Notoriously incomplete and under construction
Elena Cettolin and Arno Riedl
Revealed Preferences under Uncertainty: Evidence for Convex and Incomplete Preferences
(revised April 2018; older version: CESifo Working Paper Series No. 5359, 2015 )

The completeness axiom of choice has been questioned for long and theoretical models of decision making allowing for incomplete preferences have been developed. So far the theoretical accomplishments have not been paired with empirical evidence on the actual existence of incomplete preferences under uncertainty. We provide such evidence. In a first experiment we design a decision task where specific choice patterns are consistent with incomplete variational Bewley preferences and complete convex preferences but inconsistent with other models assuming completeness. In a second experiment we directly test for convex preferences allowing us to disentangle them from variational Bewley preferences. We find that approximately half of the participants behave consistent with convex preferences an} variational Bewley preferences. About half of these participants exhibit behavior consistent only with variational Bewley preferences, about one third shows behavior consistent with strictly convex preferences, and the remaining participants' behavior is consistent with both weakly convex and incomplete preferences. In further experiments we show that the observed behavioral pattern cannot be attributed to probability weighting, choice mistakes, or intransitive indifference. In a further test we show that the observed behavior is robust to a prize variation in the ambiguous prospect.
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Florian Engl, Arno Riedl and Roberto Weber
Spillover Effects of Institutions on Cooperative Behavior, Preferences, and Beliefs
CESifo Working Paper Series No. 6504, 2017; IZA Discussion Paper No. 10781 (revised January 2018)

Institutions are an important means for fostering prosocial behaviors, but in many contexts their scope is limited and they govern only a subset of all socially desirable acts. We study experimentally how the presence and nature of an institution that enforces prosocial behavior in one domain affects behavior in a similar but unregulated domain. Groups play two identical public good games, with cooperation institutionally enforced in one game. The presence of an institution in one game generally enhances cooperation in the other game, thus documenting a positive spillover effect. These indirect spillover effects are economically substantial, amounting up to 30 to 40 percent of the direct effect of institutions. In addition, we find evidence for sequential spillover effects, meaning that behavior is affected by the institution even after it is removed. We also observe that institutions enhance prosocial preferences and beliefs about others' prosocial behavior, even toward strangers, suggesting that both factors are drivers of the observed spillover effects. We further explore other aspects influencing spillover effects, including characteristics of an institution, such as whether it is exogenously imposed or endogenously determined.
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Jordi Brandts and Arno Riedl
Market competition and efficient cooperation
CESifo Working Paper Series No. 5694, 2016 (revised July 2017)

We experimentally study the causal effects of different types of market experience on the efficiency levels attained in a subsequent social dilemma. Our motivation stems from the existence of contrasting views on the potential spillover effects of participation in markets on non-market activities requiring cooperation. In our setup, market interaction takes place in a competitive market involving a short and a long side. Our focus is on the comparison of the efficiency levels attained in a subsequent social dilemma by pairs of individuals who were on the short side of the market, market-winners, with that of individuals who were on the long side, market-losers. We study both the cases where interaction in the social dilemma is with others from the same market, Market-Partners, and where it is with others from another market, Market-Strangers. We compare the efficiency of cooperation with and without market experience controlling for earnings, allowing us to identify the causal effects of market interaction. The results show that the experience of market interaction has a negative effect on cooperation efficiency in Market-Partners, that is among those who had to compete with each other on on the same side of the market. This holds for both market-losers and market-winners pairs. By contrast, for Market-Strangers we find the positive effect of market experience cooperation efficiency for market-winner pairs. Our results are consistent with the idea that direct competition damages social ties and the more general notion of state-dependent preferences.
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Aurelie Dariel and Arno Riedl
Reciprocal Preferences and Gift-Exchange
GSB_RM13034, 2013 (revised June 2017)

