This document describes an experiment that tests for the existence of purely procedural preferences in economic decision making. It introduces three allocation procedures - a dictator game, yes-no game, and ultimatum game - that yield the same expected outcomes but differ in their procedural properties. Dominant economic theories predict no preference between the procedures. The experiment found that some participants exhibited preferences over the procedures, suggesting people may care about the process independently of outcomes. It aims to understand the psychological reasons for purely procedural preferences by relating them to aspects of moral judgment.
We extend the Ståhl-Rubinstein alternating-offer bargaining procedure to allow players, prior to each bargaining round, to simultaneously and visibly commit to some share of the pie. If commitment costs are small but increasing in the committed share, then the unique outcome consistent with common belief in future rationality (Perea, 2010), or more restrictively subgame perfect Nash equilibrium, exhibits a second mover advantage. In particular, as the smallest share of the pie approaches zero, the horizon approaches infinity, and commitment costs approach zero, the unique bargaining outcome corresponds to the reversed Rubinstein outcome (d =(1 + d); 1=(1 + d)), where d is the common discount factor.
Brennan, Niamh M., Daly, Caroline A. and Harrington, Claire S. [2010] Rhetori...Prof Niamh M. Brennan
This exploratory study extends the analysis of narrative disclosures from routine reporting contexts such as annual reports and press releases to non-routine takeover documents where the financial consequences of narrative disclosures can be substantial. Rhetoric and argument in the form of impression management techniques in narrative disclosures are examined. Prior thematic content analysis methods for analysing good and bad news disclosures are adapted to the attacking and defensive themes in the defence documents of target companies subject to hostile takeover bids. The paper examines the incidence, extent and implications of impression management in ten hostile takeover defence documents issued by target companies listed on the London Stock Exchange between 1 January 2006 and 30 June 2008. Three impression management strategies – thematic, visual and rhetorical manipulation – are investigated using content analysis methodologies. The findings of the research indicate that thematic, visual and rhetorical manipulation is evident in hostile takeover defence documents. Attacking and defensive sentences were found to comprise the majority of the defence documents analysed. Such sentences exhibited varying degrees of visual and rhetorical emphasis, which served to award greater or lesser degrees of prominence to the information conveyed by target company management.
While exploratory in nature, this paper concludes with suggestions for future more systematic research allowing for greater generalisations from the findings.
We extend the Ståhl-Rubinstein alternating-offer bargaining procedure to allow players, prior to each bargaining round, to simultaneously and visibly commit to some share of the pie. If commitment costs are small but increasing in the committed share, then the unique outcome consistent with common belief in future rationality (Perea, 2010), or more restrictively subgame perfect Nash equilibrium, exhibits a second mover advantage. In particular, as the smallest share of the pie approaches zero, the horizon approaches infinity, and commitment costs approach zero, the unique bargaining outcome corresponds to the reversed Rubinstein outcome (d =(1 + d); 1=(1 + d)), where d is the common discount factor.
Brennan, Niamh M., Daly, Caroline A. and Harrington, Claire S. [2010] Rhetori...Prof Niamh M. Brennan
This exploratory study extends the analysis of narrative disclosures from routine reporting contexts such as annual reports and press releases to non-routine takeover documents where the financial consequences of narrative disclosures can be substantial. Rhetoric and argument in the form of impression management techniques in narrative disclosures are examined. Prior thematic content analysis methods for analysing good and bad news disclosures are adapted to the attacking and defensive themes in the defence documents of target companies subject to hostile takeover bids. The paper examines the incidence, extent and implications of impression management in ten hostile takeover defence documents issued by target companies listed on the London Stock Exchange between 1 January 2006 and 30 June 2008. Three impression management strategies – thematic, visual and rhetorical manipulation – are investigated using content analysis methodologies. The findings of the research indicate that thematic, visual and rhetorical manipulation is evident in hostile takeover defence documents. Attacking and defensive sentences were found to comprise the majority of the defence documents analysed. Such sentences exhibited varying degrees of visual and rhetorical emphasis, which served to award greater or lesser degrees of prominence to the information conveyed by target company management.
While exploratory in nature, this paper concludes with suggestions for future more systematic research allowing for greater generalisations from the findings.
This research investigates the determinants of the capital structure of firms listed service sector on BIST(Borsa Istanbul) and the adjustment process towards this target. The econometric analysis employs the Generalized Method of Moments estimators (GMM-Sys, GMM difference) techniques that controls for unobserved firm-specific effects and the endogeneity problem. The findings of the paper suggest that firms have target leverage ratios and they adjust to them relatively fast. Consistent with the predictions of capital structure theories and the findings of the empirical literature, the results of this paper suggest that size, assets tangibility, profitability, growth opportunity except earnings volatility have significant effects on the capital structure choice of hotels and restaurants.The capital structure or leverage is measured by total debt ratio. Analysis results indicates that firms with high profits, sizable, high fixed assets ratio and high total sales and more growth opportunities tend to have relatively less debt in their capital structures.
Analysis of Co-operative game theory for SMEs in a competitive Environment.
If you walk down the streets of London and ask any anyone: How do SMEs operate? Some will say it is about offering the best services to customers. Others will say that SMEs are the survivors of a tough competitive market. Some will argue that it is all about good management. Some will also say it is about getting finance. However, very few will mention networking, cooperation, union, education or even the best strategy to win. SMEs contribute with a combine turnover of £3,100 million in 2012 and of all the businesses 62.7% were sole proprietorship, 28% were companies and 9.3% were partnership. (FSB, 2013) With the current UK Government invention to boost up SMEs funding, with an additional £300 million, one can assume the likelihood of an increase in SMEs in UK.
On the contrary, little research has been conducted on Game theory in SMEs (Tidd et al, 1997) In Business, Game theory aims to help organisation to understand situation in which decisions can be made. (Osborne, 2000) Game Theory has provide a methodology that has brought insight into many previously unexplained phenomena by allowing asymmetric information and strategic interaction to be incorporated into the analysis. (Chalterjee et al, 2001)
This research proposal will look into how game theory could help SMEs in different sectors to achieve a higher payoff by cooperating with competitors while there is excess demand in the market. In addition, this research will educate SMEs about the market, opting for opportunity cost, introducing SMEs networking in their particular sector. Moreover, this research could help SMEs to grow through Mergers and Acquisitions.
Why Inexperienced Investors Do Not Learn: They Do Not Know Their Past Portfol...Trading Game Pty Ltd
Recently, researchers have gone a step further from just documenting biases of individual investors.
More and more studies analyze how experience affects decisions and whether biases are eliminated
by trading experience and learning. A necessary condition to learn is that investors actually know
what happened in the past and that the views of the past are not biased. We contribute to the
above mentioned literature by showing why learning and experience go hand in hand. Inexperienced
investors are not able to give a reasonable self-assessment of their own past realized stock portfolio
performance which impedes investors’ learning ability. Based on the answers of 215 online broker
investors to an internet questionnaire, we analyze whether investors are able to correctly estimate
their own realized stock portfolio performance. We show that investors are hardly able to give a correct
estimate of their own past realized stock portfolio performance and that experienced investors are
better able to do so. In general, we can conclude that we find evidence that investor experience
lessens the simple mathematical error of estimating portfolio returns, but seems not to influence their
“behavioral” mistakes pertaining to how good (in absolute sense or relative to other investors) they
are.
Disentangling the effect of private and public cash flows on firm valueFGV Brazil
This paper presents a simple model for dual-class stock shares, in which common shareholders receive both public and private cash flows (i.e. dividends and any private benefit of holding voting rights) and preferred shareholders only receive public cash flows (i.e. dividends). The dual-class premium is driven not only by the firm's ability to generate cash flows, but also by voting rights. We isolate these two effects in order to identify the role of voting rights on equity-holders' wealth. In particular, we employ a cointegrated VAR model to retrieve the impact of the voting rights value on cash flow rights. We finnd a negative relation between the value of the voting right and the preferred shareholders' wealth for Brazilian cross- listed firms. In addition, we examine the connection between the voting right value and market and firm specific risks.
Date: 2017-03
Authors:
Autor
Scherrer, Cristina Mabel
Fernandes, Marcelo
We show that a one-off incentive to bias advice has a persistent effect on advisers’ own actions and their future recommendations. In an experiment, advisers obtained information about a set of three differently risky investment options to advise less informed clients. The riskiest option was designed such that it is only preferred by risk-seeking individuals. When advisers are offered a bonus for recommending this option, half of them recommend it. In
contrast, in a control group without the bonus only four percent recommend it. After the bonus was removed, its effect remained.
In a second recommendation for the same options but without a bonus, those advisers who had previously faced it are almost six times more likely to recommend the riskiest option compared to the control group. A similar increase is found when advisers make the same choice for themselves. To explain our results we provide a theory based on advisers trying to uphold a positive self-image of being incorruptible. Maintaining a positive self-image then forces them to be consistent in the advice they give, even if it is biased
Moral Hazard Summary Microeconomics 2016Lisa Raffi
Moral Hazard Notes Summary of Theory of Incentives by Laffont and Martimort 2014. Exogeneous Endogenous First Best Second Best Contracts Asymmetric Information #economics #microeconomics #microeconomic analysis #economicpolicy #contracts #incentives #students #university #lagrangian #Lagrange #multipliers #optimization #optimum #pareto adverse selection wiki
adverse selection pdf
adverse selection and moral hazard
adverse selection definition
adverse selection definizione
selezione avversa economia
market of lemons
azzardo morale
Presentation by Sandip Sukhtankar "Building State Capacity: Evidence from Biometric Smartcards in India" at the SITE Corruption Conference, 31 August 2015.
Find more at: https://www.hhs.se/site
When a government creates an agency to gather information relevant to policymaking, it faces two critical organizational questions: whether the agency should be given authority to
decide on policy or merely supply advice, and what should the policy goals of the agency be. Existing literature on the first question is unable to address the second, because the question
of authority becomes moot if the government can simply replicate its preferences within the agency. In contrast, this paper examines both questions within a model of policymaking under time inconsistency, a setting in which the government has a well-known incentive to create an agency with preferences that differ from its own. Thus, our framework permits a meaningful analysis of delegation versus communication with an endogenously chosen agent. The first main finding of the paper is that the government can do equally well with a strategic choice of agent, from which it solicits advice, instead of delegating authority, as long as the time inconsistency problem is not too severe. The second main finding is that the government may strictly prefer seeking advice to delegating authority if there is prior uncertainty with respect to what is the optimal policy.
By Anders Olofsgård (with R. Luma), published in Journal of Public Economics.
We investigate whether the onset of a sovereign default is associated with an increase in the probability that incumbent politicians lose office. We construct a novel dataset of finance ministers tenure and turnover for 84 countries between 1980 and 2012. We find robust evidence that sovereign default onsets are associated with statistically and economically significant increases in the probability of finance minister turnover. The evidence regarding chief executive turnover is mixed. Our findings suggest that sovereign defaults may have political consequences, which have important implications for the analysis of default, ex ante borrowing subject to the risk of default, and the design of ex post interventions.
Read more at https://www.hhs.se/site
In many organizations, decisions are taken by unanimity giving each member veto power. We analyze a model of an organization in which members with heterogenous productivity privately contribute to a common good. Under unanimity, the least efficient member imposes her preferred effort choice on the entire organization. The threat of forming an "inner organization" can undermine the veto power of the less efficient members and coerce them to exert more effort. We also identify the conditions under which the threat of forming an inner organization is executed. Finally, we show that majority rules effectively prevent the emergence of inner organizations.
Version of July 2009.
Read more research publications at: https://www.hhs.se/site
Green Industrial Policy in Emerging Countries
Presentation by Anna Pegels, Senior Researcher, German Development Institute (DIE)
Energy Day, Stockholm School of Economics, SITE December 2014
Arrangements by which politically connected firms receive economic favors are a common feature around the world, but little is known of the form or effects of influence in business-government relationships. We argue that influence not only brings significant privileges for selected firms, but requires firms to relinquish certain control rights in exchange for subsidies and protection. We show that, under these conditions, political influence can actually harm firm performance. Enterprise surveys from approximately 8,000 firms in 40 developing countries indicate that influential firms benefit from lower administrative and regulatory barriers (including bribe taxes), greater pricing power, and easier access to credit. But these firms also provide politically valuable benefits to incumbents through bloated payrolls and greater tax payments. These firms are also less likely to invest and innovate, and suffer from lower productivity than their non-influential counterparts. Our results highlight a potential channel by which cronyism leads to persistent underdevelopment.
This paper proposes a Transit Risk Index (TRI) designed to assess the riskiness of pipeline gas imports and to study the effect of introducing new gas routes. TRI controls for gas dependency, transit route diversification, political risks of transit, pipeline rupture probability, and the balance of power between supplying and consuming countries along the transit route. Evaluating TRI for the EU-Russia gas trade, we show that the introduction of the Nord Stream pipeline would further widen already large disparities in gas risk exposure across the EU Member States. The gas risk exposure of the Member States served by Nord Stream would decline. In contrast, EU countries not connected to Nord Stream, but sharing other Russian gas transit routes with the Nord Stream countries, would face greater gas risk exposure. We discuss the implications of our analysis for the design of the common energy policy in the EU.
Find more research papers at: https://www.hhs.se/site
Can television be used to teach and foster entrepreneurship among youth in developing countries? We report from a randomized control field experiment of an edutainment show on entrepreneurship broadcasted over almost three months on national television in Tanzania. The field experiment involved more than two thousand secondary school students, where the treatment group was incentivized to watch the edutainment show. We find short-term evidence of the edutainment show inspiring the viewers to become more interested in entrepreneurship and business and shaping non-cognitive traits such as risk- and time preferences, and long-term evidence of more business startups; in general, the treatment effects are more pronounced for the female viewers. However, we also find evidence that the encouragement of entrepreneurship discouraged investment in schooling; administrative data show a negative treatment effect on school performance and long-term survey data show that fewer treated students continue schooling.
High coordination costs are often identified as the reason for the low quality of public goods available to the poor. We report findings from a unique combination of a village-randomized controlled trial and a lab-in-the-field experiment. An in-depth survey of 1,600 women before and after an intervention establishing membership-based organizations in one of the poorest districts in India shows that the presence of these groups increased villagers’ capacity to address water delivery problems, and improved access to, and quality of, water service. Public goods games with over 200 participants in a subset of control and treatment villages show that the presence of village groups increased cooperation among both members and non-members in treated villages. We find little evidence that cooperation is facilitated by more common tastes among group members. These results suggest that, in contrast to traditional community development programs, membership groups can help poor communities build social capital.
This research investigates the determinants of the capital structure of firms listed service sector on BIST(Borsa Istanbul) and the adjustment process towards this target. The econometric analysis employs the Generalized Method of Moments estimators (GMM-Sys, GMM difference) techniques that controls for unobserved firm-specific effects and the endogeneity problem. The findings of the paper suggest that firms have target leverage ratios and they adjust to them relatively fast. Consistent with the predictions of capital structure theories and the findings of the empirical literature, the results of this paper suggest that size, assets tangibility, profitability, growth opportunity except earnings volatility have significant effects on the capital structure choice of hotels and restaurants.The capital structure or leverage is measured by total debt ratio. Analysis results indicates that firms with high profits, sizable, high fixed assets ratio and high total sales and more growth opportunities tend to have relatively less debt in their capital structures.
Analysis of Co-operative game theory for SMEs in a competitive Environment.
If you walk down the streets of London and ask any anyone: How do SMEs operate? Some will say it is about offering the best services to customers. Others will say that SMEs are the survivors of a tough competitive market. Some will argue that it is all about good management. Some will also say it is about getting finance. However, very few will mention networking, cooperation, union, education or even the best strategy to win. SMEs contribute with a combine turnover of £3,100 million in 2012 and of all the businesses 62.7% were sole proprietorship, 28% were companies and 9.3% were partnership. (FSB, 2013) With the current UK Government invention to boost up SMEs funding, with an additional £300 million, one can assume the likelihood of an increase in SMEs in UK.
On the contrary, little research has been conducted on Game theory in SMEs (Tidd et al, 1997) In Business, Game theory aims to help organisation to understand situation in which decisions can be made. (Osborne, 2000) Game Theory has provide a methodology that has brought insight into many previously unexplained phenomena by allowing asymmetric information and strategic interaction to be incorporated into the analysis. (Chalterjee et al, 2001)
This research proposal will look into how game theory could help SMEs in different sectors to achieve a higher payoff by cooperating with competitors while there is excess demand in the market. In addition, this research will educate SMEs about the market, opting for opportunity cost, introducing SMEs networking in their particular sector. Moreover, this research could help SMEs to grow through Mergers and Acquisitions.
Why Inexperienced Investors Do Not Learn: They Do Not Know Their Past Portfol...Trading Game Pty Ltd
Recently, researchers have gone a step further from just documenting biases of individual investors.
More and more studies analyze how experience affects decisions and whether biases are eliminated
by trading experience and learning. A necessary condition to learn is that investors actually know
what happened in the past and that the views of the past are not biased. We contribute to the
above mentioned literature by showing why learning and experience go hand in hand. Inexperienced
investors are not able to give a reasonable self-assessment of their own past realized stock portfolio
performance which impedes investors’ learning ability. Based on the answers of 215 online broker
investors to an internet questionnaire, we analyze whether investors are able to correctly estimate
their own realized stock portfolio performance. We show that investors are hardly able to give a correct
estimate of their own past realized stock portfolio performance and that experienced investors are
better able to do so. In general, we can conclude that we find evidence that investor experience
lessens the simple mathematical error of estimating portfolio returns, but seems not to influence their
“behavioral” mistakes pertaining to how good (in absolute sense or relative to other investors) they
are.
Disentangling the effect of private and public cash flows on firm valueFGV Brazil
This paper presents a simple model for dual-class stock shares, in which common shareholders receive both public and private cash flows (i.e. dividends and any private benefit of holding voting rights) and preferred shareholders only receive public cash flows (i.e. dividends). The dual-class premium is driven not only by the firm's ability to generate cash flows, but also by voting rights. We isolate these two effects in order to identify the role of voting rights on equity-holders' wealth. In particular, we employ a cointegrated VAR model to retrieve the impact of the voting rights value on cash flow rights. We finnd a negative relation between the value of the voting right and the preferred shareholders' wealth for Brazilian cross- listed firms. In addition, we examine the connection between the voting right value and market and firm specific risks.
Date: 2017-03
Authors:
Autor
Scherrer, Cristina Mabel
Fernandes, Marcelo
We show that a one-off incentive to bias advice has a persistent effect on advisers’ own actions and their future recommendations. In an experiment, advisers obtained information about a set of three differently risky investment options to advise less informed clients. The riskiest option was designed such that it is only preferred by risk-seeking individuals. When advisers are offered a bonus for recommending this option, half of them recommend it. In
contrast, in a control group without the bonus only four percent recommend it. After the bonus was removed, its effect remained.
In a second recommendation for the same options but without a bonus, those advisers who had previously faced it are almost six times more likely to recommend the riskiest option compared to the control group. A similar increase is found when advisers make the same choice for themselves. To explain our results we provide a theory based on advisers trying to uphold a positive self-image of being incorruptible. Maintaining a positive self-image then forces them to be consistent in the advice they give, even if it is biased
Moral Hazard Summary Microeconomics 2016Lisa Raffi
Moral Hazard Notes Summary of Theory of Incentives by Laffont and Martimort 2014. Exogeneous Endogenous First Best Second Best Contracts Asymmetric Information #economics #microeconomics #microeconomic analysis #economicpolicy #contracts #incentives #students #university #lagrangian #Lagrange #multipliers #optimization #optimum #pareto adverse selection wiki
adverse selection pdf
adverse selection and moral hazard
adverse selection definition
adverse selection definizione
selezione avversa economia
market of lemons
azzardo morale
Presentation by Sandip Sukhtankar "Building State Capacity: Evidence from Biometric Smartcards in India" at the SITE Corruption Conference, 31 August 2015.
