Clean Evidence on Peer Pressure

While confounding factors typically jeopardize the possibility of using observational data to measure peer effects, field experiments over the potential for obtaining clean evidence. In this paper we measure the output of subjects who were asked to stuff letters into envelopes, with a remuneration completely independent of output. We study two treatments. In the ""pair"" treatment two subjects work at the same time in the same room. Peer effects are possible in this situation and imply that outputs within pairs should be similar. In the ""single"" treatment, which serves as a control, subjects work alone in a room and peer effects are ruled out by design. Our main results are as follows: First, we find clear and unambiguous evidence for the existence of peer effects in the pair treatment. The standard deviations of output are significantly smaller within pairs than between pairs. Second, average output in the pair treatment largely exceeds output in the single treatment, i.e., peer effects raise productivity. Third, low productivity workers are significantly more sensitive to the behavior of peers than are high productivity workers. Our findings yield important implications for the design of the workplace.peer effects, field experiments, incentives

A Theory of Reciprocity

This paper presents a formal theory of reciprocity. Reciprocity means that people reward kind actions and punish unkind ones. The theory takes into account that people evaluate the kindness of an action not only by its consequences but also by the intention underlying this action. The theory explains the relevant stylized facts of a wide range of experimental games. Among them are the ultimatum game, the gift-exchange game, a reduced best-shot game, the dictator game, the prisoner’s dilemma, and public goods games. Furthermore, the theory explains why the same consequences trigger different reciprocal responses in different environments Finally the theory explains why in bilaterial interactions outcomes tend to be ‘fair’ whereas in competitive markets even extremely unfair distributions may arise.Reciprocity, fairness, cooperation, competition, game theory

Preferences for Consistency

This paper studies how a preference for consistency can affect economic decision-making. We propose a two-period model where people have a preference for consistency because consistent behavior allows them to signal personal and intellectual strength. We then present three experiments that study main predictions and implications of the model. The first is a simple principal-agent experiment that shows that consistency is valued by others and that this value is anticipated. The second experiment underlines the crucial role of early commitment for consistency preferences. Finally we show how preferences for consistency can be used to manipulate choices.consistency preferences, experiments, early commitment, charitable giving, social influence

Psychological Foundations of Incentives

During the last two decades economists have made much progress in understanding incentives, contracts and organisations. Yet, they constrained their attention to a very narrow and empirically questionable view of human motivation. The purpose of this paper is to show that this narrow view of human motivation may severely limit understanding the determinants and effects of incentives. Economists may fail to understand the levels and the changes in behaviour if they neglect motives like the desire to reciprocate or the desire to avoid social disapproval. We show that monetary incentives may backfire and reduce the performance of agents or their compliance with rules. In addition, these motives may generate very powerful incentives themselves.incentives, contracts, reciprocity, social approval, social norms, intrinsic motivation.

Reputation or Reciprocity? An Experimental Investigation

Recent evidence highlights the importance of social norms in many economic relations. However, many of these relationships are long-term and provide repeated game incentives for performance. We experimentally investigate interaction effects of reciprocity and repeated game incentives in two treatments (one-shot and repeated) of a gift-exchange game. In both treatments we observe reciprocity, which is strengthened in the repeated game. A detailed analysis shows that in the repeated game some subjects imitate reciprocity. Thus, reciprocity and repeated game incentives reinforce each other. Observed behaviour is robust against experience. We conclude that a long-term interaction is a reciprocity-compatible contract enforcement device.Reciprocity, reputation, repeated games, incomplete contracts

Lab Experiments are a Major Source of Knowledge in the Social Sciences

Laboratory experiments are a widely used methodology for advancing causal knowledge in the physical and life sciences. With the exception of psychology, the adoption of laboratory experiments has been much slower in the social sciences, although during the last two decades, the use of lab experiments has accelerated. Nonetheless, there remains considerable resistance among social scientists who argue that lab experiments lack “realism” and “generalizability”. In this article we discuss the advantages and limitations of laboratory social science experiments by comparing them to research based on non-experimental data and to field experiments. We argue that many recent objections against lab experiments are misguided and that even more lab experiments should be conducted.laboratory experiments, field experiments, controlled variation

Direct Evidence in Risk Attitudes and Migration

It has long been hypothesized that individuals'' migration propensities depend on their attitudes towards risk, but the empirical evidence, to the extent that it exists, has been indirect. In this paper, we use newly available data from the German Socio-Economic Panel to measure directly the relationship between migration propensities and attitudes towards risk. We find that individuals who are more willing to take risks are more likely to migrate between labor markets in Germany. This result is robust to stratifying by age, sex, education, national origin, and a variety of other demographic characteristics. The effect is substantial relative to the unconditional migration propensity and compared to the conventional determinants of migration. We find no evidence that these findings are the result of reverse causality.education, training and the labour market;