Manfred Königstein

Equitable choices in bargaining games with joint production

Abstract In an experiment, we investigate two simple bargaining games with advance production: the ultimatum game and a symmetric demand game. After first choosing individual production levels, the two players determine how the“pie” is to be distributed. We determine several equity standards and propose a behavioral model which generates testable predictions. While game theory explains the observed decisions rather poorly, our behavioral model is supported by the data.

Fairness Within Firms: The Case of One Principal and Multiple Agents

Many experimental studies report evidence of fairness in bargaining games. More recently fairness and its consequences for productive efficiency have been explored in principal-agent games, in which a single principal meets a single agent. However, in most organizations, there are usually many agents in one layer of a firm’s hierarchy. Consequently, fairness considerations may be based on a comparison between layers (vertical fairness) as well as within a layer (horizontal fairness). In this paper we report an experiment in which a principal faces two agents with deterministic but unequal productivity. The experimental treatment variable is the information that one agent has about the other agent’s contract offer. When work contracts are observable, the principal offers less asymmetric contracts (pay compression) than when contracts are not observable, i.e., horizontal fairness matters.

Learning to bid – an experimental study of bid function adjustments in auctions and fair division games*

We examine learning behavior in auctions and Fair division games with independent private values under two different price rules, first and second price. Participants face these four games repeatedly and submit complete bid functions rather than single bids. This allows us to examine whether learning is influenced by the structural differences between games. We find that within the time horizon which we investigate, learning does not drive toward risk neutral equilibrium bidding and characterize some features of observed learning: Bid functions are adjusted globally rather than locally, decision time matches the sequencing structure of game types, game rules do matter, and directional learning theory offers a partial explanation for bid adjustments. The evidence supports a cognitive approach to learning.

Bid Functions in Auctions and Fair Division Games: Experimental Evidence

Abstract In auctions a seller offers a commodity for sale and collects the revenue. In fair division games the object is collectively owned by the group of bidders who equally share the revenue. We run an experiment in which the participants face four types of allocation games (auctions and fair division game under two price rules, first- versus second-price rule). We collect entire bid functions rather than bids for single values and investigate price and efficiency of the different trading institutions. We find that the first-price auction is more efficient than the second-price auction, whereas economic rationality assuming heterogeneous bidders suggests the opposite. Furthermore, we study the structure of individual bid functions.

COMBINING RATIONAL CHOICE AND EVOLUTIONARY DYNAMICS: THE INDIRECT EVOLUTIONARY APPROACH

In this study we propose a formal framework for the indirect evolutionary approach initiated by Guth and Yaari. It allows us to endogenize preferences and to study their evolution. We define two-player indirect evolutionary games with observable types and show how to incorporate symmetric as well as asymmetric situations. We show how to apply solution concepts that are well known from game theory and evolutionary game theory to solve these games. For illustration we include two examples.

Measuring Treatment — Effects in Experimental Cross — Sectional Time Series

In the analysis of individual decision data collected in experimental games problems arise due to repeated measurement and strategic interaction of subjects; namely, that the decisions are non-independent. These problems are common to experimental economists. For example, with respect to repeated measurement Roth argues in The Handbook of Experimental Economics that “not only autocorrelation, but also potential learning effects (diminishing variance by periods) raise questions that need to be addressed in analyzing the data. There remains considerable room for improvement in econometric methods and tests to address these issues.”1

Equity Anchoring in Simple Bargaining Games with Production

An interesting development in experimental studies of bargaining is that participants first must produce what they then can distribute via reaching an agreement. Examples for abstract games are, for instance, the studies by Berg, Dickhaut and McCabe (1995), Hackett (1993), Konigstein (1998a)1 as well as Konigstein and Tietz (1998)2; situations where this is part of a principal agent problem are investigated by Fehr, Gachter and Kirchsteiger (1997) as well as Guth, Klose, Konigstein and Schwalbach (1998).

Design a Contract! A Simple Principal-Agent Problem as a Classroom Experiment

We present a simple classroom principal-agent experiment that can effectively be used as a teaching device to introduce important concepts of organizational economics and contracting. In a first part, students take the role of a principal and design a contract that consists of a fixed payment and an incentive component. In the second part, students take the role of agents and decide on an effort level. The experiment can be used to introduce students to the concepts of efficiency, incentive compatibility, outside options and participation constraints, the Coase theorem, and fairness and reciprocity in contracting.

Fairness in a one-principal-two-agents game - a post-experimental questionnaire analysis

Abstract We analyze the data of a questionnaire which students filled out after participating in a principal–agent experiment featuring a single principal and two agents. Each agent’s choice of (costly) effort determines a return that is split between principal and the respective agent according to a payment rule which the parties have agreed upon previously. Guth et al. [Schmalenbach Bus. Rev. 53 (2001) 82] show that the observed distribution of earnings between players is less asymmetric than economic rationality proposes. This can be seen as indirect evidence for fair behavior. The post-experimental questionnaire directly asks what participants consider as fair in that game. The responses reveal that fairness perceptions are based on the group of three players (triad) rather than the dyad between principal and agent. Fairness judgements reflect productive asymmetries between players and, more surprisingly, differences in strategic power. By and large the players agree on the just order of payoffs, despite some egocentric bias. Actual experimental decisions and questionnaire responses are strongly correlated.

Efficiency and Evolution of Social Preferences and Prosocial Behavior

One might view social life as a sequence of competitive markets were a large number of economic agents interact anonymously and were individual decisions have only a negligible influence on each other. This is certainly an extreme description of the world. At the other extreme one might model social life as a sequence of two person games in which both players know each other very well and were each individual’s well-being depends to a large extent on the other player’s decisions. Of course, the truth will be a mixture of both and there are other intermediate forms of interaction, e. g. small group interaction, as well. The analysis here relies on a two-player model. It will be shown that in this case social preferences of the agents can generate economic efficiency and, moreover, that such preferences can be evolutionarily stable. Since social preferences may generate prosocial actions the study is at the same time on the evolution of prosocial behavior.