Winden, prof. dr. F. A. A. M. van
Frans van Winden is professor of economics at the Amsterdam School of Economics, and PI at the Cognitive Science Center Amsterdam, of the University of Amsterdam. He is founding-director of CREED (1991-2011) and founding co-director (1987-1992) and former member of the board of the Tinbergen Institute. He held visiting positions at a.o. the California Institute of Technology, Harvard Univeristy, CES (Munich), the Zentrum für interdisziplinäre
Forschung (Bielefeld), and UCLA. He is a fellow of CEPR, CESifo and the Tinbergen
Institute, and at present on the editorial board of Public Choice. His main research interests
are in the fields of political economics, behavioral economics, neuroeconomics and experimental
On June 3, 2016, Frans held his valedictory lecture: "Political Economy at a Crossroads". A video of the lecture can be watched here (introduction starts at 10.00 minutes, and the lecture at 40.00 minutes), and a pdf of the text of the lecture is also available.
WORKING PAPERS 2016
(2016) Investors Have Feelings Too PDF-file We experimentally investigate the relationship between an investor and a project manager. Project managers choose from a pool of projects, the success probabilities of which are uncertain. Information about the future success probability of a project is gained by observing its outcome. Investors can change projects, but also have to change project managers if they want to do so. An additional joint project or a voluntary transfer precedes their interaction. We hypothesize that investors favor projects that are managed by project managers with whom they have shared positive experiences in the past, even though these past experiences do not provide any information about a project’s success probability. The role of this social element is isolated using a control treatment in which the role of the project manager does not exist. Interaction through a voluntary transfer plays a clear and significant role in the investors’ decision making, whereas the influence of merely sharing a positive or negative experience proves more complex. (2016) Asymmetry in the Development of Cooperative and Antagonistic Relationships. A Model-Based Analysis of a Fragile Public Good Game Experiment PDF-file
(forthcoming) Affect in Public Choice Christian BjØrnskov & Richard Jong-A-Pin (eds) Elgar Encyclopedia of Public Choice Edward Elgar PDF-file Key to the methodology of Public Choice is the application of the same approach for the explanation and prediction of political behavior as standard economic theory applies to the study of behavior in the market domain. This approach assumes rational and selfish behavior (homo economicus), and typically focuses on the individual (methodological individualism). However, important political phenomena turn out to be difficult to explain this way. A prime example regards collective action. Even though people are frequently observed to participate in large-scale elections, political demonstrations like tax revolts or, more generally, the voluntary provision of a public good – that benefits a group of people but where the impact of an individual’s contribution is often too small to make it beneficial from a selfish point of view – a homo economicus would be predicted to abstain. Referring to controlled, experimental and model-based evidence I will argue here in contrast that affect and, in particular, affective relationships (or bonding) between people are important motivators of actual human behavior in such cases, challenging the homo economicus assumption. The importance of affective relationships, furthermore, motivates to question the nature of the relevant agent in Public Choice issues, as it seems to plead for a greater role of a group (affective network) frame of reference, in comparison to the traditional focus on the individual. (forthcoming) Affective relationships: role, dynamics, and modeling Swee-Hoon Chuah, Robert Hoffmann and Ananta Neelim (eds) Edward Elgar Encyclopedia of Behavioural and Experimental Economics Edward Elgar PDF-file Affective relationships, like friendships, are neglected in standard economic theory, but play an
important role in reality. This entry is about the state of the art regarding their role, dynamics and modeling. Although other-regarding payoff preferences have recently received substantial attention and support in behavioral and experimental economics, this is less so regarding affective
relationships. Most prominent in that respect are kindness-reciprocity models, where intended
(un)kind behavior is assumed to intrinsically motivate reciprocal behavior. However, by focusing on
(higher-order cognitive) beliefs of forward-looking agents and static equilibria, they do not cover
some important features of affective relationships, like their dynamics based on emotional interaction experiences and their persistence and spread. These characteristics are covered, though, by a very different approach: the affective tie mechanism model, which relies on backward-looking emotional appraisals of interaction experiences. The model’s nature, empirical support, and some implications are discussed.
(2023) The Informational Affective Tie Mechanism: On the Role of Uncertainty, Context, and Attention in Caring Journal of Economic Psychology 97, PDF-file Link to article This paper proposes and applies a formal theoretical model of an automatic (prosocial and antisocial) caring mechanism: the informational affective tie mechanism (iATM) model. Novel in the formalization is the factoring in of information extraction concerning the behavioral type of agents interacted with, jointly with the contexts of these interactions and the attention they attract. Empirical support comes from five very different data sources: experimental findings, econometric results, model-based brain scanning (fMRI) findings, additional neurobiological evidence, and translational and evolutionary evidence. Applications address: the impact of time pressure and cognitive load; the endogeneity of different behavioral response patterns (like tit-for-tat); social preference drift and tipping points in collective action; why behavioral survey questions can be problematic; spread of caring through affective networks, an uncertainty-based link between social-, risk- and time-preferences; happiness and identity; and, the neglected political economic role of communities (next to centralized authorities and markets). The endogeneity of caring preferences sharply contrasts with the standard assumption in economic theory ofstable (mostly selfish) preferences. Moreover, the provision of a neurobiological underpinning moves the iATM model away from the standard as-if approach towards an as-is approach. Although the focus is on humans, some attention will be paid also to the model’s relevance for studying other species.
