Discussion Paper No. 211
November 9, 2021
Are Strategies Anchored?
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Anchoring is one of the most studied and robust behavioral biases, but there is little knowledge about its persistence in strategic settings. This article studies the role of anchoring bias in private-value auctions. We test experimentally two different anchor types. The announcement of a random group identification number but also of an upper bid limit in the first-price sealed-bid auction result in higher bids. We show that such behavior can be explained as a rational response to biased beliefs. In Dutch auctions, the effect of a starting price, is negative. We demonstrate that the long-established ranking that the Dutch auction generates lower revenue than the first-price sealed-bid auction crucially depends on the size of the anchor.
Keywords:
anchoring bias; games; incomplete information; auctions;
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Discussion Paper No. 208
School Choice and Loss Aversion
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Extensive evidence suggests that participants in the direct student-proposing deferred-acceptance mechanism (DSPDA) play dominated strategies. In particular, students with low priority tend to misrepresent their preferences for popular schools. To explain the observed data, we introduce expectationbased loss aversion into a school-choice setting and characterize choiceacclimating personal equilibria in DSPDA. Truthful equilibria can fail to exist, and DSPDA might implement unstable and more ineffi cient allocations in both small and large markets. Speci fically, it discriminates against students who are more loss averse or less overconfident than their peers, and amplifi es already existing (or perceived) discrimination. To level the playing field, we propose serial dictatorship mechanisms as a strategyproof and stable alternative that is robust to these biases.
Keywords:
market design; matching; school choice; reference-dependent preferences; loss aversion; deferred acceptance;
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Discussion Paper No. 202
Leadership in a Public Goods Experiment with Permanent and Temporary Members
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We experimentally analyze leading by example in a public goods game with two permanent and two temporary group members. Our results show that leadership when permanent and temporary members interact leads to lower contributions than interaction without leadership.
Keywords:
cooperation; leadership; social dilemma; public goods provision; experiment;
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Discussion Paper No. 190
Complexity and Distributive Fairness Interact in Affecting Compliance Behavior
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Filing income tax returns or insurance claims often requires that individuals comply with complex rules to meet their obligations. We present evidence from a laboratory tax experiment suggesting that the effects of complexity on compliance are intrinsically linked to distributive fairness. We find that compliance remains largely una ffected by complexity when income taxes are distributed to a morally justi fied charity. Conversely, complexity signi ficantly amplifi es non-compliance when income taxes appear wasted as they are distributed to a morally dubious charity. Our data further suggest that this non-compliance pattern is facilitated through the ambiguity that evolves from mostly unstrategic fi ling mistakes.
Keywords:
complexity; compliance; distributive fairness; experiment;
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Discussion Paper No. 180
November 8, 2021
Cash in Hand and Savings Decisions
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Cash is an important means of transaction, generally assumed to be fungible. However, behavioral economics and consumer research show that 'cash in hand', physically holding on to cash and then handing it away, affects purchasing decisions. I study how cash in hand influences decisions in a different but very important domain: savings. Savings accounts are a promising tool for reducing poverty, but the use of savings accounts is often puzzlingly low. Holding on to cash that needs to be physically deposited into a savings account may increase the psychological costs of saving. This study experimentally identifies the causal effect of cash in hand on savings deposits of microfinance clients in the Philippines. In contrast to many laboratory and several field studies with similar interventions, I do not find reduced savings deposits due to cash in hand. I discuss reasons for and consequence of this surprising finding, in particular for developing economics where lots of transactions are still cash-based.
