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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 a legislative bargaining game in which failure to agree in a given round may result in a breakdown of negotiations. In that case, each player receives an exogenous ‘disagreement value’. We characterize the set of stationary subgame perfect equilibria under all q-majority rules. Under unanimity rule, equilibrium payoffs are strictly increasing in disagreement values. Under all less-than-unanimity rules, expected payoffs are either decreasing or first increasing and then decreasing in disagreement values. We conduct experiments involving three players using majority and unanimity rule, finding qualitative support for several, but not all, of our main predictions. Having a high disagreement value is indeed an advantage under unanimity rule. Under majority rule, the player with the highest disagreement value is more likely to be excluded, but this does not consistently result in a lower average payoff. [ABSTRACT FROM AUTHOR]

Increasing inequality is commonly associated with social unrest and conflict between social classes. This paper reports the results of a laboratory experiment to study the implications of greater inequality on the tendency to burn others' income. The experiment considers an environment where higher earnings in a real-effort task are typically associated with higher effort and varies how fair and transparent this relationship is. The findings indicate that greater inequality does not lead to more money burning itself. Rather, it depends on whether the increase in inequality can be unequivocally attributed to exerted effort, i.e., the fairness of the income-generating process. Only if greater inequality can be the result of morally questionable activities, subjects engage in substantially more money burning. While most income burning aims at reducing inequality, the fairness of inequality only plays a role in the extent of money burning but not so much for the qualitative burning patterns. [ABSTRACT FROM AUTHOR]

The “ratchet effect” is a phenomenon where workers strategically restrict their output because they anticipate high levels of productivity will be met with increased expectations in the future. Using a real-effort work task and a piece-rate incentive scheme, we investigate the presence of the ratchet effect using two different methods for evaluating worker productivity: (i) when productivity is evaluated individually, and (ii) when productivity is evaluated collectively among a group of workers. We find strong evidence that workers restrict output when productivity is evaluated individually. However, we find little evidence of output restriction when productivity is evaluated at the group-level, which we attribute to the coordination problem and the free-riding incentive that emerge within the group. Although, output restriction re-emerges if workers are able to communicate. We also examine an important dynamic implication of the ratchet effect, and our results indicate that output restriction reduces future productivity through reduced learning-by-doing. [ABSTRACT FROM AUTHOR]

This paper presents an experiment investigating whether decision makers discriminate between members of their own group and members of another group. I focus on two aspects of this question: First, I compare behavior in individual and in joint decisions; Second, I test whether the identity of the co-decision maker matters in joint decisions. Substantial own group favoritism occurs in joint decisions in spite of there being no such favoritism in individual decisions. Decision makers strongly favor own group candidates when deciding with someone from their own group, but not when deciding with someone from the other group. The study suggests that higher-order beliefs about co-decision maker behavior may be a factor behind discrimination in collective settings and that diversity in committees might be helpful in counteracting own group favoritism. [ABSTRACT FROM AUTHOR]

When actions generate negative externalities for third parties, incentives exist to pass these “morally costly” decisions to others. In laboratory experiments, we investigate how market interaction affects allocations when the right to divide a sum of money between oneself and a passive recipient is commoditized. Allocation to recipients is reduced by more than half when determined by subjects who purchase or keep the right to make the division as compared to a control where subjects are directly assigned the right. Sellers report accurate beliefs about recipient allocations and do not report feeling less responsible the more often they sell the allocation right. The market allocates the right to make divisions more frequently to buyers who allocate more to recipients, but sellers who allocate less to recipients tend to sell less often. Selection cannot solely explain the results, suggesting market interaction itself may directly impact behavior. [ABSTRACT FROM AUTHOR]

Field tests were conducted on two new information aggregation mechanism designs. The mechanisms were designed to collect information held as intuitions about opening weekend box office revenues for movies in Australia. The principles on which the mechanisms operate and their capacity to collect information are explored. A pari-mutuel mechanism produces a predicted probability distribution over box office amounts that is, with the exception of very small films, indistinguishable from the actual revenues. The second mechanism is based on guessing the guesses of others and when applied under conditions where incentives for accuracy are unavailable still performs well against data. [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]

