EXPERIMENTAL ECONOMICS

Fall 2011

Course Web Site

This is a graduate-level topics course in Experimental Economics, with a focus on laboratory experiments. The aim is to expose students to multiple potential research topics and related literature. Hands-on participation in in-class experiments will be an integral part of the course. Basic background in Microeconomic Theory and Game Theory is assumed.

	Instructor: Peter Katuščák: Peter.Katuscak@cerge-ei.cz, office hours by appointment

	Lectures: Thu and Fri, 8:30-11:00, in room S6 Dates: Sept. 29-30, Nov. 24-25, Dec. 1-2, Dec. 8-9.

	Laboratory Sessions: Thu, 12:50-15:20, Fri, 12:50-14:30, in VT5 Dates: Sept. 29-30, Nov. 24-25, Dec. 1-2, Dec. 8-9.

	Announcements:

	Principal Texts: · Holt, Charles A., Markets, Games, and Strategic Behavior, Pearson-Adison Wesley, 2007. Further Suggested Readings (available from the CERGE-EI Library): · Camerer, Colin, Behavioral Game Theory, New York, Russell Sage & Princeton University Press, 2003. · Friedman, Daniel and Alessandra Cassar, Economics Lab: an Intensive Course in Experimental Economics, Routledge, 2004. · Kagel, John and Alvin Roth, Handbook of Experimental Economics, Princeton, 1995. · Smith, Vernon L., Rationality in Economics, Cambridge University Press, 2008.

Term Project and Grades:

There will be no exams in this class. The course grade will be based on class participation (20%) and a term project to be delivered by email to Peter Katuščák by January 15, 2012. In this project, a student should outline a research question to be addressed by laboratory experimental economic methods, review the literature, propose a detailed experimental design, outline hypotheses to be tested and discuss how these hypotheses will be tested.

Topics:

Part I: Lab experiments (peter Katuščák)

Lecture notes for this part of the course can be downloaded by clicking on the appropriate link.

1. Introduction and Methodology

2. Other-regarding Preferences

· Dictator game

· Ultimatum game

· Two-stage bargaining game

· Understanding other-regarding preferences

3. Preference and Belief Elicitation

· Willingness-to-pay elicitation

· Belief elicitation

· Risk aversion elicitation

· Elicitation of other-regarding preferences

· Elicitation of attitudes toward competition

4. Trust, Reciprocity and Principal-Agent Games

· Trust game

· Reciprocity game

· Principal-agent game

5. Cooperation

· Prisoners‘ Dilemma

6. Coordination

· Battle of the Sexes

· Minimum effort game

7. Guessing

· Guessing (beauty contest) game

8. Public Goods

· Voluntary contributions game

· Voluntary contributions with punishments

· Provision-point mechanism

9. Auctions

· Overview of auction formats

· Independent private values: English, Dutch, first-price sealed-bid and second-price sealed-bid auctions

· Common values: first-price sealed-bid

10. Financial Markets

· Multi-unit double-auction:

· Stock-market, bubbles

· Prediction market

Reading List:

Readings denoted by asterisk will be discussed in class. Other readings are for student reference. Further readings may be assigned for in-class discussion during the course of the semester.

1. Introduction and Methodology

*Holt, chapter 1. (pdf)

Hertwig, Ralph and Andreas Ortmann. “Experimental Practices in Economics: A Methodological Challenge for Psychologists?” Behavioral and Brain Sciences, 2001, 24(3), pp. 383-402. (pdf)

Kahneman, Daniel. “Maps of Bounded Rationality: Psychology for Behavioral Economics.” American Economic Review, 2003, 93(5), pp. 1449-1475. (pdf)

Rabin, Matthew. “Psychology and Economics.” Journal of Economic Literature, 1998, 36(1), pp. 11-46. (pdf)

Roth, Alvin E. "The Early History of Experimental Economics." Journal of the History of Economic Thought, 1993, 15(2), pp. 184-209. (pdf)

Roth, Alvin E. "Lets Keep the Con out of Experimental Econ.: A Methodological Note." Empirical Economics, 1994, 19(2), pp. 279-289. (pdf)

Samuelson, Larry. “Economic Theory and Experimental Economics.” Journal of Economic Literature, 2005, 43(1), pp. 65-107. (pdf)

2. Other-Regarding Preferences

Dictator, Ultimatum and Bargaining Games

*Holt, chapter 12 (pdf)

Binmore, Ken. “Economic Man or Straw Man? Commentary on Heinrich, et al.” Behavioral and Brain Sciences, 2005, 28, pp. 815-818. (pdf)

