Priyodorshi Banerjee

Auctions with Ceilings

In symmetric common value auctions where bidders differ ex-post in information quality, a seller may benefit from imposing a ceiling on allowable bids. By reducing the winners curse facing poorly informed bidders, a ceiling encourages them to bid aggressively. This may reduce information rents earned by better informed bidders, yielding the seller higher expected revenues compared to selling the object in a standard ascending auction or at a fixed posted price. Such a ceiling may be explicit (a firm commitment not to accept bids above the ceiling) or implicit (a credible threat not to honor the outcome if anyone bids higher than the ceiling). Either situation can be interpreted as one where the object is offered for sale at a fixed price or the best offer; or one where the seller uses an auction but modifies the object by contractually specifying a right to buy back the object from the winner.

The Effect of Minimal Group Framing in a Dictator Game Experiment

Our study examines the impact of framing of tasks on dictator game choices. We specifically examine the effect of using two different framing of instructions, one of which we deem the charity frame and the other the group frame. The former frames the dictator choice in terms of giving to a randomly matched participant, whereas the latter frames the dictator choice in terms of allocating between the dictator and a randomly matched participant who is referred to as partner. We find that the group framing is associated with significantly higher transfers from the proposer to the recipient in the experiment. Dictators in the group frame transfer on average INR 40 (8 percent of their endowment) more than those in the charity frame. Furthermore, approximately 16 percent of subjects in the charity frame provide equal splits as compared to 42 percent in the group frame. Finally, approximately 8 percent of dictators gave nothing to the recipient in the group frame as compared to almost 18 percent who were purely selfish in the charity frame. The difference due to framing is robust and remains even after controlling for demographic characteristics such as age, gender, family income and educational background. A hurdle regression shows us that the group frame significantly affects the decision to give the recipient a positive amount, but not the amount actually given conditional on the decision to give. Finally, results from logit regressions indicate that the group frame significantly increases the probability of making 50:50 (or higher) offers to the recipient.

Conflict and Consensus: A Theory of Control in Organisations

A principal, requiring a team to implement a project by proposing and jointly executing a technique, may benefit from choosing one with internal disharmony. When superior policy proposition by a member is rewarded with unitary executive control, the benefit of control is increasing in the degree of conflict. Hence, the presence of discord can raise incentives to take effort towards technique proposition by inducing competition for control, and thereby enhance average proposal quality. The principal may thus choose a fractious team when the losses from lower consensus in project execution are limited. These effects can be exacerbated in large teams, and lead to teamwork dominating individual production.

Partner Selection and the Division of Surplus: Evidence from Ultimatum and Dictator Experiments

Offers can increase in the ultimatum game if the recipient can select her proposer, both with non-competitive selection, where the recipient decides whether she wants to play with a single potential proposer, and even more so with competitive selection, where the recipient decides which of two potential proposer she plays with. Selection is done on the basis of non-binding communication about how much a potential proposer will offer if selected. The effect is driven by the recipients use of prior promise as a factor determining offer rejection; an offer is rejected with greater probability if the promise made the selected proposer is higher, ceteris paribus. Consequently, selection power carries no benefits in the dictator game.

Kolkata Paise Restaurant Problem and the Cyclically Fair Norm

In this paper we revisit the Kolkata Paise Restaurant problem by allowing for a more general (but common) preference of the n customers defined over the set of n restaurants. This generalization allows for the possibility that each pure strategy Nash equilibrium differs from the Pareto efficient allocation. By assuming that n is small and by allowing for mutual interaction across all customers we design strategies to sustain cyclically fair norm as a sub-game perfect equilibrium of the Kolkata Paise Restaurant problem. We have a cyclically fair norm if n strategically different Pareto efficient strategies are sequentially sustained in a way such that each customer gets serviced in all the n restaurants exactly once between periods 1 and n and then again the same process is repeated between periods (n+1) and 2n and so on.

Equilibrium Play and Learning in a Stochastic Public Goods Experiment

The public goods problem or the “tragedy of the commons,” (Hardin, 1968) either viewed as a problem of extraction or that of contribution has had a rich history in Economics and indeed in other social sciences like Anthropology, Sociology and Political Science. Our research examines free riding in an environment slightly different from that used in experimental studies thus far. In the game we use, the benefit received from the public good is not linear in effort or contribution as in most Voluntary Contribution Mechanism (VCM) or Common Property Resource (CPR) games but varies stochastically with effort (Banerjee, 2007). We specifically examine the effect of a quality bound (for the public good provided) below which very negligible benefits are received by community members. Our theory predicts that the presence of such a “pass mark” on quality of the good ultimately provided may under certain conditions reduce the incidence of free-riding in these games. This result has very significant implications for the design of mechanisms and institutions that provide public goods and services. We obtain very mixed support for the hypothesis that the presence of a pass mark on quality significantly lowers the incidence of free riding in the laboratory. In most sessions, the presence of this pass mark may actually significantly increase the incidence of free-riding, even when the theory predicts the opposite. In general, the mixed strategy Nash equilibrium (MSNE) prediction performs very poorly in the laboratory. A noisy theoretical model, the Quantal Response Equilibrium (QRE) is then used and is a better predictor of laboratory play than the MSNE. We then use the Roth-Erev (RE, Erev and Roth, 1995) reinforcement learning model in both its one-parameter as well as three-parameter forms which generate predictions that fit observed play in the laboratory much better than the earlier “steady state” theory predictions.

Delegating Authority to a Dishonest Agent

A citizen and a bureaucrat implement a project jointly, with the bureaucrat holding executive authority. The citizens investment yields information, which raises output, and also has supervision benefits. We show that a higher degree of dishonesty increases the citizens incentive to invest, which in turn enhances the bureaucrats investment incentive. The gain from joint investment can more than offset the loss from dishonesty, and so the citizen may prefer a corrupt bureaucrat to an honest one. When the citizen also decides task assignment, he may choose to introduce a conflict of interest by ceding authority to a dishonest bureaucrat.

Learning to Set the Reserve Price Optimally in Laboratory First Price Auctions

We analyze choices of sellers, each setting a reserve price in a laboratory first price auction with automated equilibrium bidding. Subjects are allowed to gain experience for a fixed period of time prior to making a single payoff-relevant choice. Behavior of more experienced sellers was consistent with benchmark theory: average reserve price for these sellers was independent of the number of bidders and equaled the predicted level. Less experienced sellers however deviated from the theoretical benchmark: on average, they tended to shade reserve price below the predicted level and positively relate it to the number of bidders.

Kolkata Restaurant Problem: Some Further Research Directions

In an earlier work on Kolkata paise restaurant problem, Banerjee et al. 2013, we analyzed the cyclically fair norm. We identified conditions under which such a fair societal norm can be sustained as an equilibrium. In this chapter we suggest how the Kolkata restaurant problem can be extended in several directions from purely an economics based modeling perspective.

Persistent Sunk Cost Fallacy in a Real Effort Experiment

Subjects chose whether to leave with an endowment or stay to perform some simple tasks in a real effort experiment. In addition to performance pay, staying subjects received their endowment in the control condition, but had to sacrifice it in the treatment condition. We found average performance of staying subjects, after controlling for selection effects, was higher in the treatment condition. Further, the sunk cost effect persisted well after the decision as to whether to stay or leave had been made.