From Models to Experiments

In this paper we discuss James Buchanan’s contribution in the narrow domain of understanding committee voting under majority rule. We then go on to discuss Charles Plott’s seminal experimental work on the topic that sparked a wave of public choice experimental work. However, given Plott’s claims that Buchanan influenced him significantly, it is puzzling that his work with Morris Fiorina explores a question outside of those which Buchanan and Tullock found interesting. We suggest several ways to resolve this tension. Our chapter concludes by discussing a lacuna in the experimental public choice literature in which Buchanan was particularly interested—logrolling, or vote trading

Why Trust Out-groups? The Role of Punishment Under Uncertainty

We conducted a hidden-effort trust game, in which we assigned subjects to one of two groups. The groups, which were formed through two different group formation processes, included a “social” group that required sharing and exchange among its members, and a “non-social” group that did not. Once assigned, subjects participated in the game with members from both groups, either with or without the opportunity to punish a trustee who may have defected on them. We found that for investors in the non-social group, the opportunity to punish a trustee worked to promote trust, but only when the trustee was a member of the other group. For the social group, the opportunity to punish had no effect on the investors’ trust decisions, regardless of the trustee\u27s group. We provide a theoretical framework to explain this asymmetric effect of punishment on trust. Our results suggest that groups with identities founded in sharing and exchange—a feature of globalized societies—may find it less necessary to engage in costly punishment. As a result, they may enjoy gains in economic efficiency

Time preference and decision rules in a price search experiment

Structural econometric methods that assume agents have rational expectations are often criticized. Yet, little is known about the relative costs and benefits of adopting alternative empirical strategies. This paper compares three procedures for inference about a single structural parameter using data from a laboratory price search experiment. Our novel experimental design induces preferences up to the subjective rate of time preference, leaving unrestricted only this parameter and the decision rule that subjects use in solving the search task. We analyze the experimental data under the assumptions of both rational expectations and heuristic behavior, and we also draw inferences using a simple revealed preference analysis that does not require strong behavioral assumptions. We find that the revealed-preference analysis does not provide much information about the discount rate, while the two specifications with stronger behavioral assumptions provide sharper and statistically identical inferences about the population's discount rate distribution. However, substantial differences in inference appear at the individual level. We compare the individual discount-rate estimates to an external measure of forward looking behavior obtained for each subject using an instrument validated in the psychology literature. The estimates obtained under heuristic behavior are statistically significantly positively correlated with our external measure of time preference, while the estimates obtained under rational expectations and the revealed-preference estimates are not.

Emotion expression in human punishment behavior

Evolutionary theory reveals that punishment is effective in promoting cooperation and maintaining social norms. Although it is accepted that emotions are connected to punishment decisions, there remains substantial debate over why humans use costly punishment. Here we show experimentally that constraints on emotion expression can increase the use of costly punishment. We report data from Ultimatum Games11, where a proposer offers a division of a sum of money and a responder decides whether to accept the split, or reject and leave both players with nothing. Compared to the treatment where expressing emotions directly to proposers is prohibited, rejection of unfair offers is significantly less frequent when responders can convey their feelings to the proposer concurrently with their decisions. These data support the view that costly punishment might itself be used to express negative emotions, and suggest that future studies will benefit by recognizing that human demand for emotion expression can have significant behavioral consequences in social environments including families, courts, companies and markets.ultimatum game, emotion expression, sanctions, cooperation

Conditional cooperation and group dynamics: Experimental evidence from a sequential public goods game

We design a novel sequential public goods experiment to study reciprocity, or conditional cooperation. In contrast to the standard simultaneous contribution game, our sequential design provides direct evidence on how subjects condition their own contributions on the contributions of other subjects in the experiment. We develop a simple but useful behavioral-type classification procedure and use it to analyze the data from this design. Our results inform two fundamental hypotheses: (1) subjects’ types are persistent over an experiment; and (2) the types of subjects included in a group affects a group’s ability to sustain cooperation. These hypotheses are often assumed in the public goods literature, yet neither has been directly supported. We find support for both hypotheses. Moreover, we provide a simple summary statistic that, we show, predicts group cooperative dynamics remarkably well.conditional cooperation, public goods games, behavioral type classification, experiments

