Game Shows, Gambles, and Economic Behavior ISBN: 978 90 316 0401 2 Cover illustration: ©iStock.com/TSchon Cover design: Crasborn Graphic Designers bno, Valkenburg a.d. Geul This book is no. 589 of the Tinbergen Institute Research Series, established through cooperation between Thela Thesis and the Tinbergen Institute. A list of books which already appeared in the series can be found in the back. Game Shows, Gambles, and Economic Behavior Spelshows, kansspelen en economisch gedrag Proefschrift ter verkrijging van de graad van doctor aan de Erasmus Universiteit Rotterdam op gezag van de rector magnificus Prof.dr. H.A.P. Pols en volgens besluit van het College voor Promoties. De openbare verdediging zal plaatsvinden op donderdag 25 september 2014 om 15:30 uur door Dennie van Dolder geboren te Zeist Promotiecommissie Promotoren: Prof.dr. H. Bleichrodt Prof.dr. P.P. Wakker Overige leden: Prof.dr. C.N. Noussair Prof.dr. S. Gächter Dr. A. Baillon Copromotor: Dr. M.J. van den Assem Acknowledgements There are many people who have supported and encouraged me over the years. Hereby I want to take the opportunity to thank those who have done so. I want to start off by thanking my supervisors, Peter Wakker and Han Bleichrodt, and my co-supervisor Martijn van den Assem. Peter and Han gave me maximum freedom and support to pursue my own projects. At the weekly Thursday meetings, Peter sharpens the mind of his students by means of group discussions. The education provided by Peter, both in these meetings and in day- to-day interactions, has shaped my thinking about the field in a profound way. Han always has an open door to discuss both research and practical matters, and I cannot thank him enough for all the help provided over the past years. Looking back over the years the only regret one can have is that we have not collaborated on more projects. When I had just started my PhD in Rotterdam, Martijn approached me with the idea to work on a game show paper. This is now the second chapter of this thesis. Martijn is creative, open-minded, and an excellent lecturer. I have learned a lot from him in terms of communicating research in an accessible manner. Our collaboration has been very fruitful and at the moment it is difficult to keep track of all our joint projects. Peter and Han have built an excellent behavioral economics research group in Rotterdam and I am grateful for the opportunity to interact with the many bright people working there. Rogier Potter van Loon was the best office mate a person could wish for and Jan Stoop was the best office crasher a person could wish for. The conversations between us three were some of the nicest moments in Rotterdam. Aurélien Baillon functioned as a daily supervisor and I am grateful to have been able to profit from his advice and wisdom over the years. If I had to point to one person as being an academic role model, it would most likely be Aurélien. Further thanks goes to Kirsten Rohde, Arthur Attema, Julia Müller, Amit Kothiyal, Vitalie Spinu, Umut Keskin, Asli Selim, Zhenxing Huang, Zhihua Li, vi Chen Li, Yu Gao, Ning Liu, Tong Wang, Uyanga Thurmunkh, and Ilke Aydogan for the positive interactions over the years. Further thanks goes to Richard Thaler for inviting me to spend time at the University of Chicago Booth School of Business. I am also grateful to Mike Yeomans, who proved to be an excellent guide in Chicago. George Wu welcomed me in his lab group meetings and allowed me to present research there on multiple occasions. I am grateful for this opportunity, for the feedback received there, and the people I was able to meet as a result. Next I want to thank everybody who helped make my stay at Chicago so amazing. I will avoid writing an entire list as this will surely mean that I will forget many people who have been amazing during my time there. Thanks to all co-authors on chapters of this thesis. In addition to the people already mentioned above these are Mohammed Abdellaoui, Guido Baltussen, Colin Camerer, and Olivier l’Haridon. Further thanks to Simon Gächter and Charles Noussair for their judgment of this thesis. Financial support from the Netherlands Organization for Scientific Research (VICI NWO Grant 453-06-001) and the Tinbergen Institute is gratefully acknowledged. I could not have made it to a PhD without the human capital investments made prior to coming to Rotterdam. Undoubtedly, the five years I spend at the sociology department at Utrecht University were the most formative years of my life. The quality of the education at this department is world class and the choice to start my studies there was probably the best choice in my life thus far. I want to thank Vincent Buskens, Rense Corten, Henk Flap, Werner Raub, Tanja van der Lippe, Frank van Tubergen, Beate