Experimental Economics

Mixed strategies are widely used to model strategic situations in diverse fields such as economics, marketing, political science, and biology. However, some of the implications of asymmetric mixed-strategy solutions are counterintuitive. We develop a stylized model of patent race to examine some of these implications. In our model two firms compete to develop a product and obtain a patent. However, one firm values the patent more because of its market advantages, such as brand reputation and distribution network. Contrary to some intuition, we find that the firm that values the patent less is likely to invest more aggressively in developing the product and will also win the patent more often. We argue that the reason for these counterintuitive results is inherent in the very concept of mixed strategy solution. In a laboratory test, we examine whether subjects' behavior conforms to the equilibrium predictions. We find that the aggregate behavior of our subjects is consistent with...

Extreme rituals entail excessive costs without apparent benefits, which raises an evolutionary cost problem (Irons, 2001). It is argued that such intense rituals enhance social cohesion and promote cooperative behaviors (Atran & Henrich, 2010; Durkheim, 1912). However, direct evidence for the relation between ritual intensity and prosociality is lacking. Using economic measures of generosity and contextually relevant indicators of group identity in a real-world setting, we evaluated pro- social effects from naturally occurring rituals that varied in severity.

Nudges are popular types of interventions. Recent years have seen the rise of 'norm-nudges'-nudges whose mechanism of action relies on social norms, eliciting or changing social expectations. Norm-nudges can be powerful interventions, but they can easily fail to be effective and can even backfire unless they are designed with care. We highlight important considerations when designing norm-nudges and discuss a general model of social behavior based on social expectations and conditional preferences. We present the results of several experiments wherein norm-nudging can backfire, and ways to avoid those negative outcomes.

This research examines the donation behavior of tourists who are asked to donate to coastal conservation aimed at addressing a bundled mix of land and sea issues. Historically, the governance and financing of land and sea conservation have been separated; yet coastal tourism directly involves a mix of activities and development challenges which link land and sea together on the coast. Marine parks, and numerous studies examining their funding schemes, have typically focused on mandatory user fees targeting specific types of activities. For ex- ample, many studies focus only on scuba divers' willingness to pay (WTP) for marine conservation. Alternative funding mechanisms, such as voluntary contributions, may be preferred, or even necessary, to traditional government imposed fees, but much less is known about effective implementation. Relatively few studies focus on bundled cross-boundary conservation activities (i.e., land and sea conservation) from all visitors of a marine park (i.e., beachgoers, surfers, boaters, snorkelers) and its encompassing coastal area. In this study we target tourists visiting a popular island and employ field experimental methods to explore the optimal donation request mechanism and pricing levels that influence real voluntary payments for conservation. The field experiment examines voluntary payments under the treatment conditions: open-ended, a set of several suggested donation amounts, and default opt-in and opt-out at two price levels. The field experiment was conducted with tourists on the island of Gili Trawangan, Indonesia. Results reveal that tourists are willing to donate to bundled land-sea conservation issues and that there is a significantly higher propensity to donate in all treatment conditions compared to the open-ended condition. The default opt-out conditions garnered the highest rate of donations at 75% and 62% respectively for the lower and higher set amounts. The mean donation amount was largest in the higher default opt-out condition. Our results suggest that the optimal method of requesting voluntary donations is a set default amount requiring users to opt-out if they do not wish to donate. Implementing a default opt-out eco-donation targeting all types of visitors represents a significant source of funding and illustrates the potential for donations to finance land and sea conservation efforts, an important avenue for future investigation in many interconnected systems that have been historically governed and financed separately.

The entrepreneurship setting—an extreme organizational context—provides fertile ground for organizationally relevant theory testing and development. In this paper, we propose that randomized experiments in the context of entrepreneurship have considerable potential to advance theory in entrepreneurship, as well as other areas of organization science including organizational behavior and strategic management. We ground this proposition in a multipronged review of randomized experiments in entrepreneurship (REE). Based on this review of prior work and emerging trends, we provide illustrative examples of innovative theory-driven experiments and motivate future research to consider randomized experiments in the entrepreneurial context both for testing boundary conditions and enhancing organizational theorizing broadly.

Contingent valuation is a common methodology for eliciting preferences for non-market goods under hypothetical scenarios. Bias reduction strategies have been developed when evaluating low-cost realistic policy changes, including cheap-talk scripts, that alert respondents to tendencies to overstate values, and oath scripts, whereby respondents promise to answer valuation questions truthfully. This paper is the first large-scale experimental comparison of cheap-talk and oath commitments, amongst randomly-assigned respondents, in a field-setting using hypothetical voluntary donations. The data come from three general population surveys eliciting willingness to pay (WTP) for cultural institutions in England. We find limited and case-specific evidence regarding the effectiveness of cheap-talk and oath scripts in affecting stated values, which we attribute to realism and low cost of the proposals, which arguably diminishes hypothetical bias and produces realistic WTP values. We find evidence of the depressing effect of entreaty script on WTP or probability of paying in principle in only one of three case studies. Future research should replicate this experimental design with larger sample sizes and on non-voluntary payment mechanisms. Given the inconsistent findings across three large-scale experimental field studies, our recommendation is to include both cheap-talk and oath scripts where possible, and only cheap-talk where survey length is constrained. ARTICLE HISTORY

We use experimental economic markets to examine the impact of changing institutional design features on audit quality. Specifically, we manipulate auditors’ economic accountability to managers by altering who hires the auditor – a manager or an independent third party – and auditors’ psychological accountability to investors by explicitly stating that the auditor is hired on the investors’ behalf. Our design shifts auditors’ accountability from managers, who have directional goal preferences, to investors, who prefer judgment accuracy. We find removing auditors’ economic accountability to managers and replacing it with psychological accountability to investors significantly increases audit quality. This increase in audit quality occurs despite the independent third party randomly hiring auditors. In an additional treatment, we incorporate auditor accuracy into the third party hiring algorithm and find even higher audit quality. Our results suggest that altering auditors’ accountability relationships can significantly enhance audit quality.

We study how an individual's compliance with social norms is influenced by other actors' norm compliance. In a repeated non-strategic Take-or-Give donation experiment we show that giving is considered socially appropriate while taking is socially inappropriate. Observing norm violations erodes an individual's own norm compliance. We show that the erosion of norm compliance is led by a change in norm-related beliefs. This change has a major effect on individuals who initially obey the norm, driving them to non-compliance, whereas initially non-compliant individuals do not change their taking behavior. Erosion is halted when individuals have even minimal social proximity to those they observe: individuals now also pay attention to norm followers.