Essays in Behavioral and Experimental Economics

Abstract

My dissertation consists of three essays on behavioral and experimental economics. In Chapter 1, I introduce an integrated model of risk attitudes and other-regarding preferences that extends the standard notion of inequity discount to lotteries. In this model, a decision maker perceives inequity partly by comparing the marginal risks she and others face. It predicts that fairness considerations will alter risk attitudes, in particular, a higher tolerance to positively correlated (fair) risks compared to negatively correlated (unfair) risks. It is also capable of explaining the behavior by which people help others probabilistically (known as ex ante fairness). Furthermore, in contrast with the existing view of ex ante fairness based on expected outcomes, my model does not imply that stronger ex ante fairness behavior is associated with less risk sensitivity. I study these predictions with evidence from an experiment. I find that subjects take more risks when outcomes are ex post fair compared to when they are ex post unfair. I confirm ex ante fairness behavior is a common choice pattern and document how, according to the model, it responds to its relative price. Finally, I reject the implication of existing models that stronger ex ante fairness behavior correlates with less risk sensitivity. Chapter 2 is a joint work with Professor Brit Grosskopf (University of Exeter, UK). People communicate in economic interactions either aiming to alter material outcomes or because they derive direct satisfaction from expressing. In our study, we focus on the latter, the non-instrumental motivates, and find that this less researched aspect of expression has important economic implications. In particular, we experimentally study ex-post verbal expression in a modified Power-to-Take game and document people's willingness to pay for this kind of expression possibility. Our experiment contributes to previous studies discussing the role of mood-emotional states. We find that purely expressive as well as reciprocal motives are both non-trivial components of the valuation for non-instrumental expression. We demonstrate that expression possibilities have important impacts on welfare beyond what our standard economic view predicts. In Chapter 3, Emel Filiz-Ozbay, Erkut Ozbay and I study multi-object auctions in the presence of post-auction trade opportunities among bidders who have either single- or multi-object demand. We focus on two formats: Vickrey auctions where package bidding is possible and simultaneous second-price auctions. We show that, under complementarities, the Vickrey format has an equilibrium where the objects are allocated efficiently at the auction stage whether resale markets are present or not. The simultaneous second-price, on the other hand, leads to inefficiency with or without resale possibility. Our experimental findings show that the possibility of resale in second-price auctions decreases the efficiency rate at the auction stage compared to the no resale case. However, after resale, the efficiency rate in second-price is as high as that of Vickrey auction without resale outcomes in the experiment. Preventing resale neither benefits nor hurts auction revenues in a second-price format. This last chapter has been recently published in Games and Economic Behavior, Volume 89, Pages 1-16, January 2015.