Find more at: https://www.hhs.se/site
When a government creates an agency to gather information relevant to policymaking, it faces two critical organizational questions: whether the agency should be given authority to
decide on policy or merely supply advice, and what should the policy goals of the agency be. Existing literature on the first question is unable to address the second, because the question
of authority becomes moot if the government can simply replicate its preferences within the agency. In contrast, this paper examines both questions within a model of policymaking under time inconsistency, a setting in which the government has a well-known incentive to create an agency with preferences that differ from its own. Thus, our framework permits a meaningful analysis of delegation versus communication with an endogenously chosen agent. The first main finding of the paper is that the government can do equally well with a strategic choice of agent, from which it solicits advice, instead of delegating authority, as long as the time inconsistency problem is not too severe. The second main finding is that the government may strictly prefer seeking advice to delegating authority if there is prior uncertainty with respect to what is the optimal policy.
By Anders Olofsgård (with R. Luma), published in Journal of Public Economics.
We investigate whether the onset of a sovereign default is associated with an increase in the probability that incumbent politicians lose office. We construct a novel dataset of finance ministers tenure and turnover for 84 countries between 1980 and 2012. We find robust evidence that sovereign default onsets are associated with statistically and economically significant increases in the probability of finance minister turnover. The evidence regarding chief executive turnover is mixed. Our findings suggest that sovereign defaults may have political consequences, which have important implications for the analysis of default, ex ante borrowing subject to the risk of default, and the design of ex post interventions.
Read more at https://www.hhs.se/site
In many organizations, decisions are taken by unanimity giving each member veto power. We analyze a model of an organization in which members with heterogenous productivity privately contribute to a common good. Under unanimity, the least efficient member imposes her preferred effort choice on the entire organization. The threat of forming an "inner organization" can undermine the veto power of the less efficient members and coerce them to exert more effort. We also identify the conditions under which the threat of forming an inner organization is executed. Finally, we show that majority rules effectively prevent the emergence of inner organizations.
Version of July 2009.
Read more research publications at: https://www.hhs.se/site
Green Industrial Policy in Emerging Countries
Presentation by Anna Pegels, Senior Researcher, German Development Institute (DIE)
Energy Day, Stockholm School of Economics, SITE December 2014
Arrangements by which politically connected firms receive economic favors are a common feature around the world, but little is known of the form or effects of influence in business-government relationships. We argue that influence not only brings significant privileges for selected firms, but requires firms to relinquish certain control rights in exchange for subsidies and protection. We show that, under these conditions, political influence can actually harm firm performance. Enterprise surveys from approximately 8,000 firms in 40 developing countries indicate that influential firms benefit from lower administrative and regulatory barriers (including bribe taxes), greater pricing power, and easier access to credit. But these firms also provide politically valuable benefits to incumbents through bloated payrolls and greater tax payments. These firms are also less likely to invest and innovate, and suffer from lower productivity than their non-influential counterparts. Our results highlight a potential channel by which cronyism leads to persistent underdevelopment.
This paper proposes a Transit Risk Index (TRI) designed to assess the riskiness of pipeline gas imports and to study the effect of introducing new gas routes. TRI controls for gas dependency, transit route diversification, political risks of transit, pipeline rupture probability, and the balance of power between supplying and consuming countries along the transit route. Evaluating TRI for the EU-Russia gas trade, we show that the introduction of the Nord Stream pipeline would further widen already large disparities in gas risk exposure across the EU Member States. The gas risk exposure of the Member States served by Nord Stream would decline. In contrast, EU countries not connected to Nord Stream, but sharing other Russian gas transit routes with the Nord Stream countries, would face greater gas risk exposure. We discuss the implications of our analysis for the design of the common energy policy in the EU.
Find more research papers at: https://www.hhs.se/site
Can television be used to teach and foster entrepreneurship among youth in developing countries? We report from a randomized control field experiment of an edutainment show on entrepreneurship broadcasted over almost three months on national television in Tanzania. The field experiment involved more than two thousand secondary school students, where the treatment group was incentivized to watch the edutainment show. We find short-term evidence of the edutainment show inspiring the viewers to become more interested in entrepreneurship and business and shaping non-cognitive traits such as risk- and time preferences, and long-term evidence of more business startups; in general, the treatment effects are more pronounced for the female viewers. However, we also find evidence that the encouragement of entrepreneurship discouraged investment in schooling; administrative data show a negative treatment effect on school performance and long-term survey data show that fewer treated students continue schooling.
High coordination costs are often identified as the reason for the low quality of public goods available to the poor. We report findings from a unique combination of a village-randomized controlled trial and a lab-in-the-field experiment. An in-depth survey of 1,600 women before and after an intervention establishing membership-based organizations in one of the poorest districts in India shows that the presence of these groups increased villagers’ capacity to address water delivery problems, and improved access to, and quality of, water service. Public goods games with over 200 participants in a subset of control and treatment villages show that the presence of village groups increased cooperation among both members and non-members in treated villages. We find little evidence that cooperation is facilitated by more common tastes among group members. These results suggest that, in contrast to traditional community development programs, membership groups can help poor communities build social capital.
The rapid growth of the US financial sector has driven policy debate on whether it is socially desirable. I propose a heterogeneous agent model with asymmetric information and matching frictions that produces a tradeoff between finance and entrepreneurship. By becoming bankers, talented individuals efficiently match investors with entrepreneurs, but do not internalize the negative effect on the pool of talented entrepreneurs. Thus, the financial sector is inefficiently large in equilibrium, and this inefficiency increases with wealth inequality. The model explains the simultaneous growth of wealth inequality and finance in the US, and why more unequal countries have larger financial sectors.
by Kirill Shakhnov, EUI †
JOB MARKET PAPER
First version: January 2015
This version: November 2014
Read more: https://www.hhs.se/site
A growing literature in experimental economics examines the conditions under which cooperation can be sustained in social dilemma settings. In particular, several recent studies contrast cooperation levels in games in which the number of decision rounds is probabilistic to games in which the number of decision rounds is finite. We contribute to this literature by contrasting the evolution of cooperation in probabilistically and finitely repeated linear voluntary contribution public goods games (VCM). Consistent with past results, cooperation increases in MPCR, and in group size, holding MPCR constant. We also find, as the number of decision sequences increase, there is a pronounced decrease in cooperation in the final round of finite sequences compared to those with a probabilistic end round. We do not, however, find strong evidence that overall cooperation rates are affected by whether the number of decision rounds is finite or determined probabilistically.
Many quality dimensions are hard to contract upon and are at risk of degradation when services are procured rather than produced in-house. However, procurement may foster performance-improving innovation. We assemble a large data set on elderly care services in Sweden between 1990 and 2009, including survival rates - our measure of non-contractible quality - and subjectively perceived quality of service. We estimate how procurement from private providers affects these measures using a difference-in-difference approach. The results indicate that procurement significantly increases non-contractible quality as measured by survival rate, reduces the cost per resident but does not affect subjectively perceived quality.
This study is an evaluation of the impact of a food for education program implemented in primary schools (grades 1–6) in six Cambodian provinces between 1999 and 2003. We find that school enrolment increased to varying degrees in relation to different designs of the intervention. We also investigate the effect of the program in terms of completed education and probability of having ever been in school, following up the affected cohorts in a 2009 survey. With an estimated cost of US$85 per additional child in school per year, the program can be considered very cost-effective
within a comparable class of interventions.
Check the latest research publications and presentations on our website http://www.hhs.se/site
This article explores the link between productive relational contracts and corruption. Responsibility for a contract is delegated to a supervisor who cares about both production and kickbacks, neither of which are explicitly contractible. We characterize the optimal supervisor-agent relational contract and show that the relationship between joint surplus, kickbacks and production is nonmonotonic. Delegation may benefit the principal when relational contracting is difficult by easing the time inconsistency problem of paying incentive payments. For the principal, the optimal supervisor has incentives that are partially, but not completely, aligned with her own.
Read more at: https://www.hhs.se/site
Comments by Ina Ganguli on paper "Is Corruption Good for your Health?" presented by Guilherme Lichand at the SITE Corruption Conference, 31 August 2015.
Find more at: https://www.hhs.se/site
This year marks the 25-year anniversary of the breakup of the Soviet Union. Countries in the Commonwealth of Independent States (CIS) and Central and Eastern Europe (CEE) have tread the transition process towards market economies, open and democratic political systems, and strong and independent judicial institutions at very different paces. This year's Development Day will be held on May 27 at the Stockholm School of Economics. The theme of the day-long conference is "Traces of transition: Unfinished business 25 years down the road?".
As in previous years the event is organized jointly by SITE and the Swedish Ministry for Foreign Affairs. The day will feature a mix of international scholars and practitioners from the public, private and civil society sectors. We invite you to read more about the conference topic, speakers and panelists below on conference program.
This year's SITE Energy Day was devoted to discussing the consequences of oil price fluctuations for markets and actors of the economy. The half-day conference engaged policy-oriented scholars and experts from the business community to discuss the impact of oil price fluctuations on macro fundamentals, international trade, strategies of oil cartels, strategic risk management, and opportunities for change in energy systems.
Torbjörn Becker, Director of SITE, gave a talk "The volatility of oil price forecasts and its macroeconomic implications"
For more information and research analysis please visit: www.hhs.se/site
This paper reports an experimental test of asymmetric Tullock contests. Both the simultaneous-move and sequential-move frameworks are considered. The introduction of asymmetries in the contest function generates experimental behavior qualitatively consistent with the theoretical predictions. However, especially in the simultaneous-move framework, average bidding levels are in excess of the risk-neutral predictions. We conjecture that the reason behind this behavior lies in subjects attaching positive utility to victory in the contest.
Intro to Crime and Criminal Justice Third Essay Exam .docxvrickens
Intro to Crime and Criminal Justice
Third Essay Exam
Write a minimum of 7 pages (Times New Roman, double space, 12pt font). As always, use
information mainly from our text to answer the questions—but you must also supplement your
answers with your own critical thinking and input as well. The following questions are designed
to not be 'chapter specific'. Instead, they challenge you to use information from several chapters.
