Table Of ContentEXPERIMENTAL ECONOMICS: FINANCIAL MARKETS,
AUCTIONS, AND DECISION MAKING
EXPERIMENTAL ECONOMICS:
FINANCIAL MARKETS, AUCTIONS,
ANO OECISION MAKING
Interviews and Contributions from the
20th Arne Ryde Symposium
Edited by
FREDRlK ANDERSSON
Lund University, Sweden
and
o
HAKANHOLM
Lund University, Sweden
~.
"
Springer Science+Business Media, LLC
ISBN 978-1-4613-5303-4 ISBN 978-1-4615-0917-2 (eBook)
DOI 10.1007/978-1-4615-0917-2
Library of Congress Cataloging-in-Publication Data
A C.I.P. Catalogue record for this book is available from the Library of Congress.
Copyright ~ 2002 by Springer Science+Business Media New York
Originally published by Kluwer Academic Publishers in 2002
Softcover reprint of the hardcover 1s t edition 2002
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Aboutthe Arne Ryde Foundation
Arne Ryde wasanexceptionallypromisingstudent inthePh.D.programatthe
DepartmentofEconomicsatLund University. He wastragicallykilled inacar
accident in 1968. The Arne Ryde foundation was established by his parents,
pharmacistArne Ryde and hiswifeValborgincommemoration ofArne Ryde.
According to the deed of the foundation from 1971 the aim of the foundation
is: to foster and promote advanced economic research in cooperation with the
DepartmentofEconomics atLund University. The foundation acts by lending
support to conferences, symposia, lecture series and publications which are
initiated by faculty members of the department.
Anders Borglin
Chairman
Contents
Part I Interviewswith Invited Speakers
1
PeterBohm 3
2
CatherineC.Eckel 9
3
Werner Güth 19
4
John Hey 29
5
DanieiKahneman 41
6
Alvin Roth 49
7
Vernon Smith 67
8
MartinWeber 75
Part11 Contributions
9
Attitudestowards Risk andInequality 85
YoramAmiel, FrankCowell,with theassistance0/KasparRichter
1 Introduction 85
2 Theoretical Background 86
2.1 Inequalityand Risk 86
2.2 The MeaningofInequalityand of Risk 88
2.3 An Axiomatic Approach 89
3 TheExperiment 91
3.1 Issues 91
3.2 Implementation 92
Vlll EXPERIMENTALECONOMICS
4 Data 93
5 Numerical responses and thePrincipleofTransfers 94
5.1 Descriptiveresults 94
5.2 RegressionAnalysis 96
6 NumericalResponses: variation byTypeofIncomeTransfer 97
6.1 DescriptiveAnalysis 97
6.2 Regression Analysis 98
6.3 Aprovisional evaluation 99
7 The VerbalQuestion 102
7.1 The structureofthequestion 102
7.2 Verbalquestion: descriptive results 102
7.3 Regression analysis 104
8 Conclusions 105
Appendix 107
I Variabledefinitions 107
2 The Questionnaires 107
10
Pitfalls inExperimentalEconomies 117
PeterBohm
I Introduction 117
2 MonetaryIncentiveLevels 118
3 Subjects 119
4 TestingTheory inContext orNon-ContextEnvironments 121
5 StationaryRepetitions 124
6 ConcludingRemarks 125
11
The Effect ofTradingPeriodDuration 127
Darren Duxbury
1 Introduction 127
2 Relevant LiteratureandResearch Hypotheses 128
3 Experimental Design 131
3.1 OverviewofExperimentalProcedures andDesign 131
3.2 Experimental Markets 132
3.3 ParticipantsandMotivation 132
3.4 Specific Market Designs 135
4 Analysisand Results 136
4.1 Data Considerations 136
4.2 ExperimentalMarkets Group One (PN Markets) 137
VolumeofTrade 144
Informational Efficiency 144
AllocationalEfficiency 145
4.3 ExperimentalMarkets Group Two(INMarkets) 145
VolumeofTrade 148
InformationalEfficiency 152
Allocational Efficiency 153
4.4 Experimental Markets Groups Three andFour 153
5 DiscussionandConclusions 153
Contents ix
12
RobustLearningExperiments 159
WemerGüth
1 Introduction 159
2 Auctionsand Fair Division Games 161
3 Reputationformation 166
4 Endogenous timing in bilateral negotiations 171
5 Alternatingoffer bargaining 174
6 Discussion 179
13
The ImpactofFairness on DecisionMaking 185
Heike Hennig-Schmidt
1 Introduction 185
2 RelevantLiterature 187
3 Method 189
4 Experimentaldesign 191
4.1 The UltimatumGame 191
4.2 The TripledTakeGame 191
4.3 An AlternatingOffer BargainingGame 192
4.4 Procedure 192
5 Results 193
5.1 Fairness issynonymoustoequity 196
5.2 The influence of fairness ondecisionmaking 202
6 Conclusion 204
14