Volker, Jeroen Weesie, and all other lecturers and fellow students who made Utrecht such a great experience. After completing my research master in Sociology and Social Reserach in Utrecht, I went to Nottingham to study behavioral economics. I thank Robin Cubitt, Simon Gächter, Martin Sefton, and Chris Starmer for the excellent field courses on behavioral and experimental economics, and all other lecturers and fellow students I encountered vii there. Furthermore, I like to thank all those great individuals whom I have had the pleasure to interact with at summer schools and conferences throughout the years. Finally, a warm thanks to all friends and family who have supported me over the years. A special thanks goes out to my parents, who have always been there for me and have encouraged me to pursue my own interest and dreams. Contents Chapter 1 | Introduction 1 1.1 Game Shows as Natural Experiments 3 1.2 Public Scrutiny 6 1.3 Measuring Utility 9 Chapter 2 | Split or Steal? Cooperative Behavior when the Stakes are Large 11 2.1 Introduction 12 2.2 Game Show and Data 17 Description of “Golden Balls” 17 Data and Descriptive Game Characteristics 20 Modeling the Decision to “Split” or “Steal” 23 2.3 Demographic Characteristics 24 2.4 Stakes and Context 31 2.5 Reciprocal Preferences 36 2.6 Expectational Conditional Cooperation 38 2.7 Past Deceitful Behavior 43 2.8 Conclusions and Discussion 45 Chapter 3 | Standing United or Falling Divided? High Stakes Bargaining in a TV Game Show 49 3.1 Introduction 50 3.2 Game Show and Data 53 Description of Divided 53 Data and Summary Statistics 56 ix x 3.3 Variables of Interest and Background 59 Demographic Characteristics 59 Entitlement Measures 61 Situational Variables 63 Claim Variables 64 3.4 Analyses and Results 65 Initial Claims 65 Hardball Announcements and Concessions 66 Final Payoffs 70 3.5 Conclusions and Discussion 73 Chapter 4 | Risky Choice in the Limelight 79 4.1 Introduction 80 4.2 First Experiment 84 Design and Procedure 84 Descriptive Statistics and Probit Analysis 89 Structural Models 93 4.3 Second Experiment 100 Design and Procedure 100 Analyses 102 4.4 Conclusions and Discussion 107 Chapter 5 | On the Social Nature of Eyes: The Effect of Social Cues in Interaction and Individual Choice Tasks 115 5.1 Introduction 116 5.2 Method 120 Subjects 120 Procedure 121 Task 1: Joy of Destruction Mini-Game 123 Task 2: Dictator Game 124 Task 3: Ellsberg’s Paradox 125 Task 4: Simple vs. Compound Lotteries 126 xi 5.3 Results 127 Task 1: Joy of Destruction Mini-Game 127 Task 2: Dictator Game 128 Task 3: Ellsberg’s Paradox 129 Task 4: Simple vs. Compound Lotteries 130 5.4 Conclusions and Discussion 130 Appendix 5.A Recruitment Emails 136 5.A.1 Recruitment e-mail 136 5.A.2 Reminder e-mail 137 Appendix 5.B Experimental Instructions 138 5.B.1 Welcome page 138 5.B.2 Joy of Destruction Mini-Game 139 5.B.3 Dictator Game 140 5.B.4 Ellsberg Tasks 141 5.B.5 Compound vs. Simple Lotteries 142 5.B.6 Confirmation Screen and Additional Questions 143 5.B.7 Final Screen 144 Appendix 5.C Additional Analyses 145 5.C.1 Descriptive Statistics 145 5.C.2 Joy of Destruction Mini-Game 145 5.C.3 Dictator Game 149 5.C.4 Ellsberg Tasks 151 5.C.5 Simple vs. Compound Lotteries 158 Chapter 6 | Source-Dependence of Utility and Loss Aversion: A Critical Test of Ambiguity Models 161 6.1 Introduction 162 6.2 Background 163 Binary Prospect Theory 163 Previous Evidence 165 xii 6.3 Measurement Method 167 First Stage: Elicitation of the Gauge Outcomes 168 Second and Third Stage: Elicitation of Utility for Gains and Losses 169 6.4 Experiment 170 Experimental Set-Up 170 Details 171 6.5 Analyses 173 Analyses of Utility Curvature 173 Loss Aversion 173 6.6 Results 175 Consistency Checks 175 A Test of Binary PT 175 Ambiguity Aversion 176 The Utility for Gains and Losses 177 Loss Aversion 180 Reflection 183 6.7 Conclusions and Discussion 184 Appendix 6.A Display of the Experimental Questions 189 Appendix 6.B Illustrations of the Bisection Method 191 Appendix 6.C: Proof Regarding the Smooth Model 192 Chapter 7 | Conclusions 193 Bibliography 195 Summary 227 Nederlandstalige samenvatting 230 About the author 235 List of Tables Table 2.1: Selected Game Show Characteristics 22 Table 2.2: Summary Statistics 27 Table 2.3: Binary Probit Regression Results [1/2] 28 Table 2.4: Binary Probit Regression Results [2/2] 40 Table 3.1: Selected Game Show Characteristics 58 Table 3.2: Descriptive Statistics 66 Table 3.3: Ordered Probit Regression Results on Initial Claims 67 Table 3.4: Probit Regression Results on Hardball Announcements and Concessions 69 Table 3.5:Ordered Probit Regression Results on Share Won 71 Table 3.6: OLS Regression Results on Prize Won / Initial Jackpot 73 Table 4.1: Probit Regression Results (First Experiment) 91 Table 4.2: