Other Economics Commons^™

The Effect Of Earned Vs. House Money On Price Bubble Formation In Experimental Asset Markets, Brice Corgnet, Roberto Hernán González, Praveen Kujal, David Porter

ESI Publications

Does house money exacerbate price bubbles? We compare house money asset market experiments with an earned money treatment where initial portfolios are constructed from a real effort task. Bubbles occur; however, trading volumes and earnings dispersion are significantly higher with house money. We investigate the role of cognitive ability in accounting for the differences in earnings distribution across treatments by using the cognitive reflection test (CRT). Low CRT subjects earned less than high CRT subjects. Low CRT subjects were net purchasers (sellers) of shares when the price was above (below) fundamental value. The opposite was true for high CRT subjects.

Risky Business: An Analysis Of Teacher Risk Preferences, Daniel H. Bowen, Stuart Buck, Cary Deck, Jonathan N. Mills, James V. Shuls

ESI Publications

A range of proposals aim to reform teacher compensation, recruitment, and retention. Teachers have generally not embraced these policies. One potential explanation for their objections is that teachers are relatively risk averse. We examine this hypothesis using a risk-elicitation task common to experimental economics. By comparing preferences of new teachers with those entering other professions, we find that individuals choosing to teach are significantly more risk averse. This suggests that the teaching profession may attract individuals who are less amenable to certain reforms. Policy-makers should take into account teacher risk characteristics when considering reforms that may clash with preferences.

Do Prediction Markets Aid Defenders In A Weak-Link Contest?, Cary Deck, Li Hao, David Porter

ESI Publications

Laboratory experiments have demonstrated that prediction market prices weakly aggregate the disparate information of the traders about states (moves) of nature. However, in many practical applications one is attempting to predict the move of a strategic rival. This is particularly important in aggressor–defender contests. This paper reports an experiment where the defender may have the advantage of observing a prediction market on the aggressor's action. The results of the experiments indicate that: the use of prediction markets does not increase the defender's win rate; prediction markets contain reliable information regarding aggressors’ decisions that is not being exploited by defenders; and …

The Role Of The Decision-Making Regime On Cooperation In A Workgroup Social Dilemma: An Examination Of Cyberloafing, Brice Corgnet, Roberto Hernán-González, Matthew W. Mccarter

ESI Publications

A burgeoning problem facing organizations is the loss of workgroup productivity due to cyberloafing. The current paper examines how changes in the decision-making rights about what workgroup members can do on the job affect cyberloafing and subsequent work productivity. We compare two different types of decision-making regimes: autocratic decision-making and group voting. Using a laboratory experiment to simulate a data-entry organization, we find that, while autocratic decision-making and group voting regimes both curtail cyberloafing (by over 50%), it is only in group voting that there is a substantive improvement (of 38%) in a cyberloafer’s subsequent work performance. Unlike autocratic decision-making, …

Experimental Evolution And Economics, Terence C. Burnham, Aimee Dunlap, David W. Stephens

ESI Publications

This is a theory paper that advocates experimental evolution as a novel approach to study economic preferences. Economics could benefit because preferences are exogenous, axiomatic, and contentious. Experimental evolution allows the empirical study of preferences by placing organisms in designed environments and studying their genotype and phenotype over multiple generations. We describe a number of empirical studies on different aspects of preferences. We argue that experimental evolution has the potential to improve economics.

Peer Pressure And Moral Hazard In Teams: Experimental Evidence, Brice Corgnet, Roberto Hernán-González, Stephen Rassenti

ESI Publications

Team incentives have been found to be particularly effective both in the lab and in the field despite the moral hazard in teams problem identified by Holmström (1982). In a newly developed virtual workplace, we show that, in line with Holmström, moral hazard in teams is indeed pervasive. Subsequently, we find strong evidence for the conjecture of Kandel and Lazear (1992) that peer pressure may resolve the moral hazard in teams problem. Organizations equipped with a very weak form of peer monitoring (anonymous and without physical proximity, verbal threats or face-to-face interactions) perform as well as those using individual incentives.