The SequentialPrisoners' Dilemma 211
Carles Sold
1 Introduction 211
2 Previous Experiments 212
3 Models and Predictions 214
3.1 InequalityAversion 215
3.2 Altruism 217
4 ExperimentalDesign 218
5 Results 219
6 Conclusions 221
Appendix 222
15
CollusioninAuctions 227
Jana Vyrastekova and Maria Montero
1 Introduction 227
2 TheGame 230
2.1 Nash Equilibriaofthe Stage Game 231
2.2 CollusionintheRepeatedGame 231
Simplecollusion 232
Efficient collusion 232
3 The Experimental Design 232
x EXPERIMENTALECONOMICS
3.1 Hypotheses 233
4 Results 234
4.1 AverageEarnings 234
4.2 Bidding Behavior 236
4.3 Bidding Proposals 237
Round 1data 237
Overalldata 238
4.4 ValueMessages 241
4.5 Sidepayments 242
5 Conclusion 243
Appendix: Collusion inEquilibrium 244
Incentivestotellthetruth 244
Incentivestobidlow 244
Incentivestogivesidepayments 245
Foreword
In the spring of 1998theeditors ofthis volume realized that although afew
Swedish researchers had conducted experiments and presented their results in
journals and on international conferences, Sweden had not hosted any major
conference with focus on Experimental Economics. Furthermore, knowledge
ofthe recent interesting developments inthis area werenot widespread among
economists in general. Inspired by this we decided to plan an Arne Ryde
symposiumonExperimentalEconomics withthepurpose tofurther theknowl
edge of experimental methods and results to the larger scientific community
of economists in Scandinavia and to provide an additional opportunity for re
searchers in the field to meet and exchange ideas. The chairman of the Arne
Ryde foundation at the time, Professor Björn Thalberg, was enthusiastic, and
promised financial support. Inthe same summer invitations were sentout.
The 20th ArneRyde Symposium onExperimentalEconomics washeldNo
vember 9-11,2000 atthe School ofEconomics andManagementatLund Uni
versity. Invited lectures were given by PeterBohm, Catherine Eckel, Werner
Güth, lohn Hey, Daniel Kahneman, Alvin Roth, Vernon Smith, and Martin
Weber. To document the symposium each invited lecturer was interviewed.
Part I of this volume - Chapters 1 through 8 - consists of these interviews.
Most of thequestions posed totheinterviewees are similar andconcern issues
that we hope to be of interest to researchers of the field but also to a general
audience ofeconomists. Although, itmight be interesting tocompare answers
of different prominent researchers we havedecided, for the sake of complete
ness and authenticity, to present interviews author by author and not question
byquestion. Thisalso makesiteasier forthereader tofollowtheinterviewees'
thoughts through the interview.
Part11ofthisvolumeconsistsofpapersofthat werepresented atthesympo
sium. The papers by Peter Bohm and Werner Güth are related to their invited
lectures. Participantsthat wereaccepted aspaper presenters atthe symposium
were invited to submit their papers for publication in this volume; follow
ing submission there was a peer review process. A subset of the presenters
submitted theirpapers and asubset ofthese were finally accepted.
xii EXPERIMENTALECONOMICS
Anundertakinglikethe20th Ame RydeSymposiumcannottake placewith
out support and help from numerous persons. In many cases this help goes
far beyond what normally can be expected. We are very grateful to the Ame
Foundationforthefinancialsupport. Inparticularwewouldliketothank Bjöm
Thalberg and his successor as chairman for the foundation, Anders Borglin,
for their general support and their understanding that not all expenses can be
foreseen. Intheplanningandcompletion ofthesymposiumthehelpfromAnn
Charlotte Sahlin and Mona Hansson was invaluable. We have also received
substantial help in finishing this volume. The task of making transcriptions
of the taped interviews (in Part I) was solved with accuracy and sensitivityby
Anna Holmqvist. Wearealso grateful toanumberofanonymous referees that
made asubstantial effort inevaluating the contributions inPart 11.
Lund, January 21, 2002
FredrikAndersson and Häkan Holm
