Charles Holt Current Research
Citations
Charles A Holt - Google Scholar
30,200 citations, 1,250 new citations in 2025
REPC in October 2024: United States (rank 398 of 12811, top 3%)
Overview
Many of my coauthored papers develop the implications of bounded rationality models to evaluate human behavior in laboratory experiments (quantal response equilibrium). Adding noise to decision making does more than spread theoretical predictions around a central point, because of cascading cross-effects in games of strategy. The resulting QRE predictions typically explain dramatic differences between observed decision patterns and standard Nash equilibrium predictions that are based on perfectly rational best responses to even small payoff differences. Applications include attacker-defender and social dilemma games (the first two publications listed below). The quantal response equilibrium is a generalization of the commonly used Nash equilibrium that replaces best responses with better responses, and that has provided theoretical explanations of intuitive behavioral anomalies.
I also have used laboratory experiments to help design and implement large-scale auctions used in a range of public policy applications (an FCC combinatorial spectrum auction, ongoing emissions permit auctions for the Regional Greenhouse Gas Initiative, and reference price auctions for diverse groups of financial securities). Current projects include auctions for offshore wind-energy lease auctions in the US and the UK, and auctions for procurement of liquified carbon dioxide at industrial scale for the government of Sweden. My coauthored macro-finance experiments pertain to saving for retirement and capital investment in the shadow of price bubbles.
Finally, I have worked with coauthors to develop widely used measures of risk aversion and belief elicitation. The idea is to present people with a menu of simple row-by-row choices to identify a crossover indifference point that indicates risk preference (the Holt/Laury mechanism) or a subjective belief (the Holt/Smith Lottery Choice Menu). In addition, I have helped devise and test a new nonparametric “Directional Difference” test that is based on permutations of data differences in a setting where treatments have increasing levels of intensity.
Published in 2025
The Economic Experience: An Introduction Through Experiments, Charles A. Holt and Erica R. Sprott, Princeton University Press, July 2025.
Abstract: This book provides an experience-based introduction to economics, with a behavioral focus and an active-learning component. It may be used as a textbook in a stand-alone course, as a quick economics review for professional school students. The book is organized around basic principles that underlie an economic way of thinking. These insights are so important that they should be reinforced by allowing students to discover the main ideas for themselves by participating in a classroom simulation or online “experiment.” Each chapter is organized around one (or more) of these experiments. The first three chapters introduce economic thinking and analysis from a behavioral perspective: notions of trust, bargaining, gains from trade, and marginal analysis. Chapters 4-6 cover basic economic concepts and the price system. Chapters 7-10 are focused on market failures due to monopoly, public goods, congestion, corruption, and rent seeking. Chapters 11-13 introduce risk and mechanism design in strategic games and auctions. The final chapters survey behavioral issues that arise in a macroeconomic setting: bank runs, financial markets, and the role of money in interrelated commodity and labor markets.
Six 2-page surveys that were accepted in 2024 and published in 2025: in Encyclopedia of Behavioural and Experimental Economics, S.-H. Chuah, R. Hoffmann and A. Neelim, eds.: “Quantal Response Equilibrium and Behavioral Game Theory” (with Thomas R. Palfrey), “Belief Elicitation,” (with Angela M. Smith), “Risk Preference Elicitation and Gender,” “Experimental Analysis of Antitrust Issues,” (with Sean Sullivan), “Rent Seeking Experiments,” (with Angela M. Smith), and “Asset Market Experiments and Price Bubbles” (with Daniel Harper)
a) Works Accepted in 2025, forthcoming
Experimental Economics: Origins and Evolution (in press 2026, Edward Elgar, 88,000 word research monograph)
Abstract: The focus of this book is on origins and insights gleaned from experimental economics, along with pathways for future discoveries. The narrative begins with early findings and develops as a sequence of experiments, punctuated with descriptions of the people involved and their motivations. Topics include market experiments, asset market bubbles, prospect theory, risk preferences, belief elicitation, behavioral biases, behavioral and stochastic game theory, trust and incentives, and practical auction design. Primary insights are illustrated with data-based figures in the style of a science journal, with self-contained captions. The goal is to be useful as an introduction for newcomers and as a research reference for professionals.