Language And Cooperation In Hominin Scavenging, Bart J. Wilson, Samuel R. Harris

ESI Working Papers

Bickerton (2009, 2014) hypothesizes that language emerged as the solution to a scavenging problem faced by proto‐humans. We design a virtual world to explore how people use words to persuade others to work together for a common end. By gradually reducing the vocabularies that the participants can use, we trace the process of solving the hominin scavenging problem. Our experiment changes the way we think about social dilemmas. Instead of asking how does a group overcome the selfinterest of its constituents, the question becomes, how do constituents persuade one another to work together for a common end that yields a …

Sharing As Risk Pooling In A Social Dilemma Experiment, Todd L. Cherry, E. Lance Howe, James J. Murphy

ESI Working Papers

In rural economies with missing or incomplete markets, idiosyncratic risk is frequently pooled through informal networks. Idiosyncratic shocks, however, are not limited to private goods but can also restrict an individual from partaking in or benefiting from a collective activity. In these situations, a group must decide whether to provide insurance to the affected member. In this paper, we describe results of a laboratory experiment designed to test whether a simple sharing institution can sustain risk pooling in a social dilemma with idiosyncratic risk. We test whether risk can be pooled without a commitment device and, separately, whether effective risk …

Revisiting The Tradeoff Between Risk And Incentives: The Shocking Effect Of Random Shocks, Brice Corgnet, Roberto Hérnan-Gonzalez

ESI Working Papers

Despite its central role in the theory of incentives, empirical evidence of a tradeoff between risk and incentives remains scarce. We reexamine this empirical puzzle in a controlled laboratory environment so as to isolate possible confounding factors encountered in the field. In line with the principal-agent model, we find that principals increase fixed pay while lowering performance pay when the relationship between effort and output is noisier. Unexpectedly, agents produce substantially more in the noisy environment than in the baseline despite lesser pay for performance. We show that this result can be accounted for by introducing agents’ loss aversion in …

The Cognitive Basis Of Social Behavior: Cognitive Reflection Overrides Antisocial But Not Always Prosocial Motives, Brice Corgnet, Antonio M. Espín, Roberto Hérnan-Gonzalez

ESI Working Papers

Even though human social behavior has received considerable scientific attention in the last decades, its cognitive underpinnings are still poorly understood. Applying a dual-process framework to the study of social preferences, we show in two studies that individuals with a more reflective/deliberative cognitive style, as measured by scores on the Cognitive Reflection Test (CRT), are more likely to make choices consistent with “mild” altruism in simple non-strategic decisions. Such choices increase social welfare by increasing the other person’s payoff at very low or no cost for the individual. The choices of less reflective individuals (i.e. those who rely more heavily …

Dynamic Directed Search, Gabriele Camera, Jaehong Kim

ESI Working Papers

The directed search model (Peters, 1984) is static; its dynamic extensions typically restrict strategies, often assuming price or match commitments. We lift such restrictions to study equilibrium when search can be directed over time, without constraints and at no cost. In equilibrium trade frictions arise endogenously, and price commitments, if they do exist, are self-enforcing. In contrast to the typical model, there exists a continuum of equilibria that exhibit trade frictions. These equilibria support any price above the static price, including monopoly pricing in arbitrarily large markets. Dispersion in posted prices can naturally arise as temporary or permanent phenomenon despite …

Generalizations Of The General Lotto And Colonel Blotto Games, Dan Kovenock, Brian Roberson

ESI Working Papers

In this paper, we generalize the General Lotto game (budget constraints satisfied in expectation) and the Colonel Blotto game (budget constraints hold with probability one) to allow for battlefield valuations that are heterogeneous across battlefields and asymmetric across players, and for the players to have asymmetric resource constraints. We completely characterize Nash equilibrium in the generalized version of the General Lotto game and then show how this characterization can be applied to identify equilibria in the Colonel Blotto version of the game. In both games, we find that there exist sets of non-pathological parameter configurations of positive Lebesgue measure with …

The Impact Of Social Information On The Voluntary Provision Of Public Goods: A Replication Study, James J. Murphy, Nomin Batmunkh, Ben Nilson, Samantha Ray

ESI Working Papers

Shang and Croson (2009) found that providing information about the donation decisions of others can have a positive impact on individual donations to public radio. In this study, we attempted to replicate their results, however, we found no evidence of that social comparisons affected donation decisions. Most of our donors were renewing members, a group which Shang and Croson also found were not influenced by social information.

