We examine how taxes impact charitable giving and how this relationship is affected by the degree of wasteful government spending. In our model, individuals make donations to charities knowing that the government collects a flat-rate tax on income (net of charitable donations) and redistributes part of the tax revenue. The rest of the tax revenue is wasted. The model predicts that a higher tax rate increases charitable donations. Surprisingly, the model shows that a higher degree of waste decreases donations (when the elasticity of marginal utility with respect to consumption is high enough). We test the model’s predictions using a laboratory experiment with actual donations to charities and find that the tax rate has an insignificant effect on giving. The degree of waste, however, has a large, negative and highly significant effect on giving.

We study a setting where individuals prefer to coordinate with others but they differ on their preferred action. Our interest is in understanding the role of link formation with others in shaping behavior. So we consider the situation in which interactions are exogenous and a situation where individuals choose links that determine the interactions. Theory is permissive in both settings: conformity (on either of the actions) and diversity (with different groups choosing their preferred actions) are both sustainable in equilibrium. We conduct an experiment to understand how link formation affects equilibrium selection. Our experiment reveals the powerful effect of linking on equilibrium selection: with an exogenous complete network, subjects choose to conform on the majority’s preferred action. By contrast, with endogenous linking—irrespective of the costs of linking—subjects always opt for diversity of actions.

We study the emergence of bubbles in a laboratory experiment with large groups of individuals. The realized price is the aggregation of the forecasts of a group of individuals, with positive expectations feedback through speculative demand. When prices deviate from fundamental value, a random selection of participants receives news about overvaluation. Our findings are: (i) large asset bubbles are robust in large groups, (ii) information contagion through news affects behaviour and may break the coordination on a bubble, (iii) time varying heterogeneity provides an explanation of bubble formation and crashes, and (iv) bubbles are strongly amplified by coordination on trend-extrapolation.

The paper surveys the experimental literature on centralized matching markets, covering school choice and college admissions models. In the school choice model, one side of the market (schools) is not strategic, and rules (priorities) guide the acceptance decisions. The model covers applications such as school choice programs, centralized university admissions in many countries, and the centralized assignment of teachers to schools. In the college admissions model, both sides of the market are strategic. It applies to college and university admissions in countries where universities can select students, and centralized labor markets such as the assignment of doctors to hospitals. The survey discusses, among other things, the comparison of various centralized mechanisms, the optimality of participants’ strategies, learning by applicants and their behavioral biases, as well as the role of communication, information, and advice. The main experimental findings considered in the survey concern truth-telling and strategic manipulations by the agents, as well as the stability and efficiency of the matching outcome.

We provide the first examination of all-pay auctions using continuous-time protocols, allowing subjects to adjust their bid at will, observe payoffs almost instantaneously, and gain more experience through repeated-play than in previous, discrete-time, implementations. Unlike our predecessors—who generally find overbidding—we observe underbidding relative to Nash equilibrium. To test the predictions of evolutionary models, we vary the number of bidders and prizes across treatments. If two bidders compete for a single prize, evolutionary models predict convergence to equilibrium. If three bidders compete for two prizes, evolutionary models predict non-convergent cyclical behavior. Consistent with evolutionary predictions, we observe cyclical behavior in both auctions and greater instability in two-prize auctions. These results suggest that evolutionary models can provide practitioners in the field with additional information about long-run aggregate behavior that is absent from conventional models.

This paper examines how image concerns affect the way giving behavior responds to social information. Subjects in the laboratory decide first whether they wish to donate part of their earnings to a charity, and then, conditional on opting in, decide how much to donate. They receive information on the size of a previous donation either before or after opting in, which allows one to examine the effect of the social information on the extensive and intensive margins of giving separately, and thus distinguish self-image concerns from potential alternative mechanisms. Information on a large previous donation caused subjects to opt out, but when shown only after opt-in, the same information caused subjects to increase donation amounts and did not lead to $0 donations. As further evidence of the influence of image concerns, the reaction to the social information was found to be correlated with a preference for quietly exiting a dictator game, and with scoring high on neuroticism. The results have implications for the inferences we draw about donor motives and welfare based on changes in giving in response to social information.

