Two heads are less bubbly than one: Team decision-making in an experimental asset market

In the world of mutual funds management, responsibility for investment decisions is increasingly entrusted to small teams instead of individuals. Yet the effect of team decision-making in a market environment has never been studied in a controlled experiment. In this paper, we investigate the effect of team decision-making in an asset market experiment that has long been known to reliably generate price bubbles and crashes in markets populated by individuals. We find that this tendency is substantially reduced when each decision-making unit is instead a team of two. This holds across a broad spectrum of measures of the severity of mispricing, both under a continuous double-auction institution and in a call market. The result is not driven by reduced turnover due to time required for deliberation by teams, and continues to hold even when subjects are experienced. Our result also holds not only when our teams treatments are compared to the ‘narrow’ baseline provided by the corresponding individuals treatments, but also when compared more broadly to the results of the large body of previous research on markets of this kind

Taxation and market power

"We analyze the incidence and welfare effects of unit sales taxes in experimental monopoly and Bertrand markets. We find, in line with economic theory, that firms with no market power are able to shift a high share of a tax burden on to consumers, independent of whether buyers are automated or human players. In monopoly markets, a monopolist bears a large share of the burden of a tax increase. With human buyers, however, this share is smaller than with automated buyers as the presence of human buyers constrains the pricing behavior of a monopolist." (author's abstract)"Dieser Artikel untersucht Inzidenz- und Wohlfahrtseffekte einer Mengensteuer in experimentellen Monopol- und Bertrand-Märkten. Im Einklang mit der ökonomischen Theorie sind Firmen ohne Marktmacht in der Lage, einen großen Anteil der Last einer Steuererhöhung an die Konsumenten weiterzugeben. Dies gilt unabhängig davon, ob die Käufer simuliert sind oder die Kaufentscheidungen durch reale Käufer getroffen werden. In Monopolmärkten trägt der Monopolist einen großen Anteil der Last einer Steuererhöhung. Werden die Kaufentscheidungen durch reale Käufer getroffen, ist dieser Anteil jedoch kleiner als mit simulierten Käufern, da reale Käufer im Experiment das Preissetzungsverhalten des Monopolisten einschränken." (Autorenreferat

Paradoxes and Mechanisms for Choice under Risk

Experiments on choice under risk typically involve multiple decisions by individual subjects. The choice of mechanism for selecting decision(s) for payoff is an essential design feature unless subjects isolate each one of the multiple decisions. We report treatments with different payoff mechanisms but the same decision tasks. The data show large differences across mechanisms in subjects’ revealed risk preferences, a clear violation of isolation. We illustrate the importance of these mechanism effects by identifying their implications for classical tests of theories of decision under risk. We discuss theoretical properties of commonly used mechanisms, and new mechanisms introduced herein, in order to clarify which mechanisms are theoretically incentive compatible for which theories. We identify behavioral properties of some mechanisms that can introduce bias in elicited risk preferences – from cross-task contamination – even when the mechanism used is theoretically incentive compatible. We explain that selection of a payoff mechanism is an important component of experimental design in many topic areas including social preferences, public goods, bargaining, and choice under uncertainty and ambiguity as well as experiments on decisions under risk

Experiments on Risk Attitude: The Case of Chinese Students

This paper examines Chinese students' risk attitude using buying and selling experiments with lotteries. We found that subjects were more risk averse in the buying experiment than in the selling experiment, suggesting the endowment effect. In the selling experiment, subjects were risk loving when there was a low win probability and risk averse with a high win probability, whereas they were risk averse in the buying experiment. Using the prize money won during the experiment as a measure of wealth, we found decreasing absolute risk aversion. Subjects' risk attitude as revealed in the experiments explains their risky asset holding behavior