Each answer should roughly be the same length. Be sure to write and provide direct support
for your answers from the text and/or other sources (e.g. in-text citations, page numbers,
end of document references).
1. Do you think the criminal justice system “works” in the United States? Why or why not?
Explain in detail and provide clear examples.
Try to think about the big picture here, and include a discussion about system goals such as
crime prevention or reduction, deterrence, rehabilitation cost/benefits, definitions of justice, etc.
2. This course introduced the notion that the criminal justice system and all its players are
inherently and generally limited in terms of their ability to prevent or reduce crime. What is
meant by this? Provide a robust explanation.
Do you think that other institutions such as the family, schools, and organized religion are
better at social control and preventing crime than the criminal justice system? If so, which ones
and in what ways? This answer may partially depend upon how efficient you believe the criminal
justice system is, and on your personal beliefs regarding the importance of family and other
social institutions in regulating behavior—be sure to provide clear support for your answers.
3. Present and discuss some of the most common myths we have discussed in this course about
the criminal justice system (e.g. the rationale behind pretrial preventive detention, minorities
commit more crime, what the processing of cases looks like—plea bargaining and bail instead of
trial, more officers and more technology will reduce crime, the crime rate is going up, criminals
are dangerous and commit violent crime, etc.)
MSL 5080, Methods of Analysis for Business Operations 1
Course Learning Outcomes for Unit VI
Upon completion of this unit, students should be able to:
5. Explain the criteria for making decisions under organizational uncertainty.
6. Illustrate the various methods of decision-making under risk.
Reading Assignment
Chapter 3: Decision Analysis, pp. 67–85; and Section 3.10, Utility Theory, on pp. 88–89
Unit Lesson
Types of Decision-Making Environments
As you may recall from the previous unit, the Thompson Lumber example of proposed sales expansion (seen
on pages 68–69 of the textbook) was explored with a condition of uncertainty. Thompson knew the
payoffs/profits for each alternative under each of two outcomes (favorable market or unfavorable market), but
he did not know the outcome of the mar ...
A clustering-based approach to detect probable outcomes of lawsuitsDaniel Gribel
The large amount of data coming from the numerous lawsuits in progress or already judged by the STF (Brazilian Supreme Court) consists of non-structured data, which leads to a large number of hidden or unknown information, as some relationships between lawsuits that are not explicit in the available data. These conditions also contribute to generate non-intuitive influences between variables and to increase the degree of uncertainty. However, many lawsuits can be decided based in certain patterns like: (i) the comparison to lawsuits with similar features (area of the Law, parties involved, nature of the claim, rapporteur, etc), (ii) the comparison to outcomes taken by a judge with a history of judging similar lawsuits, and (iii) the comparison to laws considered in past cases. All these parameters and some other patterns observed in past lawsuits provide a framework of non-structured data that can be transformed in useful data to predict new outcomes. This work proposes an approach to identify possible judgement outcomes that considers aspects beyond the analytical techniques. Through the use of similarity calculations and clustering mechanisms, the proposed solution was built in order to find the most similar lawsuits for a new instance that is being tested. By analysing some meta-data, it is possible to find a similar case already judged, since the amount of data provided by the judicial system are quite large. By the developing of a program that detects clusters and compiles past votes, the results shown that is possible to verify the most likely outcome and to detect its degree of uncertainty.
I provide a (very) brief introduction to game theory. I have developed these notes to
provide quick access to some of the basics of game theory; mainly as an aid for students
in courses in which I assumed familiarity with game theory but did not require it as a
prerequisite
Presented by Anastasia Luzgina during the conference "Belarus at the crossroads: The complex role of sanctions in the context of totalitarian backsliding" on April 23, 2024.
Presented by Erlend Bollman Bjørtvedt during the conference "Belarus at the crossroads: The complex role of sanctions in the context of totalitarian backsliding" on April 23, 2024.
Presented by Dzimtry Kruk during the conference "Belarus at the crossroads: The complex role of sanctions in the context of totalitarian backsliding" on April 23, 2024.
Presented by Lev Lvovskiy during the conference "Belarus at the crossroads: The complex role of sanctions in the context of totalitarian backsliding" on April 23, 2024.
Presented by Chloé Le Coq, Professor of Economics, University of Paris-Panthéon-Assas, Economics and Law Research Center (CRED), during SITE 2023 Development Day conference.
This year’s SITE Development Day conference will focus on the Russian war on Ukraine. We will discuss the situation in Ukraine and neighbouring countries, how to finance and organize financial support within the EU and within Sweden, and how to deal with the current energy crisis.
This year’s SITE Development Day conference will focus on the Russian war on Ukraine. We will discuss the situation in Ukraine and neighbouring countries, how to finance and organize financial support within the EU and within Sweden, and how to deal with the current energy crisis.
The (Ce)² Workshop is organised as an initiative of the FREE Network by one of its members, the Centre for Economic Analysis (CenEA, Poland) together with the Centre for Microdata Methods and Practice (CeMMAP, UK). This will be the seventh edition of the workshop which will be held in Warsaw on 27-28 June 2022.
The (Ce)2 workshop is organised as an initiative of the FREE Network by one of its members, the Centre for Economic Analysis (CenEA, Poland) together with the Centre for Microdata Methods and Practice (CeMMAP, UK). This will be the seventh edition of the workshop which will be held in Warsaw on 27-28 June 2022.
The (Ce)2 workshop is organised as an initiative of the FREE Network by one of its members, the Centre for Economic Analysis (CenEA, Poland) together with the Centre for Microdata Methods and Practice (CeMMAP, UK). This will be the seventh edition of the workshop which will be held in Warsaw on 27-28 June 2022.
The (Ce)2 workshop is organised as an initiative of the FREE Network by one of its members, the Centre for Economic Analysis (CenEA, Poland) together with the Centre for Microdata Methods and Practice (CeMMAP, UK). This will be the seventh edition of the workshop which will be held in Warsaw on 27-28 June 2022.
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BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
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Lecture slide titled Fraud Risk Mitigation, Webinar Lecture Delivered at the Society for West African Internal Audit Practitioners (SWAIAP) on Wednesday, November 8, 2023.
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The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
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Purely Procedural Preferences - Beyond Procedural Equity and Reciprocity
1. Purely Procedural Preferences
- Beyond Procedural Equity and Reciprocity -
Nadine Chlaß∗
Werner G¨uth∗∗
Topi Miettinen‡
May 26, 2010
Abstract
Most research in economics studies agents somehow motivated by out-
comes. Here, we study agents motivated by procedures instead, where
procedures are defined independently of an outcome. To that end, we
design procedures which yield the same expected outcomes or carry the
same information on others’ intentions while they have different outcome-
invariant properties. Agents are experimentally confirmed to exhibit pref-
erences over these which link to psychological attributes of their moral
judgment.
JEL Classification: C78, D63, Z13
Keywords: procedural preferences, experiment, procedural fairness
∗Friedrich Schiller University Jena, Germany. Email: nadine.chlass@uni-jena.de
∗∗Max Planck Institute of Economics, Jena, Germany
‡Aalto University, School of Economics, Finland and SITE Stockholm School of Economics,
Sweden. We thank Christoph G¨oring for programming the z-tree code, and Oliver Kirchkamp
for valuable comments on this paper.
2. 1 Introduction
This paper studies agents motivated by procedures. Most research in economics
in contrast models agents motivated by economic outcomes. Outcomes typically
include monetary payoffs, allocations of consumption bundles, costs of effort, or
expectations over these. Little attention has been paid to whether agents do
not also care about the procedure which generates these outcomes.1
And yet, in
some areas of life, procedures may prove vitally important, even when they do
not have even a stochastic influence on outcomes. In an election, for instance,
great care is taken to grant each individual an equal opportunity to vote, to
make the voting simple, and to elect a candidate in a transparent way. Ulti-
mately, the victory of one’s preferred candidate may be satisfactory. Yet, one
may plainly refuse to acknowledge her victory, if it is learned the election vio-
lated some of the criteria mentioned before. Notably, such a concern may be
independent of any potential outcome.
Here, we present to our knowledge the first controlled laboratory experi-
ment pointing out that procedures have value per se. To shed further light on
the issue, we suggest four corresponding purely procedural concerns which may
capture the observed choices over procedures: (i) a concern for equal effective
opportunities, (ii) a concern for equal effective unkind opportunities, (iii) a con-
cern for symmetric information, and (iv) a concern for procedural simplicity.2
Our experimental test introduces pairs of two-player pie-splitting procedures,
where each side of the pair may be preferred to the other along some procedural
aspect. Procedures are designed such that a row of dominant theories, including
many which allow for other-regarding and reciprocity concerns, would predict
expected outcomes and intentions to be procedurally invariant. By our design
we test whether still procedural concerns exist such that a procedure outweighs
1Even if economists do study procedural preferences, they would invariably define them by
some operator over an outcome. Such operators include an expectation over a distribution of
outcomes (Bolton et al. 2005), (Karni and Safra 2002), (Karni et al. 2008), or the kindness
perception in such a distribution (Brandts et al. 2006), (Sebald 2010). A review of earlier
work on procedural fairness is provided in (Konow 2003). It hence appears that preferences
over procedures per se have not been studied by economists.
2Weber discusses power from perspectives closely relating to the first three aspects. In
(Weber 1925 I §16, X §3), power is about the opportunity to implement one’s will, also
against opposition. Moreover, it arises from the fact that information is kept asymmetrically
to a small circle of people close to the decision maker.
1
3. another. Thereby, we underestimate the actual prevalence of a single concern.3
We subsequently try to understand the reasoning behind purely procedural
preferences as formulated here. Relying upon Kohlberg’s work (Kohlberg 1984),
we elicit elements of individuals’ moral judgment using a standardized experi-
mental questionnaire by Lind (1978, 2000, 2008). Elements of individuals’ moral
judgment consistently discriminate between individuals who do hold procedural
concerns and those who are procedurally indifferent.
