factors influencing differences between survey and market based environmental value measures a unique us database combining survey and housing data is used to obtain household level stated and market based willingness to pay wtp measures to avoid living near landfills systematic differe

bidding behavior in first price sealed bid auctions use of computerized nash competitors abstract results are reported from a series of first price sealed bid auctions where bidders face computerized nash equilibrium competitors the results provide strong support for employing this newly developed methodology as a testing procedure for nash equilibrium bidding models

alternative value elicitation formats in contingent valuation mechanism design and convergent validity abstract to date much of the theoretical work on the incentive properties of contingent valuation surveys has focused on the oft recommended single binary choice sbc referendum format this work has identified conditions under which an sbc elicitation is incentive compatible and empirical evidence lends support to the predictive power of the theory nevertheless researchers and practitioners commonly use alternative elicitation formats and defend their design choices based on efficiency and other criteria in this study we demonstrate that it is possible to identify conditions under which alternative elicitation formats are incentive compatible using as examples open ended oe and payment card pc question formats we then implement theory informed value elicitations in the context of a flood control policy for new york city we fail to reject convergent validity in mean willingness to pay when comparing the theory driven oe format with sbc but reject convergent validity between the theory driven pc and sbc formats as an informative counterfactual we find that a standard oe elicitation congruent with prior work leads to significantly lower values and a lower proportion of respondents who view the elicitation as consequential

referenda under oath herein we explore whether a solemn oath can eliminate hypothetical bias in a voting referenda a popular elicitation mechanism promoted in non market valuation exercises for its incentive compatibility properties first we reject the null hypothesis that a hypothetical bias does not exist second we observe that people who sign an oath are significantly less likely to vote for the public good in a hypothetical referenda we complement this evidence with a self reported measure of honesty which confirms that the oath increases truthfulness in answers this result opens interesting avenues for improving the elicitation of preferences in the lab and beyond

can a raise in your wage make you worse off a public goods perspective abstract we show that a seemingly paradoxical result is possible an increase in one s wage can reduce one s welfare such outcome can occur in an economy populated by agents who value a private good bought using labor income and a public good produced by voluntary time contributions a raise in the wage in general opportunity cost of time makes each agent substitute away from contributing to the public good failing to internalize the negative externality imposed on others the result is a decrease in public good provision under quite general conditions the implied cumulative negative effect on agents welfare can more than offset the positive effect of the wage raise from increased private good consumption and lead to an equilibrium in which all agents are worse off our result is particularly relevant for developing economy settings as it holds for relatively low initial wage levels we discuss the applicability of our findings to a number of important problems in development such as market integration cooperation in common pool resource conservation and social capital

bridging the gap between the field and the lab environmental goods policy maker input and consequentiality abstract this paper explores the criterion validity of stated preference methods through experimental referenda that capture key characteristics of a stated preference survey for a proposed environmental program in particular we investigate whether advisory referenda where participant votes have either known or unknown weight in the policy decision can elicit values comparable to that of a standard incentive compatible referendum when participants regard their votes as consequential our results suggest there is no elicitation bias with advisory referenda for advisory referenda where participants view their votes as inconsequential and for purely hypothetical referenda we observe elicitation bias

of birds and books more on hypothetical referenda recently cummings et al 1997 have reported a test of whether a hypothetical referendum using a majority rule is incentive compatible motivated in part by the national oceanic and atmospheric administration s noaa initially proposed rules for using contingent valuation in natural resource damage assessments these authors conclude that results from our experiments which involve a relatively simple good that is valued in a simple and controlled setting suggest that this hypothesis the incentive compatibility of a hypothetical referendum using majority rule be rejected p 619 this note questions the relevance of the authors results for the recommendations in the noaa rules and in the process identifies the general difficulties posed in measuring the amount of a public good 1 the noaa rules for contingent valuation were proposed by a distinguished panel of social scientists including two nobel laureates in economics kenneth arrow and robert solow arrow et al 1993 the guidelines were intended to enhance the reliability of contingent valuation estimates of willingness to pay for restoring injured natural resources as part of damage assessments required by the comprehensive environmental response compensation and

rent seeking with bounded rationality an analysis of the all pay auction the winner take all nature of all pay auctions makes the outcome sensitive to decision errors which we introduce with a logit formulation the equilibrium bid distribution is a fixed point the belief distributions that determine expected payoffs equal the choice distributions determined by expected payoffs we prove existence uniqueness and symmetry properties in contrast to the nash equilibrium the comparative statics of the logit equilibrium are intuitive rent dissipation increases with the number of players and the bid cost overdissipation of rents is impossible under full rationality but is observed in laboratory experiments our model predicts this property

discrete choice survey experiments a comparison using flexible methods abstract this study investigates the convergent validity of discrete choice contingent valuation cv and contingent rating ranking cr methods using flexible econometric methods our results suggest that cv and cr can produce consistent data achieve convergent validity when respondent s preferred choices and the same changes in environmental quality are considered we also find that cr models that go beyond modeling the preferred choice and include additional ranks cannot be pooled with the cv models accounting for preference heterogeneity via random coefficient models and their flexible structure does not make rejection of the hypothesis of convergent validity less likely but instead rejects the hypothesis to about the same degree or perhaps more frequently than fixed parameter models commonly used in the literature

olson s logic of collective action at fifty in the 50 years since its publication mancur olson s logic of collective action has had an enormous impact on the academic literature in both economics and political science in this review essay i discuss olson s work in light of the ensuing research particularly developments in the theoretical literature much of the discussion focuses on the group size paradox as applied to politics i e the extent to which the group size paradox can explain why the interests of some groups are better represented in the political process than others i also discuss selective incentives with an emphasis on the byproduct mechanism under which a firm sells a private good and uses the resulting profits to provide a public good

