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Lectu re Notes
in Economics and
Mathematical Systems
Managing Editors: M. Beckmann and W. Krelle
Experimental Economics
314
R. Tietz W Albers R. Selten (Eds.)
Bounded Rational Behavior
in Experimental Games
and Markets
Proceedings of the Fourth Conference on
Experimental Economics, Bielefeld, West Germany,
September 21-25, 1986
Spri nger-Verlag
Berlin HeidelberQ New York London Paris Tokyo
Editorial Board
H. Albach M. Beckmann (Managing Editor) P.Ohrymes
G. Fandel G. Feichtinger J. Green W. Hildenbrand W. Krelle (Managing Editor)
H.P. Kunzi K. Ritter R. Sato U.Schittko P.Sch6nfeld R.Selten
Managing Editors
Prof. Dr. M. Beckmann
Brown University
Providence, RI 02912, USA
Prof. Dr. W. Krelle
Institut fUr Gesellschafts- und Wirtschaftswissenschaften
der Universitat Bonn
Adenauerallee 24-42, D-5300 Bonn, FRG
Editors
Prof. Dr. Reinhard Tietz
Johann Wolfgang Goethe-Universitiit
Fachbereich Wirtschaftswissenschaften
Mertonstr. 17, 0-6000 Frankfurt am Main 1, FRG
Prof. Dr. Wulf Albers
Universitiit Bielefeld
Fachbereich Wirtschaftswissenschaften
Postfach 8640, 0-4800 Bielefeld, FRG
Prof. Dr. Reinhard Selten
Universitiit Bonn
Institut fur Gesellschafts- und Wirtschaftswissenschaften
Adenauerallee 24-42, 0-5300 Bonn 1, FRG
ISBN-13:978-3-540-50036-0 e-ISBN-13:978-3-642-48356-1
001:10.1007/978-3-642-48356-1
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© Springer-Verlag Berlin Heidelberg 1988
2142/3140-543210
PREFACE
"Modeling Bounded Rational Behavior in Experimental Games and
Markets" was the general theme of the Fourth Conference on
Experimental Economics, held from September 21 to 25, 1986 at the
Zentrum fUr Interdisziplinare Forschung in Bielefeld, Germany.
This volume contains the papers presented at this conference in a
revised and condensed form.
The discussed topics concern experimental economics in
general, unilateral and bilateral decisions, auctions and markets,
and the problem of coalition formation. A selective bibliograpghy
of the participants' work in the field of experimental economics
is added.
On behalf of the Conference Board and of the Gesellschaft fur
Experimentelle Wirtschaftsforschung we express thanks to the
Zentrum fur Interdiszipl inare Forschung for organizing and
financing the conference. We owe thanks also to an anonymous donor
for additional financial support.
We thank Ulrich Vossebein and Sigrid .Manthey for their help
in preparing the conference and this publication.
Reinhard Tietz
Wulf Albers
Reinhard Selten
CONTENTS
PREFACE III
CONTENTS v
I. EXPERIMENTAL ECONOMICS
Reinhard Tietz 3
Experimental Economics: Ways to Model Bounded Rational
Bargaining Behavior - Introductory Remarks to the Fourth
Conference on Experimental Economics -
Daniel Kahneman 11
Experimental Economics: A Psychological Perspective
II. UNILATERAL DECISIONS
Monika Isis Ksiensik and Dirk Wendt 21
Normative and Individual Strategies in Social Dilemmata
Friedel Bolle 37
Learning to Make Good Predictions in Time Series
John D. Hey and Valentino Dardanoni 51
A Preliminary Analysis of a Large-Scale Experimental
Investigation into Consumption under Uncertainty
Oswald Huber 66
Mental Representation in Multistage Decision Making
III. BILATERAL DECISIONS
Thomas R. King and J. Keith Murnighan 85
Stability and Outcome Tradeoffs in Asymmetric Dilemmas:
Conditions Promoting the Discovery of Alternating Solu
tions
Ulrich Schulz 95
The Influence of Social Orientation and Generalized Expec
tancies on Decision Making in Iterated Experimental Games
Werner Glith and Reinhard Tietz 111
Ultimatum Bargaining for a Shrinking Cake - An Experimen-
tal Analysis -
Otwin Becker and Stephan Huschens 129
Bounded Rational Strategies in Sequential Bargaining: An
Experiment and a Learning by Evolution Strategy
Reinhard Tietz, Werner Daus, Jlirgen Lautsch, and Peter 142
Lotz
Semi-Normative Properties of Bounded Rational Bargaining
Theories
Peter J.D. Carnevale, Karen L. Harris, Jacqueline R.
