We examine elicitation effects in a multi-stage bargaining experiment with escalating stakes conducted under direct-response and strategy-method elicitation. We find a significantly greater incidence of decisions leading to bargaining failure under direct responses. In addition, the predictive power of alternative risk attitude measures differs between the elicitation methods. Potential sources of the effects and resulting implications are discussed.

In the standard trust game the surplus is increased by the risk taking first mover while cooperation by the second mover is a one-to-one transfer. This paper reports results from experiments in which the reverse holds; the first mover's risky trust is not productive and the second mover's cooperation is productive. This subtle difference significantly lowers the likelihood of trust but increases the likelihood of cooperation conditional on trust. Evidence is presented that the change in trust is consistent with first movers failing to anticipate the later result. Drawing upon the analogy that the trust game represents a model of exchange, the results suggest that markets should be organized so that the buyer moves first and not the seller as in the original trust game.

Corporate boards, experts panels, parliaments, cabinets, and even nations all take important decisions as a group. Selecting an efficient decision rule to aggregate individual opinions is paramount to the decision quality of these groups. In our experiment we measure revealed preferences over and efficiency of several important decision rules. Our results show that: (1) the efficiency of the theoretically optimal rule is not as robust as simple majority voting, and efficiency rankings in the lab can differ from theory; (2) participation constraints often hinder implementation of more efficient mechanisms; (3) these constraints are relaxed if the less efficient mechanism is risky; (4) participation preferences appear to be driven by realized rather than theoretic payoffs of the decision rules. These findings highlight the difficulty of relying on theory alone to predict what mechanism is better and acceptable to the participants in practice.

We investigate the role of intentions in two-player two-stage games. For this purpose we systematically vary the set of opportunity sets the first mover can choose from and study how the second mover reacts not only to opportunities of gains but also of losses created by the choice of the first mover. We find that the possibility of gains for the second mover (generosity) and the risk of losses for the first mover (vulnerability) are important drivers for second mover behavior. On the other hand, efficiency concerns and an aversion against violating trust seem to be far less important motivations. We also find that second movers compare the actual choice of the first mover and the alternative choices that would have been available to him to allocations that involve equal material payoffs.

Countless experimental studies have shown that markets converge quickly and efficiently to the competitive outcome under many trading institutions, particularly the double auction mechanism. This creates difficulties for Keynesian stories of unemployment creation—which suggest a noncompetitive outcome in an essentially competitive world. Such stories were popular in the late 1960s and 1970s. One of these stories—the dual decision hypothesis of Clower—was seen then as the beginning of a story of unemployment. This article reports the results of an experiment designed to test this hypothesis. Specifically, we set up an experiment in which there are two sequential double-auction markets, in the first of which one good (labour) is traded, after which the second market (goods) is opened and the second good traded. We compare the outcome of our experiment with that of the competitive theory. One general finding is that not enough trade takes place in the two markets. In other words, the usual finding that competitive equilibrium is achieved in double-auction markets is not replicated in this sequential setting.

Preferences over social ranks have emerged as potential drivers of weaker than expected support for redistributive interventions among those closest to the bottom of the income distribution. We compare preferences for alterations of the income distribution affecting the decision maker’s social rank, but not their income, and compare them with similar alterations leaving both rank and income unchanged. Our study fails to find evidence of last-place aversion in a replication of Kuziemko et al. (Q J Econ 129(1):105–149, 2014). However, using a modified design that holds ranks fixed across rounds we find support for both a discontinuously greater disutility from occupying the last as opposed to higher ranks, thus affecting only those closest to the bottom of the distribution, and for a general dislike of rank reversals affecting most ranks. We discuss implications for policy design in both public finance and management science.