Bidding one's value in a second-price, private-value auction is a weakly dominant solution (Vickrey in J Finance 16(1):8-37, 1961), but repeated experimental studies find more overbidding than underbidding. We propose a model of optimistically irrational bidders who understand that there are possible gains and losses associated with higher bids but who may overestimate the additional probability of winning and/or underestimate the potential losses when bidding above value. These bidders may fail to discover the dominant strategy-despite the fact that the dominant strategy only requires rationality from bidders-but respond in a common sense way to out-of-equilibrium outcomes. By varying the monetary consequences of losing money in experimental auctions we observe more overbidding when the cost to losing money is low, and less overbidding when the cost is high. Our findings lend themselves to models in which less than fully rational bidders respond systematically to out-of-equilibrium incentives, and we find that our model better fits the effects of our manipulations than most of the existing models we consider. [ABSTRACT FROM AUTHOR]

The paper studies how common codes of artificial language in communication are developed in the laboratory. We find that codes emerging from an environment with more variable spatial positions tend to use a limited set of symbols to represent positions, whereas codes emerging from an environment with more variable geometric shapes tend to discriminate among shapes. The paper also experimentally shows that 'language' affects the way its 'speakers' share the view about a novel figure. [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]

Collective payments for ecosystem services (PES) programs make payments to groups, conditional on specified aggregate land-management outcomes. Such collective contracting may be well suited to settings with communal land tenure or decision-making. Given that collective contracting does not require costly individual-level information on outcomes, it may also facilitate conditioning on additionality (i.e., conditioning payments upon clearly improved outcomes relative to baseline). Yet collective contracting often suffers from free-riding, which undermines group outcomes and may be exacerbated or ameliorated by PES designs. We study impacts of conditioning on additionality within a number of collective PES designs. We use a framed field-laboratory experiment with participants from a new PES program in Mexico. Because social interactions are critical within collective processes, we assess the impacts from conditioning on additionality given: (1) group participation in contract design, and (2) a group coordination mechanism. Conditioning on above-baseline outcomes raised contributions, particularly among initially lower contributors. Group participation in contract design increased impact, as did the coordination mechanism. [ABSTRACT FROM AUTHOR]

We contrast and compare three ways of predicting efficiency in a forced contribution threshold public good game. The three alternatives are based on ordinal potential, quantal response and impulse balance theory. We report an experiment designed to test the respective predictions and find that impulse balance gives the best predictions. A simple expression detailing when enforced contributions result in high or low efficiency is provided. [ABSTRACT FROM AUTHOR]

Tradable development rights (TDR) are discussed as a means of containing urban sprawl in numerous countries. Introducing a novel experimental setting, we simulate a cap & trade TDR scheme and investigate the effects of communication, specifically among competing market participants and within teams of decision-makers. Communication reduces auction prices, leading to substantially less income redistribution from participants to the auctioneer. Nevertheless, no collusion is sustained. Team decision-making reduces overshooting prices and improves the system’s efficiency. We interpret these results as emphasizing the efficiency and political feasibility of TDR schemes for economic contexts in which communication among its participants can be assumed. [ABSTRACT FROM AUTHOR]

In order to understand heterogeneous behavior amongst agents, empirical data from Learning-to-Forecast (LtF) experiments can be used to construct learning models. This paper follows up on Assenza et al. (2013) by using a Genetic Algorithms (GA) model to replicate the results from their LtF experiment. In this GA model, individuals optimize an adaptive, a trend following and an anchor coefficient in a population of general prediction heuristics. We replicate experimental treatments in a New-Keynesian environment with increasing complexity and use Monte Carlo simulations to investigate how well the model explains the experimental data. We find that the evolutionary learning model is able to replicate the three different types of behavior, i.e. convergence to steady state, stable oscillations and dampened oscillations in the treatments using one GA model. Heterogeneous behavior can thus be explained by an adaptive, anchor and trend extrapolating component and the GA model can be used to explain heterogeneous behavior in LtF experiments with different types of complexity. [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]

Backers and opponents argue over the pros and cons of legislation forbidding trading by informed insiders. Yet a lack of reliable empirical data about the effects of such legislation inhibits a conclusive scientific evaluation. We overcome this problem by resorting to laboratory markets and find that insider legislation has significant negative effects on multiple market dimensions: under insider legislation, (1) markets are less liquid, (2) markets are less informationally efficient, and (3) uninformed traders׳ earnings (before redistribution of illicit insider gains) are lower. [ABSTRACT FROM AUTHOR]

