Economics of Cooperation (Fach) / New empirical approaches to economic cooperation: case studies including field e (Lektion)

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• Economic Experiments Economic experiments as an empirical method Method to observe economic decision making under controlled conditions Used to test theories and behavioral implications of institutions and incentives Uncover causal relationships among variables Also to uncover structures of subjects attitudes towards risk, time preferences and social preferences Applications: markets, bargaining, auctions, social dilemma situations (our focus) Control and replicability as decisive advantages of experiments over alternative approaches. a)Control: The experimenter designs (controls) the decision situation (environment) --> casual inferences can be made when conditions (treatments) change b) Replicability: Design provides possibility of running exact the same experiments somewhere else (written instructions are usually documented and published) Participants get paid according to their decisions --> real decisions Most studies conducted in laboratory, but growing number of (framed) field experiments Critique: Experiments may lack internal validity: The experimenter cannot be sure that the game she thinks she has constructed is indeed the game that was played by the participant Subjects confronted with a particular game may interpret the game structure, and this interpretation may vary from subject to subject Experiments may lack external validity: Experimental designs are often very abstract and do not reflect features of real-life Eg.: The standard CPR experiment is a repeated static prisoner dilemma situation, neglecting intertemporal resource dynamics which are typical for CPR
• Economic experiments Micro-foundations of collective action: relevance for economic experiments Fully ratonal and egoistic actor = homo oeconomicus => successful in analyizing human decisions in well structured, competitive market settings But anable to explain complexity of successful collective actoin Egoism is not the motive shaping human behavior Experiemtns showed that a substantial fraction of people are fairness minded (Cooperate in Social Dilemma Games, punish norm violators even if it is personally costly) Game theoretic models see individuals utility not only depending on her/his personal pay off but also on the well-being of others Models explicity take into account that concerns for fairness, equity, and reciprocity shape the decision making of many subjects Most models treat selfish preferences as corner solution and allow for heterogeneous preferences across individuals by keeping the assumption of rationality 2nd assumption: imcomplete information about the structure and context of interactin situation at hand Completion of information through frequently repeated situations
• Social Dilemma Experiments Social dilemma: A situation in which (at least) one strategy leads to the social optimum, while the dominant strategy leads to a Pareto-inferior outcome Examples of social dilemma experiments: Public Good Games (VCM) Common-pool resource games (CPR) Prisoners Dilemma games (PD) Neoclassical predition: In one-shot or finitely repeated social dilemma situations, rational actors will follow their dominant strategy, that is, they choose defection in PD, zero contribution in VCM and full-extraction in CPR
• Some major experimental results Many lab experiments replicate these behavioral preditions from neoclassical  economics in an open-access situation --> Decreasing contributions / increasing extraction over the repetitions of the game But: The strict free-rider hypothesis must be rejected (initial contributions in VCM lie between 40% and 60% of the endowment) On average, subjects do not choose their dominant strategy Individual behavior differs remarkably (heterogeneity) Strong evidence for social preferences (individual's utility depends on own payoffs and on others payoffs) Moreover: Communication increases contributions towards PD and decreases extraction rated from CPR significantly a) at least as long as subjects have eye-contact b) Neoclassical predition: communication is cheap talk, as it does not alter the payoff strucutre, and thus will not have behavioral consequences The same has been observed for punishment, even if it is costly Peer/Internal punishment seems to be more efficient than external punishment Behavior varies substantially among diverse societies  

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