Arthur Schram

We study public persuasion in elections with binary outcomes, like referendums. In our model, one or multiple senders attempt to influence the election outcome by manipulating public information about a payoff-relevant state. We allow for a wide class of sender preferences, ranging from pure self-interest to a broad set of social welfare functions, including utilitarian preferences. Our main result identifies a single-crossing property that ensures the optimality of censorship policies, which reveal intermediate states while censoring extreme states. This holds in large elections under both monopolistic and competitive persuasion. The single-crossing property holds for all self-interested senders and more generally under a mild condition for the distribution of voters’ preferences. We analyze how a sender’s optimal censorship policy changes with his preferences and voting rules, and characterize the asymptotic properties as the electorate size goes to infinity. Finally,our results shed new lights on whether media competition maximizes voter welfare.

This paper investigates infrastructure investment in markets where regulation is subject to varying degrees of manipulation by elected politicians. Based on a model of price regulation in a market with increasing demand and long-term returns on investment we construct a multi-period game between a service provider, consumers with voting rights and elected decision makers. In each period the consumers elect a decision maker who may then regulate the price for service provision. Before an election the service provider chooses whether to increase its capacity. Investment is irreversible and profitable only with a sufficiently high price. We derive the subgame perfect equilibrium for this game and investigate the price and investment dynamics through an experiment with human subjects. The experimental results show that service providers invest when decision-makers’ interests align with their own, though prices may rise inefficiently high when the regulatory framework is made independent of future political manipulation. Independency of regulation thus decreases efficiency and consumer surplus. In contrast, when decision-makers’ interests do not align with service providers’ we find efficiency only when regulation can be made independent from electoral dynamics.

In a system of proportional representation, we study the interaction between a voter’s turnout decision and her party choice, and how these relate to party polarization. Quantal response equilibria predict such interaction effects. In particular they predict (i) a Polarization Effect: reduced strategic party choice when voting is voluntary makes voters more likely to vote for extreme parties (conditional on voting at all); (ii) an Extremist Effect: voters supporting extreme parties are most likely to vote; (iii) a Turnout Effect: party polarization increases voter turnout. We provide data from a laboratory experiment that support these theoretical predictions. In addition, we provide supporting empirical evidence from real world elections. Hence, the interaction between turnout and strategic voting that has been neglected in most of the previous literature is shown to be important.

Credit default swaps (CDS) played an important role in the financial crisis of 2008 leading to calls for regulation. Here, we seek to understand the impact of a CDS regulation that restricts the possibility to hold naked CDS. We use a controlled laboratory experiment analyzing CDS pricing in a bond market subject to default risk. Our results show that the regulation achieves the goal of increasing the use of CDS for hedging purposes while reducing the use of CDS for speculation. This success does not come at the expense of lower initial public offering (IPO) prices for the bonds or worse pricing of bonds or CDS in the secondary market.

Private infrastructure investment is profitable only if followed by a sufficiently high price, but pricing may be subject to regulation. We study markets where regulation is determined by elected policy makers. If price regulation is subject to manipulation then private investors may delay investment fearing an electoral pressure on future prices, leading to a hold-up inefficiency. This could possibly be alleviated by regulatory independence where policy makers can no longer influence the prices. However, to encourage investment the policy makers may install regulation that serves the interests of the infrastructure owners (‘regulatory capture’) and lead to inefficient pricing. Regulatory independence can then be detrimental as it may entrench this capture. Whether inefficiencies can be moderated by creating regulatory independence therefore depends on the policy makers’ objectives. We provide experimental evidence for such capture entrenchment and detrimental effects of regulatory independence that therefore arise. Even without independence the uninformed voters do not provide sufficient pressure to remove these effects. On the other hand, we observe that regulatory independence does reduce hold-up inefficiency when policy makers align with the public interest.

Using an amended Gneezy’s cheap-talk game with multiple decisions, we test whether gender differences in lying depend on the magnitude of gains, as hypothesized in the literature. We find that women may have a greater aversion to lying for small monetary gains; this effect disappears with increased gains.

Does competition affect moral behavior? This fundamental question has been debated among leading scholars for centuries, and more recently, it has been tested in experimental studies yielding a body of rather inconclusive empirical evidence. A potential source of ambivalent empirical results on the same hypothesis is design heterogeneity—variation in true effect sizes across various reasonable experimental research protocols. To provide further evidence on whether competition affects moral behavior and to examine whether the generalizability of a single experimental study is jeopardized by design heterogeneity, we invited independent research teams to contribute experimental designs to a crowd-sourced project. In a large-scale online data collection, 18,123 experimental participants were randomly allocated to 45 randomly selected experimental designs out of 95 submitted designs. We find a small adverse effect of competition on moral behavior in a meta-analysis of the pooled data. The crowd-sourced design of our study allows for a clean identification and estimation of the variation in effect sizes above and beyond what could be expected due to sampling variance. We find substantial design heterogeneity—estimated to be about 1.6 times as large as the average standard error of effect size estimates of the 45 research designs—indicating that the informativeness and generalizability of results based on a single experimental design are limited. Drawing strong conclusions about the underlying hypotheses in the presence of substantive design heterogeneity requires moving toward much larger data collections on various experimental designs testing the same hypothesis.