(2019) Relief from incidental fear evokes exuberant risk taking PLoS ONE 14, Link to article Incidental emotions are defined as feelings that are unrelated to a decision task at hand and thereby not normatively relevant for making choices. The precise influence and formal theoretical implications of incidental emotions regarding financial risk taking are still largely unclear. An effect of incidental emotion on decision-making would challenge the main extant formal theoretical economic models because such models do not allow for an effect of incidental emotions. As financial risk taking is pervasive in modern economies, the role of incidental emotions is an important issue. The goal of this experimental study is threefold. First, we examine the impact of incidental fear on the choice between a sure and a risky monetary option. A well-validated method of fear induction, using electric shocks, is employed for that purpose. Based on emotion studies we hypothesize less risk taking under fear and more risk taking when relieved of fear. Our second goal is to investigate the relative performance of the main existing formal theoretical economic models (based on Expected Utility Theory, Prospect Theory, or the Mean-Variance model) in explaining the behavioral data. We also investigate how these models can be adjusted to accommodate any observed influence of incidental emotion. For that reason, we first theoretically model the potential pathways of incidental fear (and the relief thereof) via the valuation of the choice option rewards or risk- assessment. We then estimate the relevant parameters allowing for both additive as well as interactive effects. Our third and final goal is to explore the neural basis of any observed influence of incidental emotions on decision-making by means of a model-based fMRI analysis, using the findings of existing neuroeconomic studies as the basis for our hypotheses. Our results indicate that the relief of fear can give a substantial boost to financial risk taking (suggestive of exuberance). This impact is best captured by Prospect Theory if we allow for an increase in participants' valuation of option outcomes when relieved of fear. Moreover, this impact is manifested at the neural level by the activity of the ventromedial prefrontal cor- tex (vmPFC), a brain area widely regarded as being central for valuation.
(2017) Disruptions in large value payment systems: An experimental approach International Journal of Central Banking 13, 63-95 PDF-file This experimental study investigates the individual behavior of banks in a large-value payment system. More specifically, we look at (i) the reactions of banks to disruptions in the payment system, (ii) the way in which the history of disruptions affects the behavior of banks (path dependency), and (iii) the effect of more concentration in the payment system (heterogeneous market versus a homogeneous market). The game used in this experiment is a stylized version of a model of Bech and Garratt (2006) in which each bank can choose between paying in the morning (efficient) or in the afternoon (inefficient). The results show that there is significant path dependency in terms of disruption history. Also, the chance of disruption influences the behavior of the participants. Once the system is moving towards the inefficient equilibrium, it does not easily move back
to the efficient one. Furthermore, there is a clear leadership effect in the heterogeneous market. (2017) Emotion at Stake; The role of stake size and emotions in a power-to-take game experiment in China with a comparison to Europe Games 8, PDF-file Link to article This paper experimentally investigates how monetary incentives and emotions influence behavior in a two-player power-to-take game (PTTG). In this game, one player can claim any part of the other's endowment (take rate), and the second player can respond by destroying any part of his or her own endowment. The experiment is run in China. We further compare our findings with the behavior of two European subject pools. Our results give new insights regarding emotion regulation. Even though stake size does not appear to matter for take rates and destruction rates, it does matter for the reaction function of the responder regarding the take rate. When stakes are high, there is less destruction for low and intermediate take rates, and more destruction for high take rates, compared to relatively low stakes. Under low incentives, ‘hot’ anger-type emotions are important for destruction, while ‘cool’ contempt becomes prominent under high monetary incentives. These results suggest emotion regulation in the high-stake condition. Moreover, emotions are found to fully mediate the impact of the take rate on destruction when stakes are low, whereas they only partially do so if stakes are high. Comparing the low-stakes data for China with existing European data, we find similarities in behavior, emotions and emotion intensities, as well as the full mediation of the take rate by emotions. We find some differences related to the type of emotions that are important for destruction. Whereas anger and joy are important in both, in addition, irritation and fear play a role in China, while this holds for contempt in the EU. (2017) Decisiveness, Peace, and Inequality in Games of Conflict Journal of Economic Psychology 63, 216-229 Link to article In this paper, we study two games of conflict characterized by unequal access to productive resources
and finitely repeated interaction. In the Noisy Conflict game, the winner of the conflict is randomly
determined depending on a players’ relative conflict expenditures. In the Decisive Conflict game, the
winner of the conflict is simply the player who spends more on conflict. By comparing behavior in
the two games, we evaluate the effect that “decisiveness” has on the allocation of productive
resources to conflict, the resulting inequality in the players’ final wealth, and the likelihood that
players from long-lasting peaceful relations. (2017) Emotional Leadership in an Intergroup Conflict Game Experiment Journal of Economic Psychology 63, 143-167 Link to article This article introduces leadership in a Contest group contest game. More
specifically, it studies the effects of leading-by-example and emotional leadership
in a behavioral experiment, but also theoretically. In this experiment leaders
lead-by-example by contributing publicly to the contest before followers and can show
emotional leadership by selecting basic emotions that are subsequently evoked in
their followers. Emotions are evoked in this study by showing specially selected and
validated movie clips.
Overall, we find that leaders contribute more than followers and that leading-by-example
as well as emotional leadership have a significant effect on the behavior of
followers. Although, leaders do not always use these mechanisms wisely. This behavior
contrasts strikingly with the Nash equilibrium predictions. Furthermore, we find
that both leaders and followers contribute more then predicted by a standard Nash
equilibrium. These results are shown to be in line with the affective tie model of van
Dijk and van Winden (1997), the imitation model of Cartwright and Patel (2010), and
a psychological costs model of Dufwenberg et al. (2011).
