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Abstract:
We study panel data on three birth-year cohorts to understand the changes in risk tolerance across different age groups. Interval regression models on cross-sectional data for each birth cohort are constructed to investigate how time-invariant factors and macroeconomic events such as September 11, 2001, might influence individuals' risk tolerance. Well-established maximum likelihood estimation procedure is followed to obtain a parametric distribution of logarithm of relative risk tolerance that is potentially subject to noise, and to assess how this distribution shifts with time. Finally, we conduct interval regressions on first difference models to capture the reasons for change in the risk tolerance in each cohort. The main differences in the results as compared to previous studies are that risk tolerance does decrease with age, but there is much more within-subject heterogeneity among younger individuals, and that income lowers risk tolerance among younger Americans, whereas wealth increases risk tolerance among older Americans. The risk tolerance of the oldest cohort is negatively affected by late-life marriage and widowhood, whereas risk tolerance increases with greater wealth, and somewhat due to retirement. An increase in family size through marriage and more children lowers the risk tolerance of the youngest cohort, whereas unemployment has a positive association with tolerance.

Risk tolerance, Latent variables, Interval Regression, Panel data

Abstract:
We use economic experiments to examine the nature of relational trading under a menu of incomplete contracts ranging from the repeat purchase mechanism of Klein and Leffler (1981) to highly incomplete contracts that are completely unenforceable by third-parties. Our results suggest that, with barriers to complete contracting, increasing the degree of contractual incompleteness can enhance efficiency. Intuitively, more incomplete contracts provide parties with greater discretionary latitude to reward and punish unenforceable performance factors. Moreover, trading under moderately incomplete contracts is characterized by efficiency wages, rent sharing and high levels of cooperation, whereas fully incomplete contracts that permit maximum discretion yield trading patterns that are closer what is observed under a perfectly complete contract. Our results are consistent with the theory of strategic ambiguity of Bernheim and Whinston (1998) and can be rationalized by a simple model of relational contracting that embeds different degrees of discretionary latitude.

relational contracts, implicit incentives, experimental economics, cooperation, incomplete contracts

Abstract:
Advances in biomedical technology have irrevocably jarred open the black box of human decision making, offering social scientists the potential to validate, reject, refine and redefine the individual models of resource allocation that form the foundation of modern economics. In this paper we (1) provide a comprehensive overview of the biomedical methods that may be harnessed by economists and other social scientists to better understand the economic decision-making process; (2) review research that utilizes these biomedical methods to illuminate fundamental aspects of the decision-making process; and (3) summarize evidence from this literature concerning the basic tenants of neoclassical utility that are often invoked for positive welfare analysis of environmental policies. We conclude by raising questions about the future path of policy related research and the role biomedical technologies will play in defining that path.

Abstract:
Professional poker players’ behavior in high-stakes, televised tournaments is significantly more conservative than that prescribed by risk-neutral models of dynamic optimization for decisions to call or fold after final ‘river’ bets. Had players adhered to a risk-neutral dynamically-optimal decision rule in these decisions they would have folded less than 10 percent of the hands played and experienced an increase in the share of chips at the table of 1.9 percent. In reality players folded significantly more often – more than 40 percent of the time – and experienced an average gain of only 1.3 percent. While the cost of this conservative play is not statistically significant, the players’ reticence is surprising given that the median player in our sample spends $10,000 to enter the poker tournament, plays for a cash prize pool of nearly $1 million and has substantial experience playing poker. Several explanations may explain the conservative decisions, including probability weighting and players’ overconfidence in being able to determine the strength of an opponent’s cards. The implication of professionals in a high-stakes competition deviating from risk-neutral decision making is explored.

poker, risk, risk-neutral behavior, dynamic optimization

Abstract:
We posit a spatially explicit, county-level model of the hog production sector and estimate how numerous firm-specific, locality-specific, and spatial agglomeration factors affect the location, movement, and intensity of hog production within 15 key hog production states. Spatial agglomeration, urban encroachment, input availability, firm productivity, local economy, slaughter access, and regulatory stringency variables affect the sample regions' spatial organization. Analyses suggest that western states in the sample may shape hog production levels by wielding traditional business recruitment and retention tools (e.g., tax rates, environmental stringency) while Corn Belt states may shape hog production via nontraditional tools (e.g., land use controls).