valuing life experimental evidence using sensitivity to rare events global environmental phenomena like climate change major extinction events or flutype pandemics can have catastrophic consequences by properly assessing the outcomes involved especially those concerning human life economic theory of choice under uncertainty is expected to help people take the best decision however the widely used expected utility theory values life in terms of the low probability of death someone would be willing to accept in order to receive extra payment common sense and experimental evidence refute this way of valuing life and here we provide experimental evidence of people s unwillingness to accept a low probability of death contrary to expected utility predictions this work uses new axioms of choice defined by chichilnisky 2000 especially an axiom that allows extreme responses to extreme events and the choice criterion that they imply the implied decision criteria are a combination of expected utility with extreme responses and seem more consistent with observations

monopolistic competition growth and public good provision a normal good in this article i develop a model of public good provision in which private goods are supplied in a monopolistically competitive market in this context increases in the size of the group are increases in the population of a society i find that increases in population lead to reduced public good provision the reason is quite simple as population increases the number of private goods available for consumption also increases this raises the marginal utility of income and increases the opportunity cost of contributing to the public good while the level of voluntary contributions falls in this model the optimal level of provision is shown to increase with population thus there is a growing divergence between the optimal and equilibrium levels of provision of the public good in the standard model with a pure public good individual welfare rises with an increase in population both because of the increase in the level of provision of the public good and the reduced contribution per person that results from the population increase furthermore in the model of monopolistic competition without a public good welfare also increases with population due to the wider of variety of goods which are available in a larger economy however when the models are combined an increase in popu lation has an ambiguous effect on welfare this stems from the reduction in the level of provision of the public good as the population increases the model of monopolistic competition in this article is based on krugman 1980 this model assumes a simple form of increasing returns to scale under which each good may be produced by incurring a fixed set up cost plus a constant marginal cost of production when the population increases the economy can support a broader range of goods and this leads to a higher real income for individuals in the economy thus economic growth arising from a scale effect leads to reduced contributions to the public good in this model economic growth can also be caused by increases in total factor productivity in the model of monopolistic competition used here this would be reflected by reductions the fixed and marginal cost of production it turns out that reductions in these parameters also lead to reduced public good provision

valuation on the frontier calibrating actual and hypothetical statements of value the lack of robust evidence showing that hypothetical behavior directly maps into real actions remains a major concern for proponents of stated preference nonmarket valuation techniques this article explores a new statistical approach to link actual and hypothetical statements using willingness topay field data on individual bids from sealed bid auctions for a 350 baseball card our results are quite promising estimating a stochastic frontier regression model that makes use of data that any contingent valuation survey would obtain we derive a bid function that is not statistically different from the bid function obtained from subjects in an actual auction if other data can be calibrated similarly this method holds significant promise since an appropriate calibration scheme ex ante or ex post can be invaluable to the policy maker that desires more accurate estimates of use and nonuse values for nonmarket goods and services benefit cost analysis remains the dominant paradigm used throughout the public sector yet a recurring issue in properly estimating the total benefits of nonmarket goods and services is whether hypothetical statements map into real behavior some recently published studies provide evidence that suggests important differences exist between responses from real and hypothetical valuation questions 1 this observation triggered a search for an ex ante and ex post procedure to correct the systematic bias between intentions and actions in valuation exercises recent technology using ex ante procedures has produced some strong evidence that hypothetical bias can be overcome by using a cheap talk scheme see e g cummings and taylor list ex post calibration has also shown some signs of promise as work due to blackburn harrison

the labor market effects of employer recruitment choice abstract i analyze employer recruitment decisions using a dynamic discrete choice structural model that i estimate on a sample of clerical workers from the mcsui a large cross section of establishments in four metropolitan areas of the us in the model employers choose either informal recruitment methods which generate a small but select applicant pool from which the employer can hire quickly or formal methods which create a large but less select applicant pool which the employer must screen intensively delaying hiring times i study the effects of three counterfactual simulations on recruitment strategies starting wages and vacancy durations a wage subsidy a policy designed to improve information about prospective matches and an increase in the heterogeneity of prospective matches i show that the effects of exogenous policy or environmental changes can be decomposed into pure wage effects that affect the wage offers employers post holding constant their recruitment strategies and recruitment wage effects that involve changes in recruitment methods the results show that changes in recruitment strategies represent an important channel through which changes in the economic environment affect the starting wages and vacancy duration for new hires

team selection with asymmetric agents abstract in shallow markets where there are mutual gains from cooperation among agents collusive behavior may occur even if it does not constitute a nash equilibrium yet such behavior is rarely sustainable bolle 1994 reports the results of one period team selection experiments in which subjects often did not follow the nash equilibrium behavior but engaged in tacit collusion we test the robustness of bolle s findings by introducing asymmetry into subjects characteristics and repeating the experiment for a number of periods we find that collusion is not sustainable and the outcomes converge to levels close to the nash equilibrium however the agent s actions stayed slightly above the nash equilibrium level in all experiments

combining revealed and stated preferences consistency tests and their interpretations this article models the recreation demand for iowa wetlands combining survey data on both actual usage patterns i e revealed preferences rps and anticipated changes to those patterns under hypothetical increases in trip costs i e stated preferences sps we formulate and test specific hypotheses concerning potential sources of bias in each approach and discuss what can be learned about the validity of the models from such tests