(2016) An Affective Social Tie Mechanism: Theory, Evidence, and Implications Journal of Economic Psychology 61, 152-175 Link to article This paper presents substantial evidence of a simple social tie mechanism that endogenizes people’s care about other individuals under the influence of interaction experiences. The mechanism is rooted in scientific studies from various disciplines. For our evidence, we propose and estimate a dynamic model of tie formation using different experimental datasets regarding public goods, test its within-sample and out-of-sample predictive performance, and compare it with other models. In addition to the support obtained for the mechanism, we find that the effects of interaction experiences show substantial persistence over time, and that only a minority looks ahead to strategically influence the behavior of interaction partners. Furthermore, our model appears to track the often volatile behavioral dynamics of the different datasets remarkably well. Additional evidence is presented of a neural substrate of the tie mechanism, based on a recent (fMRI) application of the estimated model, and of the explanatory power of our model regarding other extant experimental findings. Implications for private and public governance and topics for future research are discussed.
(2015) Oxytocin Tempers Calculated Greed but not Impulsive Defense in Predator-Prey Contests Social Cognitive and Affective Neuroscience 10, 721-728 Link to article Human cooperation and competition is modulated by oxytocin, a hypothalamic neuropeptide that functions as both hormone and neurotransmitter. Oxytocin’s functions can be captured in two explanatory yet largely contradictory frameworks: the fear-dampening (FD) hypothesis that oxytocin has anxiolytic effects and reduces fear-motivated action; and the social approach/avoidance (SAA) hypothesis that oxytocin increases cooperative approach and facilitates protection against aversive stimuli and threat. We tested derivations from both frameworks in a novel predator-prey contest game. Healthy males given oxytocin or placebo invested as predator to win their prey’s endowment, or as prey to protect their endowment against predation. Neural activity was registered using 3T-MRI. In prey, (fear-motivated) investments were fast and conditioned on the amygdala. Inconsistent with FD, oxytocin did not modulate neural and behavioral responding in prey. In predators, (greed-motivated) investments were slower, and conditioned on the superior frontal gyrus. Consistent with SAA, oxytocin reduced predator investment, time to decide, and activation in superior frontal gyrus. Thus, whereas oxytocin does not incapacitate the impulsive ability to protect and defend oneself, it lowers the greedy and more calculated appetite for coming out ahead. (2015) Advocacy and Political Convergence under Preference Uncertainty European Economic Review 79, 16-36 Link to article We study the formation of advocacy groups and how they can impact policy outcomes by
revealing information about voters' preferences to uninformed political candidates. We
conduct a laboratory experiment based on a two-candidate spatial electoral competition
setting where the policy preferences of voters are (initially) unknown and change over
time. In the control treatment candidates learn about the preferred policy of the median
voter through the voting outcome of elections. In the advocacy treatments, voters can
organize themselves into advocacy groups in order to reveal their policy preferences. We
find that voters often overcome the collective action problem of forming an advocacy
group. In fact, we observe the formation of both informative advocacy groups, which
convey new information, and uninformative advocacy groups, which do not. Overall,
advocacy groups significantly speed up the convergence to the preferred policy of the
median voter. However, advocacy does not lead to higher earnings as the gains from faster
convergence are offset by the costs of group formation. (2015) Neural dynamics of social tie formation in economic decision-making Social Cognitive and Affective Neuroscience 10, 877-884 Link to article The disposition for prosocial conduct, which contributes to cooperation as arising during social
interaction, requires cortical network dynamics responsive to the development of social ties, or
care about the interests of specific interaction partners. Here we formulate a dynamic
computational model that accurately predicted how tie formation, driven by the interaction
history, influences decisions to contribute in a public good game. We used model-driven
functional MRI to test the hypothesis that brain regions key to social interaction keep track of
dynamics in tie strength. Activation in the medial prefrontal cortex (mPFC) and posterior
cingulate cortex tracked the individual’s public good contributions. Activation in the bilateral
posterior temporal sulcus (pSTS), and temporo-parietal junction (TPJ) was modulated
parametrically by the dynamically developing social tie – as estimated by our model – supporting
a role of these regions in social tie formation. Activity in these two regions further reflected
inter-individual differences in tie persistence and sensitivity to behavior of the interaction
partner. Functional connectivity between pSTS and mPFC activations indicated that the
representation of social ties is integrated in the decision process. These data reveal the brain
mechanisms underlying the integration of interaction dynamics into a social tie representation
which in turn influenced the individual’s prosocial decisions. (2015) Political economy with affect: On the role of emotions and relationships in political economics European Journal of Political Economy 40, 298-311 Link to article This paper discusses and provides experimental evidence on the role of emotions and, in particular, the neglected role of endogenous affective relationships (bonding) in three key areas of political economy: (i) appropriation, with compliance or resistance as response; (ii) competition for
access to appropriation and its potential for escalation and de-escalation of the inherent conflict;
and (iii) determinants of (large scale) collective action. To that purpose, a series of experiments on
power-to-take games and public good games are presented and put into perspective. Furthermore, the relevance of an affective social ties model for explaining these experimental findings
is investigated. Finally, some important political economic implications are addressed.