Abstract:
We use a stated preference instrument to elicit producer preferences for the attributes of risk-shifting hog marketing contracts and express acceptable producer trade-offs between contract attributes in a convenient dollar metric. Respondents value an increase in a window contract's price ceiling three to five times more than the same increase in the price floor, which suggests that hog producers dislike contracts that limit up-side price potential (limit positive skewness). The contractor's organizational form is also important. Cooperative forms are preferred by many respondents, particularly those who state that trust in the contractor is an important antecedent for any contractual relationship.

Abstract:
Using experimental economics, we compare the efficiency and welfare effects of tournaments and fixed performance contracts. Our subjects (agents) were generally better off under fixed performance contracts, but the advantage of the fixed performance contract disappears if the relative magnitude of the standard deviation of the common shock exceeds a critical value. Efficiency wise, agents tend to exert higher effort under fixed performance contracts, on average. Additionally, an increase in the common shock standard deviation appeared to be associated with lower effort under tournaments. Our results shed light on the potential impact of legislative proposals to ban tournament contracts.

Abstract:
Payments for environmental services (PES) schemes have become an increasingly accepted and popular mode for governmental and non-governmental agencies to use in addressing local and regional declines in ecosystem services. A defining characteristic of performance payments, a sub-category of PES schemes, is the linking of individual payments to environmental outputs themselves rather than to the inputs that affect the production of environmental services. Such a focus raises several practical issues during implementation. We review and translate key aspects of the economic theory of incentives into the context of performance payments schemes with special attention paid to two practical issues. The first is that of structuring individual incentives to account for risks outside the individual’s control such as weather that can affect the level of environmental services generated. The second deals with the possibility of distortion in the measurements of environmental services used to determine individual payments under PES schemes. Each challenge is accompanied by a discussion of advice based upon economic theory and a discussion of examples from different countries where such implementation issues arise.

optimal incentive contracts, payments for environmental services, performance incentives, distortion

Abstract:
Experimental studies have consistently shown that cooperative outcomes can emerge even in finitely repeated games. Such outcomes are justified by existing reputation building models, which suggest that cooperative outcomes can be sustained if some subjects have other-regarding preferences. While the existence of other-regarding preferences is typically used to justify experimental outcomes, we are unaware of empirical studies that explicitly examine the interaction between cooperators (those with other-regarding preferences) and selfish subjects in sustaining cooperation. In this paper, we classify subjects as either selfish or cooperative using simple social preference games and then test for behavioral differences between the two types in a finitely-repeated labor market with unenforceable worker effort. Theory predicts, and our data confirms, that (1) selfish players mimic the actions of cooperators when trading partners can track the individual reputation of past partners and (2) selfish and cooperative types act differently when individual reputations cannot be tracked.

contracts, relational contracts, implicit contracts, market interaction, experimental economics, repeated transaction, social preferences, reputation, firm latitude, finitely-repeated games

Abstract:
Experimental studies have consistently shown that cooperative outcomes can emerge even in finitely repeated games. Such outcomes are justified by existing reputation building models, which suggest that cooperative outcomes can be sustained if some subjects have other-regarding preferences. While the existence of other-regarding preferences is typically used to justify experimental outcomes, we are unaware of empirical studies that explicitly examine the interaction between cooperators (those with other-regarding preferences) and selfish subjects in sustaining cooperation. In this paper, we classify subjects as either selfish or cooperative using simple social preference games and then test for behavioral differences between the two types in a finitely-repeated labor market with unenforceable worker effort. Theory predicts, and our data confirms, that (1) selfish players mimic the actions of cooperators when trading partners can track the individual reputation of past partners and (2) selfish and cooperative types act differently when individual reputations cannot be tracked.

Contracts, relational contracts, implicit contracts, market interaction, experimental economics, repeated transaction, social preferences, reputation, firm latitude, finitely-repeated games

Abstract:
No abstract available.

Abstract:
We use economic experiments to investigate how different contract enforcement regimes affect efficiency and the distribution of surplus in a vertically coordinated market with buyer concentration. We find that if a third party (e.g., government) perfectly enforces contracts, social efficiency is enhanced. We also find that when third-party enforcement is imperfect, social efficiency will not necessarily decrease because trading partners find ways to self enforce contracts. However, opportunistic behavior by some traders leaves some sellers (growers) with ex post profits below reservation levels. Finally, partial or one-sided third-party enforcement causes significant efficiency losses by constraining subjects' ability to use informal enforcement instruments.

