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- Experiments (5)
- All-pay auction (2)
- Competition (2)
- Contest (2)
- Diminishing Sensitivity (2)
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- Experiment (2)
- Rent-seeking (2)
- Social dilemmas (2)
- Alcohol (1)
- All-Pay Auction (1)
- Allais Paradox (1)
- Ambiguity Aversion (1)
- Ambiguity aversion (1)
- Asymmetry (1)
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- Bid differential (1)
- Bid-caps (1)
- Capitation (1)
- Charity donations (1)
- Cognitive Ability (1)
- Cognitive Reflection (1)
- Cognitive reflection (1)
- Colonel Blotto (1)
- Conflict (1)
- Contest design (1)
- Contests (1)
- Contracts (1)
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Articles 1 - 30 of 31
Full-Text Articles in Social and Behavioral Sciences
All-Pay Auctions With Ties, Alan Gelder, Dan Kovenock, Brian Roberson
All-Pay Auctions With Ties, Alan Gelder, Dan Kovenock, Brian Roberson
ESI Working Papers
We study the two-player, complete information all-pay auction in which a tie ensues if neither player outbids the other by more than a given amount. In the event of a tie, each player receives an identical fraction of the winning prize. Thus players engage in two margins of competition: losing versus tying, and tying versus winning. Two pertinent parameters are the margin required for victory and the value of tying relative to winning. We fully characterize the set of Nash equilibria for the entire parameter space. For much of the parameter space, there is a unique Nash equilibrium which is …
A Perspective On Electronic Alternatives To Traditional Currencies, Gabriele Camera
A Perspective On Electronic Alternatives To Traditional Currencies, Gabriele Camera
ESI Working Papers
The institution of money is rapidly evolving thanks to developments in computer-based cryptography. Technological advances have made possible the creation of cost-effective electronic alternatives to banknotes and coins, which are the traditional physical currencies. This document aims to describe — based on scientific literature — the use and characteristics of money, some of the problems associated with issuing a new currency or a new payment instrument, and the possible comparative advantages of a central bank in leading the way relative to private issuers.
Asymmetric Social Norms, Gabriele Camera, Alessandro Gioffré
Asymmetric Social Norms, Gabriele Camera, Alessandro Gioffré
ESI Working Papers
Studies of cooperation in infinitely repeated matching games focus on homogeneous economies, where full cooperation is efficient and any defection is collectively sanctioned. Here we study heterogeneous economies where occasional defections are part of efficient play, and show how to support those outcomes through contagious punishments.
Using Experiments To Compare The Predictive Power Of Models Of Multilateral Negotiations, Cary Deck, Charles J. Thomas
Using Experiments To Compare The Predictive Power Of Models Of Multilateral Negotiations, Cary Deck, Charles J. Thomas
ESI Working Papers
We conduct unstructured negotiations in a laboratory experiment designed to empirically assess the predictive power of three approaches to modeling the multilateral negotiations observed in diverse strategic settings. For concreteness we consider two sellers negotiating with a buyer who wants to make only one trade, with the modeling approaches distinguished by whether the buyer negotiates with the sellers sequentially, simultaneously, or in a “take-it-or-leave-it” fashion. Our experiment features two scenarios within which the three approaches have observationally distinct predictions: a differentiated scenario with one high-surplus and one low-surplus seller, and a homogeneous scenario with identical high-surplus sellers. In both scenarios …
Economic Analysis With Systematically Biased Agents, Mark Schneider
Economic Analysis With Systematically Biased Agents, Mark Schneider
ESI Working Papers
A tenet of behavioral economics is that biases are systematic and should have visible effects in economic applications. Expected utility maximization has been widely applied in economic analysis, but progress has been slower incorporating 'systematically biased' agents into applications involving risk. This contrasts with the widespread application of present-biased preferences in intertemporal settings. To address this gap, we advocate a model of quasi-rank dependent probability weighting as a natural analog to quasi-hyperbolic discounting for decisions under risk. The model satisfies stochastic dominance and transitivity and transforms individual rather than cumulative probabilities. We illustrate the model’s tractability in several economic applications.
The Pros And Cons Of Workplace Tournaments, Roman M. Sheremeta
The Pros And Cons Of Workplace Tournaments, Roman M. Sheremeta
ESI Working Papers
Tournaments are commonly used in the workplace to determine promotion, assign bonuses, and motivate personal development. Tournament-based contracts can be very effective in eliciting high effort, often outperforming other compensation contracts, but they can also have negative consequences for both managers and workers. The benefits and disadvantages of workplace tournaments have been identified in theoretical, empirical, and experimental research over the past several decades. Based on these findings, I provide suggestions and guidelines for when it might be beneficial to use tournaments in the workplace.
