Till Proeger

An Experimental Study on Social Anchoring

The anchoring-and-adjustment heuristic has been studied in numerous experimental settings and is increasingly drawn upon to explain systematically biased decisions in economic areas as diverse as auctions, real estate pricing, sports betting and forecasting. In these cases, anchors result from publicly observable and aggregated decisions of other market participants. However, experimental studies have neglected this social dimension by focusing on external, experimenter-provided anchors in purely individualistic settings. We present a novel experimental design with a socially derived anchor, monetary incentives for unbiased decisions and feedback on performance to more accurately implement market conditions. Despite these factors, we find robust effects for the social anchor, an increased bias for higher cognitive load, and only weak learning effects. Finally, a comparison to a neutral, external anchor shows that the social context increases the bias, which we ascribe to conformity pressure. Our results support the assumption that anchoring remains a valid explanation for systematically biased decisions within market contexts.

Die Effizienz von Zuteilungsmechanismen bei Flächenzertifikaten zwischen Versteigerung und Grandfathering: Experimentelle Evidenz

Zusammenfassung: Die Einführung handelbarer Flächenzertifikate wird als Regulierungsinstrument zur Reduktion des Flächenverbrauchs in Deutschland diskutiert. Bislang fehlen jedoch empirische Studien zur Untersuchung der Wohlfahrts- und Umverteilungswirkung eines solchen cap & trade Systems. Insbesondere die Frage nach der Effizienz verschiedener Mechanismen der Primärallokation von Zertifikaten ist politisch relevant, aber bisher nicht untersucht. Die vorliegende Studie analysiert daher anhand eines ökonomischen Laborexperiments, das ein Zertifikatsystem zur Flächenverbrauchsreduktion simuliert, die Auswirkungen von drei Primärallokationsmechanismen: einer vollständigen Gratiszuteilung, einer ausschließlichen Versteigerung und einer hälftigen Aufteilung von Gratiszuteilung und Versteigerung. Es zeigt sich, dass ein Auktionsmechanismus die Effizienz und Stabilität des Zertifikatsystems senkt. Zertifikatpreise weisen eine höhere Volatilität auf und es bestehen stärker als durch die Theorie zu erwartende Umverteilungseffekte zu Gunsten des Auktionators. Persistente Preisunterschiede zwischen Auktion und innerkommunalem Handel verhindern eine effiziente Allokation der Zertifikate. Während das Zertifikatsystem insgesamt bei einer Gratiszuteilung einen hohen Effizienzgrad erreicht, führt ein Auktionsmechanismus zu Ineffizienzen, Unsicherheit und starken Umverteilungswirkungen. Aus wirtschaftspolitischer Sicht unterstützen diese Ergebnisse eine Gratis-Zuteilung innerhalb eines Systems handelbarer Flächenzertifikate.

Are groups 'less behavioral'? The case of anchoring

Economic small group research points to groups as more rational decision-makers in numerous economic situations. However, no attempts have been made to investigate whether groups are affected similarly by behavioral biases that are pervasive for individuals. If groups were also able to more effectively avoid these biases, the relevance of biases in actual economic contexts dominated by group decision-making might be questioned. We consider the case of anchoring as a prime example of a well-established, robust bias. Individual and group biasedness in three economically relevant domains are compared: factual knowledge, probability estimates and price valuations. In contrast to previous anchoring studies, we find groups to successfully reduce, albeit not eliminate, anchoring in the factual knowledge domain. For the other two domains, groups and individuals are equally biased by external anchors. Group cooperation thus reduces biases for predominantly intellective tasks only, while no such reduction is achieved when judgmental aspects are involved.

Asymmetric information as a barrier to knowledge spillovers in expert markets

This paper investigates barriers to effective knowledge spillovers for markets in which the product can be characterized as a credence good, i.e. its complexity impedes the evaluation of quality by customers both ex-ante and ex-post. We focus on the German market for energy efficiency consultants, as an emerging and subsidized sector in which the service offered has strong credence good properties. Based upon in-depth interviews with stakeholders, we analyze the determinants and barriers to knowledge spillovers. We find that the incentive to foster spillovers to increase suppliers’ knowledge is limited by the difficult commercialization of additional capabilities. The implementation of a public certification scheme has failed to increase the sectoral knowledge spillovers. By contrast, the participation in formal knowledge networks has been more effective in prompting companies to foster knowledge spillovers, which has also led to a higher degree of specialization. We conclude that access to certification schemes should be further restricted to increase market transparency and private networks should be supported to achieve the aim of increasing knowledge spillovers.

Knowledge-Intensive Business Services as Credence Goods - A Demand-Side Approach

Knowledge-intensive business services (KIBS) constitute a major source of innovative knowledge for small- and medium-sized enterprises. In regional innovation systems, KIBS play a crucial role in distributing innovations and improving the region’s overall innovative capacities. While the specific properties and effects on client firms and sectors have been comprehensively discussed, the internal perspective of client firms, i.e., the processes and problems in selecting, using, evaluating, and recommending KIBS, has been neglected to date. Using a qualitative approach, we describe the internal mechanisms and problems of SMEs cooperating with various KIBS and discuss the implications for regional innovation systems from a policy-making perspective. We find that all stages of cooperation of SMEs and KIBS are characterized by strong information asymmetries, distrust, and uncertainty about the effects of using external know-how, which yields the interpretation that SMEs perceive KIBS as credence goods. While informal networks are used to reduce information barriers, they regularly prove counterproductive by disseminating worst-case examples. Regional policy aiming at developing instruments for fostering innovative cooperation could thus strengthen formal networks that primarily create trust between KIBS and SMEs to systematically reduce mutual suspicions and information asymmetries.

