Lecture Series
'Science of Liberty', Spring 2008
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Jens Grosser
of Florida State University
Department of Political Science
Friday, April 25th, from 4:00 to 5:30
:
"Candidates, voters, and endogenous group formation: An experimental study"
Jens Großer
Thorsten Giertz
ABSTRACT
We experimentally study two-candidate elections with simple majority voting. Distinct groups of voters are endogenously formed by candidates' policy offers, i.e. by their distribution of a fixed budget across the voters. We allow candidates to favor some voters at the expense of others. Elections with compulsory and voluntary costly voting are distinguished. Our experimental results show that policy offers include more voters when voting is compulsory. Moreover, we observe increasing voluntary participation in the voters' benefit-differentials between both policy offers. Finally, we present evidence for the development of political bonds between voters and long-lived parties, which have the opportunity to coordinate their policy offers across legislative periods.
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Self-interest through agency:
An alternative rationale for the principal-agent relationship
and
The Delgation of Social Behavior
with
Roberto Weber
of Carnegie Mellon University
This Friday, April 4th, from 4:30to 6:00
Abstracts:
Self-interest through agency: An alternative rationale for the principal-agent relationship
Economic actors are usually assumed to enter into principal-agent relationships due to efficiency gains from comparative advantage. This research explores whether such relationships may also arise because they allow principals to obtain a selfish, inequitable outcome without behaving themselves in an explicitly selfish manner. An experiment is reported in which principals either decide repeatedly how much money to share with recipients or select an agent to make the decision on their behalf. As hypothesized, principals keep more and recipients receive less when the allocation decision is made through agents. Attachments1
The Delegation of Social Behavior
Economic actors frequently delegate their decision making to agents. The usual interpretation for such agency relationships is that they are motivated by gains from exchange - for instance, due to comparative advantage. In this talk I discuss two experimental papers demonstrating alternative rationales for why people might want to delegate decision making to others. In one case, we demonstrate that having others make decisions on our behalf allows us to circumvent moral constraints on our behavior, and thus behave more self-interestedly than we would ourselves. We use the well-known "dictator game" to show that acting through agents produces outcomes that enhance self-interest at the expense of fairness. People reward agents for acting self-interestedly on their behalf, even though people rarely act as self-interestedly when making decisions directly. In a second (in progress) paper, we explore the extent to which delegation of decision making allows groups to solve the free-rider problem in public goods games. We observe that groups electing agents to make decisions on the groups' behalf reach cooperation levels close to the full-contribution maximum. However, we also observe cases in which the elected agent appeals to and rewards only a minimum-winning coalition, and delegation thereby serves as a mechanism through which a slight majority can coordinate on exploiting a minority.
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Agent Computational Economic Modeling
an ICES Double Lecture
with
Blake LeBaron
of Brandeis University,
and the National Bureau of Economic Research
and
Robert Axtell
of GMU, the Santa Fe Institute,
and the Brookings Institution
This Friday, March 28th, from 3:00 to 6:00
with a reception to follow
We at the Interdisciplinary Center for Economic Science are proud to present two top scholars in the field of Simulated Agent Computational Economic Modeling (ACE), Blake LeBaron and GMU's own Robert Axtell. ACE is a powerful tool of increasing value in the study of economies and markets. At 3:00, Blake LeBaron will present his recent work on agent based financial markets, and how sensitive the end wealth distribution can be to the functional form of agents' utility. Then at 4:45, Robert Axtell will present his efforts towards constructing an artificial economy of one hundred million heterogeneous-agent, and explain how it may help us understand relationships between aggregate variables. To better showcase this rising methodology, the format for our regular Friday seminar has been adjusted as follows:
- 3:00 - 4:00 Le Baron will present Wealth Evolution and Distorted Financial Forecasts
- 4:00 - 4:15 Open discussion, question and answer
- 4:15 - 4:45 Coffee break (refreshments provided)
- 4:45 - 5:45 Axtell will present Macroeconomics from the Bottom Up with Very Large Scale Agent Models.
- 5:45 - 6:00 Open discussion, question and answer
- 6:00 - 7:00 Open Reception (beer, wine, all are invited!)
