Jeffrey Butler | EIEF - The Einaudi Institue for Economics and Finance (original) (raw)
Papers by Jeffrey Butler
This paper reports results from a laboratory experiment exploring the relationship between reputa... more This paper reports results from a laboratory experiment exploring the relationship between reputation and entry in procurement. There is widespread concern among regulators that favoring suppliers with good past performance, a standard practice in private procurement, may hinder entry by new (smaller or foreign) firms in public procurement markets. Our results suggest that while some reputational mechanisms indeed reduce the frequency of entry, so that the concern is warranted, appropriately designed reputation mechanisms actually stimulate entry. Since quality increases but not prices, our data also suggest that the introduction of reputation may generate large welfare gains for the buyer.
The persistence of inequality is of perennial interest for economists and others. In this study, ... more The persistence of inequality is of perennial interest for economists and others. In this study, experimental evidence is presented for a novel channel yielding inequality persistence: inequality itself may be self-reinforcing through competitiveness. In an initial experiment, it is shown that individuals rationalize unequal pay by coloring their retrospective relative performance beliefs in a way consistent with this inequality. Subsequent experiments reveal that i) it is beliefs about relative ability, an ostensibly stable trait, that respond to unequal treatment; and that ii) unequal pay in an initial task affects willingness to compete on a subsequent task. Taken together, the results suggest that mere inequality may cause precisely the patterns in beliefs and competitiveness that reinforce initial inequality.
Trust beliefs are heterogeneous across individuals and, at the same time, persistent across gener... more Trust beliefs are heterogeneous across individuals and, at the same time, persistent across generations. We investigate one mechanism yielding these dual patterns: false consensus. In the context of a trust game experiment, we show that individuals extrapolate from their own type when forming trust beliefs about the same pool of potential partners - i.e., more (less) trustworthy individuals form more optimistic (pessimistic) trust beliefs - and that this tendency continues to color trust beliefs after several rounds of game-play. Moreover, we show that ones own type/trustworthiness can be traced back to the values parents transmit to their children during their upbringing. In a second closely-related experiment, we show the economic impact of mis calibrated trust beliefs stemming from false consensus. Miscalibrated beliefs lower participants experimental trust game earnings by about 20 percent on average.
Prior research suggests that those who rely on intuition rather than effortful reasoning when mak... more Prior research suggests that those who rely on intuition rather than effortful reasoning when making decisions are less averse to risk and ambiguity. The evidence is largely correlational, however, leaving open the question of the direction of causality. In this paper, we present experimental evidence of causation running from reliance on intuition to risk and ambiguity preferences. We directly manipulate participants’ predilection to rely on intuition and find that enhancing reliance on intuition lowers the probability of being ambiguity averse by 30 percentage points and increases risk tolerance by about 30 percent in the experimental subpopulation where we would a priori expect the manipulation to be successful (males).
A large experimental literature has investigated the determinants of trust using variants of the ... more A large experimental literature has investigated the determinants of trust using variants of the so called trust game. However, a lot of ambiguity remains regarding the definition of what one is trusting: one extreme view is that since there are no explicit promises or guarantees made in the trust game, cheating is not defined and therefore trust is not implied. We address this concern by asking trust game participants their notion of cheating. We find that i) senders do have a notion of cheating, ii) the majority of senders would feel cheated by a negative return on their trust/investment, whereas a sizable minority defines cheating according to an equal split rule. The fact that participants in the trust game have a notion of what cheating behavior is does not necessarily prove that trust is affected by it. We show that participants’ trust behavior is significantly affected by their beliefs about the probability of being cheated. Given the importance of cheating in a trust game, we finally look at its determinants, unveiling the importance of values instilled by parents.
Using a large sample of retail investors as well as experimental data we find that risk and ambig... more Using a large sample of retail investors as well as experimental data we find that risk and ambiguity aversion are positively correlated. We show the common link is decision style: intuitive thinkers tolerate more risk and ambiguity than effortful reasoners. One interpretation is that intuitive thinking confers an advantage in risky or ambiguous situations. We present supporting lab and field evidence that intuitive thinkers outperform others in uncertain environments. Finally, we find that risk and ambiguity aversion vary with individual characteristics and wealth. The wealthy are less risk averse but more ambiguity averse, which has implications for financial puzzles.
EIEF Working Papers Series, Jan 1, 2010
Either equal or unequal social groups were artificially created in the lab. Participants then pla... more Either equal or unequal social groups were artificially created in the lab. Participants then played two games governed by distinct social norms: a trust game and a cheap talk game where lying was possible. The results support existing social identity research stressing in-group bias: norm compliance was higher in same-group interactions. At the same time, the data provide novel evidence that in-group bias is a product of the context of equal social groups. Introducing status inequality between groups eliminated the relevance of in-group affiliation. Instead, high status group members exhibited more norm compliance in all of their interactions (noblesse oblige). Finally, when there was no obvious social norm social identity had no direct impact on behavior. Considered together, the results suggest that: i) the channel through which identity directly impacts behavior is social norm compliance; ii) the precise nature of social identity’s impact on behavior depends on the relationship between social identities. The patterns in the data generalize and extend existing results and reconcile some previously contradictory patterns.
