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Full-Text Articles in Economic Theory
Cognitive Abilities And Individual Earnings In Hybrid Continuous Double Auctions, Yan Peng, Jason Shachat, Lijia Wei, S. Sarah Zhang
Cognitive Abilities And Individual Earnings In Hybrid Continuous Double Auctions, Yan Peng, Jason Shachat, Lijia Wei, S. Sarah Zhang
ESI Working Papers
We study the influence of cognitive abilities, in particular reaction time, trader intuition (Theory of Mind), and cognitive reflection abilities, on human participants’ individual earnings when competing alongside algorithmic traders in continuous double auctions. In balanced markets, where each human trader has an algorithmic trader clone with the same valuations or costs, faster human reaction time significantly improves trading performance, while Theory of Mind can be detrimental to human trading performance, particularly for sellers. For unbalanced markets with humans and algorithmic traders on opposite sides of the market, the effects of cognitive abilities depend on trader role as well as …
One-Half Heuristic In Overconfidence Research, Vojtěch Zíka
One-Half Heuristic In Overconfidence Research, Vojtěch Zíka
ESI Working Papers
This laboratory experiment (N=120) explored the possibility that overconfidence research concerning overestimation and overplacement may be affected by the one-half heuristic, a tendency of individuals to estimate quantities with unknown distributions at half of the maximum value. The data from multiple rounds of the computerized hand game Rock–Paper–Scissors provide convincing evidence that half of the maximum is the most popular estimate and that manipulating the game’s average score can affect the direction and magnitude of estimation, averaging, and placement levels. The resulting methodological proposal is that the score participants estimate should have an expected value equal to half of the …
Discrete Rule Learning In First Price Auctions, Jason Shachat, Lijia Wei
Discrete Rule Learning In First Price Auctions, Jason Shachat, Lijia Wei
ESI Working Papers
We present a hidden Markov model of discrete strategic heterogeneity and learning in first price independent private values auctions. The model includes three latent bidding rules: constant absolute mark-up, constant percentage mark-up, and strategic best response. Rule switching probabilities depend upon a bidder's past auction outcomes and a myopic reinforcement learning dynamic. We apply this model to a new experiment that varies the number of bidders and the auction frame between forward and reverse. We find the proportion of bidders following constant absolute mark-up increases with experience, and is higher when the number of bidders is large. The primary driver …
Speed Traps: Algorithmic Trader Performance Under Alternative Market Structures, Yan Peng, Jason Shachat, Lijia Wei, S. Sarah Zhang
Speed Traps: Algorithmic Trader Performance Under Alternative Market Structures, Yan Peng, Jason Shachat, Lijia Wei, S. Sarah Zhang
ESI Working Papers
Using laboratory experiments, we illustrate that trading algorithms that prioritize low latency pose certain pitfalls in a variety of market structures and configurations. In hybrid double auctions markets with human traders and trading agents, we find superior performance of trading agents to human traders in balanced markets with the same number of human and Zero Intelligence Plus (ZIP) buyers and sellers only, thus providing a partial replication of Das et al. (2001). However, in unbalanced markets and extreme market structures, such as monopolies and duopolies, fast ZIP agents fall into a speed trap and both human participants and slow ZIP …
The Tug-Of-War In The Laboratory, Cary Deck, Roman Sheremeta
The Tug-Of-War In The Laboratory, Cary Deck, Roman Sheremeta
ESI Working Papers
The tug-of-war is a multi-battle contest often used to describe extended interactions in economics, operations management, political science, and other disciplines. While there has been some theoretical work, to the best of our knowledge, this paper provides the first experimental study of the tug-of-war. The results show notable deviations of behavior from theory derived under standard assumptions. In the first battle of the tug-of-war, subjects often bid less, while in the follow-up battles, they bid more than predicted. Also, contrary to the prediction, bids tend to increase in the duration of the tug-of-war. Finally, extending the margin necessary to win …
The Cultural Transmission Of Trust Norms: Evidence From A Lab In The Field On A Natural Experiment, Jared Rubin, Elira Karaja
The Cultural Transmission Of Trust Norms: Evidence From A Lab In The Field On A Natural Experiment, Jared Rubin, Elira Karaja
ESI Working Papers
We conduct trust games in three villages in a northeastern Romanian commune. From 1775-1919, these villages were arbitrarily assigned to opposite sides of the Habsburg and Ottoman/Russian border despite being located seven kilometers apart. Russian and Ottoman Öscal institutions were more rapacious than Habsburg institutions, which may have eroded trust of outsiders (relative to co-villagers). Our design permits us to rigorously test this conjecture, and more generally, whether historically institutionalized cultural norms are transmitted intergenerationally. We Önd that participants on the Ottoman/Russian side are indeed less likely to trust outsiders but more likely to trust co-villagers.
Tug-Of-War In The Laboratory, Cary Deck, Roman M. Sheremeta
Tug-Of-War In The Laboratory, Cary Deck, Roman M. Sheremeta
ESI Working Papers
Tug-of-war is a multi-battle contest often used to describe extended interactions in economics, management, political science, and other disciplines. While there has been some theoretical work, there is scant empirical evidence regarding behavior in a tug-of-war game. To the best of our knowledge, this paper provides the first experimental study of the tug-of-war. The results show notable deviations of behavior from theory. In the first battle of the tug-of-war, subjects exert fewer resources, while in the follow-up battles, they exert more resources than predicted. Also, contrary to the theoretical prediction, resource expenditures tend to increase in the duration of the …
When Income Depends On Performance And Luck: The Effects Of Culture And Information On Giving, Pedro Rey-Biel, Roman M. Sheremeta, Neslihan Uler
When Income Depends On Performance And Luck: The Effects Of Culture And Information On Giving, Pedro Rey-Biel, Roman M. Sheremeta, Neslihan Uler
ESI Working Papers
We study how giving depends on income and luck, and how culture and information about the determinants of others’ income affect this relationship. Our data come from an experiment conducted in two countries, the US and Spain, which have different beliefs about how income inequality arises. We find no cross-cultural differences in giving when individuals are informed about the determinants of income, but when uninformed, Americans give less than Spanish. Culture and information not only affect individual giving, but also the determinants of giving and the beliefs about how income inequality arises. Beliefs partially moderate cross-cultural differences in giving.