This study uses data from a series of laboratory experiments to provide a comprehensive analysis of gender differences in performance caused by two different dimensions of competition –rivalry for resources and status ranking. It also examines two mechanisms behind such differences. The results indicate that in the absence of any competitive dimension the performance difference between men and women is not statistically significant at the usual levels. Any competitive dimension, however, leads to women performing statistically significantly worse than men. These results are explained by the two mechanisms: (1) men’s beliefs that they are better than women under competition, and (2) women’s adherence to a prescribed stereotype of not harming others. This suggests that gender differences under competition are endogenous to situational contexts.

This paper studies the effects of social status - a socially recognized ranking of individuals - on prosocial behavior. We use a laboratory experiment and propose a theory to address this issue. In a one-shot game, two players, whose social status is either earned or randomly assigned, jointly make effort contributions to a project. Player 1 first suggests an effort level for each player to player 2 who then determines the actual effort levels. Deviation from the proposal is costly. We find causal evidence that high-status players are less selfish than their low-status counterparts. In particular, high-status players 2 provide relatively more effort, ceteris paribus, than those with low status. The experimental results and theoretical framework suggest that a high social ranking yields more social behavior and that this can be attributed to the sense of responsibility that it gives.

For successful anti-corruption policies, it is crucial to understand the basic social contract governing the interaction between people. Social norms are a key element of the social contract, but may vary across cultures. We investigate how descriptive social norms affect the development of corruption over time. In a laboratory experiment implemented in the Netherlands, Russia, Italy, and China we study a corruption game that is based on a real effort task. To induce natural variation in descriptive norms, we vary the type of information about others' choices. Such information may lead to `contagion' -where corruption increases in response to observing high corruption by others- or `conformism' -where it decreases when ow corruption by others is observed. Our results show evidence of contagion.

We study how a gift exchange labor market reacts to the occurrence of negative shocks. One-round shocks may hit either workers’ wages or employers’ earnings (via worker productivity). In our model, other-regarding preferences suffice to predict gift exchange and wages above the competitive level. Wage rigidity is predicted if we add wage illusion and loss aversion. Using a real-effort laboratory experiment, we find support for the model. When there are no shocks, there is gift exchange. After a wage shock we see strong nominal wage rigidity and no impact on workers’ effort, as predicted. Rigidity is also observed after a productivity shock, but here we do observe increases in effort, especially at low wages. The latter is contrary to the model predictions and suggests that productivity shocks alter gift-exchange patterns. We conclude that the wage rigidity often observed in the field can be explained by boundedly rational workers with social preferences.

We study whether gender influences credit attribution for group work using observational data and two experiments. We use data from academic economists to test whether coauthorship matters differently for tenure for men and women. We find that conditional on quality and other observables, men are tenured similarly regardless of whether they coauthor or solo-author. Women, however, are less likely to receive tenure the more they coauthor. We then conduct two experiments that demonstrate that biases in credit attribution in settings without confounds exist. Taken together, our results are best explained by gender and stereotypes influencing credit attribution for group work.

Performance ranking is common across a range of professional and recreational domains. Even when it has no economic consequences but does order people in terms of their social standing, anticipating such performance ranking may impact how people feel and perform. We examined this possibility by asking human subjects to execute a simple cognitive task while anticipating their performance being ranked by an outside evaluator. We measured baseline and post-performance levels of testosterone and cortisol. We find that (i) anticipating performance ranking reduces testosterone and increases cortisol; (ii) both these hormonal responses benefit cognitive performance; which explains why (iii) anticipation of being ranked by a peer increases cognitive performance.

This paper studies how social ties interact with bribery and corruption. In the laboratory,subjects are in triads where two `performers' individually complete an objective real-effort task and an evaluator designates one of them as the winner of a monetary prize. In one treatment dimension, we vary whether performers can bribe the evaluator –where any bribe made is non-refundable, irrespective of the evaluator's decision. A second treatment dimension varies the induced social ties between the evaluator and the performers. The experimental evidence suggests that both bribes and social ties may corrupt evaluators' decisions. Bribes decrease the importance of performance in the decision. The effect of social ties is asymmetric. While performers' bribes vary only little with their ties to the evaluator, evaluators exhibit favoritism based on social ties when bribes are not possible. This `social-tie-based' corruption is, however, replaced by bribe-based corruption when bribes are possible. We argue that these results have concrete consequences for possible anti-corruption policies.

We construct an election game to study the electoral impacts of biased candidate endorsements.We derive a set of testable predictions. We test these in a laboratory experiment and find that observed election outcomes and vote shares are well predicted. We find no support, however,for our prediction that the relationship between election outcome and the endorser’s bias is nonmonotonic; i.e., ex ante, a candidate’s winning probability will first increase and then decrease as the endorser becomes more biased towards her. Voter turnout is much less responsive to the bias than predicted. We argue that observed voting behavior can be explained, to a substantial extent, by three behavioral mechanisms: (a) distinct levels of rationality for candidate choice and turnout decisions, (b) conservative belief updating, and (c) ’partial competition neglect’,where voters underestimate the correlation between the information released by an endorsement and the closeness of elections.

We investigate a mechanism that facilitates the provision of public goods in a network formation game. We show how competition for status encourages a core player to realize efficiency gains for the entire group. In a laboratory experiment we systematically examine the effects of group size and exogenously monetarized status rents. The experimental results provide very clear support for the concept of challenge-freeness, a refinement that predicts when a repeated game equilibrium will be played, and if so which one. Two control treatments allow us to reject the possibility that these observations are driven by social preferences, independently of the competition for status.

