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A symmetric distribution of information, although omnipresent in real markets, is rarely considered in experimental economics. We study whether information about imminent future dividends can abate bubbles in experimental asset markets. We find that markets with asymmetrically informed traders have significantly smaller bubbles than markets with symmetrically informed or uninformed traders. Hence, fundamental values are better reflected in market prices—implying higher market efficiency—when some traders know more than others about future dividends. This suggests that bubbles are abated when traders know that a subset of them have an edge (in information) over others. This paper was accepted by Brad Barber, Teck Ho, and Terrance Odean, special issue editors.

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)

We model the effect of external financing on a firm's ability to maintain a reputation for high-quality production. Producing high quality is first best. Defecting to low quality is tempting because it lowers current costs while revenue remains unchanged because consumers and outside investors cannot immediately observe the defection. However, defection to low quality impairs the firm's reputation, which lowers cash flows and inhibits production over the long term. Financing via short-term claims discourages defection to low quality because the gains from defection are mostly captured by outside investors through an increase in the value of their claims. Therefore, if the firm relies on short-term external financing, it is more likely to produce over the long run, produce high-quality goods, and enjoy high profitability. The aggregate results from a laboratory experiment generally accord with these predictions. This paper was accepted by Brad Barber, finance.

The purpose of this paper is to outline a conceptual framework of team social capital as a basis for reaching organizational team synergy. The dimensions of team social capital and the basic conditions required for organizational team synergy enable the extension of current model of team social capital by including of other variables. Today’s managers must consider these variables since the team tends to be the basic structural unit of current organizations and synergy, the key to achieving high performance in global competition.

In the valuation of uncertain prospects, a difference is often observed between selling and buying perspectives. This paper distinguishes between risk (known probabilities) and ambiguity (unknown probabilities) in decisions under uncertainty and shows that the valuation disparity increases under ambiguity compared to risk. It is found that both the comparative versus noncomparative evaluation of risky and ambiguous prospects and the uniqueness of the valuation perspective (either seller or buyer) moderate this increase in the disparity under ambiguity. The finding is consistent with recent theoretical accounts of pricing under uncertainty. We discuss implications for market behaviour and for the ambiguity paradigm as a research tool.

We reexamine the effects of the anchoring manipulation of Ariely, Loewenstein, and Prelec (2003) on the evaluation of common market goods and find very weak anchoring effects. We perform the same manipulation on the evaluation of binary lotteries, and find no anchoring effects at all. This suggests limits on the robustness of anchoring effects. (JEL C91, D12, D44)

There is ample evidence that women do not react to competition as men do and are less willing to enter a competition than men (e.g., Gneezy et al.(2003), Niederle and Vesterlund (2007)). In this paper, we use personality variables to understand the underlying motives of women (and men) to enter a competition or avoid it. We use the Big Five personality factors (Goldberg (1981), McCrae and Costa JR (2003)), where especially neuroticism has been related to performance in achievement settings. We first test whether scores on the Big Five are related to performance in our experiment, and second how this is related to incentives. We can show that the sex di fference in the willingness to enter a competition is mediated by neuroticism and further that neuroticism is negatively related to performance in competiton. This raises the possibility that those women who do not choose competitive incentives "know" that they should not.

In this article, we focus on two types of “aversion” which we deem essential aspects of the notion of trust: betrayal aversion (social) and ambiguity aversion (a special case of aversion to uncertainty). Based on trust-games studies in experimental economics and neuroeconomics, our main goal is to assess the conceptual, behavioral and neurobiological connections between betrayal and ambiguity aversions. From a social and individual psychological point of view the bottom line of our trusting behavior could be our general aversion to ambiguous signals. We approach social trust in the terms of a phenomenon based on uncertainty aversion. Specifically, a reduction of the perceived uncertainty of a social interaction tends to build up a trusting climate conducive to trade by decreasing betrayal aversion. We hypothesize that betrayal aversion and ambiguity aversion bear such a negative correlation. Focusing on this potential negative correlation our approach clearly differs from more positive accounts of trust centred on altruism. JEL Classification: C72; C91; D03 ; D87.

