Learning to Make Strategic Moves: Experimental Evidence

Do players in practice make the strategic commitment moves that are predicted by game theory? Since such strategic moves can appear somewhat counter-intuitive, we conducted an experiment to see if people make the predicted strategic move. The experiment uses a simple bargaining situation. A player can make a strategic move of committing to not seeing what the other player will demand. Our data show that the subjects do, but only after substantial time, learn to make the predicted strategic move. We also find significant efficiency differences between our treatments that are not predicted by theory.Strategic moves; commitment; bargaining; information; strategic value of information; physical timing effects; virtual observability; endogenous timing; learning; experiment

On the Evolutionary Stability of Bargaining Inefficiency

Bargaining; game theory; efficiency; evolutionary stability

Reciprocity, Materialism and Welfare: An Evolutionary Model

This paper analyses preference evolution in a bargaining situation. We show that preferences for reciprocity, that sustain a conflict-free outcome, are viable if players have enough information about opponents’ preferences. However, depending on the initial starting point, preference evolution can in general both enhance or reduce subjective and material welfare, relative to the situation where all players have the usual materialistic preferences.Preference evolution; Reciprocity; Altruism; Materialism; Subjective and material eciency; Bargaining; Indirect evolutionary approach

Rising Wage Inequality: Does the Return to Management Tell the Whole Story?

This paper argues that the increased wage inequality observed in recent years is driven by changes in management compensation. The analysis is conducted within the framework of a two-sector search model with heterogeneous employees and heterogenous jobs i.e. employees with different educational levels who work in either management or the non-management sector of a firm. Individuals employed in the non-management sector search for management jobs while employed. This model characterizes the labor market flows, the firm’s structure and the employee composition as well as the wage distribution in the firm. Using the personnel records from a large pharmaceutical company, the parameters of the model are estimated. This allows us to conclude that the increased wage inequality observed is due to amplified within and between group wage inequality which is driven by an increased gap between management and non-management wages.wage inequality, two-sector search model, skill-based technological change, personnel data

Management Compensation and Firm-Level Income Inequality

In recent decades, most developed countries have experienced a simultaneous increase in income inequality and management compensation. In this paper, we study the relation between management compensation and firm-level income dynamics in a general equilibrium model. Empirical estimation, of the model’s key parameters show that the rising management premium is indeed the main driving force behind the observed increase in income inequality. This is the case even when other potential sources such as technological progress and skill-biased technological change are taken into account. We also show that a rising management premium produces income distribution dynamics at the firm level which are similar to those observed at the market level, i.e. rising income inequality overall as well as within and between education groups.income inequality, two-sector search model, skill-biased technological change, personnel data

Fairness and Reciprocity in the Hawk-Dove game

We study fairness and reciprocity in a Hawk-Dove game. This allows us to test various models in one framework. We observe a large extent of selfish and rational behavior. Our results are inconsistent with leading models in this field.Hawk-Dove game; reciprocity; fairness

Can Information Backfire? - Experimental Evidence from the Ultimatum Game

We investigate experimentally if an option to obtain free information can disadvantage a player, relative to when information is unavailable. In the Ultimatum game, the Responder chooses a minimum acceptable offer and the Proposer decides at the same time whether to obtain and use information about the minimum acceptable offer. We find that the option of using free information on average reduces Proposers’, and increases Responders’, payoff, but by less than predicted. This is due to the presence of Proposers who either refuse information or who use it in a self-servingly fair manner. Information changes the distribution of the surplus, and increases inefficiency.Information; information acquisition; value of information; Ultimatum game; fairness; self-serving fairness

A note on commitment when there are errors in communication

In this note we analyze the viability of a commitment strategy when there are errors in communication. We consider an entry deterrence game where with a certain probability the Incumbent's decision is either perfectly observed by the Potential Intruder or, with complementary probability, nothing is observed. We find that in equilibrium the Incumbent benefits as much from a decision to accommodate entry as a commitment to fight entry being observed with sufficiently high probability by the potential intruder. Indeed, there is an equilibrium where the Incumbent commits to fight entry with probability one even when this action is observed with zero probability.

Feedback and Incentives: Experimental Evidence

This paper experimentally investigates the impact of different pay and relative performance information policies on employee effort. We explore three information policies: No feedback about relative performance, feedback given halfway through the production period, and continuously updated feedback. The pay schemes are a piece rate payment scheme and a winner-takes-all tournament. We find that, regardless of the pay scheme used, feedback does not improve performance. There are no significant peer effects in the piece-rate pay scheme. In contrast, in the tournament scheme we find some evidence of positive peer effects since the underdogs almost never quit the competition even when lagging significantly behind, and frontrunners do not slack off. Moreover, in both pay schemes information feedback reduces the quality of the low performers’ work.performance pay, tournament, piece rate, peer effects, information, feedback, evaluation, experiment