A01: Experiments

Experiments conducted by CRC members of project A01:

 

Sampling for Self-Deception

Conducted by Si Chen, A01

In decisions over actions that might do harm to others, how does a selfish incentive to favor one of the actions change decision makers’ information acquisition on the consequences of their actions for others? Backed up by a theoretical model, we predict that the presence of a selfishly incentivized action will cause acquisition of sequential imperfect information on the consequences of this action to be asymmetric: termination of information acquisition is more likely after evidence indicating no harm and equally likely after one indicating harm. This way, individuals exploit information to justify their selfish action. We test the predictions in a laboratory experiment.

The experimental insights are relevant for the incentive design of physicians, the procedural design of the publication process of experimental studies, and to understand how information acquisition enables discrimination, for example in hiring decisions.

 

Valuing the Hedonic Benefit of Others: An Experiment on Imperfect Empathy

Conducted by Jana Hofmeier and Thomas Neuber, A01

People care about others. But how are benefits which are not experienced by individuals themselves transformed into motives for behavior? We conjecture that people assess consequences arising to others based on a combination of their own and of receivers’ preferences. This phenomenon is muted when choices are about money and we call it imperfect empathy. In a laboratory experiment, we elicit subjects’ willingness to pay (WTP) for not having to eat food items containing dried insects. We then study the determinants of senders’ WTP for sparing randomly determined receiving subjects having to eat those same items. We find that own and senders’ WTP are complements in generating transfers. As a consequence, transfers between subjects with dissimilar preferences are lower than between subjects who are more alike. Using subjects’ personal preferences as the normative benchmark, we can further show that heterogeneity in preferences reduces welfare. Our findings are directly relevant for individual behaviors such as charitable giving or volunteering. Further, they allow for alternative perspectives on the phenomenon of in-group bias and have implications on the aggregate level. If preferences of people who receive welfare benefits systematically differ from those of net payers, this could reduce support for redistributive policies.

 

Affirmative Action and Retaliation in Experimental Contests

Conducted by Simone Quercia (former member of A01), in cooperation with Francesco Fallucchi (LISER - Luxembourg)

The project aims to investigate experimentally the effects of an affirmative action policy that reserves a share of the prize to subjects of a disadvantaged category in competitive environments. We test three potential pitfalls of the affirmative action policy: (i) whether the introduction of the policy distorts effort and selection in the contest, (ii) whether it leads to reverse discrimination, that is, discourages entry from the advantaged category and (iii) whether the possibility of ex-post retaliatory actions undermines the effectiveness of the policy. We find that the affirmative action contest increases entry of players from the disadvantaged category without affecting entry of advantaged players. This increases overall effort in the contest. However, we find that the possibility of retaliation can undermine the benefits of the affirmative action policy reducing contest participation. This suggests that retaliation is an important aspect to consider when implementing affirmative action policies.

 

Stress Autonomy Incentives

Conducted by Thomas Dohmen, A01 and Elena Shvartsman (University of Basel)

The goal of the project is to analyze how work arrangements that couple employee autonomy and performance incentives affect workplace stress. According to the Job Demand-Control (Karasek, 1979) individuals may experience detrimental health effects when job demands are not met by a sufficient level of decision latitude. Yet, it is not clear, whether granting autonomy (decision latitude) to employees who face incentivized performance targets may impair their well-being. In such arrangements, autonomy, for instance, in terms of self-determined working time, could backfire, because workers may strive to reach their performance goals and potentially exhibit self-harming behavioral patterns such as excessive overtime work. This detrimental effects may be particularly pronounced if individuals underestimate the stressfulness of their working conditions and therefore provide sub-optimal effort. It is therefore of great interest to society and firms to elicit how modern work arrangements affect job stress and thereby to illuminate the particular role of combinations of managerial practices, such as autonomy and incentives.

 

(Not) Everyone Can Be a Winner - The Role of Payoff Interdependence for Redistribution

Conducted by Louis Strang, A01 and Sebastian Schaube (University of Bonn)

In this project, we explore the importance of accountability for others’ payoffs. Own high outcomes either directly result in low outcomes for another individual, or do not affect the success of others. We investigate the fairness differences between these two opposing systems, using laboratory experiments, by causally establishing that a direct payoff interdependence increases demand for redistribution. Our results highlight the importance of (perceived) interrelations of success within societies for inequality acceptance. Furthermore, our results might inform optimal wage setting within firms, as forced rankings or promotion tournaments are often used as incentives. Allowing bonuses that can be gained by every employee simultaneously might enhance work satisfaction and, hence, production in the long run.

 

Stress and Risk Taking 

Conducted by Si Chen, Thomas Dohmen, A01 and Elena Shvartsman (University of Basel)

From fund managers who allocate assets worth millions to small business owners in developing countries investing in new products, people often make risky economic decisions under stress. Understanding how stress changes risk preferences would not only help decision makers to adjust their risk taking behaviour and improve their ex-ante welfare, but also enhance our comprehension of stress-induced risk seeking or aversion in stressful environments such as financial market or impoverishment. Existing evidence on the effect of stress on risk preferences is inconclusive. The goal of this project is to reconcile the previous conflicting findings by testing the hypothesis that stress amplifies the underlying risk  taking tendency, i.e., more risk averse individuals become more risk averse under stress, while less risk averse individuals become less risk averse.

 

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