Trust and reciprocity in incentive contracting

Principals can attempt to get agents to perform certain actions preferable to the principal by using ex post punishments or rewards to align incentives. Field data is mixed on whether, and to what extent, such informal incentive contracting (paradoxically) crowds out efficient solutions to the agency problem. This paper explores, via a novel set of laboratory experiments, the impact of ex post incentives on informal contracts between principals and agents in bargaining environments in which there are gains from exchange and when there is an opportunity for the principal to relay a no-cost demand of the division of those gains. Incentive contracting in these environments does not crowd-out off-equilibrium cooperation, and at high incentive levels cooperation is crowded in.incentives; trust; reciprocity; organizations; experimental economics

Accounting for Risk: Conceptualizing a Robust Greenhouse Gas Inventory for Financial Institutions

Outlines objectives, options, and challenges for financial firms and stakeholders in accounting for greenhouse gas emissions from their investments and services as part of climate change risk management. Discusses methods, scope, reporting, and use

Trust and Reciprocity in Incentive Contracting

Principals can attempt to get agents to perform certain actions preferable to the principal by using ex post}punishments and rewards to align incentives. Field data is mixed on whether, and to what extent, such informal incentive contracting (paradoxically) crowds out efficient solutions to the agency problem. This paper explores, via a novel set of laboratory experiments, the impact of ex post incentives on informal contracts between principals and agents in bargaining environments in which there are gains from exchange and when there is an opportunity for the principal to relay a no-cost demand of the division of those gains. Incentive contracting in these environments does not crowd-out off- equilibrium cooperation, and at high incentive levels cooperation is crowded in.incentives, principal-agent, bargaining, trust, cooperation, punishment, reward

The Role of Expectations and Gender in Altruism

A central question in the study of altruism has been whether there is a systematic gender difference in giving behavior. Most experimental economics research has found that women are more generous than men. Evidence also suggests that gender differences depend upon the price of giving: males are more altruistic when the price of giving is low, while females are more altruistic when the price of giving is high. However, in the modified dictator game, a key variable in one’s decision to give is what one expects to receive. Systematic differences in those expectations may well contribute to systematic differences in altruistic behavior. We show that these expectations drive an important and widely reported result. When these expectations are homegrown, we replicate the finding. When expectations of receiving are uniform rather than homegrown, gender differences in price sensitivity disappear: males and females give equal amounts. This suggests that it is gender differences in expectations about others’ giving — not differences in tastes for fairness — that explains the previous results.altruism, charitable giving, dictator game, gender differences, experiment

Sustaining cooperation in trust games

It is well-known in evolutionary game theory that population clustering in Prisoner's Dilemma games allows some cooperative strategies to invade populations of stable defecting strategies. We adapt this idea of population clustering to a two-person trust game. Without knowing it, players are typed based on their recent track record as to whether or not they are trusting (Players 1) and whether or not they are trustworthy (Players 2). They are then paired according to those types: trustors with trustworthy types, and similarly non-trustors with untrustworthy types. In the control comparisons, Players 1 are randomly repaired with Players 2 without regard to type. We ask: are there natural tendencies for people to cooperate more frequently in environments in which they experience more cooperation in comparison with controls?exchange; trust; reciprocity; cooperation; clustering; bargaining; experimental economics

Trust and Reciprocity in 2-node and 3-node Networks

In this paper we focus on the interaction between exogenous network structure and bargaining behavior in a laboratory experiment. Our main question is how competition and cooperation interact in bargaining environments based on networked versions of the investment game. We focus on 3-node networked markets and vary the network structure to model competition upstream (multiple sellers paired with a monopsonistic buyer) and competition downstream (a monopolistic seller paired with multiple buyers). We describe two kinds of models of trust for such networked environments, absolute and relativized models, and use this structure to generate a general hypothesis about these environments: that information crowds in cooperation on the competitive side of the market. The experimental results support this hypothesis.networks, trust, reciprocity, experiments, investment game

Minimal Social Cues in the Dictator Game

This paper reports results of an incentivized laboratory experiment manipulating an extremely weak social cue in the Dictator Game. Prior to making their decision, we present dictators with a simple visual stimlulus: either three dots in a “watching-eyes” configuration, or three dots in a neutral configuration. The watching-eyes configuration is suggestive of a schematic face—a stimuli that is known to weakly activate the fusiform face area of the brain (Tong, et al., 2000; Bednar and Miikkulainen, 2003; Johnson and Morton, 1991). Given the experimental evidence for automatic priming of watching eyes of others, it is thus reasonable to hypothesize that even though the social cue is very weak, this activation might be sufficient to produce a significant change in social behavior. Our results demonstrate that such a weak social cue does increase giving behavior—even under conditions of complete anonymity—and this difference in behavior across subjects is entirely explained by differences in the choice behavior of males. In fact, males in our treatment condition, who typically act more selfishly than do females in conditions of complete anonymity, give twice as much to anonymous recipients than females give.dictator game, social preferences, laboratory experiment, social distance

Radiative and convective heating during atmospheric entry

Radiative and convective heating during atmospheric entr

Epistemic Conditions and Social Preferences in Trust Games

It is well-known that subjects in bilateral bargaining experiments often exhibit choice behavior suggesting there are strong reciprocators in the population. But it is controversial whether explaining this data requires a social preference model that invokes genuine strong reciprocity or whether some social preference model built on other-regarding preferences as a surrogate can explain it. Since the data precedes theory here, all the social preference models agree on most of it — making direct tests more difficult. We report results from a laboratory experiment using a novel method for testing between the classes of social preference models in the trust game that manipulates the distribution of payoff information in the game. We find evidence supporting the strong reciprocity hypothesis.social preferences, trust game, reciprocity, strong reciprocators

Sustaining Cooperation in trust Games

It is well-known in evolutionary game theory that population clustering in Prisoner Dilemma games allows some cooperative strategies to invade populations of stable defecting strategies. We adapt this idea of population clustering to a two-person trust game. Players are typed based on their recent track record as whether or not they are trusting (Players 1) and whether or not they are trustworthy (Players 2). They are then paired according to those types: trustors with trustworthy types, and similarly non-trustors with untrustworthy types. The empirical question we address is whether this adaptation of clustering to bargaining environments sustains cooperative play analogous to the situation in finitely repeated PD games.exchange, trust, reciprocity, cooperation, clustering, bargaining, experimental economics