Traders in global markets operate at different local times-of-day. This implies heterogeneity in circadian timing and likely sleepiness or alertness of those traders operating at less or more optimal times of the day, respectively. This, in turn, may lead to differences in both individual-level trader behavior as well as market level outcomes. We examined these factors by administering single-location and global sessions of an online asset market experiment that regularly produces mispricing and valuation bubbles. Global sessions involved real time trades between subjects in New Zealand and the U.S (i.e., “global” markets) with varied local times of day for each location. Individual traders at suboptimal times of day (or, “circadian mismatched” traders) engaged in riskier trading strategies, such as holding shares (the riskier asset) in later trading rounds and mispricing shares to a greater degree. These strategies resulted in lower earnings for circadian mismatched traders, especially in heterogeneous markets that also included traders at more optimal times-of-day. These differences were also reflected in market level outcomes. Markets with higher circadian mismatch heterogeneity across traders were more likely to exhibit longer lasting asset bubbles and greater share turnover volume. Overall, our results draw attention to a unique, but underappreciated, factor present across traders in global market environments, namely, differences in sleepiness across traders. Thus, this study hopes to highlight the role of circadian mismatch in attempting to understand trader behavior and, ultimately, market volatility.

This is an investigation into the design of a market-based process to replace NASA's current committee process for allocating Shuttle secondary payload resources (lockers, Watts and crew). The market-based process allocates budgets of tokens to NASA internal organizations that in turn use the budget to bid for priority for their middeck payloads. The scheduling algorithm selects payloads by priority class and maximizes the number of tokens bid to determine a manifest. The results of a number of controlled experiments show that such a system tends to allocate resources more efficiently by guiding participants to make resource and payload tradeoffs. Most participants were able to improve their position over NASA's current ranking system. Furthermore, those that are better off make large improvements while the few that do worse have relatively small losses.

We use numerical methods to compute Nash equilibrium (NE) bid functions for four agents bidding in a first-price auction. Each bidder i is randomly assigned: ri [0, rmax], where 1 — ri is the Arrow-Pratt measure of constant relative risk aversion. Each ri is independently drawn from the cumulative distribution function Φ(·), a beta distribution on [0, rmax]. For various values of the maximum propensity to seek risk, rmax, the expected value of any bidder's risk characteristic, E(ri), and the probability that any bidder is risk seeking, P (ri > 1), we determine the nonlinear characteristics of the (NE) bid functions.

We use a within-subject experimental design to investigate whether systematic relationships exist across distinct features of individual preferences: altruism in a two-person context, risk aversion in monetary outcomes, and social preferences in a group context. We find that altruism is related to demographic variables, including years of education, gender, and age. Perhaps most importantly, self allocation in a two-person dictator game is related to social preferences in a group context. Participants who are more generous in a dictator game are more likely to vote against their self-interest in a group tax redistribution game which we interpret to be an expression of social preferences.

In this paper, we use experimental data to study players’ stability in normal-form games where subjects have to report beliefs and choose actions. Subjects saw each of 12 games four times in a regular or isomorphic form spread over two days without feedback. We document a high degree of stability within the same (strategically equivalent) game, although time and changes in the presentation of the game do lead to less stability. To look at stability across different games, we adopt the level-k theory, and show that stability of both beliefs and actions is significantly lower. Finally, we estimate a structural model in which players either apply a consistent level of reasoning across strategically different games, or reasoning levels change from game to game. Our results show that approximately 23% of subjects apply a consistent level of reasoning across the 12 games, but that they assign a low level of sophistication to their opponent. The remaining 77% apply different levels of reasoning to different games. We show that this may be due to subjects being attracted to the action with the highest possible payoff.

We test the Average Credible Deviation Criterion (ACDC), a stability measure and refinement for cheap talk equilibria introduced in De Groot Ruiz et al. (Equilibrium selection in cheap talk games: ACDC rocks when other criteria remain silent, Working paper, University of Amsterdam 2012a). ACDC has been shown to be predictive under general conditions and to organize data well in previous experiments meant to test other concepts. In a new experimental setting, we provide the first systematic test of whether and to which degree credible deviations matter for the stability of cheap talk equilibria. Our principal experimental result is that in a setting where existing concepts are silent, credible deviations matter and matter gradually, as predicted by ACDC.