Bornstein, Gary and I. Yaniv. “Individual and Group Behavior in the Ultimatum Game: Are Groups More “Rational” Players?” Experimental Economics, 1998, 1, pp. 101-108. (pdf)

*Cherry, Todd, Peter Frykblom and Jason Shogren. “Hardnose the Dictator.” American Economic Review, 2002, 92(4), pp. 1218-1221. (pdf)

*Forsythe, Robert, Joel Horowitz, N.S. Savin and Martin Sefton. “Fairness in Simple Bargaining Experiments.” Games and Economic Behavior, 1994, 6(3), pp. 347-369. (pdf)

Goeree, Jacob and C. Holt. “Asymmetric inequality aversion and noisy behavior in alternating-offer bargaining games.” European Economic Review, 2000, 44, pp. 1079-1089. (pdf)

*Guth, Werner, R. Schmittberger and B. Schwartz. “An Experimental Analysis of Ultimatum Bargaining.” Journal of Games and Economic Behavior, 1982, 3(4), pp. 367-388. (pdf)

*Hoffman, E., K. McCabe., K. Shachat, and V. Smith. “Preferences, Property Rights, and Anonymity in Bargaining Games.” Games and Economic Behavior, 1994, 7, pp. 346-380. (pdf)

*List, John. “On the Interpretation of Giving in Dictator Games.” Journal of Political Economy, 2007, 115(3), pp. 482-493. (pdf)

*Ochs, Jack and Alvin E. Roth. “An Experimental Study of Sequential Bargaining. American Economic Review, 1989, 79(3), pp. 355-384. (pdf)

Roth, Alvin E., V. Prasnikar, M. Okunofujiwara and S. Zamir. “Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An Experimental Study.” American Economic Review, 1991, 81(5), pp. 1068-1095. (pdf)

Rubinstein, Ariel. “Perfect Equilibrium in a Bargaining Model.” Econometrica, 1982, 50(1), pp. 97-109. (pdf)

*Slonim, Robert and Alvin E. Roth. “Learning in High Stakes Ultimatum Games: An Experiment in the Slovak Republic.” Econometrica, 1988, 66(3), pp. 569-596. (pdf)

Understanding Other-Regarding Preferences

*Andreoni, James and John Miller. “Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism.” Econometrica, 2002, 70(2), pp. 737-753. (pdf)

*Bolton, Gary E. and Axel Ockenfels. “ERC: A Theory of Equity, Reciprocity and Competition.” American Economic Review, 2000, 90(1), pp. 166-193. (pdf)

*Charness, Gary and Matthew Rabin. “Understanding Social Preferences with Simple Tests.” Quarterly Journal of Economics, 2002, 117(3), pp. 817-869. (pdf)

Dufwenberg, M. and G. Kirchsteiger. “A Theory of Sequential Reciprocity.” Games and Economic Behavior, 2004, 47(2), pp. 268-98. (pdf)

Falk, Armin and Urs Fischbacher. “A Theory of Reciprocity.” Games and Economic Behavior, 2006, 54(2), pp. 293-315. (pdf)

*Fehr, Ernst and Klaus Schmidt. “A Theory of Fairness, Competition, and Cooperation.” Quarterly Journal of Economics, 1999, 114(3), pp. 817-868. (pdf)

Levine, D. “Modelling Altruism and Spitefulness in Game Experiments.” Review of Economic Dynamics, 1998, 1(3), pp. 593-622. (pdf)

Li, Jing. “The Power of Convention: A Theory of Social Preferences.”Journal of Economic Behavior and Organization, 2008, 65(3-4), pp. 489-505. (pdf)

Rabin, Matthew. “Incorporating Fairness into Game Theory and Economics.” American Economic Review, 1993, 83(5), pp. 1281-1302. (pdf)

Sobel, Joel. “Putting Altruism in Context,” Brain and Behavioral Science, 2002, 25(2), pp. 275-276. (pdf)

Sobel, Joel. “Interdependent Preferences and Reciprocity.” Journal of Economic Literature, 2005, 43(2), pp. 392-436. (pdf)

3. Preference and Belief Elicitation

*Holt, chapters 4 and 30. (pdf)

Andreoni, James and John Miller. “Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism.” Econometrica, 2002, 70(2), pp. 737-753. (pdf)

*Becker, G.M., Degrooth, M.H., Marschak, J. Measuring Utility by a Single-Response Sequential Method. Behavioral Science, 1964, 9(2), pp. 226-232.

