Economic Theory Commons^™

Selection In The Lab: A Network Approach, Aleksandr Alekseev, Mikhail Freer

ESI Working Papers

We study the selection problem in economic experiments by focusing on its dynamic and network aspects. We develop a dynamic network model of student participation in a subject pool, which assumes that students' participation is driven by the two channels: the direct channel of recruitment and the indirect channel of student interaction. Using rich recruitment data from a large public university, we find that the patterns of participation and biases are consistent with the model. We also find evidence of both short- and long-run selection biases between males and females, as well as between cohorts of students. Males tend to …

Agglomeration And The Extent Of The Market: An Experimental Investigation Into Spatially Coordinated Exchange, Jordan Adamson

ESI Working Papers

How and why do agglomerations emerge? While economic historians emphasize trade and economic geographers emphasize variety, we still don’t understand the role of coordination. I fill this gap by extending the model of Fudenberg and Ellison (2003) to formalize Smith’s (1776) theory of agglomeration. I then test the model in a laboratory experiment and find individuals tend to coalesce purely to coordinate exchange, with more agglomeration when there is a larger variety of goods in the economy. I also find that tying individuals to the land reduces agglomeration, but magnifies the effect of variety.

Coordination And Evolutionary Dynamics: When Are Evolutionary Models Reliable?, Daniel Graydon Stephenson

ESI Publications

This study reports a continuous-time experimental test of evolutionary models in coordinated attacker–defender games. It implements three experimental treatment conditions: one with strong coordination incentives, one with weak coordination incentives, and one with zero coordination incentives. Each treatment exhibits identical equilibrium predictions but distinct evolutionary predictions. Observed behavior was tightly clustered around equilibrium under both the zero coordination treatment and the weak coordination treatment but widely dispersed from equilibrium under the strong coordination treatment. This result was anticipated by explicitly dynamic models but not by conventional stability criteria. In contrast to the widely maintained assumption of sign-preservation, subjects frequently switched …

Variation Among Populations In The Immune Protein Composition Of Mother's Milk Reflects Subsistence Pattern, Laura D. Klein, Jincui Huang, Elizabeth A. Quinn, Melanie A. Martin, Alicia A. Breakey, Michael Gurven, Hillard Kaplan, Claudia Valeggia, Grazyna Jasienska, Brooke Scelza, Carlito B. Lebrilla, Katie Hinde

ESI Publications

Lay Summary: Adaptive immune proteins in mothers’ milk are more variable than innate immune proteins across populations and subsistence strategies. These results suggest that the immune defenses in milk are shaped by a mother’s environment throughout her life.

Background and objectives: Mother’s milk contains immune proteins that play critical roles in protecting the infant from infection and priming the infant’s developing immune system during early life. The composition of these molecules in milk, particularly the acquired immune proteins, is thought to reflect a mother’s immunological exposures throughout her life. In this study, we examine the composition of innate …

Do Negative Random Shocks Affect Trust And Trustworthiness?, Hernán Bejarano, Joris Gillet, Ismael Rodriguez-Lara

ESI Publications

We report data from a variation of the trust game aimed at determining whether (and how) inequality and random shocks that affect wealth influence the levels of trust and trustworthiness. To tease apart the effect of the shock and the inequality, we compare behavior in a trust game where the inequality is initially given and one where it is the result of a random shock that reduces the second mover's endowment. We find that first‐movers send less to second‐movers but only when the inequality results from a random shock. As for the amount returned, second‐movers return less when they are …

Do Negative Random Shocks Affect Trust And Trustworthiness?, Hernán Bejarano, Joris Gillet, Ismael Rodriguez-Lara

ESI Publications

We report data from a variation of the trust game aimed at determining whether (and how) inequality and random shocks that affect wealth influence the levels of trust and trustworthiness. To tease apart the effect of the shock and the inequality, we compare behavior in a trust game where the inequality is initially given and one where it is the result of a random shock that reduces the second mover's endowment. We find that first‐movers send less to second‐movers but only when the inequality results from a random shock. As for the amount returned, second‐movers return less when they are …

The Supply Side Determinants Of Territory And Conflict, Jordan Adamson, Erik O. Kimbrough

ESI Working Papers

What determines the geographic extent of territory? We microfound and extend Boulding’s “Loss of Strength Gradient” to predict the extensive and intensive margins of conflict across space. We show how economies of scale in the production of violence and varying costs of projecting violence at a distance combine to affect the geographic distribution of conflict and territory. We test and probe the boundaries of this model in an experiment varying the fixed costs of conflict entry. As predicted, higher fixed costs increase the probability of exclusive territories; median behavior closely tracks equilibrium predictions in all treatments.

