A04
Biases and Decision Impairments in Markets
Discussion Papers

Discussion Paper No. 498
February 23, 2024

The Strategic Value of Data Sharing in Interdependent Markets

Author:

Hemant Bhargava (University of California, Davis)
Antoine Dubus (ETH Zurich)
David Ronayne (ESMT Berlin)
Shiva Shekhar (Tilburg School of Economics and Management)

Abstract:

Large, generalist, technology firms—so-called “big-tech” firms—powerful in their primary market, routinely enter secondary markets consisting of specialist firms. Naturally, one might expect a specialist firm to be fiercely protective of its data as a way to maintain its market position in the secondary market. Counter to this intuition, we demonstrate that a specialist firm willingly shares its market data with an intruding tech generalist. We do so by developing a model of crossmarket competition in which data collected via consumer usage in each market is a factor of product quality in both markets. We show that a specialist firm shares its data to strategically create co-dependence between the two firms, thereby softening competition and transforming the generalist firm from a traditional competitor into a co-opetitor. For the generalist intruder, data from the specialist firm substitute for its own investments in product quality in the secondary market. As such, the act of sharing data makes the intruder a stakeholder in the valuable data collected by the specialist, and consequently in the specialist’s continued success. Moreover, while the firms benefit from data sharing, consumers can be worse off from the weaker price competition and lower investments in innovation. Our results have managerial and policy implications, notably on account of backlash against data collection and the market power of big tech firms.

Keywords:

data-driven quality improvements; externalities; co-opetition; data sharing;

JEL-Classification:

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Discussion Paper No. 476
December 13, 2023

Overcoming Time Inconsistency with a Matched Bet: Theory and Evidence from Exercising

Author:

Andrej Woerner (LMU Munich)

Abstract:

This paper introduces the matched-bet mechanism. The matched bet is an easily applicable and strictly budget-balanced mechanism that aims to help people overcome time-inconsistent behavior. I show theoretically that offering a matched bet helps both sophisticated and naive procrastinators to reduce time-inconsistent behavior. A field experiment on exercising confirms the theoretical predictions: offering a matched bet has a significant positive effect on gym attendance. Self-reported procrastinators are significantly more likely to take up the matched bet. Overall, the matched bet proves a promising device to help people not to procrastinate.

Keywords:

monetary incentives; market design; field experiment; health behavior;

JEL-Classification:

C93; D47; D90; I12;

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Discussion Paper No. 475

Should Individuals Choose their Own Incentives? Evidence from a Mindfulness Meditation Intervention

Author:

Andrej Woerner (LMU Munich)
Giorgia Romagnoli (University of Amsterdam – CREED)
Birgit M. Probst (TU Munich)
Nina Bartmann (Duke University)
Jonathan N. Cloughesy (Duke University & University of Southern California)
Jan Willem Lindemans (Duke University)

Abstract:

Traditionally, incentives to promote behavioral change are assigned rather than chosen. In this paper, we theoretically and empirically investigate the alternative approach of letting people choose their own incentives from a menu of increasingly challenging and rewarding options. When individuals are heterogeneous and have private information about their costs and benefits, we theoretically show that leaving them the choice of incentives can improve both adherence and welfare. We test the theoretical predictions in a field experiment based on daily meditation sessions. We randomly assign some participants to one of two incentive schemes and allow others to choose between the two schemes. As predicted, participants sort into schemes in (partial) agreement with the objectives of the policy maker. However, in contrast to our prediction, participants who could choose complete significantly fewer sessions than participants that were randomly assigned. Since the results are not driven by poor selection, we infer that letting people choose between incentive schemes may bring in psychological effects that discourage adherence.

Keywords:

monetary incentives; dynamic incentives; field experiment; mental health;

JEL-Classification:

C09; D03; D08; I01;

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Discussion Paper No. 471
December 9, 2023

Motivated Procrastination

Author:

Charlotte Cordes (LMU Munich)
Jana Friedrichsen (Kiel University, CESifo)
Simeon Schudy (Ulm University, CESifo)

Abstract:

Traditionally, economic models have attributed procrastination to present bias. However, procrastination may also arise when individuals derive anticipatory utility from holding motivated, overly optimistic beliefs about the workload they need to complete. This study provides a rigorous empirical test for this notion of `motivated procrastination'. In a longitudinal experiment over four weeks, individuals have to complete a cumbersome task of unknown length. They are exposed to exogenous variation in i) their expectation regarding their workload and ii) scope for motivated reasoning. We find that scope for motivated reasoning allows workers to hold substantially more optimistic beliefs and identify a causal link between the exogenous variation in beliefs and the deferral of work to the future. This systematic belief-based delay of work (motivated procrastination) turns out to be robust to accounting for decision-makers' time preferences and emotional responses, and looms largest for decision makers who tend to not acquire information that may include negative news.

Keywords:

anticipatory utility; beliefs; memory; motivated cognition; procrastination; real effort; task allocation;

JEL-Classification:

C91; D83; D84; D90; D91;

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Discussion Paper No. 468
November 30, 2023

The Effect of Incentives in Non-Routine Analytical Team Tasks

Author:

Florian Englmaier (LMU Munich, CEPR, CESifo)
Stefan Grimm (LMU Munich)
Dominik Grothe (LMU Munich)
David Schindler (Tilburg University, CESifo)
Simeon Schudy (Ulm University, CESifo)

Abstract:

Despite the prevalence of non-routine analytical team tasks in modern economies, little is understood regarding how incentives influence performance in these tasks. In a series of field experiments involving more than 5,000 participants, we investigate how incentives alter behavior in teams working on such a task. We document a positive effect of bonus incentives on performance, even among teams with strong intrinsic motivation. Bonuses also transform team organization by enhancing the demand for leadership. Exogenously increasing teams' demand for leadership results in performance improvements comparable to those seen with bonus incentives, rendering it as a likely mediator of incentive effects.

