EXPERIMENTAL ECONOMICS

Experimental Economics

Abstract

The need to pay subjects to participate in experiments places a major financial burden on experimental economists. In this paper, we conduct dictator games and find that there is no difference in the way student subjects split money and extra-credit points, an encouraging result that suggests that giving course points could be a viable alternative to giving out cash in economic experiments.

Table of Contents

Introduction4

Literature Review5

Social Comparisons in Nonprofit Fundraising8

Method12

Analysis13

Discussion and Future Research15

Future developments16

Conclusion19

References20

Experimental Economics

Introduction

Rewarding experimental subjects with cash in order to study their actions in controlled situations has long been a tradition in experimental economics (Smith 1976). However, the need to pay subjects to participate in experiments places a major financial burden on researchers, often limiting sample sizes and sometimes even eliminating entire projects for want of an adequate research budget. In this short paper, we explore whether an alternative way of rewarding subjects produces similar results in an experimental game setting, and find that subjects treat extra-credit points for a course grade similar to monetary incentives, a result which suggests that giving course points could be a viable alternative to giving out cash in certain experimental situations. Much research has been conducted on the effect of financial incentives on performance in experimental tasks, and Camerer and Hogarth (1999) provide an excellent review of that literature.

Our focus in this paper is not on the effect of monetary incentives per se, but on evaluating whether subjects' response to earning class points is similar to earning cash. Brown Kruse and Thompson (2001) compared the use of class points with monetary rewards and found that subjects responded differently to the two reward mediums. Their study was designed to elicit the value of a risk mitigation measure in a low-probability high-consequence scenario. By contrast, in our study using the experimental dictator game, we found that student subjects treated class points no differently from cash payouts, with the average amount of money they decided to keep for themselves being statistically no different from the average number of points they kept for themselves. This finding is encouraging since it suggests that at least in the case of simple experimental games, it may be possible to alleviate the financial burden of conducting research studies through the use of grade point incentives.

Literature Review

Why individuals make charitable contributions and voluntarily provide public goods is an important question in modern society. Extensive research on voluntary contributions has been conducted by economists (Davis & Holt, 1993; Ledyard, 1995) and psychologists (Dawes, 1980). Many theories have been proposed to explain why individuals give (or cooperate) when it is in their own (financial) interest to free or cheap-ride. Explanations include altruism (e.g. Becker, 1974; Andreoni, 1988), warm-glow and warm-glow altruism (e.g. Andreoni, 1989, 1990), conditional cooperation (e.g. Fischbacher, Gachter, and Fehr, 2001), and reciprocity (e.g. Sugden, 1984). These motivations have been studied using experimental data from the lab and naturally-occurring (empirical) data.

Only very recently, field experiments have been introduced as a research tool in studying public goods provision ...