Although both economists and psychologists seek to identify determinants of heterogeneity in behavior, they use different concepts to capture them. In this review, we first analyze the extent to which economic preferences and psychological concepts of personality, such as the Big Five and locus of control, are related. We analyze data from incentivized laboratory experiments and representative samples and find only low degrees of association between economic preferences and personality. We then regress life outcomes (such as labor market success, health status, and life satisfaction) simultaneously on preference and personality measures. The analysis reveals that the two concepts are rather complementary when it comes to explaining heterogeneity in important life outcomes and behavior.

This paper shows how to maximize revenue when a contest is noisy. We consider a case where two or more contestants bid for a prize in a stochastic contest where all bidders value the prize equally. We show that, whenever a Tullock contest yields under-dissipation, the auctioneerʼs revenue can be increased by optimally fixing the number of tickets. In particular, in a stochastic contest with proportional probabilities, it is possible to obtain (almost) full rent dissipation. We test this hypothesis with a laboratory experiment. The results indicate that, as predicted, revenue is significantly higher in a lottery with rationing than in a standard lottery. On the other hand, an alternative rationing mechanism that does not limit total expenditures fails to increase revenue relative to a standard lottery.

Recent discoveries in behavioral economics have led to important new insights concerning what can happen in markets. Such gains in knowledge have come primarily via laboratory experiments—a missing piece of the puzzle in many cases is parallel evidence drawn from naturally occurring field counterparts. We provide a small movement in this direction by taking advantage of a unique opportunity to work with a Chinese high-tech manufacturing facility. Our study revolves around using insights gained from one of the most influential lines of behavioral research—framing manipulations—in an attempt to increase worker productivity in the facility. Using a natural field experiment, we report several insights. For example, conditional incentives framed as both “losses” and “gains” increase productivity for both individuals and teams. In addition, teams more acutely respond to bonuses posed as losses than as comparable bonuses posed as gains. The magnitude of this framing effect is roughly 1%: that is, total team productivity is enhanced by 1% purely due to the framing manipulation. Importantly, we find that neither the framing nor the incentive effect lose their significance over time; rather, the effects are observed over the entire sample period. Moreover, we learn that repeated interaction with workers and conditionality of the bonus contract are substitutes for sustenance of incentive effects in the long run. This paper was accepted by Gérard P. Cachon, decision analysis.

International audience; The model of memory process we propose is based on two assumptions. First, spatial or adresses network models in economics can be easily adapted to describe a significative part of the episodic memory mechanism as defined by Tulving (1983). Second, brain viewed as a network behaves as a decision-maker who arbitrates between two economic dimensions of recollection: the reward --i.e., the satisfaction for recovering old informations located in mnesic traces --and the cost --i.e., the price for stimulating the traces network. Indeed, the two results exhibited in the paper --and devoted to a formal and appealing characterization of true and false recollections -- are directly derived from the idea of a rational brain. Finally, this paper aims at showing that it could be relevant to model memory processes in a pure symbolic way --contrary to most of the neuroeconomics contributions which are generally experimental --and also that such an attempt for an abstract and analogical representation of the episodic memory process based on a spatial microeconomics methodology seems to be specially efficient and illustrative of Hintzman (1986) and recent Doeller et al. (2010) intuitions and features.

Experiments provide a controlled setting where factors can be isolated and studied more easily than in the field, but they often do not allow participants to sort into or out of en-vironments based on their preferences, beliefs, and skills. We conduct an experiment to dem-onstrate the importance of sorting in the context of social preferences. When individuals are constrained to play a dictator game, 74% of the subjects share. But when subjects are allowed to avoid the situation altogether, less than one third share. This reversal of proportions illus-trates that the influence of sorting limits the generalizability of experimental findings that do not allow sorting. Moreover, institutions designed to entice pro-social behavior may induce adverse se-lection. We find that increasing the dictator-game surplus prevents foremost those subjects from opting out who shared the least initially. Thus the impact of social preferences remains much lower than in a mandatory dictator game, even if sharing is subsidized by higher pay-offs. Our experiment also sheds light on the motives for sharing. While much sharing is con-sistent with other-regarding preferences, the majority of subjects share without really wanting to, as evidenced by their willingness to avoid the dictator game and to even pay to avoid do-ing so.

