Essays in Behavioral and Experimental Economics

Abstract

Few economic decisions are ever made in a social vacuum. Many of us look constantly to others for guidance or for comparison. Our actions might benefit or hurt others, so we use said actions strategically to reward or to punish. We are appalled if our sense of distributional justice gets wronged and refuse to cooperate with those who offended it. Over the past decades the emergence of behavioral economics has put these social aspects of decision making into sharp focus. Behavioral economics has advanced our collective understanding of social preferences and comparisons by incorporating insights from neighboring disciplines such as psychology or political science. A key ingredient for this evolution lies in the controlled examination of human behavior -- frequently using laboratory or field experiments -- to uncover its underlying mechanisms. The causal identification of these hidden motives in turn gave rise to new theoretical models that include reciprocity or preferences for status and fair outcomes. This thesis consists of five essays that each contribute to different facets of the literature on the behavioral impact of social comparisons and social preferences. All of them employ laboratory or field experiments and combine them with theoretical frameworks that incorporate different kinds of social motives.<br /> In Chapter 2 (joint work with Sebastian Kube, Hannah Schildberg-Hörisch and Elina Khachatryan), I study how social preferences can hamper the adoption of efficient legislation. Institutions and their endogenous adaption are increasingly thought to facilitate cooperation and to mitigate the free-rider problem inherent in the provision of public goods. In this paper, we test within a unified framework how the process of institution formation is affected by three key aspects of natural environments: i) heterogeneity among players in the benefits of cooperation, ii) (a)symmetry in players' institutional obligations, and iii) potential trade-offs between efficiency and equality in payoff allocations. We observe social preferences to be limiting the scope for institution formation. Inequality-averse players frequently object to institutions that fail to address differences in players' benefits from cooperation -- even if rejecting the institution causes monetary losses to all players.<br /> Building on these results, Chapter 3 (joint work with Sebastian Kube) investigates the interplay between cooperation and redistribution if individuals profit heterogenously from public goods. We analyze such situations, both from a theoretical and empirical perspective, to explore to what extent formal redistribution can alleviate the implementation problem. We find that the answer to this question depends on whether redistribution and governance i) form two distinct institutions to be decided upon separately or ii) are ``bundled'' into a single institution. Implementation and cooperation rates are higher in the latter case, where parties decide over the joint implementation of the combined institution. By contrast, coordination problems arise if redistribution is available separately from, rather than being an integral component of, the governing institution; resulting in significantly lower cooperation rates compared to the bundled case.<br /> In Chapter 4 I study how social preferences can be leveraged to obtain valuable information about employees. Peer evaluations are frequently used if an employee's performance is hard or even impossible to observe by a principal. If, however, the evaluating peer is in direct competition with the evaluated peer for bonuses or promotions, incentives for truthful reporting might be reduced. I explore to what extent team-incentives -- in contrast to fixed wages -- can encourage truthful evaluations. I use a laboratory experiment that combines a real effort task and a rank-order tournament, where the prizes are distributed on basis of the mutual evaluations of the tournament participants. I find that the outcome depends on whether the participants i) can evaluate their peers individually or ii) have to rank them. Team-incentives have significant positive impact on the sincerity of peer evaluations only in the latter case. Without team-incentives and forced rankings the evaluation behavior carries little to no meaning.<br /> In Chapter 5 and Chapter 6 (joint work with Lukas Kießling and Jonas Radbruch) I investigate whom individuals choose as peer and how these self-selected peers impact individual performance. While the influence of peers on our consumption behavior, general well-being, and individual performance on the job or in school is widely accepted, we know relatively little about how these peers arise in the first place. Frequently they are not randomly selected, but might be carefully chosen. We conduct a field experiment in physical education classes at secondary schools. Students participate in a running task twice: first, the students run alone, then with a peer. Before the second run, we elicit preferences for peers. We experimentally vary the matching in the second run and form pairs either randomly or based on elicited preferences. We find that students on average prefer peers of higher ability, but these preferences vary with their personality traits. Higher competitiveness, lower extraversion, and an internal locus of control are associated with preferences for superior peers. Taking social network information into account, we find homophily in agreeableness and attitudes for social comparisons even conditional on friendship ties. These self-selected peers improve individual performance by .14-.15 SD relative to randomly assigned peers. While self-selection leads to more social ties and lower performance differences within pairs, this altered peer composition does not explain performance improvements. Rather, we provide evidence that self-selection has a direct effect on performance and provide several markers that the social interaction has changed. Regarding the design of peer assignment mechanisms, our results also highlight the importance of accounting for the multidimensionality of peer preferences.<br /> In summary, this thesis documents effects on individual behavior that are not predicted by standard economic theory, but underscore the relevance of social preferences for our understanding of economic decision making and behavior, and the design of efficient institutions.