How should countries in a fixed exchange rate system balance their current account? This question was at the center of the historical debate between Keynes and White in 1944 and is being debated increasingly these days for the Eurozone. Should consolidation by deficit countries be complemented by higher spending in surplus countries in order to avoid a downward bias in the level of consumption? We investigate the associated disequilibrium behavior experimentally, letting our experimental subjects act as heads of state who repeatedly seek to coordinate their policies. If only deficits are punished, as proposed by White, we observe that consumption is persistently reduced and adjustment is slower than in a treatment in which a surplus is also punished, as suggested by Keynes. We find support for the fact that underconsumption occurs for behavioral but not for rational reasons.

In recent years, experimental economics has seen a rise in the collection and analysis of choice-process data, such as team communication transcripts. The main purpose of this paper is to understand whether the collection of team communication data influences how individuals reason and behave as they enter the team deliberation process, i.e. before any communication exchange. Such an influence would imply that team setups have limited validity to speak to individual reasoning processes. Our treatment manipulations allow us to isolate the effects of (1) belonging to a team, (2) actively suggesting an action to the team partner, and (3) justifying the suggestion in a written text to the team partner. Across three different tasks, we find no systematic evidence of changed suggestions and altered individual sophistication due to changes in aspects (1)–(3) of our experimental design. We thus find no threat to said validity of team setups. In addition to investigating how the team setup affects individual behavior before communication, we also investigate the sophistication of decisions after the communication. We find that sophisticated strategies are more persuasive than unsophisticated strategies, especially when communication includes written justifications, thereby explaining why teams are more sophisticated and proving rich communication to be fruitful.

We examine choices in two-player extensive-form games that give subjects opportunities for individualistic as well as other-regarding behavior, and where each subject makes choices in a variety of games. Following an extensive search over models, where we estimate a single parameter vector for all the games rather than different parameter vectors for each game, we find that (1) the level-n model organizes the data well, (2) other-regarding behaviors in these games appear to consist primarily of egalitarian and utilitarian behaviors, and (3) there is no significant evidence for reciprocal behavior.

We develop a mechanism based on the Colonel Blotto game to elicit (subjective) expectations in a group-based manner. In this game, two players allocate resources over possible future events. A fixed prize is awarded based on the amounts the players allocate to the realized event. We consider two payoff variations: under the proportional-prize rule, the award is split proportionally to the resources that players allocate to the realized event; under the winner-takes-all rule, the full award is given to the player who allocate the most resources to the realized event. When probabilities by which events realize are common knowledge to the players, both games are Bayesian–Nash incentive compatible in the sense that (expected) equilibrium allocations perfectly reflect the true realization probabilities. By means of a laboratory experiment, we find that in a setting where realization probabilities are common knowledge the game with the proportional-prize rule (Prop) elicits better distributions compared to both the winner-takes-all variation (Win) and a benchmark mechanism based on an individual-based proper scoring rule (Ind). Without common knowledge of realization probabilities Prop is at least as good as Ind, showing that it is possible to use a game to elicit expectations in a similar fashion to using a proper scoring rule.

The laboratory experiment described in this paper provides evidence on play in signaling games in the context of electoral competition. In this game, voters must infer the preferred policy of each candidate from the candidate’s choice of whether to announce (truthfully) his preferred policy or to take no position. Bayesian voters would put high probability on a candidate having an extreme policy preference after observing him take no position, but cursed voters would not fully appreciate the informational content of the decision to take no position. Stated beliefs reveal substantial uncertainty about other players’ strategies. Based on estimates of a structural model of cursed equilibrium allowing for heterogeneity in the degree of cursedness, 32% of choices between candidates are consistent with Bayesian updating, 32% imply no inferences about others’ types after observing their actions, and the remainder indicate partial updating. Though the experiment also includes treatments with subjects in both roles, these estimates are based on interactions with programmed candidates, implying that uncertainty about others’ rationality and strategic sophistication is not driving the result. We also find that the quantal response error structure in which errors depend on payoff differences cannot explain the pattern of errors that subjects make.