Orly Sade

Competition and Cooperation in Divisible Good Auctions: An Experimental Examination

An experimental approach is used to examine the performance of three different multi-unit auction designs: discriminatory, uniform-price with fixed supply, and uniform-price with endogenous supply. We find that the strategies of the individual bidders and the aggregate demand curves are inconsistent with theoretically identified equilibrium strategies. The discriminatory auction is found to be more susceptible to collusion than are the uniform-price auctions, and so contrary to theoretical predictions and previous experimental results, the discriminatory auction provides the lowest average revenue. Consistent with theoretical predictions, bidder demands are more elastic with reducible supply or discriminatory pricing than in the uniform-price auction with fixed supply. Despite a lack of a priori differences across bidders, the discriminatory auction results in significantly more symmetric allocations.

Gender Dynamics in Crowdfunding (Kickstarter): Evidence on Entrepreneurs, Investors, Deals and Taste-Based Discrimination

In this paper we investigate whether a new form of venture financing – crowdfunding – reduces the barriers of female entrepreneurs to raise capital. Specifically, we investigate gender dynamics and biases in the process of raising funding to new projects via the leading crowdfunding platform – Kickstarter. We find women made up about 35% of the project leaders and 44% of the investors on the platform. On average, men seek significantly higher levels of capital than women for their projects, and also raise more funds than women. However, women enjoy higher rates of success in funding their projects, even after controlling for category and goal amount. Only about 23% of projects that men invested in had female project leads. Conversely, more than 40% of projects that women invested in had female project leads. Multivariate analysis indicated significant positive correlation between the gender of the project leader and the percentage of the same gender investors. Questions arise around what factors explain the fact that female-led projects are predominantly financed by women. In an attempt to disentangle taste-based discrimination from statistical discrimination we conducted a survey of investors from the Kickstarter platform and find evidence that some of lower investment in female-led projects by men can be attributed to taste-based discrimination.

When Less (Potential Demand) Is More (Revenue): Asymmetric Bidding Capacities in Divisible Good Auctions

We show that asymmetry in bidders’ capacity constraints plays an important role in inhibiting collusion and promoting competitive outcomes in multi-unit auctions in which the final value of the good is common knowledge. This effect appears to be related to the increased difficulty of coordination when there are significant differences between bidders. Due to its impact on collusive outcomes, asymmetry in bidding capacities has a more powerful impact on the seller’s revenue than does the auction type. Consistent with the finding in Sade, Schnitzlein, and Zender (2006) that the discriminatory auction is more susceptible to collusion than the uniform-price auction, asymmetry in capacity constraints has a greater impact in discriminatory auctions.

Divisible Good Auctions with Asymmetric Information: An Experimental Examination

An experimental approach is used to compare bidding behavior and auction performance in uniform-price and discriminatory auctions when there is incomplete information concerning the common value of the auctioned good. In a symmetric information environment, the different auction formats provide the same average revenue. However, when information is asymmetric the discriminatory auction results in higher average revenue than the uniform-price auction. The volatility of revenue is higher in the uniform-price auctions in all treatments. The results, therefore, provide support for the use of the discriminatory format. Subject characteristics and measures of experience in recent auctions are found to be useful in explaining bidding behavior.

Long Term Savings Decisions: Financial Reform, Peer Effects and Ethnicity

In 2005, a drastic reform in the Israeli capital market shifted the power to choose savings vehicles from employers to individuals. Using a unique dataset from a large employer, this event provides us a rare window into individuals’ savings decisions and the effect of their social environment. In the first year following the reform’s implementation, 7% of the employees switched out of the fund in which they all previously saved. Choice of fund was not associated with observable measures of fund performance, but was strongly affected by the employees’ social environment. Exploiting within-department variation in peer groups, we find that savings decisions were strongly influenced by the choices of co-workers from the same ethnic group. Interviews also point to the influence of non-professional colleagues.

