EXPERIMENTAL ECONOMICS: FINANCIAL MARKETS, AUCTIONS, AND DECISION MAKING

Transcription

1 EXPERIMENTAL ECONOMICS: FINANCIAL MARKETS, AUCTIONS, AND DECISION MAKING

2 EXPERIMENTAL ECONOMICS: FINANCIAL MARKETS, AUCTIONS, ANO OECISION MAKING Interviews and Contributions from the 20th Arne Ryde Symposium Edited by FREDRlK ANDERSSON Lund University, Sweden and o HAKANHOLM Lund University, Sweden " ~. Springer Science+Business Media, LLC

3 ISBN ISBN (ebook) DOI / Library of Congress Cataloging-in-Publication Data A C.I.P. Catalogue record for this book is available from the Library of Congress. Copyright ~ 2002 by Springer Science+Business Media New York Originally published by Kluwer Academic Publishers in 2002 Softcover reprint of the hardcover 1 st edition 2002 Ali rights reserved. No part of this work may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, microfilming, recording, or otherwise, without written permission from the Publisher, with the exception of any material supplied specificajly for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Permissions for books published in Europe: permissions@wkap.nl Permissions for books published in the United States of America: permissions@wkap.com Printed on acid-free pa per.

4 About the Arne Ryde Foundation Arne Ryde was an exceptionally promising student in the Ph.D. program at the Department of Economics at Lund University. He was tragically killed in a car accident in The Arne Ryde foundation was established by his parents, pharmacist Arne Ryde and his wife Valborg in commemoration of Arne Ryde. According to the deed of the foundation from 1971 the aim of the foundation is: to foster and promote advanced economic research in cooperation with the Department of Economics at Lund University. The foundation acts by lending support to conferences, symposia, lecture series and publications which are initiated by faculty members of the department. Anders Borglin Chairman

5 Contents Part I Interviews with Invited Speakers 1 PeterBohm 2 Catherine C. Eckel 3 Werner Güth 4 John Hey 5 Daniei Kahneman 6 Alvin Roth 7 Vernon Smith 8 Martin Weber Part 11 Contributions 9 Attitudes towards Risk and Inequality Yoram Amiel, Frank Cowell, with the assistance 0/KasparRichter 1 Introduction 2 Theoretical Background 2.1 Inequality and Risk 2.2 The Meaning of Inequality and of Risk 2.3 An Axiomatic Approach 3 The Experiment 3.1 Issues 3.2 Implementation

6 Vlll EXPERIMENTAL ECONOMICS 4 Data 93 5 Numerical responses and the Principle of Transfers Descriptive results Regression Analysis 96 6 Numerical Responses: variation by Type of Income Transfer Descriptive Analysis Regression Analysis A provisional evaluation 99 7 The Verbal Question The structure of the question Verbal question : descriptive results Regression analysis Conclusions 105 Appendix 107 I Variable definitions The Questionnaires Pitfalls in Experimental Economies 117 Peter Bohm I Introduction Monetary Incentive Levels Subjects Testing Theory in Context or Non-Context Environments Stationary Repetitions Concluding Remarks The Effect oftrading Period Duration 127 Darren Duxbury Introduction Relevant Literature and Research Hypotheses Experimental Design 3.1 Overview of Experimental Procedures and Design 3.2 Experimental Markets 3.3 Participants and Motivation 3.4 Specific Market Designs Analysis and Results 4.1 Data Considerations 4.2 Experimental Markets Group One (PN Markets) Volume of Trade Informational Efficiency Allocational Efficiency 4.3 Experimental Markets Group Two (IN Markets) Volume oftrade Informational Efficiency Allocational Efficiency 4.4 Experimental Markets Groups Three and Four Discussion and Conclusions