Two important design elements for emission trading programs are whether and to what extent firms are able to bank emissions permits, and how these programs are to be enforced. In this paper we present results from laboratory emissions markets designed to investigate enforcement and compliance when these markets allow permit banking. Banking is motivated by a decrease in the aggregate permit supply in the middle of multi-period trading sessions. Consistent with theoretical insights, our experiments suggest that high permit violation penalties have little deterrence value in dynamic emissions markets, and that the main challenge of enforcing these programs is to motivate truthful self-reports of emissions.

We report on an experiment using video technology to manipulate pre-play communication protocols in the lab and to study purely social effects of communication on donations and discrimination between potential receivers. The experimental design eliminates strategic factors by allowing two receivers to unilaterally communicate with an anonymous dictator before the latter decides on her gifts. Through the use of three communication setups (none, audio, and audio-visual) we show and analyze the existence of purely social effects of communication. We find that a silent channel leads to discrimination between potential receivers based on impression formation, but does not affect average levels of donations. When the auditory channel is added, average donations increase. The social processes invoked are heterogeneous and communicator- specific but not unsystematic.

This paper reports on an experiment studying the effectiveness of two types of mechanisms for promoting trust: pecuniary and non-pecuniary as well as their mutual interaction. Our data provide evidence that both mechanisms significantly enhance trust in comparison to the standard investment game. However, we find that the pecuniary mechanism performs significantly worse than the non-pecuniary one. Our results also point to the fact that pecuniary mechanism, which depends on monetary incentives, can be counterproductive when combined with mechanism which relies primarily on psychological incentives.

How do norms of trust and reciprocity arise? We investigate this question by examining behavior in an experiment where subjects play a series of indefinitely repeated trust games. Players are randomly and anonymously matched each period. The parameters of the game are chosen so as to support trust and reciprocity as a sequential equilibrium when no reputational information is available. The main questions addressed are whether a social norm of trust and reciprocity emerges under the most extreme information restriction (community-wide enforcement) or whether trust and reciprocity require additional, individual-specific information about a player’s past history of play and how long that history must be. In the absence of such reputational information, we find that a social norm of trust and reciprocity is difficult to sustain. The provision of reputational information on past individual decisions significantly increases trust and reciprocity, with longer histories yielding the best outcomes. Importantly, we find that making reputational information available at a small cost may also lead to a significant improvement in trust and reciprocity, despite the fact that most subjects do not choose to purchase this information.

A central concern in health economics is to understand the influence of commonly used physician payment systems. We introduce a controlled laboratory experiment to analyze the influence of fee-for-service (FFS) and capitation (CAP) payments on physicians' behaviour. Medical students decide as experimental physicians on the quantity of medical services. Real patients gain a monetary benefit from their choices. Our main findings are that patients are overserved in FFS and underserved in CAP. Financial incentives are not the only motivation for physicians' quantity decisions, though. The patient benefit is of considerable importance as well. Patients are affected differently by the two payment systems. Those patients in need of a low level of medical services are better off under CAP, whereas patients with a high need of medical services gain more health benefit when physicians are paid by FFS.

We show that observed choices in discounting experiments are consistent with roughly one-half of the subjects using exponential discounting and one-half using quasi-hyperbolic discounting. We characterize the latent data generating process using a mixture model which allows different subjects to behave consistently with each model. Our results have substantive implications for the assumptions made about discounting behavior, and also have significant methodological implications for the manner in which we evaluate alternative models when there may be complementary data generating processes. Copyright 2012 Oxford University Press 2011 All rights reserved, Oxford University Press.

The main aim of this article is to investigate the behavioral consequences of the provision of subject-specific information in the group effort levels chosen by players in an experimental CPR game. We examine two basic treatments, one with incomplete information and the other with complete information. In the former, subjects are informed only about their own individual payoffs and the aggregate extraction effort level of the group, and in the latter they are also informed about the individual effort levels and payoffs of each subject. Given this setting, the basic question we attempt to answer is: Will the provision of subject-specific performance information (i.e. individual’s effort levels and payoffs) improve or worsen the tragedy of the commons (i.e. an exploitation effort level greater than the socially optimum level)? In order to motivate our hypotheses and explain our experimental results at the individual level, we make use of the theory of learning in games, which goes beyond standard non-cooperative game theory, allowing us to explore the three basic benchmarks in the commons context: Nash equilibrium, Pareto efficient, and open access outcomes. We use several learning and imitation theoretical models that are based on contrasting assumptions about the level of rationality and the information available to subjects, namely: best response, imitate the average, mix of best response and imitate the average, imitate the best and follow the exemplary learning rules. Finally, in order to econometrically test the hypotheses formulated from the theoretical predictions we use a random-effects model to assess the explanatory power of the different selected behavioral learning and imitation rules. Common Property Resources, Information, Learning and Imitation, Experimental Economics.