Ambiguity and Overconfidence

There are two phenomena in behavioral finance and economics which are seemingly unrelated and have been studied separately; overconfidence and ambiguity aversion. In this paper we are trying to link these two phenomena providing a theoretical foundation supported by evidence from an experimental study. We derive a model, based on the max-min ambiguity framework that links overconfidence to ambiguity aversion. In the experimental study we find that overconfidence is decreasing in ambiguity, as predicted by our model.

On the Persistence of Overconfidence: Evidence from Multi-Unit Auctions

We analyze pre and post-task confidence in an experiment in which subjects bid in multi-unit common value auctions. Subjects return for a second session, so we are able to assess how performance affects the evolution of confidence. Those with low confidence prior to the first session underestimate performance while those with high confidence overestimate performance. Although the change in pre-experiment confidence from session one to session two is close to zero, the dispersion in confidence increases. For those with moderate initial confidence, the change in confidence depends significantly on performance in session one. For those with high initial confidence, the change in confidence does not depend on performance, and the correlation between confidence prior to session two and confidence prior to session one is significantly higher than for those with neutral or low confidence. Subjects with high initial confidence also base their perception of post-experiment relative performance primarily on pre-experiment confidence: an effect not present in the moderate and low confidence groups. Based on a pre-experiment survey, we also find that those with high initial confidence are more likely to have prior experience trading stocks or options.

A Leopard Does Not Change His Spots – Evidence of Activism Persistence in the Hedge Fund Industry

This paper investigates hedge fund performance persistence through examination of actual fund behavior rather than self-reported returns. We propose new activism indexes. We show that past activism is positively correlated with fund orientation toward confrontational activist behavior with respect to future purchases. We show that hedge fund activism is positively correlated the size of required minimum investment and manager graduation from a top MBA program.

Can Mandatory Minimum Annuity Laws Have Unintended Consequences? - An Experimental Investigation

The need to ensure that people have adequate savings for retirement has prompted debate among regulators and academics. Certain countries have implemented or are considering implementing mandatory minimum annuity laws (e.g., Singapore and Israel), whereas others have repealed or are considering repealing such legislation (e.g., the U.K.). We investigate the introduction as well as the repeal of a regulatory change; “mandatory minimum annuity rules�? using a laboratory experiment and two surveys. Demand for annuities vs. a lump sum is sensitive to the mandatory-minimum mechanism and consistent with anchoring to the signal reflected in the requirement. Our results indicate that imposing a mandatory minimum may have unintended consequences: such laws may fail to provide an increase in the demand for annuities and may even reduce it. The outcome is sensitive to the relation between the level of the mandatory minimum and anticipated consumption (i.e., future financial need). Furthermore, the repeal of mandatory minimum annuity laws may not restore the demand for annuities to the pre-law level.

Out-of-Pocket vs. Out-of-Profit in Financial Advisory Fees: Evidence from the Lab

The implications of the method of payment to financial advisors on the behavior of individuals and their willingness to pay (WTP) are of interest to economists and regulators around the globe. This paper uses an experimental economics technique to compare two common alternative payment structures. The first payment structure is “out-of-pocket�? (payment from a checking account) and the second is “out-of-investment�? (payment from an investment portfolio account). We document that for the same financial advice, the subjects in the “out-of-pocket�? treatment – an upfront payment – were willing to pay on average 25 percent less than the subjects in the “out-of-investment�? treatment – a deferred payment following an investment realization, where the payment was framed in terms of gains. We introduce an additional “out-of-pocket�? payment structure where payment is deferred until after the investment realization. Thus, the design can be decomposed into a possible “out-of-pocket�? vs. “out-of-investment�? framing effect and a pre-realization vs. post-realization timing effect. We find that the timing effect is the key element: across “out-of-pocket�? payment structures, the subjects were willing to pay significantly less in the pre-realization treatment than their counterparts were in the post-realization treatment. The “out-of-pocket�? vs. “out-of-investment�? framing effect was insignificant. These results hold after controlling for a vector of personal, demographic, and behavioral characteristics, as well as for performance on a math test. Our results highlight the difference between post-service and pre-service payments in a broader context and provide an explanation for why allowing late payment that takes place after the outcome of the service has been revealed may increase the willingness to pay for the service.