Fabian Paetzel

Reaching for the Stars: An Experimental Study of the Consumption Value of Social Approval

We present a theoretical model of a linear public good game in which heterogeneous players express social approval after observing contributions. The model explains how social approval is expressed and predicts positive contributions if subjects have a preference for social approval. Using a controlled laboratory experiment we test our model. In the experiment, subjects conduct computerized tasks that require substantial effort resulting in endowments from which contributions can be made to a linear public good. After observing others’ contributions subjects express social approval. Our main hypothesis is that subjects have a preference for social approval so that the expression of social approval will increase contributions, even if reputation building is impossible. We vary the information available to subjects and investigate how this affects the expression of social approval and individual contributions. Our main finding is that the expression of social approval significantly increases contributions. However, the increase in contributions is smaller if additional information is provided, suggesting that social approval is more effective if subjects receive a noisy signal about others’ contributions.

Power illusion in coalitional bargaining: An experimental analysis

In real world bargaining the distribution of seats or voting weights often does not accurately reflect real power. Game-theory predictions are insensitive to nominal differences. We refer to the converse idea that nominal differences matter as power illusion. We experimentally study the Baron-Ferejohn model with variation in nominal power. We find strong evidence for the existence of power illusion. Thus, attention needs to be paid to nominal power in the design of weighted voting systems.

Redistribution Spurs Growth by Using a Portfolio Effect on Risky Human Capital

We demonstrate by mathematical analysis and systematic computer simulations that redistribution can lead to sustainable growth in a society. In accordance with economic models of risky human capital, we assume that dynamics of human capital is modeled as a multiplicative stochastic process which, in the long run, leads to the destruction of individual human capital. When agents are linked by fully redistributive taxation the situation might turn to individual growth in the long run. We consider that a government collects a proportion of income and reduces it by a fraction as costs for administration (efficiency losses). The remaining public good is equally redistributed to all agents. Sustainable growth is induced by redistribution despite the losses from the random growth process and despite administrative costs. Growth results from a portfolio effect. The findings are verified for three different tax schemes: proportional tax, taking proportionally more from the rich, and proportionally more from the poor. We discuss which of these tax schemes performs better with respect to maximize growth under a fixed rate of administrative costs, and the governmental income. This leads us to general conclusions about governmental decisions, the relation to public good games with free riding, and the function of taxation in a risk-taking society.

The Importance of Knowing Your Own Reputation

We experimentally investigate a ?nitely repeated public good game with varying partners. Within each period, participants are pairwise matched and contribute simultaneously. Participants are informed about contributions and each participant evaluates her partner’s contribution. At the beginning of the next period, participants are re-matched and, except for the two control treatments, receive information resulting from the previous period’s evaluations. There are three information treatments: Participants receive information either about their own evaluation or about their partner’s evaluation or both. Although participants condition their contributions on their partners’ evaluations, this information alone is insuf?cient to raise contributions. Only if participants also know their own evaluation, we do ?nd a signi?cant increase in contributions relative to the control treatments.

Entitlements and Loyalty in Groups: An Experimental Study

We study the role of performance differences in a task requiring cognitive effort on in-group bias. We show that the in-group bias is strong in groups consisting of high-performing members, and it is weak in low-performing groups. This holds although high-performing subjects exhibit no in-group bias as members of minimal groups, whereas low-performing subjects strongly do. We also observe instances of low-performing subjects punishing the in-group favoritism of low-performing peers. The same does not occur in high-performing or minimal groups where subjects generally accept that decisions are in-group biased.

Less Sensitive Reputation Spurs Cooperation: An Experiment on Noisy Reputation Systems

Using a repeated public good game with stranger matching, we compare how two different reputation systems with endogenous evaluations affect rates of cooperation. Contributions are public information and each participant evaluates her partner’s contribution. At the beginning of each period, participants receive information about the partner’s evaluation in previous periods. There are two information treatments: Each participant receives information either about her own and her partner’s most recent evaluation, or about her own and her partner’s average evaluation. Results show that with average evaluations reputation is less sensitive, incentives for reputation building are stronger and contributions are higher.

Skewness-Adjusted Social Preferences as a Transmission Channel between Inequality and Growth: Experimental Evidence on Elite-Behavior

In this paper, we introduce a skewness-adjusted social-preferences functional, which models social preferences as a function of the skewness of the human capital distribution. We hypothesize that the “elite” of the society becomes more selfish with increasing skewness of the human-capital distribution. Hence, the members of the “elite” reduce their human-capital investments, thereby disregarding positive spillover effects. As a consequence, macroeconomic growth diminishes. The results of an experimental test clearly confirm that the model is able to correctly explain and predict the observed pattern of behavior.