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Can Sanctions Induce Pessimism? An Experiment

  • Roberto Galbiati

    ()

  • Karl Schlag

    ()

  • Joël van der Weele

    ()

We experimentally investigate the effects of sanctions when there are multiple equilibria. Two subjects play a two-period minimum effort game in the presence of third player (principal). The principal benefits from coordination on higher effort, and is the only one informed of previous choices choices. We contrast introducing an exogenously imposed sanction in the second round to the case where the principal is allowed to decide whether or not, at a small cost, to impose a sanction. We find that exogenously introduced sanctions are effective in inducing optimistic beliefs about others and help coordination on more efficient equilibria. On the other hand, endogenously introduced sanctions negatively influence beliefs about the effort of the other player. The results supports the idea that sanctions have an expressive dimension which can undermine their effectiveness by discouraging optimistic players.

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Paper provided by University of Siena in its series Labsi Experimental Economics Laboratory University of Siena with number 024.

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Date of creation: Jan 2009
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Handle: RePEc:usi:labsit:024
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