Competition involves two dimensions, rivalry for resources and social-status ranking. In our experiment we exclude the first dimension and investigate gender differences in the preference for status ranking. Participants perform a task under non-rivalry incentives. Before doing so, individuals indicate whether they prefer to do the task in an environment with social-status ranking or one without, knowing whether or not the choice will be imposed upon the whole group (as opposed to being personal) and whether the ranking will be observed by a man or a woman. We find no gender difference in mean status-ranking aversion when the ranking is personal. When the ranking is imposed, there are still no gender differences in the preferences for social ranking when the rank observer is a woman, and women are not affected by the rank observer’s gender. With a male rank observer, however, men have a much stronger desire to be ranked than with a female rank observer.

We study the effects of varying individual pivotality and endogenous group entry on the selfishness of group decisions. Selfish choices by groups are often linked to the possibility of diffusing responsibility; the moral costs of these decisions appear smaller when individual pivotality is reduced. Our experimental design explores unanimity voting under distinct defaults to identify this effect. In exogenously formed groups we find evidence of responsibility diffusion, but this diminishes with repetition. Our results also demonstrate the role of self-selection in generating differences in group behaviour depending on individual pivotality. Driven by a heterogeneous selection pattern, endogenous group formation amplifies the effects of a change in pivotality. Some people actively seek an environment to diffuse responsibility, while others join groups to promote pro-social behaviour.

Competition involves two main dimensions, a rivalry for resources and the ranking of relative performance. If socially recognized, the latter yields a ranking in terms of social status. The rivalry for resources resulting from competitive incentives has been found to negatively affect women’s performance relative to that of men. However, little is known about gender differences in the performance consequences of social-status ranking. In our experiments we introduce a novel design that allows us to isolate the effects of status ranking from those caused by a rivalry for resources. Subjects do a time-limited task where they need to search for numbers and add them up. Performance is straightforwardly measured by the number of correct summations. When there is no status ranking we find no gender differences in the number of attempted summations or in performance. By contrast, when there is status ranking men significantly increase the number of attempted summations as well as the number of correct summations. Remarkably, when women are subjected to status ranking, they significantly decrease the number of attempted summations. The net result is striking. With status ranking men attempt more summations and correctly solve many more than women. These differences are markedly large and statistically highly significant. Our results suggest that increased participation in competitive environments could harm women’s labor market success along a hidden channel.

We investigate the effects of centrality on cooperation in groups. Players with centrality keep a group together by having a pivotal position in a network. In some of our experimental treatments, players can vote to exclude others and prevent them from further participation in the group. We find that, in the presence of exclusion, central players contribute significantly less than others, and that this is tolerated by those others. Because of this tolerance, teams with centrality manage to maintain high levels of cooperation.

Dedicated to the discussion of methods, the handbook offers a reference to the current state-of-the-art and standards in experimental economics. Its 21 chapters comprehensively cover issues such as deception, replication, recruitment, randomization, data analysis, laboratory organization, and experimenter demand. Further topics include incentives, preferences, macro experiments, policy design, cross cultural experiments, real effort tasks, and communication. Several chapters are devoted to methods in personality psychology, neuroeconomics, or field experiments. Two chapters introduce new theoretic developments on risky choice, and a non-parametric generalization of QRE.

An important feature of bond markets is the relationship between initial public An important feature of bond markets is the relationship between the IPO price and the probability that the issuer defaults. On the one hand, the default probability affects the IPO price. On the other hand, IPO prices affect the default probability. It is a priori unclear whether agents can competitively price such assets and our paper is the first to explore this question. We do so using laboratory experiments. We develop two flexible bond market models that are easily implemented in the laboratory. We find that subjects learn to price the bonds well after only a few repetitions.

Ponzi-like investment schemes were popular in many transition economies. Often, some government officials had inside information about the viability of such schemes and used this information to their own advantage. We introduce a novel experimental design that allows us to study the extent to which this kind of abuse of information is possible and what consequences it has for those without such information. In particular, we investigate how the proportion of informed versus uninformed investors and the promised dividends affect the way in which informed investors can exploit the investments of uninformed investors. Our results show that uninformed investors follow the observed choices of the informed even more than predicted by theory. This adds to the devastating effects that this kind of underground activity can have on the uninformed.

This paper presents an experimental study on the relationship between other-regarding preferences, in-group bias and political participation. We conjecture that subjects who are more other-regarding and exhibit higher in-group bias are more likely to bear the costs of participating in group action. Using a participation game, we implement laboratory elections in which two groups compete for victory. We induce different levels of in-group bias across subjects in order to implement treatments in which the competing groups are either highly biased towards the own group vis-à-vis the other one or are characterized by low levels of such in-group bias. Our results show that, at the aggregate level, participation is higher in environments where in-group bias is more pronounced. Furthermore, the least other-regarding subjects participate much less often that others, while the more other-regarding sustain high participation levels. These findings suggest that interpersonal preferences and intergroup bonds can explain the higher participation of close-knit (political) groups observed in the field.