Abstracts:
Rob Axtell, Macroeconomics from the Bottom Up with Very Large Scale Agent Models
Macroeconomics is the study of economic phenomena in the aggregate. For example, macroeconomists typically posit specific relationships between total savings (by individuals) and aggregate investment (by businesses), or try to infer empirically the relationship between the economy-wide rate of unemployment and and the overall rate of inflation. The existence of such aggregates is not controversial, but the functional relations between aggregates is not well understood, and this has led to the search for "the microfoundations of macroeconomics." Because analytical solution of models involving large numbers of heterogeneous agents is very difficult and possibly intractable, macroeconomic theorizing as practiced today utilizes 'representative agents'--often a single consumer and firm. In this talk I will take a different approach, using a large number of heterogeneous, boundedly rational agents (consumers and firms) who interact directly with one another, potentially out of equilibrium, and whose cumulative actions give rise to an 'emergent macroeconomy'. In such models aggregates exist (
e.g., total savings, overall unemployment rate), but their evolution is determined by economic decisions and actions at the individual level, not on other aggregates. I shall describe barriers and bottlenecks to our goal of realizing a 100 million agent artificial economy 'in silico' using software agents, and speculate on the extent to which 'more is different' in economics.
Blake Lebaron, Wealth Evolution and Distorted Financial Forecasts
Evolutionary metaphors have been prominent in both economics and finance. They are often used as basic foundations for rational behavior and efficient markets. Theoretically, a mechanism which selects for rational investors actually requires many caveats, and is far from generic. This paper tests wealth based evolution in a simple, stylized agent-based financial market. The setup borrows extensively from current research in finance that considers optimal behavior with some amount of return predictability. The results confirm that with a homogeneous world of log utility investors wealth will converge onto optimal adaptive forecasting parameters. However, in the case of utility functions which differ from log, wealth selection alone converges to parameters which are economically far from the optimal forecast parameters. This serves as a strong reminder that wealth selection and utility maximization are not the same thing. Therefore, suboptimal financial forecasting strategies may be difficult to drive out of a market, and may even do quite well for some time.
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Do Strategic Substitutes Make Better Markets? A Comparison of Bertrand and Cournot Markets as Trading Institutions
Speaker: Professor Douglas Davis, Virginia Commonwealth University
When: Friday, March 21, 4:00-5:30pm
Where: Room 335, Truland Building, Arlington Campus
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Do You Know That I Am Biased? An Experiment
Speaker: Professor Sandra Ludwig, University of Munich
When: Friday, March 7, 4:00-5:30pm
Where: Room 335, Truland Building, Arlington Campus
Abstract
This experiment explores whether individuals know that other people are biased. We confirm that overestimation of abilities is a pervasive problem, but observe that most people are not aware of it, i.e. they think others are unbiased. We investigate several explanations for this result. As a first one, we discuss a possible unfamiliarity with the task and the subjects�� inability to distinguish between random mistakes and a real bias. Second, we show how the relation between a subject��s belief about others and his belief about himself might be driven by a false consensus effect or self-correction mechanism. Third, we identify a self-serving bias when comparing how a subject evaluates his own and other people��s biases.
Attachments
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Preemption Games: Theory and Experiment
Speaker: Professor Ryan Opera, University of California, Santa Cruz
When: Friday, Feburary 29, 4:00-5:30pm
Where: Room 335, Truland Building, Arlington Campus
Abstract
Several investors face an irreversible investment opportunity whose value V is governed by Brownian motion with upward drift and random expiration. The first investor i to seize the opportunity before expiration receives the current V less a privately known cost Ci ; the other investors receive nothing. We characterize Bayesian Nash Equilibrium (BNE) for this game, extending previously known results.
We also report a laboratory experiment with 72 subjects randomly matched into 600 triopolies. As predicted in BNE, subjects in triopolies invested at lower values than in monopolies, changes in Brownian parameters significantly altered investment values in monopoly but not in triopoly; and the lowest cost investor in a triopoly usually preempted the others. Evidence was mixed on other BNE predictions, e.g., whether higher cost brings smaller markups. Overall, subjects' earnings came rather close to the BNE prediction.
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Price Dynamics in an Exchange Economy
Speaker: Professor Steven Gjerstad, Purdue University
When: Friday, Feburary 15, 4:00-5:30pm
Where: Room 555, Truland Building, Arlington Campus
Abstract
The pure exchange model is the foundation of the neoclassical theory of value, yet equilibrium predictions and models of price adjustment for this model remained untested prior to the experiment reported in this paper. With the exchange economy replicated several times, prices and allocations converge sharply to the competitive equilibrium in continuous double auction (CDA) trading. Convergence is evaluated by comparing the extent of price adjustment within each market replication (or trading period) to the extent of adjustment across trading periods: most observed price adjustment occurs within trading periods, so price adjustment data are evaluated with the Hahn process model (Hahn and Negishi [1962]), which is a disequilibrium model of within-period trades. Estimation demonstrates that the model is consistent with observed price paths within each period of the exchange economy. The model is augmented with an additional assumption �C based on observations from this experiment �C that the initial trade price in period t+1 is randomly drawn from the interval between the minimum and maximum trade prices in period t. The estimated within-period adjustment rule, combined with this across-period adjustment rule, generates price paths similar to data from an experiment session.