On The Merit Of Equal Pay: When Influence Activities Interact With Incentive Setting, Brice Corgnet, Ludivine Martin, Peguy Ndodjang, Angela Sutan

ESI Working Papers

Influence costs models predict that organizations should limit managerial discretion to deter organizational members from engaging in wasteful politicking activities. We test this conjecture in a controlled, yet realistic, work environment in which we allow employees to influence managers’ decisions about rewards. We find that influence activities are pervasive and significantly lower organizational performance. Organizational performance suffers because principals offer weaker incentives when influence activities are allowed than when they are not. Importantly, we show that equal pay incentive schemes perform better when influence activities are available than when they are not. Our results thus support the idea that prevalent …

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.

Competition Between And Within Universities: Theoretical And Experimental Investigation Of Group Identity And The Desire To Win, Zhuoqiong Charlie Chen, David Ong, Roman M. Sheremeta

ESI Working Papers

We study how salient group identity, created through competition between students from different universities, as well as differences in the value of winning impact competitive behavior. Our experiment employs a simple all-pay auction within and between two university subject pools. We find that when competing against their peers, students within the lower tier university bid more aggressively than students within the top-tier university. Also, students from the lower tier university, in particular women, bid more aggressively when competing against students from the top-tier university. These findings, interpreted through a theoretical model incorporating both group identity and differential value of winning, …

Revisiting Information Aggregation In Asset Markets: Reflective Learning & Market Efficiency, Brice Corgnet, Mark Desantis, David Porter

ESI Working Papers

The ability of markets to aggregate disperse information leading to prices that reflect the fundamental value of an asset is key to assessing the often-debated efficiency of markets. We study information aggregation in the experimental environment originally created by Plott and Sunder (1988). Contrary to the current belief, we find that markets do not aggregate information. The model that best describes our data, as well as data on information aggregation subsequent to Plott and Sunder (1988), is prior information (Lintner, 1969). That is, traders use their private information but fail to use market prices to infer other traders’ information. We …

An Experiment On Retail Payments Systems, Gabriele Camera, Marco Casari, Stefania Bortolotti

ESI Working Papers

We develop a novel theoretical and experimental framework to study adoption and use of cash versus electronic payments in retail transactions. The design allows us to assess the behavioral impact of sellers’ service fees and buyers’ rewards from using electronic payments. In the experiment, buyers and sellers faced a coordination problem, independently choosing a payment method before trading. Sellers readily adopted electronic payments but buyers did not. Eliminating service fees or introducing rewards significantly increased adoption and use of electronic payments. Buyers’ economic incentives played a pivotal role in the diffusion of electronic payments but cannot fully explain their adoption …

The Effects Of Make And Take Fees In Experimental Markets, Vince Bourke, David Porter

ESI Working Papers

We conduct a series of experiments to examine the effects of the make and take fee structure currently used by equity exchanges in the U.S. We examine the effects of these fees on measures of market quality (allocative efficiency, trading volume, book depth, and the bid-ask spread). With the exception of increased book depth, we document no significant effects of make and take fees relative to a baseline case in which trading fees are assessed on both sides of a transaction.

Asymmetric And Endogenous Within-Group Communication In Competitive Coordination Games, Timothy N. Cason, Roman Sheremeta, Jingjing Zhang

ESI Working Papers

Within-group communication in competitive coordination games has been shown to increase competition between groups and lower efficiency. This study further explores potentially harmful effects of communication, by addressing the questions of (i) asymmetric communication and (ii) the endogenous emergence of communication. Our theoretical analysis provides testable hypotheses regarding the effect of communication on competitive behavior and efficiency. We test these predictions using a laboratory experiment. The experiment shows that although asymmetric communication is not as harmful as symmetric communication, it leads to more aggressive competition and lower efficiency relative to the case when neither group can communicate. Moreover, groups vote …

Selective Recognition: How To Recognize Donors To Increase Charitable Giving, Anya Samek, Roman Sheremeta

ESI Working Papers

Recognizing donors by revealing their identities is important for increasing charitable giving. We conducted a field experiment to examine how different recognition methods impact giving, and found that all forms of recognition that we examined had a positive impact on increasing donations, whereby recognizing only highest donors (positive recognition) and recognizing only lowest donors (negative recognition) had the most pronounced effect. We argue that selective recognition (both positive and negative) creates tournament-like incentives. Recognizing the highest donors activates the desire to seek a positive prize of prestige, thus increasing the proportion of donors who contribute large amounts. Recognizing the lowest …

