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Individual Decision Making in a Negative Externality Experiment

Published online by Cambridge University Press:  14 March 2025

J. Spraggon
J. Spraggon*
Affiliation:
Department of Economics, Lakehead University, 955 Oliver Road, Thunder Bay, Ontario, Canada, P7B 5E1
*
email: john.spraggon@lakeheadu.ca
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Abstract

The experimental treatments analysed in this paper are simple in that there is a unique Nash equilibrium resulting in each player having a dominant strategy. However, the data show quite clearly that subjects do not always choose this strategy. In fact, when this dominant strategy is not a “focal” outcome it does not even describe the average decision adequately. It is shown that average individual decisions are best described by a decision error model based on a censored distribution as opposed to the truncated regression model which is typically used in similar studies. Moreover it is shown that in the treatments where the dominant strategy is not “focal” dynamics are important with average subject decisions initially corresponding to the “focal” outcome and then adjusting towards the Nash prediction. Overall, 66.7% of subjects are consistent with Payoff Maximization, 27.8% are consistent with an alternate preference maximization and 5.6% are random.

Keywords

quantal responsemoral hazard in groupsexogenous targeting instrumentsexperiments

JEL classification

D70: General C92: Laboratory, Group Behavior C72: Noncooperative Games
Type
Research Article
Information
Experimental Economics , Volume 7 , Issue 3 , October 2004 , pp. 249 - 269
Copyright
Copyright © 2004 Economic Science Association

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Footnotes

*

This research is sponsored through a grant from Environment Canada McMaster University's Eco-Research Program for the Hamilton Harbour. An earlier draft of this paper was presented to the Economic Science Association. Thanks are due to Donna Spraggon, Andrew Muller, Stuart Mestelman, Peter Kuhn, Martin Osborne, Charles Holt and three anonymous referees for guidance and helpful comments.

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