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Applying Psychology to Economic Incentive Design: Using Incentive Preserving Rebates to Increase Acceptance of Critical Peak Pricing
Speaker: Dr. Robert Letzler
When: Friday, Feburary 1, 4:00-5:30pm
Where: Room 555, Truland Building, Arlington Campus
Abstract
This project extends the idea that we should address policy problems by improving incentives to add that aligning the incentives' presentation with the way people make economic decisions can help people make better choices and help achieve policy goals. It applies ideas from behavioral economics to design practical electricity pricing policies. The cost of generating power fluctuates enormously from hour to hour but most customers pay time invariant prices. The mismatch between the fluctuating generation cost and the fixed retail price creates billions of dollars in deadweight losses. Customers who participate in Critical Peak Pricing (CPP) programs use less power during high-priced periods than do customers on traditional, time invariant rates. CPP customers report high satisfaction levels and often save 10% or more. Yet, roughly 99% of customers reject opportunities to switch to critical peak pricing. The psychology literature documents heuristics that people use to decide under risk. The conventional CPP presentation leads several of these heuristics astray. For example, customers using these heuristics would put too much weight on the risks and losses involved with paying more to get less during the high priced ``events'' relative to the weight they put on their steady stream of savings. This paper departs from the hypothesis that one or more of these heuristics underlies customer resistance. Hence, I suggest Incentive Preserving Rebates that change the presentation of CPP to address these heuristics. Incentive Preserving Rebates reframe events as opportunities to get rebates rather than as periods of extremely high prices. Incentive Preserving Rebates change the presentation, but change neither marginal incentives nor each customer's total annual payments. I then explore the implications of incentive preserving rebates for customers who participated in a California pilot program.
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When Bioterrorism was No Big Deal
Speaker: Professor Werner Troesken
When: Friday, January 25, 4:00-5:30pm
Where: Room 555, Truland Building, Arlington Campus
Abstract
It To better understand the potential economic repercussions of a bioterrorist attack, this paper explores the effects of several catastrophic epidemics that struck American cities between 1690 and 1880. The epidemics considered here killed between 10 and 25 percent of the urban population studied. A particular emphasis is placed on smallpox and yellow fever, both of which have been identified as potential bioterrorist agents. The central findings of the paper are threefold. First, severe localized epidemics did not disrupt, in any permanent way, the population level or long-term growth trajectory of those cities. Non-localized epidemics (i.e., those that struck more than one major city) do appear to have had some negative effect on population levels and long-term growth. There is also modest evidence that ill-advised responses to epidemics on the part of government officials might have had lasting and negative effects in a few cities. Second, severe localized epidemics did not disrupt trade flows; non-localized epidemics had adverse, though fleeting, effects on trade. Third, while severe epidemics probably imposed some modest costs on local and regional economies, these costs were very small relative to the national economy.
'Science of Liberty', Fall 2007
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Beliefs and Voting Decisions: A Test of the Pivotal Voter Model
Speaker: Dr. John Duffy, the University of Pittsburgh
Professor Duffy is a highly accomplished experimental economist, and Director of the Pittsburgh Experimental Economics Laboratory. He is interested in combining laboratory procedures with agent based simulation procedures, and has a chapter on this topic in Volume 2 of the Handbook of Computational Economics.
When: Friday, November 30, 4:30pm-6:00pm, Reception to follow.
Where: Room 555, Truland Building, Arlington Campus
Abstract
We report results from a laboratory experiment testing the basic hypothesis imbedded in various rational voter models that there is a direct correlation between the strength of an individual's belief that his/her vote will be pivotal and the likelihood that individual incurs the cost to vote. This belief is typically unobservable. In one of our experimental treatments we elicit these subjective beliefs using a proper scoring rule that induces truthful revelation of beliefs. This allows us to directly test the pivotal voter model. We find that a higher subjective probability of being pivotal increases the likelihood that an individual votes, but the probability thresholds used by subjects are not as crisp as the theory would predict. There is some evidence that individuals learn over time to adjust their beliefs to be more consistent with the historical frequency of pivotalness. However, many subjects keep substantially overestimating their probability of being pivotal.