This paper reports results from a laboratory experiment exploring the relationship between reputa... more This paper reports results from a laboratory experiment exploring the relationship between reputation and entry in procurement. There is widespread concern among regulators that favoring suppliers with good past performance, a standard practice in private procurement, may hinder entry by new (smaller or foreign) firms in public procurement markets. Our results suggest that while some reputational mechanisms indeed reduce the frequency of entry, so that the concern is warranted, appropriately designed reputation mechanisms actually stimulate entry. Since quality increases but not prices, our data also suggest that the introduction of reputation may generate large welfare gains for the buyer.
The persistence of inequality is of perennial interest for economists and others. In this study, ... more The persistence of inequality is of perennial interest for economists and others. In this study, experimental evidence is presented for a novel channel yielding inequality persistence: inequality itself may be self-reinforcing through competitiveness. In an initial experiment, it is shown that individuals rationalize unequal pay by coloring their retrospective relative performance beliefs in a way consistent with this inequality. Subsequent experiments reveal that i) it is beliefs about relative ability, an ostensibly stable trait, that respond to unequal treatment; and that ii) unequal pay in an initial task affects willingness to compete on a subsequent task. Taken together, the results suggest that mere inequality may cause precisely the patterns in beliefs and competitiveness that reinforce initial inequality.
Trust beliefs are heterogeneous across individuals and, at the same time, persistent across gener... more Trust beliefs are heterogeneous across individuals and, at the same time, persistent across generations. We investigate one mechanism yielding these dual patterns: false consensus. In the context of a trust game experiment, we show that individuals extrapolate from their own type when forming trust beliefs about the same pool of potential partners - i.e., more (less) trustworthy individuals form more optimistic (pessimistic) trust beliefs - and that this tendency continues to color trust beliefs after several rounds of game-play. Moreover, we show that ones own type/trustworthiness can be traced back to the values parents transmit to their children during their upbringing. In a second closely-related experiment, we show the economic impact of mis calibrated trust beliefs stemming from false consensus. Miscalibrated beliefs lower participants experimental trust game earnings by about 20 percent on average.
Prior research suggests that those who rely on intuition rather than effortful reasoning when mak... more Prior research suggests that those who rely on intuition rather than effortful reasoning when making decisions are less averse to risk and ambiguity. The evidence is largely correlational, however, leaving open the question of the direction of causality. In this paper, we present experimental evidence of causation running from reliance on intuition to risk and ambiguity preferences. We directly manipulate participants’ predilection to rely on intuition and find that enhancing reliance on intuition lowers the probability of being ambiguity averse by 30 percentage points and increases risk tolerance by about 30 percent in the experimental subpopulation where we would a priori expect the manipulation to be successful (males).
A large experimental literature has investigated the determinants of trust using variants of the ... more A large experimental literature has investigated the determinants of trust using variants of the so called trust game. However, a lot of ambiguity remains regarding the definition of what one is trusting: one extreme view is that since there are no explicit promises or guarantees made in the trust game, cheating is not defined and therefore trust is not implied. We address this concern by asking trust game participants their notion of cheating. We find that i) senders do have a notion of cheating, ii) the majority of senders would feel cheated by a negative return on their trust/investment, whereas a sizable minority defines cheating according to an equal split rule. The fact that participants in the trust game have a notion of what cheating behavior is does not necessarily prove that trust is affected by it. We show that participants’ trust behavior is significantly affected by their beliefs about the probability of being cheated. Given the importance of cheating in a trust game, we finally look at its determinants, unveiling the importance of values instilled by parents.
Using a large sample of retail investors as well as experimental data we find that risk and ambig... more Using a large sample of retail investors as well as experimental data we find that risk and ambiguity aversion are positively correlated. We show the common link is decision style: intuitive thinkers tolerate more risk and ambiguity than effortful reasoners. One interpretation is that intuitive thinking confers an advantage in risky or ambiguous situations. We present supporting lab and field evidence that intuitive thinkers outperform others in uncertain environments. Finally, we find that risk and ambiguity aversion vary with individual characteristics and wealth. The wealthy are less risk averse but more ambiguity averse, which has implications for financial puzzles.
EIEF Working Papers Series, Jan 1, 2010
Either equal or unequal social groups were artificially created in the lab. Participants then pla... more Either equal or unequal social groups were artificially created in the lab. Participants then played two games governed by distinct social norms: a trust game and a cheap talk game where lying was possible. The results support existing social identity research stressing in-group bias: norm compliance was higher in same-group interactions. At the same time, the data provide novel evidence that in-group bias is a product of the context of equal social groups. Introducing status inequality between groups eliminated the relevance of in-group affiliation. Instead, high status group members exhibited more norm compliance in all of their interactions (noblesse oblige). Finally, when there was no obvious social norm social identity had no direct impact on behavior. Considered together, the results suggest that: i) the channel through which identity directly impacts behavior is social norm compliance; ii) the precise nature of social identity’s impact on behavior depends on the relationship between social identities. The patterns in the data generalize and extend existing results and reconcile some previously contradictory patterns.