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Framing Effects in Public Goods: Prospect Theory and Experimental Evidence

Author

Listed:
  • Iñigo Iturbe Ormaetxe

    () (Universidad de Alicante)

  • Giovanni Ponti

    (Universidad de Alicante)

  • Josefa Tomás

    (Universidad de Alicante)

  • Luis Ubeda

    (Universidad de Alicante)

Abstract

This paper studies, both theoretically and experimentally, frame effects in the context of a public good game in which players have to make a costly contribution either i) to achieve or ii) not to lose a non excludable monetary prize. Our protocol leads to public good provision (not deterioration) only if a certain contribution level is achieved. Since both frames differ with respect to the reference point, we use Prospect Theory to derive testable predictions. In particular, Prospect Theory predicts more contribution in the second frame. Our evidence suggests that a) subjects¿ behavior is highly sensitive to frames and b) the theoretical prediction is confirmed except when the threshold is low. We also estimate the parameters which better suit our experimental evidence, partly confirming previous results in the literature.

Suggested Citation

  • Iñigo Iturbe Ormaetxe & Giovanni Ponti & Josefa Tomás & Luis Ubeda, 2008. "Framing Effects in Public Goods: Prospect Theory and Experimental Evidence," Working Papers. Serie AD 2008-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  • Handle: RePEc:ivi:wpasad:2008-15
    as

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    References listed on IDEAS

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    1. James Andreoni, 1995. "Warm-Glow versus Cold-Prickle: The Effects of Positive and Negative Framing on Cooperation in Experiments," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 1-21.
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    4. Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2002. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Journal of Economic Theory, Elsevier, vol. 104(1), pages 247-272, May.
    5. Martin Dufwenberg & Simon Gaechter & Heike Hennig-Schmidt, 2006. "The Framing of Games and the Psychology of Strategic Choice," Discussion Papers 2006-20, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    6. Sonnemans, Joep & Schram, Arthur & Offerman, Theo, 1998. "Public good provision and public bad prevention: The effect of framing," Journal of Economic Behavior & Organization, Elsevier, vol. 34(1), pages 143-161, January.
    7. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    8. Glenn Harrison & E. Rutström, 2009. "Expected utility theory and prospect theory: one wedding and a decent funeral," Experimental Economics, Springer;Economic Science Association, vol. 12(2), pages 133-158, June.
    9. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    10. Yaw Nyarko & Andrew Schotter, 2002. "An Experimental Study of Belief Learning Using Elicited Beliefs," Econometrica, Econometric Society, vol. 70(3), pages 971-1005, May.
    11. Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2003. "Risk averse behavior in generalized matching pennies games," Games and Economic Behavior, Elsevier, vol. 45(1), pages 97-113, October.
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    Cited by:

    1. Böhm, Robert & Betsch, Cornelia & Korn, Lars, 2016. "Selfish-rational non-vaccination: Experimental evidence from an interactive vaccination game," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PB), pages 183-195.
    2. Ispano, Alessandro & Schwardmann, Peter, 2017. "Cooperating Over Losses and Competing Over Gains: a Social Dilemma Experiment," Rationality and Competition Discussion Paper Series 23, CRC TRR 190 Rationality and Competition.
    3. Marie-Laure Cabon-Dhersin & Nathalie Etchart-Vincent, 2011. "Cooperation: the power of a single word? Some experimental evidence on wording and gender effects in a Game of Chicken," Working Papers hal-00741973, HAL.
    4. Farré Lidia & González Libertad & Ortega Francesc, 2011. "Immigration, Family Responsibilities and the Labor Supply of Skilled Native Women," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-48, June.
    5. Kölle, Felix & Gächter, Simon & Quercia, Simone, 2014. "The ABC of Cooperation in Voluntary Contribution and Common Pool Extraction Games," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100417, Verein für Socialpolitik / German Economic Association.
    6. Fosgaard, Toke R. & Hansen, Lars Gårn & Wengström, Erik, 2014. "Understanding the nature of cooperation variability," Journal of Public Economics, Elsevier, vol. 120(C), pages 134-143.
    7. Gerard, Francois, 2013. "What Changes Energy Consumption, and for How Long? New Evidence from the 2001 Brazilian Electricity Crisis," Discussion Papers dp-13-06, Resources For the Future.
    8. Francisco Martinez-Sanchez, 2011. "Collusion, competition and piracy," Applied Economics Letters, Taylor & Francis Journals, vol. 18(11), pages 1043-1047.
    9. Marisa Hidalgo-Hidalgo & Iñigo Iturbe-Ormaetxe, 2012. "Should we transfer resources from college to basic education?," Journal of Economics, Springer, vol. 105(1), pages 1-27, January.
    10. Hota, Ashish R. & Garg, Siddharth & Sundaram, Shreyas, 2016. "Fragility of the commons under prospect-theoretic risk attitudes," Games and Economic Behavior, Elsevier, vol. 98(C), pages 135-164.
    11. Inigo Iturbe-Ormaetxe & Giovanni Ponti & Josefa Tomás, 2015. "Some (Mis)facts about Myopic Loss Aversion," Working Papers CESARE 6/2015, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    12. repec:eee:gamebe:v:105:y:2017:i:c:p:329-348 is not listed on IDEAS
    13. Terzi, Ayse & Koedijk, Kees & Noussair, Charles N. & Pownall, Rachel, 2016. "Reference point heterogeneity," Other publications TiSEM 9ef0ddbd-8f52-4845-87b3-1, Tilburg University, School of Economics and Management.
    14. Güth Werner & Sääksvuori Lauri, 2012. "Provision of Multilevel Public Goods by Positive Externalities: Experimental Evidence," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-33, July.

    More about this item

    Keywords

    Public goods provision; framing; prospect theory;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H40 - Public Economics - - Publicly Provided Goods - - - General

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