Experimental economics represents a strong growth industry. In the past several decades the method has expanded beyond intellectual curiosity, now meriting consideration alongside the other more traditional empirical approaches used in economics. Accompanying this growth is an influx of new experimenters who are in need of straightforward direction to make their designs more powerful. This study provides several simple rules of thumb that researchers can apply to improve the efficiency of their experimental designs. We buttress these points by including empirical examples from the literature.

The impact of redistributive policies on voluntary contributions is still not well understood. While a higher level of redistributive taxation decreases the price of voluntary giving, it also changes the income distribution by decreasing income inequality. This paper provides a controlled laboratory experiment to investigate the net impact of the tax rate on public goods provision. The experimental findings show that while the participants decrease their voluntary contributions as the pre-tax income distribution becomes more equal, they increase their contributions with taxation. These findings have important implications for government policies regarding privately provided public goods.

The role of natural language communication in economic exchange has been the focus of substantial experimental analysis. Recently, scholars have taken the important step of investigating whether certain types of communication (e.g., promises) might affect decisions differently than other types of communication. This requires classifying natural language messages. Unfortunately, no broadly-accepted method is available for this purpose. We here describe a coordination game for classification of natural language messages. The game is similar in spirit to the “ESP” game that has proven successful for the classification of tens of millions of internet images. We compare our approach to self-classification as well as to classifications based on a standard content analysis. We argue that our classification game has advantages over those alternative approaches, and that these advantages might stem from the salient rewards earned by our game's participants.

We devise an experiment to explore the effect of different degrees of bargaining power on the design and the selection of contracts in a hidden-information context. In our benchmark case, each principal is matched with one agent of unknown type. In our second treatment, a principal can select one of three agents, while in a third treatment an agent may choose between the contract menus offered by two principals. We first show theoretically how different ratios of principals and agents affect outcomes and efficiency. Informational asymmetries generate inefficiency. In an environment where principals compete against each other to hire agents, these inefficiencies may disappear, but they are insensitive to the number of principals. In contrast, when agents compete to be hired, efficiency improves dramatically, and it increases in the relative number of agents because competition reduces the agents’ informational monopoly power. However, this environment also generates a high inequality level and is characterized by multiple equilibria. In general, there is a fairly high degree of correspondence between the theoretical predictions and the contract menus actually chosen in each treatment. There is, however, a tendency to choose more ‘generous’ (and more efficient) contract menus over time. We find that competition leads to a substantially higher probability of trade, and that, overall, competition between agents generates the most efficient outcomes.

In this paper we use experimental data from rural Cameroon to quantify the effect of social distance on trust and altruism. Our measure of social distance is relevant to everyday economic interactions: subjects in a Trust Game play with fellow villagers or with someone from a different village. We find that significantly more money is sent when the players are from the same village. Other factors that influence transfers at least as much as the same-village effect are gender, education and membership of rotating credit groups. To test whether Senders are motivated by altruism, they also play a Triple Dictator Game. Senders transfer significantly more money on average in the Trust Game than in the Triple Dictator Game. However, there is also a social distance effect in the Triple Dictator Game. Results from a Risk Game suggest that Trust Game transfers are uncorrelated with attitudes to risk.

We compare behavior in modified dictator games with and without role uncertainty. Subjects choose between a selfish action, a costly surplus creating action (altruistic behavior) and a costly surplus destroying action (spiteful behavior). While costly surplus creating actions are the most frequent under role uncertainty (64%), selfish actions become the most frequent without role uncertainty (69%). Also, the frequency of surplus destroying choices is negligible with role uncertainty (1%) but not so without it (11%). A classification of subjects into four different types of interdependent preferences (Selfish, Social Welfare maximizing, Inequity Averse and Competitive) shows that the use of role uncertainty overestimates the prevalence of Social Welfare maximizing preferences in the subject population (from 74% with role uncertainty to 21% without it) and underestimates Selfish and Inequity Averse preferences. An additional treatment, in which subjects undertake an understanding test before participating in the experiment with role uncertainty, shows that the vast majority of subjects (93%) correctly understand the payoff mechanism with role uncertainty, but yet surplus creating actions were most frequent. Our results warn against the use of role uncertainty in experiments that aim to measure the prevalence of interdependent preferences.

This paper analyzes the use of a cost-free reward mechanism in the exploitation of a common property resource. We implement an experimental study involving a two-stages game where agents first decide resource appropriation and then have the opportunity to distribute cost-free bestowals. We observe that subjects link the two activities in such a way that appropriation determines the distribution of bestowals which in turn contributes maintaining low appropriation levels, thus avoiding the destruction of the common resource. Not all the potential bestowals are distributed, however.

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.

This paper considers the external validity of the growing corpus of literature that reports the use of laboratory auctions to reveal consumers’ willingness to pay for consumer goods, when the concerned goods are sold in retail stores through posted price procedures. The quality of the parallel between the field and the lab crucially depends on whether being informed of the actual field price influences a consumer's willingness to pay for a good or not. We show that the elasticity of the WTP revision according to the field price estimation error is significant, positive, and can be roughly approximate to one quarter of the error. We then discuss the normative implications of these results for future experiments aimed at eliciting private valuations through auctions.

