In this paper we replicate and extend the experiment of Fehr and Gaechter (2000) that analyzes the effect of an opportunity to punish others on the level contributions in the Voluntary Contributions Mechanism. The punishment is costly for both the players distributing and those receiving the punishment. Like Fehr and Gaechter, we find that agents often engage in noncredible costly punishment behavior in order to reduce earnings of others who contribute low amounts to the public good. The availability of punishment increases average contributions sharply. Here, we also introduce a second treatment, identical to the first treatment, except that the "punishment" is non-monetary. The assignment of "non-monetary" punishment points does not reduce the payoff of any agent, but it can be used to register disapproval of others' contribution levels. We find that the existence of the possibility of "non-monetary" punishment alone increases the average level of contributions and earnings, though by less than the monetary punishment. This suggests that the increase in cooperation observed by Fehr and Gaechter is not only due to the possibility of monetary penalties, but also from the opportunity of others to express their disapproval of free riding behavior.

We elicit traders' predictions of future price trajectories in repeated experimental markets for a 15-period-lived asset. We find that individuals' beliefs about prices are adaptive, and primarily based on past trends in the current and previous markets in which they have participated. Most traders do not anticipate market downturns the first time they participate in a market, and, when experienced, they typically overestimate the time remaining before market peaks and downturns occur. When prices deviate from fundamental values, belief data are informative to an observer in predicting the direction of future price movements and the timing of market peaks. (JEL C91, D12, D84, G11 )

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. NONSPECULATIVE BUBBLES IN EXPERIMENTAL ASSET MARKETS: LACK OF COMMON KNOWLEDGE OF RATIONALITY VS. ACTUAL IRRATIONALITY BY VIvIAN LEI, CHARLES N. NOUSSAIR, AND CHARLES R. PLOTT1We report the results of an experiment designed to study the role of speculation in the formation of bubbles and crashes in laboratory asset markets. In a setting in which speculation is not possible, bubbles and crashes are observed. The results suggest that the departures from fundamental values are not caused by the lack of common knowledge of rationality leading to speculation, but rather by behavior that itself exhibits elements of irrationality. Much of the trading activity that accompanies bubble formation, in maikets where speculation is possible, is due to the fact that there is no other activity available for participants in the experiment.

A series of experiments illustrate that relaxing short-selling constraints lowers prices in experimental asset markets, but does not induce prices to track fundamentals. We argue that prices in experimental asset markets are inf luenced by restrictions on short-selling capacity and limits on the cash available for purchases. Restrictions on short sales in the form of cash reserve requirements and quantity limits on short positions behave in a similar manner. A simulation model, based on DeLong et al. (1990), generates average price patterns that are similar to the observed data.

It is well-known that social influences affect consumption decisions. We used functional magnetic resonance imaging (fMRI) to elucidate the neural mechanisms associated with social influence with regard to a common consumer good: music. Our study population was adolescents, age 12-17. Music is a common purchase in this age group, and it is widely believed that adolescent behavior is influenced by perceptions of popularity in their reference group. Using 15-second clips of songs from MySpace.com, we obtained behavioral measures of preferences and neurobiological responses to the songs. The data were gathered with, and without, the overall popularity of the song revealed. Song popularity had a significant effect on the participants' likability ratings of the songs. fMRI results showed a strong correlation between the participants' rating and activity in the caudate nucleus, a region previously implicated in reward-driven actions. The tendency to change one's evaluation of a song was positively correlated with activation in the anterior insula and anterior cingulate, two regions that are associated with physiological arousal and negative affective states. Sensitivity to popularity was linked to lower activation levels in the middle temporal gyrus, suggesting a lower depth of musical semantic processing. Our results suggest that a principal mechanism whereby popularity ratings affect consumer choice is through the anxiety generated by the mismatch between one's own preferences and others'. This mismatch anxiety motivates people to switch their choices in the direction of the consensus. Our data suggest that this is a major force behind the conformity observed in music tastes in some teenagers.

We present the results of an experiment that explores the sanctioning behavior of individuals who experience a social dilemma. In the game we study, players choose contribution levels to a public good and subsequently have multiple opportunities to reduce the earnings of the other members of the group. The treatments vary in terms of individuals' opportunities to (a) avenge sanctions that have been directed toward themselves, and (b) punish others' sanctioning behavior with respect to third parties. We find that individuals do avenge sanctions they have received, and this serves to decrease contribution levels. They also punish those who fail to sanction third parties, but the resulting increase in contributions is smaller than the decrease the avenging of sanctions induces. When there are five rounds of unrestricted sanctioning, contributions and welfare are significantly lower than when only one round of sanctioning opportunities exists, and welfare is lower than at a benchmark of zero cooperation.

We conduct an experiment to study the prevalence of the higher order risk attitudes of prudence and temperance, in a large demographically representative sample, as well as in a sample of undergraduate students. Participants make pairwise choices between lotteries of the form proposed by Eeckhoudt and Schlesinger (2006). The choices in these lotteries isolate risk aversion, prudence, and temperance levels to demographics and financial decisions. We and temperance, in both the student and the demographically representative sample. An , and borrowing behavior outside of the experiment, while temperance predicts the riskiness of portfolio choices. Our findings suggest that the coefficient of relative prudence for a representative individual is approximately equal to two.

We employ an experimental approach to consider the impact of a combination of formal and informal sanctions on contribution levels for a specific type of public good. We find that when both sanctions are available, contributions and overall welfare are higher than when only one of the two sanctioning systems is available. The availability of an array of sanctions of varying severity appears to enhance welfare. (JEL C92) 1. Coleman (1990) characterizes this situation as the existence of demand for a behavioral norm. See Elster (1989) for a discussion of the origins and benefits of social norms.2. Several economic models have investigated the consequences of social pressure on economic behavior. See, for example, Akerlof (1980) and Lindbeck et al. (1999). Elster (1989 distinguishes between guilt, an internal type of pressure and shame, an external type of social pressure, as forces promoting prosocial behavior. Labor economists, such as Kandel and Lazear (1992) and Barron and Gjerde (1997), have modeled the effect of peer pressure on team output.