The Dynamic Interplay of Inequality and Trust - An Experimental Study

We study the interplay of inequality and trust in a dynamic game, where trust increases efficiency and thus allows higher growth of the experimental economy in the future. We find that trust is initially high in a treatment starting with equal endowments, but decreases over time. In a treatment with unequal endowments, trust is initially lower yet remains relatively stable. The difference seems partly due to the fact that equal start positions increase subjects' inclination to condition their trust decisions on wealth comparisons, whereas conditional trust is much less prevalent with unequal initial endowments. As a result, with respect to efficiency, the initially more unequal economy fares worse in the short run but better in the long run, and the disparity of wealth distributions across economies mitigates over time.inequality, trust, growth, laboratory experiments

Wage Transparency and Performance: A Real-Effort Experiment

Without transparency about peer wages in a real effort experiment, a change of wages does not affect performance. With transparency, however, higher paid workers tend to work more accurately, and lower paid workers shirk more under piece rates.labor market experiments, real effort, social comparison, wage schemes

The Dynamic Interplay of Inequality and Trust – An Experimental Study

We study the interplay of inequality and trust in a dynamic game, in which trust increases efficiency and thus allows higher growth of the experimental economy in the future. We find that trust is initially high in a treatment starting with equal endowments, but decreases over time. In a treatment with unequal endowments, trust is initially lower yet remains relatively stable. The difference seems partly due to the fact that equal starting positions increase subjects’ inclination to condition their trust decisions on wealth comparisons, whereas conditional trust is much less prevalent with unequal initial endowments. As a result, with respect to efficiency, the initially more unequal economy fares worse in the short run but better in the long run, and the disparity of wealth distributions across economies mitigates over time.inequality, trust, growth, laboratory experiments

Measuring Strategic Uncertainty in Coordination Games

Lecture on the first SFB/TR 15 meeting, Gummersbach, July, 18 - 20, 2004This paper explores predictability of behavior in coordination games with multiple equilibria. In a laboratory experiment we measure subjects' certainty equivalents for three coordination games and one lottery. Attitudes towards strategic uncertainty in coordination games are related to risk aversion, experience seeking, gender and age. From the distribution of certainty equivalents among participating students we estimate probabilities for successful coordination in a wide range of coordination games. For many games success of coordination is predictable with a reasonable error rate. The best response of a risk neutral player is close to the global-game solution. Comparing choices in coordination games with revealed risk aversion, we estimate subjective probabilities for successful coordination. In games with a low coordination requirement, most subjects underestimate the probability of success. In games with a high coordination requirement, most subjects overestimate this probability. Data indicate that subjects have probabilistic beliefs about success or failure of coordination rather than beliefs about individual behavior of other players.

Measuring strategic uncertainty in coordination games

This paper explores three aspects of strategic uncertainty: its relation to risk, predictability of behavior and subjective beliefs of players. In a laboratory experiment we measure subjects’ certainty equivalents for three coordination games and one lottery. Behavior in coordination games is related to risk aversion, experience seeking, and age. From the distribution of certainty equivalents we estimate probabilities for successful coordination in a wide range of games. For many games, success of coordination is predictable with a reasonable error rate. The best response to observed behavior is close to the global-game solution. Comparing choices in coordination games with revealed risk aversion, we estimate subjective probabilities for successful coordination. In games with a low coordination requirement, most subjects underestimate the probability of success. In games with a high coordination requirement, most subjects overestimate this probability. Estimating probabilistic decision models, we show that the quality of predictions can be improved when individual characteristics are taken into account. Subjects’ behavior is consistent with probabilistic beliefs about the aggregate outcome, but inconsistent with probabilistic beliefs about individual behavior.Belief Formation, Coordination Games, Global Game, Lotteries, Risk Aversion, Strategic Uncertainty, Leex

The Dynamic Interplay of Inequality and Trust - An Experimental Study

We study the interplay of inequality and trust in a dynamic game, where trust increases efficiency and thus allows higher growth of the experimental economy in the future. We find that trust is initially high in a treatment starting with equal endowments, but decreases over time. In a treatment with unequal endowments, trust is initially lower yet remains relatively stable. The difference seems partly due to the fact that equal start positions increase subjects’ inclination to condition their trust decisions on wealth comparisons, whereas conditional trust is much less prevalent with unequal initial endowments. As a result, with respect to efficiency, the initially more unequal economy fares worse in the short run but better in the long run, and the disparity of wealth distributions across economies mitigates over time.inequality, trust, growth, laboratory experiments

Surprising gifts: Theory and laboratory evidence

People do not only feel guilt from not living up to others' expectations (Battigalli and Dufwenberg, 2007), but may also like to exceed them. We propose a model that generalizes the guilt aversion model to capture the possibility of positive surprises when making gifts. A model extension allows decision makers to care about others' attribution of intentions behind surprises. We test the model in a series of dictator game experiments. We find a strong causal effect of recipients' expectations on dictators' transfers. Moreover, in line with our model, the correlation between transfers and expectations can be both positive and negative, obscuring the effect in the aggregate. Finally, we provide evidence that dictators care about what recipients know about the intentions behind surprises. (C) 2015 Elsevier Inc. All rights reserved

Using Technology to Eliminate Traffic Congestion

Traffic congestion is a pervasive worldwide problem. We explain how to harness existing technologies together with new methods in time-and-location markets to eradicate traffic congestion along with its attendant social harms. Our market design for road use builds on congestion pricing and models of efficient pricing in the electricity sector. The market maximizes the value of a transport network through efficient scheduling, routing, and pricing of road use. Privacy and equity concerns are addressed. Transparent price information provides essential information for efficient long-term investment in transport

Market Design, Human Behavior, and Management

We review past research and discuss future directions on how the vibrant research areas of market design and behavioral economics have influenced and will continue to impact the science and practice of management in both the private and public sectors. Using examples from various auction markets, reputation and feedback systems in online markets, matching markets in education, and labor markets, we demonstrate that combining market design theory, behavioral insights, and experimental methods can lead to fruitful implementation of superior market designs in practice