This paper studies the effect of social relations on convergence to the efficient equilibrium in 2 × 2 coordination games from an experimental perspective. We employ a 2 × 2 factorial design in which we explore two different games with asymmetric payoffs and two matching protocols: “friends” versus “strangers”. In the first game, payoffs by the worse-off player are the same in the two equilibria, whereas in the second game, this player will receive lower payoffs in the efficient equilibrium. Surprisingly, the results show that “strangers” coordinate more frequently in the efficient equilibrium than “friends” in both games. Network measures such as in-degree, out-degree and betweenness are all positively correlated with playing the strategy which leads to the efficient outcome but clustering is not. In addition, ‘envy’ explains no convergence to the efficient outcome.

A key question about human societies is how social norms of cooperation are enforced. Subjects who violate norms are often targeted by their peers for punishment. In an experiment with small teams we examine whether subjects treat punishment itself as a second-order public good. Results do not support this view and rather suggest a hard-wired taste for punishment; subjects are engaged in a cooperative task but ignore the public good characteristics of punishment.

In the world of mutual funds management, responsibility for investment decisions is increasingly entrusted to small teams instead of individuals. Yet the effect of team decision-making in a market environment has never been studied in a controlled experiment. In this paper, we investigate the effect of team decision-making in an asset market experiment that has long been known to reliably generate price bubbles and crashes in markets populated by individuals. We find that this tendency is substantially reduced when each decision-making unit is instead a team of two. This holds across a broad spectrum of measures of the severity of mispricing, both under a continuous double-auction institution and in a call market. The result is not driven by reduced turnover due to time required for deliberation by teams, and continues to hold even when subjects are experienced. Our result also holds not only when our teams treatments are compared to the ‘narrow’ baseline provided by the corresponding individuals treatments, but also when compared more broadly to the results of the large body of previous research on markets of this kind.

High rates of divorce in western society have prompted much research on the repercussions for well-being and the economy. Yet little is known about the important topic of whether parental divorce has deleterious consequences upon adult children. By combining experimental and econometric survey-based evidence, this study attempts to provide an answer. Under controlled conditions, it measures university students’ subjective well-being and productivity (in a standardized laboratory task). It finds no evidence that either of these is negatively associated with recent parental divorce. If anything, happiness and productivity appear to be slightly greater, particularly among males, if their parents have divorced. Using longitudinal data from the British Household Panel Survey—to control for so-called fixed effects—we then cross-check this result, and confirm the same finding, on various random samples of young British adults.

We propose a novel experimental method that disentangles strategically- and non-strategically-motivated behavior. We apply it to an indefinitely-repeated prisoner's dilemma game to observe simultaneously how the same individual behaves in situations with future interaction and in situations with no future interaction, while controlling for expectations. This method allows us to determine the extent to which strategically-cooperating individuals are responsible for the observed pattern of cooperation in experiments with repeated interaction, including the so-called endgame effect. Our results indicate that the most common motive for cooperation in repeated games is strategic.

We report on an experiment using video technology to study effects of communication on donations to and discrimination between potential receivers. The experimental design eliminates strategic factors by allowing two receivers to unilaterally communicate with an anonymous dictator before the latter decides on her gifts. Through the use of three communication setups (none, audio, and audio-visual) we analyze purely social effects of communication. A silent video channel leads to discrimination between potential receivers based on impression formation, but does not affect average levels of donations. When the auditory channel is added, average donations increase. The social processes invoked by the visual and audio channels are heterogeneous and communicator-specific but not unsystematic.

Recent research argues “betrayal aversion” leads many people to avoid risk more when a person, rather than nature, determines the outcome of uncertainty. However, past studies indicate that factors unrelated to betrayal aversion, such as loss aversion, could contribute to differences between treatments. Using a novel experiment design to isolate betrayal aversion, one that varies how strategic uncertainty is resolved, we provide rigorous evidence supporting the detrimental impact of betrayal aversion. The impact is substantial: holding fixed the probability of betrayal, the possibility of knowing that one has been betrayed reduces investment by about one-third. We suggest emotion-regulation underlies these results and helps to explain the importance of impersonal, institution-mediated exchange in promoting economic efficiency.

