Covers Chapter 6 of Davis and Holt Experimental Economics textbook.
Class started with VCM experiment -- free riding was common. Provision Points created cooperation, especially when coupled with Payback. Lecture discussed the VCM and factor which favor trust and cooperation versus factors which lead to free riding. Assignment given to class as follows:
As discussed in class today, there is no class in Monday. However, you are supposed to do an assignment. You have to run the VCM experiment on subjects. As you know, under some conditions -- favorable ones -- you can get full cooperation and 100% contribution by everyone. This is actually quite easy to achieve if we allow full communication and we allow people to make promises, which must be honored. Under other conditions, where everyone is anonymous, people do not know or trust each other, and there is no communication, and people do not learn whether or not others are cooperationg, or how much they are contributing -- it is easy to get COMPLETE defection -- everybody contributes ZERO as per economic theory.
Your assignment is to take a group and do the experiment to get them to ZERO payoff -- the economic equilbrium. CREATE conditions under which everyone will defect. ONCE this equilbrium is achieved, THEN you should change the conditions of the game -- every group should use different tactics -- ways to create cooperation can be (1) WEAK communication (cheap talk, as discussed in lecture), or it could be POSTING -- contributions are openly displayed (but no other talk) or it could be PROVISIONING as discussed in lecture. The goal is to GET TO FULL COOPERATION. Now once you achieve full cooperation, then BREAK it down again and take it to ZERO (or as close as you can -- zero is HARD to get).
Some GOALS for this assignment are as follows:
1: You will think about the conditions for coooperation and for FAILURE of cooperation -- you will think about HOW to solve the free rider problem.
2. You will try it out to see if your ideas work. You will get EXPERIENTIAL understanding of creating and breaking cooperation.
3. TRY TO DO REPLiCABLE EXPERIMENTS. Your intervention should be such that anyone doing it should be able to achieve the same results as you. This means you cannot use particular characteristics of your group, or SPECIAL instructions based on personal relationships or knowledge. The TECHNIQUEs you use to achieve cooperation and to break coooperation should be such that they work generally anywhere the same experiment is done.
After doing the experiment, write it up as best you can, explaining the experiment in sufficient detail so that someone else can replicate it. Also explain the interventions you did to achieve complete coooperation and the to achieve breakdown of cooperation. Explain how/why they worked with respect to the psychology of human behavior, and with respect to the behavior and motivations of the participants in your experiments. This assignment is due by Wednesday 16th May
See also relevant material in Colin Camerers: book on Behavioral Economics
Andreoni, James and Douglas Bernheim, "Social Image and the 50-50 Norm: A Theoretical and Experimental Analysis of Audience Effects." Econometrica, 77, no. 5, September 2009, 1607-1636.
Binmore, Ken and Avner Shaked, �Experimental Economics: Where Next?� Journal of Economic Behavior and Organization.
Bolton, Gary and Axel Ockenfels, �ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, 90, March 200, 166-193.
Charness, Gary and Rabin, Matthew. "Understanding Social Preferences with Simple Tests." Quarterly Journal of Economics, August 2002, pp. 817-69.
Cooper, David, and John Kagel, "Other Regarding Preferences: A Selective Survey of Experimental Results," to appear in The Handbook of Experimental Economics, vol 2., J. Kagel and A. Roth, eds.
Engelmann, Dirk and Strobel, Martin. "Inequality Aversion, Efficiency, and Maximum Preferences in Simple Distribution Experiments." American Economic Review, September 2004, 94(4), pp. 857-69.
Fehr, Ernst and Schmidt, Klaus M. "A Theory of Fairness, Competition, and Cooperation." Quarterly Journal of Economics, August 1999, pp. 817-68.
Levine, David K. �Modelling Altruism and Spitefulness in Experiments.� Review of Economic Dynamics, Volume 1, Issue 3, July 1998, Pages 593-622.
List, John, �On the Interpretation of Giving in Dictator Games.� Journal of Political Economy, 2007, vol. 115, no. 3
Matthew Rabin, �Incorporating Fairness into Game Theory and Economics", AER, 1993
Ledyard: Public Goods: A Survey of Experimental Evidence - cited in lecture
AM2L20 Public Goods: Voluntary Contribution Mechanism VCM - YouTube Lecture 64m on Chapter 6 of Holt & Davis Experimental Economics