We theoretically and experimentally study voter behavior in a setting characterized by plurality rule and mandatory voting. Voters choose from three options. We are interested in the occurrence of strategic voting in an environment where Condorcet cycles may occur and focus on how information about the preference distribution affects strategic behavior. We also vary the relative importance of the second preferred option. Quantal response equilibrium analysis is used to analyze the game and derive predictions. Our results indeed show that strategic voting arises. Its extent depends on (i) information availability; (ii) the relative importance of the intermediate candidate; (iii) the electorate’s relative support for one’s preferred candidate; (iv) the relative position of the plurality-supported candidate in one’s preference ordering. Our results show that information serves as a coordination device where strategic voting does not harm the plurality-preferred candidate’s chances of winning.

Using a laboratory experiment, we study the predictive power of the Fehr-Schmidt (1999) model of inequity aversion and its robustness to reciprocity and stakes. We find stronger evidence for the model’s predictive power at the individual level than what the existing literature suggests. This finding is robust to stakes. However, the model’s predictive power is highly reduced if subjects can reciprocate others’ actions. This suggests that parameter estimates obtained in an environment that allows for reciprocal responses yield a bias in the parameter estimates. In particular, previous estimates (especially of the disutility of disadvantageous inequity aversion) may overestimate the importance of inequity aversion.

Indirect reciprocity involves cooperative acts towards strangers, either in response to their kindness to third parties (downstream) or after receiving kindness from others oneself (upstream). It is considered to be important for the evolution of cooperative behavior amongst humans. Though it has been widely studied theoretically, the empirical evidence of indirect reciprocity has thus far been limited and based solely on behavior in laboratory experiments. We provide evidence from an online environment where members can repeatedly ask and offer services to each other, free of charge. For the purpose of this study we created several new member profiles, which differ only in terms of their serving history. We then sent out a large number of service requests to different members from all over the world. We observe that a service request is more likely to be rewarded for those with a profile history of offering the service (to third parties) in the past. This provides clear evidence of (downstream) indirect reciprocity. We find no support for upstream indirect reciprocity (in this case, rewarding the service request after having previously received the service from third parties), however. Our evidence of downstream indirect reciprocity cannot be attributed to reputational effects concerning one’s trustworthiness as a service user.

We study how the formality of a bargaining procedure affects its outcome. We compare a formal Baron-Ferejohn bargaining procedure to an informal procedure where players make and accept proposals in continuous time. Both constitute non-cooperative games corresponding to the same bargaining problem: a three-player median voter setting with an external disagreement point. This allows us to study formality in the presence and absence of a core and provides a natural explanation for the effects of preference polarization. Our results show that polarization hurts the median player and that formality matters. The median player is significantly better off under informal bargain-ing.

In this paper, I discuss Gordon Tullock’s views on Experimentation in Economics, his own research experiment, and his influence on the field of experimental public choice. I argue that Tullock can credibly claim to have been an early supporter of the method and that his work is cited more often than that of other public choice scholars active in the same period. His work on rent seeking forms the basis of an extensive experimental literature and studies on trust, demand revelation and voter turnout have been strongly influenced by Tullock’s work.

Social norms involve observation by others and external sanctions for violations, while moral norms involve introspection and internal sanctions. To study such norms and their effects, we design a laboratory experiment. We examine dictator choices, where we create a shared understanding by providing advice from peers with no financial payoff at stake. We vary whether advice is given, as well as whether choices are made public. This design allows us to explicitly separate the effects of moral and social norms. We find that choices are in fact affected by a combination of observability and the shared understanding.

Game theory, laboratory experiments, and field experiments are common and powerful tools in many social sciences. However, applications in Sociology and Political Science remain scarce and scattered [2]. Yet, the combination of game theory with controlled experiments provides a powerful tool to better understand social and political processes, for example, Themathematical structure offeredby game theory and the control offered by an experimental environment allow the researcher to isolate sociological and/or political phenomena to study their development and their effects. The relationship between game theory and experiments is twofold. On the one hand, game theory provides solid ground on which to design an experiment and a formal benchmark that serves as a measuring rod for a structured analysis of observed behavior. On the other hand, experiments can be used to test equilibrium predictions and to pinpoint shortcomings of theory as well as point to directions in which the theory can be adapted. The aim of the special issue is to encourage original research that seeks to study sociological or political phenomena using laboratory experiments that are based on game theoretical benchmarks and that seek mathematical modeling of game theoretical arguments to inspire experiments in the fields of Sociology and Political Science, and vice versa.

In the process of regulatory reform in the electric power industry, the mitigation of market power is one of the basic problems regulators have to deal with. We use experimental data to study the sources of market power with supply function competition, akin to the competition in wholesale electricity markets. An acute form of market power may arise if a supplier is pivotal; that is, if the supplier’s capacity is required in order to meet demand. To be able to isolate the impact of demand and capacity conditions on market power, our treatments vary the distribution of demand levels as well as the amount and symmetry of the allocation of production capacity between different suppliers. We relate our results to a descriptive power index and to the predictions of two alternative models: a supply function equilibrium (SFE) model and a multi-unit auction (MUA) model. We find that pivotal suppliers do indeed exercise their market power in the experiments. We also find that observed behavior is consistent with the range of equilibria of the unrestricted SFE model and inconsistent with the unique equilibria of two refinements of the SFE model and of the MUA model.

A contract audit is a buyer-initiated audit of prices and other conditions, which aims to decrease the information asymmetry between a buyer and a seller. Contract audits are frequently used in monopolistic or oligopolistic markets as in government procurement. We draw upon three distinct literatures to develop hypotheses (transaction cost theory, the theory of planned behavior and social preference theory) and test these hypotheses using data obtained in a laboratory experiment. Our results show that contract audits are widely used, a phenomenon that cannot be explained by traditional economic reasoning. Their demand is well explained by the theory of planned behavior, however. Our data show that contract audits decrease transaction costs by increasing the probability of successful negotiations. Audits lead to an increased share of the trade surplus for the buyer, but this increased welfare may be offset by the audit costs. They also yield lower transaction prices.

