Chun-Lei Yang

The Hot Versus Cold Effect in a Simple Bargaining Experiment

In this paper, the strategy methods impact on behavior in sequential bargaining games is investigated. Besides the decision procedure (hot versus cold), we varied the second mover punishment costs (high versus low). Significant impacts of both treatment variables were observed. For example, second movers punished significantly more often in the hot version of the low cost game. Furthermore, first mover behavior was significantly different in the hot and cold versions of both games. In the hot games, first mover behavior suggests an expectation of decreased rewards and/or punishments from second movers. We observed, however, no decrease in reward and an increase in punishment. The hot cold variable only informs first movers that the decision procedure used by second movers has changed. Therefore, first mover behavior must be shaped by their perceived assessment concerning how second movers make decisions. We argue that first mover behavior can be explained by the interaction of two well-known psychological effects: the consensus and positive self-image effects.

Trust and Trustworthiness Reputations in an Investment Game

Trust is an essential component of good social outcomes and effective economic performance. Reputation on the trustees past behavior in the same role has proven to be greatly effective at raising the level of trust. In this study, we show that providing information on the trustees past behavior as the trustor is equally effective as a reputation system. In fact, people still find it worthwhile to invest in a reputation as a trusting person, even though the immediate payoff for trusting is poor. This confirms the role of indirect reciprocity as a strategic notion based on reputation, whereby pro-social actions by one person towards a second person are sanctioned by a third party.

An experiment on sequential rent-seeking

In an experiment on sequential rent seeking, we find that the theoretically predicted first-mover advantage does not exist empirically. Rather, a second-mover advantage can be observed. Though the subgame perfect equilibrium can not prevail in experiment, individual behavior is highly reasonable nevertheless, such that subjects appear to play a reduced form of the original game. We also observe that the efficient fair outcome can not be achieved because of the exploitation opportunity for the second mover. The observed behavior is quite different from that in ultimatum and trust game experiments. Keyword(s): Rent-seeking, Experiment, Reciprocity, Fairness, Exploitation

Endogenous Group Formation and Public Goods Provision: Exclusion, Exit, Mergers, and Redemption

We test a mechanism whereby groups are formed endogenously, through the use of voting. Once formed, groups play a public-goods game, where there are economies of scale: in two treatments the social value of an incremental contribution to the group account increases with the size of the group, but in the second treatment, the social value is capped once a certain group size is reached. Societies of nine people are initially formed randomly into three groups of three people who play the game for three periods. Individuals then learn about the average contribution of each individual (by ID number) in one’s current own group, as well as the average contribution in other groups, and can decide whether to exit the group. Remaining group members choose whether to exclude any current members from the group; the new groups and ‘free agents’ then choose whether to merge with other existing groups and/or other free agents. We find a great degree of success for this mechanism. The average contribution rate is quite high in both treatments, but is modestly (albeit significantly) higher in the first treatment, when there is no cap on the social value of a contribution. In the first treatment, we see large and stable groups forming, but we see considerably more instability and smaller group sizes in the second treatment. The driving force appears to be the economies of scale combined with the awareness that bad behavior will result in ostracism, but in the Athenian sense of possible redemption. This redemption is a unique feature of our environment, with about one-third of the population becoming good citizens after initially being low contributors.

Efficient Rent-Seeking in Experiment

In a series of experiments we show that people learn to playthe efficient outcome in an open-ended rent-seeking game. Thisresult persists despite quite different experimentenvironments and designs, like different propensities ofcompetition, group sizes etc., and is interpretable as aresolution of the so-called Tullock paradox which states thatreal-world rent-seeking expenditures are much lower than whatthe standard rent-seeking model predicts.

Sophistication and the persistence of cooperation

Abstract Sophistication is costly. In an evolutionary framework using replicator dynamics, this fact is instrumental in explaining the persistence of cooperation in joint venture situations with prisoners dilemma characteristics, without relying on any reciprocity argument. Moreover, the asymptotically stable equilibrium is symbiotic with co-existence of cooperation, defection and cautious cooperation, very much like what we observe in reality.

Gender differences in the dictator experiment: evidence from the matrilineal Mosuo and the patriarchal Yi

In this study, we report experimental results on the dictator decision collected in two neighboring ethnic minority groups, the matrilineal Mosuo and the patriarchal Yi, in southwestern China. We follow the double-blind protocol as in Eckel and Grossman (in Handbook of experimental economics results, 1998), who find that women in the U.S. donate more than men. We find this pattern reversed in the Mosuo society and find no gender difference in the Yi society. This is highly suggestive that societal factors play an important role in shaping the gender differences in pro-social behavior such as dictator giving.

A simple extension of the Dasgupta-Maskin existence theorem for discontinuous games with an application to the theory of rent-seeking

Abstract I state that upper-semi-continuity of the sum of payoffs is not necessary for the classical existence result in symmetric games by Dasgupta and Maskin. This is then applied to the theory of rent-seeking to show that there always exists some Nash equilibrium in mixed strategies in the simultaneous-move game by Tullock in which no `overdissipation can occur.

Cooperation by Credible Threats: On the Social Costs of Transfer Contests Under Uncertainty

A transfer-seeking contest for the well-known Dollar-Auction as a limit case is modeled in an infinite horizon noncooperative setting. Some kind of mild but credible threat to retaliate is shown to constitute a Markov-stationary subgame perfect equilibrium. Introducing an entry barrier to, and uncertainty about, the transfer issue at stake, this contest is shown to perform efficiently in the sense that both contenders bid δ,the entry fee, in equilibrium. This is in stark contrast to the common scenario of fully-dissipating rent-seeking frequently presented in economic theories of politics, and can be interpreted as a resolution of the well-known Tullock paradox. (JEL: D 72, C 73, D 74, L 51)

AN ALTERNATIVE APPROACH TO EXPLAINING BARGAINING BEHAVIOUR IN SIMPLE SEQUENTIAL GAMES

For simple sequential games, the payoff structure has certain bargaining power implication. Intuitively, certain actions may have the effect of the carrot and the stick as sanctioning means. Fair outcomes can be alternatively viewed as the consequence of their presence. Experimental data on various games are used to test the hypothesis of carrot and stick behaviour. We show that our stick and carrot heuristic neatly captures puzzling phenomena in a wide class of simple sequential games. The results support the view that punishing subjects are not worse off than myopic pay-off maximizers as long as subjects are involved in a repeated strangers scheme. Copyright 2006 Blackwell Publishing Ltd