A04
Biases and Decision Impairments in Markets
Discussion Papers

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Discussion Paper No. 330
June 21, 2022

Ignorance, Intention and Stochastic Outcomes

Authors:
Friedrichsen, Jana (FU Berlin, HU Berlin, WZB and DIW)
Momsen, Katharina (University of Innsbruck)
Piasenti, Stefano (HU Berlin and DIW)
Abstract:
In sequential interactions, both the agent's intention and the outcome of his choice may influence the principal's action. While outcomes are typically observable, intentions are more likely to be hidden, leaving potential wiggle room for the principal when deciding on a reciprocating action. We employ a controlled experiment to investigate how intentions and outcome affect the principal's actions and whether principals use hidden information as an excuse to behave more selfishly. We find that principals react mainly to the intention of the agent. When intentions are not revealed by default, principals tend to select into information based on their inclination to behave more prosocially. While information avoidance is frequent and selfishness is higher with hidden information, we do not find evidence of a strategic exploitation of moral wiggle room.
Keywords:
information avoidance; dictator game; moral wiggle room; intentions; reciprocity
JEL-Classification:
D91; C91
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Discussion Paper No. 314
January 25, 2022

Anchored Strategic Reasoning

Authors:
Ivanova-Stenzel, Radosveta (TU Berlin)
Seres, Gyula (HU Berlin)
Abstract:
Anchoring is a robust behavioral phenomenon modeled predominantly as a bias in individual judgment. We propose a game-theoretic model that considers players’ beliefs about others’ behavior as a mediator for the effect of the anchor on a player’s choice. The results establish that anchoring in strategic interactions reported in the literature can be rationalized by anchored beliefs about the opponents’ intentions. Notwithstanding, we also demonstrate that a player might adjust away from rather than toward the anchor in games where choices are strategic substitutes.
Keywords:
anchoring bias; auctions; games; incomplete information; strategy
JEL-Classification:
D01; D91; C72
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Discussion Paper No. 310
January 14, 2022

Experimenting with Purchase History Based Price Discrimination: a Comment

Authors:
Tolksdorf, Michel (TU Berlin)
Abstract:
Brokesova, Deck and Peliova [Int. J. Ind. Organ. 37 (2014) 229-237] have shown that comparative static results from two-period behavior-based pricing models hold in laboratory experiments, but they observed significant differences from point predictions. We report findings in conformity with these point predictions throughout a uniform pricing benchmark, a replication of Brokesova, Deck and Peliova’s behavior-based pricing treatment and a follow-up experiment. Reference dependence seems to shift participants’ second-period pricing behavior upwards. A post hoc analysis shows that considering myopic consumers instead of strategic consumers explains a downward shift of first-period prices and rationalizes the findings of Brokesova, Deck and Peliova. Volatile price levels affect price-based welfare measures such as sellers’ profits and customers’ total costs. We show that transport costs serve as a robust welfare measure, alleviating the impact of distorted prices. These findings are relevant for the design of experiments and when assessing the efficiency of experimental markets.
Keywords:
behavior-based price discrimination; pricing experiment
JEL-Classification:
D43; L13
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Discussion Paper No. 300
November 16, 2021

Face Mask Use and Physical Distancing Before and After Mandatory Masking: No Evidence on Risk Compensation in Public Waiting Lines

Authors:
Seres, Gyula (HU Berlin)
Balleyer, Anna (University of Groningen)
Cerutti, Nicola (Mercator Research Institute on Global Commons and Climate Change) 
Friedrichsen, Jana (HU Berlin, FU Berlin, WZB Berlin and DIW Berlin)
Süer, Müge (HU Berlin)
Abstract:
During the COVID-19 pandemic, the introduction of mandatory face mask usage triggered a heated debate. A major point of controversy is whether community use of masks creates a false sense of security that would diminish physical distancing, counteracting any potential direct benefit from masking. We conducted a randomized field experiment in Berlin, Germany, to investigate how masks affect distancing and whether the mask effect interacts with the introduction of an indoor mask mandate. Joining waiting lines in front of stores, we measured distances kept from the experimenter in two treatment conditions – the experimenter wore a mask in one and no face covering in the other – in two time spans – before and after mask use becoming mandatory in stores. We find no evidence that mandatory masking has a negative effect on distance kept toward a masked person. To the contrary, masks significantly increase distancing and the effect does not differ between the two periods. However, we show that after the mandate distances are shorter in locations where more non-essential stores, which were closed before the mandate, had reopened. We argue that the relaxations in general restrictions that coincided with the mask mandate led individuals to reduce other precautions, like keeping a safe distance.
Keywords:
COVID-19; face masks; social distancing; risk compensation; field experiment; health policy
JEL-Classification:
I12; D9; C93
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Discussion Paper No. 289
October 21, 2021

Report-Dependent Utility and Strategy-Proofness

Authors:
Meisner, Vincent (TU Berlin)
Abstract:
Despite the truthful dominant strategy, participants in strategy-proof me- chanisms submit manipulated preferences. In our model, participants dislike rejections and enjoy the confirmation from getting what they declared most desirable. Formally, the payo↵ from a match decreases in its position in the submitted ranking such that a strategic trade-o↵ between preference inten- sity and match probability arises. This trade-o↵ can trigger the commonly observed self-selection strategies. We show that misrepresentations can per- sist for arbitrarily small report-dependent components. However, honesty is guaranteed to be optimal if and only if there is no conflict between the quality and feasibility of a match.
Keywords:
market design; matching; school choice; self-regarding preferences; strategy-proof mechanisms
JEL-Classification:
D47; D78; D81; D91
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Discussion Paper No. 279
February 26, 2021

Teams and Individuals in Standard Auction Formats: Decisions and Emotions

Authors:

Karmeliuk, Maria (LMU Munich)
Kocher, Martin (University of Vienna)

Abstract:

Our study compares individual and team bidding in standard auction formats: first-price, second-price and ascending-price (English) auctions with independent private values. In a laboratory experiment, we find that individuals overbid more than teams in first-price auctions and deviate more from bidding their own value in second-price auctions. However we observe no difference in bidding behavior in English auctions. Based on control variables, we claim that the observed difference can be explained by better reasoning abilities of teams. Emotions play a role in determining bids, but the effect of emotions on bidding does not differ between individuals and teams.