We use laboratory experiments to investigate how employers develop social structures for sharing information about the trustworthiness of job candidates, when worker opportunism is possible. The experimental data show that substantial information sharing emerges. Two types of information networks are observed. One consists of ‘anonymity networks’ where information is anonymously and voluntarily provided as a collective good for all employers to use. The other type is a ‘reciprocity network’ where information sharing is driven by the rewarding of previously given information by the requestor. In both types, the extent of information sharing depends on the costs of providing it. Moreover, information sharing enables employers to recruit trustworthy workers which creates a high quality of trading, benefiting both employer and worker.

In a door-to-door fundraising field experiment, we study the impact of fundraising mechanisms on charitable giving. We approached about 4500 households, each participating in either an all-pay auction, a lottery, a non-anonymous voluntary contribution mechanism (VCM), or an anonymous VCM. In contrast to the VCMs, households competed for a prize in the all-pay auction and the lottery. Although the all-pay auction is the superior fundraising mechanism both in theory and in the laboratory, it raised the lowest revenue per household in the field. Our experiment reveals that this can be attributed to substantially lower participation in the all-pay auction than in the other mechanisms while the average donation for those who contribute is only slightly higher. We explore various explanations for this lower participation and favor one that argues that competition in the all-pay mechanism crowds out intrinsic motivations to contribute. Among the non-anonymous mechanisms, the lottery raises the largest revenue per household. Notably, the method that scored best, the anony¬mous VCM, is the one most used by door-to-door fundraisers in the Netherlands.

An individual choosing a health insurance policy faces a complex decision environment where a large set of alternatives differ on a variety of dimensions. There is uncertainty and the choice is repeated at least once a year. We study decisions and decision strategies in a laboratory experiment where we create a controlled environment that closely mirrors this setting. We use an electronic information board that allows to carefully monitor the individual’s decision strategy. The number of alternatives, switching costs, and the speed at which health deteriorates are varied across treatments. We find that most subjects’ search is based more on attributes than on policies. Moreover, we find that an increase in the number of alternatives increases decision-making time; makes subjects consider a lower fraction of the available information; makes it more likely that subjects will switch; and decreases the quality of their decisions. The introduction of positive costs of switching make people switch less often but improve the quality of their decisions. Finally, if health deteriorates only gradually, individuals tend to stick to their current policy too long.

We experimentally investigate how the managerial decision making process affects choices in a Bertrand pricing game with an opportunity to form non-binding cartels. To do so we compare the effects of three decision-making rules for the firm (decisions by CEOs, majority rule and consensus) to each other and to decisions in a benchmark consisting of single-individual firms. It has been argued elsewhere that groups behave more competitively than individuals. In this setting this predicts that for all three decision-making rules we should observe fewer cartels and lower prices. This is not what we find. For the formation of cartels, there are no differences across treatments. For prices asked, we find that first, cartels lead to higher prices in al treatments, despite the fact that they are non-binding. Second, the decision-making rules strongly affect the prices asked. One thing that stands out is that firms run by CEOs ask higher prices than observed in the other treatments.

We experimentally study the impact of public opinion poll releases on voter turnout and welfare in a participation game. We find higher overall turnout rates when polls inform the electorate about the levels of support for the candidates, than when polls are prohibited. Distinguishing be¬tween allied and floating voters, our data show that this increase in turnout is entirely due to floating voters. When polls indicate equal levels of support for the candidates, turnout is high and welfare is low (compared to the situation without polls). In contrast, when polls reveal more unequal levels of support, turnout is lower with than without this information, while the effect of polls on welfare is non-negative. Finally, many of our results are well predicted by quantal re-sponse (logit) equi¬librium.

We study how the number of traders affects the interaction between a centralized exchange and bilateral negotiations in an experimental labor market with excess supply and incomplete contracts. Our large markets are three times as large as our small markets. In bilateral negotiations firms obtain information about employees’ performance in previous jobs. Though market forces put a downward pressure on wages in large markets, reciprocal tendencies do not differ. Hence, the occurrence of bilateral negotiations increases overall efficiency for both market sizes.

This paper studies experimentally how firms choose between using a centralized market and bilateral negotiations to recruit new personnel. In the market firms interact with several workers but do not have information about workers’ behavior in the past. In the bilateral negotiations firms negotiate bilaterally with prospective workers and learn about workers’ performance in previous jobs. We show that the interaction between social preferences, the incompleteness of contracts and the existence of information about a worker’s past performance provides an explanation for firms forgoing market opportunities and bilaterally negotiating with a worker. We observe that approxi¬mately 30% of all job contracts were bilaterally negotiated when these contracts are incomplete as opposed to only 10% when contracts were complete. The surplus from trade is higher when incomplete contracts can be bilaterally negotiated which can be attributed to the presence of information.

We experimentally compare three mechanisms used to raise money for charities: first-price winner-pay auctions, first-price all-pay auctions, and lotteries. We stay close to the characteristics of most charity auctions by using an environment with incomplete information and independent private values. Our results support theoretical predictions by showing that the all-pay format raises substantially higher revenue than the other mechanisms.

