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Payment Schemes in Infinite-Horizon Experimental Games

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  • Katerina Sherstyuk

    ()
    (Department of Economics, University of Hawaii at Manoa)

  • Nori Tarui

    ()
    (Department of Economics, University of Hawaii at Manoa)

  • Tatsuyoshi Saijo

    ()
    (Department of Economics, Osaka University)

Abstract

We 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. We further provide experimental evidence from in nitely repeated Prisoners' Dilemma games that supports the above theoretical predictions.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_11-18.pdf
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Bibliographic Info

Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 201118.

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Length: 46 pages
Date of creation: 01 Dec 2011
Date of revision:
Handle: RePEc:hai:wpaper:201118

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Keywords: economic experiments; infinite-horizon games; random termination;

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Cited by:
  1. Ekaterina Sherstyuk & Nori Tarui & Majah-Leah V. Ravago & Tatsuyoshi Saijo, 2013. "Inter-Generational Games with Dynamic Externalities and Climate Change Experiments," Working Papers 201320, University of Hawaii at Manoa, Department of Economics.
  2. John Duffy & Sean Crockett, 2010. "An Experimental Test of the Lucas Asset Pricing Model," Working Papers 504, University of Pittsburgh, Department of Economics, revised May 2013.

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