J.J.M. Potters

Evaluation Periods and Asset Prices in a Market Experiment

We test whether the frequency of feedback information about the performance of an investment portfolio and the flexibility with which the investor can change the portfolio influence her risk attitude in markets. In line with the prediction of myopic loss aversion (Benartzi and Thaler (1995)), we find that more information and more flexibility result in less risk taking. Market prices of risky assets are significantly higher if feedback frequency and decision flexibility are reduced. This result supports the findings from individual decision making, and shows that market interactions do not eliminate such behavior or its consequences for prices.

Professionals and students in a lobbying experiment: Professional rules of conduct and subject surrogacy

Lobbying is studied in a series of signaling game experiments. Students as well as professional lobbyists are used as subjects. In contrast with some earlier studies, comparing students and professionals, we find significant differences in the behavior of the two subject pools. Professional subjects appear to behave more in line with the game--theoretic predictions, display a higher degree of separation, and earn more money. We show that professional rules of conduct and professionalization can explain these differences. Although our results suggest that subject surrogacy is a relevant issue in this field of research, arguments are provided why experimentation with student subjects remains useful to study lobbying. Keyword(s): Lobbying; Experimental game theory; Professional rules of conduct; Subject surrogacy

Cooperation in Experimental Games of Strategic Complements and Substitutes

We conduct a laboratory experiment aimed at examining whether strategic substitutability and strategic complementarity have an impact on the tendency to cooperate in finitely repeated two-player games with a Pareto-inefficient Nash equilibrium. We find that there is significantly more cooperation when actions exhibit strategic complementarities than in the case of strategic substitutes. The difference is to some extent driven by a difference in the speed with which some pairs reach stable full cooperation, but mainly by differences in choices of pairs that do not succeed in reaching full cooperation. Copyright , Wiley-Blackwell.

After You - Endogenous Sequencing in Voluntary Contribution Games

We examine contributions to a public good when some donors do not know the true value of the good.If donors in such an environment determine the sequence of moves, two contribution orders may arise as equilibria.Either the uninformed and informed donors contribute simultaneously or the informed contribute prior to the uninformed.Sequential moves result in a larger provision of the public good, because the follower mimics the action of the leader, and in accounting for this response the leader chooses to contribute when it is efficient to do so.An experimental investigation of the game shows that the donors predominantly choose to contribute sequentially, and that the resulting contributions are larger than those of the simultaneous-move game.Although the gain from sequential moves is smaller when the sequence is set exogenously, our results suggest that the involved parties would benefit from having sequential moves imposed upon them.

Collusion under Yardstick Competition: An Experimental Study

The effectiveness of relative performance evaluation schemes, such as yardstick competition, can be undermined by collusion. The degree to which the regulated agents manage to collude will be affected by the particulars of the scheme. We hypothesize that in a repeated game setting schemes will be more prone to collusion the smaller are the rents to the agents in case they behave non-cooperatively. We illustrate the relevance of this hypothesis by means of an economic experiment in which we compare the efficiency of two performance evaluation schemes.

Models of interest groups, four different approaches

Many students of political economy have stressed the importance of interest groups for the formation of public policy. Empirical studies seem to confirm this alleged importance. These studies, however, typically focus on the relationship between the presence and characteristics of groups, on the one hand, and the policies that result on the other hand, leaving out the behavior and interaction in between;1 in this respect they resemble the structure-performance approach in industrial organisation. Neglected are the determinants of the level and kind of activities of groups and the explanation of the influence of these activities on public policy.

Promises as Commitments

Abstract: We implement a trust game in which the trustee can write a free-form pre-play message for the trustor. The main twist in our design is that there is a 50% probability that the message is delivered to the trustor and a 50% probability that the message is replaced by an empty sheet. We find that even when messages are not delivered trustees who make a promise are significantly more likely to act trustworthy than those who do not make a promise. This suggests that a promise has a commitment value which is independent of its impact on the trustor. Interestingly, we also find that both trustees who make a promise and those who do not make a promise are more likely to be trustworthy if their message is delivered to the trustor. This means that communication increases trustworthiness irrespective of the content of messages.

Are Family Transfers Crowded Out by Public Transfers

We give an account of an overlapping-generations experiment with multiple families in which voluntary transfers can take the form of support to the elderly or grants to children. Support to the old is a purely intergenerational (intra-family) transfer, whereas grants to children also involve an element of intra-generational (inter-family) redistribution through a compulsory pension system. Our data show that higher compulsory inter-family transfers lead subjects to place relatively more emphasis on support instead of grants: grants are crowded out, but support is not significantly affected. The efficiency of voluntary transfers increases, however. Furthermore, if subjects give transfers, they do not use tokens of direct reciprocity; evidence of indirect reciprocity in transfer behavior can only be obtained for the case where compulsory transfers are high.

Does Auctioning of Entry Licenses Affect Consumer Prices?: An Experimental Study

On an increasing scale auctions are used to allocate the licenses tooperate on markets which are thought notsuited for free entry. According to standard economic arguments, thelicense fees paid at the auction will notaffect consumer prices since they constitute a sunk cost. Thisstandard view is not uncontested though. In thepresent paper we experimentally investigate two arguments for apotential upward effect of auctioning onprices: the incorporation of entry fees in prices due to the use ofmark-up pricing rules, and the tendency ofauctions to select the more collusive firms. Our results indicatethat auctioning increases the probability of highprices, and that this is mainly due to the use of mark-up pricingrules.

Lying about what you know or about what you do

We compare communication about private information to communication about actions in a one-shot 2-person public good game with private information. The informed player, who knows the exact return from contributing and whose contribution is unobserved, can send a message about the return or her contribution. Theoretically, messages can elicit the uninformed players contribution, and allow the informed player to free-ride. The exact language used is not expected to matter. Experimentally, however, we find that free-riding depends on the language: the informed player free-rides less, and thereby lies less frequently, when she talks about her contribution than when she talks about the return. Further experimental evidence indicates that it is the promise component in messages about the contribution that leads to less free-riding and less lying.