Matthias Wibral

The medial prefrontal cortex exhibits money illusion

Behavioral economists have proposed that money illusion, which is a deviation from rationality in which individuals engage in nominal evaluation, can explain a wide range of important economic and social phenomena. This proposition stands in sharp contrast to the standard economic assumption of rationality that requires individuals to judge the value of money only on the basis of the bundle of goods that it can buy—its real value—and not on the basis of the actual amount of currency—its nominal value. We used fMRI to investigate whether the brains reward circuitry exhibits money illusion. Subjects received prizes in 2 different experimental conditions that were identical in real economic terms, but differed in nominal terms. Thus, in the absence of money illusion there should be no differences in activation in reward-related brain areas. In contrast, we found that areas of the ventromedial prefrontal cortex (vmPFC), which have been previously associated with the processing of anticipatory and experienced rewards, and the valuation of goods, exhibited money illusion. We also found that the amount of money illusion exhibited by the vmPFC was correlated with the amount of money illusion exhibited in the evaluation of economic transactions.

Promotions and Incentives: The Case of Multi-Stage Elimination Tournaments

Promotions play an important role for the provision of incentives in firms. We analyze incentives in multistage elimination tournaments with controlled laboratory experiments. In our two main treatments, we compare a two-stage tournament to a one-stage tournament. Subjects in the two-stage treatment provide excess effort in the first stage, both with respect to Nash predictions and compared to the strategically equivalent one-stage tournament. Additional control treatments confirm that excess effort in early stages is a robust finding and suggest that above-equilibrium effort might be driven by limited degrees of forward-looking behavior and subjects deriving nonmonetary value from competing.

Testosterone Administration Reduces Lying in Men

Lying is a pervasive phenomenon with important social and economic implications. However, despite substantial interest in the prevalence and determinants of lying, little is known about its biological foundations. Here we study a potential hormonal influence, focusing on the steroid hormone testosterone, which has been shown to play an important role in social behavior. In a double-blind placebo-controlled study, 91 healthy men (24.32±2.73 years) received a transdermal administration of 50 mg of testosterone (n = 46) or a placebo (n = 45). Subsequently, subjects participated in a simple task, in which their payoff depended on the self-reported outcome of a die-roll. Subjects could increase their payoff by lying without fear of being caught. Our results show that testosterone administration substantially decreases lying in men. Self-serving lying occurred in both groups, however, reported payoffs were significantly lower in the testosterone group (p<0.01). Our results contribute to the recent debate on the effect of testosterone on prosocial behavior and its underlying channels.

No evidence for an effect of testosterone administration on delay discounting in male university students

Intertemporal choices between a smaller sooner and a larger delayed reward are one of the most important types of decisions humans face in their everyday life. The degree to which individuals discount delayed rewards correlates with impulsiveness. Steep delay discounting has been associated with negative outcomes over a wide range of behaviors such as addiction. However, little is known about the biological foundations of delay discounting. Here, we examine a potential causal link between delay discounting and testosterone, a hormone which has been associated with other types of impulsive behavior. In our double-blind placebo-controlled study 91 healthy young men either received a topical gel containing 50 mg of testosterone (N=46) or a placebo (N=45) before participating in a delay discounting task with real incentives. Our main finding is that a single dose administration of testosterone did not lead to significant differences in discount rates between the placebo and the testosterone group. Within groups and in the pooled sample, no significant relationship between testosterone and discount rates was observed. At the same time, we do replicate standard findings from the delay discounting literature such as a magnitude-of-rewards effect on discount rates. In sum, our findings suggest that circulating testosterone does not have a significant effect on delay discounting in young men.

Equity and Efficiency in Multi-Worker Firms: Insights from Experimental Economics

Abstract In this article, we discuss recent evidence from experimental economics on the impact of social preferences on workplace behavior. We focus on situations in which a single employer interacts with multiple employees. Traditionally, equity and efficiency have been seen as opposing aims in such work environments: individual pay-for-performance wage schemes maximize of efficiency but might lead to inequitable outcomes. We present findings from laboratory experiments that show under which circumstances partially incomplete contracts can create equitable work environments while at the same time reaching surprisingly efficient outcomes.