People, across a wide range of personal and professional domains, need to accurately detect whether the state of the world has changed. Previous research has documented a systematic pattern of over- and under-reaction to signals of change due to system neglect, the tendency to overweight the signals and underweight the system producing the signals. We investigate whether experience, and hence the potential to learn, improves people’s ability to detect change. Participants in our study made probabilistic judgments across 20 trials, each consisting of 10 periods, all in a single system that crossed three levels of diagnosticity (a measure of the informativeness of the signal) with four levels of transition probability (a measure of the stability of the environment). We found that the system-neglect pattern was only modestly attenuated by experience. Although average performance did not increase with experience overall, the degree of learning varied substantially across the 12 systems we investigated, with participants showing significant improvement in some high diagnosticity conditions and none in others. We examine this variation in learning through the lens of a simple linear adjustment heuristic, which we term the “δ-ϵ” model. We show that some systems produce consistent feedback in the sense that the best δ and ϵ responses for one trial also do well on other trials. We show that learning is related to the consistency of feedback, as well as a participant’s “scope for learning” how close their initial judgments are to optimal behavior.

Social interactions frequently take place under the shadow of the future. Previous literature explains cooperation in indefinitely repeated prisoner’s dilemma as driven predominantly by self-interested strategic considerations. This paper provides a causal test of the importance of social preferences in such contexts. In a series of pre-registered experiments, we show that high levels of cooperation can be sustained when prosocial individuals interact in segregated groups. By comparing their behavior with that of mixed and selfish groups, we highlight the conditions under which other-regarding motivations matter in repeated interactions.

Wrong-doers may try to collaborate to achieve greater gains than would be possible alone. Yet potential collaborators face two issues: they need to accurately identify other cheaters and trust that their collaborators do not betray them when the opportunity arises. These concerns may be in tension, since the people who are genuine cheaters could also be the likeliest to be untrustworthy. We formalise this interaction in the ‘villain’s dilemma’ and use it in a laboratory experiment to study three questions: what kind of information helps people to overcome the villain’s dilemma? Does the villain’s dilemma promote or hamper cheating relative to individual settings? Who participates in the villain’s dilemma and who is a trustworthy collaborative cheater? We find that information has important consequences for behaviour in the villain’s dilemma. Public information about actions is important for supporting collaborative dishonesty, while more limited sources of information lead to back-stabbing and poor collaboration. We also find that the level of information, role of the decision maker, and round of the experiment affect whether dishonesty is higher or lower in the villain’s dilemma than in our individual honesty settings. Finally, individual factors are generally unrelated to collaborating but individual dishonesty predicts untrustworthiness as a collaborator.

How do bribes and lobbying distort judgment? In our experiment, referees are tasked with judging a worker’s performance, and awarding a bonus to workers who score above a certain threshold. We find that bribes and lobbying are both distortionary, but in different ways. Whereas lobbying increases the number of workers receiving a bonus, bribes weaken the relationship between performance and success, with bonuses mostly being awarded to workers who bribe. We discuss implications for anti-corruption interventions.

Narrow bracketers who are myopic in specific decisions would fail to consider preexisting risks in investment and neglect hedging opportunities. Growing evidence has demonstrated the relevance of narrow bracketing. We take a step further in empirical investigation and study individual heterogeneity in narrow bracketing. Specifically, we use a lab experiment in investment and hedging that elicits subjects’ preferences on rich occasions to uncover the individual degree of narrow bracketing without imposing distributional assumptions. Combining prospect theory and narrow bracketing can explain our findings: Subjects who invest more also insure more, and subjects insure significantly less in the loss domain than in the gain domain. More importantly, we show that the distribution of the individual degree of narrow bracketing is skewed at two extremes, yet with a substantial share of people in the middle who partially suffer from narrow bracketing. Neglecting this aspect, we would overestimate the severity of narrow bracketing and misinterpret its relation with individual characteristics.

