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Experimental Economics: Financial Markets, Auctions, and Decision Making: Interviews and Contributions from the 20th Arne Ryde Symposium PDF

248 Pages·2002·9.77 MB·English
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EXPERIMENTAL ECONOMICS: FINANCIAL MARKETS, AUCTIONS, AND DECISION MAKING EXPERIMENTAL ECONOMICS: FINANCIAL MARKETS, AUCTIONS, ANO OECISION MAKING Interviews and Contributions from the 20th Arne Ryde Symposium Edited by FREDRlK ANDERSSON Lund University, Sweden and o HAKANHOLM Lund University, Sweden ~. " Springer Science+Business Media, LLC ISBN 978-1-4613-5303-4 ISBN 978-1-4615-0917-2 (eBook) DOI 10.1007/978-1-4615-0917-2 Library of Congress Cataloging-in-Publication Data A C.I.P. Catalogue record for this book is available from the Library of Congress. Copyright ~ 2002 by Springer Science+Business Media New York Originally published by Kluwer Academic Publishers in 2002 Softcover reprint of the hardcover 1s t edition 2002 Ali rights reserved. No part of this work may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, microfilming, recording, or otherwise, without written permission from the Publisher, with the exception of any material supplied specificaJly for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Permissions for books published in Europe: [email protected] Permissions for books published in the United States of America: [email protected] Printed on acid-free pap er. Aboutthe Arne Ryde Foundation Arne Ryde wasanexceptionallypromisingstudent inthePh.D.programatthe DepartmentofEconomicsatLund University. He wastragicallykilled inacar accident in 1968. The Arne Ryde foundation was established by his parents, pharmacistArne Ryde and hiswifeValborgincommemoration ofArne Ryde. According to the deed of the foundation from 1971 the aim of the foundation is: to foster and promote advanced economic research in cooperation with the DepartmentofEconomics atLund University. The foundation acts by lending support to conferences, symposia, lecture series and publications which are initiated by faculty members of the department. Anders Borglin Chairman Contents Part I Interviewswith Invited Speakers 1 PeterBohm 3 2 CatherineC.Eckel 9 3 Werner Güth 19 4 John Hey 29 5 DanieiKahneman 41 6 Alvin Roth 49 7 Vernon Smith 67 8 MartinWeber 75 Part11 Contributions 9 Attitudestowards Risk andInequality 85 YoramAmiel, FrankCowell,with theassistance0/KasparRichter 1 Introduction 85 2 Theoretical Background 86 2.1 Inequalityand Risk 86 2.2 The MeaningofInequalityand of Risk 88 2.3 An Axiomatic Approach 89 3 TheExperiment 91 3.1 Issues 91 3.2 Implementation 92 Vlll EXPERIMENTALECONOMICS 4 Data 93 5 Numerical responses and thePrincipleofTransfers 94 5.1 Descriptiveresults 94 5.2 RegressionAnalysis 96 6 NumericalResponses: variation byTypeofIncomeTransfer 97 6.1 DescriptiveAnalysis 97 6.2 Regression Analysis 98 6.3 Aprovisional evaluation 99 7 The VerbalQuestion 102 7.1 The structureofthequestion 102 7.2 Verbalquestion: descriptive results 102 7.3 Regression analysis 104 8 Conclusions 105 Appendix 107 I Variabledefinitions 107 2 The Questionnaires 107 10 Pitfalls inExperimentalEconomies 117 PeterBohm I Introduction 117 2 MonetaryIncentiveLevels 118 3 Subjects 119 4 TestingTheory inContext orNon-ContextEnvironments 121 5 StationaryRepetitions 124 6 ConcludingRemarks 125 11 The Effect ofTradingPeriodDuration 127 Darren Duxbury 1 Introduction 127 2 Relevant LiteratureandResearch Hypotheses 128 3 Experimental Design 131 3.1 OverviewofExperimentalProcedures andDesign 131 3.2 Experimental Markets 132 3.3 ParticipantsandMotivation 132 3.4 Specific Market Designs 135 4 Analysisand Results 136 4.1 Data Considerations 136 4.2 ExperimentalMarkets Group One (PN Markets) 137 VolumeofTrade 144 Informational Efficiency 144 AllocationalEfficiency 145 4.3 ExperimentalMarkets Group Two(INMarkets) 145 VolumeofTrade 148 InformationalEfficiency 152 Allocational Efficiency 153 4.4 Experimental Markets Groups Three andFour 153 5 DiscussionandConclusions 153 Contents ix 12 RobustLearningExperiments 159 WemerGüth 1 Introduction 159 2 Auctionsand Fair Division Games 161 3 Reputationformation 166 4 Endogenous timing in bilateral negotiations 171 5 Alternatingoffer bargaining 174 6 Discussion 179 13 The ImpactofFairness on DecisionMaking 185 Heike Hennig-Schmidt 1 Introduction 185 2 RelevantLiterature 187 3 Method 189 4 Experimentaldesign 191 4.1 The UltimatumGame 191 4.2 The TripledTakeGame 191 4.3 An AlternatingOffer BargainingGame 192 4.4 