hypothetical versus real willingness to pay in the health care sector results from a field experiment abstract we conducted a field experiment comparing hypothetical and real purchase decisions for a pharmacist provided asthma management program among 172 subjects with asthma subjects received either a dichotomous choice contingent valuation question or were given the opportunity to actually enroll in the program three different prices were used us 15 40 and 80 in the hypothetical group 38 of subjects said that they would purchase the good at the stated price but only 12 of subjects in the real group purchased the good p 0 000 we cannot however reject the null hypothesis that definitely sure hypothetical yes responses as identified in a follow up question correspond to real yes responses we conclude that the dichotomous choice contingent valuation method overestimates willingness to pay but that it may be possible to correct for this overestimation by sorting out definitely sure yes responses

the logit equilibrium a perspective on intuitive behavioural anomalies costs associated with deviations from the nash equilibrium these payoff asymmetry effects are incorporated in an approach that introduces noisy behavior via a logit probabilistic choice function in the resulting logit equilibrium behavior is characterized by a probability distribution that satisfies a rational expectations consistency condition the beliefs that determine players expected payoffs match the decision distributions that arise from applying the logit rule to those expected payoffs we prove existence of a unique symmetric logit equilibrium and derive comparative statics results the paper provides a unified perspective on many recent laboratory studies of games in which nash equilibrium predictions are inconsistent with both intuition and experimental evidence

employer recruitment strategies and the labor market outcomes of new hires i introduction employers and job seekers are brought together for potential matches through their recruitment and job search activities employers may post help wanted signs run newspaper advertisements or seek referrals from private employment agencies job seekers may speak with friends and relatives solicit the aid of the state employment agency or simply walk in and apply these recruitment and search activities help both parties acquire information about each other and the more information they obtain prior to entering an employment agreement the higher the likelihood of a good employment match the crucial role of information in the labor market has been recognized since stigler 1962 but despite a voluminous literature on job matching and organizational behavior in labor markets we know far less about employers recruitment strategies than about job seekers search strategies as granovetter 1995 notes while people are finding jobs employers are finding people to fill them and their behaviors strategies and purposes play a central but often neglected role in the process of matching people to jobs this imbalance in research effort is explained more by a dearth of adequate data describing employer recruitment behavior than by lack of scholarly interest indeed labor economists sociologists psychologists and human resource management specialists have spent the last half century exploiting the meager existing data sets in efforts to learn about employer recruitment behavior in this article i address several empirical questions concerning employer recruitment using the multi city study of urban inequality mcsui a large cross sectional survey of employers in four metropolitan areas of the united states that has not been exploited for a detailed analysis of the relationships among recruitment strategies starting wages and vacancy duration despite the richness of the data set for this purpose the mcsui data contain detailed information on firm and job characteristics and most important for the purpose of this article indicators of the recruitment methods these employers used when hiring the most recently hired worker the data allow a number of interesting questions to be addressed concerning the link between employer recruitment choices and starting wages vacancy duration and the skill levels of new hires because there has been relatively little empirical research done by labor economists on employer recruitment this work with a relatively large representative sample of employers should enhance our understanding of a number of basic questions i consider three of these first i present evidence describing which recruitment methods employers use and how these vary by firm characteristics vacancy characteristics and the skill requirements of jobs i estimate a multivariate probit model with a separate equation for each of 10 recruitment choices in addition to providing information about the relationship of each recruitment method with each of the covariates this method has the attractive feature of allowing for an analysis of the relationships among the unobserved determinants of recruitment choice to my knowledge this methodology is new to the recruitment literature second i present regression evidence showing how vacancy duration varies by recruitment choices some recruitment methods can be expected to be faster than others in generating job applicants however an employer must invest time in screening the applicant pool so the recruitment methods that generate applicants quickly do not necessarily fill vacancies quickly therefore the link between recruitment methods and vacancy durations is an empirical question third i present evidence concerning the relationship between starting wages and recruitment methods in particular i augment standard log wage specifications based on the human capital model with recruitment choices and find that the recruitment variables have explanatory power even in the presence of all of the usual controls

bounded rationality and market fluctuations abstract in a model of a competitive market each firm in each period faces a planning problem caused by random changes in circumstances due to bounded rationality a firm is unable to compute costlessly and exactly its optimal output instead the firm approximates optimal output through a decision making process called a deliberation technology this technology involves a rule of thumb a costly deliberation mechanism and a random deliberation error the issue addressed by the model is how bounded rationality affects market fluctuations the first glance intuition is that fluctuations will increase since deliberation error is an added disturbance to the market however the actual effect is much more complicated and might go either way

the signaling role of promotions further theory and empirical evidence an extensive theoretical literature investigates the role of promotions as a signal of worker ability we extend the theory by focusing on how the signaling role of promotion varies with education and then investigate the resulting predictions using a longitudinal data set that contains detailed information concerning the internal labor market history of a medium sized firm in the financial services industry our results support signaling being important for understanding the differences between promotion practices concerning bachelor s and master s degree holders while the evidence concerning the importance of signaling for high school graduates and phds is mixed

committee decisions under alternative procedural rules an experimental study applying a new non monetary method of preference inducement committees operating with simple majority rule procedures and with closed rule procedures are studied a new method the duplicate method was used to induce preferences the results of the control experiments compare favorably to those for which monetary incentives have been used in all cases the core is a relatively accurate model of committee choice

