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Summer Workshop: Experimental Economics Center for Experimental Business Research (cEBR)

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1 Summer Workshop: Experimental Economics Center for Experimental Business Research (cEBR)

2 Experimental Economics What is Experimental Economics? What is Experimental Economics? How is it related to other disciplines in Economics (Microeconomics, Macroeconomics, ….)? How is it related to other disciplines in Economics (Microeconomics, Macroeconomics, ….)? And many more …… And many more ……

3 Question 1 Bag ABag B 50 red balls? red balls 50 black balls? black balls100 total balls What is the expected payoff if you choose Bag A? $100 X (50/100) + $0 X (50/100) = $50 What is the expected payoff if you choose Bag B? $100 X 1/2 + $0 X 1/2 = $50

4 Question 1 Fox & Tversky, Ambiguity Aversion and Comparative Ignorance, The Quarterly Journal of Economics, Vol. 110, No. 3 (Aug 1995), 585-603. Ellsberg ’ s Paradox Ambiguity Aversion with monetary reward (prize = $20) Clear betVague bet Comparative$9.74$8.53 (0.49) N = 52(0.580) N = 52 Noncomparative $7.58 $8.04 (0.62) N = 26(0.43) N = 26

5 Question 2 Alternative A Alternative B 10000-80010000-800 10.80.200.90.0.1 20100.10.80.1 300.20.80.100.9

6 Question 2 Chew, Mao and Nishimura, Preference for longshot: An Experimental Study of Demand for Sweepstakes, working paper Chew, Mao and Nishimura, Preference for longshot: An Experimental Study of Demand for Sweepstakes, working paper The choice between Alternative A & B is due to people ’ s risk preferences The choice between Alternative A & B is due to people ’ s risk preferences Risk Neutral Risk Neutral Risk Aversion Risk Aversion Risk Loving Risk Loving However, the choices across three lotteries should be consistent under the expected utility assumptions. However, the choices across three lotteries should be consistent under the expected utility assumptions. Allais Paradox Allais Paradox

7 Question 2 Alternative A Alternative B 10000-80010000-800 10.80.200.90.0.1 20100.10.80.1 300.20.80.100.9 -0.8+0.8-0.8 +0.8

8 Question 2 Choice Patterns EUAllaisCounter Allais Other A1A2A3B1B2B3A1B2B3A1A2B3B1A2A3B1B2A3B1A2B3A1B2A3 n 9109211687291826 %2%23%44%14%1%6%4%5% 25%58%8%9%

9 Question 3 Dictator ’ s Game Dictator ’ s Game A Double-Blind Design A Double-Blind Design Why 10? Why 10? Why not 10? Why not 10? Please circle your decision. $0$1$2$3$4$5$6$7$8$9$10

10 Question 3 ReferenceCondition Amount ($) Mean Offer Frey & Bohnet (1997) One-way ID 130.35 One-way ID + info 130.52 Cason & Mui (1998) Round 1 400.23 Round 2 400.31 Forsythe, Horowitz, Savin & Sefton (1994) With Pay 100.24 Without Pay 50.38 With Pay 50.23 Colin Camerer, Behavior Game Theory: Experimental in Strategic Interaction, 2003.

11 Question 4 Ultimatum Game Ultimatum Game A Double-Blind Design A Double-Blind Design First Participant: Why not 10? First Participant: Why not 10? Second Participant: Why not 1? Second Participant: Why not 1? Please circle your decision. $0$1$2$3$4$5$6$7$8$9$10

12 Question 4 Colin Camerer, Behavior Game Theory: Experimental in Strategic Interaction, 2003. ReferenceCondition Amount ($) Mean Offer Rejection Rate Bolton & Zwick (1995)Cardinal40.240.38 Double Blind 40.220.30 Cameron (1999) Indonesian Rupiah 5K0.420.17 40K0.450.09 200K0.420.12 Eckel & Grossman (2001) Women50.410.10 Men50.390.14 Guth, Schmittberger & Schwarze (1982) Na ï ve 4-100.370.10 Experienced4-100.330.25

13 Question 5 Second participant CD First participant A(800,800)(0,1000) B(1000,0)(350,350) Prisoner ’ s Dilemma

14 Question 5 Second participant CD First participant A(800,800)(0,1000) B(1000,0)(350,350) Therefore First Participant:B Second Participant:D

15 Question 5 Second participant CD First participant A(800,800)(0,1000) B(1000,0)(350,350) However, in most of the past experiments First Participant:A Second Participant:C About half of the time. (Too much cooperation???)

16 Experimental Economics Revisit: Revisit: What is Experimental Economics? What is Experimental Economics? How is it related to other disciplines in Economics (Microeconomics, Macroeconomics, ….)? How is it related to other disciplines in Economics (Microeconomics, Macroeconomics, ….)? And many more …… And many more ……

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