Procedure 192 5 Results 193 5.1 Fairness issynonymoustoequity 196 5.2 The influence of fairness ondecisionmaking 202 6 Conclusion 204 14 The SequentialPrisoners' Dilemma 211 Carles Sold 1 Introduction 211 2 Previous Experiments 212 3 Models and Predictions 214 3.1 InequalityAversion 215 3.2 Altruism 217 4 ExperimentalDesign 218 5 Results 219 6 Conclusions 221 Appendix 222 15 CollusioninAuctions 227 Jana Vyrastekova and Maria Montero 1 Introduction 227 2 TheGame 230 2.1 Nash Equilibriaofthe Stage Game 231 2.2 CollusionintheRepeatedGame 231 Simplecollusion 232 Efficient collusion 232 3 The Experimental Design 232 x EXPERIMENTALECONOMICS 3.1 Hypotheses 233 4 Results 234 4.1 AverageEarnings 234 4.2 Bidding Behavior 236 4.3 Bidding Proposals 237 Round 1data 237 Overalldata 238 4.4 ValueMessages 241 4.5 Sidepayments 242 5 Conclusion 243 Appendix: Collusion inEquilibrium 244 Incentivestotellthetruth 244 Incentivestobidlow 244 Incentivestogivesidepayments 245 Foreword In the spring of 1998theeditors ofthis volume realized that although afew Swedish researchers had conducted experiments and presented their results in journals and on international conferences, Sweden had not hosted any major conference with focus on Experimental Economics. Furthermore, knowledge ofthe recent interesting developments inthis area werenot widespread among economists in general. Inspired by this we decided to plan an Arne Ryde symposiumonExperimentalEconomics withthepurpose tofurther theknowl edge of experimental methods and results to the larger scientific community of economists in Scandinavia and to provide an additional opportunity for re searchers in the field to meet and exchange ideas. The chairman of the Arne Ryde foundation at the time, Professor Björn Thalberg, was enthusiastic, and promised financial support. Inthe same summer invitations were sentout. The 20th ArneRyde Symposium onExperimentalEconomics washeldNo vember 9-11,2000 atthe School ofEconomics andManagementatLund Uni versity. Invited lectures were given by PeterBohm, Catherine Eckel, Werner Güth, lohn Hey, Daniel Kahneman, Alvin Roth, Vernon Smith, and Martin Weber. To document the symposium each invited lecturer was interviewed. Part I of this volume - Chapters 1 through 8 - consists of these interviews. Most of thequestions posed totheinterviewees are similar andconcern issues that we hope to be of interest to researchers of the field but also to a general audience ofeconomists. Although, itmight be interesting tocompare answers of different prominent researchers we havedecided, for the sake of complete ness and authenticity, to present interviews author by author and not question byquestion. Thisalso makesiteasier forthereader tofollowtheinterviewees' thoughts through the interview. Part11ofthisvolumeconsistsofpapersofthat werepresented atthesympo sium. The papers by Peter Bohm and Werner Güth are related to their invited lectures. Participantsthat wereaccepted aspaper presenters atthe symposium were invited to submit their papers for publication in this volume; follow ing submission there was a peer review process. A subset of the presenters submitted theirpapers and asubset ofthese were finally accepted. xii EXPERIMENTALECONOMICS Anundertakinglikethe20th Ame RydeSymposiumcannottake placewith out support and help from numerous persons. In many cases this help goes far beyond what normally can be expected. We are very grateful to the Ame Foundationforthefinancialsupport. Inparticularwewouldliketothank Bjöm Thalberg and his successor as chairman for the foundation, Anders Borglin, for their general support and their understanding that not all expenses can be foreseen. Intheplanningandcompletion ofthesymposiumthehelpfromAnn Charlotte Sahlin and Mona Hansson was invaluable. We have also received substantial help in finishing this volume. The task of making transcriptions of the taped interviews (in Part I) was solved with accuracy and sensitivityby Anna Holmqvist. Wearealso grateful toanumberofanonymous referees that made asubstantial effort inevaluating the contributions inPart 11. Lund, January 21, 2002 FredrikAndersson and Häkan Holm

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Experimental Economics: Financial Markets, Auctions, And Decision Making is based on research presented at the 20th Arne Ryde Symposium on Experimental Economics, held on November 9-11 at Lund University. The volume is divided into two parts.In Part I, interviews with prominent researchers in the fi
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