Table of Contents:
Chapter 1. Market Trading: Looking Inside the Box
Chapter 2. Asset Markets and Spontaneous Speculation
Chapter 3. Prospect Theory: Patterns and Paradoxes
Chapter 4. Measurement of Risk Preference
Chapter 5. Belief Elicitation and Learning
Chapter 6. Behavioral Biases: Overbidding, Average Chasing and Pull-to-Center
Chapter 7. Behavioral Game Theory Explanations of Intuitive Anomalies
Chapter 8. Stochastic Game Theory: Introspection, Evolution, and Equilibrium
Chapter 9. The Power of Trust, Incentives, and Exclusion
Chapter 10. Auctions and Market Design: Thinking Outside of the Box
“Can Discount Window Stigma be Cured? An Experimental Investigation,” Olivier Armantier and Charles A. Holt, forthcoming 2026 in The Review of Financial Studies (impact factor 5.2 top 5 finance journal).
Abstract: A core responsibility of the Federal Reserve is to ensure financial stability by acting as the lender of last resort through its Discount Window. The Discount Window, however, has not been effective because its usage is stigmatized. In this paper, we use theory and experiments to study how such stigma can be cured. We find that behavioral inertia makes it difficult to fix a stigmatized Discount Window, but adding a new backstop facility can help mitigate stigma. These results are consistent with the Federal Reserve’s experience.
“Missing the Margin: Behavioral Biases in Incremental Decision Making” (with E. Sprott, J. Sellgren, and M. Green) forthcoming 2026 in a special issue of the Review of Behavioral and Experimental Economics edited by Mark Pingle.
Abstract: Understanding the difference between average and marginal effects is an essential element of effective decision making. Yet economists find that consumers often misperceive gains or costs at the margin in all but the simplest environments. This paper presents an experiment based on incremental production decisions, intended to evaluate marginal thinking and psychological biases like “melioration” that result from comparisons of averages. The structures of the production functions for alternative products (“Green Eggs” and “Ham”) are not explicitly provided and are revealed as financially motivated subjects make labor input allocation choices in a sequence of rounds with increasing numbers of workers to be assigned. Despite some learning, we find that only about a quarter of subjects make the optimal allocation in the final rounds. Subjects tend to over allocate workers to the production process with higher average products, especially in early rounds. A second treatment holds the optimal worker allocation constant but sharpens marginal incentives, which does not alleviate the apparent attraction provided by differences in average products.
“The Jamestown/Xiaogang Survival Game: A Class Experiment,” Lee Coppock, Charles A. Holt, Cathleen Johnson, and Madison Smiher, forthcoming in the Southern Economic Journal.
Abstract: One of the most important insights for any economics class is the power of private incentives and competition to work hard when the fruits of one’s effort are not diluted by incomplete property rights. The paper reports results of a classroom experiment that implements a transition from a “common field” with shared harvests to a division into private parcels. The class exercise can be implemented with playing cards or online, and an associated lab report/worksheet that demonstrates dramatic productivity gains as property rights are implemented. Outcomes are discussed in comparison with the experience in the Jamestown colony, and with similar events 350 years later during the process of Chinese agricultural decentralization. In each of these historical case studies, the tension between private and public production activities was magnified by the specter of starvation.
“Inventory Management with Carryover in a Laboratory Setting: Going Beyond the Newsvendor Paradigm,” (with Béatrice Boulu-Reshef), forthcoming 2026 in Experimental Economics.
