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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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References

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  1. Amartya Sen, 1996. "Maximization and the Act of Choice," Harvard Institute of Economic Research Working Papers 1766, Harvard - Institute of Economic Research.
  2. Fehr, Ernst & Kirchsteiger, George & Riedl, Arno, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(2), pages 437-59, May.
  3. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers, University of California at Berkeley 92-199, University of California at Berkeley.
  4. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(3), pages 817-868, August.
  5. Gary Charness & Matthew Rabin, 1999. "Social preferences: Some simple tests and a new model," Economics Working Papers 441, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2000.
  6. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1998. "Gift exchange and reciprocity in competitive experimental markets," ULB Institutional Repository 2013/5909, ULB -- Universite Libre de Bruxelles.
  7. Rabin, Matthew, 1997. "Psychology and Economics," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt8jd5z5j2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  8. Fehr, Ernst, et al, 1998. "When Social Norms Overpower Competition: Gift Exchange in Experimental Labor Markets," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 16(2), pages 324-51, April.
  9. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  10. Timothy N. Cason & Vai-Lam Mui, 1998. "Social Influence in the Sequential Dictator Game," Monash Economics Working Papers archive-37, Monash University, Department of Economics.
  11. Samuel Bowles, 1998. "Endogenous Preferences: The Cultural Consequences of Markets and Other Economic Institutions," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 75-111, March.
  12. Charness, Gary, 2000. "Responsibility and effort in an experimental labor market," Journal of Economic Behavior & Organization, Elsevier, vol. 42(3), pages 375-384, July.
  13. R. Lynn Hannan & John H. Kagel & Donald V. Moser, 2002. "Partial Gift Exchange in an Experimental Labor Market: Impact of Subject Population Differences, Productivity Differences, and Effort Requests on Behavior," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 20(4), pages 923-951, October.
  14. Brandts, J. & Sola, C., 1998. "Reference Points and Negative Reciprocity in Simple Sequential Games," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 425.98, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  15. Georg Kirchsteiger & Ernst Fehr & Simon Gächter, 1997. "Reciprocity as a contract enforcement device: experimental evidence," ULB Institutional Repository 2013/5911, ULB -- Universite Libre de Bruxelles.
  16. Theo Offerman, 1999. "Hurting hurts more than Helping helps: The Role of the Self-serving Bias," Tinbergen Institute Discussion Papers 99-018/1, Tinbergen Institute.
  17. 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.
  18. Anderson, Simon P. & Goeree, Jacob K. & Holt, Charles A., 1998. "A theoretical analysis of altruism and decision error in public goods games," Journal of Public Economics, Elsevier, vol. 70(2), pages 297-323, November.
  19. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 97(4), pages 543-69, November.
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Cited by:
  1. Gary E. Bolton & Axel Ockenfels, 2002. "A stress test of fairness measures in models of social utility," Papers on Strategic Interaction 2002-29, Max Planck Institute of Economics, Strategic Interaction Group.

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