A Theory of Experiments: Invariance of Equilibrium to the Strategy Method and Implications

TSE Working Paper No. 16-724

74 Pages Posted: 7 Mar 2017 Last revised: 24 Feb 2020

See all articles by Daniel L. Chen

Daniel L. Chen

Directeur de Recherche, Centre National de la Recherche Scientifique, Toulouse School of Economics, Institute for Advanced Study in Toulouse, University of Toulouse Capitole, Toulouse, France

Martin Schonger

ETH Zürich

Date Written: December 20, 2019

Abstract

Most papers that employ the strategy method (SM) use many observations per subject to study responses to rare or off-equilibrium behavior that cannot be observed using direct elicitation (DE), but ignore that the strategic equivalence between SM and DE holds for the monetary payoff game but not the game participants actually play, which is in terms of utilities. We formalize the mapping from the monetary payoff game to this actual game and delineate necessary and sufficient conditions for strategic equivalence to apply. We use results from the past literature and our own experiments and report three results. First, not accounting for bias in estimation when decisions at one information set can influence utility at another information set can render significant differences in decision-making. Second, the bias can be large and equivalent to other treatment effects being measured. Third, subtle interventions on salience can magnify these differences by a similar amount.

Keywords: Theory of Experiments, Strategy Method, Social Preferences, Intentions, Deontological Motivations

JEL Classification: C90, D64, A13, D03

Suggested Citation

Chen, Daniel L. and Schonger, Martin, A Theory of Experiments: Invariance of Equilibrium to the Strategy Method and Implications (December 20, 2019). TSE Working Paper No. 16-724, Available at SSRN: https://ssrn.com/abstract=2928121 or http://dx.doi.org/10.2139/ssrn.2928121

Daniel L. Chen (Contact Author)

Directeur de Recherche, Centre National de la Recherche Scientifique, Toulouse School of Economics, Institute for Advanced Study in Toulouse, University of Toulouse Capitole, Toulouse, France ( email )

Toulouse School of Economics
1, Esplanade de l'Université
Toulouse, 31080
France

Martin Schonger

ETH Zürich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

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