On The Robustness Of Higher Order Risk Preferences, Cary Deck, Harris Schlesinger
On The Robustness Of Higher Order Risk Preferences, Cary Deck, Harris Schlesinger
ESI Working Papers
Economists have begun to recognize the role that higher order risk preferences play in a variety of settings. As such, several experiments have documented the degree of prudence, temperance, and to a lesser extent, edginess and bentness that laboratory subjects exhibit. More recently, researchers have argued that higher order risk preferences generally conform to mixed risk averse and mixed risk loving patterns that arise from a preference for disaggregating or aggregating harms, respectively. This paper examines the robustness of this pattern in three ways. First, it attempts to directly replicate previous results with compound lotteries over monetary outcomes. Second, it …
Dual Process Utility Theory: A Model Of Decisions Under Risk And Over Time, Mark Schneider
Dual Process Utility Theory: A Model Of Decisions Under Risk And Over Time, Mark Schneider
ESI Working Papers
The Discounted Expected Utility model has been a major workhorse for analyzing individual behavior for over half a century. However, it cannot account for evidence that risk interacts with time preference, that time interacts with risk preference, that many people are averse to timing risk and do not discount the future exponentially, that discounting depends on the magnitude of outcomes, that risk preferences are not time preferences, and that risk and time preferences are correlated with cognitive ability. Here we address these issues in a decision model based on the interaction of an affective and a reflective valuation process. The …
Multi-Battle Contests: An Experimental Study, Shakun D. Mago, Roman M. Sheremeta
Multi-Battle Contests: An Experimental Study, Shakun D. Mago, Roman M. Sheremeta
ESI Working Papers
We examine behavior of subjects in simultaneous and sequential multi-battle contests, where each individual battle is modeled as an all-pay auction with complete information. In simultaneous best-of-three contests, subjects are predicted to make positive bids in all three battles, but we find that subjects often make positive bids in only two battles. In sequential contests, theory predicts sizable bids in the first battle and no bids in the subsequent battles. Contrary to this prediction, subjects significantly underbid in the first battle and overbid in subsequent battles. Consequently, instead of always ending in the second battle, contests often proceeds to the …
Impulsive Behavior In Competition: Testing Theories Of Overbidding In Rent-Seeking Contests, Roman M. Sheremeta
Impulsive Behavior In Competition: Testing Theories Of Overbidding In Rent-Seeking Contests, Roman M. Sheremeta
ESI Working Papers
Researchers have proposed various theories to explain overbidding in rent-seeking contents, including mistakes, systematic biases, the utility of winning, and relative payoff maximization. Through an eight-part experiment, we test and find significant support for the existing theories. Also, we discover some new explanations based on cognitive ability and impulsive behavior. Out of all explanations examined, we find that impulsivity is the most important factor explaining overbidding in contests.
Endogenous Market Formation And Monetary Trade: An Experiment, Gabriele Camera, Dror Goldberg, Avi Weiss
Endogenous Market Formation And Monetary Trade: An Experiment, Gabriele Camera, Dror Goldberg, Avi Weiss
ESI Working Papers
The theory of money assumes decentralized bilateral exchange and excludes centralized multilateral exchange. However, endogenizing the exchange process is critical for understanding the conditions that support the use of money. We develop a “travelling game” to study the spontaneous emergence of decentralized and centralized exchange, theoretically and experimentally. Players located on separate “islands” can either trade locally, or pay a cost to trade elsewhere, so decentralized and centralized markets can both emerge in equilibrium. The latter maximize trade meetings and are socially efficient; the former minimize trade costs through the use of money. In the laboratory, centralized exchange more frequently …
Do Economic Inequalities Affect Long-Run Cooperation?, Gabriele Camera, Cary Deck, David Porter
Do Economic Inequalities Affect Long-Run Cooperation?, Gabriele Camera, Cary Deck, David Porter
ESI Working Papers
Does inequality affect a group’s cohesion and ability to prosper? Participants in laboratory economies played an indefinite sequence of helping games in random, anonymous pairs. A coin flip determined donor and recipient roles in each pair. This random shock ensured equality of opportunity but not of results, because earnings depended on realized shocks. We manipulated the ability to condition choices on this uncontrollable inequality source. In all treatments, uncertain ending supports multiple Pareto-ranked equilibria, including full cooperation. Theoretically, inequalities do not alter the incentives’ structure. Empirically, inequality disclosures altered conduct, weakened norms of mutual support and reduced efficiency.