Experimental Research On Contests, Roman M. Sheremeta

ESI Working Papers

Costly competitions between economic agents are modeled as contests. Researchers use laboratory experiments to study contests and test comparative static predictions of contest theory. Commonly, researchers find that participants’ efforts are significantly higher than predicted by the standard Nash equilibrium. Despite overbidding, most comparative static predictions, such as the incentive effect, the size effect, the discouragement effect and others are supported in the laboratory. In addition, experimental studies examine various contest structures, including dynamic contests (such as multi-stage races, wars of attrition, tug-of-wars), multi-dimensional contests (such as Colonel Blotto games), and contests between groups. This article provides a short review …

The Distribution Of Information And The Price Efficiency Of Markets, Brice Corgnet, Mark Desantis, David Porter

ESI Working Papers

Apparently contradictory evidence has accumulated regarding the extent to which financial markets are informationally efficient. Shedding new light on this old debate, we show that differences in the distribution of private information may explain why informational efficiency can vary greatly across markets. We find that markets are informationally efficient when complete information is concentrated in the hands of competing insiders whereas they are less efficient when private information is dispersed across traders. A learning model helps to illustrate why inferring others’ private information from prices takes more time when information is more dispersed. We discuss the implications of our findings …

Causal Versus Consequential Motives In Mental Models Of Agent Social And Economic Action: Experiments, And The Neoclassical Diversion In Economics, Vernon L. Smith

ESI Working Papers

"In this paper I want to begin with the neoclassical supply and demand model of markets (SDM), whose static equilibrium consequences predicted outcomes far more accurately than were anticipated in laboratory experimental tests of the theory actuated by Jevons (1862, 1871; Smith, 1962). The observed predictive accuracy of SDM was not anticipated because complete information on supply and demand was widely believed, thought and taught to be a necessary condition for finding equilibrium. 1 Jevons’ model required him to have complete information in any particular market, as he only articulated a model of market optimal outcomes, and no model of …

Centrality And Cooperation In Networks, Boris Van Leeuwen, Abhijit Ramalingam, David Rojo Arjona, Arthur Schram

Economics Faculty Articles and Research

We investigate the effects of centrality on cooperation in groups. Players with centrality keep a group together by having a pivotal position in a network. In some of our experimental treatments, players can vote to exclude others and prevent them from further participation in the group. We find that, in the presence of exclusion, central players contribute significantly less than others, and that this is tolerated by those others. Because of this tolerance, teams with centrality manage to maintain high levels of cooperation.

Big Data In Economics, Matthew Harding, Jonathan Hersh

Economics Faculty Articles and Research

Big Data refers to data sets of much larger size, higher frequency, and often more personalized information. Examples include data collected by smart sensors in homes or aggregation of tweets on Twitter. In small data sets, traditional econometric methods tend to outperform more complex techniques. In large data sets, however, machine learning methods shine. New analytic approaches are needed to make the most of Big Data in economics. Researchers and policymakers should thus pay close attention to recent developments in machine learning techniques if they want to fully take advantage of these new sources of Big Data.

Younger Federal District Court Judges Favor Presidential Power, Tom Campbell, Nathaniel T. Wilcox

ESI Working Papers

From 1960 to 2015, Federal District Court opinions involving challenges to Executive Branch authority show that U.S. Federal District Court judges (trial judges) support such authority less as they age, with a sharp decline beginning near age 57. We argue that District judges know that elevation to the Federal Circuit Court of Appeals becomes increasingly improbable, and hence have less reason to ‘cooperate’ with the Executive, with advancing age. Political variables (and other variables) introduced as extra regressors do not reverse our main results. When there are contemporaneous vacancies on their Circuit courts, District judges in the eleven State Circuits …

Traveling With Joel, Peter Mclaren

Education Faculty Articles and Research

"Kovel’s contributions to a critique of psychiatry, of political theory and of the ruination of the biosphere have been pathfinding, highly revered, and reviewed and debated in highly prestigious journals and publications such as The New York Times. His work with revolutionaries around the globe (including sojourns in Nicaragua during the Sandinista revolution as just one of many examples), and his achievements alongside some of the leading political activists worldwide have secured for Kovel a premier place in the history of the left. But notoriety is not what drives Kovel’s work. What drives Kovel’s work is a relentless struggle for …

Partners Or Strangers? Cooperation, Monetary Trade, And The Choice Of Scale Of Interaction, Maria Bigoni, Gabriele Camera, Marco Casari

ESI Working Papers

We show that monetary exchange facilitates the transition from small to large-scale economic interactions. In an experiment, subjects chose to play an “intertemporal cooperation game” either in partnerships or in groups of strangers where payoffs could be higher. Theoretically, a norm of mutual support is sufficient to maximize efficiency through large-scale cooperation. Empirically, absent a monetary system, participants were reluctant to interact on a large scale; and when they did, efficiency plummeted compared to partnerships because cooperation collapsed. This failure was reversed only when a stable monetary system endogenously emerged: the institution of money mitigated strategic uncertainty problems.

'To Sell Or Not To Sell': Licensing Versus Selling By An Outside Innovator, Swapnendu Banerjee, Sougata Poddar

Economics Faculty Articles and Research

We study various modes of technology transfer of an outside innovator in a spatial framework when the potential licensees are asymmetric. In addition to different licensing options, we also look into the option of selling the property rights of innovation and find the optimal mode of technology transfer. For licensing we find the optimal policy is to offer pure royalty contracts to both licensee firms when cost differentials between the firms are relatively small compared to the transportation cost, otherwise offer a fixed fee licensing contract to the efficient firm only. Interestingly, we show the innovator is always better-off selling …

Marital Violence And Fertility In A Relatively Egalitarian High-Fertility Population, Jonathan Stieglitz, Benjamin C. Trumble, Hillard Kaplan, Michael Gurven

ESI Publications

Ultimate and proximate explanations of men’s physical intimate partner violence (IPV) against women have been proposed. An ultimate explanation posits that IPV is used to achieve a selfish fitness-relevant outcome, and predicts that IPV is associated with greater marital fertility. Proximate IPV explanations contain either complementary strategic components (for example, men’s desire for partner control), non-strategic components (for example, men’s self-regulatory failure), or both strategic and non-strategic components involving social learning. Consistent with an expectation from an ultimate IPV explanation, we find that IPV predicts greater marital fertility among Tsimané forager-horticulturalists of Bolivia (n = 133 marriages, 105 women). This …

Correction To: 'Greater Wealth Inequality, Less Polygyny: Rethinking The Polygyny Threshold Model', Cody T. Ross, Monique Borgerhoff Mulder, Seung-Yun Oh, Samuel Bowles, Bret Beheim, John Bunce, Mark Caudell, Gregory Clark, Heidi Colleran, Carmen Cortez, Patricia Draper, Russell D. Greaves, Michael Gurven, Thomas Headland, Janet Headland, Kim Hill, Barry Hewlett, Hillard Kaplan, Jeremy Koster, Karen Kramer, Frank Marlowe, Richard Mcelereath, David Nolin, Marsha Quinlan, Robert Quinlan, Caissa Revilla-Minaya, Brooke Scelza, Ryan Schacht, Mary Shenk, Ray Uehara, Eckart Voland, Kai Willführ, Bruce Winterhalder, John Ziker, Christopher Von Rueden

ESI Publications

No abstract provided.