7 Contents 12 Robust Learning Experiments WemerGüth 1 Introduction 2 Auctions and Fair Division Games 3 Reputation formation 4 Endogenous timing in bilateral negotiations 5 Alternating offer bargaining 6 Discussion 13 The Impact of Fairness on Decision Making Heike Hennig-Schmidt 1 Introduction 2 Relevant Literature 3 Method 4 Experimental design 4.1 The Ultimatum Game 4.2 The Tripled Take Game 4.3 An Alternating Offer Bargaining Game 4.4 Procedure 5 Results 5.1 Fairness is synonymous to equity 5.2 The influence of fairness on decision making 6 Conclusion 14 The Sequential Prisoners' Dilemma Carles Sold 1 Introduction 2 Previous Experiments 3 Models and Predictions 3.1 Inequality Aversion 3.2 Altruism 4 Experimental Design 5 Results 6 Conclusions Appendix 15 Collusion in Auctions Jana Vyrastekova and Maria Montero 1 Introduction 2 TheGame 2.1 Nash Equilibria of the Stage Game 2.2 Collusion in the Repeated Game Simple collusion Efficient collusion 3 The Experimental Design ix

8 x EXPERIMENTAL ECONOMICS 3.1 Hypotheses 4 Results 4.1 Average Earnings 4.2 Bidding Behavior 4.3 Bidding Proposals Round 1 data Overall data 4.4 Value Messages 4.5 Sidepayments 5 Conclusion Appendix : Collusion in Equilibrium Incentives to tell the truth Incentives to bid low Incentives to give sidepayments

9 Foreword In the spring of 1998 the editors of this volume realized that although a few Swedish researchers had conducted experiments and presented their results in journals and on international conferences, Sweden had not hosted any major conference with focus on Experimental Economics. Furthermore, knowledge of the recent interesting developments in this area were not widespread among economists in general. Inspired by this we decided to plan an Arne Ryde symposium on Experimental Economics with the purpose to further the knowledge of experimental methods and results to the larger scientific community of economists in Scandinavia and to provide an additional opportunity for researchers in the field to meet and exchange ideas. The chairman of the Arne Ryde foundation at the time, Professor Björn Thalberg, was enthusiastic, and promised financial support. In the same summer invitations were sent out. The 20 t h Arne Ryde Symposium on Experimental Economics was held November 9-11, 2000 at the School of Economics and Management at Lund University. Invited lectures were given by Peter Bohm, Catherine Eckel, Werner Güth, lohn Hey, Daniel Kahneman, Alvin Roth, Vernon Smith, and Martin Weber. To document the symposium each invited lecturer was interviewed. Part I of this volume - Chapters 1 through 8 - consists of these interviews. Most of the questions posed to the interviewees are similar and concern issues that we hope to be of interest to researchers of the field but also to a general audience of economists. Although, it might be interesting to compare answers of different prominent researchers we have decided, for the sake of completeness and authenticity, to present interviews author by author and not question by question. This also makes it easier for the reader to follow the interviewees ' thoughts through the interview. Part 11 of this volume consists of papers of that were presented at the symposium. The papers by Peter Bohm and Werner Güth are related to their invited lectures. Participants that were accepted as paper presenters at the symposium were invited to submit their papers for publication in this volume; following submission there was a peer review process. A subset of the presenters submitted their papers and a subset of these were finally accepted.

10 xii EXPERIMENTAL ECONOMICS An undertaking like the 20 t h Ame Ryde Symposium cannot take place without support and help from numerous persons. In many cases this help goes far beyond what normally can be expected. We are very grateful to the Ame Foundation for the financial support. In particular we would like to thank Bjöm Thalberg and his successor as chairman for the foundation, Anders Borglin, for their general support and their understanding that not all expenses can be foreseen. In the planning and completion of the symposium the help from Ann Charlotte Sahlin and Mona Hansson was invaluable. We have also received substantial help in finishing this volume. The task of making transcriptions of the taped interviews (in Part I) was solved with accuracy and sensitivityby Anna Holmqvist. We are also grateful to a number of anonymous referees that made a substantial effort in evaluating the contributions in Part 11. Lund, January 21, 2002 Fredrik Andersson and Häkan Holm