We experimentally compare collusive behaviors in first-price sealed-bid auctions without and with a reserve price. Before the auction begins, a bidder may offer a bribe to the other bidder, in exchange for a commitment not to participate in the auction. We find that the average offer and the rate of successful bribes are significantly lower in the treatment with a reserve price. These results are largely due to responding bidders who demand a greater share of the benefit from collusion. Although imposing a reserve price reduces efficiency, its optimality and bribe deterrence shift the surplus from the bidders to the seller.

Differences in cognitive sophistication and effort are at the root of behavioral heterogeneity in economics. To explain this heterogeneity, behavioral models assume that certain choices indicate higher cognitive effort. A fundamental problem with this approach is that observing a choice does not reveal how the choice is made, and hence choice data is insufficient to establish the link between cognitive effort and behavior. We show that deliberation times provide an individually-measurable correlate of cognitive effort. We test a model of heterogeneous cognitive depth, incorporating stylized facts from the psychophysical literature, which makes predictions on the relation between choices, cognitive effort, incentives, and deliberation times. We confirm the predicted relations experimentally in different kinds of games.

With the rise of experimental research in the social sciences, numerous methods to elicit and classify people’s risk attitudes in the laboratory have evolved. However, evidence suggests that attitudes towards risk may vary considerably when measured with different methods. Based on a within-subject experimental design using four widespread risk preference elicitation tasks, we find that the different methods indeed give rise to considerably varying estimates of individual and aggregate level risk preferences. Conducting simulation exercises to obtain benchmarks for subjects’ behavior, we find that the observed heterogeneity in risk preference estimates across methods is qualitatively similar to the heterogeneity arising from independent random draws from the choice distributions observed in the experiment. Our study, however, provides evidence that subjects are surprisingly well aware of the variation in the riskiness of their choices. We argue that this calls into question the common interpretation of variation in revealed risk preferences as being inconsistent.

We investigate experimentally how granting a manager stock ownership and the opportunity to trade shares of a company’s stock influence the manager’s effort and the overall behavior of the market for the company’s shares. In our design, managerial effort affects the fundamental value of the firm. Our findings suggest that endowing a manager with stock does not significantly increase the manager’s effort. When the manager is allowed to trade the company’s shares, however, she tends to accumulate additional shares, increase her effort, and raise company value. In all of our treatments, prices tend to reflect underlying fundamentals, and bubbles are rare.

We introduce two novel matching mechanisms, Reverse Top Trading Cycles (RTTC) and Reverse Deferred Acceptance (RDA), with the purpose of challenging the idea that the theoretical property of strategy-proofness induces high rates of truth-telling in economic experiments. RTTC and RDA are identical to the celebrated Top Trading Cycles (TTC) and Deferred Acceptance (DA) mechanisms, respectively, in all their theoretical properties except that their dominant-strategy equilibrium is to report one’s preferences in the order opposite to the way they were induced. With the focal truth-telling strategy being out of equilibrium, we are able to perform a clear measurement of how much of the truth-telling reported for strategy-proof mechanisms is compatible with rational behaviour and how much of it is caused by confused decision-makers following a default, focal strategy without understanding the structure of the game. In a school-allocation setting, we find that roughly half of the observed truth-telling under TTC and DA is the result of naïve (non-strategic) behaviour. Only 14–31% of the participants choose actions in RTTC and RDA that are compatible with rational behaviour. Furthermore, by looking at the responses of those seemingly rational participants in control tasks, it becomes clear that most lack a basic understanding of the incentives of the game. We argue that the use of a default option, confusion and other behavioural biases account for the vast majority of truthful play in both TTC and DA in laboratory experiments.

Competition between groups is ubiquitous in social and economic life, and typically occurs between groups that are not created equal. Here we experimentally investigate the implications of this general observation on the unfolding of symmetric and asymmetric competition between groups that are either homogeneous or heterogeneous in the ability of their members to contribute to the success of the group. Our main finding is that relative to the benchmark case in which two homogeneous compete against each other, heterogeneity within groups per se has no discernable effect on competition, while introducing heterogeneity between groups leads to a significant intensification of conflict as well as increased volatility, thereby reducing earnings of contest participants and increasing inequality. We further find that heterogeneous groups share the labor much more equally than predicted by theory, and that in asymmetric contests group members change the way in which they condition their efforts on those of their peers. Implications for contest designers are discussed.