The following section describes the two-player pie-division procedures we
use. Section 3 reviews dominant preference models and theories of fairness and
verifies that each of them generates procedurally invariant outcomes across our
pairs of procedures. Section 4 introduces the four procedural preferences men-
tioned above and discusses how individuals’ moral judgment may affect them.
Section 5 describes our experimental design and the experimental test used to
elicit individuals’ moral judgment. Section 6 presents our main results. Section
7 concludes.
2 Allocation procedures
Let 200 units be shared among two parties. One party, the proposer (P), has
more allocation power than the other, the responder (R). Two divisions of the pie
are possible; a fair one, where both the proposer and the responder obtain 100
units and an unfair one where the proposer obtains 20 units and the responder
180 units. Thus, the unfair allocation favors the less powerful responder rather
than the proposer. We introduce three procedures for sharing the 200 units in
either way: a mini dictator game, a mini-yes-or-no game (Gehrig et al. 2007),
and a mini ultimatum game (G¨uth et al. 1982).
A first procedure, the dictator game (DG), leaves the responder without
any opportunity to act in any payoff-relevant way. Whatever the proposer
chooses is implemented. In our setting, the responder may however voice her
3We cannot distinguish the case where two procedural concerns exist jointly and one is
simply more relevant than the other from the case where only one procedural concern exists
while the other does not. Neither can we disentangle subjects’ indifference between two
procedural aspects from the case where the two procedural concerns coexist at equal strength.
The latter does not seem a big issue: In section 6.2, we find that procedural preferences and
procedural indifference consistently differ in individuals’ moral judgment.
2
4. (dis)agreement with the proposal.4
Her reaction would yet not have any bearing
on the outcome. The DG is thus a one person decision problem in a two-person
environment.
A second procedure, the yes-no game (YNG), grants the responder an un-
conditional opportunity to act. P proposes either (100,100) or (20,180) and R
decides whether to accept not knowing the proposal made by P. Hence, R can-
not condition her decision on P’s proposal. Rejection results in zero payoffs for
both whereas the proposal is implemented otherwise. YNG is thus a two-player
game where each player has two options only.
A third procedure, the ultimatum game (UG), grants the responder a con-
ditional opportunity to act. As in the yes-no game, P proposes one of the two
allocations. R can decide for each potential proposal whether to accept or to
reject it. Again, a rejection leads to zero payoffs whereas acceptance implements
the proposed sharing. Since R can condition her choice on the proposal, she has
four strategies.
3 Predictions within procedures
Let us now discuss strategy- and outcome-predictions of various preference mod-
els for these allocation procedures. We start out with the benchmark of self-
interested opportunism.
Self-interested opportunism. If R is opportunistic, she only cares about her
share of the 200 units pie and never rejects any proposal. Anticipating R’s
opportunism P will propose the allocation (100,100) in all three games and R
accepts whenever she has the opportunity.5
Neither player should prefer one
procedure over the other.
Inequity aversion. Models of allocative fairness (Bolton 1991), (Bolton and
Ockenfels 2000), (Fehr and Schmidt 1999) define utility to positively depend on
the equality of payoffs and the players’ private payoff rather than on the latter
4We want to avoid that individuals distinguish our allocation procedures emotionally which
they might do, if one party could not express her opinion (G¨uth and Levati 2007). Besides,
a voice guarantees that responders have the same number of actions per path of play in each
procedure.
5These strategies are sequentially rational (Selten 1965), (Selten 1975), (Kreps and Wilson
1982).
3
5. alone. Fehr and Schmidt, for instance, assume that the own payoff and inequal-
ity are additively separable. That is, if the player earns x units and her opponent
earn y units, then the player’s utility is x−amax{(y −x), 0}−bmax{(x−y), 0}
where a and b denote non-negative individual parameters. The last two terms
capture the player’s preferences for equal payoffs. To suffer more disutility from
disadvantageous than from advantageous inequality, as imposed by the model,
requires a ≥ b. Such a player strictly prefers both players obtaining zero to
the allocation (x, y) with x > y iff b > x
(x−y) . She would prefer each obtaining
nothing to the allocation (x, y) with x < y iff a > x
(y−x) . For our two alloca-
tions (x = 100, y = 100) and (x = 180, y = 20), both an opportunistic and any
inequity averse responder with b < 1 as required by Fehr and Schmidt would
accept all proposals. If so, the proposer chooses the allocation (100,100). Again,
behavior turns out the same across procedures.
Intentionality. Responders minding proposers’ intentions have even less rea-
son to reject any offer. Falk et al. (2003) hardly ever find responders rejecting
meager offers in mini-ultimatum games. If instead, proposers choose a meager
offer from a richer set of alternatives, responders tend to reject more often. In
essence, the assessment of intentions behind a proposal may depend on the set
of possible proposals. If the fairest allocation is ruled out by design, a proposal,
otherwise deemed rather unkind, becomes less objectionable. In our design with
two proposals, even the proposal which is most disadvantageous for the respon-
der shares the pie equally. Such a proposal should already have been considered
fair given an unrestricted set of alternatives. It is even more likely considered a
fair proposal when other options are ruled out. Hence, both allocations should
appear kind and therefore be accepted.6
In summary, self-interested oppor-
6Let us discuss this more formally in the framework of Falk and Fischbacher
(2006). The kindness of player j towards i at node n is defined as ϕj(n, si , si) :=
ϑj(n, si , si)∆j(n, si , si) where si represents i’s first-order belief about the strategy of
j and si is i’s second-order belief (the belief about the first-order belief of j). The
term ∆j(n, si , si) = xi(n, si , si) − yj(n, si , si) reflects the perceived payoff difference and
ϑj(n, si , si) ∈ [0, 1] measures the degree of intentionality in j ’s choices. In binary ran-
domized choice, intentionality can be associated with the probability of choosing an action.
Non-intentionality would correspond to choosing each action with equal probability, inten-
tional kindness to choosing the higher payoff action with probability one, for instance. For
negative ∆j, j is unkind to i whereas for positive ∆j, j is kind. Since for all our procedures,
∆j remains non-negative, the proposer cannot be unkind. Thus, the intentionality term
ϑj(n, si , si) ∈ [0, 1] does not matter. Hence, both proposals are always accepted. Surpris-
ingly, the model of Dufwenberg and Kirchsteiger (2004) can predict rejections of the (100,100)
proposal since it may classify the (100,100) proposal as unkind and the (20,180) proposal as
kind. This holds if the latter only or both proposals are accepted. Yet, with sufficiently strong
reciprocity concerns, the proposal (100,100) may be proposed and rejected in equilibrium.
4
6. tunism and fairness theories mostly predict the same allocation proposal in all
three procedures. They moreover predict the responder R to always accept.
Recently formulated economic approaches to procedural fairness are based
on inequity aversion (Bolton et al. 2005), and on reciprocity (Sebald 2010)7
.
The first formulates that people prefer fair to unfair lotteries when only unequal
outcomes are available. Sebald (2010) instead expresses the fairness of a random
choice procedure by the kindness a player exhibits in choosing that procedure.
However, since behavior is invariably kind and fair across procedures, both
approaches deem our three procedures equally fair. Thus, any preference for
one of our three simple allocation procedures over another would suggest a new
kind of procedural preference which is purely procedural. Before we present
our experimental design, let us give an example how one might think about our
procedures in purely procedural terms.
4 Beyond reciprocity- and inequity-based pro-
cedural concerns
Take the following two pairs of the protocols mentioned before: (a) the mini-
dictator and the mini-ultimatum game, and (b) the mini-ultimatum and the
mini-yes-no game. A subject expressing a preference for one protocol over an-
other in any of the two pairs (while expecting the same outcome in both) would
show a purely procedural preference.
There could in principle be many kinds of purely procedural preferences.
To illustrate, we suggest four such concerns here, i.e. a preference for (i) equal
effective opportunities, (ii) equal effective unkind opportunities, (iii) symmet-
ric information and finally, (iv) procedural simplicity. We provide details on
definitions and a discussion in appendix A.
If equal outcomes are expected, a preference for the ultimatum over the dic-
tator game in the first pair might reflect a preference for equal opportunities
7Sebald’s model is based upon the reciprocity model of Dufwenberg and Kirchsteiger
(2004). If the alternative reciprocity model (Falk and Fischbacher 2006) was used, mea-
suring procedural fairness by letting an agent make a hypothetical choice between random
draws would yield an equity-based measure of procedural fairness.
5
7. over equal unkind opportunities.8
Preferring the dictator game over the ulti-
matum game instead could be due to the reverse preference. To see this, note
that in the ultimatum game, each player has two effective alternatives to choose
from along each path of play9
whereas in the dictator game the responder has
no effective choice whatsoever. Yet, in the ultimatum game the proposer can
only make a fair or a kind proposal whereas the responder can be unkind by
destroying the pie.
In the second pair, a preference for the ultimatum game over the yes-no game
could reflect a preference for symmetric information over simplicity whereas pre-
ferring the yes-no game over the ultimatum game could be associated with the
reverse procedural preference. If we measure simplicity by the overall number
of pure strategies in a game, the yes-no game is simpler than the ultimatum
game. In the yes-no game, however, the proposer has an information advantage
while there is no way of hiding the proposal in the ultimatum game.
Notice that these purely procedural fairness aspects may not equally ad-
vantage responders and proposers.10
Evidence on outcome-based preferences
suggests that the disadvantaged party may have a stronger preference for fair-
ness. For each relevant aspect in each pair of protocols, we should therefore
assess which party is in an (dis)advantageous position. For the first pair of
protocols, responders have fewer effective opportunities than proposers in the
dictator game. The responders are hence in a disadvantageous position. The
proposers on the other hand are disadvantaged in the ultimatum game since
they have fewer unkind opportunities11
than responders. Both sides are on
equal terms regarding unkind opportunities in the dictator game and effective
opportunities in the ultimatum game. For the second pair, the responder is dis-
advantaged regarding information in the yes-no game whereas in the ultimatum
game, the information asymmetries level off. Since simplicity sums the number
8Note that the ultimatum game does not differ from the dictator game with voice in the
number of pure strategies by which we measure simplicity.
