Undergraduate Experimental (Economics 179), Instructor: Muriel Niederle (Economics 334, Phone: 723 7359; [email protected], www.stanford.edu/~niederle Office hours: Monday 3:00-4:00 and by appointment. TA: Carmit Segal, [email protected]

Class webpage: www.stanford.edu/~niederle/UndergradExpEc.htm

There is no textbook, but a useful book to have is:

The Handbook of Experimental Economics, John Kagel and Alvin E. Roth, editors, Princeton University Press, 1995.

There will also be supplementary readings, particularly as the course progresses.

This course will be an introduction to experimental economics, its methods, and some of the major subject areas that have been addressed by laboratory . An effort will be made to concentrate on series of experiments, in order to see how experiments build on one another and allow researchers with different theoretical dispositions to narrow the range of potential disagreement.

1 The following is a rough guide to the topics that will be discussed in the quarter—it is subject to revision as we see how the class progresses (some topics may take more or less than one lecture).

Lecture 1: Experiments:

• Smith, Vernon L. [1962], “An experimental study of competitive market behavior,” Journal of Political , 70, 111-137. • Chamberlin, Edward H. [1948], An experimental imperfect market,” Journal of , 56, 95-108, • Gode, Dhananjay K, and [1993], Allocative efficiency of markets with zero-intelligence traders: Market as a partial substitute for individual rationality,” Journal of Political Economy 101, 119-137.

Lecture 2-3: Behavioral Preferences, Prospect Theory and Myopic

• Kahneman, Daniel, Jack L. Knetsch, and Richard H. Thaler 1990, “Experimental Tests of the Endowment Effect and the Coase Theorem,” JPE, 98, 6, 1325-1348. • Ariely, Loewenstein and Prelec “Coherent Arbitrariness: Stable demand curves without stable preferences”, forthcoming QJE. • Kahneman, Daniel, Peter Wakker and Rakesh Sarin, 1997, “Back to Bentham? Explorations of Experienced ”, Quarterly Journal of Economics. • Thaler, Richard “The Psychology of Choice and the Assumptions of Economics,” in A.E. Roth, editor, Laboratory Experimentation in Economics: Six Points of View,” Cambridge University Press, 1987. • Kahneman, D., & Tversky, A. Prospect theory: An analysis of decisions under risk. Econometrica, 1979, 47, 313-327 • Gneezy, U., and J. Potters "An on Risk Taking and Evaluation Periods," Quarterly Journal of Economics, CXII, May 1997, 631-645. • Gneezy, U., A. Kapteyn, and J. Potters "Evaluation periods and asset in a market experiment." Forthcoming in the Journal of Finance.

Lecture 4: Guessing Games

• Nagel, Rosemarie, “Unraveling in Guessing Games: An Experimental Study,” American Economic Review 85(5), (1995) 1313-1326. • Grosskopf, Brit, and Rosemarie Nagel, “Rational Reasoning or Adaptive Behavior? Evidence from Two-Person Beauty Contest Games” working paper, October 2001

Lecture 4: Coordination Games

• Van Huyck, Battalio and Beil "Asset Markets as an Equilibrium Selection Mechanism: coordination failure, game form , and forward induction." Games and Economic Behavior, 5(3), July 1993, 485-504.

2 • ______"Strategic , Equilibrium Selection, and Coordination Failure in Average Opinion Games,” The Quarterly Journal of Economics, 106(3), August 1991, 885-911. • ______"Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure," American Economic Review, March 1990, 234-248.

Lecture 5-6: games

• Roth, A.E. and Malouf, M.K. "Game-Theoretic Models and the Role of Information in Bargaining", Psychological Review, Vol. 86, 1979, 574-594. • Roth, A.E. and Murnighan, J.K. "The Role of Information in Bargaining: An Experimental Study," Econometrica, Vol. 50, 1982, 1123-1142. • Roth, Murnighan and Schoumaker, "The Deadline Effect in Bargaining: Some Experimental Evidence," AER, 1988. • Roth, A.E. and Schoumaker, F. "Expectations and Reputations in Bargaining: An Experimental Study", American Economic Review, Vol. 73, 1983, 362-372. • Babcock, Loewenstein, Isacharoff and Camerer, 1995, “Self-Serving Bias and Bargaining Impasse” AER ’95 • Babcock, Linda, Xianghong Wang and , 1996, “Choosing the wring pond: Social Comparisons in negotiations that reflect a self-serving bias,” QJE. • Gueth, Werner, Rolf Schmittberger und Bernd Schwarze, 1982, “An experimental analysis of ultimatum bargaining”, Journal of Economic Behavior and Organization 3(4), 367-388.

Lecture 7: Trust Game, Best Shot Game

• J. Berg, J Dickhaut. and K. McCabe "Trust, Reciprocity and Social History," with, Games and Economic Behavior, 1995. • Harrison, Glenn W. and Jack Hirshleifer, “An Experimental Evaluation of Weakest Link/Best Shot Models of Public ,” Journal of Political Economy, 97, 1989, 201-225. • Prasnikar V. and Roth, A.E. "Considerations of Fairness and : Experimental Data From Sequential Games," Quarterly Journal of Economics, August, 1992, 865-888

Lecture 8: Discrimination

• Fershtman, C., and U. Gneezy "Discrimination in a Segmented Society: An Experimental Approach Quarterly Journal of Economics, February 2001, 351- 377. • Fershtman, C, U. Gneezy, and F. Verboven "Discrimination and Nepotism: The Efficiency of the Anonymity Rule." Forthcoming in Journal of Legal Studies. • Edward Glaeser, David Laibson, Jose Scheinkman, and Christine Soutter “Measuring Trust”, Quarterly Journal of Economics, 65, August 2000, pp. 811- 846.

3 • Grading:

The major class assignment will be to design an experiment. Students registered for a grade should have a subject area by the middle of the quarter, and should plan to meet with me several times in the second half of the quarter to discuss the development of a detailed experimental design.

I am prepared to entertain designs put together by a pair of students.

Some class time near the end may be devoted to student presentations.

There will be a late midterm, on the techniques of deigning and running experiments.

A quick note about my philosophy of teaching/learning, and how to get the most out of this class.

This class consists of three chief parts:

In class lectures, discussions, and demonstrations.

Readings and homework’s about them

Midterm

Your experimental design (and the out of class discussions with me that will be part of that).

I’m going to try to make the four parts complements rather than substitutes.

In class, I’m going to try to give you a feel for design issues that may not be clear from the readings, even from reading the original papers. I’m not going to try to simply review as many experiments as possible in class—that’s what the Handbook chapters are for. Read them, to get a broad overview. The individual papers that will be assigned will help us focus on specific design issues.

As the quarter progresses, you will be better able to start to think about questions on which you might want to do an experiment, and how it might be designed. Let me know when you’re ready to make an appointment to talk about it. Everyone should make an appointment with me well before the quarter ends!

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