In Search of Workers' Real Effort Reciprocity - A Field and a Laboratory Experiment

Abstract:

updated version of paper no 55

We present a field experiment to assess the effect of own and peer wage variations on actual work effort of employees with hourly wages. Work effort neither reacts to an increase of the own wage, nor to a positive or negative peer comparison. This result seems at odds with numerous laboratory experiments that show a clear own wage sensitivity on effort. In an additional real-effort laboratory experiment we show that explicit cost and surplus information that enables to exactly calculate employer’s surplus from the work contract is a crucial pre-requisite for a positive wage-effort relation. This demonstrates that employee’s reciprocity requires a clear assessment of the surplus at stake.

Keywords: efficiency wage, reciprocity, fairness, field experiment, real effort
JEL Classification: C91, C92, J41
June 2008

 

Full text in pdf format:

238.pdf

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Unawareness, Beliefs and Games

Abstract:

We define a generalized state-space model with interactive unawareness and probabilistic beliefs. Such models are desirable for many potential applications of asymmetric unawareness. We develop Bayesian games with unawareness, define equilibrium, and prove existence. We show how equilibria are extended naturally from lower to higher awareness levels and restricted from higher to lower awareness levels. We use our unawareness belief structure to show that the common prior assumption is too weak to rule out speculative trade in all states. Yet, we prove a generalized “No-trade” theorem according to which there can not be common certainty of strict preference to trade. Moreover, we show a generalization of the “No-agreeing-to-disagree” theorem.

Keywords: unawareness, awareness, type-space, Bayesian games, incomplete information, equilibrium, common prior, agreement, speculative trade, interactive epistemology
JEL Classification: C70, C72, D80, D82
March 2007

 

Full text in pdf format:

196.pdf

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The Evolutionary Stability of Optimism, Pessimism and Complete Ignorance

Abstract:

We provide an evolutionary foundation to evidence that in some situations humans maintain optimistic or pessimistic attitudes towards uncertainty and are ignorant to relevant aspects of the environment. Players in strategic games face Knightian uncertainty about opponents’ actions and maximize individually their Choquet expected utility. Our Choquet expected utility model allows for both an optimistic or pessimistic attitude towards uncertainty as well as ignorance to strategic dependencies. An optimist (resp. pessimist) overweights good (resp. bad) outcomes. A complete ignorant never reacts to opponents’ change of actions. With qualifications we show that optimistic (resp. pessimistic) complete ignorance is evolutionary stable / yields a strategic advantage in submodular (resp. supermodular) games with aggregate externalities. Moreover, this evolutionary stable preference leads to Walrasian behavior in those classes of games.

Keywords: ambiguity, Knightian uncertainty, Choquet expected utility, neo-additive capacity, Hurwicz criterion, Maximin, Minimax, Ellsberg paradox, overconfidence, supermodularity, aggregative games, monotone comparative statics, playing the field, evolution of preferences
JEL Classification: C72, C73, D01, D43, D81, L13
November 2005

 

Full text in pdf format:

68.pdf

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Rage Against the Machines: How Subjects Learn to Play Against Computers

Abstract:

We use an experiment to explore how subjects learn to play against computers which are programmed to follow one of a number of standard learning algorithms. The learning theories are (unbeknown to subjects) a best response process, fictitious play, imitation, reinforcement learning, and a trial & error process. We test whether subjects try to influence those algorithms to their advantage in a forward-looking way (strategic teaching). We find that strategic teaching occurs frequently and that all learning algorithms are subject to exploitation with the notable exception of imitation. The experiment was conducted, both, on the internet and in the usual laboratory setting. We find some systematic differences, which however can be traced to the different incentives structures rather than the experimental environment.

Keywords: learning; fictitious play; imitation; reinforcement; trial & error; strategic teaching; Cournot duopoly; experiments; internet
JEL Classification: C72, C91, C92, D43, L13
October 2005

 

Full text in pdf format:

63.pdf

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A Canonical Model for Interactive Unawareness

Abstract:

Heifetz, Meier and Schipper (2005) introduced a generalized state-space model that allows for non-trivial unawareness among several individuals and strong properties of knowledge. We show that this generalized state-space model arises naturally if states consist of maximally consistent sets of formulas in an appropriate logical formulation.

Keywords: unawareness, awareness, knowledge, interactive epistemology, modal logic, lack of conception, bounded perception
JEL Classification: C70, C72, D80, D82
September 2005

 

Full text in pdf format:

60.pdf

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Ambiguity and Social Interaction

Abstract:

We present a non-technical account of ambiguity in strategic games and show how it may be applied to economics and social sciences. Optimistic and pessimistic responses to ambiguity are formally modelled. We show that pessimism has the effect of increasing (decreasing) equilibrium prices under Cournot (Bertrand) competition. In addition the effects of ambiguity on peace-making are examined. It is shown that ambiguity may select equilibria in coordination games with multiple equilibria. Some comparative statics results are derived for the impact of ambiguity in games with strategic complements.