pareto optimal redistribution and private charity abstract when private charity exists and is motivated by utility interdependence a non pareto optimal outcome the free rider problem typically arises nevertheless incremental fiscal redistribution cannot achieve a paretian welfare improvement so long as private charity continues at positive levels donors respond to incremental fiscal redistribution by reducing their voluntary contributions by exactly a dollar for every dollar transferred in this way no net transfer is achieved unless incremental fiscal redistribution is pursued to the point where private contributions have been driven to zero alternatively a net transfer may be achieved by fiscal measures which affect donors marginal incentives to donate

learning to bid an experimental study of bid function adjustments in auctions and fair division games we examine learning behaviour in auction and fair division experiments with independent private values under two different price rules first and second price participants play all four games repeatedly and submit complete bid functions rather than single bids this allows us to study how institutional changes are anticipated and whether learning is influenced by the structural differences between games we find that learning does not drive bidding towards the benchmark solution bid functions are adjusted globally rather than locally directional learning theory offers a partial explanation for bid changes the data support a cognitive approach to learning

group size paradox and public goods in an economy with voluntarily provided public goods and private product varieties and a general class of ces preferences it is shown that aggregate public good contribution follows an inverted u pattern with respect to group size when private and public goods are substitutable in preferences with complementarity however aggregate provision grows monotonically with group size

arbitration and bargaining across the pacific this paper reports laboratory experiments comparing arbitration behavior between and across two countries with extensive trade relations the united states and japan besides comparing disputes in both locations we evaluate disputes between them while we find nominal differences between the countries we observe significant changes in both groups behavior when facing someone from the other country specifically americans seek larger profits when facing a japanese counterpart and japanese subjects settle more frequently with an american counterpart our results suggest that the literature on bargaining behavior across cultures paints an incomplete picture of international comparisons by failing to consider bargaining interactions

price formation in single call markets this paper reports a laboratory experiment designed to examine the price formation process in a simple market institution the single call market the experiment features random values and costs each period so each period generates a new price formation observation other design features are intended to enhance the predictive power of the bayesian nash equilibrium bne theory developed recently for this trading institution we find that the data support several qualitative implications of the bne but that subjects bid and ask behavior is not as responsive to changes in the pricing rule as the bne predictions bids and asks tend to reveal more of the underlying values and costs than predicted particularly when subjects are experienced nevertheless observed trading efficiency falls below the bne prediction the results offer more support for the bne when subjects compete against nash robot opponents a simple learning model accounts for several of the deviations from bne

payoff effects in information cascade experiments lisa r anderson i introduction this article examines payoff effects in information cascade experiments 1 cascade experiments provide a unique environment to study errors because decisions are made publicly and in sequence allowing people to learn from the decisions of others however there are no payoff interdependencies so subjects are only concerned with maximizing their own expected payoffs which cannot be directly affected by the actions of others this feature simplifies the analysis of the decision making process and makes it possible to focus more clearly on how subjects draw inferences from public decisions furthermore errors are recursive in the sense that mistakes made by initial decision makers influence the decisions of those that come later in the sequence this study focuses on learning and errors by analyzing data econometrically in a logistic error model econometric methods have gained popularity as a way to examine errors in experimental data harless and camerer 1994 present a maximum likelihood estimation method to test the predictive power of various utility theories using data from 23 different experiments mckelvey and palfrey 1995 and 1998 use the logistic structure to estimate error rates with data from a variety of games palfrey and prisbrey 1997 use a similar structure with a probit model to estimate error rates in a public goods experiment the analysis presented here differs from these previous econometric studies of experimental data in the following way in this model errors are analyzed in a sequential structure so the errors of others must be taken into account but there is no strategic element in the decision making process this study expands on the error analysis presented in anderson and holt 1997 by examining error rates under different payoff conditions smith and walker 1993a present a model of decision making in which the effort of contemplating a decision is balanced against potential gains in payoffs in addition they survey the experimental literature in economics and psychology addressing the issue of payoff effects and they find mixed results some studies report a decrease in error rates as payoffs increase others show little difference in results under payoff and no payoff treatments however there is a consensus that higher payoffs reduce the variance of decisions from the predicted outcome testing their own theory in the context of a first price auction experiment smith and walker 1993b report that the amount and severity of error decreases as payoffs increase interestingly behavior is not random even when there is no monetary reward for a correct decision using data from lottery choice experiments wilcox 1993 finds that higher monetary payoffs affect behavior in complex situations but not in relatively simple decision making environments harless and camerer 1994 use econometric methods to compare error rates in experiments with real losses to those with hypothetical losses they find that error rates are lower and variances are reduced in data with real losses this article adds to the literature on the saliency of rewards by analyzing behavior in a different experimental framework and by using the logistic model to generate econometric estimates of error rates under no payoff payoff and double payoff conditions the underlying behavioral model is an extension of the cascade model presented in bikhchandani hirshleifer and welch 1992 experimental procedures are discussed in section ii section iii discusses econometric details section iv reports results and section v concludes ii procedures 2 for each session of this experiment seven subjects were recruited from undergraduate economics courses at the university of virginia one subject was randomly chosen to be a monitor and the remaining six subjects were decision markers at the beginning of each period the monitor threw a six sided die to determine which of two urns was to be used for that period

experimental tests of the separation theorem and the capital asset pricing model a computer controlled multistage portfolio selection task was devised to test experimentally basic assumptions underlying the separation theorem and the capital asset pricing model although most of the subjects diversified among the three risky assets the introduction of a riskless asset did not have the effect predicted by the separation theorem nor were the subjects affected by systematic changes in the variance covariance matrix of the risky returns however performance improved as the reward was increased tenfold the capital asset pricing model capm proposed by william sharpe 1964 john lintner 1965 and jan mossin 1966 has been the predominant normative as well as positive theory for determining assets returns and prices in financial markets the capm has a wide range of implications for various financial issues including the allocation of risky assets price predictions performance indices and market efficiency tests as well as tools for corporate finance decisions such as capital structure costs of financial sources and prices of new issues during the last decade numerous theoretical studies have examined and extended the capm a most recent development is the