We use a laboratory experiment to compare the way groups and individuals behave in an inter-temporal common pool dilemma. The experimental design distinguishes between a non-strategic problem where players (individuals or groups of three) make decisions without interaction and a strategic part where players harvest from a common pool. This allows us to correct for differences between individuals and groups in the quality of decisions when testing for differences in competitiveness. Group decisions are either made by majority rule or unanimity. The results show that groups are less myopic than individuals (i.e., they make qualitatively better decisions) but that they are more competitive than individuals when placed in a strategic setting. The net result for groups deciding by majority rule is that they make less efficient decisions in the strategic game than individuals do. We are able to show that this is caused by the median voter departing from her original preference in early periods with a shrinking pool. When groups have to make unanimous decisions they start playing the strategic game more efficiently then individuals do, but they rapidly become more competitive with repetition of the game.

One must take country-specific institutional features into account when analyzing former communist countries’ transformation process to new political institutions. We do so for post-communist Albania, where the regional and cultural polarization that has existed for centuries has evolved to clientelism in the new democracy. We show how clientelistic parties give rise to very particular voting patterns. These reveal major differences across regions not only in party choice but also in voters’ responses to government policies. This is in sharp contrast with results obtained when applying the same model to a large number of more advanced democracies with similar electoral institutions.

Many people incur costs to reward strangers who have been kind to others. Theoretical and experimental evidence suggests that such “indirect rewarding” sustains cooperation between unrelated humans. Its emergence is surprising, because rewarders incur costs but receive no immediate benefits. It can prevail in the long run only if rewarders earn higher payoffs than “defectors” who ignore strangers’ kindness. We provide experimental evidence regarding the payoffs received by individuals who employ these and other strategies, such as “indirect punishment” by imposing costs on unkind strangers. We find that if unkind strangers cannot be punished, defection earns most. If they can be punished, however, then indirect rewarding earns most. Indirect punishment plays this important role, even if it gives a low payoff and is rarely implemented.

We use experiments to study the efficiency effects for a market as a whole of adding the possibility of forward contracting to a pre-existing spot market. We deal separately with the cases where spot market competition is in quantities and where it is in supply functions. In both cases we compare the effect of adding a contract market with the introduction of an additional competitor, changing the market structure from a triopoly to a quadropoly. We find that, as theory suggests, for both types of competition the introduction of a forward market significantly lowers prices. The combination of supply function competition with a forward market leads to high efficiency levels.

We study fairness and reciprocity in a Hawk-Dove game. A variety of recent models gives the same predictions for this game. This allows us to provide a general classification of individuals? types. Contrary to a large number of studies on different games over the last decade, we observe a large group of subjects behaving in a selfinterested and rational way in the Hawk-Dove game.

We study the effect of social embeddedness on voter turnout by investigating the role of information about other voters? decisions. We do so in a participation game, in which we distinguish between early and late voters. Each late voter is told about one early voter?s turnout decision. Cases are distinguished where the voters are allies (support the same group) or adversaries (with opposing preferences) and where they are uncertain about each other?s preferences. Our experimental results show that the social embeddedenss matters: this information increases aggregate turnout by approximately 50%. The largest effect is observed for allies. Early voters strategically try to use their first mover position and late voters respond to this.

We compare tax evasive behavior in a country in transition from communism to that in a developed economy by running an experiment across distinct social groups in Albania and the Netherlands. Aside from the tax compliance decision, subjects choose a source of income, where one type enables subsequent tax evasion. We show that they take the possibility of evasion into account when deciding on the income source. This yields potential allocative inefficiency in the labor market. In addition, Dutch subjects evade more than the Albanians. We argue that the different levels of tax evasion outside of the laboratory in the two types of countries can be attributed to distinct formal tax institutions.

This paper considers three alternative ways to sell heterogenous licenses via a first-price format when there is single unit demand. It has been suggested that incorporating a first-price element may bolster competition in this case (Klemperer, 2002). In a controlled laboratory setting, we compare the performance of the simultaneous first-price auction, the sequential first-price auction and the simultaneous descending auction with that of the simultaneous ascending auction. The experiments involve several bidding environments of varying complexity. We find that the simultaneous ascending auction achieves the highest levels of efficiency but also has drawbacks: (i) its revenues are low and variable, (ii) per-license profits vary, and (iii) the incidence of winner's curse outcomes is high. Seller's revenues are highest when the licenses are sold in a sequential first-price auction, in decreasing order of quality.

In the economic literature, reciprocity is typically studied in situations of repeated interaction between two individuals. It refers to one individual rewarding kind acts of the other or punishing hostile acts. In contrast, this paper studies indirect reciprocity, where a cooperative action is rewarded by a third actor, not involved in the original exchange. We provide experimental evidence on indirect reciprocity. The experiment is based on the ?repeated helping game? developed by Nowak and Sigmund (J. Theoret. Biol. 194 (1998) 561; Nature 393 (1998) 573), involving random pairing in large groups. Pairs consist of a donor and a recipient. Donors decide whether or not to provide costly ?help? to the recipients they are matched with, based on information about the recipient's behavior in encounters with third parties. We observe clear evidence of indirect reciprocity. Many decision-makers respond to the information about previous decisions (whether or not to help others) of the recipients. In our experiments, this indirect reciprocity is largely based on norms about how often the recipient should have helped others in the past. We show that these norms develop similarly within groups of interacting subjects, but distinctly across groups. This leads to the emergence of group norms.

