Brit Grosskopf

Relative payoffs and happiness: an experimental study

Some current utility models presume that people are concerned with their relative standing in a reference group. If this is true, do certain types care more about this than others? Using simple binary decisions and self-reported happiness, we investigate both the prevalence of “difference aversion” and whether happiness levels influence the taste for social comparisons. Our decision tasks distinguish between a person’s desire to achieving the social optimum, equality or advantageous relative standing. Most people appear to disregard relative payoffs, instead typically making choices resulting in higher social payoffs. While we do not find a strong general correlation between happiness and concern for relative payoffs, we do observe that a willingness to lower another person’s payoff below one’s own (competitive preferences) seems correlated with unhappiness.

Reinforcement and Directional Learning in the Ultimatum Game with Responder Competition

Demands in the Ultimatum Game in its traditional form with one proposer and one responder are compared with demands in an Ultimatum Game with responder competition. In this modified form one proposer faces three responders who can accept or reject the split of the pie. Initial demands in both ultimatum games are quite similar, however in the course of the experiment, demands in the ultimatum game with responder competition are significantly higher than in the traditional case with repeated random matching. Individual round-to-round changes of choices that are consistent with directional learning are the driving forces behind the differences between the two learning curves and cannot be tracked by an adjustment process in response to accumulated reinforcements. The importance of combining reinforcement and directional learning is addressed. Moreover, learning transfer between the two ultimatum games is analyzed.

The two-person beauty contest

We introduce a two-person beauty contest game with a unique Nash equilibrium that is identical to the game with many players. However, iterative reasoning is unnecessary in the two-person game as choosing zero is a weakly dominant strategy. Despite this “easier” solution concept, we find that a large majority of players do not choose zero. This is the case even with a sophisticated subject pool.

Foregone with the Wind: Indirect Payoff Information and its Implications for Choice

Examination of the effect of information concerning foregone payoffs on choice behavior reveals a complex pattern. Depending on the environment, this information can facilitate or impair maximization. Our study of nine experimental tasks suggests that the complex pattern can be summarized with the assumption that initially people tend to be highly sensitive, and sometimes too sensitive, to recent foregone payoffs. However, over time, people can learn to adjust their sensitivity depending on the environment they are facing. The implications of this observation to models of human adaptation and to problems of mechanism design are discussed.

Is Reputation Good or Bad? An Experiment

We investigate the impact of reputation in a laboratory experiment. We do so by varying whether the past choices of a long-run player are observable by the short-run players. Our framework allows for reputation to have either a beneficial or a harmful effect on the long-run player. We find that reputation is seldom harmful and its beneficial effects are not as strong as theory suggests. When reputational concerns are at odds with other-regarding preferences, we find th latter overwhelm the former. (JEL C91, D12, D82, D83, Z13)

If you are offered the Right of First Refusal, should you accept? An investigation of contract design

Rights of first refusal are contract clauses intended to provide the holder of a license or lease with some protection when the contract ends. The simplest version gives the right holder the ability to act after potential competitors. However, another common implementation requires the right holder to accept or reject some offers before potential competitors are given the same offer, and, if the right holder rejects the initial offer, allows the right to be exercised affirmatively only if competitors are subsequently offered a better deal (e.g. a lower price). We explore, theoretically and experimentally, the impact this latter form of right of first refusal can have on the outcome of negotiation. Counterintuitively, this “right†of first refusal can be disadvantageous to its holder. This suggests that applied contract design may benefit from the same kind of attention to detail that has begun to be given to practical market design.

Rational Reasoning or Adaptive Behavior? Evidence from Two-Person Beauty Contest Games

Many experiments have shown that human subjects do not necessarily behave in line with game theoretic assumptions and solution concepts. The reasons for this non-conformity are multiple. In this paper we study the argument whether a deviation from game theory is because subjects are rational, but doubt that others are rational as well, compared to the argument that subjects, in general, are boundedly rational themselves. To distinguish these two hypotheses, we study behavior in repeated 2-person and many-person Beauty- Contest-Games which are strategically different from one another. We analyze four different treatments and observe that convergence toward equilibrium is driven by learning through the information about the other player’s choice and adaptation rather than self-initiated rational reasoning.

HOW MANIPULABLE ARE FAIRNESS PERCEPTIONS? THE EFFECT OF ADDITIONAL ALTERNATIVES

In customer or labor markets raising prices or cutting wages is perceived as unfair if it results from the exploitation of shifts in demands. In a series of manipulations we show that adding an alternative to the original choice set alters the perception of fairness of the final outcome. Adding a worse alternative lowers the perception of unfairness, whereas adding a better alternative raises the perception of unfairness. These findings supplemented with existing experimental evidence cast doubt on purely outcome-based theories of fairness and suggest that fairness perceptions are highly manipulable.

Cheap Talk, Information, and Coordination - Experimental Evidence

Costless and non-binding pre-play communication (cheap talk) has been found to often be effective in achieving efficient outcomes in experimental games. However, in previous two-player experimental games each player was informed about both his payoff and the action of the other player in the pair. In the field, people may engage in cheap talk and subsequently learn their payoffs, but frequently only learn their own payoffs and not the actions of other people. We model this uncertainty in the framework of a 2x2 coordination game, in which one choice leads to the same payoff regardless of the action of the other player. We vary whether messages about intended play are permitted, and whether participants are informed about the other persons play. Cheap talk is found to be effective, as there is much more coordination in both Signal treatments than in either of the No Signal treatments. We also find that information about the other person’s play appears to increase coordination when messages are permitted. However, in the No Signal treatments, the round-to-round changes in choices induced by this additional information are unable to overcome the apparent pessimism about the feasibility of coordination without a signal.

An experiment on first-price common-value auctions with asymmetric information structures: The blessed winner

In common-value auctions bidders have access to public information, and may also hold private information prior to choosing their bids. The literature has predominately focused on the case in which bidders are ex-ante symmetric and privately informed, and finds that aggressive bidding such that payoffs are negative is common (the winners curse). In practice, bidders often only have access to public information, and use this information to form (possibly differing) beliefs. In addition, a bidder who is not privately informed may face bidders who are. We examine bidding behavior of both informed and uninformed bidders, and vary the information structure they face. We find that uninformed bidders underbid dramatically and persistently, while informed bidders tend to overbid in the two-bidder case. Our results highlight the importance of correctly modeling the information available to bidders.