Research on individual decisions from experience reveals a robust tendency to behave as if rare events are underweighted. Experimental studies of strategic interactions often exclude probabilistic outcomes, thus neglecting the potential extension of this tendency to strategic games. Our study addresses this gap by examining how players in games adjust their strategies when confronted with low-probability, high-impact outcomes. We introduce two finitely repeated, asymmetric games with lottery-based payoffs. These games, when simplified by replacing lotteries with their expected values, yield straightforward equilibrium predictions based on dominant strategies. However, results from three experiments reveal players strongly deviate from these predictions, instead behaving consistently with underweighting of rare events. The results additionally indicate that social preferences also play a role in shaping behavior. To explain these observations, we propose the simplistic Reciprocal Altruistic Sampler (REALS) model. This model posits that players’ decisions are a result of the interplay between reliance on small samples of past experiences, altruistic tendencies, and strategic considerations. We experimentally compare behavior in variants of the games that disentangle the behavior to these three components, and show that the REALS model, despite its simplicity, effectively captures their complex interactions. Our results additionally demonstrate that players can often choose strictly dominated strategies in a sophisticated effort to react to underweighting of rare events by other players. Overall, this study enhances our understanding of strategic decision making by highlighting the crucial impact of rare events and the interplay of different uncertainties in influencing players’ choices.

In two sets of novel laboratory experiments, we show that the mere presence of an existing alliance at the onset of coalition formation may lead managers to form economically suboptimal alliances. Study Set 1 considers alliance formation when a focal firm is already embedded in an existing coalition. These studies show evidence of a status quo bias: participants managing the focal firm tend to include the current partner in alliance offers and thus are less successful in forming optimal alliances compared to those in an unattached control condition. Study Set 2 examines the extent to which an unattached focal firm attempts to ‘poach’ away attractive coalition partners from their embedded alliances. Our results show evidence of poaching avoidance: participants make fewer offers to, and are less likely to partner with, an attractive firm already in an alliance. However, this tendency to avoid poaching may be attenuated when the existing coalition is perceived as a powerful threat and/or alternate partners are unavailable. These findings provide behavioral insights into how judgmental biases can constrain alliance formation. We conclude with a discussion of how selected environmental, firm, and decision-maker characteristics (e.g., turbulence, embedded relationships, and risk orientation) may moderate these results.

Information about the consequences of our consumption choices can be unwelcome, and people sometimes avoid it. Thus, when people possess information that is inconvenient for another person, they may face a dilemma about whether to inform them. We introduce a simple and portable experimental game to analyze the transmission of inconvenient information. In this game, a Sender can, at a small cost, inform a Receiver about a negative externality associated with a tempting and profitable action for the Receiver. The results from our online experiment (N = 1,512) show that Senders transmit more information when negative externalities are larger and that Senders’ decisions are largely driven by their own preferences towards the charity and their own use of information. We do not find evidence that Senders take the Receiver’s preferences into account, as they largely ignore explicit requests for information, or ignorance, even if Receivers have the option to punish the Sender.

Using a laboratory experiment, we investigate complexity in decision problems as a cause of failures in contingent reasoning. For this purpose, we introduce three dimensions of complexity to a decision problem: the number of contingencies, the dominance property of choices, and reducible states. Each decision problem is designed to reflect variations in complexity across the three dimensions. Experimental results show that the number of contingencies has the most significant effect on failures in contingent reasoning. The second dimension, the dominance property of choices, also has a statistically significant effect, though the effect size is smaller than in the existing literature. In contrast, the third complexity dimension has no impact; presenting the decision problem in a reduced or reducible form does not change subjects’ performance on contingent reasoning. Additionally, we examine the Power of Certainty and show its existence. This effect is particularly pronounced when the number of contingencies is large.

A growing number of studies use “real” effort designs for laboratory experiments where subjects complete an actual task to exert effort rather than using a stylized effort design where subjects simply choose an effort level from a predefined set. The commonly argued reason for real effort is that it makes the results more generalizable and field relevant. We investigate the nature of modeling effort provision by first trying to provide a clear theoretical understanding of the nature of effort costs. We then empirically examine claims about the differences between real effort and stylized effort. A key to our examination is ensuring that we compare the two modes of effort provision keeping effort costs constant, which is a point overlooked in many past examinations. In our data, when controlling for effort costs, we find no differences in behavior between real and stylized effort. Given the importance of effort costs and the lack of a generally accepted way to include them in real effort designs, we provide a simple add-on that any researcher can use with their real effort experiments to incorporate a theoretically appropriate and controlled cost of effort even in a real effort setting. We also discuss ways to better approach modeling effort costs in experiments, whether one is conducting real or stylized designs, to improve inference on research questions.

Disappointment aversion has been suggested as an explanation for non-truthful rankings in strategy-proof school-choice matching mechanisms. We test this hypothesis using a novel experimental design that eliminates important alternative causes of non-truthful rankings. The design uses a simple contingent choice task with only two possible outcomes. Between two treatments, we manipulate the possibility for disappointment aversion to have an effect on ranking. We find a small and statistically marginally significant treatment effect in the direction predicted by disappointment aversion. We therefore conclude that disappointment aversion is a minor contributor to non-truthful rankings in strategy-proof school-choice matching mechanisms.

We introduce price freeze options into a model of sequential search. The model's predictions are tested in a laboratory experiment. The experiment varies (1) whether freezing is possible or not, (2) the cost of freezing, and (3) the time horizon. Overall, the observed treatment effects are consistent with the predictions of our model. Assuming that individuals experience regret, fail to ignore sunk search costs, misperceive the number of periods remaining, or are risk-averse, does not improve upon the performance of the model. Our results support the use of the assumption of optimal search behavior in theoretical and empirical studies.

Using public goods games in a laboratory setting, we study team-level production, where two teams compete for the resources of a common-member who can benefit from and provide effort in both teams. Intrinsically, the common-member faces divided loyalties. We examine such competition in a setting in which the common-member has productive abilities equal to that of the other team members (dedicated-members), and in two settings where he/she has greater relative potential. When effort (contributions) by the common-member have greater productivity (coupled with higher opportunity costs to contribute) in providing the public good relative to that of dedicated-members, we find team performance is not significantly increased. On the other hand, when the common-member has a greater endowment, sufficient to match the absolute contributions of team members in both teams, there is a significant increase in team performance. The evidence suggests that a norm of reciprocity by dedicated-members based on absolute contributions of the common-member better explains behavior than a norm based on the value added of the common-member's contributions. This behavior, along with fairness norms elicited in a survey, suggests that on average dedicated members do not sufficiently incorporate the common-members' higher opportunity costs in the treatment where his/her productivity is increased. This setting provides an important illustration of where the behavioral response to the type of inequality matters, leading to differences in team efficiency.

This paper reports a series of experiments designed to evaluate how the advertised participation payment impacts participation rates in laboratory experiments. Our initial goal was to generate variation in the participation rate as a means to control for selection bias when evaluating treatment effects in common laboratory experiments. Initially, we varied the advertised participation payment to 1734 people from $\mathrm{\$}5$ to $\mathrm{\$}15$ using standard email recruitment procedures, but found no statistical evidence this impacted the participation rate. A second study increased the advertised payment up to $\mathrm{\$}100$. Here, we find marginally significant statistical evidence that the advertised participation payment affects the participation rate when payments are large. To combat skepticism of our results, we also conducted a third study in which verbal offers were made. Here, we found no statistically significant increase in participation rates when the participation payment increased from $\mathrm{\$}5$ to $\mathrm{\$}10$. Finally, we conducted an experiment similar to the first one at a separate university. We found no statistically significant increase in participation rates when the participation payment increased from $\mathrm{\$}7$ to $\mathrm{\$}15$. The combined results from our four experiments suggest moderate variation in the advertised participation payment from standard levels has little impact on participation rates in typical laboratory experiments. Rather, generating useful variation in participation rates likely requires much larger participation payments and/or larger potential subject pools than are common in laboratory experiments.