The artificiality of a laboratory situation is placed in the context of the tension between external and internal validity. Most economists consider internal validity to be most important. A proper evaluation of the 'artificiality criticism' (a lack of external validity) requires distinguishing the various goals experimentalists pursue. External validity is relatively more important for experiments searching for empirical regularities than for theory-testing experiments. As experimental results are being used more often in the development of new theories, a methodological discussion of their external validity is becoming more important.

Our interest is in assessing the effect of different group decision-rules (or ?regimes?) on conflict resolution. Toward this goal, we model intergroup conflict as a two-stage Chicken game between two groups (teams) of players and distinguish two decision-making procedures for determining a team's choice: democracy (majority rule) and dictatorship (one individual makes the team's decision). In an experiment with three individuals per team, we found that (i) decision-making procedures had no effect on choices at the team level; (ii) decision-making procedures did not affect first-stage choices by individuals; (iii) in the second stage, individuals in democracies were more likely to concede than dictators; (iv) dictators facing a democratic team were least likely to concede, whereas individuals in a democratic team facing a dictator were most likely to concede.

This paper studies behavior in experiments with a linear voluntary contributions mechanism for public goods conducted in Japan, the Netherlands, Spain and the USA. The same experimental design was used in the four countries. Our 'contribution function' design allows us to obtain a view of subjects? behavior from two complementary points of view. It yields information about situations where, in purely pecuniary terms, it is a dominant strategy to contribute all the endowment and about situations where it is a dominant strategy to contribute nothing. Our results show, first, that differences in behavior across countries are minor. We find that when people play ?the same game? they behave similarly. Second, for all four countries our data are inconsistent with the explanation that subjects contribute only out of confusion. A common cooperative motivation is needed to explain the data.

Several European countries and Japan are in various stages of privatizing and/or introducing more competition in passenger rail service. This process has been furthered by a directive from the Commission of the European Communities (1991) requiring member states to separate operations from infrastructure on the books and give international groupings of trains access to their infrastructure. In the Netherlands, the Ministry of Transport, Public Works, and Water Management was assigned responsibility for making a recommendation to Parliament for choosing between competition for the rails and competition on the rails in increasing competition in the supply of passenger rail service. The Ministry commissioned the experiments reported here in order to acquire better understanding of the properties of the two alternative types of competition in the context of a simple stylized rail network. The experimental rail network includes station complementarity and time slot substitutability. It also includes tradeoffs between local and express trains. Competition on the rails involves allocation of rights to use station and time slot routes by price bids in a combinatorial auction. Competition for the rails involves allocation of rights to regional monopolies by fare-structure bids for supplying a pre-specified minimum transport schedule. The experiments include both allocation of rights and scheduling of trains on the network. The two forms of competition are evaluated with various criteria developed by the Ministry, including market prices and allocative efficiency.

We introduce a new design for experiments with the voluntary contributions mechanism for public goods. Subjects report a complete contribution function in each period, i.e. a contribution level for various marginal rates of transformation between a public and a private good. The results show that subjects behavior cannot be explained exclusively as the result of errors. Individuals exhibit essentially one of two types of behavior. One group of subjects behaves in a way consistent with some kind of other-regarding motivation. Some features of the data indicate that these subjects behavior is interdependent. Another group of subjects behaves in accordance with a utility function that depends only on their own earnings. The interaction between these two groups may be important when explaining behavior over time.

This article focuses on the process of expectation formation. Specifically, the question is addressed whether individuals think strategically when they form beliefs about other players behavior. Most belief learning models assume that people abstract from strategic considerations. Using an incentive-compatible mechanism, experimental data are obtained on subjects expectations in a step-level public good game and in a game against nature. Beliefs in the interactive games develop in the same way as in the game against nature, providing evidence that strategic considerations do not play a role. The evidence is consistent with predictions derived from the naive Bayesian model.

Various models of individual motivations are confronted with evidence from different kinds of laboratory experiments. The motivations distinguished are categorized as selfish, other regarding, or cooperative. The experimental evidence shows that the traditional, selfish model is too limited, but that the alternative models that have been suggested each have shortcomings of their own.

This paper presents the results of a political stock market in the Netherlands: PAM94. The exchange covered three consecutive elections, allowing trade on five different markets. The predictions at PAM94 appear to be less accurate than those of previous markets of comparable size. Of the possible explanations that we examine, one in particular survives closer scrutiny. It concerns a type of judgement failure related to the winner's curse in common value auctions. Theoretical as well as empirical support is offered. Apart from qualifying the attractiveness of such markets as an alternative for opinion polls, this explanation may also be relevant for the analysis of other asset markets. Moreover, this judgement failure may be more important for European political stock markets than for the U.S., because the structure of the common values (vote shares) at multiparty elections make them especially vulnerable to it.

We study the politico-economic interaction in a country in transition from a communist regime to a democratic, free market system, to wit, Albania. It is argued that the politico-economic system there is characterized by the existence of clans. Both the communists and the first democratically chosen government applied policies that favored specific clans. Moreover, a popularity function estimation shows that voters related to different clans react in a distinct way to party policies.

