Payment schemes in random-termination experimental games
AbstractWe consider payment schemes in experiments that model infinite-horizon games by using random termination. We compare paying subjects cumulatively for all periods of the game; with paying subjects for the last period only; with paying for one of the periods, chosen randomly. Theoretically, assuming expected utility maximization and risk neutrality, both the cumulative and the last-period payment schemes induce preferences that are equivalent to maximizing the discounted sum of utilities. The last-period payment is also robust under different attitudes towards risk. In comparison, paying subjects for one of the periods chosen randomly creates a present-period bias. Experimentally, we find that the cumulative payment appears the best in inducing long-sighted behavior.
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Bibliographic InfoPaper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 201102.
Length: 33 pages
Date of creation: 01 Mar 2011
Date of revision:
Find related papers by JEL classification:
- C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-15 (All new papers)
- NEP-EVO-2011-10-15 (Evolutionary Economics)
- NEP-EXP-2011-10-15 (Experimental Economics)
- NEP-GTH-2011-10-15 (Game Theory)
- NEP-HPE-2011-10-15 (History & Philosophy of Economics)
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