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Exploring the link of ecological rationality between ICES and ABC
Speaker: Dr. Shabnam Mousavi, Max Planck Institute for Human Development
When: Friday, November 16, 4pm
Where: Room 555, Truland Building, Arlington Campus
Abstract
It has been observed in labs and in the field that people use rules of thumb (heuristics) to solve their decision making problems. A specific heuristic is invoked when its corresponding triggering conditions arise in the environment. Heuristics are successful if they conform to the structure of the environment in which the problem exists. An efficient mechanism of matchmaking between heuristic strategies and certain environmental structures is embedded in our adaptive capabilities. The science of heuristics studies the function of these simple rules, specifies where they work, and inquires into their limits. I present some findings of the fast and frugal heuristics program that illustrate how process models are developed in this tradition. In addition, I discuss some possibilities for the way in which the research agendas of 'reconciling constructivist and ecological rationality' and 'developing the science of fast and frugal heuristics' can inform and enhance one another. Both of these programs share a notion of ecological rationality as the degree of adaptation to the environment.
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Name-your-own-price Mechanisms: Revenue Gain or Drain?
Speaker: Dr. Artie Zillante, University of North Carolina Charlotte
When: Friday, November 9, 4pm
Where: Room 555, Truland Building, Arlington Campus
Abstract
The surge in online pricing mechanisms such as Priceline.comi's "name your own price" (NYOP) leaves open an empirical question of why firms would deviate from the standard practices of posting a take-it-or-leave-it ofer. Presumably firms find this sales method more profitable, despite some theoretical arguments that claim that a posted-price is always at least as good at generating revenue as any other mechanism. We use laboratory experiments to compare the NYOP mechanism with the standard posted-price mechanism. We find that using an NYOP mechanism can increase profit and consumer surplus when consumers are certain about the good they will receive, but when consumers are uncertain about the good there is no significant change in profit and a decrease in consumer surplus.
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Exchange Asymmetries Incorrectly Interpreted as Evidence of Endowment Effect Theory and Prospect Theory?
Speaker: Dr. Kathryn Zeiler
When: Tuesday, November 6, noon
Where: Room 215 in the Law School, Arlington Campus
Abstract
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Recall Errors in Surveys
Speaker: Dr. Joachim Winter, University of Munich
When: Friday, November 2nd, 4:00pm
Where: Room 555 in the Truland Building, Arlington Campus
Abstract
This paper considers measurement errors from a different perspective. Concentrating on errors that are caused by the insufficient ability of individuals to acquire, process and recall information, we devise a structural model for the response behavior of individuals in surveys. Our aims are twofold: Using nonseparable models, we first explore the consequences of such a modeling approach for key econometric questions like the identification of marginal effects and economic restrictions. We establish that under general conditions recall measurement errors are likely to exhibit nonstandard behavior, in particular be nonclassical and differential, and we provide means to deal with this situation. Moreover, we obtain surprising findings indicating that conventional wisdom about measurement errors may be misleading in many economic applications. For instance, under certain conditions left hand side and right hand side errors will be equally problematic. The second aim of this paper is to provide a formal framework for understanding the actual response behavior of respondents in surveys. Specifically, we provide formal arguments and explanations for the frequently encountered substantial effects of the design of a survey. Also, we suggest a list of issues that should be considered when eliciting a survey to avoid adverse effects. Finally, we apply the main concepts put forward in this paper to real world data and to a controlled experiment, and find evidence that underscores the importance of focusing on individual response behavior, as well as taking the design of a survey seriously.
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Using Experimental Economics to Measure the Effects of A Natural Educational Experiment on Altruism
Speaker: Dr. Robert Slonim, Case Western Reserve University
When: Friday, October 26th, 10:30am - 11:30am
Where: Room 555 in the Truland Building, Arlington Campus
Abstract
Economic research examining how educational intervention programs affect primary and secondary schooling focuses largely on test scores although the interventions can affect many other outcomes. This paper examines how an educational intervention, a voucher program, affected students' altruism. The voucher program used a lottery to allocate scholarships among low-income applicant families with children in K-8th grade. By exploiting the lottery to identify the voucher effects, and using experimental economic methods, we measure the effects of the intervention on children�s altruism. We also measure the voucher program�s effects on parents' altruism and several academic outcomes including test scores. We find that the educational intervention positively effects students' altruism towards charitable organizations but not towards their peers. We fail to find statistically significant effects of the vouchers on parents' altruism or test scores.
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Then and Now: Reality and Perceptions in the Evolution of Online and Offline Retail Pricing
Speaker: Dr. Ellen Garbarino, Case Western Reserve University
When: Friday, October 26th, 2:00pm - 3:00pm
Where: Room 555 in the Truland Building, Arlington Campus
Abstract
This paper examines the evolution of online retail through objective prices and consumers?price perceptions. Objective data from 2000-2006 are generally consistent with price penetration and offer only weak support for transactions cost effects, with online prices being lower than offline prices but the gap narrowing substantially over time. Longitudinal consumer perceptions show online prices are thought to be lower than offline prices, but not as much lower as they actually are, and that perceptions have become more accurate as the market matured.