(Abstract of the expanded Working Paper) We use a new design to (re)examine the occurrence of strategic behavior in voluntary contributions mechanism experiments. Subjects are in groups that remain constant for a number of periods before they change. The change is public knowledge and always consists of one member switching to another group. Moreover, everyone knows that this individual will not be grouped with any of the members again. In this sense 'partners' really become 'strangers'. We find considerable evidence of strategic behavior in these relatively simple games. Subjects who leave their group contribute less than in the previous period and less than in the next period in their new group. Contribution levels decline with the number of periods remaining for the group. The results can be explained by the occurrence of conditional cooperators, who are willing to contribute if and only if enough others do the same. The presence of these subjects elicits strategic (forward looking) behavior from others.

The effect of adding noise to both an equilibrium model and a naive Bayesian model of behavior in step-level public good games is studied. Quantal response equilibria are derived for these games and a naive Bayesian quantal response function is presented. The models are fit for experimental data from such a game and compared. The results seem more promising for the naive Bayesian model than for the equilibrium model.

An experimental analysis of voluntary, binary contributions for step-level public goods/bads is presented. Alternatively, the situation is presented as the provision of a public good or the prevention of a public bad. From a strategic point of view, these presentations are equivalent. In early periods of the twenty round experiments, behavior is indeed observed to be similar in both cases but, after about five periods, differences start to occur that grow larger. A simple learning model is developed that replicates the patterns in the experiments. Extrapolation beyond twenty periods show that the pattern observed reflects an equilibrium selection.

A nested model is presented which has both the sequential and multinomial logit model as special cases. This model provides a simple test to investigate the validity of these specifications. Some theoretical properties of the model are discussed. During the analysis a distribution function is derived, which, to the best of our knowledge, has not been used before. This distribution is shown to be a generalization of the type I extreme-value distribution. Monte Carlo experiments and empirical applications of the model are presented.

An experimental analysis of voluntary, binary contributions for step-level public goods is presented. Independent information is obtained on individual value orientation and expectations about the behavior of other subjects using incentive compatible mechanisms. The effects of increasing payoffs for the public good and of decreasing groupsize are investigated. Attention is focused on the determination of expectations, the use of expectations when deciding on behavior, and differences in expectations and behavior between individuals with different value orientations.

This paper reports the results of a series of experiments in which participation games are analyzed. Voter turnout is an example of an application of this game. Hypotheses derived from a game theoretic analysis are systematically elaborated, analyzed, and tested. The results are used to explore future paths of research. A distinction is made in two parameter configurations (representing winner-takes-all elections and elections with proportional representation).

This paper reports the results of a series of experiments in which the voter turnout decision was analyzed as a participation game. The experiments were inspired by the model of Schram and Van Winden(1991). In the model, individuals favoring the same policy or candidate are members of a common reference group, and the vote decision is determined by inter- and intragroup relations. Our experimental data supported three hypotheses derived from this model. First, participation increased with group identity. Second, communication enhanced participation. Finally, participation was strongly related to individual characteristics. A simple analysis of the way people learn from their experiences in previous periods is used to argue that any model of voter turnout should take account of myopic adaptive behavior and inertia.

A politicoeconomic model of the relationship between economic and structural variables and government popularity is developed and applied to the Weimar Republic. The authors obtained d ata from decentralized election results in the 1924 to 1933 period using a weighted panel estimation method. Parameter estimates show a strong relationship between the development of economic variables and the decline in electoral support that confronted every government in thi s period. The authors link this finding to existing historiographic theories and extrapolate from it to estimate the effects of the economic recovery in the first years of the Nazi regime.

Three hypotheses often encountered in economic analyses of voter behavior are tested using an extensive data set derived from six consecutive national election studies in the Netherlands in the period 1971-1986. These hypotheses are: (i) the party choice and turnout decisions are taken sequentially and independently by voters; (ii) social groups play a central role in the decisionmaking processes in the political sphere; (iii) the effect of individual-level variables on party choice is stable over time. The results provide support for the first hypothesis and partial support for the second, where the specific categorization of individuals to be chosen is a matter that needs further investigation. The third hypothesis is rejected by the data: the relationship between the variables chosen and party choice proved to be unstable.

A review is given of Dutch papers in a subfield of rational choice theory: those applied to individual behavior in the political sphere. A number of fields of individual behavior are discussed. Most attention is paid to papers that appeared in the Dutch language.

A model is presented which places the decision to vote or abstain in a rational choice framework. It is shown that casting a vote may well be a rational act, following from an individual cost-benefit analysis. It is argued that (reference-)group interests play an important role when an individual determines actions in the political sphere. Through its (relative) turnout, a group can affect future tax rates to which its members are liable, and an optimal turnout-level is derived for each group. Using this optimal level, within-group processes are analyzed, where certain group members ('producers of social pressure') try to convince others to go and vote. For these producers, voting is shown to be a rational act. Other members may give in to this pressure and be induced to cast a vote. These members may be thought to vote out of a sense of 'civic duty'. Equilibria for the model, characterized by positive turnout, are derived, an example is presented, and the results are discussed.

A dynamic model of voter behavior is discussed, explaining transitions in party choice by imputed party responsibilities with respect to public and private consumption possibilities. The model uses a group framework to explicitly describe voter interests. It allows for an estimation of the relative preference for public goods, as determined by the revealed preference mechanism of voting. The model is compared to popularity functions in their general form. An empirical application to Great Britain is presented. It appears that retired individuals have the highest relative preferences for public goods, followed by housewives/men, manual workers, self-employed, and nonmanual workers.