(2014) Let me dream on! Anticipatory emotions and preference for timing lotteries Journal of Economic Behavior & Organization 98, 29-40 Link to article We analyze one of the explanations why people participate in lotteries. Our hypothesis stipulates that part of the value that a unit of money buys in lotteries is consumed before the actual resolution in the form of emotions such as hope. In other words, a person holding a lottery ticket may prefer a delayed resolution of risk due to positive anticipatory emotions. This conjecture is tested in an experiment with real lottery tickets. We show that our theoretical considerations may contribute to explaining empirical puzzles associated with lottery participation, timing of resolution and the spreading of lots over drawings. More specifically, we find that a substantial minority of participants prefer delayed resolution,that anticipated thrill is the main variable explaining this choice, and that emotions actually experienced during the waiting period are indeed predominantly positive and correlated with predictions. Finally, we find that a great majority prefers to ‘spread’ chances, that is,to obtain one ticket for each of two drawings rather than two for the same drawing. (2014) On the escalation and de-escalation of conflict Games and Economic Behavior 86, 40-57 Link to article We introduce three variations of the Hirshleifer-Skaperdas conflict game to study experimentally
the effects of post-conflict behavior and repeated interaction on the allocation of effort between
production and appropriation. Without repeated interaction, destruction of resources by defeated
players can lead to lower appropriative efforts and higher overall efficiency. With repeated
interaction, appropriative efforts are considerably reduced because some groups manage to avoid
fighting altogether, often after substantial initial conflict. To attain peace, players must first engage
in costly signaling by making themselves vulnerable and by forgoing the possibility to appropriate
the resources of defeated opponents. (2014) Destructive Behavior in a Fragile Public Good Game Economics Letters 123, 295-299 PDF-file Link to article Socially destructive behavior in a public good environment - like damaging public goods - is an underexposed phenomenon in economics. In an experiment we investigate whether such behavior can be influenced by the very nature of an environment. To that purpose we use a Fragile Public Good (FPG) game which puts the opportunity for destructive behavior (taking) on a level playing field with constructive behavior (contributing). We find substantial evidence of destructive decisions, sometimes leading to sour relationships characterized by persistent hurtful behavior. While positive framing induces fewer destructive decisions, shifting the selfish Nash towards minimal taking doubles its share to more than 20%.
(2013) Let Me Vote! An experimental study of the effects of vote rotation in committees. Journal of Economic Behavior and Organization 96, 32-47 Link to article We conduct an experiment to investigate (i) whether rotation in voting increases a committee's efficiency, and (ii) the extent to which rotation is likely to critically influence collective and individual welfare. The experiment is based on the idea that voters have to trade-off individual versus common interests. Our findings indicate that the choice of a rotation scheme has important consequences: it 'pays' to be allowed to vote, as voting committee members earn significantly more than non-voting members. Hence, rotation is not neutral. We also find that smaller committees decide faster and block fewer decisions. This reduces frustration among committe members.
(2012) Input versus Output Taxation in an Experimental International Economy. European Economic Review 56, 216-232 Link to article This paper presents the results of a policy oriented macroeconomic experiment involving an 'international' economy with a relatively small 'home' country and a large 'foreign' country. It compares the economic performance of two alternative tax sustems as a means to finance unemployment benefits: a wage tax system versus a sales-tax-cum-labor-subsidy system. The two systems are applied to the small country, while the wage tax system always obtains in the large country. The main result is that the sales tax system clearly outperforms the wage tax system, using standard economic indicators. Moreover, it turns out that under the sales tax system economic activities appear to be attracted by the 'better' of two theoretical equilibria. It is argued that producers' reluctance to incur costs up-front while being uncertain about product prices can explain these results. Several pieces of evidence are provided to support this claim. The results strongly suggest that behavioral aspects have to be taken into account also in applied macroeconomic models.
(2012) On The Behavioral Economics of Crime Review of Law & Economics 8, 181-213 Link to article This paper examines the implications of the brain sciences’ mechanistic model of human behavior for our understanding of crime. The rational crime model is replaced with a behavioral approach, which proposes a decision model comprising cognitive and emotional decision systems. According to the behavioral approach, a criminal is not irrational but rather ‘ecologically rational’, outfitted with evolutionarily conserved decision modules adapted for survival in the human ancestral environment. Several important cognitive as well as emotional factors for criminal behavior are discussed and formalized, using tax evasion as running example. The behavioral crime model leads to new perspectives on criminal policymaking. (2012) Neural Correlates of Dynamically Evolving Interpersonal Ties Predict Prosocial Behavior Frontiers in Neuroscience 6, 1-14 Link to article (2012) Affective Social Ties - Missing Link in Governance Theory Rationality, Morals and Markets 3, 108-122 Link to article Although governance is about interpersonal relationships, it appears that the antecedents
and consequences of affective bonds (social ties) in social groups dealing with common-pool
resources and public goods have been neglected. The welfare costs of the neglect of such bonds and their dynamic properties in economics are unclear but may be substantial. In this paper, I discuss a theoretical ‘dual process’ social ties model and the behavioral experimental and recent neurological evidence this model has obtained. Furthermore, a number of implications and institutional issues are addressed.
(2011) Investment, Resolution of Risk, and the Role of Affect Journal of Economic Psychology 32, 918-939 Link to article 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.
(2010) Negative Reciprocity and the Interaction of Emotions and Fairness Norms Journal of Economic Psychology 31, 908-922 Link to article This experimental study investigates how behavior changes after receiving punishment.
