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.

This study reports experiments that examine outcomes when agents choose between a payment scheme that rewards based on absolute performance (i.e., piece rate) and a scheme that rewards based on relative performance (i.e., a tournament). Holding total payments in the tournament constant, performance is higher when the tournament option is winner-take-all compared to a graduated tournament (i.e., second and third-place performers also receive a payment). Performance is higher in the winner-take all tournaments even among participants that choose the piece-rate option. While there is a modest amount of overcrowding, there are no significant differences in overcrowding across conditions. Entry rates into the tournament and the relative ability of tournament entrants (compared to non-entrants in the same condition) are higher in the graduated tournament condition than the winner-take-all conditions. Consequently, the winner-take-all tournament is more efficient than the graduated tournament (incentive effects are stronger and the overcrowding is about the same), but the graduated tournament provides a more effective mechanism to identify the most capable performer in a talent pool.

This paper compares contributions to an experimental public good across the United States and Czech Republic, using a design that allows us to distinguish between altruism and decision error. Czech subjects contribute significantly more than American subjects, and further analysis reveals that this result cannot be attributed to the confounding effects of gender or decision error. Instead, preferences for altruism appear to differ across groups: Czechs are more altruistic than Americans and men are more altruistic than women.

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.

The paper analyzes the effects of more intense competition on firms’ investments in process innovations. More intense competition corresponds to an increase in the number of firms or a switch from Cournot to Bertrand competition. We carry out experiments for two-stage games, where R&D investment choices are followed by product market competition. An increase in the number of firms from two to four reduces investments, whereas a switch from Cournot to Bertrand increases investments, even though theory predicts a negative effect in the four-player case. The results arise both in treatments in which both stages are implemented and in treatments in which only one stage is implemented. However, the positive effect of moving from Cournot to Bertrand competition is more pronounced in the former case.

Simulating a real world environment is of utmost importance for achieving accurate and meaningful results in experimental economics. Offering monetary incentives is a common method of creating this environment. In general, experimenters provide the rewards at the time of experiment. In this paper, we argue that receiving the reward at the time of the experiment may lead participants to make decisions as if the money they are using were not their own. To solve this problem, we devised a “prepaid mechanism” that encourages participants to use the money as if it were their own.

Several non-experimental studies claim that heterogeneity among individuals reduces trust. A few experimental studies have examined the effects of naturally-occurring differences among subjects on trusting behavior, and in contrast, most have not supported these claims. We adopt a novel approach by inducing heterogeneity among subjects in a canonical trust experiment. We accomplish this by varying the show-up payments given to subjects for participating in the experiment. We find that this induced inequality does not consistently affect first- or second-mover behavior in the classic trust game in the manner predicted by either previous theoretical work or empirical studies of survey-based measures of trust. Further, the effect of inequality on trust, in terms of both sign and significance, depends on whether show-up payments are awarded publicly or privately.

We use different incentive schemes to study truth-telling in a die-roll task when people are asked to reveal the number rolled privately. We find no significant evidence of cheating when there are no financial incentives associated with the reports, but do find evidence of such when the reports determine financial gains or losses (in different treatments). We find no evidence of loss aversion in the standard case in which subjects receive their earnings in a sealed envelope at the end of the session. When subjects manipulate the possible earnings, we find evidence of less cheating, particularly in the loss setting; in fact, there is no significant difference in behavior between the non-incentivized case and the loss setting with money manipulation. We interpret our findings in terms of the moral cost of cheating and differences in the perceived trust and beliefs in the gain and the loss frames.

Using a laboratory experiment, we investigate whether a variety of behaviors in repeated games are related to an array of individual characteristics that are popular in economics: risk attitude, time preference, trust, trustworthiness, altruism, strategic skills in one-shot matrix games, compliance with first-order stochastic dominance, ability to plan ahead, and gender. We do find some systematic relationships. A subject’s compliance with first-order stochastic dominance as well as, possibly, patience, gender, and altruism have some systematic effects on her behavior in repeated games. At the level of a pair of subjects who are playing a repeated game, each subject’s gender as well as, possibly, patience and ability to choose an available dominant strategy in a one-shot matrix game systematically affect the frequency of the cooperate–cooperate outcome. However, overall, the number of systematic relationships is surprisingly small.

We report evidence from an experiment where an employer selects one of two workers to perform a task for a fixed compensation. Workers differ in their ability. The employer’s payoff depends on the worker’s ability and on a non-contractible effort that the worker exerts once employed. We find that selected workers exert an effort higher than the minimum enforceable one. When the employers can send a free-text form message to the selected worker, workers with low ability exert significantly higher effort than the workers with high ability. The difference in effort overcompensates the difference in ability.