Greater Wealth Inequality, Less Polygyny: Rethinking The Polygyny Threshold Model, Cody T. Ross, Monique Borgerhoff Mulder, Seung-Yun Oh, Samuel Bowles, Bret Beheim, John Bunce, Mark Caudell, Gregory Clark, Heidi Colleran, Carmen Cortez, Patricia Draper, Russell D. Greaves, Michael Gurven, Thomas Headland, Janet Headland, Kim Hill, Barry Hewlett, Hillard Kaplan, Jeremy Koster, Karen Kramer, Frank Marlowe, Richard Mcelreath, David Nolin, Marsha Quinlan, Robert Quinlan, Caissa Revilla-Minaya, Brooke Scelza, Ryan Schacht, Mary Shenk, Ray Uehara, Eckart Voland, Kai Willführ, Bruce Winterhalder, John Ziker, Christopher Von Rueden

ESI Publications

Monogamy appears to have become the predominant human mating system with the emergence of highly unequal agricultural populations that replaced relatively egalitarian horticultural populations, challenging the conventional idea—based on the polygyny threshold model—that polygyny should be positively associated with wealth inequality. To address this polygyny paradox, we generalize the standard polygyny threshold model to a mutual mate choice model predicting the fraction of women married polygynously. We then demonstrate two conditions that are jointly sufficient to make monogamy the predominant marriage form, even in highly unequal societies. We assess if these conditions are satisfied using individual-level data from 29 human …

Sleep Variability And Nighttime Activity Among Tsimane Forager‐Horticulturalists, Gandhi Yetish, Hillard Kaplan, Michael Gurven

ESI Publications

Objectives

A common presumption in sleep research is that “normal” human sleep should show high night‐to‐night consistency. Yet, intra‐individual sleep variation in small‐scale subsistence societies has never been studied to test this idea. In this study, we assessed the degree of nightly variation in sleep patterns among Tsimane forager‐horticulturalists in Bolivia, and explored possible drivers of the intra‐individual variability.

Methods

We actigraphically recorded sleep among 120 Tsimane adults (67 female), aged 18–91, for an average of 4.9 nights per person using the Actigraph GT3X and Philips Respironics Actiwatch 2. We assessed intra‐individual variation using intra‐class correlations and average deviation from …

Equilibrium Wage Rigidity In Directed Search, Gabriele Camera, Jaehong Kim

ESI Working Papers

Matching frictions and downward wage rigidity emerge as equilibrium phenomena in a twosided labor market where firms sustain variable wage adjustment costs. Firms post wages to attract workers and matches are endogenous. Reducing the wage relative to the wage previously posted is costly to the firm, where the cost is proportional to the size of the proposed cut. Shocks to the firm’s profitability may yield an equilibrium wage above what the firm would offer absent proportional adjustment costs. Wage cuts can be partial or full, immediate or delayed, and are non-linear in the shock size. Importantly, wages are sticky even …

Land Assembly With Taxes, Not Takings, Mark Desantis, Matthew W. Mccarter, Abel Winn

ESI Publications

We use a novel tax mechanism – ‘rejected offer reassessment’ (ROR) – in laboratory experiments to discourage seller holdout and facilitate land assembly. Under this mechanism, if a landowner rejects a developer’s offer, his taxable property value is reassessed to be equal to the rejected offer, increasing his taxes. We find that, relative to a control treatment, ROR discourages the magnitude of seller holdout (but not its frequency) and increases the rate of successful land assembly by almost 60%. It also increases the gains from trade by 22.1% relative to the control treatment, but the difference is not statistically significant.

A Portable Method Of Eliciting Respect For Social Norms, Erik O. Kimbrough, Alexander Vostroknutov

Economics Faculty Articles and Research

Recent models of prosociality suggest that cooperation in laboratory games may be better understood as resulting from concern for social norms than from prosocial preferences over outcomes. Underlying this interpretation is the idea that people exhibit heterogeneous respect for shared norms. We introduce a new, abstract task to elicit a proxy for individual norm-following propensity by asking subjects to choose from two actions, where one is costly. We instruct subjects that “the rule is” to take the costly action. Their willingness to incur such a cost reveals respect for norms. We show that choices in this task are similar across …

Karl Marx And Liberation Theology: Dialectical Materialism And Christian Spirituality In, Against, And Beyond Contemporary Capitalism, Peter Mclaren, Petar Jandrić