9If instead of actions, players considered strategies as the relevant set of opportunities,
the responder has more strategies than the proposer. Hence, the ultimatum game might be
deemed as a situation where the proposer has fewer opportunities than the responder.
10Consequently, each measure provided here, apart from procedural simplicity, may be
embedded in any inequity setting, e.g. (Fehr and Schmidt 1999).
11They also have fewer strategies in the ultimatum game than the responders. Throughout
the text however, we define opportunities in terms of potential actions, rather than strategies.
6
8. of all players’ pure strategies, both players are always on par.
Having suggested one way to describe our allocation procedures in purely pro-
cedural terms, (a more detailed treatment of which is found in App. A), we
next present our experimental design.
5 Experimental setup
The computerized experiment was conducted in the laboratory of the Max
Planck Institute of Economics in Jena. Participants were 352 undergraduates
from the university of Jena, randomly drawn from different fields of study. Par-
ticipants were recruited using the ORSEE software (Greiner 2004) and the ex-
periment was programmed with the z-Tree software (Fischbacher 2007).
At the beginning of each session, participants were seated at visually iso-
lated computer terminals where they received a hardcopy of the German in-
structions12
. Subsequently, participants would answer a control questionnaire
to ensure their understanding. The experiment started after all participants
had successfully completed the questionnaire.
Each session introduced one pair of protocols, either a mini-ultimatum and
a mini-yes-no game; or a dictator and an ultimatum game. The 200 units to be
shared correspond to 6 Euros. Choices were elicited using the vector strategy
method (Selten 1967) for all potential contingencies of both protocols and roles.
Subsequently, pairs were formed and roles were assigned randomly.
The experiment then proceeded by giving players an ex ante unannounced
option to influence the draw of the protocol. They received additional instruc-
tions explaining the option and answered a further control question ensuring
their understanding. Each participant then announced whether she preferred
one protocol over the other, and if so, which one. Subsequently, participants
were given the opportunity to pay 15 (Euro)Cents for making their preferred
protocol more likely to occur.
A random draw then attributed one player in each pair with the chance to
influence the draw of the protocol. If this player had stated a preference and
12See appendix B for an English translation. Further documentation is available upon
request.
7
9. paid for it, her preferred protocol was drawn. In case she had not paid, each
protocol was drawn with equal probability. If a player wanted to pay but was
not drawn, she did not incur any cost.
Subsequently, each agent’s first order beliefs about her counterpart’s behav-
ior were elicited.13
We asked for the expected behavior at each node within
the two protocols. Notice that at each node, the choice was binary. Subjects
indicated how many out of four randomly drawn players of the other role they
believed to make a given choice and earned 100 additional points, i.e. 3 Euros,
if they correctly predicted the distribution of choices and no additional points
otherwise.
Finally, protocols were chosen and only the choices within the drawn protocol
became payoff-relevant. Four participants in the other role were randomly drawn
to assess the correctness of the beliefs. The cost of influencing the protocols were
subtracted from the resulting payoffs.
By our design we tried to induce procedurally invariant behaviour and be-
liefs permitting us to interpret protocol preferences in purely procedural terms.
Hence, we restrict our analysis to subjects satisfying this requirement.14
These
are responders who (i) accept each proposal equally often across procedures15
,
and who (ii) deem each proposal equally likely for both protocols. If such re-
sponders preferred one procedure over another, their preference would neither
be opportunistic, inequity-based nor reciprocity-based, and hence purely proce-
dural. Proposers in turn qualify only when (i) choosing a procedurally invariant
allocation and (ii) expecting this allocation to be accepted with equal likelihood
across protocols.16
If such proposers still preferred one procedure over another,
they would reveal purely procedural concerns.
At the end of each session, we handed out the standardized moral judgment
test by Lind (1978, 2008) to elicit elements of individual moral judgment which
we associate to purely procedural choices in section 6.2.
13We did not elicit beliefs pertaining to the choice of the procedure.
14Other subjects may of course also display purely procedural concerns. An unconfounded
inference is yet not possible for them.
15When the dictator game is one of the procedures, this obviously requires a responder to
accept all proposals in the other procedure.
16Naturally, when one of the procedures was the dictator game, proposers must expect all
proposals to be accepted with certainty.
8
10. 6 Results
6.1 How frequent are purely procedural concerns?
In Sections 3-5 we argued that to detect a purely procedural preference in our
setup, we must concentrate on participants whose actions and beliefs are invari-
ant across procedures.17
Only such allow us to rule out reciprocity and inequity
based motives. In particular, responders must (i) accept each proposal equally
often across procedures, and (ii) must expect the same proposal for both pro-
tocols. Similarly, proposers must (i) choose a procedurally invariant allocation
and must (ii) expect this allocation to be accepted with equal likelihood across
protocols.18
Subjects meeting these conditions state a purely procedural preference with
probability 0.65 in a 99 % confidence interval [0.54, 0.75]. (Throughout, we
report 99% confidence intervals.) 22% of them also reveal such a preference by
their willingness to pay for influencing the protocol. The confidence interval for
this revealed preference is given by [0.14, 0.32].
RESULT 1. A significant share of subjects expresses and reveals a purely
procedural preference.
Result 1 provides strong evidence that purely procedural preferences matter for
economic decisions. Let us now classify these procedural choices using the ter-
minology we suggested in section 4.
We defined a preference for equal effective opportunities in terms of the
number of generic actions per path of play. There are equal opportunities if the
number of generic actions is equal for the two players along each path of play.19
Such a preference could manifest as a preference for the ultimatum game over
the dictator game. Yet, the ultimatum game grants proposers and responders an
unequal number of unkind effective opportunities. In the dictator game, these
opportunities are equal for both parties. A subject who preferred equal effec-
tive unkind opportunities20
over equal effective opportunities would prefer the
17Appendix D provides detailed descriptives on overall beliefs and behavior within protocols.
18For the dictator game, proposers of interest would always propose the equal split and
expect it to be always accepted. Responders would always accept the equal split and always
expect the equal split to be proposed.
19See Section 4.1. and Appendix A for details.
20Alternatively, a subject might simply want to dispose of inefficient strategies.
9
11. dictator over the ultimatum game. In the end, the outcome-indifferent choices
between the ultimatum and the dictator game yield the following evidence:
Only negligible 9% ([0.02, 0.22]) of subjects state a preference for the ultima-
tum game. 68% ([0.51, 0.81] ) of subjects announce the opposite preference and
25% of them even reveal it ([0.12, 0.41]).
RESULT 2. Subjects rarely express and do not reveal a preference for
equal effective opportunities over equal effective unkind opportunities.
A significant share of subjects expresses and reveals a preference for equal
effective unkind opportunities over equal effective opportunities.
As a third potential purely procedural preference, we suggested the preference
for symmetric information which is a notion of transparency within the protocol.
Unlike in the standard case where each player only cares about the information
she has, other-regarding concerns about information require that she must know
what another player knows even at nodes where she does not make a choice.21
While in the ultimatum game, both players know which proposal was made, the
proposal is only known to the proposer in the yes-no game. Thus, a preference
for the ultimatum game over the yes-no game may be driven by the motivation
for equalizing information about the proposal. On the other hand, the yes-
no game is simpler than the ultimatum game since the former has only two
strategies for the responder whereas the latter has four.
The evidence is as follows. 22% ([0.12, 0.36]) of the subjects state a purely
procedural preference for the ultimatum game over the yes-no game whereas 35%
([0.21, 0.49]) of the subjects announce the opposite preference. Only 4% (within
]0, 0.12]) reveal a preference for the ultimatum game whereas 14% ([0.05, 0.26])
reveal a preference for the yes-no game.
RESULT 3. Subjects express but do not reveal a procedural preference for
equal information over simplicity.
A significant share of subjects expresses and reveals a preference for simplicity
over the equality of information.
Tables 1 and 2 review our results. They provide estimates and confidence in-
tervals for stated and revealed preferences of proposers and responders for both
pairs of protocols. We retain that agents are heterogeneous in their procedural
preferences. Critics may impute the observed heterogeneity to idiosyncratic
10
12. role n UG YNG UG YNG
stated revealed stated revealed
p 42
4 2 18 8
[0.02, 0.27] ]0, 0.20] [0.24, 0.63] [0.06, 0.39]
r 45
15 1 12 4
[0.17, 0.54] [0, 0.15] [0.12, 0.47] [0.02, 0.25]
Table 1: Purely procedural preferences for admissible subjects in
YNG-UG pair of protocols.
role n DG UG DG UG
stated revealed stated revealed
p 35
28 10 1 0
[0.57, 0.94] [0.11, 0.52] [0, 0.20] [0, 0.15]
r 33
18 7 5 2
[0.31, 0, 77] [0.06, 0.45] [0.03, 0.38] ]0, 0.26]
Table 2: Purely procedural preferences for admissible subjects in
DG-UG pair of protocols.
mistakes of participants during an experiment. Yet, further below (See result
4), we show that procedural preferences are consistently associated with a well-
established typology of individuals’ moral judgment. This provides support for
a systematic logic behind observed choices - applied moral preferences, rather
than errors.
6.2 Do purely procedural concerns involve moral judg-
ment?
As we pointed out, some purely procedural concerns may be fairness-driven and
might hence result from a moral judgment of a purely procedural aspect. In
this section, we show that the procedural choices summarized in the previous
subsection are deeply rooted in individual moral judgement. We first review
prominent psychological measures to characterize individual moral judgment.
We proceed by presenting our empirical strategy to study the connection be-
tween moral judgement and the procedural choices, and finally state the result.
Moral judgment involves affective and cognitive elements (Lind 2000). To
judge whether something is morally right or wrong, people typically have a cer-
tain number of different arguments at hand. Yet, each of us feels comfortable
to use only some of these arguments. The arguments we feel comfortable to use
21See Appendix A for details.
11
13. are referred to as moral attitudes which have been studied by Piaget (1948),
Kohlberg (1984) or Lind (2008).