an economic theory of the second moments of disturbances of behavioral equations applied econometricians have known for a long time that the smooth curves in economics texts which pretend to be the geometric representations of behavioral equations present an over simplified picture of the real world it almost never occurs that data fit a simple theoretical relation exactly and an explicit method of interpreting and handling the deviations from such relations is therefore needed in the early days of econometrics it was frequently assumed that observational errors were the only or at least the main cause of the occurrence of deviations but this idea was later rejected on the ground that even when the data are perfect deviations will continue to be found because there are very few economic agents who react exactly according to some simple mathematical law the neglected factors entered into the picture their combined influence came to be regarded as a random disturbance with zero mean and unknown variance

does stake size matter for cooperation and punishment the effects of stake size on cooperation and punishment are investigated using a public goods experiment we find that an increase in stake size does neither significantly affect cooperation nor the level of punishment

rewards experience and decision costs in first price auctions consistent with a model of asymmetric risk aversion subjects in first price auctions consistently bid above the risk neutral nash prediction it has been argued that this is due to low opportunity cost of deviating from the risk neutral bid we increase opportunity cost and payoff levels by factors of 0 1 5 10 and 20 from the normal levels generating payoffs up to 250 for risk neutral subjects and observe an insignificant increase in the slope of individual bid functions the rmse of bids declines significantly this is consistent with a reward decision cost model of bidding behavior

monetary rewards and decision cost in experimental economics a survey of thirty one experimental studies which report data on the comparative effects of monetary rewards and opportunity cost shows 1 several studies in which increased rewards shift the central tendency of the data toward the predictions of rational models 2 in virtually all cases rewards reduce the variance of the data around the predicted outcome this is consistent with a model in which rewards are balanced against decision cost in agent behavior and explicates the argument that when rational models fail it can be attributed to low opportunity cost of deviations from the rational prediction

an incentive compatible conjoint ranking mechanism a simple method for making ranking based conjoint analysis incentive compatible is proposed the incentive compatible mechanism involves people purchasing a product profile with a probability proportional to its assigned rank in an empirical application related to consumer preferences for beef attributes we find that the forecasted market share for a new pasture raised steak obtained using incentive compatible rankings was significantly greater than that implied from traditional hypothetical conjoint rankings people s rankings of ground beef products were not affected by the mechanism or by information about pasture raised beef copyright 2008 oxford university press

are political statements only expressive an experiment abstract many forms of political communication are thought to be expressive rather than instrumental we present evidence suggesting the presence of a perceived instrumental benefit of individual political communication subjects may send a sometimes costly comment on another person s choice of how to donate to two rival political groups subjects who may comment before the choice is made when they may have some persuasive impact are more than twice as likely to comment as those who may only send a message after the decision when the timing of the messages pre or post decision remains fixed but the experimenter alone receives the message there is no difference in the proportion of messages sent pre and post decision moreover most of the comments made to the decision maker prior to the decision use an imperative construction while few do so after the decision is made or when writing to the experimenter alone taken together these results indicate that political expression is both expressive and instrumental

hypothetical bias and willingness to accept abstract we design and implement simple laboratory experiments to measure the bias in willingness to pay settings once identified this bias can be corrected or compared to the bias found in comparable willingness to pay settings

gaming against managers in incentive systems experimental results with chinese students and chinese managers we examine strategic interactions between firms and planners in china comparing behavior between i students and managers with field experience with this situation ii standard versus increased monetary incentives and iii sessions conducted in context making explicit reference to interactions between planners and managers and those without any such references the dynamics of play are similar across treatments with play only gradually and incompletely converging on a pooling equilibrium a fivefold increase in incentives significantly increases initial levels of strategic play games played in context generated greater levels of strategic play for managers with minimal impact on students

effects of cheap talk on consumer willingness to pay for golden rice a large body of literature suggests willingness to pay is overstated in hypothetical valuation questions as compared to when actual payment is required recently cheap talk has been proposed to eliminate the potential bias in hypothetical valuation questions cheap talk refers to process of explaining hypothetical bias to individuals prior to asking a valuation question this study explores the effect of cheap talk in a mass mail survey using a conventional value elicitation technique results indicate that cheap talk was effective at reducing willingness to pay for most survey participants however consistent with previous research cheap talk did not reduce willingness to pay for knowledgeable consumers

