framing effects in public goods prospect theory and experimental evidence this paper studies both theoretically and experimentally frame effects in the context of a public good game in which players have to make a costly contribution either i to achieve or ii not to lose a non excludable monetary prize our protocol leads to public good provision not deterioration only if a certain contribution level is achieved since both frames differ with respect to the reference point we use prospect theory to derive testable predictions in particular prospect theory predicts more contribution in the second frame our evidence suggests that a subjects behavior is highly sensitive to frames and b the theoretical prediction is confirmed except when the threshold is low we also estimate the parameters which better suit our experimental evidence partly confirming previous results in the literature

the economic impacts of climate change evidence from agricultural output and random fluctuations in weather fisher et al 2012 hereafter fhrs have uncovered coding and data errors in our paper deschenes and greenstone 2007 hereafter dg we acknowledge and are embarrassed by these mistakes we are grateful to fhrs for uncovering them we hope that this reply will also contribute to advancing the literature on the vital question of the impact of climate change on the us agricultural sector fhrs main critiques of dg are as follows i there are errors in the weather data and climate change projections used by dg ii the climate change projections are based on the hadley 2 model and scenarios rather than the more recent hadley 3 model and scenarios iii standard errors are biased due to spatial correlation iv the inclusion of state by year fixed effects does not leave enough weather variation to obtain meaningful estimates of the relationship between agriculture profits and weather v storage and inventory adjustment in response to yield shocks invalidate the use of annual profit data and vi fhrs argue that a better specified hedonic model produces robust estimates unlike the results reported in dg four of these critiques have little basis and we respond to them here in the introduction specifically with respect to ii the more recent daily climate predictions were not available when we wrote dg nevertheless the most important issue is providing the reliable estimates of climate change and in this note we report estimates based on the climate model we used in dg and a more recent one that we gained access to in the meantime iii in the primary table on agricultural profits dg reports two sets of standard errors with the first clustered at the county level and the second based on a variance covariance matrix that accounts for spatial correlation using the method proposed in conley 1999 thus the claim of fhrs 2012 seems overblown nevertheless to ease comparisons of papers in this literature this note will adopt the fhrs convention of reporting estimated standard errors clustered at the county and state levels we find that inference is largely unaffected by the choice between these different assumptions about the variance covariance matrix

a quantal response equilibrium model of order statistic games abstract this paper applies mckelvey and palfrey s games econ behav 10 1995 6 notion of quantal response equilibrium to a class of order statistic coordination games closely related to those studied by van huyck et al am econ rev 80 1990 234 quart j econ 106 1991 885 and van huyck et al evidence on learning in coordination games manuscript texas a m university 1996 and those recently analyzed by anderson et al games econ behav 34 2001 177 with quadratic effort costs the limiting qre as the noise goes to zero in their games is the most efficient equilibrium this result contrasts with anderson et al s conclusion for order statistic games with linear effort costs and allows a fuller assessment of the qre s success in describing the limiting outcomes in van huyck et al s experiments

will u s agriculture really benefit from global warming accounting for irrigation in the hedonic approach will u s agriculture really benefit from global warming accounting for irrigation in the hedonic approach wolfram schlenker w michael hanemann and anthony c fisher there has been a lively debate about the potential impact of global climate change on u s agriculture most of the early agro economic studies predict large damages see for example richard m adams 1989 harry m kaiser et al 1993 and adams et al 1995 in an innovative paper robert mendelsohn william d nordhaus and daigee shaw 1994 hereafter mns propose a new approach using the variation in temperature and precipitation across u s counties to estimate a reduced form hedonic equation with the value of farmland as the dependent variable a change in temperature and or precipitation is then associated with a change in farmland value which can be interpreted as the impact of climate change adams et al 1998 characterize the hedonic approach as a spatial analogue approach and acknowledge that the strength of the spatial analogue approach is that structural changes and farm responses are implicit in the analysis freeing the analyst from the burden of estimating the e ects of climate change on particular region speci c crops and farmer responses on the other hand one of the potential disadvantages of the hedonic approach is that it is a partial equilibrium analysis i e agricultural prices are assumed to remain constant 1 while year to year uctuations in annual weather conditions certainly have the potential to impact current commodity prices especially for crops produced only in a relatively localized area such as citrus fruits which are grown mainly in california and florida changes in long run weather patterns i e changes in climate might have a smaller e ect on commodity prices because of the greater potential for economic adaptation particularly shifts in growing regions 2 the hedonic approach as implemented by mns predicts that existing agricultural land on average might be more productive and hence result in bene ts for u s farmers 3 the hedonic approach has received considerable attention in our judgment in part because the conclusions are at variance with those of some other studies

