Optimistic irrationality and overbidding in private value auctions

Bidding one’s value in a second-price, private-value auction is a weakly dominant solution (Vickrey in J Finance 16(1):8–37, 1961), but repeated experimental studies find more overbidding than underbidding. We propose a model of optimistically irrational bidders who understand that there are possible gains and losses associated with higher bids but who may overestimate the additional probability of winning and/or underestimate the potential losses when bidding above value. These bidders may fail to discover the dominant strategy—despite the fact that the dominant strategy only requires rationality from bidders—but respond in a common sense way to out-of-equilibrium outcomes. By varying the monetary consequences of losing money in experimental auctions we observe more overbidding when the cost to losing money is low, and less overbidding when the cost is high. Our findings lend themselves to models in which less than fully rational bidders respond systematically to out-of-equilibrium incentives, and we find that our model better fits the effects of our manipulations than most of the existing models we consider

Plasticity facilitates sustainable growth in the commons

In the commons, communities whose growth depends on public goods, individuals often rely on surprisingly simple strategies, or heuristics, to decide whether to contribute to the common good (at risk of exploitation by free-riders). Although this appears a limitation, here we show how four heuristics lead to sustainable growth by exploiting specific environmental constraints. The two simplest ones --contribute permanently or switch stochastically between contributing or not-- are first shown to bring sustainability when the public good efficiently promotes growth. If efficiency declines and the commons is structured in small groups, the most effective strategy resides in contributing only when a majority of individuals are also contributors. In contrast, when group size becomes large, the most effective behavior follows a minimal-effort rule: contribute only when it is strictly necessary. Both plastic strategies are observed in natural systems what presents them as fundamental social motifs to successfully manage sustainability

Community projects: an experimental analysis of a fair implementation process

We define and experimentally test a public provision mechanism that meets three basic ethical requirements and allows community members to influence, via monetary bids, which of several projects is implemented. For each project, participants are assigned personal values, which can be positive or negative. We provide either public or private information about personal values. This produces two distinct public provision games, which are experimentally implemented and analyzed for various projects. In spite of the complex experimental task, participants do not rely on bidding their own personal values as an obvious simple heuristic whose general acceptance would result in fair and efficient outcomes. Rather, they rely on strategic underbidding. Although underbidding is affected by projects’ characteristics, the provision mechanism mostly leads to the implementation of the most efficient project

The joy of ruling: an experimental investigation on collective giving

We analyse team dictator games with different voting mechanisms in the laboratory. Individuals vote to select a donation for all group members. Standard Bayesian analysis makes the same prediction for all three mechanisms: participants should cast the same vote regardless of the voting mechanism used to determine the common donation level. Our experimental results show that subjects fail to choose the same vote. We show that their behaviour is consistent with a joy of ruling: individuals get an extra utility when they determine the voting outcome

Make-up and suspicion in bargaining with cheap talk: An experiment controlling for gender and gender constellation

This paper explores gender differences in "make- up" and "suspicion" in a bargaining game in which the privately informed seller of a company sends a value message to the uninformed potential buyer who then pro- poses a price for the company. "Make-up" is measured by how much the true value is overstated, "suspicion" by how much the price offer differs from the value message. We run different computerized treat- ments varying in information about the gender (constellation) and in embeddedness of gender information. The asymmetry of the game and of information allows for a robust assessment of gender (constellation) effects. We report here the results from just one shot round decision since we expect such effects to be more pronounced for inexperienced participants. We mainly find an effect of gender constellation: when fe- male sellers are aware to confront a female buyer, they overstate more, i.e. there is more "make-up". However, we cannot confirm gender (con- stellation) effects for suspicion.This paper explores gender differences in "make-up" and "suspicion" in a bargaining game in which the privately informed seller of a company sends a value message to the uninformed potential buyer who then proposes a price for the company. "Make-up" is measured by how much the true value is overstated, "suspicion" by how much the price offer differs from the value message. We run different computerized treatments varying in information about the gender (constellation) and in embeddedness of gender information. The asymmetry of the game and of information allows for a robust assessment of gender (constellation) effects. We report here the results from just one shot round decision since we expect such effects to be more pronounced for inexperienced participants. We mainly find an effect of gender constellation: when female sellers are aware to confront a female buyer, they overstate more, i.e. there is more "make-up". However, we cannot confirm gender (constellation) effects for suspicion

Serotonin Differentially Regulates Short- and Long-Term Prediction of Rewards in the Ventral and Dorsal Striatum

BACKGROUND: The ability to select an action by considering both delays and amount of reward outcome is critical for maximizing long-term benefits. Although previous animal experiments on impulsivity have suggested a role of serotonin in behaviors requiring prediction of delayed rewards, the underlying neural mechanism is unclear. METHODOLOGY/PRINCIPAL FINDINGS: To elucidate the role of serotonin in the evaluation of delayed rewards, we performed a functional brain imaging experiment in which subjects chose small-immediate or large-delayed liquid rewards under dietary regulation of tryptophan, a precursor of serotonin. A model-based analysis revealed that the activity of the ventral part of the striatum was correlated with reward prediction at shorter time scales, and this correlated activity was stronger at low serotonin levels. By contrast, the activity of the dorsal part of the striatum was correlated with reward prediction at longer time scales, and this correlated activity was stronger at high serotonin levels. CONCLUSIONS/SIGNIFICANCE: Our results suggest that serotonin controls the time scale of reward prediction by differentially regulating activities within the striatum

Experience and gender effects in acquisition experiment with value messages

In the bargaining experiment, the privately informed seller of a company sends a value message to the uninformed potential buyer who proposes a price for acquiring the company. Participants are constantly either seller or buyer and interact over 30 rounds with randomly changing partners. How are overstating the value of the company, underpricing the received value message and acceptance of price offers affected by experience and gender (constellation)? We control via treatments for awareness of gender (constellation) and show that gender (constellation) matters and that the main experience effects apply across gender (constellations)

Change & Maintaining Change in School Cafeterias: Economic and Behavioral-Economic Approaches to Increasing Fruit and Vegetable Consumption

Developing a daily habit of consuming fruits and vegetables (FV) in children is an important public-health goal. Eating habits acquired in childhood are predictive of adolescent and adult dietary patterns. Thus, healthy eating patterns developed early in life can protect the individual against a number of costly health deficits and may reduce the prevalence of obesity. At present, children in the United States (US) under-consume FV despite having access to them through the National School Lunch Program. Because access is an obstacle to developing healthy eating habits, particularly in low-income households, targeting children’s FV consumption in schools has the advantage of near-universal FV availability among more than 30 million US children. This chapter reviews economic and behavioral-economic approaches to increasing FV consumption in schools. Inclusion criteria include objective measurement of FV consumption (e.g., plate waste measures) and minimal demand characteristics. Simple but effective interventions include (a) increasing the variety of vegetables served, (b) serving sliced instead of whole fruits, (c) scheduling lunch after recess, and (d) giving children at least 25 minutes to eat. Improving the taste of FV and short-term incentivizing consumption of gradually increasing amounts can produce large increases in consumption of these foods. Low-cost game-based incentive program may increase the practicality of the latter strategy