We investigate the endogenous formation of sanctioning institutions supposed to improve efficiency in the voluntary provision of public goods. Our paper parallels Markussen et al. (Rev Econ Stud 81:301–324, 2014) in that our experimental subjects vote over formal versus informal sanctions, but it goes beyond that paper by endogenizing the formal sanction scheme. We find that self-determined formal sanctions schemes are popular and efficient when they carry no up-front cost, but as in Markussen et al. informal sanctions are more popular and efficient than formal sanctions when adopting the latter entails such a cost. Practice improves the performance of sanction schemes: they become more targeted and deterrent with learning. Voters’ characteristics, including their tendency to engage in perverse informal sanctioning, help to predict individual voting.

We investigate in a laboratory experiment whether procedural fairness concerns affect how well individuals are able to solve a coordination problem in a two-player Volunteer’s Dilemma. Subjects receive external action recommendations, either to volunteer or to abstain from it, in order to facilitate coordination and improve efficiency. We manipulate the fairness of the recommendation procedure by varying the probabilities of receiving the disadvantageous recommendation to volunteer between players. We find evidence that while recommendations improve overall efficiency regardless of their implications for expected payoffs, there are behavioural asymmetries depending on the recommendation: advantageous recommendations are followed less frequently than disadvantageous ones and beliefs about others’ actions are more pessimistic in the treatment with recommendations inducing unequal expected payoffs.

We develop a model that relates self-control to cooperation patterns in social dilemmas, and we test the model in a laboratory public goods experiment. As predicted, we find a robust association between stronger self-control and higher levels of cooperation, and the association is at its strongest when the decision maker’s risk aversion is low and the cooperation levels of others high. We interpret the pattern as evidence for the notion that individuals may experience an impulse to act in self-interest—and that cooperative behavior benefits from self-control. Free-riders differ from other contributor types only in their tendency not to have identified a self-control conflict in the first place.

Punishment has been shown to be an effective reinforcement mechanism. Intentional or not, punishment will likely generate spillover effects that extend beyond one’s immediate decision environment, and these spillovers are not as well understood. We seek to understand these secondary spillover effects in a controlled lab setting using a standard social dilemma: the voluntary contributions mechanism. We find that spillovers occur when others observe punishment outside their own social dilemma. However, the direction of the spillover effect depends crucially on personal punishment history and whether one is personally exempt from punishment or not.

We construct asset markets that are similar to those studied by Smith, Suchanek and Williams (Econometrica. 56, 1119-1151) in which bubbles and crashes tended to occur. The main difference between the markets studied here and those studied by Smith et al. is that in the markets studied here, the fundamental value of the asset is constant over the entire life of the asset. In four of the eight sessions reported here, we observe bubbles, which are prices considerably higher than fundamental values. The data suggest that the frequent payment of dividends is a major cause of bubble formation. The property that the fundamental value remains constant over the course of the trading horizon is not sufficient to eliminate the possibility of a bubble.

We present evidence of a direct social context effect on decision-making under uncertainty: the gender composition of those in the room when making individual risky decisions significantly alters choices even when the actions or presence of others are not payoff relevant. In our environment, decision makers do not know the choices made by others, nor can they be inferred from the experiment. We find that women become more risk taking as the proportion of men in the room increases, but the behavior of men is unaffected by who is present. We discuss some potential mechanisms for this result and conjecture it is driven by women being aware of the social context and imitating the expected behavior of others. Our results imply that the environment in which individual decisions are made can change expressed preferences and that aggregate behavior may be context dependent.

We examine how taxes impact charitable giving and how this relationship is affected by the degree of wasteful government spending. In our model, individuals make donations to charities knowing that the government collects a flat-rate tax on income (net of charitable donations) and redistributes part of the tax revenue. The rest of the tax revenue is wasted. The model predicts that a higher tax rate increases charitable donations. Surprisingly, the model shows that a higher degree of waste decreases donations (when the elasticity of marginal utility with respect to consumption is high enough). We test the model’s predictions using a laboratory experiment with actual donations to charities and find that the tax rate has an insignificant effect on giving. The degree of waste, however, has a large, negative and highly significant effect on giving.

Previous research has suggested that communication and especially promises increase cooperation in laboratory experiments. This has been taken as evidence for internal motivations such as guilt aversion or preference for promise keeping. The goal of this paper was to examine messages under a double-blind payoff procedure to test the alternative explanation that promise keeping is due to external influence and reputational concerns. Employing a 2 × 2 design, we find no evidence that communication increases the overall level of cooperation in our experiments with double-blind payoff procedures. However, we also find no evidence that communication impacts cooperation in our experiments with single-blind payoff procedures. Further, the payoff procedure does not appear to impact aggregate cooperation.

We experimentally compare collusive behaviors in first-price sealed-bid auctions without and with a reserve price. Before the auction begins, a bidder may offer a bribe to the other bidder, in exchange for a commitment not to participate in the auction. We find that the average offer and the rate of successful bribes are significantly lower in the treatment with a reserve price. These results are largely due to responding bidders who demand a greater share of the benefit from collusion. Although imposing a reserve price reduces efficiency, its optimality and bribe deterrence shift the surplus from the bidders to the seller.