Trust Games Measure Trust

The relationship between trust and risk is a topic of enduring interest. Although there are substantial differences between the ideas the terms express, many researchers from different disciplines have pointed out that these two concepts become very closely related in personal exchange contexts. This raises the important practical concern over whether behaviors in the widely-used “trust game†actually measure trust, or instead reveal more about risk attitudes. It is critical to confront this question rigorously, as data from these games are increasingly used to support conclusions from a wide variety of fields including macroeconomic development, social psychology and cultural anthropology. The aim of this paper is to provide cogent evidence on the relationship between trust and risk in “trust†games. Subjects in our experiment participate either in a trust game or in its risk game counterpart. In the trust version, subjects play a standard trust game and know their counterparts are human. In the risk version, subjects know their counterparts are computers making random decisions. We compare decisions between these treatments, and also correlate behavior with subjects’ risk attitudes as measured by the Holt and Laury (2002) risk instrument. We provide evidence that trusting behavior is different than behavior under risk. In particular, (i) decisions patterns in our trust and risk games are significantly different; and (ii) risk attitudes correlate with decisions in the risk game, but not the trust game.trust; risk attitudes; laboratory experiments

Trust Games Measure Trust

The relationship between trust and risk is a topic of enduring interest. Although there are substantial differences between the ideas the terms express, many researchers from different disciplines have pointed out that these two concepts become very closely related in personal exchange contexts. This raises the important practical concern over whether behaviors in the widely-used “trust game” actually measure trust, or instead reveal more about risk attitudes. It is critical to confront this question rigorously, as data from these games are increasingly used to support conclusions from a wide variety of fields including macroeconomic development, social psychology and cultural anthropology. The aim of this paper is to provide cogent evidence on the relationship between trust and risk in “trust” games. Subjects in our experiment participate either in a trust game or in its risk game counterpart. In the trust version, subjects play a standard trust game and know their counterparts are human. In the risk version, subjects know their counterparts are computers making random decisions. We compare decisions between these treatments, and also correlate behavior with subjects’ risk attitudes as measured by the Holt and Laury (2002) risk instrument. We provide evidence that trusting behavior is different than behavior under risk. In particular, (i) decisions patterns in our trust and risk games are significantly different; and (ii) risk attitudes predict decisions in the risk game, but not the trust game.

How Do Behavioral Assumptions Affect Structural Inference? Evidence From A Laboratory Experiment

We use a laboratory experiment to investigate the effect that assuming rational expectations has on structural inference in a dynamic discrete choice decision problem. Our experimental design induces preferences up to each subject’s subjective rates of time preference, leaving unrestricted only this parameter and the decision rule that the subject uses in solving the problem. We analyze the data under the assumption that all subjects use the rational expectations decision rule, and also under weaker behavioral assumptions that allow for heterogeneity in the way people form decisions. We find no evidence that assuming rational expectations distorts inferences about the cross-sectional distribution of discount rates.

Trust Games Measure Trust

The relationship between trust and risk is a topic of enduring interest. Although there are substantial differences between the ideas the terms express, many researchers from different disciplines have pointed out that these two concepts become very closely related in personal exchange contexts. This raises the important practical concern over whether behaviors in the widely-used “trust game” actually measure trust, or instead reveal more about risk attitudes. It is critical to confront this question rigorously, as data from these games are increasingly used to support conclusions from a wide variety of fields including macroeconomic development, social psychology and cultural anthropology. The aim of this paper is to provide cogent evidence on the relationship between trust and risk in “trust” games. Subjects in our experiment participate either in a trust game or in its risk game counterpart. In the trust version, subjects play a standard trust game and know their counterparts are human. In the risk version, subjects know their counterparts are computers making random decisions. We compare decisions between these treatments, and also correlate behavior with subjects’ risk attitudes as measured by the Holt and Laury (2002) risk instrument. We provide evidence that trusting behavior is different than behavior under risk. In particular, (i) decisions patterns in our trust and risk games are significantly different; and (ii) risk attitudes predict decisions in the risk game, but not the trust game.