Abstract: This paper considers a stationary model of inventory management in a rich setting in which unsold units carry over, in contrast with the full depreciation of unsold units that is implemented in laboratory studies of the newsvendor problem. The model permits an array of costs associated with restocking, understocking, depreciation, financing, and holding inventories. The extra dimensions make it possible to hold the optimal inventory constant, while adjusting parameters that change the frequency of stockouts and the risks associated with storage and depreciation. This framework facilitates an investigation of factors that influence the nature and severity of behavioral biases observed in simpler newsvendor settings. Optimal inventory decisions are derived and tested with a laboratory experiment. We consider four main questions in the inventory literature: the “pull-to-center” effect, the “recency” effect, the effect of increased up-front costs, and the effect of risk aversion.
“Persistent Private Information in Experimental Asset Markets” (with Daniel Harper and Margaret Isaacson), forthcoming 2026, Southern Economic Journal.
Abstract: This study evaluates the extent to which laboratory markets disseminate private information about the long-run payout of durable assets, and how persistent private information affects traders’ beliefs about future asset prices. Subjects trade dividend-paying assets, which are redeemed for a randomly determined value that is revealed in advance to “informed traders.” The efficient market hypothesis predicts prices will incorporate private information, which precludes bubbles. Markets exhibit price bubbles in all treatments, with magnitudes that are uncorrelated with the proportion of informed traders. But these price surges do not permit informed traders to earn more than uninformed traders on average. Price predictions are elicited, and informed traders tend to make lower predictions.
“Teaching Financial Crises: A Leverage Experiment,” Lee Coppock, Daniel Harper, and Charles A. Holt, forthcoming 2026 in the Southern Economic Journal.
Abstract: College students often struggle to understand the prevalence of asset price bubbles and the difficulty of timing asset purchases and sales. Even economics students are consistently surprised when bubbles burst. These breaks can have real macroeconomic effects, particularly when the price surge was fueled by leverage. This paper describes a web-based class experiment designed to teach students about how leverage increases the magnitude and ramifications of bubbles. Participant students choose between investing in an asset with risky returns (which can be leveraged) and a safe asset that pays interest. These markets consistently generate prices well above fundamental values. Furthermore, the price bubbles are generally more extreme when credit is easier (low cash down-payment requirements), when exogenous incomes are higher, and when the duration of the experiment is longer. The class results can be used to draw parallels to examples of leveraged bubbles and their consequences, such as the 2007-2009 Great Recession. This experiment is available for instructors online and is particularly well suited for Principles of Macroeconomics, Money and Banking, and Behavioral Finance classes.
b) Works Submitted:
“Tobin’s Q, Liquidity, and Speculation in Laboratory Markets,” (with Daniel K. Harper), resubmitted to the Review of Financial Studies.
Abstract: This paper uses a laboratory experiment to study how excess liquidity and Tobin’s q affect capital investment. Subjects produce and trade capital goods in a multiperiod market with convex production costs and capital depreciation. Treatments vary the marginal cost of investment, the aggregate cash level, and the relative cash endowments of individual subjects. Increasing aggregate cash increases price bubbles. In contrast to q-theory predictions of no effect, there is excess production of capital goods relative to a first-best optimum in markets with high cash endowments. The degree of overproduction is to some extent positively correlated with the size of price bubbles.
“The Virtues of Lab Experiments” (with Gary Charness, James Cox, Catherine Eckel, and Brian Jabarian), resubmitted to the Journal of Economic Behavior and Organization .
Abstract: Physical laboratory experiments occupy a key position within experimental economics for a wide range of research questions, offering crucial methodological rigor by ensuring human authenticity, controlling informational conditions, directing interpersonal interactions, ensuring protocol credibility, and reliably administering monetary incentives. These factors contribute to the empirical robustness of experimental findings. The continued advancement of online experimental platforms offers complementary scientific benefits to laboratory experiments, such as lowering costs and increasing sample diversity. We identify and elaborate on specific research questions for which laboratory-based methods offer clear scientific advantages, emphasizing their ability to yield precise, insightful, and replicable data.