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

the impact of global warming on agriculture a ricardian analysis reply we measure the economic impact of climate on land prices using cross sectional data on climate farmland prices and other economic and geophysical data for almost 3 000 counties in the united states we find that higher temperatures in all seasons except autumn reduce average farm values while more precipitation outside of autumn increases farm values applying the model to a global warming scenario shows a significantly lower estimated impact of global warming on u s agriculture than the traditional production function approach and in one case suggests that even without co sub 2 fertilization global warming may have economic benefits for agriculture 16 refs 5 figs 5 tabs

cointegration and cagan s model of hyperinflation under rational expectations when money and prices are integrated of order two philip cagan s 1956 model of hyperinflation will give rise to two different levels of cointegration in most of the literature on the german hyperinflation one of these cointegrating relationships has been ruled out a priori by assuming that velocity shocks follow a random walk using data from the german hyperinflation the author finds this assumption to be unjustified based on a straightforward extension of the cointegrated var approach suggested by john y campbell and robert j shiller 1987 a method to evaluate the cagan model under rational expectations and no bubbles is proposed and implemented to the german data copyright 1993 by ohio state university press

tests of a heterogeneous bidders theory of first price auctions abstract this paper reports the results of eight first price sealed bid auction market experiments using cash motivated subjects to test a constant relative risk averse model crram of equilibrium bidding behavior of heterogeneous bidders

subjective probabilities in games an application to the overbidding puzzle this article illustrates how the joint elicitation of subjective probabilities and preferences may help us understand behavior in games we conduct an experiment to test whether biased probabilistic beliefs may explain overbidding in first price auctions the experimental outcomes indicate that subjects underestimate their probability of winning the auction and indeed overbid when provided with feedback on the precision of their predictions subjects learn to make better predictions and to curb significantly overbidding the structural estimation of different behavioral models suggests that biased probabilistic beliefs are a driving force behind overbidding and that risk aversion plays a lesser role than previously believed

information and conspiracy in sealed bid auctions abstract this paper examines the allocative properties of the sealed bid institution when different aspects of the available information to bidders are considered specifically we examine a the effect on price determination in repeated sealed bid auctions of post auction revelation of losing bids and b the effect on price determination when conspiratorial discussions are allowed

warming temperatures will likely induce higher premium rates and government outlays for the u s crop insurance program likely climate change impacts include damages to agricultural production resulting from increased exposure to extreme heat considerable uncertainty remains regarding impacts on crop insurance programs we utilize a panel of u s corn yield data to predict the effect of warming temperatures on the mean and variance of yields as well as crop insurance premium rates and producer subsidies while we focus on corn we demonstrate that the subsidy impacts are likely to carry over to other major program crops we find that warming decreases mean yields and increases yield risk on average which results in higher premium rates under a 1 c warming scenario we find that premium rates at the 90 coverage level will increase by 39 on average however there is considerable statistical uncertainty around this average as the 95 confidence interval spans from 22 to 61 we also find evidence of extensive cross sectional differences as the county level rate impacts range from a 10 reduction to a 63 increase results indicate that exposure to extreme heat and changes in the coefficient of variation are large drivers of the impacts under the 1 c warming scenario we find that annual subsidy payments for the crop insurance program could increase by as much as 1 5 billion representing a 22 increase relative to current levels this estimate increases to 3 7 billion 57 under a 2 c warming scenario our results correspond to a very specific counterfactual the marginal effect of warming temperatures under current technology production and crop insurance enrollments these impacts are shown to be smaller than the forecasted impacts under a commonly used end of century general circulation model for even the most optimistic co emissions projection

empirical studies on agricultural impacts and adaptation abstract agricultural production is heavily dependent on weather outcomes and hence climate change has the potential to significantly alter the sector s productivity both reduced form studies as well as integrated assessment models have found that the agricultural sector might experience significant impacts we discuss the advantages of empirical reduced form studies and their link and potential usefulness to integrated assessment models we further discuss challenges facing empirical studies and recent research that looks at the longer term changes in climate and attempts to measure adaptation