We use a novel experimental design to disentangle strategically- and non-strategically-motivated cooperation. By using contingent responses in a repeated sequential prisoners' dilemma with a known probabilistic end, we differentiate end-game behavior from continuation behavior within individuals while controlling for expectations. This design allows us to determine the extent to which strategically-cooperating individuals are responsible for the so-called end-game effect. Experiments with two different subject pools indicate that the most common motive for cooperation in repeated games is strategic and that the extent to which end-game effects are driven by strategically-cooperating individuals depends on the profitability of cooperation.

Although relative performance schemes are pervasive in organizations, reliable empirical data on induced sabotage behavior are almost nonexistent. We study sabotage in repeated tournaments in a controlled laboratory experiment and observe that effort and sabotage are higher for higher wage spreads. Additionally, we find that also in the presence of tournament incentives, agents react reciprocally to higher wages by exerting higher effort. Destructive activities are reduced by explicitly calling them by their name “sabotage.” Communication among principal and agents can curb sabotage when they agree on flat prize structures and increased output. If sabotage is not possible, the principals choose tournament incentives more often. This paper was accepted by Peter Wakker, decision analysis.

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

We consider a model where two adversaries can spend resources in acquiring public information about the unknown state of the world in order to influence the choice of a decision maker. We characterize the sampling strategies of the adversaries in the equilibrium of the game.We show that as the cost of information acquisition for one adversary increases, that person collects less evidence whereas the other adversary collects more evidence. We then test the results in a controlled laboratory setting. The behavior of subjects is close to the theoretical predictions. Mistakes are relatively infrequent (15%). They occur in both directions, with a higher rate of over-sampling (39%) than under-sampling (8%). The main difference with the theory is the smooth decline in sampling around the theoretical equilibrium. Comparative statics are also consistent with the theory, with adversaries sampling more when their own cost is low and when the other adversary’s cost is high. Finally, there is little evidence of learning over the 40 matches of the experiment.

This paper experimentally compares the performance of four simultaneous lottery contests: a grand contest, two multiple prize settings (equal and unequal prizes), and a contest which consists of two subcontests. Consistent with the theory, the grand contest generates the highest effort levels among all simultaneous contests. In multiprize settings, equal prizes produce lower efforts than unequal prizes. The results also support the argument that joint contests generate higher efforts than an equivalent number of subcontests. Contrary to the theory, there is significant over-dissipation. This over-dissipation can be partially explained by strong endowment size effects. Subjects who receive higher endowments tend to over-dissipate, whereas such overdissipation disappears when the endowments are lower. This behavior is consistent with the predictions of a quantal response equilibrium. We also find that less risk-averse subjects over-dissipate more. (JEL C72, C91, D72)

Recent research in neuroeconomics suggests that the same brain areas that generate emotional states are also involved in the processing of information about risk, rewards and punishments. These findings imply that emotions may influence financial decisions in a predictable and parsimonious way. Our evidence suggests that affect -- generated either by exogenous manipulations, or endogenously by outcomes of prior actions -- indeed matters for financial risk taking, and that it does so by changing preferences as well as the belief formation process. Positive and arousing emotional states such as excitement induce people to take more risk, and to be more confident in their ability to evaluate the available investment options, relative to neutral states, while negative emotions such as anxiety have the opposite effects. Moreover, beliefs are updated in a way that is consistent with the self-preservation motive of maintaining positive affect and avoiding negative affect, by not fully taking into account new information that is at odds with the individuals' prior choices. Therefore, characteristics of markets, economic policies or organization design that have an impact on emotional brain circuits may influence decision making and affect important outcomes at the individual and aggregate level.

This discussion paper has led to a publication in the 'European Economic Review', 55(5), 630-43.Incentive instruments like asset ownership and performance pay often have to strike a balance between the productive incentives and the rent-seeking incentives they provide. Standard theory predicts that a given instrument becomes less attractive when the effectiveness of rent-seeking activities increases. More recent theories that emphasize the importance of reciprocity, however, suggest that this relationship may go the other way around. In this paper we test these predictions by means of a laboratory experiment. By and large our findings confirm standard theory. Incentive instruments typically become less attractive when the scope for rent-seeking activities increases. However, reciprocity motivations do seem to mitigate the adverse effects of rent-seeking opportunities to a considerable extent.