Focality And Asymmetry In Multi-Battle Contests, Subhashish M. Chowdhury, Dan Kovenock, David Rojo Arjona, Nathaniel Wilcox
Focality And Asymmetry In Multi-Battle Contests, Subhashish M. Chowdhury, Dan Kovenock, David Rojo Arjona, Nathaniel Wilcox
ESI Working Papers
This article examines behavior in two-person constant-sum Colonel Blotto games in which each player maximizes the expected total value of the battlefields won. A lottery contest success function is employed in each battlefield. Recent experimental research on such games provides only partial support for Nash equilibrium behavior. We hypothesize that the salience of battlefields affects strategic behavior (the salient target hypothesis). We present a controlled test of this hypothesis – against Nash predictions – when the sources of salience come from certain asymmetries in either battlefield values or labels (as in Schelling (1960)). In both cases, subjects over-allocate the resource …
Dynamic Behavior And Player Types In Majoritarian Multi-Battle Contests, Alan Gelder, Dan Kovenock
Dynamic Behavior And Player Types In Majoritarian Multi-Battle Contests, Alan Gelder, Dan Kovenock
ESI Working Papers
In a dynamic contest where it is costly to compete, a player who is behind must decide whether to surrender or to keep fighting in the face of bleak odds. We experimentally examine the game theoretic prediction of last stand behavior in a multi-battle contest with a winning prize and losing penalty, as well as the contrasting prediction of surrendering in the corresponding contest with no penalty. We find varied evidence in support of these hypotheses in the aggregated data, but more conclusive evidence when scrutinizing individual player behavior. Players’ realized strategies tend to conform to one of several “types”. …
Mean-Dispersion Preferences With A Specific Dispersion Function, Mark Schneider, Manuel Nunez
Mean-Dispersion Preferences With A Specific Dispersion Function, Mark Schneider, Manuel Nunez
ESI Working Papers
A popular approach to modeling ambiguity aversion is to decompose preferences into the subjective expected utility of an act and an ambiguity index, or an adjustment factor, or a dispersion function. However, in these approaches the dispersion function (or ambiguity index, or adjustment factor) has very little structure imposed on it, leaving the selection of a specific dispersion function in applications to be rather arbitrary. In this note, working in the Anscombe- Aumann (1963) framework, we provide a simpler axiomatic characterization of mean-dispersion preferences which uniquely identifies the dispersion function from the infinite class of possible alternatives. Given the representation, …
Designing Contests Between Heterogeneous Contestants: An Experimental Study Of Tie-Breaks And Bid-Caps In All-Pay Auctions, Aniol Llorente-Saguer, Roman M. Sheremeta, Nora Szech
Designing Contests Between Heterogeneous Contestants: An Experimental Study Of Tie-Breaks And Bid-Caps In All-Pay Auctions, Aniol Llorente-Saguer, Roman M. Sheremeta, Nora Szech
ESI Working Papers
A well-known theoretical result in the contest literature is that greater heterogeneity decreases performance of contestants because of the “discouragement effect.” Leveling the playing field by favoring weaker contestants through bid-caps and favorable tie-breaking rules can reduce the discouragement effect and increase the designer’s revenue. We test these predictions in an experiment. Our data show that indeed, strengthening weaker contestants through tie-breaks and bid-caps significantly diminishes the discouragement effect. Bid-caps can also improve revenue. Most deviations from Nash equilibrium can be explained by the level-k model of reasoning.