This paper reports a field experiment involving manipulation of invitations to register in an experimental economics subject database. Two types of invitations were sent out: one emphasizing pecuniary and the other non-pecuniary benefits of participation. The former resulted in higher response rate and the strength of this treatment effect was comparable in different groups defined by gender and academic major. In a follow-up test conducted about a year later it was found that individuals recruited by invitations emphasizing monetary benefits were less willing to make an effort to participate in a non-paid survey. The very same survey also showed that they were marginally less altruistic in general.

The extant microeconomic literature on matching markets assumes ordinal preferences for matches, while bargaining within matches is mostly excluded. Central for this paper, however, is bargaining over joint profits from potential matches. We investigate, both theoretically and experimentally, a seemingly simple allocation task in a 2 × 2 market with repeated negotiations. When inefficiency is possible, about 1/3 of the complete matches are inefficient and, overall, more than 3/4 of the experimental allocations are unstable. These results strongly contradict existing bargaining theories requiring efficient matches. Even with regard to efficient matches, the tested theories perform poorly. Standard bargaining and behavioral concepts, such as Selten's (1972) Equal Division Core, are outperformed by the simplistic ɛ-Equal Split, i.e., an equal split of the joint profit plus/minus ɛ.

We report on an experiment conducted to evaluate the effects of varying the way in which market information is presented to participants in laboratory Cournot duopolies. We find that the most standard variations, which are the use of a profit table or a profit calculator, yield indistinguishable performance. However, the addition of a best-response option to the profit calculator tends to increase aggregate output to the Cournot level and decrease the incidence of tacit collusion.

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.

I survey the literature post Ledyard (Handbook of Experimental Economics, ed. by J. Kagel, A. Roth, Chap. 2, Princeton, Princeton University Press, 1995) on three related issues in linear public goods experiments: (1) conditional cooperation; (2) the role of costly monetary punishments in sustaining cooperation and (3) the sustenance of cooperation via means other than such punishments. Many participants in laboratory public goods experiments are “conditional cooperators” whose contributions to the public good are positively correlated with their beliefs about the average group contribution. Conditional cooperators are often able to sustain high contributions to the public good through costly monetary punishment of free-riders but also by other mechanisms such as expressions of disapproval, advice giving and assortative matching.

Some of the earliest work on heterogeneity in social preferences focuses on gender differences in behavior. The source of these gender differences is the main interest of this paper. We report on dictator game experiments designed to identify heterogeneity of other-regarding preferences according to personality, gender, status, and whether the choice is framed as giving or taking. We find that the effect of gender on giving is more subtle than previously understood, and is explained collectively by various personality factors. We also find that women, high status treatment individuals, and individuals in the giving language treatment give less, and are also less sensitive to the price of giving.

This study examines whether reciprocity is affected by what others know and do. Two types of social effects are investigated within the framework of a modified investment game. On the one hand, we assess the role played by the awareness that own choices are observed by another trustee—i.e., peer pressure. On the other hand, we measure the interaction between trustees’ choices—i.e., social spillovers. We find that peer pressure fosters reciprocity and, to a lesser extent, so do social spillovers.

Agent-based simulations and human-subject experiments explore the emergence of respect for property in a specialization and exchange economy with costless theft. Software agents, driven by reciprocity and hill-climbing heuristics and parameterized to replicate humans when property is exogenously protected, are employed to predict human behavior when property can be freely appropriated. Agents do not predict human behavior in a new set of experiments because subjects innovate, constructing a property convention of “mutual taking” in 5 out of the 6 experimental sessions that allows exchange to crowd out theft. When the same convention is made available to agents, they adopt it and again replicate human behavior. Property emerges as a social convention that exploits the capacity for reciprocity to sustain trade.

Accountability—the expectation on the side of the decision maker that she may have to justify her decisions in front of somebody else—has been found by psychologists to strongly influence decision-making processes. The awareness of this issue remains however limited amongst economists, who tend to focus on the motivational effects of financial incentives. Accountability and incentives may provide different motivations for decision makers, and disentangling their effects is thus important for understanding real-world situations in which both are present. Separating accountability and incentives, I find different effects. Accountability is found to reduce preference reversals between frames, for which incentives have no effect. Incentives on the other hand are found to reduce risk seeking for losses, where accountability has no effect. In a choice task between simple and compound events, accountability increases the preference for the normatively superior simple event, while incentives have a weaker effect going in the opposite direction.

In this paper, we present a first survey of the literature regarding whether the strategy method, in which a responder makes conditional decisions for each possible information set, leads to different experimental results than does the more standard direct-response method, in which the responder learns the action of the first mover and then chooses a response. Of the twenty-nine existing comparisons, sixteen find no difference, while four do find differences, and nine comparisons find mixed evidence. We also find some indications about the underlying determinants of when the two methods lead to different responses. For example, it appears that levels of punishment are substantially lower with the strategy method. In addition, it also appears that difference across these elicitation methods are more likely when people make fewer contingent choices. Finally, in no case do we find that a treatment effect found with the strategy method is not observed with the direct-response method.

Asymmetric distribution of information, while omnipresent in real markets, is rarely considered in experimental financial markets. We present results from experiments where subjects endogenously choose between five information levels (four of them costly). We find that (i) uninformed traders earn the highest net returns, while average informed traders always perform worst even when information costs are not considered; (ii) over time traders learn to pick the most advantageous information levels (full information or no information); and (iii) market efficiency decreases with higher information costs. These results are mostly in line with the theoretical predictions of Grossman and Stiglitz (Am. Econ. Rev. 70:393-408, 1980) and provide additional insights that studies with only two information levels cannot deliver.