University of Exeter Business School
Workshop for the Opening of the Finance and Economic Experimental Laboratory at Exeter (FEELE)
Friday, 30th April 2004, 11:25am – 6pm
Papers Presented at the Workshop
This paper discovers significant differences between southern and northern Europeans in a dynamic version of the “trust game” played by Ph.D. students from different nationalities at the European University Institute. Our version of the trust game allows subjects to choose the receivers to whom they make transfers. Southerners are discriminated against, particularly in terms of contacts and mainly by northern subjects. Strikingly, this discrimination builds up rather than dying out with experience. More than for not being trustworthy (i.e. having a low propensity to reciprocate by making a generous payback for a transfer received), Southerners are being punished for their own low level of trust (i.e. having a low propensity to contact another player with a generous transfer), and for this reason end up leaving the game with lower payoffs.View the Paper (PDF) Rosemarie Nagel
This paper explores predictability of behavior in coordination games with multiple equilibria. In a laboratory experiment we measure subjects’ certainty equivalents for three coordination games and one lottery. Attitudes towards strategic uncertainty in coordination games are related to risk aversion, experience seeking, gender and age.
From the distribution of certainty equivalents among participating students we estimate probabilities for successful coordination in a wide range of coordination games. For many games success of coordination is predictable with a reasonable error rate. The best response of a risk neutral player is close to the global-game solution.
Comparing choices in coordination games with revealed risk aversion, we estimate subjective probabilities for successful coordination. In games with a low coordination requirement, most subjects underestimate the probability of success. In games with a high coordination requirement, most subjects overestimate this probability. Data indicate that subjects have probabilistic beliefs about success or failure of coordination rather than beliefs about individual behavior of other players.View the Paper (PDF) Todd Kaplan
We introduce a class of two-player cooperation games where each player faces a binary decision, enter or exit. These games have a unique Nash equilibrium of entry. However, entry imposes a large enough negative externality on the other player such that the unique social optimum involves the player with the higher value to entry entering and the other player exiting. When players' values to entry are private, cooperation admits the form of either taking turns entering or using a cutoff strategy and entering only for high private values of entry. Even with repetition and varying conditions that provide opportunities for unnoticed or non-punishable ``cheating", our empirical analysis including a simple strategy inference technique reveals that the Nash equilibrium is never the modal choice. In fact, most subjects employ the socially optimal symmetric cutoff strategy. These games capture the nature of cooperation in many economic and social situations such as bidding rings in auctions, competition for market share, labor supply decisions in the face of excess supply, queuing in line and courtship.View the Paper (PDF) Francesco Guala
We explore by purely experimental means a heterogeneous agents scenario in experimental public goods games, assuming the existence of at least three types of player: free riders, cooperators, and reciprocators. We identify the various types by means of four classification methods, and then play the public goods game with homogeneous groups. We observe that (1) the average contribution level is enhanced in this setting; (2) the decay phenomenon is replicated in groups of ‘pure’ free riders, whereas in groups of cooperative and reciprocating players the contribution is high and fairly stable throughout the game.View the Paper (PDF) Chris Starmer
There is a large literature demonstrating the existence of 'anomalies' in individual choice behaviour. One example is the preference reversal phenomenon; another is the disparity between willingness to pay and willingness to accept valuations. Taken at face value, such anomalies collectively pose a major challenge to choice theorists, applied economists and policy analysts. But much of the anomaly evidence comes from experiments involving one-off decisions in non-market settings, and several economists have questioned their economic significance by raising doubts about whether they will arise, or at least persist, in real market environments. Indeed, there is some evidence that specific anomalies may decay in repeated experimental markets. One interpretation of this evidence is that people have underlying preferences that are 'better-behaved' than many choice experiments suggest, and that repeated market environments generate more accurate data on these underlying preferences. This is not the only interpretation, however, and another possibility is that preferences are to some extent 'shaped' or formed through market experience. The latter interpretation, if true, has some potentially far-reaching consequences for the interpretation of market behaviour. In this talk I will briefly review some of the evidence of anomaly-decay, I will sketch some alternative interpretations of it, and discuss some recent experiments which begin to explore these issues.View the Paper (PDF)