We present an experimental design where uncertainty is generated from the advice of experts with conflicts of interest. In this experiment clients are faced with a variant of a multi-armed bandit problem with a random end-time. On the known arm (the “task screen”), clients can earn a certain payment per completion of a decoding task. However, clients may also opt for the unknown arm where they earn an uncertain amount if they end the experiment on this “expert screen”. The amount is uncertain to the clients because the value is being communicated through an “expert” with conflicted incentives. A control session provides for direct transmission of the value to the clients. Our results show that ambiguity aversion is alive-and-well in this environment. Also, when we vary the wage rate on the known arm we find that higher opportunity cost clients are less likely to heed the advice of conflicted experts.

This paper combines laboratory with field data from professional sellers to study whether social preferences are related to performance in open-air markets. The data show that sellers who are more pro-social in a laboratory experiment are also more successful in natural markets: They achieve higher prices for similar quality, have superior trade relations and better abilities to signal trustworthiness to buyers. These findings suggest that social preferences play a significant role for outcomes in natural markets.

We report on sealed-bid second-price auctions that we conducted on the Internet using subjects with substantial prior experience: they were highly experienced participants in eBay auctions. Unlike the novice bidders in previous (laboratory) experiments, the experienced bidders exhibited no greater tendency to overbid than to underbid. However, even subjects with substantial prior experience tended not to bid their values, suggesting that the non-optimal bidding of novice subjects is robust to substantial experience in non-experimental auctions. We found that auction revenue was not significantly different from the expected revenue the auction would generate if bidders bid their values. Auction efficiency, as measured by the percentage of surplus captured, was substantially lower in our SPAs than in previous laboratory experiments.

Experiments frequently use a random incentive system (RIS), where only tasks that are randomly selected at the end of the experiment are for real. The most common type pays every subject one out of her multiple tasks (within-subjects randomization). Recently, another type has become popular, where a subset of subjects is randomly selected, and only these subjects receive one real payment (between-subjects randomization). In earlier tests with simple, static tasks, RISs performed well. The present study investigates RISs in a more complex, dynamic choice experiment. We find that between-subjects randomization reduces risk aversion. While within-subjects randomization delivers unbiased measurements of risk aversion, it does not eliminate carry-over effects from previous tasks. Both types generate an increase in subjects’ error rates. These results suggest that caution is warranted when applying RISs to more complex and dynamic tasks.

We perform an experiment which provides a laboratory replica of some important features of the welfare state. In the experiment, all individuals in a group decide whether to make a costly effort, which produces a random (independent) outcome for each one of them. The group members then vote on whether to redistribute the resulting and commonly known total sum of earnings equally amongst themselves. This game has two equilibria, if played once. In one of them, all players make effort and there is little redistribution. In the other one, there is no effort and nothing to redistribute. A solution to the repeated game allows for redistribution and high effort, sustained by the threat to revert to the worst of these equilibria. Our results show that redistribution with high effort is not sustainable. The main reason for the absence of redistribution is that rich agents do not act differently depending on whether the poor have worked hard or not. The equilibrium in which redistribution may be sustained by the threat of punishing the poor if they do not exert effort is not observed in the experiment. Thus, the explanation of the behavior of the subjects lies in Hobbes, not in Rousseau.

Prior research has demonstrated that the ability to express one’s views or “voice” matters in social and economic interactions, but little is known of the mechanisms through which voice operates. Using an experimental approach based on the ultimatum game with the strategy method, we explore four potential channels for voice that encompass and expand on prior work: the knowledge effect of voice, the value expressive (or inherent value) of voice, the expectation effect of voice, and the procedural fairness effects of voice. Our results show strong effects through the value expressive and expectation channel, but not through either the knowledge channel or procedural fairness. In our view, voice is powerful because people like to express their views and they are disappointed when their views did not make a difference in their outcomes.

The formation of human capital is important for a society's welfare and economic success. Recent literature shows that child health can provide an important explanation for disparities in children's human capital development across different socio-economic groups. While this literature focuses on cognitive skills as determinants of human capital, it neglects non-cognitive skills. We analyze data from economic experiments with preschoolers and their mothers to investigate whether child health can explain developmental gaps in children's non-cognitive skills. Our measure for children's non-cognitive skills is their willingness to compete with others. Our findings suggest that health problems are negatively related to children's willingness to compete and that the effect of health on competitiveness differs with socioeconomic background. Health has a strongly negative effect in our sub-sample with low socio-economic background, whereas there is no effect in our sub-sample with high socio-economic background.