Kohlberg (1969, pp. 375) distinguishes three classes of moral attitudes, a
preconventional, a conventional, and a postconventional class of moral attitudes.
Each of them stands for a certain class of arguments. An individual has a cer-
tain class of moral attitudes if she feels right about using a typical argument of
that class. Individuals may apply arguments of different classes and feel some
are more right than others and yet others are totally unacceptable. Hence, if we
take the degree to which preconventional, conventional, and postconventional
arguments matter to an individual, we may characterize her moral judgment.
Developmental psychology would associate each class of moral attitudes with a
certain level of moral development (Kohlberg 1969, pp. 374).
According to Kohlberg’s classification, an individual shows preconventional
moral attitudes if she feels right about judging what is morally right on the
basis of whether it yields her the materially best outcome. Instead, an indi-
vidual shows conventional moral attitudes if she feels it is right to comply with
what others expect her to do. She would then feel right to follow behavioral
rules or norms adopted by a major part of society. An individual shows post-
conventional attitudes, if she feels right to make a moral judgment on the basis
of certain principles she considers universally valid. Such principles could be
equality, freedom, or the consideration of another’s will, for instance. Thereby,
the outcome looses importance. Rather, a postconventional argumentation re-
quires an outcome to be generated in accordance with these principles. A given
outcome may hence be valuated differently if reached by dictatorial discretion
rather than democratic consensus, for instance (Kohlberg 1969, p. 376). Table
3 summarizes the Kohlbergian modes of argumentation, or levels of moral de-
velopment.
So far, we have presented affective elements of a moral judgment. However, a
moral judgment also requires cognitive moral abilities (Lind 1978, 2000). These
empower an individual to actually detect procedural differences of moral rele-
vance. Moreover, moral abilities enable an individual to apply moral arguments
in a consistent manner.
12
14. Levels Motivation for moral behavior
I preconventional Stage 1. Orientation to punishment and obedience, physical and
material power. Rules are obeyed to avoid punishment.
Stage 2. Na¨ıve hedonistic orientation. The individual conforms
to obtain rewards.
II conventional Stage 1. ”Good boy/girl” orientation to win approval and main-
tain expectations of one’s immediate group. The individual con-
forms to avoid disapproval. One earns approval by being ”nice”.
Stage 2. Orientation to authority, law, and duty, to maintain
a fixed order. Right behavior consists of doing one’s duty and
abiding by the social order.
III postconventional Stage 1. Social contract orientation in which duties are defined in
terms of contract and the respect of other’s rights. Emphasis is
upon equality and mutual obligation within a democratic order.
Stage 2. The morality of individual principles of conscience that
have logical comprehensiveness and universality. Rightness of acts
is determined by conscience in accord with ethical principles that
appeal to comprehensiveness, universality, and consistency.
Table 3. Kohlberg’s classes of moral arguments (Ishida 2006).
We elicit our subjects’ moral attitudes and moral abilities using the moral judg-
ment test (MJT) developed by Lind (1978, 2008).22
The MJT introduces two
moral dilemmas.23
Subjects first state their opinion on whether the protago-
nists’ behavior within a dilemma was right or wrong. Subsequently, subjects are
asked to rank the importance of six arguments pro and six arguments contra
this behavior on a scale from -4 to +424
. Every argument is representative for
a certain class of arguments or moral attitude. For each dilemma, there is one
argument pro, and one contra which belong to the same class of arguments.
This way, the MJT checks whether subjects apply arguments of the same class
in a consistent way. Altogether, the MJT elicits moral preferences in a 6 (argu-
ments) x 2 (dilemma) x 2 (pro and con frame) factorial design.25
As mentioned earlier, for each procedural aspect apart from simplicity par-
ties’ relative positions vary across procedures. In particular, a party relatively
disadvantaged in one procedure may prefer another procedure where parties’
22While not the only available, the MJT provides the only standardized experimental test.
Its design prevents subjects from faking their scores while others, i.e. the DIT by Rest (1974)
don’t. (Barnett et al. 1995), (Lind 2000)
23A moral dilemma thereby features a two-party-situation involving two conflicting moral
norms. A dilemma as understood here is not a formally defined game.
24Scales may be and are individually adjusted here following (Kohlberg 1969). We take the
minimal and maximal values used by an individual as delimiters of her individual scale.
25Appendix B provides an excerpt of the MJT in English with kind permission by Georg
Lind.
13
15. relative positions are equal. A preference for evening out her own disadvantage
may origin from a self-centered moral argument. Instead, imagine the same
party to be either advantaged or procedurally on par with another party. Pre-
ferring to even out the other party’s procedural disadvantage may emerge from
a very different moral argument. Hence, this difference should be taken into
account by analyzing each type of procedural preference separately.
Throughout, we use simple binomial logit models. To nevertheless maintain
a sufficiently large sample, we restrict the analysis to announced preferences.
Appendix E shows that revealed preferences are associated the same way to
moral judgment as announced preferences are. We denote a subject i not show-
ing any purely procedural preference by li = 0. Subject i displaying a purely
procedural preference is denoted by li = 1. To explain purely procedural choices,
we use the average importance an individual attributes to preconventional (a1),
conventional (a2) and postconventional (a3) arguments, or her moral attitudes,
and we also include the relative importance of postconventional arguments or
P-Score (Rest 1974) which measures how often postconventional arguments are
highly ranked. We started including all variables and their interactions, and
then reduced the model to those variables which had a significant impact.
Tables four and five summarize the estimated marginal effects. Estimated
marginal effects average coefficient of a respective predictor over all individuals.
Thus, a positive marginal effect on one class li indicates that the respective
predictor shifts probability mass toward that very class. A negative effect in
turn would indicate the predictor to render that type of preference less likely.26
All predictors were standardized to account for differences in scaling.
Evening out an own purely procedural
disadvantage, n=67,Count R2=0.67
xi li ∂y/∂xi σ z p
a1 1 0.15 0.08 1.75 0.08
a2·a3 1 -0.22 0.08 -2.63 0.01
Psc. 1 0.17 0.07 2.44 0.02
Table 4. Moral determinants of evening
out an own procedural disadvantage.
Evening out others’ purely procedural
disadvantage, n=52, Count R2=0.71
xi l∗
i ∂y∗/∂xi σ z p
a2·a3 1 -0.23 0.07 -3.44 0.01
Psc. 1 0.32 0.06 5.47 0.00
Table 5. Moral determinants of evening
out others’ procedural disadvantage
26Take table 4 and focus on Psc. An increase of Psc. by 1% shifts a probability mass of
0.17 away from procedural indifference li = 0. With only two classes li, this probability mass
freed on li = 0 is by construction shifted toward li = 1. Hence, Psc. has a marginal effect of
0.17 on li = 1.
14
16. Let us first focus on subjects who stated to prefer equal relative positions to
being procedurally disadvantaged. On the one hand, these are responders who
state to prefer symmetry of information when choosing between the yes-no and
the ultimatum game. On the other hand, these are proposers who state to
prefer equal unkind opportunities when choosing between the dictator and the
ultimatum game.
Indeed, the importance a subject attributes to preconventional or self-centered
moral arguments a1 is positively yet insignificantly associated to this first type
of procedural preferences. An interdependency between conventional and post-
conventional arguments a2·a3 entails stated procedural indifference. However,
postconventional arguments on their own are strongly associated with this first
type of procedural preferences. In particular, a higher P-Score, Psc links to the
preference for evening out one’s own procedural disadvantage.
Let us turn to subjects who stated to prefer equal relative procedural posi-
tions to being procedurally advantaged, i.e. l∗
i =1. On the one hand, these are
proposers who state to prefer symmetry of information when choosing between
the yes-no and the ultimatum game. On the other hand, these are responders
who state to prefer equal unkind opportunities when choosing between the dic-
tator and the ultimatum game. Preconventional arguments do not have any
impact on the procedural preference to even out others’ procedural disadvan-
tage.27
Yet, as before, subjects who attribute importance to both conventional
and postconventional arguments as measured by a2·a3, would rather state pro-
cedural indifference. Postconventional arguments on their own (P-Score, Psc.)
are strongly associated with procedural preferences of this second type.
In summary, our results strongly confirm postconventional moral argumen-
tation to discriminate purely procedural preferences from purely procedural in-
difference.
RESULT 4. Elements of subjects’ moral judgment are consistently
associated with stated procedural preferences.
27In fact, if we consider a1, it has coefficient -0.01, and p-value 0.92.
15
17. 7 Conclusion
So far, studies on positive procedural concerns have focused on either fair ran-
domization over possibly unequal outcomes, or on procedural fairness as mea-
sured by reciprocal kindness. In both approaches, preferences are represented
by utility functions with an operator on the outcomes as an argument.
Our experimental test introduces two pairs of procedures designed such that
existing theories predict invariant expectations and behavior across them all.
The procedures in question would hence differ in purely procedural criteria
alone. Our test proceeds by eliciting subjects’ preferences for these procedures
where these are partly (non)incentivized. We conclude with strong evidence for
revealed purely procedural preferences.
We suggest four procedural preferences independent of outcomes: a prefer-
ence for the symmetry of information, a preference for the equality of effective
opportunities, a preference for the equality of effective unkind opportunities, and
one for procedural simplicity. Considering revealed preferences only, our results
are consistent with a preference for equal unkind opportunities over effective
opportunities, and for simplicity over symmetry of information.
Subjects’ procedural preferences are consistently tied to elements of their
moral judgment (Kohlberg 1969), (Rest 1974), (Kohlberg 1984), (Lind 2000),
(Lind 2008). Using a standardized experimental moral judgment test by Lind
(1978, 2008), we show that so-called postconventional moral arguments are the
essential element to discriminate between purely procedural preferences and
purely procedural indifference. Procedural preferences for removing an own
procedural disadvantage appear a little stronger than preferences for removing
the other’s disadvantage. In both cases, subjects who state purely procedural
preferences distinctly value postconventional moral arguments.
