Session 5: Experimental Economics

Some transactions are restricted or prohibited, although people may want to engage in them (e.g., the sale of human organs, surrogacy, and prostitution). It is not well understood what causes the judgement of repugnance. We study two potential reasons: lack of agency of the parties and extreme consequences of the transaction. Limited agency arises, e.g., when one party cannot decide freely because she is not able to reject the transaction offered, a third person who profits from the transaction takes the decision on her behalf, or she is forced to proceed with the transaction due to social pressure. In a laboratory experiment, we ask spectators whether they want to prohibit a transaction or not. We find that transactions with extreme outcomes (listening to a painful tone) are more frequently prohibited than those with mild outcomes (waiting in the laboratory). We also show that lack of agency and extreme outcomes reinforce each other, since the combination of both properties leads to prohibition rates of up to 80 percent.

This paper studies market participants’ concerns about the moral and social values of their counterparts in market exchange. Using a survey, a laboratory experiment, and an online experiment, we investigate whether consumers prefer to purchase from counterparts whose behavior indicates support for the consumers’ values—even when those values are orthogonal to the product or transaction—and whether sellers anticipate and respond to such concerns accordingly. We document two key findings supporting these relationships. First, we find that consumers prefer exchanging and are willing to pay more to exchange with counterparts whose actions express support for the consumers’ values, even when the consumers’ purchasing decisions have no instrumental impact on the promotion of those values. Second, when sellers anticipate the possibility of such exchange, they change their behavior to reflect greater support for the values held by buyers. Our findings thus question the typical assumption of impersonality in market exchange and suggest that the presence of opportunities for gain through market transactions may promote and shape the values that individuals publicly support.

We are thankful for excellent comments from the Editor, three anonymous referees, colleagues and seminar discussants. Special thanks to Roland Benabou for his detailed feedback and for suggesting the epigraph. We would like to thank Jose Felipe Montano-Campos and Santiago De Martini for superb research assistance. We are grateful to Bettina Zweck (Kantar Public Germany), David Richter (DIW Berlin), and Carsten Schroeder (DIW Berlin) for their support in implementing the project. This project received financial support from the German Research Foundation (DFG) through individual grant FE 1452/3-1 (Fehr) and from the German Institute for
Eco-nomic Research (DIW Berlin, Mollerstrom). The authors declare that they have no relevant or material financial interests that relate to the research described in this paper. The study is registered in the AEA RCT Registry under AEARCTR-0006460. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

State and local policies increasingly restrict access to job applicants’ criminal records, but without addressing the underlying reasons that employers conduct criminal background checks. Employers may thus still ask about an applicant’s criminal record later in the hiring process or make inaccurate judgments about an applicant’s criminal record based on demographic characteristics. In this paper, we use a field experiment conducted in partnership with a nationwide staffing platform to test a range of alternative policies that more directly address the reasons that employers may conduct criminal background checks. The experiment asked hiring managers at nearly a thousand U.S. businesses to make actual hiring decisions under different randomized conditions. We find that 39% of businesses in our sample are willing to work with workers with a criminal record at baseline, which rises to over 50% when businesses are offered crime and safety insurance, a single performance review, a background check covering just the past year, or objective information on the productivity of these workers. Wage subsidies can achieve similar increases but at a substantially higher cost. Based on our findings, the staffing platform modified its user interface to relax the criminal background check requirement and offer crime and safety insurance.

A key feature of markets for repugnant transactions is that certain transactions seem to raise moral concerns only when they involve high monetary incentives. Using a framed field experiment with a representative sample, I show that these preferences exist, and I investigate why people display it. Participants can permit or prevent a third party from being financially compensated for registering as a stem cell and bone marrow donor. I find that a substantial fraction of individuals permit a low payment but prevent high monetary incentives. With the help of experimental treatment variation, I show that their preference to prevent high incentive offers is caused by the desire to protect individuals who are persuaded by high incentives. Evidence from a survey experiment with ethic committees emphasizes the practical importance of this finding.