Status And The Demand For Visible Goods: Experimental Evidence On Conspicuous Consumption, David Clingingsmith, Roman M. Sheremeta

ESI Working Papers

Some economists argue that consumption of publicly visible goods is driven by social status. Making a causal inference about this claim is difficult with observational data. We conduct an experiment in which we vary both whether a purchase of a physical product is publicly visible or kept private and whether the income used for purchase is linked to social status or randomly assigned. Making consumption choices visible leads to a large increase in demand when income is linked to status, but not otherwise. We investigate the characteristics that mediate this effect and estimate its impact on welfare.

Low Mineral Density Of A Weight-Bearing Bone Among Adult Women In A High Fertility Population, Jonathan Stieglitz, Bret Beheim, Benjamin C. Trumble, Felicia C. Madimenos, Hillard Kaplan, Michael Gurven

ESI Publications

Evolutionary theories of aging posit that greater reproductive effort causes somatic decline given a fundamental trade-off between investing energy in reproduction and repair. Few studies in high fertility human populations support this hypothesis, and problems of phenotypic correlation can obscure the expected trade-off between reproduction and somatic condition. This cross-sectional study investigates whether greater reproductive effort is associated with reduced calcaneal bone mineral density (BMD) among female Tsimane forager-farmers of lowland Bolivia. We also investigate whether female Tsimane BMD values are lower than sex- and age-matched US reference values, despite the fact that Tsimane engage in higher physical activity levels …

Leadership In An Egalitarian Society, Christopher Von Rueden, Michael Gurven, Hillard Kaplan, Jonathan Stieglitz

ESI Publications

Leadership is instrumental to resolution of collective action dilemmas, particularly in large, heterogeneous groups. Less is known about the characteristics or effectiveness of leadership in small-scale, homogeneous, and relatively egalitarian societies, in which humans have spent most of our existence. Among Tsimane’ forager-horticulturalists of Bolivia, we (1) assess traits of elected leaders under experimental and naturalistic conditions and (2) test whether leaders impact collective action outcomes. We find that elected leaders are physically strong and have more kin and other exchange partners. Their ranks on physical dominance, kin support, and trustworthiness predict how well their groups perform, but only where …

Political Influence Associates With Cortisol And Health Among Egalitarian Forager-Farmers, Christopher Von Rueden, Benjamin C. Trumble, Melissa Emery Thompson, Jonathan Stieglitz, Paul L. Hooper, Aaron D. Blackwell, Hillard Kaplan, Michael Gurven

ESI Publications

Background and objectives: Low social status increases risk of disease due, in part, to the psychosocial stress that accompanies feeling subordinate or poor. Previous studies report that chronic stress and chronically elevated cortisol can impair cardiovascular and immune function. We test whether lower status is more benign in small-scale, relatively egalitarian societies, where leaders lack coercive authority and there is minimal material wealth to contest.

Methodology: Among Tsimane’ forager-horticulturalists of lowland Bolivia, we compare informal political influence among men with urinary cortisol, immune activation (innate and acquired), and morbidity as assessed during routine medical exams.

Results: After …

Cost Share Adjustment Processes For Cooperative Group Decisions About Shared Goods: A Design Approach, Edna T. Loehman, Richard Kiser, Stephen Rassenti

Economics Faculty Articles and Research

For group decision about shared goods, the nature of the shared good and how its cost is to be shared among group members must be determined. Complexity arises from heterogeneity in preferences and endowments and nonlinear cost. To facilitate group decision, this paper proposes special type of group decision support system, a cost share adjustment process (CSAP), in which cost shares are adjusted iteratively via algorithmic rules until unanimity is reached, ideally producing a socially optimal, cost feasible, and fair outcome. In contrast to public good literature, our designs apply for situations of nonlinear cost, with economies of scale and …

Genomic Correlates Of Atherosclerosis In Ancient Humans, Albert Zink, L. Samuel Wann, Randall C. Thompson, Andreas Keller, Frank Maixner, Adel H. Allam, Caleb E. Finch, Bruno Frohlich, Hillard Kaplan, Guido P. Lombardi, M. Linda Sutherland, James D. Sutherland, Lucia Watson, Samantha L. Cox, Michael I. Miyamoto, Jagat Narula, Alexandre F. R. Stewart, Gregory S. Thomas, Johannes Krause