Idaszak, Rebecca A. Henry, Jerry M. Wittmer, and Donald
E. Conlon 160
Modeling Mediator Behavior in Experimental Games
IV. AUCTIONS AND MARKETS
Ronald M. Harstad 173
Dual Ceteris Paribus Comparisons: Some Initial Thoughts
on Laboratory Isolation of Equilibrium Forces in Auction
Markets
VI Contents
John H. Kagel and Douglas Dyer 184
Learning in Common Value Auctions
Brian P. Daniels and Charles R. Plott 198
Inflation and Expectations in Experimental Markets
Ulrich Vossebein and Reinhard Tietz 219
Modeling Investment Behavior in an Experimental Market
V. COALITION FORMATION
Reinhard Selten and Gerald R. Uhlich 235
Order of Strength and Exhaustivity as Additional Hypothe-
ses in Theories for 3-Person Characteristic Function
Garnes
Samuel S. Komorita, Alan L. Ellis, and Robert J. Melton 251
The Effects of Justice Norms in a Bargaining Situation
David A. Kravitz, and Samuel J. Gunto 268
Modeling Coalition Formation in Inessential Probabilistic
Garnes
James D. Laing 286
Sequential Garnes of Status: A Replication
Wulf Albers and Andrea Brunwinkel 303
Equal Share Analysis for Location Games
Axel Ostmann 317
Limits of Rational Behavior in Cooperatively Played
Normal Form Games
Wulf Albers 333
Revealed Aspirations and Reciprocal Loyalty in Apex
Garnes
VI. BIBLIOGRAPHY
Selected Bibliography of the Participant's Contribu
tions to Experimental Economics 353
Author Index 363
Subject Index 366
1.
EXPERIMENTAL ECONOMICS
EXPERIMENTAL ECONOMICS:
WAYS TO MODEL BOUNDED RATIONAL BARGAINING BEHAVIOR
- Introductory Remarks to the
Fourth Conference on Experimental Economics -
by
REINHARD TIETZ
University of Frankfurt
Abstract: Experimental Economics is an interdisciplinary research
method in which mainly economists and psychologists cooperate in ana
lyzing human decision behavior. Testing hypotheses and constructing
theories are the two main tasks of this discipline.
A paradigm intensively investigated in experimental economics is
the bilateral bargaining situation. Similar to other paradigmata, as
the oligopoly or the coalition problem, it was the seeming indetermi
nateness which initiated a variety of concurring theories. To solve
this dissonant situation many experiments were performed, influences
on the bargaining resolution were isolated and new descriptive theo
ries were developed by the explorative method. Some theses regarding
what should be taken into consideration in modeling bounded rational
behavior are given.