16
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Appendix
A. Purely procedural preferences
In this appendix, we provide a somewhat more formal treatment of the purely
procedural preferences we suggest. Let us begin with the preference for equal
effective opportunities. Here, we build upon Sugden (1998) who defines an
effective opportunity as a non-redundant or generic action.28
We count the
number of actions a player has in each decision node and sum the counts over
each path of play. Equality of opportunities as we define it requires an equal
number of thus counted non-generic actions for each player along each path of
play. In the dictator game, the proposer faces two generic actions along each
path of play. The responder in turn has no opportunity to choose at all. In the
ultimatum and the yes-no game instead both proposers and responders choose
from an action set containing two generic actions per path of play. In sum, both
responders and proposers concerned with equal effective opportunities would
prefer the yes-no and the ultimatum game over the dictator game.29
In the
28Two actions a and a’ in an action set of a given node h are non-generic, if they entail
non-generic payoff consequences for all histories with subhistories (h,a) and (h,a’). See, for
instance, Jehiel and Moldovanu (1995).
29Sugden (1998) requires preferences over opportunities to satisfy three axioms: strict mono-
tonicity, independence, and eligibility. Note the latter to be essential for discretion in the
dictator game.
19
21. dictator game, the proposer has more effective opportunities than the responder.
Equalizing their number would improve the responders’ relative position.
As argued above, a responder’s opportunity to veto may equalize players’
available effective opportunities. Yet, vetoing would decline only kind offers.30
Granting only one player with an opportunity to act unkindly may be considered
unfair. A refined measure of procedural fairness would hence count players’
effective unkind opportunities along each path of play. Adopting the same line
of reasoning as above, we identify each player’s set of non-generic unkind actions
per path of play. Equality of effective unkind opportunities defined such would
require an equal number of non-generic unkind actions for each player per path
of play.31
Throughout our protocols, the proposer’s set of unkind actions is
empty along all paths of play. In the dictator game, a responder’s set of unkind
actions is empty as well. In both the yes-no and the ultimatum game she may
yet reject kind offers resulting in a nonempty set of generic unkind actions. Our
protocols thus grant responders with either equal or more opportunities than
proposers to act unkindly. In sum, both proposers and responders concerned
with equal effective unkind opportunities would prefer the dictator over both the
yes-no and the ultimatum game. In contrast to the more general criterion above,
the notion of unkind opportunities concludes that responders are advantaged
relative to proposers. Equalizing unkind opportunities would hence improve the
proposers’ relative position.
Within our protocols, procedural (a)symmetry in information can be cap-
tured by the (im)perfectness of information.32
In the yes-no game, the responder
does not know which proposal she decides to accept or reject whereas the pro-
poser does. In the dictator and ultimatum game, all information is available to
both players at all nodes. A player preferring equally partitioned information
would thus prefer both the ultimatum game over the yes-no game in the second
30See Footnote 4 in the main text.
31Generally, this may depend on the counterfactual choices but not in our protocols.
32A more elaborate and general way is to look at the difference in information partition
cardinalities of the two players. Let H be the set of decision nodes and {Ii
k}k∈K be the
information partition with each of the disjoint sets being non-empty, i.e., decision nodes;
k=K
Ik = H with Ii ∩ Ij = ∅. These partitions contain both a player’s own and the other
player’s decision nodes. A player may thus care about what the other knows, similarly as an
inequity averse player may care about the payoff of the other.
20
22. pair of protocols. Within our setting, asymmetry of information advantages
the proposer relative to the responder. Symmetrizing information would hence
improve the responders’ relative position.
Finally, simplicity of a procedure for a given player i may be defined by the
cardinality of the (pure) strategy sets, #SP + #SR. The larger this cardinality,
the more complex the procedure. Amongst our procedures, the yes-no game
has lowest cardinality of four. Both the ultimatum and the dictator game have
cardinality six. Players concerned with procedural simplicity would hence prefer
the yes-no game over both the dictator and the ultimatum game. Within our
definition, no player is relatively advantaged compared to the other.
Our main purpose is to nail down evidence for purely procedural preferences.
We also wish to suggest some ideas for what might be the driving factors. We
admit that modelling purely procedural preferences poses very interesting fur-
ther challenges. Symmetry of information, for instance, is a challenging issue
to model since it is a contextual and an empirical issue which pieces of infor-
mation parties want to keep transparently available to all sides. Our approach
to equality of information builds upon the presumption that in this context the
relevant information concerns the proposal. Similarly, one could define oppor-
tunities as strategies rather than as actions, though that might be an unnatural
notion for someone not familiar with game theory. More general or alternative
formalizations of these ideas are left for future work.
B. Instructions33
Instructions
Welcome and thank you very much for participating in this experiment. For
your showing up on time you receive ¿2.50. Please read the following instruc-
tions carefully. Instructions are identical for all participants. Communication
with other participants must cease from now on. Please switch off your mobile
phones.
33Instructions of the experiment were written in German. The following chapter reproduces
a translation for experimental sessions involving Ultimatum and Yes-no games into English.
Emphases like, e.g., bold font, are taken from the original text. Instructions were identical for
all subjects. Instructions for other treatments are available from the authors upon request.
21
23. If you have any questions, please raise your hand - we are going to answer
them individually at your place.
During the experiment all amounts will be indicated in ECU (Experimental
Currency Units). The sum of your payoffs generated throughout all rounds will
be disbursed to you in cash at the end of the experiment according to the ex-
change rate: 1 ECU=0.03 ¿. You are endowed with 20 ECU.
Information regarding the experiment
Participants take on different roles A and B. You do not know your role
in the beginning and will at first make decisions for both roles. You are then
randomly assigned either role and will be informed accordingly. From then on,
roles remain the same throughout the experiment.
You will be randomly matched with other anonymous participants. Via their
decisions, participants affect both their own and another participant’s payoffs.
The experiment introduces two different situations. They are characterized
by the following rules:
Situation 1. There are 200 ECU. Participant A chooses between two al-
ternatives X and Y to divide these 200 ECU between herself and participant
B.
X: She allocates 100 ECU to herself and 100 ECU to participant B.
Y: She allocates 20 ECU to herself and 180 ECU to participant B.
Participant B does not learn about A’s choice. B decides between U and
V:
U: Participant B agrees with the allocation unknown to her. Consequently,
the allocation corresponds to the payoffs in ECU.
V: Participant B does not agree with the allocation unknown to her.
Consequently, both participants obtain a payoff of 0 ECU.
Situation 2. Participant A chooses again between options X and Y to allocate
the 200 ECU.
22
24. X: She allocates 100 ECU to herself and 100 ECU to participant B.
Y: She allocates 20 ECU to herself and 180 ECU to participant B.
Participant B learns about A’s choice and decides between U and V.
U: B agrees with the allocation known to her. Consequently, the allocation
corresponds to the payoffs in ECU.
V: Participant B does not agree with the allocation known to her.
Consequently, both participants obtain a payoff of 0 ECU.
Participants A and B now make their decisions for each of the two situations.
Participant A indicates which allocation (X or Y) she chooses in situation 1 and
2. Participant B decides for each situation between U and V. In their natural
state, both situations would occur randomly with equal probability 0.50 (50%).
Decisions made for the situation drawn become payoff relevant. Payoffs are
calculated as described above.
We ask for your patience until the experiment starts. Please stay calm. If you
have any questions, raise your hand. Before the experiment starts, please
answer the following control questions.
Bidding phase.34
Now, one of either participant randomly assigned to each other may influence
which situation is drawn.
This participant is chosen by casting lots within each pair. Thereby, each
participant within a pair has an equal chance to be drawn. If drawn by chance,
a participant may pay the amount of 5 ECU to make occur the situation she
prefers. If she does not wish to pay, both situations occur again with an equal
50 % probability. The decisions made for the situation that is actually drawn
become valid.
34Parts in italic font were not part of the original instructions.
23
25. C. An Excerpt of the Moral Judgment Test by Georg Lind
...
24
26. D. Overall behavior and beliefs across protocols
Proposers' beliefs on acceptance
0
10
20
30
40
50
60
70
80
all 75% 50% 25% none
Believed % of acceptance
Numberofsubjects
withbelief
Fair proposal in UG
Generous proposal in UG
Proposal in YNG
Figure 1: Proposers’ beliefs about the
acceptance of proposals UG/YNG.
Proposers' beliefs on acceptance
0
10
20
30
40
50
60
all 75% 50% 25% none
Believed % of acceptance
Numberofsubjectswith
belief
Fair proposal in UG
Generous proposal in UG
Figure 3: Proposers’ beliefs about the
acceptance of proposals DG/UG.
Responders' beliefs on proposals
0
10
20
30
40
50
60
70
all 75% 50% 25% none
Believed % of the fair proposal
Numberofsubjects
withbelief
Fair proposal in UG
Fair proposal in YNG
Figure 2: Responders’ beliefs about
proposals UG/YNG.
Responders' beliefs on proposals
0
10
20
30
40
50
all 75% 50% 25% none
Believed % of the fair proposal
Numberofsubjectswith
belief
Fair proposal in DG
Fair proposal in UG
Figure 4: Responders’ beliefs about
proposals DG/UG.
E. Moral Determinants of Revealed Preferences Only
Evening out an own purely procedural
disadvantage35, n=35,Count R2=0.74
xi l ∂y/∂xi σ z p
a2·a3 1 -0.23 0.09 -2.53 0.02
Psc. 1 0.21 0.07 2.86 0.01
Table 6. Moral determinants of paying for
evening out an own procedural
disadvantage.
Evening out others’ purely procedural
disadvantage, n=39, Count R2=0.72
xi l∗ ∂y∗/∂xi σ z p
a2·a3 1 -0.17 0.08 -2.21 0.03
Psc. 1 0.18 0.08 2.24 0.03
Table 7. Moral determinants of paying
for evening out others’ procedural
disadvantage
35While Psc. and a1 are not even weakly significantly correlated, adding a1 to the spec-
ification turns Psc. insignificant. Being uncorrelated, this must be due to the small sample
size. Retain this to be our smallest sample with the largest number of significant regressors.
Variables do yet always show the same kind of influence.
25