Two recent models incorporating fairness considerations into the economics literature based on agents’ concerns about the distribution of payoffs between themselves and others (Fehr-Schmidt, 1999, Quarterly Journal of Economics. 114 (3), 769-816; Bolton-Ockenfels, 2000, American Economic Review. 90,166-193) are investigated using a new three-person ultimatum game: One person allocates a sum of money to two others, one of which is randomly chosen to accept or reject the offer. Rejection gives both the responder and the proposer zero income and a positive consolation prize for the non-responder. The data show essentially no reductions in rejection rates, holding offers constant, with and without consolation prizes, contrary to both models’ predictions.

The classical trinity of tests is used to check for the presence of a tremble in economic experiments in which the response variable is binary. A tremble is said to occur when an agent makes a decision completely at random, without regard to the values taken by the explanatory variables. The properties of the tests are discussed, and an extension of the methodology is used to test for the presence of a tremble in binary panel data from a well-known economic experiment.

This paper examines the Dirty Faces problem as a Bayesian game. The equilibrium in the general form of the game requires the extreme assumption of common knowledge of rationality. However, for any finite number of players, the exact number of steps of iterated rationality necessary for the equilibrium to arise depends on the number of players of a particular type, allowing the game to be used to bound the number of steps satisfied by actual players. The game differs from other games used to study iterated rationality in that all players are better off when common knowledge of rationality is satisfied. While behavior in experiments is inconsistent with the game-theoretic prediction at the group level, individual level behavior shows a greater degree of consistency with theory and with previous results on iterated rationality. Finally, there is some evidence of learning in repeated play.

Auctions that require advance production increase seller costs because inventories must be held. This cost does not exist in production-to-demand markets for which production follows trading, and sales exactly match quantities produced. Data from laboratory computerized double auction markets show that advance-production prices are significantly higher and quantities traded are significantly lower than they are in production-to-demand auctions. Price convergence patterns show advance-production sellers moving toward 9% higher prices and 22% greater earnings.

The difference between people's valuations of gains and losses has been widely observed in both single trial and repeated trial experiments, as well as in survey responses and in commonplace behavior. However, the results of some Vickrey auction experiments indicate that the disparity may decrease, or even disappear, over repeated trials. This paper reports the results of two further repeated Vickrey auction experiments that test the impact of both a second price and a ninth price auction rule on valuations. Although valuations should be independent of this variation in the exchange price rule, the manipulation had a dramatic impact on subjects’ stated values of a common market good. The results suggest that the endowment effect remains robust over repeated trials, and that contrary to common understanding, the Vickrey auction may elicit differing demands dependent on the context of the valuation.