Working Papers and Ongoing Projects

Abstract. Independent studies on experimental games provide converging, and puzzling, evidence: a noticeable fraction of players behave in a non-strategic way. It is hard to believe that so many players act in way that is hard to reconcile with any theory of strategic behavior. This study is designed to understand why. We test commonly suggested explanations such as insufficient stakes, lack of attention or misconceptions about the game. None appear to be entirely convincing. Using reaction-time data, we show that non-strategic subjects spend time thinking about the games and do pay attention to changes. Moreover, players classified as non-strategic in a first set of games continue to act non-strategically in subsequent games. Our results suggest that the existence of non-strategic players in one-shot games is a robust feature of human cognition. Bearing in mind that our subjects are international chess players, we wonder why their strategic chess-playing ability does not transfer to laboratory games. Theoretical and economic consequences are discussed.

Abstract. Relative performance feedback (RPF) allows agents to compare their performance to that of others. Current theory assumes that RPF affects performance by changing the optimal level of effort. We introduce a technology channel in which agents use RPF to improve their technologies. We compare the effort and technology channels by combining three elements: an extensive review, an original model and two field experiments. Under the technology channel, we highlight that RPF increases performance even at the bottom of the distribution and has a cumulative effect across periods. We draw implications for education and social norms.

Abstract. Pioneer investigations of the economic consequences of ethnic diversity - a ubiquitous feature of African societies - found a strong and negative correlation. The present paper revisits this ``diversity burden'' conjecture, by using (1) newly available, better-quality data-sets allowing for sub-national estimations and multiple robustness checks, and (2) a new instrument, a pre-colonial measure of ethnic diversity, to explore causality. We find that the impact of ethnic diversity depends on the public good and the specification considered. Overall, completely heterogeneous societies produce 3 percent less public goods than their homogeneous counterparts, a negative but more limited effect than previously found. 

Abstract. If economic agents who engage in strategic interactions have a sense of how well they are doing, they may wish to avoid situations in which they may make embarrassing mistakes by opting out. We here test this proposition, and explore its consequences for self-selection into strategic interactions. One key implication is that strategic interactions among self-selected agents (which are common in the field) may correspond better to standard theory than those in which agents do not have the opportunity to self-select (such as standard laboratory experiments). We investigate the effect of self-selection on outcomes via an experiment in which subjects can (1) report their subjective feeling of how well they are doing by a confidence measure that is new in this context, and (2) either self-select into strategic interactions or choose a sure payoff. We find that self-selection is indeed driven by confidence and risk-aversion: the less-confident and the more risk-averse are less likely to self-select into strategic interactions. Self-selection dramatically reduces the gap between theoretical predictions and actual behavior. We find that economic agents do have a sense of how well they are doing in games. Perhaps more surprisingly, this sense varies significantly from game to game at the individual level. We complement our analysis by reviewing field evidence on self-selection, which confirms that self-selection promotes rationality.

Abstract. Trust is an important economic variable that may be subject to measurement error, leading to econometric issues such as attenuation bias or spurious correlations. We use a test-retest protocol to assess the measurement error in the two main tasks eliciting trust, namely survey questions and experimental games. We find that trust measures based on the trust game entail a substantial part of measurement error while virtually no noise is found in stated trust measures. We find up to 15% of noise in measures based on the trust game. Given the specificity of our subjects’ pool (students in a top engineering school) and the short period of time between test and retest, we consider this value as a lower bound. We also provide a subgroup analysis based on measures of cognitive ability and effort. We find substantial heterogeneity across subgroups in trust game behavior, but no variations for survey questions. We then discuss which measure of trust should be used and recall what are the estimation strategies that can be implemented to limit the effect of measurement error.

Abstract. Deviations away from equilibrium prediction in one-shot games are commonly observed in experimental games. Models were designed to capture the behavior of bounded-rational players in games. While Quantal Response Equilibrium model allows players to better respond to correct beliefs, in the model we introduce, strategic players best-respond to better beliefs, beliefs that are not perfect. Unlike Level-k models, strategic players hold plausible beliefs that are (almost) correct on average. Specifically, our model assumes the existence of not forming beliefs (NFB) players that are either random or naive and the existence of strategic players. Strategic players best respond to their belief regarding the relative proportions of strategic and NFB players. Strategic players hold heterogeneous beliefs and fail to anticipate that they disagree on the relative proportion of NFB players. We show that our model has interesting properties and can be brought to the data by adding no more than one free parameter.