We use a combination of theory and experiment to study the incentives for firms to share knowledge when they engage in research and development (R&D) in an uncertain environment. We consider both symmetric and asymmetric starting points with regards to the amount of initial knowledge firms have before conducting R&D and look at how differences in starting positions affect the willingness of firms to share knowledge. We investigate when and if firms find R&D cooperation beneficial and how investment in R&D is affected by the outcome of the sharing decisions. The experimental evidence shows that overall subjects tend to behave consistently with theoretical predictions for the sharing of knowledge, although leaders who are not compensated by a side payment from laggards are more willing to share than predicted by the theory, and leaders who are compensated are less willing. The data on investment suggests less investment with sharing than without, consistent with theory. Compared to exact numerical predictions, there is overinvestment or underinvestment except for symmetric firms under no sharing. All cases of overinvestment and underinvestment, regardless of sharing or not and regardless of starting positions, are well explained by smoothed-out best (quantal) responses. [ABSTRACT FROM AUTHOR]

How does the allocation of scarce jobs and production influence their supply? We present the results of a macroeconomics laboratory experiment that investigates the effects of alternative rationing schemes on economic stability. Participants play the role of worker-consumers who interact in labor and output markets. All output, which yields a reward to participants, must be produced through costly labor. Automated firms hire workers to produce output so long as there is sufficient demand for all production. In every period either output or labor hours are rationed. Random queue, equitable, and priority (i.e., property rights) rationing schemes are compared. Production volatility is the lowest under a priority rationing rule and is significantly higher under a scheme that allocates the scarce resource through a random queue. Production converges toward the steady state under a priority rule, but can diverge to significantly lower levels under a random queue or equitable rule where there is the opportunity for and perception of free-riding. At the individual level, rationing in the output market leads consumer-workers to supply less labor in subsequent periods. A model of myopic decision-making is developed to rationalize the results. [ABSTRACT FROM AUTHOR]

Are people willing to sacrifice resources to save one's and others' face? In a laboratory experiment, we study whether individuals forego resources to avoid the public exposure of the least performer in their group. We show that a majority of individuals are willing to pay to preserve not only their self- but also other group members' image, even when group identity is minimal. When group identity is made more salient, individuals help regardless of whether the least performer is an in-group or an out-group. In contrast, people are less likely to sacrifice for individual strangers, showing a major role for group identity and reputation concerns within groups relative to an interpretation in terms of moral norms. [ABSTRACT FROM AUTHOR]

We propose a simple and direct test of in-couple income pooling and provide a typology of couples that pool resources and those who do not. For this purpose, we performed a five-round experiment with 95 established real-life couples in Germany. In each round, the couples received the same total amount of money, but the relative allocation to the spouses differed and they had to agree on an irreversible private goods consumption pattern. We find that for the majority of the sample, the consumption choices depend on the spouses' relative resources. While this suggests a rejection of income pooling at the mean, a substantial share of the couples do indeed pool their resources. Pooling behavior is more common among couples in which the spouses' socioeconomic characteristics are more similar. In particular, traditional couples with distinct work division between the spouses are significantly less likely to pool their individual resources and treat any spouse's income symmetrically. Conventional variables used to approximate income pooling are only loosely related to the behavior observed in our experiment. [ABSTRACT FROM AUTHOR]

We design an incentivized experiment to test whether measurement uncertainty elevates the risk that social bonds between auditors and reporters compromise audit adjustments. Results indicate that, when audit evidence is characterized by some residual uncertainty, the adjustments our auditor-participants require are sensitive to whether auditors have an opportunity to form a modest but friendly social bond with reporters. In contrast, although auditors do not adjust fully even when misstatements are known with certainty, social bonding has no effect in this scenario. Accordingly, our experiment contributes beyond the main effects of social bonding and measurement uncertainty demonstrated in prior research by showing that these forces interact. A practical implication is that regulators and practitioners should consider both the technical and the social challenges facing audits of complex estimates. [ABSTRACT FROM AUTHOR]