We aim to test the hypothesis that overconfidence arises as a strategy to influence others in social interactions. To address this question, we design an experiment in which participants are incentivized either to form accurate beliefs about their performance at a test, or to convince a group of other participants that they performed well. We also vary participants’ ability to gather information about their performance. Our results show that participants are more likely to (1) overestimate their performance when they anticipate that they will try to persuade others and (2) bias their information search in a manner conducive to receiving more positive feedback, when given the chance to do so. In addition, we also find suggestive evidence that this increase in confidence has a positive effect on participants’ persuasiveness.

Using a series of laboratory experiments in the context of bilateral bargaining over whether and how to engage in a joint venture, this paper shows that fairness concerns result in failures to undertake profitable joint production opportunities. We find that framing an opportunity as an employment relationship rather than as a partnership significantly reduces these inefficiencies and increases subjects’ welfare. Consistent with the theoretical model developed in the paper, text analysis and a follow-up experiment demonstrate that the lower likelihood of an efficient outcome in the partnership frame is driven primarily by a concern for fairness generated by the perceived social relationship associated with partnerships, and not by differences in the economic structure, cognition, subject motivation, or changes in relative bargaining power.

We conduct experiments comparing the performance of individuals and teams of four subjects in solving two rather different tasks. The first involves nonograms, logic puzzles that require a series of incremental steps to solve. The second task uses CRT-type questions, which require a single, specific insight. Contrary to the existing literature, team performance in both tasks is statistically indistinguishable from that of individuals when communication is costless. If a tiny message cost is imposed, team performance improves and becomes statistically better than that of individuals, although still worse than previous research on teams would have suggested. To the best of our knowledge, our study is the first to find that imposing friction on communication leads to more effective performance in teams. Message costs reduce the quantity of messages but increase the quality, specifically the mix of good and bad suggestions. The improved quality of communication with message costs allows teams to out-perform individuals. Our analysis suggests that organizations would do better by identifying an able individual to perform an intellective task rather than using teams; prediction exercises indicate that this will not harm, and will generally increase, performance relative to a team, and only requires the cost of paying one individual rather than many.

Is the assumption that people automatically know their own preferences innocuous? We present an experiment studying the limits of preference discovery. If tastes must be learned through experience, preferences for some goods may never be learned because it is costly to try new things, and thus non-learned preferences may cause welfare loss. We conduct an online experiment in which finite-lived participants have an induced utility function over fictitious goods about whose marginal utilities they have initial guesses. Subjects learn most, but not all, of their preferences eventually. Choice reversals occur, but primarily in early rounds. Subjects slow their sampling of new goods over time, supporting our conjecture that incomplete learning can persist. Incomplete learning is more common for goods that are rare, have low initial value guesses, or appear in choice sets alongside goods that appear attractive. It is also more common for people with lower incomes or shorter lifetimes. More noise in initial value guesses has opposite effects for low-value and high-value goods because it affects the perceived likelihood that the good is worth trying. Over time, subjects develop a pessimistic bias in beliefs about goods’ values, since optimistic errors are more likely to be corrected. Overall, our results show that if people need to learn their preferences through consumption experience, that learning process will cause choice reversals, and even when a person has completed sampling the goods she is willing to try, she may continue to lose welfare because of suboptimal choices that arise from non-learned preferences.

A growing experimental literature studies the endogenous choice of institutions to solve cooperation problems arising in prisoners’ dilemmas, public goods games, and common pool resource games. Participants in these experiments have the opportunity to influence the rules of the game before they play the game. In this paper, we review the experimental literature of the last 20 years on the choice of institutions and describe what has been learned about the quality and the determinants of institutional choice. Cooperative subjects and subjects with optimistic beliefs about others often vote in favor of the institution. Almost all institutions improve cooperation if they are implemented, but they are not always implemented by the players. Institutional costs, remaining free-riding incentives, and a lack of learning opportunities are identified as the most important barriers. Unresolved cooperation problems, like global climate change, are often characterized by these barriers. The experimental results also show that cooperation tends to be higher under endogenously chosen institutions than exogenously imposed institutions. However, a significant share of players fails to implement the institution and they often perform poorly, which is why we cannot conclude that letting people choose is better than enforcing institutions from outside.

We study learning and selection and their implications for possible effort escalation in a simple game of dynamic property rights conflict: a multi-stage contest with random resolve. Accounting for the empirically well-documented heterogeneity of behavioral motives of players in such games turns the interaction into a dynamic game of incomplete information. In contrast to the standard benchmark with complete information, the perfect Bayesian equilibrium features social projection and type-dependent escalation of efforts caused by learning. A corresponding experimental setup provides evidence for type heterogeneity, for belief formation and updating, for self-selection and for escalation of efforts in later stages.