ESI Publications

Paleogenetics offers a unique opportunity to study human evolution, population dynamics, and disease evolution in situ. Although histologic and computed x-ray tomographic investigations of ancient mummies have clearly shown that atherosclerosis has been present in humans for more than 5,000 years, limited data are available on the presence of genetic predisposition for cardiovascular disease in ancient human populations. In a previous whole-genome study of the Tyrolean Iceman, a 5,300-year-old glacier mummy from the Alps, an increased risk for coronary heart disease was detected. The Iceman’s genome revealed several single nucleotide polymorphisms that are linked with cardiovascular disease in genome-wide association …

Funerary Artifacts, Social Status, And Atherosclerosis In Ancient Peruvian Mummy Bundles, M. Linda Sutherland, Samantha L. Cox, Guido P. Lombardi, Lucia Watson, Clide M. Valladolid, Caleb E. Finch, Albert Zink, Bruno Frohlich, Hillard Kaplan, David E. Michalik, Michael I. Miyamoto, Adel H. Allam, Randall C. Thompson, L. Samuel Wann, Jagat Narula, Gregory S. Thomas, James D. Sutherland

ESI Publications

Background: Evidence of atherosclerotic plaques in ancient populations has led to the reconsideration of risk factors for heart disease and of the common belief that it is a disease of modern times.

Methods: Fifty-one wrapped mummy bundles excavated from the sites of Huallamarca, Pedreros, and Rinconada La Molina from the Puruchuco Museum collection in Lima, Peru, were scanned using computed tomography to investigate the presence of atherosclerosis. Funerary artifacts contained within the undisturbed mummy bundles were analyzed as an attempt to infer the social status of the individuals to correlate social status with evidence of heart disease in …

Why Did Ancient People Have Atherosclerosis?: From Autopsies To Computed Tomography To Potential Causes, Gregory S. Thomas, L. Samuel Wann, Adel H. Allam, Randall C. Thompson, David E. Michalik, M. Linda Sutherland, James D. Sutherland, Guido P. Lombardi, Lucia Watson, Samantha L. Cox, Clide M. Valladolid, Gomaa Abd El-Maksoud, Muhammad Al-Tohamy Soliman, Ibrahem Badr, Abd El-Halim Nur El-Din, Emily M. Clarke, Ian G. Thomas, Michael I. Miyamoto, Hillard Kaplan, Bruno Frohlich, Jagat Narula, Alexandre F. R. Stewart, Albert Zink, Caleb E. Finch

ESI Publications

Computed tomographic findings of atherosclerosis in the ancient cultures of Egypt, Peru, the American Southwest and the Aleutian Islands challenge our understanding of the fundamental causes of atherosclerosis. Could these findings be true? Is so, what traditional risk factors might be present in these cultures that could explain this apparent paradox? The recent computed tomographic findings are consistent with multiple autopsy studies dating as far back as 1852 that demonstrate calcific atherosclerosis in ancient Egyptians and Peruvians. A nontraditional cause of atherosclerosis that could explain this burden of atherosclerosis is the microbial and parasitic inflammatory burden likely to be present …

Atherosclerosis: A Longue Durée Approach, L. Samuel Wann, Randall C. Thompson, Adel H. Allam, Caleb E. Finch, Albert Zink, Hillard Kaplan, Bruno Frohlich, Guido P. Lombardi, M. Linda Sutherland, James D. Sutherland, Lucia Watson, Samantha L. Cox, Michael I. Miyamoto, Alexandre F. R. Stewart, Jagat Narula, Gregory S. Thomas

ESI Publications

Fernand Braudel popularized the longue durée approach to scholarly investigation in the mid-20th century. The longue durée approach can be loosely translated to mean “look for the big picture, synthesize data collected using all available methodology over the long periods of time to identify fundamental principles, rather than becoming preoccupied with isolated observations.” Braudel, a historian and economist, emphasized observation of enduring historical structures and analysis of long-term, panoramic economic trends rather than concentrating on detailed descriptions of particular events or individuals. He also urged the use of insight gained from many scholarly disciplines to identify the essential underpinnings of …