theory and misbehavior in first price auctions comment in his recent paper in this review glenn harrison 1989 argues that the conclusions of james cox et al 1982 1983 1985 1988 in their studies of first price private value auctions are not well supported because of shortcomings in the way their experimental investigations were designed analyzed and reported harrison argues that the expected cost of deviations from risk neutral nash equilibrium rnne bidding in these auctions was quite small less than 0 05 at the median so that in terms of expected monetary payoffs payoff space many subjects had little to lose from deviating from the rnne strategy harrison suggests that the significance of the differences cox vernon smith and james walker hereafter csw report between subjects bids and the rnne bids deviations in the message space may therefore need to be reexamined in discussing harrison versus csw we have three primary points to make first in arguing that it is more natural to evaluate subject behavior in expected payoff space harrison 1989 p 749 we think harrison has overstated his case however we agree with his more important point that looking at the cost of deviations is a useful diagnostic tool for determining when experimenters are likely to have lost control over subjects incentives further as we will show in section i this part of harrison s critique applies with special force to csw s studies of bidding second a broader examination of the results of private value auction experiments indicates that risk aversion cannot be the only factor and may well not be the most important factor behind bidding above the rnne found so often in first price privatevalue auctions the most telling evidence here is bidding above the dominant bid price found in second price auctions kagel et al 1987 kagel and levin 1990 and the risk loving found under several treatment conditions in csw s 1984 own multipleunit discriminative auctions auctions in which the high bidders pay their bid price these and other data inconsistent with risk averse bidding are largely ignored in csw 1988 but are nevertheless relevant to the substantive issue of risk aversion in private value auctions they are discussed in section ii third there are data gathered in other investigations which provide strong support for the view that the deviations from rnne bidding reported in first price auctions are not the results of the low expected cost of such deviations however these data unlike the higher stakes payoff data that csw offer in response to harrison are not consistent with csw s subsidiary conclusions that the data can be well accounted for by a narrow class of risk aversion parameters for the bidders together with the assumption that all agents are playing a nash equilibrium of the resulting game of incomplete information a key difference between these experiments and csw s is that if subjects do not respond to csw s treatment condition increasing the payoffs from experimental to u s dollars their behavior will be consistent with csw s theory in contrast department of economics university of pittsburgh pittsburgh pa 15260 we thank jack ochs and emilie roth for thoughtful discussions on earlier drafts of the paper jim cox and glenn harrison for helpful comments on the initial draft of the paper susan garvin for research assistance and ray battalio carl kogut and don meyer for providing us with access to their data research support was provided by the information science and technology and economics divisions of the national science foundation the alfred p sloan foundation and the russell sage foundation the usual caveat applies with special force iwe do not respond to specific comments that csw 1992 make in response to our comment as in order to avoid indefinite regress the ground rules for this debate required us to comment on csw s criticism of harrison after which they would be given the opportunity to respond to our comment

are hypothetical referenda incentive compatible a comment in a recent article in this journal cummings al 1997 offer experimental evidence rejecting the hypothesis that a hypothetical referendum is an incentive compatible mechanism for obtaining the social value of or willingness to pay for changes in the allocation of environmental goods and services while cautions in offering a blanket rejection of hypothetical referenda as a means of measuring economic values on the basis of their findings the authors do suggest that at least in experimental settings respondents appear to behave differently when real money is changing hands wheather hypothetical situations adequately mimic real market situations has been debated in the contigent valuation literature since its inception see cummings brookshire and schulze 1986 cummings et al s finding of incentive incompatibility appears to offer strong evidence for the critics of hypothetical referenda

viewpoint on the generalizability of lab behaviour to the field abstract we can think of no question more fundamental to experimental economics than understanding whether and under what circumstances laboratory results generalize to naturally occurring environments in this paper we extend levitt and list 2006 to the class of games in which financial payoffs and doing the right thing are not necessarily in conflict we argue that behaviour is crucially linked to not only the preferences of people but also the properties of the situation by doing so we are able to provide a road map of the psychological and economic properties of people and situations that might interfere with generalizability of laboratory result from a broad class of games

individual behavior of first price auctions the importance of information feedback in computerized experimental markets abstract this article reports the results of an individual choice experiment designed to test the nash equilibrium predictions of the first price sealed bid auction a subject faced in 100 auctions always the same resale value and competed with computer simulated bids the design used between subjects variation and involved information feedback as the treatment variable earlier experimental work on first price auctions has frequently reported an overbidding relative to the risk neutral nash equilibrium our data provide evidence that overbidding can be fostered by the standard information feedback in auction experiments which after each auction reveals the winning bid only by means of learning direction theory we explain the individual bidding dynamics in our experiment finally we apply impulse balance theory and make long run predictions of individual bidding behavior

information and effort in contingent valuation surveys application to global climate change using national internet samples this contingent valuation study investigates the issues of information access and respondent effort and is based on a series of national internet samples the focus is on a split sample treatment basic information bi versus enhanced information ei in the latter significantly expanded information is provided about global climate change and the kyoto protocol using a referendum format we compare the treatment effect bi versus ei on willingness to pay wtp we develop measures of respondent effort in accessing optional information through the technology of web based surveys and jointly model effort and wtp using a simultaneous estimation approach results support the use of the joint modeling approach for objective measures of respondent effort and wtp respondent effort is shown to be positively and significantly related to wtp however use of the optional menu is rather modest counts of pages and time spent and is highly variable both across pages and respondents

buybacks with costly participation abstract posted price offers and first price auctions along with the multi unit discriminatory auction extension are two widely used mechanisms for allocating conservation contracts the choice between the two typically hinges on the trade off between the posted price s simplicity and the potential revenue gains of the auction in this paper we introduce a novel mechanism that attempts to bridge the gap between the performance of posted price offers and auctions a two price and lottery schedule combines the simplicity of the former with some of the flexibility of the latter using a model that incorporates agents cognitive and information costs of bidding we analyze how the ranking of allocative efficiency and cost effectiveness between the mechanisms varies as the wedge of participation costs increases when the number of bidders is endogenously determined by participation costs bid shading associated with a lack of competition in the auction compromises its cost effectiveness vis a vis the posted price and the lottery schedule we use data from three recent buybacks for fishing licenses conducted in maryland to calibrate our model and identify conditions under which the two price schedule outperforms the other mechanisms