Keywords:

team work; bonus; incentives; leadership; non-routine; exploration;

JEL-Classification:

C92; C93; J33; D03; M52;

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Discussion Paper No. 466
November 29, 2023

Commitment Requests Do Not Affect Truth-Telling in Laboratory and Online Experiments

Author:

Tobias Cagala (Deutsche Bundesbank)
Ulrich Glogowsky (University of Linz)
Johannes Rincke (University of Erlangen-Nuremberg)
Simeon Schudy (Ulm University)

Abstract:

Using a standard cheating game, we investigate whether the request to sign a no-cheating declaration affects truth-telling. Our design varies the content of a no-cheating declaration (reference to ethical behavior vs. reference to possible sanctions) and the type of experiment (online vs. offline). Irrespective of the declaration's content, commitment requests do not affect truth-telling, neither in the laboratory nor online. The inefficacy of commitment requests appears robust across different samples and does not depend on psychological measures of reactance.

Keywords:

cheating; lying; truth-telling; compliance; commitment; no-cheating rule; no-cheating declaration; commitment request;

JEL-Classification:

C91; C93; D03;

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Discussion Paper No. 464
November 27, 2023

Comparing Crowdfunding Mechanisms: Introducing the Generalized Moulin-Shenker Mechanism

Author:

Andrej Woerner (LMU Munich)
Sander Onderstal (University of Amsterdam , Tinbergen Institute)
Arthur Schram (University of Amsterdam, Tinbergen Institute)

Abstract:

For reward-based crowdfunding, we introduce the strategy-proof Generalized Moulin-Shenker mechanism (GMS) and compare its performance to the prevailing All-Or-Nothing mechanism (AON). Theoretically, GMS outperforms AON in equilibrium profit and funding success. We test these predictions experimentally, distinguishing between a sealed-bid and a dynamic version of GMS. We find that the dynamic GMS outperforms the sealed-bid GMS. It performs better than AON when the producer aims at maximizing funding success. For crowdfunding in practice, this suggests that the current standard of financing projects may be improved upon by implementing a crowdfunding mechanism that is similar to the dynamic GMS.

Keywords:

JEL-Classification:

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Discussion Paper No. 460
November 21, 2023

Cournot Meets Bayes-Nash: A Discontinuity in Behavior in Finitely Repeated Duopoly Games

Author:

Cédric Argenton (CentER & TILEC, Tilburg University)
Radosveta Ivanova-Stenzel (TU Berlin)
Wieland Müller (VCEE, University of Vienna, CentER & TILEC, Tilburg University)

Abstract:

We conduct a series of Cournot duopoly market experiments with a high number of repetitions and fixed matching. Our treatments include markets with (a) complete cost symmetry and complete information, (b) slight cost asymmetry and complete information, and (c) varying cost asymmetries and incomplete information. For the case of complete cost symmetry and complete information, our data confirm the well-known result that duopoly players achieve, on average, partial collusion. However, as soon as any level of cost asymmetry or incomplete information is introduced, observed average individual quantities are remarkably close to the static Bayes-Nash equilibrium predictions.

Keywords:

Cournot; Bayesian game; Bayes-Nash equilibrium; repeated games; collusion; cooperation; experimental economics;

JEL-Classification:

D43; L13; C72; C92;

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Discussion Paper No. 410
July 18, 2023

Does Unfairness Hurt Women? The Effects of Losing Unfair Competitions

Author:

Stefano Piasenti (HU Berlin)
Marica Valente (University of Innsbruck)
Roel van Veldhuizen (Lund University)
Gregor Pfeifer (University of Sydney)

Abstract:

How do men and women differ in their persistence after experiencing failure in a competitive environment? We tackle this question by combining a large online experiment (N=2,086) with machine learning. We find that when losing is unequivocally due to merit, both men and women exhibit a significant decrease in subsequent tournament entry. However, when the prior tournament is unfair, i.e., a loss is no longer necessarily based on merit, women are more discouraged than men. These results suggest that transparent meritocratic criteria may play a key role in preventing women from falling behind after experiencing a loss.

Keywords:

competitiveness; gender; fairness; machine learning; online experiment;

JEL-Classification:

C90; D91; J16; C14;

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Discussion Paper No. 392
March 30, 2023

Rebate Rules in Reward-Based Crowdfunding: Introducing the Bid-Cap Rule

Author:

Fabian Gerstmeier (HU Berlin)
Yigit Oezcelik (University of Liverpool)
Michel Tolksdorf (TU Berlin)

Abstract:

We study the efficacy of rebate rules in reward-based crowdfunding, where a project is only realized when a funding goal is met, and only those who pledge at least a reservation price receive a reward from the project. We propose and experimentally test two rebate rules against the customary all-or-nothing model. Firstly, we adapt the proportional rebate rule from threshold public good games to our reward-based setting. Secondly, we develop the novel bid-cap rule. Here, pledges must only be paid up to a cap, which is determined ex-post such that the provision point is exactly met. Theoretically, the bid-cap rule induces weakly less variance in payments compared with the proportional rebate rule. In our experiment, we find that both rebate rules induce higher pledges and increase the project realization rate in comparison to the all-or-nothing model. Further, we can confirm that the variance of payments is lower under the bid-cap rule compared with the proportional rebate rule.

Keywords:

crowdfunding; laboratory experiment; provision point mechanism; rebates;

JEL-Classification:

C72; C92; H41;

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