La cooperation au sein d’une equipe est une question cruciale en economie du travail et ce d’autant plus que plusieurs equipes sont en competition les unes contre les autres. Dans ce cas, les comportements de passager clandestin qui peuvent survenir mettent en danger les chances de l’emporter de l’equipe entiere. Une litterature recente montre que les hommes et les femmes n’apprecient pas de la meme maniere d’evoluer dans des environnements competitifs. Cet article etudie les comportements des hommes et des femmes lorsqu’on leur offre la possibilite d’entrer dans une competition en equipe, selon le mode de composition des equipes. Alors que, selon les resultats existants, les hommes choisissent d’entrer dans le tournoi individuel beaucoup plus souvent que les femmes, il n’y a plus de difference dans la decision d’entrer dans le tournoi en equipe. Ce changement n’est pas du au fait que les femmes entrent plus en equipe que seules mais a la desaffection des hommes pour le tournoi en equipe. Cela est particulierement vrai pour les hommes tres performants qui entrent massivement dans le tournoi individuel mais pas dans le tournoi en equipe. Les resultats suggerent que le retrait des hommes de la competition lorsque celle-ci oppose des equipes pourrait etre du a leur crainte de subir les comportements de passagers clandestins de leur coequipier.

This study investigates loss aversion when the reference point is a state-dependent random variable. This case describes, for example, a money manager being evaluated relative to a risky benchmark index rather than a fixed target return level. Using a state-dependent structure, prospects are more (less) attractive if they depend positively (negatively) on the reference point. In addition, the structure avoids an inherent aversion to risky prospects and yields no losses when the prospect and the reference point are the same. Related to this, the optimal reference-dependent solution equals the optimal consumption solution (no loss aversion) when the reference point is selected completely endogenously. Given that loss aversion is widespread, we conclude that the reference point generally includes an important exogenously fixed component. For example, the typical investment benchmark index is externally fixed by the investment principal for the duration of the investment mandate. We develop a choice model where adjustment costs cause stickiness relative to an initial exogenous reference point.

The benchmark risk-averse equilibrium model does not explain some of the outcomes obtained in experiments with first-price auctions. Nonetheless, the presence of non-linear bidding and the wide dispersion of bids have received little attention in the literature. I focus on these issues and revisit previous laboratory evidence with the help of model-based clustering techniques. The rejection of equilibrium models is found to be mostly due to the significance of non-linear bidding rules and the unexplained heterogeneity. With the use of a mixture model, the observations are classified into four groups or clusters. Significant differences between individuals and clusters are found, but so is a persistent within individual variation, which leads us to conclude that subjects do not commit to one particular bidding strategy and alternate across several processes.

This paper investigates the relationship between relative earnings and giving in a twostage, real-effort experiment. In the first stage, four players compete in a tournament that determines their earnings. In the second stage, they decide whether they wish to transfer part of their earnings to one or more of their group members. Our main finding is that those who are ranked first are significantly less likely to give than those who are ranked second. This non-monotonic relationship between earnings and likelihood of giving disappears if individual earnings are randomly determined or if individuals learn about the second (transfer) stage only after they earn their income. These results suggest that the non-monotonic relationship detected may be driven by differences in individuals’ expectations about others’ behavior in the second stage, which are correlated with their own willingness to give.

Theoretical models of information asymmetry have identified a trade-off between the desire to learn and the desire to prevent an opponent from learning private information. This paper reports a laboratory experiment that investigates if actual bidders account for this trade-off, using a sequential procurement auction with private cost information and varying information revelation policies. Specifically, the Complete Information Revelation Policy, where all submitted bids are revealed between auctions, is compared to the Incomplete Information Revelation Policy, where only the winning bid is revealed. The experimental results are largely consistent with the theoretical predictions. For example, bidders pool with other types to prevent an opponent from learning significantly more often under a Complete Information Revelation Policy. Also as predicted, the procurer pays less when employing an Incomplete Information Revelation Policy only when the market is highly competitive. Bids are usually more aggressive than the risk-neutral quantitative prediction, which is broadly consistent with risk aversion. This paper was accepted by Teck Ho, decision analysis.