The focus is on how proposers in a power-to-take game adjust their behavior depending
on their fairness perceptions, their experienced emotions, and their interaction with
responders. We find that fairness plays an important role: proposers who take what they
consider to be an unfair amount experience higher intensities of prosocial emotions
(shame and guilt), particularly if they are punished. This emotional experience induces proposers
to lower their claims. We also find that fairness perceptions vary considerably
between individuals. Therefore, it is not necessarily the case that proposers who considered
themselves fair are taking less from responders than other proposers. Lastly, we provide
evidence that suggests that eliciting emotions through self-reports does not affect
(2010) Understanding Negotiations: A Video Approach in Experimental Gaming A. Ockenfels and A. Sadrieh (eds) The Selten School of Behavioral Economics Springer
(2010) Global Risk, Investment, and Emotions Economica 77, 451-471 Link to article We investigate a novel dynamic choice problem in an experiment where emotions are measured through self-reports. The choice problem concerns the investment of an amount of money in a safe option and a risky option when there is a ‘global risk’ of losing all earnings, from both options, including any return from the risky option. Our key finding is that global risk can reduce the amount invested in the risky option. This result cannot be explained by Expected Utility or by its main contenders Rank-Dependent Utility and Cumulative Prospect Theory. An explanation is offered by taking account of emotions, using the emotion data from the experiment and recent psychological findings. (2010) Identification of Voters with Interest Groups Improves the Electoral Changes of the Challenger Mathematical Social Sciences 60, 210-216 Link to article This short paper investigates the consequences of voters identifying with special interest groups in a spatial model of electoral competition. We show that by effectively coordinating voting behavior, identification with interest groups leads to an increase in the size of the winning set, that is, the set of policy platforms for the challenger that will defeat the incumbent. Consequently, our paper points at a novel process through which interest groups can enhance the electoral chances of a challenger.
(2009) Competitive Rivalry, Social Disposition, and Subjective Well-Being: An Experiment Journal of Public Economics 93, 1158-1167 Link to article This paper experimentally studies the effects of competitive rivalry in a social dilemma where
people’s actions can not be contractually fixed. We find that, in comparison with no rivalry,
the presence of rivalry does neither increase efficiency nor does it yield any gains in earnings
for the short side of the exchange relation. Moreover, rivalry has a clearly negative impact on
the disposition towards others and on the experienced well-being of those on the long side.
Since subjective well-being improves only for those on the short side rivalry contributes to
larger inequalities in experienced well-being. All in all rivalry does not show up as a positive
force in our environment. (2009) Gender pairing and bargaining—Beware the same sex! Experimental Economics 12, 318-331 Link to article We study the influence of gender and gender pairing on economic decision
making in an experimental two-person bargaining game where the other party’s gender
is known to both actors. We find that (1) gender per se has no significant effect
on behavior, whereas (2) gender pairing systematically affects behavior. In particular,
we observe much more competition and retaliation and, thus, lower efficiency
when the bargaining partners have the same gender than when they have the opposite gender. These findings are consistent with predictions from evolutionary psychology.
Implications of our results for real-world organizations are discussed.
(2008) An experimental investigation of wage taxation and unemployment in closed and open economies (Revised version of Tinbergen Institute Discussion Paper 00112) European Economic Review 51, 871-900 Link to article We investigate experimentally the economic effects of wage taxation to finance unemployment benefits for a closed economy and an international economy. The main findings are the following. (i) There is clear evidence of a vicious circle in the dynamic interaction between the wage tax and unemployment. (ii) Employment is boosted by budget deficits but subsequent tax rate adjustments to balance the budget lead to employment levels substantially lower than theoretically predicted. (iii) A sales risk for producers due to price uncertainty on output markets appears to cause a downward pressure on factor employment. For labor the wage tax exacerbates this adverse effect.
(2008) Intrinsic Motivation in a Public Good Environment C.R. Plott and V.L. Smith (eds) The Handbook of Experimental Economics Results Volume 1 Amsterdam: North-Holland
(2008) Dynamic Choice, Independence and Emotions Theory and Decision 64, 249–300 Link to article From the viewpoint of the independence axiom of expected
utility theory, an interesting empirical dynamic choice problem involves
the presence of a “global risk,” that is, a chance of losing everything
whichever safe or risky option is chosen. In this experimental study, participants
have to allocate real money between a safe and a risky project.
Treatment variable is the particular decision stage at which a global
risk is resolved: (i) before the investment decision; (ii) after the investment
decision, but before the resolution of the decision risk; (iii) after
the resolution of the decision risk. The baseline treatment is without
global risk. Our goal is to investigate the isolation effect and the principle
of timing independence under the different timing options of the
global risk. In addition, we examine the role played by anticipated and
experienced emotions in the choice problem. Main findings are a violation
of the isolation effect, and support for the principle of timing independence.
Although behavior across the different global risk cases shows
similarities, we observe clear differences in people’s affective responses.