Education Faculty Articles and Research

This paper explores convergences and discrepancies between liberation theology and the works of Karl Marx through the dialogue between one of the key contemporary proponents of liberation theology, Peter McLaren, and the agnostic scholar in critical pedagogy, Petar Jandrić. The paper briefly outlines liberation theology and its main convergences with the works of Karl Marx. Exposing striking similarities between the two traditions in denouncing the false God of money, it explores differences in their views towards individualism and collectivism. It rejects shallow rhetorical homologies between Marx and the Bible often found in liberation theology, and suggests a change of focus …

Impulsive Behavior In Competition: Testing Theories Of Overbidding In Rent-Seeking Contests, Roman M. Sheremeta

ESI Working Papers

Contests are commonly used in the workplace to motivate workers, determine promotion, and assign bonuses. Although contests can be very effective at eliciting high effort, they can also lead to inefficient effort expenditure (overbidding). Researchers have proposed various theories to explain overbidding in contents, including mistakes, systematic biases, the utility of winning, and relative payoff maximization. Using 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 …

Cooler Heads Prevail: An Experimental Study On The “Cooling” Effect Of The Strategy Method On Agent Resentment, Jing L. Davis

Economics Faculty Articles and Research

This study investigates whether agents’ resentment of controls in a gift-exchange game can be effectively mitigated using the strategy method where agents’ effort choices are elicited contingent on all possible contract choices by principals. The results suggest that allowing agents to contemplate contract choices prospectively results in less resentment and that agents exert higher effort than without this “cooling” process.

Preference Conformism: An Experiment, Enrique Fatas, Shaun P. Hargreaves Heap, David Rojo Arjona

Economics Faculty Articles and Research

This paper reports on an experiment designed to test whether people’s preferences change to become more alike. Such preference conformism would be worrying for an economics that takes individual preferences as given (‘de gustibus es non disputandum’). So the test is important. But it is also difficult. People can behave alike for many reasons and the key to the design of our test, therefore, is the control of the other possible reasons for observing apparent peer effects. We find evidence of preference conformism in the aggregate and at the individual level (where there is heterogeneity). It appears also to be …

Goal Setting In The Principal-Agent Model: Weak Incentives For Strong Performance, Brice Corgnet, Joaquín Gómez-Miñambres, Roberto Hernán-González

ESI Publications

We study a principal–agent framework in which principals can assign wage-irrelevant goals to agents. We find evidence that, when given the possibility to set wage-irrelevant goals, principals select incentive contracts for which pay is less responsive to agents' performance. Agents' performance is higher in the presence of goal setting despite weaker incentives. We develop a principal–agent model with reference-dependent utility that illustrates how labor contracts combining weak monetary incentives and wage-irrelevant goals can be optimal. The pervasive use of non-monetary incentives in the workplace may help account for previous empirical findings suggesting that firms rely on unexpectedly weak monetary incentives.

A Theory Of Focal Points In 2x2 Games, Jonathan W. Leland, Mark Schneider

ESI Publications

Since the classic work of Schelling, the notion of a focal point has been widely applied to explain coordinated behavior. However, focal points remain largely outside the formal apparatus of game theory. This paper develops a model of play in 2 × 2 games where payoff differences determine what strategy players will perceive as “salient” and choose to play. The model uniquely predicts which outcome will emerge for virtually the entire class of 2 × 2 normal form games. For the subset of such games involving coordination and asymmetric payoffs, payoff differences identify focal outcomes and strategies in the same …

Clarity Trumps Content: An Experiment On Information Acquisition In Beauty Contests, Sanjay Banerjee, Hong Qu, Ran Zhao

Accounting Faculty Articles and Research

We provide experimental evidence that under strong beauty contest incentives, players ignore signals from an information source with high content if the source has low clarity. Instead, they acquire equally costly signals from a source with higher clarity despite its lower content. Content measures how precisely an information source identifies an economic situation, whereas clarity measures how precisely the source content is commonly interpreted. Low clarity impairs players' ability to coordinate. When signals are provided exogenously, our experimental results are less severe than theoretical predictions, but consistent with level-2 reasoning in a cognitive behavioral model. When players acquire signals endogenously, …