Az elmúlt évtizedekben számos tanulmány mutatott rá, hogy némely helyzetben az önérdekkövetésnél jóval erősebb motivációt jelentenek a mások jólétét figyelembe vevő preferenciák. E preferenciák - például a méltányosság, altruizmus és reciprocitás - jó néhány kísérleti közgazdaságtani eszközöket alkalmazó kutatás témáját adták. Számos - a viselkedést befolyásoló - tényező állt e kutatások középpontjában, azonban az egyik legegyszerűbb emberi kapcsolat mégis kívül maradt e kutatások látókörén. Ez a kapcsolat a barátság. A szerző ezt a hiányt igyekszik pótolni két játék - a kísérleti gazdaságtanból ismert ultimátum- és diktátorjáték - alkalmazásával. Megállapítja, hogy a méltányos viselkedés nem puszta "egyenlőséget" jelent, hanem annál sokkal összetettebb normarendszeren alapul, amelyben meghatározó szerepet tölt be a személyek közti kapcsolat. Kísérleti eredmények alátámasztják azt a feltételezést, hogy az emberek a barátaikkal önzetlenebben osztozkodnak, mint idegenekkel, azaz a méltányos osztozkodás mást és mást jelent attól függően, hogy kivel történik. Emellett az eredmények azt mutatják, hogy a méltányosnak ítélt osztozkodás és a másokkal szembeni követelmények is kapcsolatban vannak egymással. Journal of Economics Literatrure (JEL) kód: C91, D63, D69., Several studies have pointed out in the last few decades that in some situations, preferences that regard others provide much stronger incentives than self-interest. These preferences - for example fairness, altruism and reciprocity - have been the topics of numerous research projects that use the tools of experimental economics. Although these studies focus on numerous behavioural factors, one of the simplest social relationships - friendship - has yet to be examined. The article tries to make up for this by using dictator and ultimatum games. Results show that fair behaviour does not mean "equality" per se. It is based on a much more complex set of norms, in which interpersonal relationships may have a crucial role. The experimental results support the assumption that people share more altruistically with their friends than with strangers, so "fair split" has a different meaning depending on who the goods are being split with. They also show a relation between splits perceived as fair and expectations of others perceptions of a fair split.

We consider repeated trust game experiments to study the interplay between explicit and relational incentives. After having gained experience with two payoff variations of the trust game, subjects in the final part explicitly choose which of these two variants to play. Theory predicts that subjects will choose the payoff dominated game (representing a bad explicit contract), because this game better sustains (implicit) relational incentives backed by either reputational or reciprocity considerations. Our main findings are that cooperation is indeed more likely in the payoff dominated game. Moreover, indefinite repetition increases both cooperation rates and the likelihood with which the payoff dominated game is chosen. Overall we conclude that available explicit incentives indeed do affect relational contracting and, anticipating this, agents may choose weak explicit incentives to facilitate implicit agreements.

Economics and management science share the tradition of ordering risk aversion by fitting the best expected utility (EU) model with a utility function of certain parametric form to individual data, and then using the individual utility curvature as the sole index of risk attitudes. (Cumulative) Prospect theory (CPT) has demonstrated various empirical deficiencies of EU and introduced the weighting of probabilities as an additional component to capture risk attitudes. However, CPT would have been a less significant challenge to EU if utility curvature and probability weighting were strongly correlated. Because then the utility curvature in EU alone, while not properly describing risky behavior in general, would still capture most of the variance of individual risk aversion. This study shows, however, that such a strong correlation does not exist. Though, most individuals exhibit concave utility and convex probability weighting, the two components show no significant correlation. Thus neglecting one component entails a loss.

The "Hawthorne effect," a concept familiar to all students of social science, has had a profound influence both on the direction and design of research over the past 75 years. The Hawthorne effect is named after a landmark set of studies conducted at the Hawthorne plant in the 1920s. The first and most influential of these studies is known as the "Illumination Experiment." Both academics and popular writers commonly summarize the results as showing that every change in light, even those that made the room dimmer, had the effect of increasing productivity. The data from the illumination experiments, however, were never formally analyzed and were thought to have been destroyed. Our research has uncovered these data. We find that existing descriptions of supposedly remarkable data patterns prove to be entirely fictional. There are, however, hints of more subtle manifestations of a Hawthorne effect in the original data.