This may be responsible for the conflicting results observed in earlier
experiments. Dependent on the timing of the global risk different combinations (2008) Social Ties and Coordination on Negative Reciprocity: The Role of Affect Journal of Public Economics 92, 34-53 Link to article This is an experimental study of negative reciprocity in the case of multiple reciprocators. We use a three-player power-to-take game where a proposer is matched with two responders. We compare a treatment in which responders are anonymous to each other (strangers) with one in which responders know each other from outside the lab (friends). We focus on the responders’ decisions, beliefs, and emotions. Our main findings are: (1) friends punish the proposer more than strangers, (2) friends are more likely to coordinate their punishment (without communication), and (3) both punishment and coordination are explained by the responders’ emotional reactions. (2008) An Endogenous Policy Model of Hierarchical Government European Economic Review 52, 133-149 Link to article Endogenous policy models usually neglect that government policies are frequently the result of decisions taken at different tiers by different agents, each enjoying some degree of autonomy. In this paper, policies are the outcome of the choices made by two agents within a hierarchy. A legislator decides on the budget to be successively spent by a bureaucrat. Both agents are lobbied by one or two interest groups. The combination of sequential decisionmaking and lobbying implies that the interaction between the agent at one tier and the interest group(s) depends on the exchange between the same interest group(s) and the agent at the other tier. Our results concerning multi-tier lobbying and legislatorial oversight substantially qualify the conventional wisdom related to one-tier lobbying. In particular, the reaction of the legislator to lobbying at the bureaucratic tier may make lobbying wasteful even when there is no competition from other lobbies. Moreover, the legislator benefits from lobbying only when there is competition between interest groups at the upper tier. It is also shown that competition for influence at the bureaucratic tier may work as a perfect substitute for legislatorial oversight. Extensions of the model indicate its usefulness for the analysis of decisionmaking in other multilevel governance structures, like federations or firms.
(2008) On the Nature, Modeling and Neural Bases of Social Ties Daniel E. Houser and Kevin A. McCabe (eds) Neuroeconomics, Vol. 20, Advances in Health Economics and Health Services Research, 2008 Emerald Insight Publishing
This paper addresses the nature, formalization, and neural bases of (affective) social ties and discusses the relevance of ties for health economics. A social tie is defined as an affective weight attached by an individual to the well-being of another individual (‘utility interdependence’). Ties can be positive or negative, and symmetric or asymmetric between individuals. Characteristic of a social tie, as conceived of here, is that it develops over time under the influence of interaction, in contrast with a trait like altruism. Moreover, a tie is not related to strategic behavior such as reputation formation but seen as generated by affective responses. A formalization is presented together with some supportive evidence from behavioral experiments. This is followed by a discussion of related psychological constructs and the presentation of suggestive neural findings, based on the existing literature. We conclude with some suggestions for future research.
(2008) On the Nature, Modeling, and Neural Bases of Social Ties Daniel E. Houser and Kevin A. McCabe (eds) Neuroeconomics, Vol. 20 Advances in Health Economics and Health Services Research Emerald Insight Publishing PDF-file Purpose
This paper addresses the nature, formalization, and neural bases of (affective) social ties and
discusses the relevance of ties for health economics. A social tie is defined as an affective
weight attached by an individual to the well-being of another individual (‘utility
interdependence’). Ties can be positive or negative, and symmetric or asymmetric between
individuals. Characteristic of a social tie, as conceived of here, is that it develops over time
under the influence of interaction, in contrast with a trait like altruism. Moreover, a tie is not
related to strategic behavior such as reputation formation but seen as generated by affective
A formalization is presented together with some supportive evidence from behavioral
experiments. This is followed by a discussion of related psychological constructs and the
presentation of suggestive existing neural findings. To help prepare the grounds for a modelbased
neural analysis some speculations on the neural networks involved are provided, together
with suggestions for future research.
Social ties are not only found to be important from an economic viewpoint, it is also shown
that they can be modeled and related to neural substrates.
Originality/value of the paper
By providing an overview of the economic research on social ties and connecting it with the
broader behavioral and neuroeconomics literature, the paper may contribute to the
development of a neuroeconomics of social ties.
(2007) Affective Public Choice José Casas Pardo and Pedro Schwartz (eds) Public Choice and the Challenges of Democracy Edward Elgar PDF-file This paper argues that due to the neglect of the affective side of human decision making we
find it hard to explain political economic phenomena such as tax revolts, voting, political
rituals, terrorism, and entitlements. Taking into account the action tendencies of emotions like
resentment, hatred, shame, fear, and hope, makes these kinds of behavior better
understandable and predictable. To phrase the argument of this paper in a more polemical
way: Who cannot stand the heat should stay out of politics and public choice! (2007) Affect and Fairness in Economics Social Justice Research 35-52 Link to article A strained relationship exists between mainstream economics and ethics. Over the last
decade, behavioral economists have strongly argued for the importance of fairness in
motivating behavior, based on substantial experimental evidence. Two main approaches to the
modelling of fairness have been proposed: the outcome-based inequity aversion approach, and
the intention-based reciprocity approach. Both approaches have been quite successful in
explaining the experimental evidence. Nonetheless, this paper questions the role that is
assigned to fairness in these models and the way fairness is incorporated, using recent
experimental findings concerning emotions and fairness perceptions. The analysis supports
the view that feelings are important for justice, also from a policy perspective, and pleads for
closer attention being paid to the functioning of emotional brain systems. (2007) Reciprocity and Emotions in Bargaining: Using Physiological and Self-Report Measures Journal of Economic Psychology 314-323 Link to article Although reciprocity is a key concept in the social sciences, it is still unclear why people engage in costly reciprocation. In this study, physiological and self-report measures were employed to investigate the role of emotions, using the Power-to-Take Game. In this 2-person game, player 1 can claim any part of player 2's resources, and player 2 can react by destroying some (or all) of these resources thus preventing their transfer to player 1. Both physiological and self-report measures were related to destruction decisions. The observed pattern of emotional arousal and its correlation with self-reported anger provides support for using both techniques to study reciprocity.
