aversion, (a) conventional Becker, DeGroot, and Marschak (1964) experiments may lead to large biases in estimated willingness to pay (which our design can correct for); and (b) first-price auctions may fetch moderately higher revenue, compared with second-price auctions. (JEL C91, D44, D82)

We use recruitment into a laboratory experiment in Kolkata, India to analyze how job networks select individuals for employment opportunities. We present evidence that individuals face a tradeoff between choosing the most qualified individual for the job and the individual who is ideal from the perspective of their social network. The experiment allows randomly selected subjects to refer members of their social networks to subsequent rounds of the experiment and varies the incentive schemes offered to these participants. We find that when faced with performance pay, individuals are more likely to refer co-workers and less likely to refer family members. High ability participants who are offered performance pay recruit referrals who perform significantly better on a cognitive ability task and also prove to be more reliable as evidenced by their choices in the trust game and performance on an effort task.

To explore why bubbles frequently emerge in the experimental asset market model of Smith, Suchanek, and Williams (1988), we vary the fundamental value process (constant or declining) and the cash– to–asset value ratio (constant or increasing). We observe high mispricing in treatments with a declining fundamental value, while overvaluation emerges when coupled with an increasing C/A ratio. A questionnaire reveals that the declining fundamental value process confuses subjects, as they expect the fundamental value to stay constant. Running the experiment with a different context (“stocks of a depletable gold mine” instead of “stocks”) significantly reduces mispricing and overvaluation as it reduces confusion. (JEL C91, D14, G11, G12)

We develop a novel computerized real effort task, based on moving sliders across a screen, to test experimentally whether agents are disappointment averse when they compete in a real effort sequential-move tournament. We predict that a disappointment averse agent, who is loss averse around her endogenous choice-acclimating expectations-based reference point, responds negatively to her rival's effort. We find significant evidence for this discouragement effect, and use the Method of Simulated Moments to estimate the strength of disappointment aversion on average and the heterogeneity in disappointment aversion across the population. (JEL C91, D12, D81, D84)

The standard model of labor market search posits repeated (infinite horizon) search from a fixed distribution of wages in a stationary environment. Under these circumstances the optimal search policy has a reservation wage property, i.e., the decision to accept an offer involves a comparison of the offer with a time-invariant constant, w*, which itself is a function of the parameters characterizing the search environment. A wage offer greater than or equal to w* is accepted, while any other is rejected and search is continued. Some early empirical job search studies, however, accumulated evidence of a declining trend in reservation wages over the course of an unemployment spell.1 Since then several theoretical explanations for the declining reservation wage profiles have emerged, all of which relax the stationarity assumption of the standard model. For example, Reuben Gronau (1971) assumes searchers have finite lives; Kenneth Burdett (1977), Gerard J. van den Berg (1990), James Albrecht and Susan Vroman (2005), and others model short-term unemployment benefits; Albrecht, Pieter A. Gautier, and Vroman (2006) permit directed search to heterogeneous prospects;2 John P. Danforth (1979) and Silvio Rendon (2006) consider general liquidity con? strained search; and Burdett and Tara Vishwanath (1988) model learning about the job offer distribution. Behavioral explanations for declining reservation wages have been suggested by Braunstein and Schotter (1981), Schotter and Braunstein (1982) and others. In this paper we present the results of the first ever (to our knowledge) real-time search laboratory experiment performed in an effort to investigate this falling res? ervation wage phenomenon. Where field studies of unemployed search often rely on strong identifying assumptions to recover searchers' unobservable reservation wages, in the laboratory we are able to elicit subjects' complete reservation wage profiles in an incentive-compatible manner.3 Further, in the laboratory we are able to

This paper reports the results of an experiment designed to assess the ability of an incumbent seller to profitably foreclose a market with exclusive contracts. We use the strategic environment described by Rasmusen, Ramseyer, and Wiley (1991) and Segal and Whinston (2000) where entry is unprofitable when sufficiently many downstream buyers sign exclusive contracts with the incumbent. When discrimination is impossible, the game resembles a stag-hunt (coordination) game in which the buyers' payoffs are endogenously chosen by the incumbent seller. Exclusion occurs when the buyers fail to coordinate on their preferred equilibrium. Two-way non-binding pre-play communication among the buyers lowers the power of exclusive contracts and induces more generous contract terms from the seller. When discrimination and communication are possible, the exclusion rate rises. Divide-and-conquer strategies are observed more frequently when buyers can communicate with each other. Exclusion rates are significantly higher when the buyers' payoffs are endogenously chosen rather than exogenously given. Finally, secret offers are shown to decrease the incumbent's power to profitably exclude.

Some researchers have argued that anchoring in economic valuations casts doubt on the assumption of consistent and stable preferences. We present new evidence that explores the strength of certain anchoring results. We then present a theoretical framework that provides insights into why we should be cautious of initial empirical findings in general. The model importantly highlights that the rate of false positives depends not only on the observed significance level, but also on statistical power, research priors, and the number of scholars exploring the question. Importantly, a few independent replications dramatically increase the chances that the original finding is true. (JEL D12, C91)