When the information of many individuals is pooled, the resulting aggregate often is a good predictor of unknown quantities or facts. This aggregate predictor frequently outperforms the forecasts of experts or even the best individual forecast included in the aggregation process (“wisdom of crowds”). However, an appropriate aggregation mechanism is considered crucial to reaping the benefits of a “wise crowd”. Of the many possible ways to aggregate individual forecasts, we compare (uncensored and censored) arithmetic and geometric mean and median, continuous double auction market prices and sealed bid-offer call market prices in a controlled experiment. We use an asymmetric information structure, where participants know different sub-sets of the total information needed to exactly calculate the asset value to be estimated. We find that prices from continuous double auction markets clearly outperform all alternative approaches for aggregating dispersed information and that information lets only the best-informed participants generate excess returns.

This paper is the first to use the WeChat platform, one of the largest social networks, to conduct an online experiment of artificial investment games. We investigate how people’s forecasts about the financial market and investment decisions are shaped by whether they can observe others’ forecasts and whether they engage in public or private investment decisions. We find that with forecast sharing, subjects’ forecasts converge but in different directions across groups; consequently, forecast sharing does not lead to better forecasts nor more individually rational investment decisions. Whether or not subjects engage in public investment decisions does not significantly affect forecasts or investment.

Altruistic punishment is often thought to be a major enforcement mechanism of social norms. I present experimental results from a modified version of the dictator game with third-party punishment, in which third parties can remain ignorant about the choice of the dictator. I find that a substantial fraction of subjects choose not to reveal the dictator’s choice and not to punish the dictator. I show that this behavior is in line with the social norms that prevail in a situation of initial ignorance. Remaining ignorant and choosing not to punish is not inappropriate. As a result, altruistic punishment is significantly lower when the dictator’s choice is initially hidden. The decrease in altruistic punishment leads to more selfish dictator behavior only if dictators are explicitly informed about the effect of willful ignorance on punishment rates. Hence, in scenarios in which third parties can ignore information and dictators know what this implies, third-party punishment may only ineffectively enforce social norms.

In a Diamond–Dybvig type model of financial intermediation, we allow depositors to announce at a positive cost to subsequent depositors that they keep their funds deposited in the bank. Theoretically, the mere availability of public announcements (and not its use) ensures that no bank run is the unique equilibrium outcome. Multiple equilibria—including bank run—exist without such public announcements. We test the theoretical results in the lab and find a widespread use of announcements, which we interpret as an attempt to coordinate on the no bank run outcome. Withdrawal rates in general are lower in information sets that contain announcements.

We present evidence of a direct social context effect on decision-making under uncertainty: the gender composition of those in the room when making individual risky decisions significantly alters choices even when the actions or presence of others are not payoff relevant. In our environment, decision makers do not know the choices made by others, nor can they be inferred from the experiment. We find that women become more risk taking as the proportion of men in the room increases, but the behavior of men is unaffected by who is present. We discuss some potential mechanisms for this result and conjecture it is driven by women being aware of the social context and imitating the expected behavior of others. Our results imply that the environment in which individual decisions are made can change expressed preferences and that aggregate behavior may be context dependent.

We report on an experimental investigation of the emergence of Spontaneous Order, the idea that societies can co-ordinate, without government intervention, on a form of society that is good for its citizens, as described by Adam Smith. Our experimental design is based on a production game with a convex input provision possibility frontier, where subjects have to choose a point on this frontier. We start with a simple society consisting of just two people, two inputs, one final good and in which the production process exhibits returns to specialisation. We then study more complex societies by increasing the size of the society (groups of 6 and 9 subjects) and the number of inputs (6 and 9 inputs respectively), as well as the combinations of inputs that each subject can provide. This form of production can be characterised as a cooperative game, where the Nash equilibrium predicts that the optimal outcome is achieved when each member of this society specialises in the provision of a single input. Based on this framework, we investigate whether Spontaneous Order can emerge, without it being imposed by the government. We find strong evidence in favour of the emergence of Spontaneous Order, with communication being an important factor. Using text classification algorithms (Multinomial Naive Bayes) we quantitatively analyse the available chat data and we provide insight into the kind of communication that fosters specialisation in the absence of external involvement. We note that, while communication has been shown to foster coordination in other contexts (for example, in public goods games, market entry games and competitive coordination games) this contribution is in the context of a production game where specialisation is crucial.