Pricing in Competitive Search Markets: The Roles of Price Information and Fairness Perceptions

We use a competitive search (price-posting) framework to experimentally examine how buyer information and fairness perceptions affect market behavior. We observe that moving from zero to one uninformed buyers leads to higher prices in both 2 (seller)×2 (buyer) and 2 × 3 markets: the former as predicted under standard preferences, the latter the opposite of the theoretical prediction. Perceptions of fair prices—elicited in the experiment—are a powerful driver of behavior. For buyers, fair prices correlate with price responsiveness, which varies systematically across treatments and impacts sellers’ pricing incentives. For sellers, fair prices correlate with underpricing, which also varies systematically across treatments

Inflation tax in the lab: a theoretical and experimental study of competitive search equilibrium with inflation

In this paper we measure the effect of the inflation tax on economic activity and welfare within a controlled setting. To do so, we develop a model of price posting and monetary exchange with inflation and finite populations. The model, which provides a game–theoretic foundation to Rocheteau and Wright (2005)׳s competitive search monetary equilibrium, is used to derive theoretical propositions regarding the effects of inflation in this environment, which we test with a laboratory experiment that closely implements the theoretical framework. We find that the inflation tax is harmful – with cash holdings, production and welfare all falling as inflation rises – and that its effect is relatively larger at low inflation rates than at higher rates. For instance, for inflation rates between 0% and 5%, welfare in the two markets we consider (2[seller]×2[buyer] and 3×2) falls by roughly 1 percent for each percentage–point rise in inflation, compared with 0.4 percent over the range from 5% to 30%. Our findings lead us to conclude that the impact of the inflation tax should not be underestimated, even under low inflation

Payoff inequity reduces the effectiveness of correlated-equilibrium recommendations

We examine theoretically and experimentally how individuals’ willingness to follow third-party recommendations in 2 × 2 games is affected by payoff asymmetry. We consider six versions of Battle-of-the-Sexes. Recommendations imply monetary payoffs that are equal ex ante, but unequal ex post. So, although following recommendations constitutes a Nash equilibrium under standard preferences, sufficiently inequity-averse players can rationally disobey a recommendation that would lead to a very unfavourable payoff distribution, as long as the cost of doing so is not too large. Our theoretical model incorporates inequity aversion, along with level-k reasoning. Our main experimental result is consistent with the model: as either payoff asymmetry increases or the cost of disobeying an unfavourable recommendation decreases, subjects are more likely to disobey recommendations

Investment Incentives Under Emission Trading: An Experimental Study

This paper presents the results of an experimental investigation on incentives to adopt advanced abatement technology under emissions trading. Our experimental design mimics an industry with small asymmetric polluting firms regulated by different schemes of tradable permits. We consider three allocation/auction policies: auctioning off (costly) permits through an ascending clock auction, grandfathering permits with re-allocation through a single-unit double auction, and grandfathering with re-allocation through an ascending clock auction. Our results confirm both dynamic and static theoretical equivalence of auctioning and grandfathering. We nevertheless find that although the market institution used to reallocate permits does not impact the dynamic efficiency from investment, it affects the static efficiency from permit trading

The influence of medical expertise, case typicality and illness script component on case processing and disease probability estimates

The present study investigated the influence of medical expertise, case typicality, and illness script component (enabling conditions vs. consequences) on the speed of case informati

Full Agreement and the Provision of Threshold Public Goods

The experimental evidence suggests that groups are inefficient at providing threshold public goods. This inefficiency appears to reflect an inability to coordinate over how to distribute the cost of providing the good. So, why do groups not just split the cost equally? We offer an answer to this question by demonstrating that in a standard threshold public good game there is no collectively rational recommendation. We also demonstrate that if full agreement is required in order to provide the public good then there is a collectively rational recommendation, namely, to split the cost equally. Requiring full agreement may, therefore, increase efficiency in providing threshold public goods. We test this hypothesis experimentally and find support for it