Cognitive reflection test: whom, how, when

The use of the Cognitive Reflection Test as a covariate to explain behavior in Economics and Psychology experiments has significantly increased in the past few years. Experiments have shown its usefulness in predicting behavior. However, little is known about if the test is gender biased, whether incentives matter or how different implementation procedures impact outcomes. Here we report the results of a meta-study of 118 Cognitive Reflection Test studies comprising of 44,558 participants across 21 countries. We find that there is a negative correlation between being female and the overall, and individual, correct answers to CRT questions. Monetary incentives do not impact performance. Regarding implementation procedures, taking the test at the end of the experiment negatively impacts performance. Students perform better compared to non-students. We obtain mixed evidence on whether the sequence of questions matters. Finally, we find that computerized tests marginally improve results

Multiple openings and competitiveness of forward markets: experimental evidence

We test the competition enhancing effect of selling forward in experimental Cournot duopoly and quadropoly with multiple forward markets. We find that having two forward periods yields competitive outcomes and that the results are very close to the predicted theoretical results for both quantity setting duopolies and quadropolies. Our experiments lend strong support to the hypothesis that forward markets are competition enhancing. We then test a new market that allows for endogenously determined indefinitely many forward periods that only close when sellers coordinate on selling a zero amount in a forward market. We find that the outcomes under an endogenous close rule are also very competitive. These results hold for both duopolies and quadropolies

The relative efficacy of price announcements and express communication for collusion: experimental findings

This study conducts experiments to determine the modes of communication that are able to produce and sustain collusion and how the efficacy of communication de- pends on market structure. Two communication treatments are considered: non-binding price announcements and unrestricted written communication. We find that price an- nouncements are conducive to coordinating on a high price but only under duopoly and when firms are symmetric. The standard experimental finding that collusion without com- munication is rare when there are more than two firms is shown to be robust to allowing firms to make price announcements. When firms are asymmetric, price announcements do result in higher prices but there is little evidence that firms are coordinating their behavior. When firms are allowed to engage in unrestricted written communication, co- ordination on high prices occurs for all market structures. We find that the incremental value to express communication (compared to price announcements) is greater when firms are asymmetric and there are more firms

Trustors' disregard for trustees deciding quickly or slowly in three experiments with time constraints

Many decisions in the economic and social domain are made under time constraints, be it under time pressure or forced delay. Requiring individuals to decide quickly or slowly often elicit different responses. Time pressure has been associated with inefficiency in market settings and market regulation often requires individuals to delay their decisions via cooling-off periods. Yet, recent research suggests that people who make reflective decisions are met with distrust. If this extends to external time constraints, then forcing individuals to delay their decisions may be counterproductive in scenarios where trust considerations are important, such as in market and organizational design. In three Trust Game experiments (total number of participants = 1872), including within- and between subjects designs, we test whether individuals trust (more) someone who is forced to respond quickly (intuitively) or slowly (reflectively). We find that trustors do not adjust their behavior (or their beliefs) to the trustee’s time conditions. This seems to be an appropriate response because time constraints do not affect trustees’ behavior, at least when the game decisions are binary (trust vs. don’t trust; reciprocate vs. don’t reciprocate) and therefore mistakes cannot explain choices. Thus, delayed decisions per se do not seem to elicit distust

Information asymmetry and deception

Situations such as an entrepreneur overstating a project’s value, or a superior choosing to under or overstate the gains from a project to a subordinate are common and may result in acts of deception. In this paper we modify the standard investment game in the economics literature to study the nature of deception. In this game a trustor (investor) can send a given amount of money to a trustee (or investee). The amount received is multiplied by a certain amount, k, and the investee then decides on how to divide the total amount received. In our modified game the information on the multiplier, k, is known only to the investee and she can send a nonbinding message to the investor regarding its value. We find that 66% of the investees send false messages with both under and over, statement being observed. Investors are naive and almost half of them believe the message received. We find greater lying when the distribution of the multiplier is unknown by the investors than when they know the distribution. Further, messages make beliefs about the multiplier more pessimistic when the investors know the distribution of the multiplier, while the opposite is true when they do not know the distribution

The effect of earned versus house money on price bubble formation in experimental asset markets

Does house money exacerbate price bubbles? We compare house money asset market experiments with an earned money treatment where initial portfolios are constructed from a real effort task. Bubbles occur; however, trading volumes and earnings dispersion are significantly higher with house money. We investigate the role of cognitive ability in accounting for the differences in earnings distribution across treatments by using the cognitive reflection test (CRT). Low CRT subjects earned less than high CRT subjects. Low CRT subjects were net purchasers (sellers) of shares when the price was above (below) fundamental value. The opposite was true for high CRT subjects

Trust and trustworthiness under information asymmetry and ambiguity

We introduce uncertainty and ambiguity in the standard investment game. In the uncertainty treatment, investors are informed that the return of the investment is drawn from a publicly known distribution function. In the ambiguity treatment, investors are not informed about the distribution function. We find that both trust and trustworthiness are robust to the introduction of these changes