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Recent studies suggest that the type of strategic environment or expectation feedback may have a large impact on whether the market learns the rational fundamental price. We present an experiment where the fundamental price experiences large unexpected shocks. Markets with negative expectation feedback (strategic substitutes) quickly converge to the new fundamental, while markets with positive expectation feedback (strategic complements) do not converge, but show under-reaction in the short run and over-reaction in the long run. A simple evolutionary selection model of individual learning explains these differences in aggregate outcomes.

We examine how self-selection of workers depends on the power of incentive schemes and how it affects team performance if the power of the incentive schemes is increased. In a laboratory experiment, we let subjects choose between (low-powered) team incentives and (high-powered) individual incentives. We observe that subjects exhibiting high trust or reciprocity in the trust game are more likely to choose team incentives. When exposed to individual incentives, subjects who chose team incentives perform worse if both the unobservable interdependency between their efforts and their incentive to cooperate under team incentives are high.

Theories (and experiments) on decision making under risk typically ignore (and exclude) a social context. We explore whether this omission is detrimental. To do so we experimentally investigate the simplest possible situation with both social comparison and risk: participants choose between two lotteries while a referent faces a fixed payoff. Participants are more risk averse when they can earn at most as much as their referent (loss situation) than when they are ensured they will earn at least as much as their referent (gain situation). Prospect theory with a social reference point would predict the exact opposite behavior. These results show that straightforward extensions of existing theories to allow for social comparison do not provide accurate predictions.

This experimental study is concerned with the impact of the timing of the resolution of risk on investment behavior, with a special focus on the role of affect. In a between-subjects design we observe the impact of a substantial delay of risk resolution (2 days) on investment choices. Besides the resolution timing all other factors, including the timing of payout, are held constant across treatments. In addition, state-of-the-art experimental techniques from experimental economics and psychology are used for eliciting preferences and to explicitly measure emotions and personality traits. Participants put their own money at stake. Our main finding is that the timing of the resolution of risk matters for investment, modulated by the probability of investment success. Emotions are found to play a significant role in this respect and explain our main finding. Our results support recent models of decision making under risk trying to incorporate anticipatory emotions but also uncover some important shortcomings related to the dynamics of emotions.

We compared private and social decision making to investigate the neural underpinnings of the effect of social comparison on risky choices. We measured brain activity using functional MRI while participants chose between two lotteries: in the private condition, they observed the outcome of the unchosen lottery, and in the social condition, the outcome of the lottery chosen by another person. The striatum, a reward-related brain structure, showed higher activity when participants won more than their counterpart (social gains) compared with winning in isolation and lower activity when they won less than their counterpart (social loss) compared with private loss. The medial prefrontal cortex, implicated in social reasoning, was more activated by social gains than all other events. Sensitivity to social gains influenced both brain activity and behavior during subsequent choices. Specifically, striatal activity associated with social gains predicted medial prefrontal cortex activity during social choices, and experienced social gains induced more risky and competitive behavior in later trials. These results show that interplay between reward and social reasoning networks mediates the influence of social comparison on the decision process.