Abstract:
We estimate willingness to pay (WTP) to operate under two types of contracts - tournaments (Ts) and fixed performance-standard contracts (F). Our results are consistent with the notion that subjects having social preferences for fairness and care about risk. That is, when subjects experience greater inequity under tournaments relative to fixed performance contracts, or experience greater revenue risk under tournaments, the gap between WTP for fixed performance and tournament contracts increases, ceteris paribus. Our results provide an explanation for grower dissatisfaction with tournament compensation schemes independent of possible concerns regarding opportunistic behavior by integrators.

Abstract:
A model of vertical product differentiation is used to analyze the labeling of credence goods, focusing on the manner by which quality is communicated. The results indicate that firms prefer private labeling options. In addition, firms may hire private certifiers as well as paying for mandated government labels when the government's quality benchmark substantially deviates from firms' private quality choices. The average consumer prefers a mandatory, discrete label with a high-quality standard while poor consumers prefer a mandatory, discrete label with a low standard.

Abstract:
Increasingly, foods are marketed as locally grown. We use stated preference data from a choice-based conjoint instrument to address two issues surrounding consumer demand for locally produced goods: (1) what is the geographical extent of local, and (2) is the value consumers place on local production distinct from other factors that are often confounded with locally produced foods such as farm size and product freshness? We find our subjects place similar value on products produced in state and nearby and that consumers' willingness to pay for local production is independent from values associated with product freshness and farm size.

Abstract:
We provide a systematic examination of the differences between Internet and in-person auction prices for used tractors. A hedonic model estimated with transactions pooled between eBay and in-person auctions reveals statistically distinct price surfaces for the two auction venues and predicts significantly lower prices for comparable equipment sold on eBay, though this difference is attenuated for tractors fully covered by eBay's buyer protection program and is fully absent for the most frequently traded tractor. An endogenous venue selection model reveals that larger, more valuable tractors from states with more valuable stocks of machinery are more likely to be offered on eBay.

Abstract:
With recent advances in understanding of the neuroscience of risk taking, attention is now turning to genetic factors that may contribute to individual heterogeneity in risk attitudes. In this paper we test for genetic associations with risk attitude measures derived from both the psychology and economics literature. To develop a long-term prospective study, we first evaluate both types of risk attitudes and find that the economic and psychological measures are poorly correlated, suggesting that different genetic factors may underlie human response to risk faced in different behavioral domains. We then examine polymorphisms in a spectrum of candidate genes that affect neurotransmitter systems influencing dopamine regulation or are thought to be associated with risk attitudes or impulsive disorders. Analysis of the genotyping data identified two single nucleotide polymorphisms (SNPs) in the gene encoding the alpha 4 nicotine receptor (CHRNA4, rs4603829 and rs4522666) that are significantly associated with harm avoidance, a risk attitude measurement drawn from the psychology literature. Novelty seeking, another risk attitude measure from the psychology literature, is associated with several COMT (catechol-O-methyl transferase) SNPs while economic risk attitude measures are associated with several VMAT2 (vesicular monoamine transporter) SNPs, but the significance of these associations did not withstand statistical adjustment for multiple testing and requires larger cohorts. These exploratory results provide a starting point for understanding the genetic basis of risk attitudes by considering the range of methods available for measuring risk attitudes and by searching beyond the traditional direct focus on dopamine and serotonin receptor and transporter genes.

risk attitudes, genetics, novelty seeking, harm avoidance, nicotine receptor, neuroeconomics

Abstract:
Techniques such as neuroimaging and molecular genetics are increasingly used to investigate economic theory, decision making behavior and personality traits related to economic behavior (e.g., risk attitudes, reward dependence). The generalizability of this research is ultimately limited, however, if the subjects participating in such studies are not representative of the general population with respect to the behavior or traits of interest to the researcher. In this study, university student recruits answer surveys that assess risk attitudes prior to being told that the study involves a one-hour functional Magnetic Resonance Imaging (fMRI) session and a blood sample obtained via phlebotomy. We find recruits with more conservative risk attitudes in two of four measured dimensions are less likely to agree to participate in the study due to these biomedical requirements, suggesting that recruitment among student volunteer populations for fMRI studies and for genetics studies requiring blood as genetic source material may induce a sample selection bias in the domain of risk attitudes. We find that limiting recruitment to individuals who have previously undergone certain types of medical interventions (MRI, computed tomography or surgery) eliminates the sample selection bias in the case of fMRI research and attenuates the bias in the case of genetics research. Furthermore, relying upon buccal cells rather than blood for genetic source material may attenuate sample selection bias. Buccal cell samples can be collected via less invasive oral techniques and have been shown to provide genotyping results that are comparable to blood samples.

Neuroimaging, Genetics, Selection Bias, Risk Attitudes, Experimental Subjects