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Abstract:
We use tools from experimental economics to address the age-old debate regarding who was a better singer in the band AC/DC. Our results suggest that (using wealth maximization as a measure of “better”) listening to Brian Johnson (relative to listening to Bon Scott) resulted in “better” outcomes in an ultimatum game. These results may have important implications for settling drunken music debates and environmental design issues in organizations.

Abstract:
We explore the effects of listening to the music of AC/DC in a simple bargaining environment.

bargaining, reciprocity, music, experiments

Abstract:
Within the finance literature there has been a growing interest in the effect of private individuals trading in financial markets. This literature has focused on the increased volatility and short-run momentum these traders introduce in markets, with little attention paid to the efficiency implications of their presence. This paper considers the role of micro investors in completing markets by allowing additional risky assets to be traded: Because of differing risk attitudes, micro traders provide financial support for securities that would otherwise not be brought to market. Thus, while these traders may introduce additional volatility in the market, their presence allows other investors to more fully insure against risk. The presence of micro traders can therefore be efficiency enhancing as the securities they demand help complete the market.

Financial Markets, Incomplete Markets, Reference Dependence

Abstract:
Among economists, there is increased recognition of the role individuals' identities play in decision-making. In this paper, we conduct laboratory experiments in which we explore the motivations for and the effects of group identity. We find that negative out-group opinion (acting as an inter-group identity threat) can motivate in-group/out-group effects in a simple bargaining context. Further, our results suggest that disparagement of group norms by members of the in-group (acting as an intra-group identity threat) increases the use of costly punishment within the in-group.

identity, fairness, reciprocity, experiments

Abstract:
The nineteenth century was a time of substantial changes in the patterns of economic growth and the structure of and allocation of political rights. The concurrence of these changes is not coincidental. We develop a model in which ideological parties representing elites use the allocation of voting rights to influence implemented policies, which influence the character of economic growth. We find in the social structure of society an explanation for the connection between enfranchisement and growth: When (1) there exist an economic conflict among the elite, (2) the landed classes are not politically strong, and (3) there exists a critical mass of 'industrial' workers, we observe both growth and democratization. The lack of conditions (1) or (2) resolves in stagnant autocracies while the absence of condition (3) drives growth-deterring democratic expansions. Hence, too much and too little democracy can be bad for growth. Furthermore, economic growth may naturally lead to diffusion of voting rights.

Franchise, growth, political competition, elites, industrialization

Abstract:
We conduct experiments in which participants made multiple intertemporal decisions throughout a seven week period. In addition to exploring dynamic consistency and the stability of single period discount rates, our experiments introduce a manipulation to identify the role of positive and negative mood/affect in intertemporal choice. Our results demonstrate that, while individuals' single period discount rates are stable over time, there is evidence of dynamic inconsistency. While we find no differences in the discount rates of men and women, we find gender differences in the character of hyperbolic discounting in which women display greater patience in their "present bias." We also identify a gender-mood interaction: Negative mood in women yields increased impulsiveness while inducing positive affect in women or affect (positive or negative) in men yields little change.

intertemporal, choice, experiments, gender, affect

Abstract:
This paper reports results from a unique two-stage experiment designed to examine the spillover effects of optimism and pessimism. In stage 1, we induce optimism or pessimism onto subjects by randomly assigning a high or low piece rate for performing a cognitive task. We find that participants receiving the low piece rate are significantly more pessimistic with respect to performance on this task. In stage 2 individuals participate in an ultimatum game. We find that minimum acceptable offers are significantly lower for pessimistic subjects, though this pessimism was generated in a completely unrelated environment. These results highlight the existence of important spillover effects that can be behaviorally and economically important - for example, pessimism regarding one's initial conditions (e.g., living in poverty) may have spillover effects on one's future labor market outcomes.

optimism, pessimism, bargaining, experiments

Abstract:
We explore the extent to which the structure of incentives affects trust. We hypothesize that the degree to which different incentive mechanisms emphasize competition (via the perceived intentions of others) and entitlements (via the perceived property rights) will affect individuals' subsequent behavior. In our experiment, bargaining pairs earned endowments through either tournaments or team-based incentives. Participants engaged in a subsequent trust game in which the sender had access to the total endowment generated by the pair. We find that the structure of the incentive mechanisms has asymmetric effects on observed trust in which participants' relative performance framed trusting behavior.

trust, incentives, experiments, tournaments

Abstract:
When making judgments, individuals often utilize heuristics to interpret information. We report on a series of experiments designed to test the ways in which incentive mechanisms influence the use of a particular heuristic in decision-making. Specifically, we demonstrate how information regarding the number of available practice problems influences the behaviors of individuals preparing for an exam (the proportion heuristic). More importantly the extent to which this information influences behavior depends critically on the way in which performance incentives are structured. In particular, relative compensation schemes magnify the influence of this heuristic while joint compensation schemes dampen its influence. We discuss these results with respect to the literature on effective compensation.

performance judgments, heuristics, incentives, experiments

Abstract:
Research in psychology indicates that individuals often make inferences regarding unknown individual qualities based on potentially irrelevant (but socially observable) information. This paper explores occupational choices when individuals receive imprecise signals regarding ability and use the observable characteristics of previously successful individuals to infer own ability. Individuals who fail to observe successful predecessors of their same type may underestimate their potential for success in the occupation. We discuss the role of these biases in light of the literature on affirmative action and firm incentives.

social Inference, occupational choice, discrimination

Abstract:
In this paper, we explore the effect of identity salience on behavior in a simple social interaction. Specifically, we compare behavior in a ultimatum game across three treatments: priming subjects with a shared identity, priming subjects with an identity distinct from those with whom they will interact, and priming subjects with no particular identity. We find that subjects are most cooperative in the identity-priming treatment and least cooperative in the distinctiveness-priming treatment. Similarly, subjects reveal the highest demands in the identity-priming treatment and the lowest demands in the distinctiveness-priming treatment. We discuss the implications of these results with respect to literature on organizational identity.

identity, experiments, bargaining

Abstract:
We present a model of cognitive adaptation to examine the growth and behaviours of the underclass. In the model, individuals experiencing cognitive dissonance between status seeking and social recognition adapt their attitudes regarding what is deemed status worthy. This yields the endogenous formation of an underclass in which non-pecuniary social returns counteract the effect of traditional incentives (i.e. wages) in motivating behaviour. By gaining insight into the process of psychological adaptation of those living in poverty, the paper sheds light on economic policies that mitigate the disenfranchisement and hence the growth of the underclass.

Abstract:
We explore the extent to which the lack of Nash payoff maximization in experimental games is attributable to the “sophistication” of participants (i.e., their understanding of strategic decision making and profit-maximizing decisions). To this end, we compare the behaviors of sophisticated participants (i.e., those who have been exposed to the concepts of game theory) against those of a more standard subject pool in a moral hazard environment. Results suggest that sophisticated subjects are significantly more likely to adopt strategies predicted by standard theory and arrive at a Nash equilibrium.

Abstract:
Using ideas from status characteristics theory, this essay examines the role of status-induced biases regarding an agent's beliefs about her abilities and those of others. According to the theory of status characteristics and expectation states, individuals who perceive themselves as low in the social hierarchy are less confident in their abilities when grouped with higher status individuals. The model is applied to a simple agency setting to characterize when tournaments (compensation based on relative performance) are less efficient than team-based incentives.

incentives in teams, status characteristics, cognitive biases