Keywords: Ambiguity, Optimism, Pessimism, Strategic Games, Oligopoly, Strategic Delegation, Peace-making, Strategic Complements, Choquet Expected Utility
JEL Classification: C72, D43, D62, D81
July 2005

 

Full text in pdf format:

59.pdf

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In Search of Workers' Real Effort Reciprocity - A Field and a Laboratory Experiment

Abstract:

We present a field experiment to assess the effect of own and peer wage variations on actual work effort of employees with hourly wages. Work effort neither reacts to an increase of the own wage, nor to a positive or negative peer comparison. This result seems at odds with numerous laboratory experiments that show a clear own wage sensitivity on effort. In an additional real-effort laboratory experiment we show that explicit cost and surplus information that enables to exactly calculate employer’s surplus from the work contract is a crucial pre-requisite for a positive wage-effort relation. This demonstrates that employee’s reciprocity requires a clear assessment of the surplus at stake.

Keywords: efficiency wage, reciprocity, fairness, field experiment, real effort
JEL classification: C91, C92, J41
July 2005

 

Full text in pdf format:

55.pdf

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Imitation - Theory and Experimental Evidence

Abstract:

We introduce a generalized theoretical approach to study imitation and subject it to rigorous experimental testing. In our theoretical analysis we find that the different predictions of previous imitation models are due to different informational assumptions, not to different behavioral rules. It is more important whom one imitates rather than how. In a laboratory experiment we test the different theories by systematically varying information conditions. We find significant effects of seemingly innocent changes in information. Moreover, the generalized imitation model predicts the differences between treatments well. The data provide support for imitation on the individual level, both in terms of choice and in terms of perception. But imitation is not unconditional. Rather individuals' propensity to imitate more successful actions is increasing in payoff differences.

Keywords: Evolutionary game theory; Stochastic stability; Imitation; Cournot markets; Information; Experiments; Simulations
JEL Classification: C72; C91; C92; D43; L13
April 2005

 

Full text in pdf format:

54.pdf

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Imitators and Optimizers in Cournot Oligopoly

Abstract:

We analyze a symmetric n-firm Cournot oligopoly with a heterogeneous population of optimizers and imitators. Imitators mimic the output decision of the most successful firms of the previous round a l`a Vega-Redondo (1997). Optimizers play a myopic best response to the opponents’ previous output. Firms are allowed to make mistakes and deviate from the decision rules with a small probability. Applying stochastic stability analysis, we find that the long run distribution converges to a recurrent set of states in which imitators are better off than are optimizers. This finding appears to be robust even when optimizers are more sophisticated. It suggests that imitators drive optimizers out of the market contradicting a fundamental conjecture by Friedman (1953).

Keywords: profit maximization hypothesis, bounded rationality, learning, Stackelberg
JEL classification: C72, D21, D43, L13
March 2005

 

Full text in pdf format:

53.pdf

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Interactive Unawareness

Abstract:

The standard state-spaces of asymmetric information preclude non-trivial forms of unawareness (Modica and Rustichini, 1994, Dekel, Lipman and Rustichini, 1998). We introduce a generalized state-space model that allows for non-trivial unawareness among several individuals, and which satisfies strong properties of knowledge as well as all the desiderata on unawareness proposed this far in the literature.

Keywords: unawareness, awareness, knowledge, interactive epistemology, speculative trade, bounded perception.
JEL Classification: C70, C72, D80, D82
February 2005

 

Full text in pdf format:

52.pdf

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Herding and Contrarian Behavior in Financial Markets - An Internet Experiment

Abstract:

Lecture on the first SFB/TR 15 meeting, Gummersbach, July, 18 - 20, 2004

We report results of an internet experiment designed to test the theory of informational cascades in financial markets (Avery and Zemsky, AER, 1998). More than 6400 subjects, including a subsample of 267 consultants from an international consulting firm, participated in the experiment. As predicted by theory, we find that the presence of a flexible market price prevents herding. However, the presence of contrarian behavior, which can (partly) be rationalized via error models, distorts prices, and even after 20 decisions convergence to the fundamental value is rare. We also report some interesting differences with respect to subjects’ fields of study. Reassuringly, the behavior of the consultants turns out to be not significantly different from the remaining subjects.

Keywords: informational cascades, herding, contrarians, experiment, internet
JEL Classification: C92, D8, G1
June 2004

 

Full text in pdf format:

7.pdf

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