Salience, Framing, And Decisions Under Risk, Uncertainty, And Time, Jonathan W. Leland, Mark Schneider
Salience, Framing, And Decisions Under Risk, Uncertainty, And Time, Jonathan W. Leland, Mark Schneider
ESI Working Papers
We propose a comparative model of decision making under risk, uncertainty, and time, in which large differences in payoffs and probabilities or dates of receipt are perceived as salient and overweighted in the evaluation process. The predictions of the model depend on what differences are compared across alternatives which, in turn, depends on how the choice is framed. We formalize a class of matrix-based frames which applies to decisions under risk, uncertainty, and time, and we specify two important types of frames within this class: minimal frames which provide the simplest representation of choice alternatives, and transparent frames which make …
The Effects Of Alcohol Use On Economic Decision Making, Klajdi Bregu, Cary Deck, Lindsay Ham, Salar Jahedi
The Effects Of Alcohol Use On Economic Decision Making, Klajdi Bregu, Cary Deck, Lindsay Ham, Salar Jahedi
ESI Working Papers
It is notoriously hard to study the effect of alcohol on decision making, given the selection that takes place in who drinks alcohol and when they choose to do so. In a controlled laboratory experiment, we study the causal effect of alcohol on economic decision making. We examine the impact of alcohol on the following types of tasks: math and logic, uncertainty, overconfidence, strategic games, food choices, anchoring, and altruism. Our results indicate that alcohol consumption, as measured by the blood alcohol concentration (BAC), increases cooperation in strategic settings and altruism in Dictator games. We do not find any effects …
Optimal Tilts, Malcom Baker, Terence C. Burnham, Ryan Taliaferro
Optimal Tilts, Malcom Baker, Terence C. Burnham, Ryan Taliaferro
ESI Working Papers
We examine the optimal weighting of four characteristic tilts in US equity markets over the period from 1968 through 2014. We define a “tilt” as a positive-Sharpe-ratio, characteristicbased portfolio strategy that requires relatively low annual turnover and a “trade” as a characteristic-based portfolio strategy that requires relatively high annual turnover and liquidity demands. Size is a tilt, because of its very low turnover; high frequency reversal is a trade. This dichotomy is necessary to make practical use of Fama-French style factor regressions. Unlike low-turnover tilts, a full history of transaction costs and an estimate of capacity is critical to determine …
Arousal And Economic Decision Making, Salar Jahedi, Cary Deck, Dan Ariely
Arousal And Economic Decision Making, Salar Jahedi, Cary Deck, Dan Ariely
ESI Working Papers
Previous experiments have found that subjecting participants to cognitive load leads to poorer decision making, consistent with dual-system models of behavior. Rather than taxing the cognitive system, this paper reports the results of an experiment that takes a complementary approach: arousing the emotional system. The results indicate that exposure to arousing visual stimuli as compared to neutral images has a negligible impact on performance in arithmetic tasks, impatience, risk taking in the domain of losses, and snack choice although we find that arousal modestly increases in risk-taking in the gains domain and increases susceptibility to anchoring effects. We find the …
Payment Scheme Self-Selection In The Credence Goods Market: An Experimental Study, Hernan Bejerano, Ellen P. Green, Stephen Rassenti
Payment Scheme Self-Selection In The Credence Goods Market: An Experimental Study, Hernan Bejerano, Ellen P. Green, Stephen Rassenti
ESI Working Papers
Given heterogeneity in expert behavior across payment schemes in credence goods markets, it becomes important to understand the consequences of payment scheme selection. To study the effect on customer well being of expert self-selection, we recruited subjects to participate in a real-effort credence good laboratory market. Experts were either randomly assigned or faced with the choice of three payment schemes: fee-for-service, salary, and capitation. We found that experts who selected fee-for-service payment resulted in customers with significantly worse outcomes in comparison with experts who had been randomly assigned to fee-for-service. In contrast, experts who selected salary payment did not change …
Bringing A Natural Experiment Into The Laboratory: The Measurement Of Individual Risk Attitudes, Zuzana Brokesova, Cary Deck, Jana Peliova
Bringing A Natural Experiment Into The Laboratory: The Measurement Of Individual Risk Attitudes, Zuzana Brokesova, Cary Deck, Jana Peliova
ESI Working Papers
Controlled laboratory experiments have become a generally accepted method for studying economic behavior, but there are two issues that regularly arise with such work. The first pertains to the ability to generalize experimental results outside the laboratory. While laboratory experiments are typically designed to mimic naturally occurring situations, ceteris paribus comparisons are rare. Using data from a promotional campaign by a bank and a matching laboratory experiment, we find similar patterns of risk taking behavior controlling for gender and age. The second issue pertains to the impact that the payment procedure in an experiment has on observed risk taking behavior. …
The Impact Of Taxes And Wasteful Government Spending On Giving, Roman M. Sheremeta, Neslihan Uler
The Impact Of Taxes And Wasteful Government Spending On Giving, Roman M. Sheremeta, Neslihan Uler
ESI Working Papers
We examine the impact of taxes and wasteful government spending on charitable giving. In our model, the government collects a flat-rate tax on income net of donations and wastes part of the tax revenue before redistribution. The model provides theoretical predictions which we test in a framed field experiment. The results of the experiment show that the tax rate has a weak and insignificant effect on giving. The degree of waste, however, has a large, negative and significant effect on giving, with the relationship moderated by the curvature in the utility function.