(2006) A computational electoral competition model with social clustering and endogenous interest groups as information brokers Public Choice Link to article We extend the basic model of spatial competition in two directions. First, political parties and voters do not have complete information but behave adaptively. Political parties use polls to search for policy platforms that maximize the probability of winning an election and the voting decision of voters is influenced by social interaction. Second, we allow for the emergence of interest groups. These interest groups transmit information about voter preferences to the political parties, and they coordinate voting behavior. We use simulation methods to investigate the convergence properties of this model. We find that the introduction of social dynamics and interest groups increases the separation between parties platforms, prohibits convergence to the center of the distribution of voter preferences, and increases the size of the winning set.
(2006) On the dynamics of social ties structures in groups (An earlier version of this paper was titled: Group formation in a public good experiment) Journal of Economic Psychology 27, 187-204 Link to article Economic behavior often takes place in small groups of people interacting with each other (like work teams and boards of directors, but also social networks and neighborhoods). Characteristic of such interaction is the development of (affective) interpersonal relationships, or social ties. The embeddedness of economic behavior in networks of social ties seems to have a profound impact on the outcome of economic processes. In this paper we investigate experimentally the development of social ties structures through economic interaction in a public good environment. It turns out that complicated dynamics arise from individual differences in social value orientation and affective response patterns. (2006) Social Science In The Making: An economist?s view Paul A.M. van Lange (eds) Bridging Social Psychology: Benefits of Transdisciplinary Approaches Mahwah, NJ: Erlbaum PDF-file Recent developments in economics and psychology suggest that productivity in the social sciences will benefit from crossing existing academic barriers, and that such crossing is more and more likely. Social science is in the making, but its success seems particularly conditioned on the willingness to put experimentation and formalization on an equal footing.
Economists will have to be satisfied with theoretical highways instead of malfunctioning superhighways, while social psychologists will have to adventure more fast-track formal theory building. Institutional changes would facilitate the integration. (2006) Exploring Group Decision Making in a Power-to-Take Experiment Experimental Economics 9, 35-51 Link to article Most studies that compare individual and group behavior neglect the in-group decision making process. This paper explores the decision making process ithin groups in a strategic setting: a two player power-to-take experiment. Discussions preceding group decisions are video taped and analyzed. We find the following: (1) no impact of the group setting as such on individual behavior; (2) heterogeneity of individual types; (3) perceptions of fairness are hardly discussed and are prone to the self-serving bias; (4) groups ignore the decision rule of other groups and typically view them as if they were single agents. (5) We also show that to explain group outcomes two factors have to be taken into account that are often neglected: the distribution of individual types over groups and the decision rules that groups use to arrive at their decision.
(2005) The impact of real effort and emotions in the power-to-take game. Journal of Economic Psychology 26, 407-429 Link to article This paper experimentally examines the impact of real effort and emotions on behavior in the power-to-take game of Bosman and van Winden [Bosman, R., & van Winden, F. (2002). Emotional hazard in a power-to-take experiment. The Economic Journal, 112, 146?169]. In this game, one player (the take authority) can claim as a take rate any part of the endowment of another player (the responder). Then, the responder can destroy any part of his endowment. We examine whether agents behave differently if their own earnings are at stake (?effort?) or a budget allocated to them by the experimenter (?no-effort?). A key feature of this work is that emotions and their behavioral significance are measured. Our main findings are: (1) responders destroy more often and a greater amount on aggregate with no-effort; (2) responders frequently choose an intermediate amount of destruction with no-effort, in contrast with the all or nothing finding for effort; (3) the behavior of take authorities does not depend on effort; (4) responders expect substantially lower take rates with no-effort; (5) actual as well as expected take rates have a significant effect on the probability of destruction, both in case of effort and no-effort; (6) emotional factors explain these results.
(2005) Interest Group Size Dynamics and Policymaking. Public Choice 125, 271-303 Link to article We present a dynamic model of endogenous interest group sizes and policymaking.The model integrates top-down(policy) and bottom-up(individual and social-structural) influences on the development of interest groups. Comparative statics results show that the standard assumption of fixed-sized interest groups can be very misleading. Furthermore, dynamic analysis of the model demonstrates that reliance on equilibrium results can be misleading as well since equiibria may not be stable.
In fact, complicated dynamics may emerge naturally, leading to erratic and path dependent time patterns for policy and interest group sizes. We show that our model can endogenously generate the types of spurts and declines in organizational density that are reported in empirical studies.
(2003) Interest group behavior and influence C. K. Rowley and F. Schneider (eds) Encyclopedia of Public Choice Vol. I Boston: Kluwer Academic Publishers PDF-file
(2003) Information and the Creation and Return of Social Capital: An Experimental Study. H. Flap and B. Volker (eds) Creation and Returns of Social Capital Routledge
(2002) Emotional Hazard in a Power-to-Take Experiment. Economic Journal 112, 147-69
In this experimental study of a two player power-to-take game, players earn an income in an individual effort task preceding the game. The game has two stages. First, one player can claim any part of the other s income take rate. Then, the latter player can respond by destroying own income. We focus on how emotions influence responses and show:1 a higher take rate increases (decreases) intensity of negative (positive) emotions;2 negative emotions drive destruction;3 at high emotional intensity, responders destroy everything;4 expectations affect the probability of punishment. Emotional hazard is identified as a new source of efficiency costs.