„Reflection effect“ means, that people are risk averse if dealing with profits and risk seeking by challenging losses (Kahneman and Tversky, 1979). The aim of the paper is to find out whether the decisions of the experiment participants differ when dealing with positive and negative prospects by choosing a preferred lottery. Standardized scale (DOSPERT) evaluating the participant willingness to take risk in different domains of life is also considered. An econometric model for predictions of the paired lottery game results depending on the risk characteristics identified within DOSPERT is estimated in the paper.

We study experimentally the selection into first-price sealed-bid auctions for a risky or an ambiguous prospect. Most subjects chose to submit a bid for the risky prospect, leading to thinner markets for the ambiguous prospect. Transaction prices for both prospects were equal although subjects expected the ambiguous markets to be smaller. Evidence of a positive correlation between risk and ambiguity aversion suggests that the ambiguous markets were populated by relatively risk tolerant bidders. A control experiment with selection in a simple choice task shows that subjects correctly anticipate the effects of selection on market size and risk attitudes. (JEL C91, D44, D81)

This discussion paper resulted in a publication in the 'Journal of Economic Psychology', 31(6), 964-84.In repeated number guessing games choices typically converge quickly to the Nash equilibrium. In positive expectations feedback experiments, however, convergence to the equilibrium price tends to be very slow, if it occurs at all. Both types of experimental designs have been suggested as modeling essential aspects of financial markets. In order to isolate the source of the differences in outcomes we present several new treatments in this paper. We conclude that the feedback strength (i.e. the ‘p-value’ in standard number guessing games) is essential for the results. Furthermore, positive expectations feedback experiments may provide good representations of highly speculative markets while standard number guessing games model financial markets with more emphasis on dividend yield and value stocks.

Crime has to be punished, but does punishment reduce crime? We conduct a neutrally framed laboratory experiment to test the deterrence hypothesis, namely that crime (weakly) decreases in deterrent incentives, that is, severity and probability of punishment. In our experiment, subjects can steal from another subject. Deterrent incentives vary across and within sessions. Our across-subjects analysis rejects the deterrence hypothesis: except for high levels of incentives, subjects steal on average more the stronger the incentives. We observe two types of subjects: selfish subjects who act according to the deterrence hypothesis and fair-minded subjects for whom small incentives backfire. The Author 2010. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.

The notion that US stock prices follow a pattern that is synchronized with the rhythm of presidential elections has been a topic among financial investors for a long time. Academic work exists that supports this idea, quantifies the pattern, and has demonstrated its robustness over several decades and across parties in power. This paper takes the existence and robustness of this presidential election cycle for granted and asks whether individuals exploit it when asked to predict stock prices. It considers and contrasts two types of such forecasts: Those made by professionals included in the Livingston survey; and those made by students in a laboratory experiment. One key result is that neither group fares particularly well, though participants in the lab experiment clearly outperformed the professionals.

This paper investigates the validity of the Dual Process theory by using eye-tracking methods to trace the process of attention during a non-preference-based problem solving task, i.e. informational cascades. In this setting, gaze direction may convey evidence on how automatic detection is modified or sustained by controlled search. We provide laboratory evidence that gaze direction is driven by cognitive biases, such as overconfidence. In particular, we find a significant statistical correlation between first fixations and subjects’ actual choices. Our results suggest that attentional strategies are not necessarily consistent with efficient patterns of information collecting.

This paper presents experimental evidence that when individuals are about to make a given decision under risk, they are willing to pay for information on the likelihood that this decision is ex-post optimal, even if this information will not affect their decision . Our findings suggest that this demand for non-instrumental information is caused by what we refer to as a “confidence effect”: the desire to increase one's posterior belief by ruling out “bad news”, even when such news would have no effect on one's decision. We conduct various treatments to show that our subjects' behavior is not likely to be caused by an intrinsic preference for information, failure of backward induction or an attempt to minimize thinking costs.