Tradable development rights under uncertainty: An experimental approach

ABSTRACT Tradable development rights (TDR) are discussed as a mechanism to reduce land consumption while ensuring an efficient implementation of profitable building projects. We present a novel laboratory experiment on the feasibility of TDR and simulate the acquisition and trading of development rights. In particular, we investigate the effects of uncertainty in the revenues of land consumption projects. Overall, we find that TDR are reallocated as suggested by theory, although higher uncertainty has substantial detrimental effects on the distribution of land consumption projects and thus aggregate welfare. This enables us to formulate distinct policy implications for the design of TDR systems.

Can Anchoring Explain Biased Forecasts? Experimental Evidence

Behavioral biases in forecasting, particularly the lack of adjustment from current values and the overall clustering of forecasts, are increasingly explained as resulting from the anchoring heuristic. Nonetheless, the classical anchoring experiments presented in support of this interpretation lack external validity for economic domains, particularly monetary incentives, feedback for learning effects and a rational strategy of unbiased predictions. We introduce an experimental design that implements central aspects of forecasting to close the gap between empirical studies on forecasting quality and the laboratory evidence for anchoring effects. Comprising more than 5,000 individual forecasts by 455 participants, our study shows significant anchoring effects. Without monetary incentives, the share of rational predictions drops from 42% to 15% in the anchors presence. Monetary incentives reduce the average bias to one-third of its original value. Additionally, the average anchor bias is doubled when task complexity is increased, and is quadrupled when the underlying risk is increased. The variance of forecasts is significantly reduced by the anchor once risk or cognitive load is increased. Subjects with higher cognitive abilities are on average less biased toward the anchor when task complexity is high. The anchoring bias in our repeated game is not influenced by learning effects, although feedback is provided. Our results support the assumption that biased forecasts and their specific variance can be ascribed to anchoring effects.Biased forecasts, particularly the inadequate adjustment from current values and excessive clustering, are increasingly explained as resulting from anchoring. However, experiments presented in support of this interpretation lack economic conditions, particularly monetary incentives, feedback for learning effects and an optimal strategy of unbiased predictions. In a novel forecasting experiment, we find monetary incentives to reduce anchoring for simple forecasting tasks only, while higher task complexity and risk increase the bias in spite of incentives for accuracy. Anchors ubiquitously reduce the forecasts’ variance, while individual cognitive abilities and learning effects show debiasing effects only in some conditions. Our results emphasize that biased forecasts and their specific variance can result from anchoring.

The Victim Matters - Experimental Evidence on Lying, Moral Costs and Moral Cleansing

In an experiment on moral cleansing with an endogenously manipulated moral self-image, we examine the role of the addressee of an immoral action. We find that cheating is highest and moral cleansing lowest when subjects cheat at the expense of the experimenter, while cheating is lowest and moral cleansing highest once cheating harms another participant. A subsequent measurement of subjects’ moral self-image supports our interpretation that the occurrence of moral cleansing crucially depends on the moral costs resulting from immoral actions directed at individuals in different roles. Our results can help to explain the different propensity to cheat and conduct moral cleansing when immoral actions harm either another person or representatives of organizations.

The Political Economy of Certificates for Land Use in Germany – Experimental Evidence

Certificate trading schemes have been discussed as a cost-efficient means of reducing land use in Germany by capping and reallocating permissions to conduct building projects. However, in contrast to the established cap & trade systems for emissions, reputation-seeking politicians would be in charge of buying and trading certificates - an aspect not considered to date. We thus present a laboratory experiment that captures politician´s incentives connected to electoral cycles in a cap & trade scheme for land use, whereby tradable certificates are auctioned and grandfathered in equal shares. We find the cap & trade system to be efficient at large, yet there are several politically relevant distortions that are aggravated by self-serving incentives. Prices show high volatility, initially by far exceed fair values and are substantially biased by the endowment effect. Further, the timing and location of land use projects and the heterogeneity in income across municipalities are sensitive to the specifics of the system and politicians´ interests. We thus identify potential problems to a cap & trade system for land use that could substantially reduce both its assumed superior efficiency and its political feasibility.

The Effectiveness of Public Subsidies for Private Innovations. An Experimental Approach

The effects of public subsidies in supporting innovative activity are subject to long-standing debates. Since empirical findings remain largely inconclusive, this study adds to this debate with counterfactual evidence from a laboratory experiment. In a creative real effort task simulating the innovation process, two distinct means of allocating subsidies are compared to a benchmark treatment without subsidies to identify their effects in fostering innovativeness. Furthermore, subjects’ cooperative behavior in relation to subsidies is investigated. Overall, subsidies lead to a substantial crowding-out of private investment. While the individual revenues increase due to the subsidy, the innovative activity fails to increase and less sophisticated innovations are realized. Consequently, subsidies have no or negative effects on overall welfare, depending on the subsidy specifics. However, subsidies do not influence cooperative behavior. These findings imply that the additional costs of subsidies for innovations might not be warranted by gains from additional innovations and increased welfare.