(2002) Social Ties in a Public Good Experiment. Journal of Public Economics 85, 275-99 Link to article The formation of social ties is examined in an experimental study of voluntary public good provision. The experiment consists of three parts. In the first part the value orientation (attitude to a generalized other) is measured. In the second part couples play 25 periods of a public good game. In the third part the attitudes of subjects to their partners in the public good game is measured. The concept of a social tie is operationalized as the difference between the measurements in the first and third parts. Evidence for the occurrence of social ties is found. These ties depend on the success of the interaction in the public good game. (2002) Does Centralization Increase the Size of Government? The Effects of Separation of Powers and Lobbying. International Tax and Public Finance 9, 379-89 Link to article Difficulties faced by the Economic and Monetary Union have strengthened the position of those who advocate a process of (further) political integration in the European Union (EU). A widespread fear is, though, that such a process would favor powerful interest groups able to lobby the EU policymakers. Persson and Tabellini (1994) argue that political centralization will increase the size of the government through lobbying because of free-riding incentives created by federally funded programs with localized benefits. We extend their analysis by presenting a model where the budgeting process is divided into two stages, instead of one, which better captures the EU institutional framework. A federal legislator (the Council) chooses the size of the budget at one stage, while a federal agency (the Commission) chooses the allocation of the budget at the next stage. We show that separation of powers in the budgeting process restricts free riding and, therefore, reduces the incentives to lobby. The result is an unchanged budget under centralization. Moreover, it is shown that if the lobbying activity is directed to both policymakers, competitive lobbying may actually reduce the size of the public sector under centralized policymaking (2002) Experimental investigation of collective action S.L. Winer and H. Shibata (eds) Political Economy and Public Finance: The Role ofPolitical Economy in the Theory and Practice of Public Economics Edward Elgar,Cheltenham PDF-file
(2001) Incentive Systems in a Real Effort Experiment. European Economic Review 45, 187-214 Link to article In the reported experiment different payment schemes are examined on their incentive effects. Payments based on individual, team and relative performance are compared. Subjects conducted computerized tasks that required substantial effort. The results show that individual and team payment induced the same effort levels. In team production free-riding occurred, but it was compensated by many subjects providing more effort than in case of individual pay. Effort was higher, but more variable in tournaments, while in case of varying abilities workers with relatively low ability worked very hard and drove up effort of the others. Finally, attitudes towards work and other workers differed strongly between conditions.
(2001) Emotional Hazard Exemplified by Taxation-Induced Anger. Kyklos 54, 491-506
Emotional hazard in case of taxation refers to the risk of an efficiency loss due to emotional responses. In this paper, first, emotional hazard is discussed and empirically illustrated using results from experimental studies concerning the power-to-take game. In this game, one player can claim any part of another player's endowment and, subsequently, the second player can respond by destroying any part of her endowment. Next, based on emotion theory, a tentative model is developed of the second player's behavior which integrates cognition and emotion. Finally, some implications for theory and policy are explored.
(2001) Does the Wage Tax System cause Budget Deficits? Public Choice 109, 371-394 Link to article In this paper we investigate experimentally the economic functioning of a wage tax financed unemployment benefit system in an international economy, in particular in reaction to budget deficits and tax adjustment. Our results support the hypothesis that due to out-of-equilibrium price uncertainty producers are reluctant to employ inputs. We also observe a downward pressure on wages exacerbated by an over-supply of labor by consumers. These observations can explain the budget deficits found. Furthermore, we find that tax adjustments in order to facilitate a balancing of the budget has strong adverse effects on unemployment and real GDP.
(2000) Conditional Cooperation and Voluntary Contributions to Public Goods. Scandinavian Journal of Economics 102, 23-39
(2000) Professionals and Students in a Lobbying Experiment: Professional Rules of Conduct and Subject Surrogacy. Journal of Economic Behavior and Organization 43, 499-522 Link to article Lobbying is studied in a series of signaling game experiments. Students as well as professional lobbyists are used as subjects. In contrast with some earlier studies, comparing students and professionals, we find significant differences in the behavior of the two subject pools. Professional subjects appear to behave more in line with the game-theoretic predictions, display a higher degree of separation, and earn more money. We show that professional rules of conduct and professionalization can explain these differences. Although our results suggest that subject surrogacy is a relevant issue in this field of research, arguments are provided why experimentation with student subjects remains useful to study lobbying. (2000) Show Them Your Teeth First! A Game-Theoretic Analysis of Lobbying and Pressure. Public Choice 104, 81-120 Link to article This paper investigates the choice of an interest group between lobbying words and pressure actions in order to influence a policymaker. Both lobbying and pressure are modeled as strategic means of transmitting information that is relevant to the policymaker. However, only pressure is directly costly to the policymaker. The interaction between the interest group and the policymaker is framed as a repeated signaling game. In equilibrium pressure--in contrast to lobbying--only occurs when the interest group s reputation is sufficiently low, and always improves its reputation. It is shown that repeated lobbying cannot completely substitute for pressure, and that the interest group may be forced to sustain its reputation through lobbying. We conclude that pressure is typically used to build up a reputation, lobbying to maintain a reputation. (2000) (In)accuracy of a European political stock market: The influence of common value structures European Economic Review 44, 205-230 Link to article 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.
(1994) The Role of Inter-and Intragroup Brandstätter, H. &Güth, W. (eds) Essays on economic psychology Springer-Verlag, Berlin
(1991) Why people vote: free riding and the production and consumption of social pressure Journal of Economic Psychology 12, 575-620 Link to article 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.
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