The literature in experimental economics has linked the laboratory measurement of preferences for competition with labor market outcomes and educational choices, such as wages and career choices. If preferences for competition are an important determinant of behavior, it is crucial to develop an accurate approach to measure them. In this study, we test whether preferences for competition can be rationalized by a utility function and develop a framework for the joint treatment of preferences for competition and risk. Our design improves on previous work in that it generates a rich data set of individual-level choices, accounts structurally for the relation between risk and competition preferences, and controls carefully for overconfidence. This allows us to test whether choices to enter tournaments are consistent with GARP and to estimate with a high degree of certainty the extent to which these choices are explained by a preference for competition and not by other confounding factors present in the environment. Our findings provide strong evidence for a preference for competition at the individual level that largely satisfies GARP, and that is conceptualized by two terms in the utility function of income obtained in a competitive environment. The first term assumes that preferences for competition affect utility directly through payoffs and the second term allows preferences for competition to influence utility through risk preferences. We discuss the economic implications of both interpretations of preferences for competition and discuss their relation with risk preferences.

Corrections among colleagues are an integral part of group work, but people may take corrections as personal criticism, especially corrections by women. I study whether people dislike collaborating with someone who corrects them and more so when that person is a woman. Using a novel quasi-laboratory experiment, I find that people, including those with high productivity, are less willing to collaborate with a person who has corrected them even if the correction improves group performance. Yet, I do not find robust evidence that people respond more negatively to women’s corrections, and this is not driven by their beliefs about the difference in women’s and men’s abilities. These findings suggest that although women may not receive a stronger negative reaction, there is a behavioral bias that distorts the optimal selection of talents and penalizes those who correct others’ mistakes.

We study the dynamic relationship between intra-household specialization, resource allocation and women’s investment decisions. We consider public good investments delegated to the wife in settings where wives perceived to be savvy investors by their husbands are entrusted with a larger share of the budget. We show, first theoretically, then empirically through a series of experiments with couples in Malawi, that a signaling game can result, in which wives, in order to maintain control over a larger share of the budget, (a) under-invest in novel goods with unknown returns; and (b) knowingly over-use low-return goods in order to hide bad purchase decisions—we call this the intra-household sunk cost fallacy. These dynamics matter for women’s well-being as well as for the design of poverty alleviation programs.

We examine to what extent a person's moral preferences can be inferred from observing their choices, for instance via experiments, and in particular, how one should interpret certain behaviors that appear deontologically motivated. Comparing the performance of the direct elicitation (DE) and multiple-price list (MPL) mechanisms, we characterize in each case how (social or self) image motives inflate the extent to which agents behave prosocially. More surprisingly, this signaling bias is shown to depend on the elicitation method, both per se and interacted with the level of visibility: it is greater under DE for low reputation concerns, and greater under MPL when they become high enough. We then test the model's predictions in an experiment in which nearly 700 subjects choose between money for themselves and implementing a 350e donation that will, in expectation, save one human life. Interacting the elicitation method with the decision's level of visibility and salience, we find the key crossing effect predicted by the model. We also show theoretically that certain "Kantian" postures, turning down all prices in the offered range, easily emerge under MPL when reputation becomes important enough.

Uncovering the causes and foundations of increasing political polarization poses a pressing open problem to all social sciences. Here, we report results from an online experiment with a representative sample of the US population, deployed the week before the 2020 US presidential election, to analyze the role of affective polarization and social identity in facilitating ideological polarization at the individual level. Participants were incentivized to predict policy-sensitive statistics a year after the election conditional on its outcome. To update their initial predictions, individuals select or exogenously obtain factually similar articles on the respective topics curated from differently slanted news sources. We employ "political groupiness'' as an empirical measure for individual susceptibility for affective polarization, using behavioral experiments from the economic literature on social identity. We find political groupiness to be systematically associated with ideological polarization, as the partisan biases in both the demand for and processing of information is significantly amplified for groupy subjects. Our results suggest that ideological polarization is founded, at least partly, in the social identity roots of partisanship. Reducing the salience of intergroup distinctions by delabeling information sources decreases the partisan bias in information demand but not in information processing.