We analyze the implications of different pricing rules in discrete clock auctions. The two most common pricing rules are highest-rejected bid (HRB) and lowest-accepted bid (LAB). Under HRB, the winners pay the lowest price that clears the market; under LAB, the winners pay the highest price that clears the market. In theory, both the HRB and LAB auctions maximize revenues and are fully efficient in our setting. Our experimental results indicate that the LAB auction achieves higher revenues. This revenue result may explain the frequent use of LAB pricing. On the other hand, HRB is successful in eliciting true values of the bidders both theoretically and experimentally.

The ability to strategically reason is important in many competitive environments. In this paper, we examine how relatively mild temporal variations in cognition affect reasoning in the Beauty Contest. The source of temporal cognition variation that we explore is the time-of-day that decisions are made. Our first result is that circadian mismatched subjects (i.e., those making decisions at off-peak time of day) display lower levels of strategic reasoning in the p < 1 Beauty Contest but not in the p > 1 game. This suggests that a cognitively more challenging environment is required for circadian mismatch to harm strategic reasoning. A second result is that choice adaptation or mimicry (i.e., a more automatic type of responding than what is typically considered to be “learning”) during repeated play is not significantly affected by circadian mismatch. This is consistent with the hypothesis that automatic thought is more resilient to cognitive resource depletion than controlled-thought decision making.

This paper presents the results from a minimum-effort game in which individuals can observe the choices of others in real time. We find that under perfect monitoring almost all groups coordinate at the payoff-dominant equilibrium. However, when individuals can only observe the actions of their immediate neighbors in a circle network, monitoring improves neither coordination nor efficiency relative to a baseline treatment without real-time monitoring. We argue that the inefficacy of imperfect monitoring is due to information uncertainty, that is, uncertainty about the correct interpretation of a neighbor's actions. Information uncertainty prevents individuals from inferring safely that their group has managed to coordinate from the available information.

We report four repetitions of Falk and Kosfeld's (Am. Econ. Rev. 96(5):1611—1630, 2006) low and medium control treatments with 476 subjects. Each repetition employs a sample drawn from a standard subject pool of students and demographics vary across samples. We largely confirm the existence of hidden costs of control but, contrary to the original study, hidden costs of control are usually not substantial enough to significantly undermine the effectiveness of economic incentives. Our subjects were asked, at the end of the experimental session, to complete a questionnaire in which they had to state their work motivation in hypothetical scenarios. Our questionnaires are identical to the ones administered in Falk and Kosfeld's (Am. Econ. Rev. 96(5):1611—1630, 2006) questionnaire study. In contrast to the game play data, our questionnaire data are similar to those of the original questionnaire study. In an attempt to solve this puzzle, we report an extension with 228 subjects where performance-contingent earnings are absent i.e. both principals and agents are paid according to a flat participation fee. We observe that hidden costs significantly outweigh benefits of control under hypothetical incentives.

We study beliefs and actions in a repeated normal-form game. Using a level-k model of limited strategic reasoning and allowing for other-regarding preferences, we classify action and belief choices with regard to their strategic sophistication and study their development over time. In addition to a baseline treatment with common knowledge of the game structure, feedback about actions in the previous period and random matching, we run treatments (i) with fixed matching, (ii) without information about the other player’s payoffs, and (iii) without feedback about previous play. In all treatments with feedback, we observe more strategic play (increasing by 15 percent) and higher-level beliefs (increasing by 18 percent) over time. Without feedback, neither beliefs nor actions reach significantly higher levels of reasoning (with increases of 2 percentage points for actions and 6 percentage points for beliefs). The levels of reasoning reflected in actions and beliefs are highly consistent, but less so for types with lower levels of reasoning.

In this paper, we analyse if individual inequality aversion measured with simple experimental games depends on whether the monetary endowment in these games is either a windfall gain (“house money”) or a reward for a certain effort-related performance. We then examine whether the way of preference elicitation affects the explanatory power of inequality aversion in social dilemma situations. Our results indicate that individual inequality aversion measured by the model of Fehr and Schmidt (Quarterly Journal of Economics 114(3):817–868, 1999) is not generally robust to the way endowments emerge. The inequality aversion model has only low predictive power for individual behaviour. It performs best when the endowment is house money and relatively small.