The paper draws on data collected in an investment game plus a questionnaire to investigate whether happiness is affected by the circumstances and/or outcomes of the game and to evaluate what motivations or preference structures (self-interested preferences, inequity aversion, altruism, warm glow, social-welfare preferences, trust or reciprocity) may explain that effect. Our results show that the amount given by trustors to trustees has a significant and positive effect on the former’s self-declared happiness. To explain why only trustors and not trustees are significantly and positively affected by their giving decision, we argue that the happiness effect results from the trustor’s internal satisfaction with his/her exhibition of trust or by a consequence of it, that is, the enactment of the “generating” (total payoff enhancing) power of the trustor’s decision. The second interpretation hinges on characteristics of the investment game in which the trustor has a value-creating power while the trustee only has a redistributive power.

In this paper we examine the performance of theories of decision making under uncertainty/ambiguity from the perspective of their descriptive and predictive power. To this end, we employ an innovative experimental design which enables us to reproduce ambiguity in the laboratory in a transparent and non-probabilistic way. We find that judging theories on the basis of their theoretical appeal, or on their ability to do well in terms of estimation, is not the same as judging them on the basis of their predictive power. We find that the models that perform better in an aggregate sense are Gilboa and Schmeidler’s MaxMin and MaxMax Expected Utility Models, and Ghiradarto et al.’s Alpha Model, implying that more elegant theoretical models do not perform as well as relatively simple models. This suggests that decision-makers, when confronted with a difficult problem, try to simplify it, rather than apply a sophisticated decision rule.

Understanding how reliability is valued is important because it provides insight into how aims of policies that aspire to provide better transport options can be more fully integrated with user expectations. Better reliability is a desired outcome of transportation policies because it reduces scheduling costs. This study uses a stated preference survey to collect route preference data, in which each route is described by the travel time experience on it. Because travel-time decisions are made from momentary recollections of past experience, the paradigm adopted in this study is that the mode travel time rather than the mean is the important basis for travel time decisions. The authors then explore three alternate measures of reliability and use them to estimate route choice models on the basis of the stated preference data. Two of the measures, range coupled with lateness probability and standard deviation, have been explored before. A third measure based on time moment (moments of inertia) measured from the mode travel time is also proposed and tested. Each measure reveals something different about how people value different aspects of reliability. In all cases, reliability is valued highly, although differently depending on how it is defined. The values of reliability and travel time highlight that transportation policy makers can provide significant benefits to users from strategies that seek to increase reliability.

The experiment engaging 50 participants was performed to model and identify the determinants of the players’ risky behavior. Here, a questionnaire and a bimatrix game containing the negative/zero payoffs were used to identify the players’ motives to play risky strategies. Besides the concrete form of the payoffs, the individual risk attitudes were also proved to be statistically significant for risky behavior of the players.

The past decade has witnessed an explosion of interest in the scientific study of happiness. Economists, in particular, find that happiness increases in income but decreases in income aspirations, and this work prompts examination of how aspirations form and adapt over time. This paper presents results from the first experimental study of how multiple factors -- past payments, social comparisons, and expectations -- influence aspiration formation and reported satisfaction. I find that expectations and social comparisons significantly affect reported satisfaction, and that subjects care relatively more about social comparisons once they have achieved a satisfactory outcome. These findings support an aspirations-based theory of happiness.

Hypothetical bias is a persistent problem in stated preference studies. We propose and test a method for reducing hypothetical bias based on the cognitive dissonance literature in social psychology. A central element of this literature is that people prefer not to take inconsistent stands and will change their attitudes and behaviour to make them consistent. We find that participants in a stated preference willingness-to-pay study, when told that a nonhypothetical study of similar goods would follow, state significantly lower willingness to pay (WTP) than participants not so informed. In other words, participants adjust their stated WTP to avoid cognitive dissonance, that is, taking inconsistent stands on their WTP for the good being offered. Oxford University Press and Foundation for the European Review of Agricultural Economics 2010; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org, Oxford University Press.

This article experimentally studies a two-stage elimination contest and compares its performance with a one-stage contest. Contrary to the theory, the two-stage contest generates higher revenue than the equivalent one-stage contest. There is significant over-dissipation in both stages of the two-stage contest and experience diminishes over-dissipation in the first stage but not in the second stage. Our experiment provides evidence that winning is a component in a subject’s utility. A simple behavioral model that accounts for a non-monetary utility of winning can explain significant over-dissipation in both contests. It can also explain why the two-stage contest generates higher revenue than the equivalent one-stage contest.