“Virtual Observability in Sequential Play” (with Monca Capra and Po-Husn Lin) submitted to the Journal of Economic Behavior and Organization.
Abstract: When players make sequential decisions that are unobservable to one another, their behavior can nonetheless be influenced by knowing who moves first. This sequential structure, often referred to as “virtual observability,” suggests that timing alone can shape expectations and choices, even when no information is revealed. The original notion of virtual observability, however, is an equilibrium refinement based on the timing structure and has no bite in games with a unique equilibrium. In this paper, we experimentally examine whether timing still affects behavior in such games, using the Traveler’s Dilemma and the Trust Game. We find that in the sequential Traveler’s Dilemma without observability, first movers tend to behave closer to the equilibrium prediction than in the simultaneous version. In contrast, timing without observability has no effect on behavior in the Trust Game.
“The Allais Paradox and Upside/Downside Risk Preference: An Experimental Analysis with Probability Weighting and Chernoff Faces” (with Irene Comeig) submitted to the Southern Economic Journal.
Abstract: The Allais Paradox is often attributed to the strong attraction of a certain option that avoids a downside risk, i.e. a small chance of a low payoff. In contrast, there is clear evidence from laboratory and field data that people are attracted to the upside risk of obtaining a relatively high payoff. Examples of upside risk include investments in risky tech stocks, participation in rent-seeking contests, or savings in lottery-based retirement accounts. The experiment reported in this paper shows a tendency for the same people to exhibit both downside risk aversion and upside risk preference. The analysis uses nonlinear probability weighting to connect the upside/downside risk preference distinction with the standard behavior observed in an Allais paradox. The results are illustrated by Chernoff faces with features that are pulled down by risk aversion and up by risk preference.
Works Being Revised for Submission or Resubmission
“The Directional Difference Test” (with Daniel Kwiatkowski and Sean Sullivan), May 2024, being revised.
Abstract: When analyzing data from experiments involving more than two treatments that can be ranked in terms predicted effect, it is natural to turn to statistical tests with directional alternative hypotheses. This paper uses Monte Carlo simulations to evaluate the power characteristics of the Directional Difference test, which has a test statistic defined as the sum of treatment differences for all pairs of sample observations in different treatments. When sample data are distributed according to familiar distributions like the normal, uniform, and logistic distributions, we find that the Directional Difference test is better able to detect treatment effects than the commonly used Jonckheere-Terpstra test. The Jonckheere-Terpstra test still performs best for heavy-tailed distributions. Experimenters wishing to exploit the informational content of multiple-treatment samples should consider replacing the Jonckheere-Terpstra test with the Directional Difference test in appropriate circumstances.
“Can Competition Promote Trusting Behavior? Reciprocity, and Pro-Social Behavior in Repeated Interactions,” (with Erica Sprott) being revised.
Abstract: This paper revisits the question of how competition might (paradoxically) promote prosocial behavior. We use a laboratory experiment to study trust and trustworthiness in dynamic games in which pairings are determined by mutual consent. Beneficial relationships can be scaled up, and unsatisfactory relationships can be terminated by the withdrawal of one of the parties. Activity constraints force subjects to choose which pairings to scale up and which ones to deactivate in subsequent rounds. Competition to be included in profitable pairings tends to produce sustained, high levels of pro-social behavior. The beneficial effects of this competition are enhanced when participants have more flexibility in terms of reallocating resources from one potential link to another.
“The Pursuit of Revenue Reduction: An Experimental Analysis of the Shanghai License Plate Auction,” (with Evan Zuofu Liao and Penny Huixin Yang), Discussion Paper, being revised to submit to Management Science.
