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Do market conditions affect preferences? Evidence from experimental markets with excess supply and excess demand

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  • Jordi Brandts
  • Gary Charness

Abstract

We study whether people's preferences in an unbalanced market are affected by whether they are on the excess supply side or the excess demand side of the market. Our analysis is based on the comparison of behavior between two types of experimental gift exchange markets, which vary only with respect to whether first or second movers are on the long side of the market. The direction of market imbalance could influence subjects' motivation, as second movers, workers, might react differently to favorable actions by first movers, firms, in the two cases. Our data show strong deviations from the standard game-theoretic prediction. However, we only find secondary treatment effects. First movers are not more generous when they are in excess supply and second movers do not respond less favorably when they are in excess demand. Competition has only minor psychological effects in our data.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 491.

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Date of creation: Jun 2000
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Handle: RePEc:upf:upfgen:491

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Web page: http://www.econ.upf.edu/

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Keywords: Experiment; unbalanced markets; cooperation; gift--exchange; Leex;

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  1. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  2. Rabin, Matthew, 1997. "Psychology and Economics," Department of Economics, Working Paper Series qt8jd5z5j2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Charness, Gary & Rabin, Matthew, 2000. "Social Preferences: Some Simple Tests and a New Model," Department of Economics, Working Paper Series qt46j0d6hb, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  5. Charness, Gary B, 1999. "Responsibility And Effort In An Experimental Labor Market," University of California at Santa Barbara, Economics Working Paper Series qt7x98w91h, Department of Economics, UC Santa Barbara.
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  13. Gary Charness, 1996. "Attribution and reciprocity in a simulated labor market: An experimental investigation," Economics Working Papers 283, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 1997.
  14. Amartya Sen, 1997. "Maximization and the Act of Choice," Econometrica, Econometric Society, vol. 65(4), pages 745-780, July.
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Cited by:
  1. Gary Bolton & Axel Ockenfels, 2005. "A stress test of fairness measures in models of social utility," Economic Theory, Springer, vol. 25(4), pages 957-982, 06.

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