Past experimental research has shown that when rating systems are available, buyers are more generous in accepting unfair offers in ultimatum bargaining. However, it also suggests that, under these conditions, sellers behave more fairly to avoid receiving negative feedback. This paper experimentally investigates which effect is stronger with the use of a rating system: buyers’ inflated inequity acceptance or sellers’ disapproval aversion. We explore this question by varying the information condition on the buyers’ side. Our experiment shows that in a setup where the size of the pie is common knowledge for both buyers and sellers, when a rating system is present, the sellers exhibit disapproval aversion but the buyers do not display greater acceptance of inequity. By contrast, when only sellers are aware of the size of the pie, sellers behave aggressively to exploit buyers and their behavior does not change in the presence of a rating system; however, buyers display greater acceptance of inequity when a rating system is present. We discuss how these results can be explained by a theoretical model that includes sellers’ social disapproval aversion and buyers’ disappointment aversion in addition to the players’ inequality aversion.

Experiments on saving behavior reveal substantial heterogeneity of behavior and performance. We show that this heterogeneity is reliable and examine several potential sources of it, including cognitive ability and personality scales. The strongest predictors of both behavior and performance are two cognitive ability measures. We conclude that complete explanations of heterogeneity in dynamic decision making require attention to complexity and individual differences in cognitive constraints.

Recently, it has been argued that the evidence in social science research suggests that deceiving participants in an experiment does not lead to a significant loss of experimental control. Based on this assessment, experimental economists were counseled to lift their de facto prohibition against deception to capture its potential benefits. To the extent that this recommendation is derived from empirical studies, we argue that it draws on a selective sample of the available evidence. Building on a systematic review of relevant research in psychology, we present two major results: First, the evidence suggests that the experience of having been deceived generates suspicion that in turn is likely to affect the judgment and decision making of a non-negligible number of participants. Second, we find little evidence for the reputational spillover effects that have been hypothesized by a number of authors in psychology and economics (e.g., Kelman, H.C., 1967. Psychological Bulletin. 67, 1—11; Davis, D.D. and Holt, C.A., 1993. Experimental Economics. Princeton University Press, Princeton). Based on a discussion of the methodological costs and benefits of deception, we conclude that experimental economists’ prohibition of deception is a sensible convention that economists should not abandon.

The gift-exchange game is a form of sequential prisoner's dilemma, developed by Fehr et al. (1993), and popularized in a series of papers by Ernst Fehr and co-authors. While the European studies typically feature a high degree of gift exchange, the few U.S. studies provide some conflicting results. We find that the degree of gift exchange is surprisingly sensitive to an apparently innocuous change—whether or not a comprehensive payoff table is provided in the instructions. We also find significant and substantial time trends in responder behavior.

I experimentally investigate the hypothesis that many people avoid lying even in a situation where doing so would result in a Pareto improvement. Replicating (Erat and Gneezy, Management Science 58, 723–733, 2012), I find that a significant fraction of subjects tell the truth in a sender-receiver game where both subjects earn a higher payoff when the partner makes an incorrect guess regarding the roll of a die. However, a non-incentivized questionnaire indicates that the vast majority of these subjects expected their partner not to follow their message. I conduct two new experiments explicitly designed to test for a ‘pure’ aversion to lying, and find no evidence for the existence of such a motivation. I discuss the implications of the findings for moral behavior and rule following more generally.

Recently, there has been a Renaissance for multi-level selection models to explain the persistence of unselfish behavior in social dilemmas, in which assortative/correlated matching plays an important role. In the current study of a multi-round prisoners’ dilemma experiment, we introduce two correlated matching procedures that match subjects with similar action histories together. We discover significant treatment effects, compared to the control procedure of random matching. Particularly with the weighted history matching procedure we find bifurcations regarding group outcomes. Some groups converge to the all-defection equilibrium even more pronouncedly than the control groups do, while other groups generate much higher rate of cooperation, which is also associated with higher relative reward for a typical cooperative action. All in all, the data show that cooperation does have a much better chance to persist in a correlated/assortative-matching environment, as predicted in the literature.