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Individual Decision Making in a Negative Externality Experiment

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  • J. Spraggon

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Abstract

The experimental treatments analysed in this paper are simple in that there is a unique Nash equilibrium resulting in each player having a dominant strategy. However, the data show quite clearly that subjects do not always choose this strategy. In fact, when this dominant strategy is not a "focal" outcome it does not even describe the average decision adequately. It is shown that average individual decisions are best described by a decision error model based on a censored distribution as opposed to the truncated regression model which is typically used in similar studies. Moreover it is shown that in the treatments where the dominant strategy is not "focal" dynamics are important with average subject decisions initially corresponding to the "focal" outcome and then adjusting towards the Nash prediction. Overall, 66.7% of subjects are consistent with Payoff Maximization, 27.8% are consistent with an alternate preference maximization and 5.6% are random.

Suggested Citation

  • J. Spraggon, 2004. "Individual Decision Making in a Negative Externality Experiment," Experimental Economics, Springer;Economic Science Association, vol. 7(3), pages 249-269, October.
  • Handle: RePEc:kap:expeco:v:7:y:2004:i:3:p:249-269
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    Cited by:

    1. Gaston Giordana & Marc Willinger, 2013. "Regulatory instruments for monitoring ambient pollution," Chapters,in: Handbook on Experimental Economics and the Environment, chapter 7, pages 193-232 Edward Elgar Publishing.
    2. John M. Spraggon & Robert J. Oxoby, 2009. "Game Theory For Playing Games: Sophistication In A Negative-Externality Experiment," Economic Inquiry, Western Economic Association International, vol. 47(3), pages 467-481, July.
    3. Marc Willinger & Nasreddine Ammar & Ahmed Ennasri, 2014. "Performance of the Ambient Tax: Does the Nature of the Damage Matter?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 59(3), pages 479-502, November.
    4. John Spraggon, 2007. "Exogenous Targeting Instruments under Differing Information Conditions," Working Papers 2007-10, University of Massachusetts Amherst, Department of Resource Economics.

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