Ambiguity Framed, Mark Schneider, Jonathan W. Leland, Nathaniel Wilcox
Ambiguity Framed, Mark Schneider, Jonathan W. Leland, Nathaniel Wilcox
ESI Working Papers
In his exposition of subjective expected utility theory, Savage (1954) proposed that the Allais paradox could be reduced if it were recast into a format which made the appeal of the independence axiom of expected utility theory more transparent. Recent studies consistently find support for this prediction. We consider a salience-based choice model which explains this frame-dependence of the Allais paradox and derive the novel prediction that the same type of presentation format which was found to reduce Allais-style violations of expected utility theory will also reduce Ellsberg-style violations of subjective expected utility theory since that format makes the appeal …
Axioms For Salience Perception, Jonathan W. Leland, Mark Schneider
Axioms For Salience Perception, Jonathan W. Leland, Mark Schneider
ESI Working Papers
Models of salience-based choice have become popular in recent years, although there is still no known set of simple conditions or axioms which implies the existence of a salience function. In this paper, we provide simple and natural axioms that characterize the general class of salience functions. As an application we consider a salience-based model of decision making and show that within that setup the fourfold pattern of risk attitudes is a general property of a salience function and that the properties producing that pattern also account for other anomalies involving risky and intertemporal choice.
Trust And Trustworthiness Under Information Asymmetry And Ambiguity, Irma Clots-Figueras, Roberto Hernán-González, Praveen Kujal
Trust And Trustworthiness Under Information Asymmetry And Ambiguity, Irma Clots-Figueras, Roberto Hernán-González, Praveen Kujal
ESI Working Papers
We introduce uncertainty and ambiguity in the standard investment game. In the uncertainty treatment, investors are informed that the return of the investment is drawn from a publicly known distribution function. In the ambiguity treatment, investors are not informed about the distribution function. We find that both trust and trustworthiness are robust to the introduction of these changes.
Random Expected Utility And Certainty Equivalents: Mimicry Of Probability Weighting Functions, Nathaniel Wilcox
Random Expected Utility And Certainty Equivalents: Mimicry Of Probability Weighting Functions, Nathaniel Wilcox
ESI Working Papers
For simple prospects of the kind routinely used for certainty equivalent elicitation, random expected utility preferences imply a conditional expectation function that can mimic deterministic rank dependent preferences. That is, an agent with random expected utility preferences can have mean certainty equivalents that look exactly like rank dependent probability weighting functions of the inverse-s shape discussed by Quiggin (1982) and later advocated by Tversky and Kahneman (1992) and other scholars. It seems that certainty equivalents cannot nonparametrically identify preferences, at least not in every relevant sense, since their conditional expectation depends on assumptions concerning the source and nature of their …
What Makes A Good Trader? On The Role Of Intuition And Reflection On Trader Performance, Brice Corgnet, Mark Desantis, David Porter
What Makes A Good Trader? On The Role Of Intuition And Reflection On Trader Performance, Brice Corgnet, Mark Desantis, David Porter
ESI Working Papers
Using simulations and experiments, we pinpoint two main drivers of trader performance: cognitive reflection and theory of mind. Both dimensions facilitate traders’ learning about asset valuation. Cognitive reflection helps traders use market signals to update their beliefs whereas theory of mind offers traders crucial hints on the quality of those signals. We show these skills to be complementary because traders benefit from understanding the quality of market signals only if they are capable of processing them. Cognitive reflection relates to previous Behavioral Finance research as it is the best predictor of a trader’s ability to avoid commonly-observed behavioral biases.
The Effects Of Experience, Choice Architecture, And Cognitive Reflection In Individual And Strategic Decisions, Mark Schneider, David Porter
The Effects Of Experience, Choice Architecture, And Cognitive Reflection In Individual And Strategic Decisions, Mark Schneider, David Porter
ESI Working Papers
Cognitive reflection has been shown to be an important trait which is correlated with the propensity to: take risks, delay gratification, and form accurate beliefs about others’ behavior. However, previous research has not cleanly identified whether reflective thinkers make ‘better’ decisions than intuitive thinkers, since inferences of decision quality are confounded by inferences regarding risk preferences, time preferences, and beliefs. We directly test for differences in decision quality between reflective thinkers and intuitive thinkers in both individual and strategic decisions using a design which makes it possible to objectively rank risky and strategic choices, independent of one’s attitudes toward risk …
Causes And Consequences Of The Protestant Reformation, Sascha O. Becker, Steven Pfaff, Jared Rubin
Causes And Consequences Of The Protestant Reformation, Sascha O. Becker, Steven Pfaff, Jared Rubin
ESI Working Papers
The Protestant Reformation is one of the defining events of the last millennium. Nearly 500 years after the Reformation, its causes and consequences have seen a renewed interest in the social sciences. Research in economics, sociology, and political science increasingly uses detailed individual-level, city-level, and regional-level data to identify drivers of the adoption of the Reformation, its diffusion pattern, and its socioeconomic consequences. This survey takes stock of the research so far, tries to point out what we know and what we do not know, and which are the most promising areas for future research.