Individual Characteristics vs. Experience: An Experimental Study on Cooperation in Prisoner's Dilemma

Cooperative behavior is often assumed to depend on individuals’ characteristics, such as altruism and reasoning ability. Evidence is mixed about what the precise impact of these characteristics is, as the subjects of study are generally randomly paired, generating a heterogeneous mix of the two characteristics. In this study we ex-ante create four different groups of subjects by factoring their higher or lower than the median scores in both altruism and reasoning ability. Then we use these groups in order to analyze the joint effect of the two characteristics on the individual choice of cooperating and on successful paired cooperation. Subjects belonging to each group play first 10 one-shot prisoner’s dilemma (PD) games with ten random partners and then three consecutive 10-round repeated PD games with three random partners. In all games, we elicit players’ beliefs regarding cooperation using an incentive compatible method. Individuals with high altruism are more optimistic about the cooperative behavior of the other player in the one-shot game. They also show higher individual cooperation and paired cooperation rates in the first repetitions of this game. Contrary to the one-shot PD games where high reasoning ability reduces the probability of playing cooperatively, the sign of the relationship is inverted in the first repeated PD game, showing that high reasoning ability individuals better adjust their behavior to the characteristics of the game they are playing. In this sense, the joint effect of reasoning ability and altruism is not linear, with reasoning ability counteracting the cooperative effect of altruism in the one-shot game and reinforcing it in the first repeated game. However, experience playing the repeated PD games takes over the two individual characteristics in explaining individual and paired cooperation. Thus, in a (PD) setting, altruism and reasoning ability significantly affect behavior in single encounters, while in repeated interactions individual and paired cooperation reach similarly high levels independently of these individual characteristics.Financial support by Universitat Jaume I (project P1.1B2015- 48) and the Spanish Ministry of Economics and Competitiveness (projects ECO2013-44409-P and ECO2015-68469-R) is gratefully acknowledged

Should I default on my mortgage even if I can pay? Experimental evidence

We study strategic default in the laboratory, i.e., in a controlled experiment. Subjects are initially endowed with a house and a mortgage (we use neutral wording in the experiment), and must decide at each period in which their mortgage is alive among three options: making the mortgage payment, selling the house, or walking away from their house and defaulting on their mortgage. At each point in time, we can observe whether defaulters can afford to make the mortgage payment, and thus, directly compute the number of strategic defaulters. Subjects default in the right periods and quite fast learn what they should consume. We find experimental support for the “double trigger” hypothesis: individuals faced with low income and low house prices are more likely to default. We observe that subjects default less than optimal, and this decision is significantly affected by social norm concerns in the context of the experiment. Individuals under-consume in the first periods of life: they are “cautious” when indebted. Both introducing a 50% probability of recourse and a Responsible Homeowner Reward are very effective in preventing default in the lab, especially by individuals receiving a bad shock to income when house prices are low

Punishment and disclosure probabilities in an experimental deception game

XXXII Jornadas de Economía Industrial. Pamplona, 7-8 septiembre, 2017Previous findings have shown tha t punishment does not necessarily reduce deception i n principal agent - relationships . We shed further light on this issue by first identifying a punishment mechanism that substantially decreases deception in a sender - receiver game: the possibility of imposing severe sanctions that are cost - free for the enforcer. Keeping this effective combination of punishment costs and severity constant , we then investigate how a reduction in monitoring affects deception by c ompar ing assured revelation of s ender behavior ex post with a treatment in which it is disclosed with just 50% probability . We find a similarly strong deterrence effect in both treatments suggesting that punishment works in a part icular way in the deception context: o nce it is a credible threat, it does not require complete monit oring to be effective . We also find that receivers show s imilar trust level s in senders’ messages for both punishment treatments , which are significantly higher than in the corresponding baseline s without sanctions , further support ing ou r conclusion

Catalog Competition: Theory and Experiments

Ponència presentada en les XXX Jornadas de Economía Industrial. Alicante, 3-4 septiembre, 2015This paper studies a catalog competition game: two competing firms decide at the same time product characteristics and prices in order to maximize profits. Since Dasgupta and Maskin (1986) it is known that this one-shot Hotelling game admits an equilibrium in mixed strategies but nothing is known about its nature. We consider a discrete space of available product characteristics and continuous pricing and we fully characterize the unique symmetric equilibrium of the catalog competition game for any possible degree of risk aversion of the competing firms. This allows us experimentally test our predictions in both a degenerated and a genuine mixed strategy elicitation mechanism

Market games as social dilemmas

In an experimental exchange market based on Shapley and Shubik (1977), two types of players with different preferences and endowments independently submit quantities of the goods they wish to exchange. In this context, although the Nash equilibria of the game involve zero or minimum trade, we obtain intense trade close to levels that maximize social welfare. Going a step forward, we implement communication within pairs of traders from the same (horizontal) and opposite (vertical) sides of the market. Overall, we find that horizontal communication tends to reduce bids whereas vertical communication has no effect

VI Jornada Nacional sobre estudios universitarios. II Taller de innovación educativa. Competencias: formación y evaluación

VI Jornada Nacional sobre Estudios Universitarios y II Taller de Innovación Educativa celebrados en la Universitat Jaume I los días 9 y 10 de noviembre de 2017

Risk attitude elicitation using a multi-lottery choice task: Real vs. hypothetical incentives

We present a bi-dimensional multi lottery choice task which can be used in order to elicit the agents' risk attitudes in financial environments. This task is implemented both with hypothetical and real monetary incentives in a between-subjects and a within-subjects experiment. We observe choices involving significantly lower risk aversion on aggregate when incentives are real. The differences grow with the stakes at play. We also obtain significant differences between hypothetical and real rewards in both utility weighting and probability weighting estimated parameters. We find that the use of hypothetical incentives in multi-lottery choice tasks for evaluating individual risk aversion can be misleading

Exchange markets with endogenous quality: When the lemons problem enchances trade

XXXI Jornadas de Economía Industrial. Palma de Mallorca, 1-2 septiembre, 2016A worrying feature of Akerlof’s (1970) model is that the existence of sufficiently many products of relatively low quality (“lemons”) in a market may not only drive those of high quality out of the market, but it may even “... drive the market out of existence ” (p. 49 5). We discuss a two - sided market framework with endogenous quality and provide experimental evidence that the “lemons problem”, rather than drivi ng the market out of existence, may lead to a more intense exchange of very low quality products

The demand for structured products: an experimental approach

Guaranteed investment funds are showing an important growth in the mutual fund industry. We analyze this type of fund’s demand using the experimental methodology. Different types of structured guaranteed funds, with certain combinations of secured and additional benefits, are sequentially offered to university students who act as investors. Subjects also have the possibility to buy bonds. Our results show that information available to investors, and particularly the order in which it is presented, generates significant biases in their decision making which can have both positive and negative effects on their financial behavior. In fact, when the investment alternatives are made easier to compare, “too good to be true” investment offers get more easily spotted, while “guaranteed” investment products with a positive evolution result overvalued in comparison to bonds