Keywords:
cash; savings; experiment;
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Discussion Paper No. 134
Competition and Fatigue at Work
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We study theoretically and experimentally the role of fatigue and recovery within a competitive work environment. At work, agents usually make their effort choice in response to competition and monetary incentives. At the same time, they have to take into account fatigue, which accumulates over time if there is insufficient recovery. We model a sequence of work periods as tournaments that are linked through fatigue spillovers, inducing a non-time-separable decision problem. We also allow for variations in incentives in one work period, in order to analyze spillover effects to the work periods "before" and "after". Making recovery harder should, generally, reduce effort. This theoretical prediction is supported by the experimental data. A short-term increase in incentives in one period should lead to higher effort in that period, and, due to fatigue, to strategic resting before and after. Our experimental results confirm the former, whereas we do not find sufficient evidence for the latter. Even in the presence of fatigue, total effort should positively respond to higher-powered incentives. This is not supported by our data. Removing fatigue, we find the expected increase in total effort. For work environments, this may imply that the link between monetary incentives and effort provision becomes weaker in the presence of fatigue or insufficient recovery between work periods.
Keywords:
fatigue; recovery; incentives; experiment; tournament;
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Discussion Paper No. 119
November 5, 2021
Show What You Risk - Norms for Risk Taking
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Most economic decisions are embedded in a specific social context. In many such contexts, individual choices are influenced by their observability due to underlying social norms and social image concerns. This study investigates the impact of choices being observed, compared to anonymity of choices, on risk taking in a laboratory experiment. I relate participants' investments in a risky asset directly to social norms for risk taking that are elicited in an incentivized procedure. I find that risk taking is not affected by the choice being observed by a matched participant. Nor do investments follow elicited norms for risk taking more closely when observed. This holds when considering males and females separately. However, I provide strong evidence for gender-specific norms in risk taking. While these explain part of the existing gender gap in risk taking, males still "overshoot" by investing more than the norm dictates. This is particularly true for males being matched with a female participant.
Keywords:
risk taking; observability; social image; norms; gender;
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Discussion Paper No. 115
Seasonal Scarcity and Sharing Norms
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How does scarcity affect individual willingness to share and willingness to enforce sharing from others? Sharing in poor communities gains importance as an insurance mechanism during adverse shocks, yet shocks make it costlier to share. I conducted repeated economic experiments in both a lean and a relatively plentiful post-harvest season with the same group of Afghan subsistence farmers experiencing annual seasonal scarcities. I separate altruistic motives from enforcement effects using dictator and third party punishment games. While altruistic sharing remains temporally stable, the enforcement of sharing weakens substantially in times of scarcity. Temporal norms fluctuations seem to drive the results.
Keywords:
afghanistan; scarcity; seasonality; sharing; social norms;
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Discussion Paper No. 108
Effects of Poverty on Impatience
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We study two psychological channels how poverty may increase impatient behavior -- an effect on time preference and reduced attention. We measured discount rates among Ugandan farmers who made decisions about when to enjoy entertainment instead of working. We find that experimentally induced thoughts about poverty-related problems increase the preference to consume entertainment early and delay work. The effect is equivalent to a 27 p.p. increase in the intertemporal rate of substitution. Using monitoring tools similar to eye tracking, a novel feature for this subject pool, we show this effect is not due to a lower ability to sustain attention.
Keywords:
poverty; scarcity; time discounting; inattention; decision-making process; preferences;
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Discussion Paper No. 107
Sanctioning and Trustworthiness Across Ethnic Groups
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We show how sanctioning is more effective in increasing cooperation between groups than within groups. We study this using a trust game among ethnically diverse subjects in Afghanistan. In the experiment, we manipulate i) sanctioning and ii) ethnic identity. We find that sanctioning increases trustworthiness in cross-ethnic interactions, but not when applied by a co-ethnic. While we find higher in-group trustworthiness in the absence of sanctioning, the availability and use of the sanction closes this gap. This has important implications for understanding the effect of institutions in developing societies where ethnic identity is salient. Our results suggest that formal institutions for enforcing cooperation are more effective when applied between, rather than within, ethnic groups, due to behavioral differences in how individuals respond to sanctions.
Keywords:
sanctions; cooperation; crowding out; moral incentives; ethnicity; afghanistan;
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