It is now fifteen years ago, on September 5th, 1971 that HEINZ
SAUERMANN opened the First Conference on Experimental Economics in
Kronberg. During that First Conference, we discussed a wide variety of
topics (SAUERMANN, 1972), whereas the Second Conference, nine years
ago, was concerned with "Bargaining and Coalition Forming Behavior"
(SAUERMANN, 1978a, b). The last conference, in the fall of 1982, had a
more special theme: "Aspiration Levels in Bargaining and Economic
Decision Making" (TIETZ, 1983).1)
1) A jocular interpretation of the tendency of decreasing time spans
between the conferences of 6, 5, and 4 years leads to the following
model of "bounded rational conference behavior". Let be t the year
and n the conference index, then:
n
(1) ten) = b + ~ (8-i) = b + (16-n)(n+1)/2, for n < 8, with b= 1956,
i=O
the year when HEINZ SAUERMANN and REINHARD SELTEN (1959) had the idea
to perform "An Experiment in Oligopoly". Using the precise dates of
the openings of the four conferences, a regression analysis yields
..,. ::0 ,... C1l ~ ~ ,... >;J C1l !i N
i I >-\ l-:::;1 I z: <:X: a -.. j I-! <:X: I a::: I I <.!) :z: i ....... j ~I' => a ~,
>-I-X w --1 a... :E: o u :s z s I-U ~
" )
--
1
~
/1
--)(
-/
--
-
-
-
- S
E
N
I
L
P
I
C
S
DI
E
C F
O
~
r T
rs ER
t C NC
rr M I CO
or0 THE
~N N
~ O I
p C CS
E MI
O
N
O
C
E
L
A
T
N
E
M
RI
E
P
X
E
:
1
E
R
U
G
FI
(/,) W a::: a W I I l!:l :z: ....... I u => 0::: I (/,) z: a u
(/,) W (/,) w I I-a a... >-I <.!) :z: I-(/,) W I-
Modeling Bounded Rational Behavior 5
The shortening of the conference intervals shows the growing
interest in and importance of experimental economics. The inherent
tendency in the contributions of the former conferences already aimed
to the more programmatic theme of our present conference. "Modeling
Bounded Rational Behavior in Experimental Games and Markets". It is an
attempt of collecting all the building blocks from former experimental
research and to present them as a concentrated essence.
To put our work in a wider context. Figure 1 shows experimental
economics in the concert of social disciplines as Economics. Psycho
logy. Sociology. or Political Science. I will concentrate here on the
fields of economic research. Experimental economics with its control
led laboratory real i ty forms a 1 ink between economic theory and non
experimental field research concernend with historical reality. The
link works by testing hypotheses and constructing theories as the two
counter-directed arrows on the left of Figure 1 indicate. The arrows
on the right symbolize in which direction the bounding of rationality
respectively the reduction of complexity increases.
Often. economic problems which are seen in theory as indeter-
minate or ambiguous have initiated experimental research with a cer
tain time lag. This was the case with the early oligopoly experiments
of SAUERMANN and SELTEN 1959. HOGGATT 1959. SIEGEL and FOURAKER 1960
and 1963. as well as with the experiments on coalition formation
(KALISH. MILNOR. NASH. and NERING. 1954) or on negotiations (SIEGEL
and FOURAKER. 1960).
As late as at least 1881 the solution of the bargaining problem
in bilateral monopoly was seen by EDGEWORTH as indeterminable. This
statement may have been the cause for the development of a variety of
bargaining theories. e.g .. of ZEUTHEN 1930. HICKS 1932. VON
footnote .1 from page 1 continued:
the following result:
(2) ten) = 1956.62 + 1.00251 (16-n)(n+1)/2 ± .033
(s) (.07) (.003) (standard deviation)
(t) (27705.) (336.1) (t-statistic)
(a) .00005 .0001 (level of significance)
coefficient of ?ariation CV ~ .00002
R2 = .99998 . Fz = 108504. a ~ .0002
Durbin-Watson statistic d = 2.034.
The coefficient of determination R2 and both regression coefficients
are with a ~ .0002 highly significant. The Durbin-Watson statistic.
d = 2.034. does not indicate autocorrelation. By means of (2) we can
predict within a 95%-confidence interval 1 of ±54 days that the fifth
conference will be opened on the 13th of September. 1989.