We predict cooperation rates across treatments in the experimental play of the indefinitely repeated prisoner’s dilemma using simulations of a simple learning model. We suppose that learning and the game parameters only influence play in the initial round of each supergame. Using data from 17 papers, we find that our model predicts out-of-sample cooperation at least as well as more complicated models with more parameters and harder-to-interpret machine learning algorithms. Our results let us predict how cooperation rates change with longer experimental sessions, and help explain past findings on the role of strategic uncertainty.

Lab and field experiments have proven to be an important source of empirical evidence on discrimination. We show that if average outcomes in a discrimination experiment satisfy simple conditions, then this provides evidence that decision-makers are prejudiced – regardless of what they learned about individuals in each demographic group before making their decisions. We demonstrate our robust test of prejudice using the lab experiment of Reuben, Sapienza, and Zingales (2014) and the field experiment of Bertrand and Mullainathan

This paper provides evidence that customer discrimination in the market for doctors can be largely accounted for by statistical discrimination. I evaluate customer preferences in the field with an online platform where cash-paying consumers can shop and book a provider for medical procedures based on an experimental paradigm called validated incentivized conjoint analysis (VIC). Customers evaluate doctor options they know to be hypothetical to be matched with a customized menu of real doctors, preserving incentives. Racial discrimination reduces patient willingness-to-pay for black and Asian providers by 12.7% and 8.7% of the average colonoscopy price. Further, providing signals of provider quality reduces this willingness-to-pay racial gap by about 90% suggesting statistical discrimination as an important cause of the gap. Actual booking behavior allows cross validation of incentive compatibility of stated preference elicitation via VIC.

Scientists advance knowledge by criticizing and debating ideas. Women have historically made up a minority of participants in academic science, but, have they been missing even more in the debate component of science? I shed light on this question by studying male and female rates of authorship of post-publication comments, a type of paper that directly criticizes someone else's published work. Across a range of disciplines in the natural and social sciences, the share of female authors is 20-40 percent lower for post-publication comments relative to regular papers. This imbalance in the literature is not explained by gender disparities in sorting across fields, seniority, coauthorship propensity, or strategies that prioritize impactful papers. I then conduct an experiment that suggests a role of gender differences in preferences for pointing out a mistake in someone’s work and taking away credit earned from that mistake.

We investigate the applications of near-miss effects to theories of effective deterrence. Classical deterrence theory specifies two types of criminal deterrence: general deterrence, in which potential criminals are deterred from offending by the threat of punishment, and specific deterrence, in which criminals who have already offended are deterred from re-offending by experiences with punishment. In this paper, we introduce a novel category of deterrence–Near Miss Deterrence–that falls between general and specific deterrence. Under near-miss deterrence, transgressors do not experience punishment directly, but rather feel a sense of subjective closeness to an avoided punishment and adjust their behavior accordingly. Across two experimental studies (N = 2, 049), we study how individuals behave after getting away with a first instance of cheating, and demonstrate the deterrent effects of near misses. We show that participants who cheat and experience subsequent "close calls" with punishment reduce their cheating in levels comparable to cheaters who are punished. By contrast, participants who avoid punishment by wider margins do not decrease their cheating. We do not find evidence that this effect is driven by transient shifts in affect. These results have important implications for theories of deterrence and for policy.

Attracting and retaining high-quality teachers has a large social benefit, but it is challenging for schools to identify good teachers ex-ante. This paper uses teachers’ contract choices and a randomized controlled trial of performance pay with 7,000 teachers in 243 private schools in Pakistan to study whether performance pay affects the composition of teachers. Consistent with adverse selection models, we find that performance pay induces positive sorting: both among teachers with higher latent ability and among those with a more elastic effort response to incentives. Teachers also have better information about these dimensions of type than their principals. Using two additional treatments, we show effects are more pronounced among teachers with better information about their quality and teachers with lower switching costs. Accounting for these sorting effects, the total effect of performance pay on test scores is twice as large as the direct effect on the existing stock of teachers, suggesting that analyses that ignore sorting effects may substantially understate the effects of performance pay.