Behavioral Social Learning

We revisit the economic models of social learning by assuming that individuals update their beliefs in a non-Bayesian way. Individuals either overweigh or underweigh (in Bayesian terms) their private information relative to the public information revealed by the decisions of others and each individual's updating rule is private information. First, we consider a setting with perfectly rational individuals with a commonly known distribution of updating rules. We show that introducing heterogeneous updating rules in a simple social learning environment reconciles equilibrium predictions with laboratory evidence. Additionally, a model of social learning with bounded private beliefs and sufficiently rich updating rules corresponds to a model of social learning with unbounded private beliefs. A straightforward implication is that heterogeneity in updating rules is efficiency-enhancing in most social learning environments. Second, we investigate the implications of heterogeneous updating rules in social learning environments where individuals only understand the relation between the aggregate distribution of decisions and the state of the world. Unlike in rational social learning, heterogeneous updating rules do not lead to a substantial improvement of the societal welfare and there is always a non-negligible likelihood that individuals become extremely and wrongly conï¬dent about the state of the world.Social learning, Non-Bayesian updating, Herding, Informational cascades

Framing and cooperation in public good games: an experiment with an interior solution.

We show that experimental subjects tend to contribute more to the public good if they perceive the actions of the others as a source of positive externality rather than a source of negative externality. In our experiment partial contribution to the public good is the unique subgame perfect equilibrium for the repeated game.experimental economics, public goods

Parimutuel Betting under Asymmetric Information

This paper examines a game-theoretical model of parimutuel betting markets with asymmetric information. Generically, all Bayesian-Nash equilibria of the simultaneous game are characterized depending on the number of bettors and the quality of their private information. An equilibrium where all bettors use their private information always exists and becomes unique as the number of bettors increases. On the contrary, in a sequential framework, a perfectly revealing equilibrium does not always exist and disappears as the number of bettors increases. Bettors arbitrate between following their private signal, following the choices of previous bettors, and betting against the trend. On average,information is well aggregated by the market, but extreme effects based on herd and contrarian behavior occur in identifiable states of the world,leading to significant mispricing.Parimutuel betting; Asymmetric information; Information.

Tie-breaking Rules and Informational Cascades: A Note

In Bikhchandani, Hirshleifer, and Welch\'s (1992) specific model, it is showed that conformist behaviors can emerge due to information externalities. In this note we establish that this result, based on `informational cascades\', heavily depends on the choice of a particular tie-breaking convention. Relaxing this assumption allows for other equilibria to exist, in which informational cascades are not necessarily observed. Our findings also have implications for the analysis of experimental data on informational cascades. In this respect, we argue that further experiments should be based on other experimental designs.Tie-breaking rules, informational cascades, experimental economics.

"Do We Follow Others when We Should? A Simple Test of Rational Expectations": Comment

Weizsäcker (2010) estimates the payoff of actions to test rational expectations and to measure the success of social learning in information cascade experiments. He concludes that participants perform poorly when learning from others and that rational expectations are violated. We show that his estimated payoffs rely on estimates of the publicly known prior and signal qualities which may lead the formulated test of rational expectations to generate false positives. We rely on the true values of the prior and signal qualities to estimate the payoff of actions. We confirm that the rational expectations hypothesis is rejected, but we measure a much larger success of social learning.Information Cascades, Laboratory Experiments, Quantal Response Equilibrium

Global versus local interaction in coordination games: an experimental investigation.

We study experimentally the outcome of a 50 periods repetition of a two-player coordination game, which admits two-pure strategy Nash equilibria that are Pareto-ranked: a payoff-dominant equilibrium and a risk-dominant equilibrium. The experiment consists of a 2x3 factorial design, with two different matching rules –global an local interaction–, and three sizes for the basin of attraction of the risk-dominant equilibrium. Under global interaction, each player can be matched in each period with any player in the population. Under local interaction, each player can be matched only with one of his two neighbours. Our results confirm earlier experimental results obtained under global interaction (for a survey see Ochs (1995)). On the contrary, the results contrast sharply with Keser, Ehrhart & Berninghaus (1998), who found that subjects interacting ‘locally’ with their neighbours around a circle, coordinate mostly on the risk-dominant equilibrium. Moreover, we found no evidence for a faster convergence to an equilibrium under local interaction than under global interaction. Keywords: Coordination games, Experimental economics, Evolutionary game theory, Local interactions

Hidden Costs of Control: Three Repetitions and an Extension

We report three repetitions of Falk and Kosfeld's (2006) low and medium control treatments with 364 subjects. Each repetition employs a sample drawn from a standard subject pool of students and demographics vary across samples. Our results largely conflict with those of the original study. We mainly observe hidden costs of control of low magnitude that lead to low-trust principal-agent relationships. Our subjects were asked, at the end of the experimental session, to complete a questionnaire in which they had to state their work motivation in hypothetical scenarios. Our questionnaires are identical to the ones administered in Falk and Kosfeld's (2006) questionnaire study. In contrast to the game play data, our questionnaire data are similar to those of the original questionnaire study. In an attempt to solve this puzzle, we report an extension with 228 subjects where performance-contingent earnings are absent i.e. both principals and agents are paid according to a flat participation fee. We observe that hidden costs outweigh benefits of control which shows that control aversion is more prevalent under hypothetical than under real incentives. Still, in the low control treatment, we observe much weaker negative responses to control in our extension than in the original study. This observation, the fact that the original study uses real incentives, and preliminary findings on the relationship between demographics and the degree of control aversion lead us to conclude that Falk and Kosfeld's (2006) experimental regularities originate from the characteristics of their subjects.Control, Demographics, Experimental Economics, Incentives, Intrinsic Motivation

The Favorite-Longshot Bias in Sequential parimutuel Betting with Non-Expected Utility Players

This paper analyzes a model of sequential parimutuel betting described as a two-horse race with a finite number of noise bettors and a finite number of strategic and symmetrically informed bettors. For generic objective probabilities that the favorite wins the race, a unique subgame perfect equilibrium is characterized. Additionally, two explanations for the favorite-longshot bias---according to which favorites win more often than the market's estimate of their winning chances imply---are offered. It is shown that this robust anomalous empirical regularity might be due to the presence of transaction costs and/or to strategic bettors' subjective attitude to probabilities.Parimutuel betting; Sequential decisions; Favorite-longshot bias; Non-expected utility under risk.

Individual and Couple Decision Behavior under Risk:The Power of Ultimate Control

This paper reports results of an experiment designed to analyze the link between risky decisions made by couples, and risky decisions made separately by each spouse. We estimate both the individuals and the couples’ degrees of risk aversion, and we analyze how the risk preferences of the two spouses aggregate when they have to perform joint decisions under risk. We show that the man has more decision power than the woman, but the woman’s decision power increases when she has ultimate control over the joint decision.

Individual and couple decision behavior under risk: Evidence on the dynamics of power balance

This paper reports results of an experiment designed to analyze the link between risky decisions made by couples and risky decisions made separately by each spouse. We estimate both the spouses and the couples' degrees of risk aversion, we assess how the risk preferences of the two spouses aggregate when they make risky decisions and we shed light on the dynamics of the decision process that takes place when couples make risky decisions. We find that, far from being fixed, the balance of power within the household is malleable. In most couples, men have, initially, more decision-making power than women but women who ultimately implement the joint decisions gain more and more power over the course of decision making.Balance of power; Experiments; Household decision-making; Risk.