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Sorting in experiments

By Edward P. Lazear, Ulrike Malmendier, Roberto A. Weber, We Thank Colin Camerer, Hank Farber and Glenn Harrison

Abstract

Experiments provide a controlled environment where factors can be isolated and studied more easily than in the real world. But experiments are often challenged on the issue of applicability of results to the real world. A major feature of experiments is that they select subjects randomly. Markets, instead, allow people to sort to certain activities and away from others based on their preferences, beliefs and skills. We design an experiment to demonstrate the importance of sorting in the context of social preferences. When individuals are constrained to play a dictator game, 74 % of the subjects share. But when the same subjects are allowed to avoid the situation altogether, less than one third tend to share. This dramatic reversal of proportions demonstrates the importance of taking sorting into account when applying experimental results to the real world. We also show that institutions designed to entice pro-social behavior may actually induce adverse selection. Increasing the total surplus available for sharing induces first those individuals who are least willing to share to sort back into the dictator game. Thus the impact of social preferences remain much lower when sorting is possible than in a mandatory dictator game, even if sharing is subsidized by higher payoffs

Year: 2005
OAI identifier: oai:CiteSeerX.psu:10.1.1.398.8879
Provided by: CiteSeerX
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