Abstract: Monthly auctions of vehicle licenses in Shanghai were reconfigured in 2008 in an attempt to reduce prices by giving bidders the option of modifying initial bids. The modified bids are required to be within a narrow band around the lowest accepted bid at that point. The bidding constraints limit price competition, and therefore, allocation efficiency may be degraded if intended revenue reductions are achieved. The effectiveness of the new procedures, however, is unclear in light of sharp subsequent increases in license prices, even after the license quota was doubled. This paper reports a laboratory experiment designed to evaluate the revenue and efficiency consequences of the revised Shanghai auction format, in comparison with the previous sealed-bid procedure, or with a lottery-based allocation used in other cities.
“Common Pool Corruption in the Classroom” (with Snigda Das and Daniel Harper), July 2024, draft presented at the June 2025 CTREE conference in Denver.
Abstract: Corruption is persistent in some countries and is widely thought to impede economic development. This online class simulation implements a game in which corruption begets corruption. Students decide how much to extract from a common pool of cash. The remainder of the pool that is not extracted is scaled up and divided equally among those who are not detected making extractions in an audit. There are two equilibria, one with no corruption and one with high levels of corruption. The class experiment demonstrates conditions under which corruption is extensive, due to “safety in numbers” in terms of avoiding detection. There is a second treatment setting that results in low corruption and high probabilities that extractions will be detected. A guide to class discussion and policy applications is provided.
Rebels WITH a Cause: Nobel Laureates in Public Choice and Behavioral Economics (with Juliette Sellgren), book manuscript idea and prospectus, very early planning and discussions with the Princeton University Press economics editor.
Abstract: This book offers a sweeping exploration of the most disruptive ideas in economics through the lives and contributions of Nobel Laureates. Organized chronologically around pivotal breakthroughs—from Milton Friedman’s defense of market mechanisms and Vernon Smith’s experimental methods to Elinor Ostrom’s work on decentralized institutions and Kahneman and Tversky’s psychological foundations of decision-making—each chapter traces how intellectual rebels challenged orthodox theories and reshaped the discipline. The book blends biographical storytelling with a clear, engaging account of the core ideas, showing how personal experiences and intellectual traditions intersect to drive innovation. While grounded in the lives of laureates, the narrative follows the evolution of economic thought, returning to major figures as their ideas resurface in new contexts. Designed for curious readers, students, and scholars, this is not a textbook, but it brings the evolution of economic thought to life through the people who made it happen.
“Adverse Selection and Market Failure: A Theory that Was Born Falsified?” (with Jackson Ciocca, Margot Sellgren, and Sean Sullivan), submitted for the 2026 Western Economic Association Meeting in Denver, July 2026.
Abstract: In a provocative review of Joseph Stiglitz’s 2024 book The Road to Freedom, Vernon Smith challenges theoretical work on asymmetric information as being “irrelevant because buyers and sellers in possession only of dispersed, private, decentralized, value information easily converge to competitive price-quantity allocations in experimental markets over time via learning in repeat transactions.” [italics added] . He goes on to describe theories of asymmetric information as being “born falsified.” While it is true that lemon’s market outcomes in lab experiments by run Holt and Sherman and others have been shown to generate low qualities and prices, the setup used was generally not as competitive as the Davis and Holt (1994) choice-of-partners experiment with two sellers per buyer, which generated a majority of high-quality deliveries in 10-round sequences. In this paper, we implement a competitive treatment that provides sellers with enough excess capacity to capture sales from a significant fraction of competitors. Smith’s comment about learning through repeat transactions is implemented with a second treatment that allows buyers to post public ex post ratings of specific sellers.
“Cursed Asset Markets and Gender,” (with Daniel Harper): 10 of 24 preregistered asset market sessions have been completed.
“Do Binary Lotteries Control Risk Preferences in Attacker-Defender Games?” (with Angela Smith and Yen Tan), experiment sessions are half completed.
“Reverse Auctions to Procure Negative Emissions at Industrial Scale” Dallas Burtraw, Charles Holt, Åsa Löfgren, and William Shobe, Preliminary Draft, presented at the November 2024 NBER Conference on Decarbonization, more experiments planned.