*Charness, Gary and Matthew Rabin. “Understanding Social Preferences with Simple Tests.” Quarterly Journal of Economics, 2002, 117(3), pp. 817-869. (pdf)

Croson, Rachel and Uri Gneezy. “Gender Differences in Preferences.” Journal of Economic Literature, 2009, 47(2), pp. 448-474. (pdf)

Fehr, Ernst, Helen Bernhard and Bettina Rockenbach. “Egalitarianism in young children.” Nature, 2008, 454(28), pp. 1079-1084. (pdf)

*Holt, Charles A. and Susan K. Laury, “Risk Aversion and Incentive Effects.” American Economic Review, 2002, 92(5), pp. 1644-1655. (pdf)

4. Trust, Reciprocity and Principal-Agent Games

*Holt, chapter 13. (pdf)

Andreoni, James. "Trust, Reciprocity, and Contract Enforcement: Experiments on Satisfaction Guaranteed." 2005, Working Paper. (pdf)

Andreoni, James, William H. Harbaugh and Lise Vesterlund. “The Carrot or the Stick: Rewards, Punishments and Cooperation.” American Economic Review, 2003, 93(3), pp. 893-902. (pdf)

*Berg, Joyce, John Dickhaut and Kevin McCabe. “Trust, Reciprocity, and Social History.” Games and Economic Behavior, 1995, 10(1), pp. 122-142. (pdf)

Bohnet, Iris, Bruno S. Frey and Steffen Huck. “More Order with Less Law: On Contract Enforcement, Trust, and Crowding.” American Political Science Review, 2001, 95(1), pp. 131-144. (pdf)

Cox, James C. “How to Identify Trust and Reciprocity.” Games and Economic Behavior, 2004, 46(2), pp. 260-281. (pdf)

Engelmann, Dirk and Andreas Ortmann. “The Robustness of Laboratory Gift Exchange: A Reconsideration.” 2002, Working Paper, CERGE-EI, Prague, Czech Republic. (pdf)

*Fehr, Ernst, Simon Gachter and Georg Kirchsteiger. “Reciprocity as a Contract Enforcement Device: Experimental Evidence.” Econometrica, 1997, 65(4), pp. 833-860. (pdf)

*Fehr, Ernst, Georg Kirchsteiger, and Arno Riedl. “Does Fairness Prevent Market Clearing? An Experimental Investigation.” Quarterly Journal of Economics, 1993, 108(2), pp. 437-459. (pdf)

*Fehr, Ernst, Alexander Klein, and Klaus Schmidt. “Fairness and Contract Design.” Econometrica, 2007, 75(1), pp. 121-154. (pdf)

Glaeser, Edward L., et al. “Measuring Trust.” Quarterly Journal of Economics, 2000, 115(3), pp. 811-846. (pdf)

Van Huyck, John B.; Raymond C. Battalio and Mary F. Walters. “Commitment versus Discretion in the Peasant-Dictator Game.” Games and Economic Behavior, 1995, 10(1), pp. 143-170. (pdf)

5. Cooperation

*Holt, chapter 3.1-2. (pdf)

Andreoni, James. “Warm-Glow Versus Cold-Prickle: The Effects of Positive and Negative Framing on Cooperation in Experiments.” Quarterly Journal of Economics, 1995b, 110(1), pp. 1-21. (pdf)

Andreoni, James and Larry Samuelson. “Building Rational Cooperation.” Journal of Economic Theory, 127, 2006, pp. 117-154. (pdf)

*Andreoni, James and J.H.Miller. “Rational Cooperation in the Finitely Repeated Prisoner's Dilemma: Experimental Evidence.” Economic Journal, 1993, 103(418), pp. 570-585. (pdf)

Camerer, C., and K. Weigelt. “Experimental Tests of a Sequential Equilibrium Reputation Model.” Econometrica, 1988, 56(1), pp. 1-36. (pdf)

*Cooper, R., D. DeJong and R. Forsythe “Cooperation Without Reputation: Experimental Evidence from Prisoner’s Dilemma Games.” Games and Economic Behavior, 1996, 12(2), pp. 187-218. (pdf)

*Dal Bo, P. “Cooperation under the Shadow of the Future: Experimental Evidence from Infinitely Repeated Games.” American Economics Review,2005, 95(5), pp. 1591-1604. (pdf)

*Dawes, Robyn and Richard Thaler. “Anomalies: Cooperation.” Journal of Economic Perspectives, 1988, 2(3), pp. 187-197. (pdf)

