DOES MUTUAL KNOWLEDGE OF PREFERENCES LEAD TO MORE
NASH EQUILIBRIUM PLAY? EXPERIMENTAL EVIDENCE
EUROPEAN ECONOMIC REVIEW, 2021. VOL. 135, ARTICLE 103735.
(JOINT WITH CHRISTOPH BRUNNER AND FLORIAN KAUFFELDT)
Nash equilibrium often does not seem to accurately predict behavior. In experimental game theory, it is usually assumed that the monetary payoffs in the game represent subjects' utilities. However, subjects may actually play a very different game. In this case, mutual knowledge of preferences may not be satisfied. In our experiment, we first elicit subjects' preferences over the monetary payos for all players. This allows us to identify equilibria in the games that subjects actually are playing. We then examine whether revealing other subjects' preferences leads to more equilibrium play and find that this information indeed has a significant effect. Furthermore, it turns out that subjects are more likely to play maxmin and maxmax strategies than Nash equilibrium strategies. This indicates that subjects strongly rely on heuristics when selecting a strategy.
INEQUALITY, FAIRNESS AND SOCIAL CAPITAL
EUROPEAN ECONOMIC REVIEW, 2020. VOL. 129, ARTICLE 103566
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(JOINT WITH DIETMAR FEHR, STEFAN TRAUTMANN AND YILONG XU)
Inequality is often associated with negative societal consequences, but identifying a causal relationship is a daunting task. We provide evidence on the impact of unjust economic inequality on social interacticontrolled experiment,
we document that unjust inequality results in a significant decline in trust and trustworthiness. his erosion of social capital is associated with pessimistic beliefs about others’ behavior and is muted if there is no direct link between the income-generating process and social interaction. Finally, our data do not support the view that higher status or wealth affects pro- social attitudes: the successful are always more generous, whereas unsuccessful persons display the least efficient and generous behavior regardless of the status of the person who they interact with.
FAIRNESS PROPERTIES OF COMPENSATION SCHEMES
THE JOURNAL OF LAW, ECONOMICS & ORGANIZATION (FORTHCOMING)​
(JOINT WITH CHRISTOPH BECKER, DIETMAR FEHR, STEFAN TRAUTMANN AND YILONG XU)
How do different characteristics of pay-for-performance schemes affect fairness perceptions? We systematically consider three main categories of incentives: continuous piece rate incentives, discrete bonus schemes, and tournament incentives. We find that inequality has a strong negative effect on perceived fairness. Controlling for inequality, people consider piece rate schemes fairer than those with a discrete bonus or tournament design. Adding time advantages or handicaps for a task to influence (competitive) advantages negatively influences perceived fairness. Advantages for the successful are especially aversive under tournament schemes, while handicaps are perceived as unfair in general, even though they reduce inequality.
HEDGING, AMBIGUITY AND THE REVERSAL OF ORDER AXIOM
GAMES AND ECONOMIC BEHAVIOR, 2019. VOL. 117, PP. 380-387
(JOINT WITH JÖRG OECHSSLER AND ALEX ROOMETS)
We ran experiments that gave subjects a straight-forward and simple opportunity to hedge away ambiguity in an Ellsberg-style experiment. Subjects had to make bets on the combined outcomes of a fair coin and a draw from an ambiguous urn. By modifying the timing of the draw, coin flip, and decision, we are able to test the reversal-of-order axiom. Our main result is that the reversal-of-order axiom seems to hold. We also confirm low levels of ambiguity hedging despite the relative obviousness of the opportunity.
REVEALED PREFERENCES AND NASH EQUILIBRIUM PLAY
WORKING PAPER
The Nash equilibrium is a widely used concept in Economics and in many other sciences. However, in several situations it does not seem to accurately predict behavior. In applications, the equilibrium prediction often is based on the players' own material payoffs, as they are observable and measurable. However, they do not necessarily fully represent agents' utilities from the outcomes of the game. If this is the case, the players may actually face a very different kind of strategic situation than described by the original version of the game. This could be an explanation why in several cases low frequencies of equilibrium play are observed.
To examine the latter aspect, we reanalyze data of a preexisting experimental study where we first elicited players' (social) preferences over a set of monetary payoff pairs. Afterwards, subjects played a couple of one-shot 2x2 games. The payoff vectors of the outcomes of the games exactly corresponded to the pairs subjects ranked beforehand. Using the data from this treatment allows us to identify the equilibrium structure of the games according to subjects' reported preferences. We find that basing the prediction on players' preferences leads to significantly higher frequencies of equilibrium play overall, while there is a lot of variety across individual games
THE ROLE OF INFORMATION IN NEGOTIATIONS WITH THE OPPOSITE GENDER - EXPERIMENTAL EVIDENCE
(WORKING PAPER)
(JOINT WITH GRACIELA KUECHLE)
Laboratory experiments on bargaining show that women perform worse than men in the presence of asymmetric power and gender information. However, it is not clear whether the results are driven by the asymmetry, the gender information or the combination of both. We close this gap by adopting a comprehensive design, which varies both factors in the context of a Rubinstein bargaining setup. When power asymmetry is high and gender is revealed, men obtain more favorable deals than women, particularly when they are in the strong position. We also find gender pairing effects whereby, women in the weak position earn less when facing a man. This suggests that when there is room for bargaining, the information is more profitable for men. All differences disappear when gender is not disclosed or the asymmetry is small.
DO PEOPLE EXHIBIT MORE ANTISOCIAL BEHAVIOR IF THE INCOME ALLOCATING PROCESS HAS BEEN UNFAIR?
(WORKING PAPER)
We examine whether an unfair process of income allocation leads to a higher degree of antisocial behavior. First, an initially unequal distribution is determined by either a fair, a random or an unfair process. In this context the fair payment rule induces an approx. equal effort-to-pay ratio, while in the unfair case this ratio is strongly imbalanced. Participants can then anonymously reduce the income of another player at a cost. Our main finding is that money burning rates are relatively low and similar across treatments. In contrast to the literature, even in the unfair treatment disadvantaged participants do not destroy more from those who are better off. Only in the reversed direction there is an effect: participants who suffer from the unfair mechanism are very rarely the target of destruction, irrespectively of the income class of the decision maker.
According to reported fairness evaluations, the unfair mechanism is perceived as clearly less fair then the other mechanisms. However, there is no correlation between fairness evaluations and the propensity to reduce money. This suggests that subjects' decisions are not affected by the (un-)fairness of the allocating process. Putting together evidence from a debriefing questionnaire and related studies suggests that the decision to burn money depends a lot on whether there is individual responsibility for the (unequal) distribution.