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Besides deterring people, laws may affect behavior by changing preferences or beliefs. A law may elicit intrinsic motivation by framing an act as wrong. Alternatively, it may coordinate the behavior of different people by changing their beliefs about what others will do. We investigate framing and coordination effects experimentally in prisoner's dilemma, "crowding" and coordination games. We simulate a law by imposing a probabilistic penalty on one of the choices. In the prisoner's dilemma and the crowding game, announcing the penalty had no effect. In the coordination game, announcing the penalty caused behavior to jump to the Pareto-superior equilibrium. Keywords: Equilibrium selection, framing, expressive law, experiments, coordination, prisoner's dilemma
Repeat transactions are not necessarily the rule in today's global economy. Indirect reputation systems, where buyers base their decisions on a seller's previous interactions with other buyers, are a potential substitute for personal interactions - provided such information is available. This paper examines experimentally to what degree indirect reputation building substitutes for direct reputation building in repeat interactions in the short run and analyzes the effects these environments have on behavior in the long run. We find that repeat interactions are the most effective institutional arrangement to foster trust and trustworthiness in the short and in the long run.
This paper employs experiments to examine the effects of social comparisons in ultimatum bargaining. We inform responders on the average offer before they decide whether to accept or reject their specific offer. To provide a metric for social comparison effects, we compare them with another change in informational conditions, asymmetric information on the pie size. Knowing comparable offers or knowing the pie size increases offers and rejection probabilities by similar magnitudes. Our results are consistent with people disliking deviations from the norm of equity but inconsistent with fairness theories, where people dislike income disparity between themselves and their referents.
We employ experiments to illustrate one factor contributing to the lack of distrust in the recent corporate scandals: Trust rather than no trust was the default. Holding the expected returns from trusting constant, people are more trusting when the default is trust than when it is no trust. In a new game, the Distrust Game (DTG), where the default is full trust, trust levels are higher and trustworthiness levels lower than in the BDM-Trust Game (TG), where the default is no trust. Agents punish distrust more in the DTG than in the TG but principals do not anticipate this.
Norms of reciprocity contribute to the enforcement of cooperative agreements in bilateral sequential exchange. This paper examines the norms that apply in a reciprocal-exchange economy and what effect on trust, trustworthiness and efficiency they have. In our one-shot investment game experiments with Nairobi slum dwellers, people generally adhered to the norm of “balanced reciprocity”, which obligates quid-pro-quo returns for any level of trust. This norm differs from “conditional reciprocity,” prevalent in developed countries, according to which higher trust levels are rewarded with proportionally larger returns. Which norms prevail has implications for the gains from trade realized in bilateral exchange.