Duffy, John and Jack Ochs. “Cooperative Behavior and the Frequency of Social Interaction.” Games and Economic Behavior, 2009, 66, pp. 785-812. (pdf)

Ellison, G. “Cooperation in the Prisoner's Dilemma with Anonymous Random Matching.” Review of Economic Studies, 1994, 61(3), pp. 567-588. (pdf)

Kreps, David, Paul Milgrom, John Roberts, and Robert Wilson. “Rational cooperation in the finitely repeated prisoners’ dilemma.” Journal of Economic Theory,1982, 27(2), pp. 245-252. (pdf)

Selten, R. and R. Stoecker. “End Behavior in Sequences of Finite Prisoner’s Dilemma Supergames: A Learning Theory Approach.” Journal of Economic Behavior and Organization, 1986, 7(1), pp. 47-70. (pdf)

6. Coordination

*Holt, chapters 3.3 and 26. (pdf)

Ochs, Jack. Coordination. In Kagel and Roth.

Blume, Andreas and Andreas Ortmann. “The effects of costless pre-play communication: Experimental evidence from games with Pareto-ranked equilibria.”Journal of Economic Theory, 132, 2007, 274- 290. (pdf)

*Goeree, Jacob and Charles Holt. “An Experimental Study of Costly Coordination.” Games and Economic Behavior, 2005, 51(2), pp. 349-364. (pdf)

Cooper, Russell W.,Douglas V. DeJong, Robert Forsythe and Thomas Ross. “Communication in the Battle of the Sexes Game: Some Experimental Results.” RAND Journal of Economics, 1989, 20(4), pp. 568-587. (pdf)

Cooper, Russell W.,Douglas V. DeJong, Robert Forsythe and Thomas Ross. “Selection Criteria in Coordination Games: Some Experimental Results.” American Economic Review, 1990, 80(1), pp. 218-33. (pdf)

Cooper, Russell W.,Douglas V. DeJong, Robert Forsythe and Thomas Ross. “Communication in Coordination Games.” Quarterly Journal of Economics, 1992, 107(2), pp. 739-771. (pdf)

Riedl, Arno, Ingrid Rohde and Martin Strobel. “Efficient Coordination in Weakest Link Games through Freedom of Partner Choice.” Unpublished manuscript, 2011a. (pdf)

Riedl, Arno, Ingrid Rohde and Martin Strobel. “Neighborhood Choice and Efficient Coordination.” Unpublished manuscript, 2011b. (pdf)

Schotter, Andy and Barry Sopher. “Social Learning and Convention Creation in Inter-Generational Games: An Experimental Study.” Journal of Political Economy, 2003, 111(3), pp. 498-529. (pdf)

* Van Huyck, John B., Raymond C. Battalio and Richard O. Beil. “Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure.” American Economic Review, 1990, 80(1), pp. 234-48. (pdf)

Van Huyck, John B., Raymond C. Battalio and Richard O. Beil. “Strategic Uncertainty, Equilibrium Selection, and Coordination Failure in Average Opinion Games.” Quarterly Journal of Economics, 1991, 106(3), pp. 885-910. (pdf)

Van Huyck, John B., Raymond C. Battalio and Richard O. Beil. “Asset Markets as an Equilibrium Selection Mechanism: Coordination Failure, Game Form Auctions, and Tacit Communication.” Games and Economic Behavior, 1993, 5, pp. 485-504. (pdf)

Van Huyck, John B., John M. Wildenthal and Raymond C. Battalio. “Tacit Cooperation, Strategic Uncertainty, and Coordination Failure: Evidence From Repeated Dominance Solvable Games.” Games and Economic Behavior, 2002, 38(1), pp. 156-175. (pdf)

Weber, Roberto. “Managing Growth to Achieve Efficient Coordination in Large Groups.” American Economic Review, 2006, 96 (1), March, 114-126. (pdf)

7. Guessing

*Holt, chapter 3.4. (pdf)

Moulin, Herve. Game Theory for Social Sciences. New York: New York Press, 1986.

*Nagel, Rosemarie. “Unraveling in Guessing Games: An Experimental Study.” American Economic Review, 1995, 85(5), pp. 1313-1326. (pdf)

8. Public Goods

*Holt, chapters 14 and 15. (pdf)

Ledyard, John. “Public Goods: A Survey of Experimental Research.” Chapter 2 in Kagel and Roth (1995).