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The Bad and the Worse: Distributive Justice and Neural Encoding of Equity and Efficiency
Speaker: Dr. Ming Hsu, University of Illinois at Urbana-Champaign
When: Friday, October 26th, 4:00pm - 5:00pm
Where: Room 555 in the Truland Building, Arlington Campus
Abstract
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Are Smarter Groups More Cooperative? Evidence from Prisoner's Dilemma Experiments, 1959-2003
Speaker: Dr. Garett Jones
When: Friday, October 5th, 4:00pm
Where: Room 555 in the Truland Building, Arlington Campus
Abstract
Are more intelligent groups better at cooperating? A meta-study of repeated prisoner's dilemma experiments run at numerous universities suggests that students cooperate 5% to 8% more often for every 100 point increase in the school's average SAT score. This result survives a variety of robustness tests. Axelrod (1984) recommends that the way to create cooperation is to encourage players to be patient and perceptive; experimental evidence suggests that more intelligent groups implicitly follow this advice.
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Money, Happiness, and Aspirations: An Experimental Study
Speaker: Dr. Mike McBride
When: Friday, September 28th, 4:00pm
Where: Room 555 in the Truland Building, Arlington Campus
Abstract
The past decade has witnessed an explosion of interest in the scientific study of happiness. Economists, in particular, find that happiness increases in income but decreases in income aspirations, and this work prompts examination of how aspirations form and adapt over time. This paper presents results from the first experimental study of how multiple factors�past payments, social comparisons, and expectations�influence aspiration formation and reported satisfaction. I find that expectations and social comparisons significantly affect reported satisfaction, and that subjects care relatively more about social comparisons once they have achieved a satisfactory outcome. These findings support an aspirations-based theory of happiness.
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"Did the Soviets Collude? A Statistical Analysis of Championship Chess 1940-64"
Speaker: Dr. John Nye
When: Friday, September 21th, 4:00pm
Where: Room 555 in the Truland Building, Arlington Campus
Abstract
We expand the set of outcomes considered by the tournament literature to include draws and use games from post-war chess tournaments to see whether strategic behavior can be important in such scenarios. In particular, we examine whether players from the former Soviet Union acted as a cartel in international all-play-all tournaments ?intentionally drawing against one another in order to focus effort on non-Soviet opponents ?to maximize the chance of some Soviet winning. Using data from international qualifying tournaments as well as USSR national tournaments, we consider several tests for collusion. Our results are consistent with Soviet draw-collusion and inconsistent with Soviet competition. Simulations of the period�s five premier international competitions (the FIDE Candidates tournaments) suggest that the observed Soviet sweep was a 75%-probability event under collusion but only a 25%-probability event had the Soviet players not colluded.
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"For Love or Money? Comparing the Effects of Non-Pecuniary and Pecuniary Incentive Schemes in the Workplace"
Speaker: Dr. Omar Al-Ubaydli
When: Friday, September 7th, 4:00pm
Where: Room 555 in the Truland Building, Arlington Campus
Abstract
Understanding the most efficient set of incentives to motivate agents remains a cornerstone of economics. The economics literature has traditionally focused on pecuniary incentive schemes, but recently a burgeoning line of work reminds us that non-pecuniary incentives can be powerful motivators. We conduct a field experiment in a naturally-occurring work environment that compares outcomes across a myriad of incentive schemes. Using treatments that include appeals to both positive and negative reciprocity as well as piece-rate schemes, we are able to measure the effect of each side-by-side within an environment that our theories purport to explain. Consonant with theory, we find evidence across the various treatments that workers tend to focus their effort on more easily measured and rewarded tasks at the expense of imprecisely measured tasks. Our findings have practical implications for the optimal design of incentive schemes, and shed light on the explanatory power of extant theoretical models.
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Spring 2007 "Science of Liberty"
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January 26:
Junjie Sun (Iowa State)
Febuary 2:
Jon Leland (NSF)
Febuary 9:
Peter Cramton (University of Maryland)
Febuary 16:
Tim Forde (Trinity College, Dublin)
Febuary 23:
OPEN
March 2:
Vernon Smith (George Mason University)
March 9:
OPEN
March 16:
Spring Break
March 23:
OPEN
March 30:
Sarah Brosnan (Emory)
April 6:
Lis Nielsen (NIH)
April 13:
Deborah Mayo (Virginia Tech)
April 20:
IFREE GALA
May 4:
Mara Mather (UCSB)
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