We elicit reciprocal preferences in a firm-worker gift-exchange setting and relate them to actual behavior in a repeated gift-exchange game. We find that only a small minority of 10 percent of workers is materially selfish whereas 90 percent exhibit reciprocal preferences. However, the intensity of reciprocal preferences is weak in the sense that firms maximize profits by not relying on gift-exchange but by offering the lowest possible wage. Workers behavior in the repeated gift-exchange game is predicted by their elicited preferences, but the correlation between preferences and behavior is imperfect. Together with profit maximizing behavior of firms these observations can explain the observed unraveling of gift-exchange over time in our experiment and some recent field experiments.
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Elena Cettolin and Arno Riedl
Revealed Incomplete Preferences under Uncertainty: Evidence for Bewley Preferences
CESifo Working Paper Series No. 5359, 2015 (revised June 2016)

The completeness axiom of choice has been questioned for long and theoretical models of decision making allowing for incomplete preferences have been developed. So far the theoretical accomplishments have not been paired with empirical evidence on the actual existence of incomplete preferences under uncertainty. We provide empirical evidence in support of the existence of incomplete preferences due to multiple priors over an ambiguous event, i.e. Bewley preferences. We design experimental decision tasks where specific choice patterns are consistent with Bewley preferences but inconsistent with models assuming completeness. We find that approximately half of the subjects behave consistent with {variational} Bewley preferences and that the observed behavioral pattern cannot be attributed to probability weighting, choice mistakes, or intransitive indifference. In a robustness test we show that the observed behavior is robust to a prize variation in the ambiguous prospect and consistent with comparative statics predictions based on variational Bewley preferences.
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Matthew Embrey, Kyle B. Hyndman and Arno Riedl
Bargaining with a residual claimant: An experimental study
CESifo Working Paper Series No. 5087, 2014 (revised June 2016)

Most negotiations involve risks that are only revealed ex-post. Often these risks are not incurred equally by the parties involved. We experimentally investigate bargaining situations where one player is exposed to ex-post risk, whereas the other is not. We find that residual claimants extract a risk premium, which increases in risk exposure. This premium is sometimes high enough to make it advantageous to bargain over a risky rather than a risk-less pie. Standard theory captures some of our observations but important issues remain. First, comparatively less risk averse residual claimants benefit the most. Second, when given the chance, residual claimants tend to choose a riskier distribution of surpluses only when there is the possibility of an equal-split ex-post. Third, bargaining frictions increase as risk increases. Our results indicate that bargaining models require separation between the determinants of bargaining power and fair compensation for risk exposure.
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Ben D'Exelle and Arno Riedl
Gender differences and social ties effects in resource sharing
Maastricht University, GSBE Research Memorandum No. 16023, 2016

In rural areas in developing countries gender inequality tends to be severe which might have substantial welfare implications if it determines how scarce economic resources are shared between men and women. Therefore, it is important to know how gender influences resource sharing and - given the strong embeddedness of resource sharing in social networks - in what ways social ties interact with this influence. To investigate this, we combine data from resource allocation experiments and a social network survey in rural Nicaragua. We find that women share less than men, and that this difference is largest among people of the same village and of different gender. We also find that social ties exert an important influence on sharing and that women have fewer friendship ties within their village than men. Regression analysis shows important gender differences in the effect of social ties on sharing. While both men and women share more with female friends than with female non-friends, women share \textit{less} with male friends than with male non-friends. We also find that with controls for friendship ties, there remains a direct gender effect on within-village sharing, with men sharing more than women. Finally, we find that our results are robust to potential gender differences in the reporting of social ties.
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Henrik Zaunbrecher and Arno Riedl
Social Identity and Group Contests
Maastricht University, GSBE Research Memorandum No. 16024, 2016