efficient estimation methods for closed ended contingent valuation surveys closed ended contingent valuation surveys can be very useful in the evaluation of nonmarket resources respondents merely state whether they would accept or reject a hypothetical threshold amount either as payment for giving up access to the resource or as a fee for its use the authors develop a maximum likelihood procedure which exploits the variation in the threshold values to allow direct and separate point estimates of regression like slope coefficients and error standard deviations without truncation bias their illustration uses data from a survey of recreational fisherman to examine factors which influence individuals willingness to pay copyright 1987 by mit press

additive general error models for production cost and derived demand or share systems many empirical studies of production specify a deterministic model of the firm derive the implied behavioral equations input demand or share system and then embed this system in a stochastic framework by tacking on linear error terms in contrast this paper proposes general error models gems in which the error specification is an integral part of the optimization model these models are the statistical embodiment of stigler s view that apparent observed inefficiencies reflect the investigator s ignorance of the true optimization problem additive gems are proposed and interpreted specification tests indicate that a translog additive gem is superior to the standard translog specification

social comparison and performance experimental evidence on the fair wage effort hypothesis we investigate the impact of wage comparisons for worker productivity we present three studies which all use three person gift exchange experiments consistent with akerlof and yellen s 1990 fair wage effort hypothesis we find that disadvantageous wage discrimination leads to lower efforts while advantageous wage discrimination does not increase efforts on average two studies allow us to measure wage comparison effects at the individual level we observe strongly heterogeneous wage comparison effects we also find that reactions to wage discrimination can be attributed to the underlying intentions of discrimination rather than to payoff consequences

on the external validity of laboratory tax compliance experiments i introduction laboratory methods are now widely accepted as a methodological approach in economics and increasingly they have been used to examine specific public policy issues there is much to be gained from careful laboratory experiments they offer a low cost means of testing and replicating policy innovations and they generate precise data on individual behavior thereby allowing estimation of behavioral responses importantly they allow many policy innovations to be introduced singly and exogenously in a controlled environment and as a result laboratory experiments are typically seen as having a high degree of internal validity brewer 2000 campbell and stanley 1966 shadish cook and campbell 2002 because the causal relation between variables can be properly demonstrated however as emphasized by plott 1987 using laboratory experiments can allow more general inferences regarding human behavior only when the setting implemented in the laboratory parallels what is observed in the naturally occurring world even beyond this requirement of parallelism is the need for generalizing behavioral observations from the laboratory to the field or external validity internal validity can be demonstrated through the evaluation of the design however external validity can only be verified empirically and only with respect to the specific setting being investigated this paper investigates the external validity of laboratory experiments and does so in the context of experiments on tax compliance behavior tax evasion is central to many important policy questions current estimates report the tax gap or difference between taxes owed and taxes paid in the united states to be 450 billion annually internal revenue service 2012 beyond these massive revenue losses evasion creates major misallocations in resource use when individuals alter their behavior to cheat on their taxes its presence requires that government expend resources to detect noncompliance to measure its magnitude and to penalize tax evasion evasion alters the distribution of income in arbitrary unpredictable and unfair ways and it may contribute to feelings of unjust treatment and disrespect for the law more broadly it is not possible to understand the true impact of taxation without recognizing the existence and the effects of tax evasion laboratory methods have been used to examine a wide range of policies that may affect the compliance decision policies that have not always proven amenable to either theoretical analyses or empirical analyses with field data however laboratory studies of compliance are sometimes viewed with skepticism the most common criticism is that the student subjects typically used in experiments may not be representative of taxpayers undergraduates may have little experience with filing tax returns and their economic and demographic backgrounds may differ from those of taxpayers another criticism is that the context of laboratory compliance experiments does not closely enough resemble the context in which actual compliance decisions are made as a result there is a concern that experimental results on policy innovations that rely upon student subjects in laboratory compliance experiments cannot be generalized to the population it is this issue that we examine here building on previous research we present several types of evidence on the external validity of experiments on individual compliance decisions a first question examines whether behavior of laboratory participants is replicated by behavior of individuals making a similar decision in the naturally occurring world that is do participants in laboratory experiments exhibit different patterns of behavior than individuals in a similar naturally occurring setting to answer this question we utilize a special data set from the u s internal revenue service irs assembled as part of its national research program nrp

examining risk preferences under high monetary incentives experimental evidence from the people s republic of china several experimental sessions were conducted to elicit certainty equivalents for a sequence of lotteries involving real monetary outcomes the opportunity to conduct sessions in the people s republic of china afforded the ability to offer very large monetary incentives relative to subjects living costs in the highest payoff condition subjects earned three times their normal monthly revenue in the course of a two hour experiment results indicate a statistically significant impact of the level of monetary incentives on revealed risk preferences however even under extreme monetary incentives subjects demanded amounts well in excess of expected value for low probability gain prospects copyright 1992 by american economic association

a failure to communicate an experimental investigation of the effects of advice on strategic play abstract we investigate why two person teams beat the truth wins benchmark in signaling games cooper and kagel 2005 cooper and kagel 2009 by studying an advice treatment where advisees have the benefit of two individuals insight but not bilateral communication the tw benchmark states that the performance of a team for problems with a demonstrable correct solution should be no worse than the performance of its most able individual if one individual solves the problem the team solves it as well advisees whose advisors play strategically have significantly higher levels of strategic play but fall well short of the truth wins benchmark as i many advisors who play strategically do not provide advice to this effect and ii many advisees fail to follow sound advice effect i is largely attributable to female advisors who are far less likely to provide advice than men whether or not advice contains a clear explanation for its effectiveness has no effect on the likelihood of advisees strategic play a result at odds with the idea that economic agents regularly consider all the available alternatives

