A simple test of expected utility theory using professional traders

We compare behavior across students and professional traders from the Chicago Board of Trade in a classic Allais paradox experiment. Our experiment tests whether independence, a necessary condition in expected utility theory, is systematically violated. We find that both students and professionals exhibit some behavior consistent with the Allais paradox, but the data pattern does suggest that the trader population falls prey to the Allais paradox less frequently than the student population.Allais paradox, experiments, futures traders

Market Experience and willingness to trade: evidence from repeated markets with symmetric and asymmetric information

Many studies have found a gap between willingness-to-pay and willingness-to-accept that is inconsistent with standard theory. There is also evidence that the gap is eroded by experience gained in the laboratory and naturally occurring markets. This paper argues that the gap and the effects of experience are explained by a caution heuristic. This conjecture is tested in a repeated market experiment with symmetric and asymmetric information. The results support the conjecture: people do seem to use heuristics rather than reacting optimally and their behavior adjusts slowly when the environment changes.WTA/WTP disparity, endowment effect, market experience, bounded rationality, asymmetric information

Repeated Rounds with Price Feedback in Experimental Auction Valuation: An Adversarial Collaboration

It is generally thought that market outcomes are improved with the provision of market information. As a result, the use of repeated rounds with price feedback has become standard practice in the applied experimental auction valuation literature. We conducted two experiments to determine how rationally subjects behave with and without price feedback in a second price auction. Results from an auction for lotteries show that subjects exposed to price feedback are significantly more likely to commit preference reversals. However, this irrationality diminishes in later rounds. Results from an induced value auction indicate that price feedback caused greater deviations from the Nash equilibrium bidding strategy. Our results suggest that while bidding on the same item repeatedly improves auction outcomes, this improvement is not the result of price feedback

Do Welfare Programs Damage Interpersonal Trust? Experimental Evidence from Representative Samples for Four Latin American Cities

This paper argues that welfare programs are linked with the destruction of social capital, as measured by interpersonal trust in laboratory games. The paper employs experimental data for representative samples of individuals in four Latin American capital cities (Bogota, Lima, Montevideo, and San Jose), finding that participation in welfare programs damage trust. This result is robust to the inclusion of individual risk measures and a broad array of controls. The findings also support the notion that low take-up rates may be due to stigma linked with trust and social capital, rather than transaction costs.Experiments, Surveys, Social Programs, Trust, Stigma, Latin America

Rationality Spillovers

We design an experiment to test whether the rationality that is induced by market-like discipline spills over to nonmarket valuation settings—a rationality spillover. Our results confirm that this new phenomenon exists. The rationality stimulated by market-like discipline extends to the nonmarket setting, and these spillover effects are robust even when the nonmarket setting involves hypothetical choices and environmental lotteries. We observe that people stop reversing their preferences for lotteries by revising downward their stated values to buy and sell high-risk lotteries; they do not change their preference ordering

Long Persuasion Games

This paper characterizes geometrically the set of all Nash equilibrium payoffs achievable with unmediated communication in persuasion games, i.e., games with an informed expert and an uninformed decisionmaker in which the expert's information is certifiable. The first equilibrium characterization is provided for unilateral persuasion games, and the second for multistage, bilateral persuasion games. As in Aumann and Hart (2003), we use the concepts of diconvexification and dimartingale. A leading example illustrates both geometric characterizations and shows how the expert, whatever his type, can increase his equilibrium payoff compared to all equilibria of the unilateral persuasion game by delaying information certification.cheap talk, communication, diconvexification, dimartingale, disclosure of certifiable information, jointly controlled lotteries, long conversation, persuasion, verifiable types

Spectrum, Volume 14, Number 15

Highlights include: East Hall incites anger -- Cheating allegations made by professor -- Reho resigns to head Pitt center -- Physician-assisted suicide explored -- SHU observes AIDS awareness -- Raynis granted honors -- Hooked on betting, gambling leads to bad paths -- Diving right into relationships -- Eating disorders and beauty discussed -- Gallery displays faculty artwork -- Cotte leads woman\u27s volleyball over USMAA -- Bowlers ranked ninth in nation -- Ceremonies scheduled for SHU box\u27s finale game -- Track places second at conference championshi

Spectrum, Volume 14, Number 15

Highlights include: East Hall incites anger -- Cheating allegations made by professor -- Reho resigns to head Pitt center -- Physician-assisted suicide explored -- SHU observes AIDS awareness -- Raynis granted honors -- Hooked on betting, gambling leads to bad paths -- Diving right into relationships -- Eating disorders and beauty discussed -- Gallery displays faculty artwork -- Cotte leads woman\u27s volleyball over USMAA -- Bowlers ranked ninth in nation -- Ceremonies scheduled for SHU box\u27s finale game -- Track places second at conference championshi