Four Contributions to Experimental Economics

Abstract

In 2002 the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel was awarded to Daniel Kahneman and Vernon Smith. It was not only a distinction for the work of the two laureates, but also for the field of experimental economics. Motivating the prize for the laureates the committee stated: "Controlled laboratory experiments have emerged as a vital component of economic research and, in certain instances, experimental results have shown that basic postulates in economic theory should be modified." The four studies in the work at hand demonstrate the variety of fields on which the methods of experimental economics can be applied to. <br /> The first study deals with culture and presentation effects. Two continuous prisoner's dilemma games where decision makers can choose an individual level of cooperation from a given range of possible actions are introduced. Both games represent the same logical and strategical problem. In the first game, a positive transfer creates a positive externality for the opposite player. In the second game, this externality is negative. Accomplishing a cross-cultural experimental study involving subjects from the West Bank and Jerusalem (Israel) we test for a strategic presentation bias applying these two games. Subjects in the West Bank show a substantially higher cooperation level in the positive externality treatment than in the one with negative externality. In Jerusalem no presentation effect is observed. Discussing our findings, we argue that a cross-cultural comparison leads to only partially meaningful and opposed results if only one treatment condition is evaluated. In our setting cooperation was significantly higher in the West Bank than in Jerusalem in the game with positive externality. In contrast cooperation was significantly higher in Jerusalem than in the West Bank in the game with negative externality. We therefore suggest a complementary application and consideration of different presentations of identical decision problems within cross-cultural research. <br /> Chapter III investigates Incentives and Production Technology in Teams. We show how reward mechanisms, either egalitarian or discriminating, and production technologies, given by production functions of either complementarity or substitutability, affect effort provision in teams. Our experimental results demonstrate that unequal rewards can potentially increase productivity by facilitating coordination, and that the effect strongly interacts with the exact shape of the production function. Our findings suggest that designing (production) tasks in a way that makes workers' efforts complements i.e., the impact of a worker's input increases in the size of the others' input, rather than substitutes may lead to a major cost advantage. Since peer pressure constitutes a complementarity in effort exertion, the mere strengthening of social ties amongst the workforce alone might have a strong impact on productivity. We show that whenever the organizational technology is one of complementarity, the usage of a discriminating reward scheme might be potentially efficiency-enhancing. Thus equal treatment of equals is neither a necessary nor a sufficient prerequisite for eliciting high performance in teams.<br /> Chapter IV tests the success of three stationary concepts in describing experimental data gathered in oligopoly markets. The concepts experimentally tested are Nash equilibrium, impulse balance equilibrium and payoff-sampling equilibrium. The latter two equilibria are behavioral concepts that either depend on tendencies to play the ex-post best strategy (impulse balance equilibrium) or on samples of payoffs for each strategy (payoff-sampling equilibrium). In the experiment two different cyclic duopoly games were played and the aggregated frequencies of entering an occupied market were the test criteria to be described by the three concepts. The comparison of the three concepts with mixed strategies shows that the order of performance from best to worst is as follows: payoff-sampling equilibrium, impulse balance equilibrium, and Nash equilibrium. In addition our data exhibit a weak but significant tendency over time in the direction of coordination at a pure strategy equilibrium. The last chapter, chapter V examines learning behavior in repeated 2x2 games. In this study we introduce four new learning models: impulse balance learning, impulse matching learning, action-sampling learning, and payoff-sampling learning. With this models and together with the models of self-tuning EWA learning and reinforcement learning, we conduct simulations over 12 different 2x2-games and compare the results with experimental data. Hereby, the learning rules have to meet two challenges: First, can they reproduce the aggregate behavior of a human population and second do they adequately describe the observed behavior of a single individual? Our results are twofold: while our newly introduced models are able to capture the distribution of decisions on the aggregate level much better then self-tuning EWA does, self-tuning EWA describes the individual data in a more accurate way then our models do.