Browsing by Subject "Experimental Economics"

Now showing 1 - 3 of 3
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    Design implications of real-time feedback in continuous combinatorial auctions: an experimental investigation.
    (2009-06) Sanyal, Pallab
    Information Technology (IT) has spawned the growth of novel and innovative market mechanisms (such as online auctions) and associated businesses (such as eBay and Priceline) that were not feasible without the capabilities and reach of these modern information technologies. Previous studies on designing trading mechanisms for online markets primarily viewed them from an economic perspective. There has been virtually no study on how making changes to a mechanism alters its desirability as a mechanism or endogenously affects the behavior of its users. This dissertation takes a holistic look at the issue of designing mechanisms: exploring not only the economic properties of a mechanism but also the dimensions of user acceptance and of user behavior and its impact on the mechanism's performance. We take a multidisciplinary approach, using theories from economics, decision psychology and computer science. We employ laboratory experiments to collect primary data and use well-established methodologies in experimental economics to analyze the data; in addition, we use perceptual methodologies (such as the Technology Acceptance Model) to study the issues related to user acceptance and exploratory data analysis techniques to discover and explore emerging behaviors as features of the mechanism are changed. The combinatorial auction is the context for this study. It is a complex mechanism, where the role of IT in facilitating a user's interaction with the mechanism is abundantly clear. Furthermore, while the mechanism has been used for important resource allocation decisions in industry, its use in the online marketplace is limited, if not non existent. Therefore, the issues of the mechanism's economic adequacy and user acceptance are both of relevance. We find that the design of the mechanism significantly influences not only the economic properties of the mechanism but also its user perceptions. Furthermore, unlike in single-item auctions, in combinatorial auctions bidders are able to generate greater surplus with more transparency of the mechanism. Based on our results, we develop several insights on designing sustainable economic mechanisms.
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    Three Essays on the Economics of Price Volatility
    (2017-04) Lee, Yu Na
    This dissertation is about how commodity price volatility affects the decision making and welfare of economic agents. The three essays in this dissertation focus on food prices, the volatility of which has been an important topic of policy discussions in the wake of the global food crises of 2008 and 2010-11. In the first essay, I examine whether food price volatility causes rural-to-urban migration. Using longitudinal household survey data from rural Ethiopia, I find strong and robust evidence that the greater a household's willingness to pay to stabilize food prices, the more likely that household is to see one of its members migrate, a relationship that is more pronounced in villages that lack alternative coping strategies to mitigate the negative welfare effects of price volatility. Thus, my results provide evidence that migration is a strategy that smallholder farmers rely on to cope with food price volatility in the absence of well-functioning credit and insurance markets. The second and third essays are experimental studies motivated by a need for a clean identification of producer decision making under price volatility. In the second essay, my co-authors and I test Sandmo’s (1971) canonical theory of producer behavior under output price uncertainty using a novel experimental protocol. We find that, in stark contradiction with Sandmo's theoretical prediction, which stems from expected utility theory, the presence of price uncertainty causes subjects to produce more than they do under price certainty, but we also find that increases in the degree of price uncertainty cause them to decrease their production. Perhaps more importantly, we also find that subjects exhibit behavior consistent with prospect theory. In the third essay, we generate unique experimental data to examine how individuals make production decisions under price ambiguity, in which probability distributions of prices are unknown to experimental subjects. We find that, when producers have to make production decisions lacking such information, context matters a great deal, and individuals rely on past realization of prices as well as heuristics to facilitate decision making.
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    Two essays on the effect of social norms on marketing actions
    (2012-12) Mallucci, Paola
    Research has demonstrated that social norms can impact behavior and consumption in a meaningful way. A better understanding of social norms can result in a better understanding of consumers and of market dynamics and indicate a way for firm to improve their profitability.In Essay 1: The Effect of Social Pressure on Corporate Social Responsibility, I investigate consumers' reactions to products that include donations (a form of Corporate Social Responsibility, CSR). I identify ``warm glow'' and ``social pressure'' as the two principal drivers. On one hand, products offered by CSR-engaged firms are more appealing because of the warm glow consumers derive from choosing a product associated with a donation to their favored causes; such products directly enhance customer utility. On the other hand, once donations reach a threshold amount, consumers might feel social pressure to reciprocate the firm's donation. While such pressure can move some consumers to buy the product, it reduces utility and can lead some consumers to opt out of the market. Plainly, warm glow is favorable to selling CSR products, but does social pressure aversion imply that rational firms will never employ such appeals? Large numbers of firms do rely on social pressure based appeals (e.g., the Pink Ribbon campaign for breast cancer). When and why is this a wise choice?In two separate experiments, I find evidence for warm glow and social pressure effects. I formalize and quantify these effects with a novel utility function that embodies these opposing effects and find them to be of the same order of magnitude; hence, both are managerially relevant. To develop this idea further, I build a model of a profit-maximizing firm that recognizes these warm glow and social pressure aversion preferences of its customers. Under a duopolistic market structures, I find that if warm glow is large enough, a firm will also engage in social pressure appeals despite its customers' aversion to social pressure. Put differently, despite its negative effect on consumers' preferences, employing social pressure in a CSR context can be profitable. Why? Intuitively, social pressure diminishes price sensitivity. In Essay 2: Fairness Ideals in Distribution Channels, I examine the norm of fairness. Existing research suggests that concerns for fairness may significantly affect the interactions between firms in a distribution channel. I analytically and experimentally evaluate how firms make decisions in a two-stage dyadic channel, in which firms decide on investments in the first stage and then on prices in the second stage. I find that firms' behavior differs significantly from the predictions of the standard economic model and is consistent with the existence of fairness concerns. Using a Quantal Response Equilibrium (QRE) model, in which both the manufacturer and retailer make noisy best responses, I show fairness significantly impacts channel pricing decisions. Additionally, I compare four principles of distributive fairness: strict egalitarianism, liberal egalitarianism, and libertarianism, previously considered in the fairness literature, and a new principle of distributive fairness the sequence-aligned ideal that is studied first time in literature. Surprisingly, the new ideal, according to which the sequence of moving determines the formation of equitable payoff for players, significantly outperforms other fairness ideals.