estimating risk preferences from deductible choice we develop a structural econometric model to estimate risk preferences from data on deductible choices in auto insurance contracts we account for adverse selection by modeling unobserved heterogeneity in both risk claim rate and risk aversion we find large and skewed heterogeneity in risk attitudes in addition women are more risk averse than men risk aversion exhibits a u shape with respect to age and proxies for income and wealth are positively associated with absolute risk aversion finally unobserved heterogeneity in risk aversion is greater than that of risk and as we illustrate has important implications for insurance pricing

monetary incentives and mood abstract researchers have long debated the methodological necessity of monetary incentives in experimental research the current work shows that financial incentives not only can fail to improve task performance but also can worsen it three studies verify that incentives can elevate mood and that this mood enhancement contributes to worsened task performance the authors discuss implications for the use of incentives in experimental research

how economic rewards affect cooperation reconsidered abstract recent studies suggest that payoffs in cents compared to dollars produce less defection in a repeated prisoner s dilemma game we are unable to replicate these findings with conventional economic procedures or in a direct replication

human economic choice as costly information processing abstract we develop and test a model that provides a unified account of the neural processes underlying behavior in a classical economic choice task the model describes in a stylized way brain processes engaged in evaluating information provided by the experimental stimuli and produces a consistent account of several important features of the decision process in different environments e g when the probability is specified or not ambiguous choices these features include the choices made the time to decide the error rate in choice and the patterns of neural activation the model predicts that the further two stimuli are from each other in utility space the shorter the reaction time will be fewer errors in choice will be made and less neural activation will be required to make the choice the model also predicts that choices with ambiguity can be made more quickly and will require reduced neural activation in the horizontal intra parietal sulcus than for choices with risk also everything else being equal a larger value of certainty option in the choice will induce larger neural activation and less experience on the part of the subject making choices will induce larger activation we provide experimental evidence that is consistent with these predictions

the use of information system technology to develop tests on insider trading and asymmetric information issues related to insider trading remain popular research topics empirical studies using historical data are limited by two key factors 1 the inability to identify exactly who possesses inside information and 2 the inability to identify the accuracy of information possessed advances in information system technology enable us to overcome these problems in the laboratory using this technology we create a research shell to conduct experiments where we can identify the exact type and quality of information accessible by each trader our system includes the capability to monitor individual activities in accessing inside information the system can automatically impose a monetary penalty if random monitoring identifies a trader accessing inside information our experiments involve traders who receive access to inside information without initial knowledge of the quality of that information the results indicate that traders were able to outperform the market if penalties for being caught accessing such information were not included once penalties were included however no significant performance differences were observed finally in a second set of experiments involving a simplified market with infrequent electronic monitoring and low penalty amounts inside information seemed to be rapidly and effectively disseminated to traders possessing no inside information

theory and misbehavior of first price auctions recent experimental evidence appears to reject simple nash equilibrium models of bidding behavior in first price auctions the author presents a methodological critique of this evidence existing tests have concentrated on deviations of subjects from predictions in the message space of the action bid deviations the author suggests that it is more natural to evaluate subject behavior in expected payoff space he concludes that the evidence against the simple models is not significant enough to warrant their rejection copyright 1989 by american economic association

rational choice the contrast between economics and psychology rational choice the published record of a conference on economics and psychology frames the issues as a contest between economic theory and the falsifying evidence from psychology according to a third perspective that of experimental economics most standard theory provides a correct first approximation in predicting motivated behavior in laboratory experimental markets but the theory is incomplete particularly in articulating convergence processes in time and in ignoring decision cost this view has roots in the work of herbert simon and sidney siegel but it is not plainly represented in contemporary research in economic pyschology

the recovery of risk preferences from actual choices since its introduction the expected utility hypothesis has been widely used in the construction of economic models more recently attention has focused on the conditions under which it is possible in principle to recover individual investors risk preferences from their demand for assets dybvig and polemarchakis 2 this paper represents a first attempt to recover preferences operationally from data on the actual demand for assets numerous difficulties are encountered in attempting to measure preferences toward risk in a real world setting preferences are revealed through the choices of an individual but in an uncertain world these choices also depend on his expectations of future events hence an immediate problem arises in separating the influences of each on such decisions problems can also arise in measuring other variables such as wealth which influence choices because of these difficulties efforts to classify and measure an individual s risk preferences have been confined to direct assessments in hypothetical environments e g kahneman and tversky 4 and keeney and raiffa 5 pp 203 212 2 in these studies the authors assumed that stated preferences are accurate indicators of actual behavior the question remains however whether individuals actually behave in the way their assessments predict the purpose of this note is to make some progress in answering this question in it an experiment is described which infers an individual s risk preferences from his actual choices in a real world environment specifically the risk aversion of a dealer in u s government securities is assessed directly and then estimated statistically from his actual demand for bills in the weekly treasury auctions the distribution of returns used in the analysis are calculated from the forecasts made by the dealer himself in addition to introducing new procedures for measuring preferences this study provides insights into the reliability of direct assessments in predicting the actual behavior

incentive compatibility tests of choice experiment value elicitation questions abstract this paper uses laboratory experiments with induced values to address fundamental issues related to the incentive compatibility of choice experiment value elicitation questions in particular we compare two versus three option choice sets and the effect of using alternative provision rules including one where the outcome is influenced by both participant and regulator votes we find the overall proportion of choices that are inconsistent with induced preferences is rather low however there are more deviations from induced preferences for two option choice sets and for alternatives to a simple plurality vote implementation rule a multinomial probit analysis of choices in tandem with a mixed logit welfare analysis suggests there is a statistically significant but modest degree of bias towards selecting the status quo option