Summer Workshop: Experimental Economics

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Summer WorkshopExperimental Economics

• Center for
• Experimental Business Research
• (cEBR)

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Experimental Economics

• What is Experimental Economics?
• How is it related to other disciplines in
  Economics (Microeconomics, Macroeconomics,.)?
• And many more

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Question 1
Bag A Bag B 50 red balls ? red
balls 50 black balls ? black balls 100
total balls 100 total balls

• What is the expected payoff if you choose Bag A?
• 100 X (50/100) 0 X (50/100) 50
• What is the expected payoff if you choose Bag B?
• 100 X 1/2 0 X 1/2 50

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Question 1
with monetary reward (prize 20) Clear
bet Vague bet Comparative 9.74 8.53
(0.49) N 52 (0.580) N 52 Noncomparative
7.58 8.04 (0.62) N 26 (0.43)
N 26

• Fox Tversky, Ambiguity Aversion and Comparative
  Ignorance, The Quarterly Journal of Economics,
  Vol. 110, No. 3 (Aug 1995), 585-603.
• Ellsbergs Paradox
• Ambiguity Aversion

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Question 2
Alternative A Alternative A Alternative A Alternative B Alternative B Alternative B
1000 0 -800 1000 0 -800
1 0.8 0.2 0 0.9 0 .0.1
2 0 1 0 0.1 0.8 0.1
3 0 0.2 0.8 0.1 0 0.9
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Question 2

• Chew, Mao and Nishimura, Preference for longshot
  An Experimental Study of Demand for Sweepstakes,
  working paper
• The choice between Alternative A B is due to
  peoples risk preferences
• Risk Neutral
• Risk Aversion
• Risk Loving
• However, the choices across three lotteries
  should be consistent under the expected utility
  assumptions.
• Allais Paradox

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Question 2
Alternative A Alternative A Alternative A Alternative B Alternative B Alternative B
1000 0 -800 1000 0 -800
1 0.8 0.2 0 0.9 0 .0.1
2 0 1 0 0.1 0.8 0.1
3 0 0.2 0.8 0.1 0 0.9
-0.8
0.8
-0.8
0.8
-0.8
-0.8
0.8
0.8
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Question 2
Choice Patterns Choice Patterns Choice Patterns Choice Patterns Choice Patterns Choice Patterns Choice Patterns Choice Patterns
EU EU Allais Allais Counter Allais Counter Allais Other Other
A1A2A3 B1B2B3 A1B2B3 A1A2B3 B1A2A3 B1B2A3 B1A2B3 A1B2A3
n 9 109 211 68 7 29 18 26
2 23 44 14 1 6 4 5
25 25 58 58 8 8 9 9
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Question 3
Please circle your decision.
0 1 2 3 4 5 6 7 8 9 10

• Dictators Game
• A Double-Blind Design
• Why 10?
• Why not 10?

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Question 3
Colin Camerer, Behavior Game Theory Experimental
in Strategic Interaction, 2003.
Reference Condition Amount () Mean Offer
Frey Bohnet (1997) One-way ID 13 0.35
Frey Bohnet (1997) One-way ID info 13 0.52
Cason Mui (1998) Round 1 40 0.23
Cason Mui (1998) Round 2 40 0.31
Forsythe, Horowitz, Savin Sefton (1994) With Pay 10 0.24
Forsythe, Horowitz, Savin Sefton (1994) Without Pay 5 0.38
Forsythe, Horowitz, Savin Sefton (1994) With Pay 5 0.23
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Question 4
Please circle your decision.
0 1 2 3 4 5 6 7 8 9 10

• Ultimatum Game
• A Double-Blind Design
• First Participant Why not 10?
• Second Participant Why not 1?

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Question 4
Colin Camerer, Behavior Game Theory Experimental
in Strategic Interaction, 2003.
Reference Condition Amount () Mean Offer Rejection Rate
Bolton Zwick (1995) Cardinal 4 0.24 0.38
Bolton Zwick (1995) Double Blind 4 0.22 0.30
Cameron (1999) Indonesian Rupiah 5K 0.42 0.17
Cameron (1999) Indonesian Rupiah 40K 0.45 0.09
Cameron (1999) Indonesian Rupiah 200K 0.42 0.12
Eckel Grossman (2001) Women 5 0.41 0.10
Eckel Grossman (2001) Men 5 0.39 0.14
Guth, Schmittberger Schwarze (1982) Naïve 4-10 0.37 0.10
Guth, Schmittberger Schwarze (1982) Experienced 4-10 0.33 0.25
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Question 5
Second participant Second participant
C D
First participant A (800,800) (0,1000)
First participant B (1000,0) (350,350)
Prisoners Dilemma
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Question 5
Second participant Second participant
C D
First participant A (800,800) (0,1000)
First participant B (1000,0) (350,350)

• Therefore
• First Participant B
• Second Participant D

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Question 5
Second participant Second participant
C D
First participant A (800,800) (0,1000)
First participant B (1000,0) (350,350)

• However, in most of the past experiments
• First Participant A
• Second Participant C
• About half of the time. (Too much cooperation???)

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Experimental Economics

• Revisit
• What is Experimental Economics?
• How is it related to other disciplines in
  Economics (Microeconomics, Macroeconomics,.)?
• And many more