In the theory of psychological games it is assumed that players' preferences on material consequences depend on endogenous beliefs. Most of the applications of this theoretical framework assume that the psychological utility functions representing such preferences are common knowledge. But this is often unrealistic. In particular, it cannot be true in experimental games where players are subjects drawn at random from a population. Therefore an incomplete-information methodology is called for. We take a …rst step in this direction, focusing on models of guilt aversion in the Trust Game. We consider two alternative modeling assumptions: (i) guilt aversion depends on the role played in the game, because only the "trustee"can feel guilt for letting the co-player down, (ii) guilt aversion is independent of the role played in the game. We show how the set of Bayesian equilibria changes as the upper bound on guilt sensitivity varies, and we compare this with the complete-information case. Our analysis illustrates the incomplete-information approach to psychological games and can help organize experimental results in the Trust Game.

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper studies the effects of social comparison on risk taking behavior. In our framework, decision makers evaluate the consequences of their choices as changes with respect to both their own and their peers' conditions. We test experimentally whether different positions in the social ranking determine different risk attitudes. Subjects interact in a simulated workplace environment, where they receive possibly different wages as compensation for effort and then undertake a risky decision that may give them an extra gain. We find that social comparison matters for risk attitudes. In addition, risk aversion decreases with the size of social gains. As a consequence, subjects are less risk averse in social loss than in small social gain, whereas their risk attitudes do not differ between social loss and large social gain. Terms of use: Documents in

In the theory of psychological games it is assumed that players' preferences on material consequences depend on endogenous beliefs. Most of the applications of this theoretical framework assume that the psychological utility functions representing such preferences are common knowledge. But this is often unrealistic. In particular, it cannot be true in experimental games where players are subjects drawn at random from a population. Therefore an incomplete-information methodology is called for. We take a first step in this direction, focusing on guilt aversion in the Trust Game. In our models, agents have heterogeneous belief hierarchies. We characterize equilibria where trust occurs with positive probability. Our analysis illustrates the incomplete-information approach to psychological games and can help organize experimental results in the Trust Game.JEL classification: C72, C91, D03. j is going to blame i for letting him down. Vanberg (2008) and Ellingsen et al. (2010) question the guilt-aversion interpretation of pro-social behavior in the Trust Game. 2 We coined the name "Trust Minigame" after the "Ultimatum Minigame" of Binmore et al. (1995), a binarychoice version of the Ultimatum Game.3 On the one hand, higher levels of oxytocin in trustees are correlated (between subjects) with higher investment by trusters and higher sharing , see also Zak 2008. According to the guilt-aversion model, oxytocin can thus be interpreted as the transmitter from second-order beliefs (expected disappointment from not giving) to the pro-social action. But in the case of trusters, higher levels of oxytocin are not correlated (between subjects) with higher investment. And yet, Kosfeld et al. (2005) show that an exogenously induced increase in the oxytocin level increases investment, which suggests that it is the difference between baseline and actual level of oxytocin that affects pro-social behavior. We submit that the role of truster is a social cue that shuts down the link between second-order beliefs and oxytocin levels (cf. Carter & Keverne 2002); thus, oxytocin differences between trusters mainly reflect differences in baseline levels, not in second-order beliefs.

Constitutional structures shape politicians' behaviour and hence policy outcomes through the dierent incentive schemes at work. In this paper we analyse these mechanisms in parliamentary and presidential systems. Such a comparison is carried over by analysing how the two systems are able to select the ecient policy in presence of asymmetric information. The constitutional structures dier in that the policy proposal in parliamentary democracies is observable and condence-dependent. The main ndings suggest that the parliament responds to the incentive scheme better in presidential systems due to less uncertainty that legislators face over their term limit. However, the parliamentary system induces the executive to behave more eciently due to selection and disciplining eects.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper studies the effects of social comparison on risk taking behavior. In our framework, decision makers evaluate the consequences of their choices as changes with respect to both their own and their peers' conditions. We test experimentally whether different positions in the social ranking determine different risk attitudes. Subjects interact in a simulated workplace environment, where they receive possibly different wages as compensation for effort and then undertake a risky decision that may give them an extra gain. We find that social comparison matters for risk attitudes. In addition, risk aversion decreases with the size of social gains. As a consequence, subjects are less risk averse in social loss than in small social gain, whereas their risk attitudes do not differ between social loss and large social gain. Terms of use: Documents in

We study two well‐known electronic markets: an over‐the‐counter (OTC) market, in which each trader looks for the best counterpart through bilateral negotiations, and a double auction (DA) market, in which traders post their quotes publicly. We focus on the DA–OTC efficiency gap and show how it varies with different market sizes (10, 20, 40, and 80 traders). We compare experimental results from a sample of 6400 undergraduate students in Economics and Management with zero‐intelligence agent‐based simulations. Simulation results show that the traded quantity increases with market size under both DA and OTC. Experimental results confirm the same tendency under DA, while the share of periods in which the traded quantity is lower than the efficient one increases with market size under OTC, ultimately leading to a DA–OTC efficiency gap increasing with the market size. We rationalize these results by putting forward a simple model of OTC market as a repeated bargaining procedure under incomplete information on buyers' valuations and sellers' costs. We show that efficiency decreases slightly with size due to two counteracting effects: acceptance rates in earlier interactions decrease with size, and earlier offers increase, but not always enough to compensate for the decrease in acceptance rates.

The paper analyzes a model of electoral campaigning as a problem of competitive delegation. We consider an environment characterized by two sources of uncertainty: uncertainty on the nature of the optimal policy and uncertainty on the candidates' biases. Although voters know whether the candidate is left-or right-wing, they do not know the extent of the bias. In this environment, discretion may benefit voters as it allows the elected politician to adjust his policies to the state of the world. The paper shows that the optimal set of promises must be a closed interval, whose size is decreasing in the expected bias of the candidate. An example where the set of types is finite shows that an increase in the variability of candidates' types may either increase or decrease the voters' willingness to grant discretion to politicians.