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The Dollar Auction Game: A laboratory comparison between Individuals and Groups

By means of a laboratory experiment, this paper aims at studying how individuals and groups behave in a simple game such as the dollar auction. This game is extremely interesting since it induces subjects to fall prey into the paradigm of escalation, which is driven by agents’ commitment to higher and higher bids. Indeed, whenever each participant commits himself to a bid, the lower bidder, moved by the wish to win as well as to defend his prior investment, finds it in his best interest to place a higher bid to overcome his opponent. The latter mechanism may lead subjects to overbid, implying that the winner pays more than the auctioned value. The aim of the paper is to analyze bidder’s behavior, comparing individuals vs. groups’ decisions within the dollar auction framework. We find that groups are closer than individuals to the Nash equilibrium, and that experience reduces the escalation phenomenon, but it has a different impact on winners and losers.

Experimental evidence on tax salience and tax incidence

While a basic theoretical principle in public economics assumes that individuals’ behaviour is fully-optimizer with respect to the introduction of a tax, an increasing body of research is presenting evidence that agents decision making is often affected by non-negligible cognitive biases, which could be responsible for lower market performance as well as for deviations from standard theoretical predictions. This paper extends the latter strand of research focusing on two trend topics in public economics: tax salience and tax incidence. While the former refers to the prominence of the tax, the latter places emphasis on the statutory vs. factual division of tax payments. Is market performance affected by the salience of the tax? Is the incidence of a tax independent of which side of the market it is levied on (Liability Side Equivalence Principle, LES)? We address these questions through a laboratory experiment in which one unit of a fictitious good is traded through a double-auction market institution. Based on a panel data analysis, our contribution shows that a non-salient tax reduces both the allocational and informational efficiency of the market with respect to the instance in which the tax is salient. Moreover, we show that the Liability Side Equivalence Principle does not hold in practice.

Decision process, preferences over risk and consensus rule: a group experiment

The recent literature on individual vs. group decisions over risk has brought about divergent results, mainly depending on the institutional rules through which groups take decisions. While some studies where group decisions relied on the majority rule showed no appreciable difference between individuals and groups’ preferences, others where unanimity among group members was required found collective decisions to be less risk averse than individual ones. Of course, these studies share the imposition of a choice rule to determine the groups’ outcome. Alternatively, in the study at hand, we elicited groups’ preferences over risk using a consensus rule, i.e. leaving groups free to endogenously solve the potential disagreement among their members, just as in many real life instances. Our results from a logit regression unambiguously show that individuals’ preferences are systematically further from the risk neutrality than those of groups. In particular, individuals are more risk seeker than groups when facing gambles with positive expected payoff difference and more risk averse in the opposite case.