Adding Noise to the Institution: An Experimental Welfare Investigation of the Contribution-Based Grouping Mechanism

33 Pages Posted: 10 May 2015 Last revised: 1 Mar 2018

Heinrich H. Nax

ETH Zurich

Stefano Balietti

Northeastern University - Network Science Institute; Harvard University - Institute for Quantitative Social Sciences; Northeastern University - Management Information Systems Area

Ryan O. Murphy

University of Zurich - Department of Economics

Dirk Helbing

ETH Zürich - Department of Humanities, Social and Political Sciences (GESS)

Date Written: May 8, 2015

Abstract

Real-world institutions dealing with social dilemma situations are based on mechanisms that are rarely implemented without flaw. Usually real-world mechanisms are noisy and imprecise, that is, which we call ‘fuzzy’. We therefore conducted a novel type of voluntary contributions experiment where we test a mechanism by varying its fuzziness. We focus on a range of fuzzy mechanisms we call ‘meritocratic matching’. These mechanisms generalize the mechanism of ‘contribution-based competitive grouping’, and their basic function is to group players based on their contribution choices — i.e. high contributors with high contributors, and low contributors with low contributors. Theory predicts the following efficiency-equality tradeoff as a function of the mechanism’s inherent fuzziness: high levels of fuzziness should lead to maximal inefficiency, but perfect equality; decreasing fuzziness is predicted to improve efficiency, but at the cost of growing inequality. The main finding of our experimental investigation is that, contrary to tradeoff predictions, less fuzziness increases both efficiency and equality. In fact, these unambiguous welfare gains are partially realized already at levels where the mechanism is too fuzzy for any high-efficiency outcome to even be a Nash equilibrium.

Keywords: public-goods, meritocratic matching, efficiency, fairness, inequality

JEL Classification: C92, D02, D63, H41

Suggested Citation

Nax, Heinrich H. and Balietti, Stefano and Murphy, Ryan O. and Helbing, Dirk, Adding Noise to the Institution: An Experimental Welfare Investigation of the Contribution-Based Grouping Mechanism (May 8, 2015). Social Choice and Welfare, Vol. 50, No. 2, 2018. Available at SSRN: https://ssrn.com/abstract=2604140 or http://dx.doi.org/10.2139/ssrn.2604140

Heinrich H. Nax

ETH Zurich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

Stefano Balietti (Contact Author)

Northeastern University - Network Science Institute ( email )

177 Huntington Avenue
Boston, MA MA 02115
United States

Harvard University - Institute for Quantitative Social Sciences ( email )

1737 Cambridge St
Cambridge, MA 02115
United States

Northeastern University - Management Information Systems Area ( email )

Boston, MA 02115
United States

Ryan O. Murphy

University of Zurich - Department of Economics ( email )

Zürich
Switzerland

Dirk Helbing

ETH Zürich - Department of Humanities, Social and Political Sciences (GESS) ( email )

ETH Zurich - Swiss Federal Institute of Technology
Clausiusstrasse 50
Zurich, 8092
Switzerland

HOME PAGE: http://www.coss.ethz.ch

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