Social identity has been shown to successfully enhance cooperation and effort in cooperation and coordination games. Little is known about the causal effect of social identity on the propensity to engage in group conflict. In this paper we explore theoretically and experimentally whether social identity increases investments in group contests. We show theoretically that increased social identity with the own group implies higher investments in Tullock contests. Empirically we find that induced social identity does increase group closeness but does not increase conflict investments.
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Eva Woelbert and Arno Riedl
Measuring Time and Risk Preferences: Reliability, Stability, Domain Specificity
(July 2013)

To accurately predict behavior economists need reliable measures of individual time preferences and attitudes toward risk and typically need to assume stability of these characteristics over time and across decision domains. We test the reliability of two choice tasks for eliciting discount rates, risk aversion, and probability weighting and assess the stability of these characteristics over time and across situations. We find high reliability and that individual characteristics are remarkably stable over time. The estimated parameters correlate well with self-reported decisions in financial domains, but are largely uncorrelated with decisions in other important life domains involving intertemporal trade-offs and risk.
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Ben D'Exelle and Arno Riedl
Social Embeddedness and Resource Sharing
(May 2013; first version: December 2010 entitled "Directed Generosity and Network Formation: Network Dimension Matters")

We empirically analyze the relation between resource sharing, social proximity, and structural network positions in different network dimensions. We elicit socio-economic characteristics of all household heads in a rural village in Nicaragua, map their complete network in the dimensions friendship, social-public activities, and economic exchange, and conduct a sequence of field dictator experiments to measure the willingness to share resources in a controlled way. Different network dimensions differ substantially in structure and show little overlap. Relational and structural positions of individuals in these network dimensions correlate strongly with important socio-economic characteristics. Resource sharing is positively related to social proximity in friendship networks but not in other network dimensions. In all network dimensions resource sharing correlates with structural network variables, such as centrality and closure. These relations vary across network dimensions suggesting that for theoretical analysis as well as policy applications both network structure and network dimensions have to be taken into account.
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Competition and Well-Being
(revised December 2008; first version: April 2004)
An abridged version of this paper is published in Journal of Public Economics under the title
Competitive Rivalry, Social Disposition, and Subjective Well-Being: An Experiment

We study the effects of competition in a context in which people's actions can not be contractually fixed. We find that in such an environment the very presence of competition does neither increase efficiency nor does it yield any payoff gains for the short side of the market. We also find that competition has a strong negative impact on social well-being, the disposition towards others, and individually experienced well-being, the emotional state, of those on the long side of the market. We conjecture that this limits the possibilities of satisfactory interaction in the future and, hence, has negative implications for efficiency in the longer-run.
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Ronald Bosman and Arno Riedl
Emotions and Economic Shocks in a First-Price Auction: An Experimental Study
(Revised June 2004)

We investigate experimentally whether emotions affect bidding behavior in a first price auction. To induce emotions, we confront subjects after a first auction series with a positive or negative random economic shock. We then explore the relation between emotions and bidding behavior in a second auction series. Our main results are: (i) the economic shock has a substantial impact on the experienced emotions of bidders; (ii) the emotional state systematically influences bidding behavior. Our results clearly suggest that emotions should not be excluded as an explanatory factor of behavior in competitive environments like auctions.
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Arno Riedl and Jana Vyrastekova
Responder Behavior in Three-Person Ultimatum Game Experiments

We extend the standard ultimatum game to a three person game where the proposer chooses a three-way split of a pie and two responders independently and simultaneously choose to accept or reject the proposal. We investigate whether a responder perceives the other responder as a reference person. We do this by varying the other responder's payoff in case the responder rejects. Hence, we explore whether reciprocal behavior towards the proposer is affected by the presence of the third player. In three treatments, the third player is either negatively affected, unaffected, or positively affected by the responder's choice to punish the proposer. We find that responders are very heterogeneous in their actions. Around one half of subjects submit strategies showing no concern for the other responder's payoffs. Another half of the subject pool submits strategies sensitive to the distribution of the pie among all three players. Preferences for equal splitting of the pie are expressed by less than 10 percent of all responders.
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