The Impact of Financial Histories on Individuals and Societies: A Replication and Extension of Berg Et. Al.

Abstract

This paper studies how successive generations of laboratory societies organize themselves when given reports of financial transactions from previous generations. We define an increase in societal organization as a reduction in the entropy of the distribution of amounts sent and returned by successive generations of players in the Investment Game. Our entropy analysis of data from Berg, Dickhaut, and McCabe (Games and Economic Behavior, 10, pp. 122-142, 1995) indicates that the provision of a financial history significantly reduced the entropy of the amounts sent by Investors and amounts returned by Stewards, and marginally reduced the entropy in the joint Investor/Steward distribution. We replicated the Berg. et al. (1995) setting and gathered data from three additional societal generations to further test the predictive power of our hypothesis that successive generations of individuals in laboratory societies will increasingly organize themselves over time when they receive reports of financial transactions undertaken by the preceding generation. Participants in Session I (the first generation) received no financial history, whereas participants in the subsequent Sessions II-V received a report that summarized the financial history of the immediately preceding session. Thus, Sessions I and II replicate the original Berg et al. (1995) study, and Sessions III-V extend that study. In general, our results across sessions indicate that entropy declined in both the amounts sent by Investors and the percentage returned by Stewards, but these patterns are weaker and mixed compared to those in the Berg et al. (1995) study. The concluding section discusses the implications of our results and identifies opportunities for future research.