Keywords:

auctions; team decision-making; experiment; overbidding

JEL-Classification:

C91; C92; D44

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Discussion Paper No. 268
January 12, 2021

All-Pay Competition with Captive Consumers

Author:

Foucart, Renaud (Lancaster University)
Friedrichsen, Jana (HU Berlin)

Abstract:

We study a game in which two firms compete in quality to serve a market consisting of consumers with different initial consideration sets. If both firms invest below a certain threshold, they only compete for those consumers already aware of their existence. Above this threshold, a firm is visible to all and the highest investment attracts all consumers. On the one hand, the existence of initially captive consumers introduces an anti-competitive element: holding fixed the behavior of its rival, a firm with a larger captive segment enjoys a higher payoff from not investing at all. On the other hand, the fact that a firm’s initially captive consumers can still be attracted by very high quality introduces a pro-competitive element: a high investment becomes more profitable for the underdog when the captive segment of the dominant firm increases. The share of initially captive consumers therefore has a non-monotonic effect on the investment levels of both firms and on consumer surplus. We relate our findings to competition cases in digital markets.

Keywords:

consideration set; regulation; all-pay auction; endogenous prize; digital markets

JEL-Classification:

D04; L01; L04

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Discussion Paper No. 243
May 14, 2020

Covid-19 Crisis Fuels Hostility against Foreigners

Author:

Bartoš, Vojtěch (LMU Munich)
Bauer, Michal (CERGE-EI Prague) 
Cahlíková, Jana (MPI for Tax Law and Public Finance Munich) 
Chytilová, Julie (CERGE-EI Prague) 

Abstract:

Intergroup conflicts represent one of the most pressing problems facing human society. Sudden spikes in aggressive behavior, including pogroms, often take place during periods of economic hardship or health pandemics, but little is known about the underlying mechanism behind such change in behavior. Many scholars attribute it to scapegoating, a psychological need to redirect anger and to blame an out-group for hardship and problems beyond one's own control. However, causal evidence of whether hardship triggers out-group hostility has been lacking. Here we test this idea in the context of the Covid-19 pandemic, focusing on the common concern that it may foster nationalistic sentiments and racism. Using a controlled money-burning task, we elicited hostile behavior among a nationally representative sample (n = 2,186) in a Central European country, at a time when the entire population was under lockdown and border closure. We find that exogenously elevating salience of thoughts related to Covid-19 pandemic magnifies hostility and discrimination against foreigners, especially from Asia. This behavioral response is large in magnitude and holds across various demographic sub-groups. For policy, the results underscore the importance of not inflaming racist sentiments and suggest that efforts to recover international trade and cooperation will need to address both social and economic damage. 

Keywords:

COVID-19 pandemic; scapegoating; hostility; inter-group conflict; discrimination; experiment

JEL-Classification:

C90; D01; D63; D91; J15

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Discussion Paper No. 233
March 30, 2020

Cooperation in a Company: A Large-Scale Experiment

Author:

Deversi, Marvin (LMU Munich)
Kocher, Martin G. (IHS & University of Vienna)
Schwieren, Christiane (University of Heidelberg)

Abstract:

We analyze cooperation within a company setting in order to study the relationship between cooperative attitudes and financial as well as non-financial rewards. In total, 910 employees of a large software company participate in an incentivized online experiment. We observe high levels of cooperation and the typical conditional contribution patterns in a modified public goods game. When linking experiment and company record data, we observe that cooperative attitudes of employees do not pay off in terms of financial rewards within the company. Rather, cooperative employees receive non-financial benefits such as recognition or friendship as the main reward medium. In contrast to most studies in the experimental laboratory, sustained levels of cooperation in our company setting relate to non-financial values of cooperation rather than solely to financial incentives.

Keywords:

cooperation; social dilemma; field experiment; company

JEL-Classification:

C93; D23; H41; J31; J32; M52

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Discussion Paper No. 228
January 20, 2020

Behavior-Based Price Discrimination under Endogenous Privacy

Author:

Heiny, Friederike (HU Berlin)
Li, Tianchi (HU Berlin)
Tolksdorf, Michel (TU Berlin)

Abstract:

This paper analyzes consumers’ privacy choice concerning their private data and firms’ ensuing pricing strategy. The General Data Protection Regulation passed by the European Union in May 2018 allows consumers to decide whether to reveal private information in the form of cookies to an online seller. By incorporating this endogenous decision into a duopoly model with behavior-based pricing, we find two contrasting equilibria. Under revelation to both firms, consumers disclose their information. Under revelation to only one firm, consumers hide their information. Based on the model, we design a laboratory experiment. We find that there is a large share of consumers who reveal their private data. Particularly, less privacy-concerned subjects and subjects in the setting where only one firm receives information are more likely to reveal information.

Keywords:

behavior-based pricing; privacy; laboratory experiment

JEL-Classification:

C91; D11; D43; L13

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