Voluntary Contribution Mechanism

Anderson, Simon P., Jacob K. Goeree and Charles A. Holt. “A Theoretical Analysis of Altruism and Decision Error in Public Goods Games.” Journal of Public Economics, 1998, 70(2), pp. 297-323. (pdf)

Andreoni, James. “Why Free Ride?: Strategies and Learning in Public Goods Experiments.” Journal of Public Economics, 1988, 37(3), pp. 291-304. (pdf)

Andreoni, James. “An Experimental Test of the Public Goods Crowding-Out Hypothesis.” American Economic Review, 1993, 83(5), pp. 1317-1327. (pdf)

Andreoni, James. “Cooperation in Public Goods Experiments: Kindness or Confusion?” American Economic Review, 1995a, 85(4), pp. 891-904. (pdf)

*Goeree, Jacob K., Charles A. Holt and S. Laury. “Private Costs and Public Benefits: Unraveling the Effects of Altruism and Noisy Behavior.” Journal of Public Economics, 2002, 83(2), pp. 257-278. (pdf)

*Isaac, R. Mark and James Walker. “Group Size Effects in Public Goods Provision: The Voluntary Contributions Mechanism.” Quarterly Journal of Economics, 1988a, 103(1), pp. 179-199. (pdf)

Isaac, R. Mark and James Walker. “Communication and Free-Riding Behavior: The Voluntary Contribution Mechanism.” Economic Inquiry, 1988b, 26, pp. 585-608.

*Isaac, R. Mark, James Walker and Arlingtion Williams. “Group Size and the Voluntary Provision of Public Goods: Experimental Evidence Utilizing Large Groups.” Journal of Public Economics, 1994, 54(1), pp. 1-36. (pdf)

*Marwell, Gerald and Ruth Ames. “Economists Free Ride, Does Anyone Else? Experiments on the Provision of Public Goods, IV.” Journal of Public Economics, 1981, 15(3), pp. 295-310. (pdf

Palfrey, Thomas and Howard Rosenthal. “Testing for Effects of Cheap Talk in a Public Goods Game with Private Information.” Games and Economic Behavior, 1991, 3(2), pp. 183-220. (pdf)

Palfrey, Thomas and Jeffrey Prisbrey. “Altruism, Reputation, and Noise in Linear Public Goods Experiments.” Journal of Public Economics, 1996,61(3), pp. 409-427. (pdf)

Palfrey, Thomas and Jeffrey Prisbrey. “Anomalous Behavior in Public Goods Experiments: How Much and Why?” American Economic Review, 1997, 87(5), pp. 829-846. (pdf)

Provision Point

*Bagnoli, Mark and Michael McKee. “Voluntary Contributions Games: Efficient Private Provision of Public Goods.” Economic Inquiry, 1991, 29(2), pp.351-366. (pdf)

Bagnoli, Mark, Shaul Ben-David and Michael McKee. “Voluntary Provision of Public Goods: The Multiple Unit Case.” Journal of Public Economics, 1992, 47(1), pp. 85-106. (pdf)

Davis, Douglas and Charles Holt. Experimental Economics. Princetion: Princeton University Press, pp. 338-343. (pdf)

*Dawes, Robin, John Orbell, R.T. Simmons and A.J.C. van de Kragt. “Organizing Groups for Collective Action.” American Political Science Review, 1986, 80(4), pp.1171-85. (pdf)

Rondeau, Daniel, William D. Schulze and Gregory L. Poe. “Voluntary Revelation of the Demand for Public Goods Using a Provision Point Mechanism.” Journal of Public Economics, 1999, 72(3), pp. 455-470. (pdf)

Rondeau, Daniel, Gregory L. Poe and William D. Schulze. “VCM or PPM? A comparison of the performance of two voluntary public goods mechanisms.” Journal of Public Economics, 2005, 89(8), pp. 1581-1592. (pdf)

Cooperation-Enforcing Institutions: Punishments for Non-Cooperation

*Fehr, Ernst and Simon Gachter. “Coopertion and Punishment in Public Goods Experiments.” American Economic Review, 2000, 90(4), pp. 980-994. (pdf)

*Gureck, Ozgur, Bernd Irlenbusch and Bettina Rockenbach. “The Competitive Advantage of Sanctioning Institutions.” Science, 2006, 312, pp. 108-111. (pdf)

*Kosfeld, Michael, Akira Okada and Arno Riedl. “Institution Formation in Public Goods Games.” American Economic Review, 2009, 99(4), pp. 1335-1355. (pdf)

9. Auctions

*Holt, chapters 19 and 21. (pdf)

*Kagel, John. “Auctions.” Chapter 7 in Kagel and Roth.