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

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

experimental development of sealed bid auction theory calibrating controls for risk aversion we offer a brief survey of bidding theory in high price auctions of experimental studies of behavior in such auctions and of the interplay between the design and results of the experiments and efforts to further develop the theory two new series of experiments are reported the first applies a convex transformation of payoffs in an attempt to induce a lowering of subject bids as if the bidders had become less risk averse the second applies a method for inducing any prespecified utility function for risky choices on an individual we use it to induce as if risk neutral behavior both series use baseline control to calibrate the hypothesized effect of the procedures on riskaverse behavior

overconfidence and excess entry an experimental approach psychological studies show that most people are overconfident about their own relative abilities and unreasonably optimistic about their futures e g shelly e taylor and j d brown 1988 neil d weinstein 1980 when assessing their position in a distribution of peers on almost any positive trait like driving ability ola svenson 1981 income prospects or longevity a vast majority of people say they are above the average although of course only half can be if the trait is symmetrically distributed this paper explores whether optimistic biases could plausibly and predictably influence economic behavior in one particular setting entry into competitive games or markets many empirical studies show that most new businesses fail within a few years for example using plant level data from the u s census of manufacturers spanning 1963 1982 timothy dunne et al 1988 estimated that 61 5 percent of all entrants exited within five years and 79 6 percent exited within 10 years most of these exits are failures see also dunne et al 1989a 1989b d shapiro and r s khemani 1987

quality matters more than quantity asymmetric temperature effects on crop yield and quality grade climate change affects agriculture by altering not only output quantity but also crop quality we quantify the economic impacts of climate change on agriculture through changes in both quantity and quality where quality is measured by crop grades our model controls for methodological issues regarding sample selection aggregation phenology and nonlinearity the empirical application to japanese rice production indicates that temperature effects are asymmetric quantity is especially vulnerable to cold whereas quality is vulnerable to extremely high temperature using these results we simulate the effect of global warming and we find that warming a 3 c increase increases farm revenues by improving yield but decreases revenues as a result of deteriorating quality the net effect is negative suggesting that quality matters more than quantity the negative effect however can be mitigated by shifting cultivation periods and or regions overall our results suggest that the estimated impacts of climate change and adaptation strategies could be severely misleading unless quality is considered

risk attitudes in first price auction experiments a bayesian analysis non cooperative bidding theory for sealed bid auctions generally implies testable predictions that are conditioned on the risk attitudes of agents received laboratory experiments that purport to test this theory do not generally control for the risk attitudes of subjects those experiments exhibit behavior inconsistent with popular bidding models that assume that agents have the same aversion to risk or are all risk neutral this paper constructs an explicit bayesian prior distribution for the risk attitudes of experimental subjects and reconsiders the experimental results it finds that observed bidding behavior is still inconsistent with the nash predictions when explicit prior weights are attached to alternative assumptions about subject risk attitudes thus one cannot account for observed bidding anomalies by appealing to uncontrolled nuisance variables such as risk attitudes non cooperative bidding theory for sealed bid auctions generally implies testable predictions that are conditioned on the risk attitudes of agents archetypical of this result is the nash equilibrium prediction for first price auctions for an object that is valued by agents in an independent and private manner received laboratory experiments that purport to test this theory do not generally control for the risk attitudes of subjects those experiments exhibit behavior inconsistent with popular bidding models that assume that agents have the same aversion to riskor are all risk neutral in this paper we construct an explicit prior distrlbution for the risk attitudes of experimental subjects and reconsider the experimental results we find that observed bidding behavior is indeed consistent with the nash predictions when explicit prior weights are attached to alternative assumptions about subject risk aversion however when one allows for risk loving subjects as well observed behavior is inconsistent with nash predictions thus one cannot account for observed bidding anomalies by appealing to uncontrolled nuisance variables such as risk attitudes in section i we consider a specific nash equilibrium ne bidding model due to cox roberson and smith 1982 and cox smith and walker 1988 that clearly illustrates the risk sensitivity of the theoretical predictions in section ii we provide independent evidence of the risk attitudes of experimental subjects in a test for risk attitudes developed by harrison 1986a this evidence allows us to construct an explicit prior probability density function over the coefficient of constant relative risk attitudes employed in the specific bidding model of section i in section iii we reconsider the evidence from the first price fp experiments reported in cox roberson and smith 1982 and cox smith and walker 1983a 1983b i a specific bidding model cox roberson and smith 1982 hereafter crs present a model based on a power function utility specification for agent i ui y y 1 received for publication august 31 1987 revision accepted for publication december 18 1989 university of south carolina i am grateful to two anonymous referees for helpful comments although they are not responsible for my conclusions

star shaped probability weighting functions and overbidding in first price auctions there is a debate about whether risk aversion is the main source of overbidding in a first price independent private values auction as an alternative we adopt a non expected utility framework and identify an interpretable property on the probability weighting function which always induces overbidding

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