We study the division of trade surplus in a natural field experiment conducted on German eBay. Acting as a seller, we offer Amazon gift cards with face values of up to 500 Euro. A random selection of buyers, the subjects of our experiment, make price offers according to the rules of eBay. Using a novel decomposition method, we infer the offered shares of trade surplus from the data and find that the average share proposed to the seller amounts to about 30%. Additionally, we document: (i) insignificant effects of the stake size; (ii) poor use of strategically relevant public information; and (iii) differences in behaviour between East and West German subjects.
This paper empirically examines the business-stealing effect of store entry in the Swiss grocery retail industry. A uniquely spatially detailed dataset of all Swiss retail stores and residents is constructed, that captures important drivers of demand and competition with great detail. I employ Entropy Balancing to control for systematic differences across local markets and provide non-parametric estimates of local entry effects. I find that markets for grocery retailing stores are highly localized in a tight 4 kilometer radius. Larger retailing stores react more on the intensive margin to entry and contract their employment hours and numbers, while smaller stores are particularly impacted on the extensive margin. In addition, I find evidence that the local market size for a small store is smaller than for a large store.
Almost all important decisions in people’s lives entail risky consequences. Some of these decisions involve events that materialize with a low probability but lead to extreme consequences such as loss of total wealth or accidental death. When facing such rare extreme events, people display considerable risk aversion in some situations whereas in others the opposite is the case. For example, the prospect of airplane and stock market crashes triggers high risk aversion but there is a low willingness to take out hazard or life insurance. We address this puzzle by arguing that the timing of the consequences and of uncertainty resolution are crucial for understanding these phenomena. We show that future uncertainty conjointly with people’s proneness to probability distortions generates a unifying framework for explaining the coexistence of over- and underweighting of rare extreme events.
Almost all important decisions in people’s lives entail risky consequences. Some of these decisions involve events that materialize with a low probability but lead to extreme consequences such as loss of total wealth or accidental death. When facing such rare extreme events, people display considerable risk aversion in some situations whereas in others the opposite is the case. For example, the prospect of airplane and stock market crashes triggers high risk aversion but there is a low willingness to take out hazard or life insurance. We address this puzzle by arguing that the timing of the consequences and of uncertainty resolution are crucial for understanding these phenomena. We show that future uncertainty conjointly with people’s proneness to probability distortions generates a unifying framework for explaining the coexistence of over- and underweighting of rare extreme events.
We analyze Nash equilibria of probabilistic and share contests where players have distributional preferences. If players are sufficiently similar, distributional preferences create multiple equilibria. For the case of only mildly heterogeneous players, equilibrium effort can be lower as well as higher than effort exerted by players with selfish preferences. These findings can explain the following three anomalies observed in empirical tests of probabilistic and share contests: the large variance of effort levels (overspreading), individual spending that exceeds the Nash-equilibrium prediction (overspending), and aggregate spending that exceeds the value of the prize (overdissipation). If players are sufficiently heterogeneous, the game has a unique equilibrium that is more egalitarian than the selfish Nash equilibrium. It turns out that the less talented competitor may win the larger share of the prize if his inequality aversion is sufficiently strong. We analyze how the equilibria evolve if the number of players becomes larger and how sequential moves influence behavior. Two new insights follow from the analysis of the sequential-move game. First, sequential moves act as a coordination device in case of multiple simultaneous equilibria, and second, inequality aversion of the more egalitarian player can be used as a commitment device for low effort. This effect can reverse the conventional wisdom that the underdog should lead.
Die Manipulation der Abgaswerte von Volkswagen und eine Vielzahl von Verfehlungen anderer Unternehmen werden flächendeckend mit Kopfschütteln diskutiert. Welches Kalkül veranlasst ein Unternehmen, vorsätzlich zu betrügen?
Die vielen Skandale in der Wirtschaft zeigen: Die Wirtschaftswissenschaften und die Managementlehre brauchen eine Moraldebatte. Es reicht nicht, die Verantwortung für saubere Geschäfte an den Einzelnen zu delegieren.
The disclosure of the VW emission manipulation scandal caused a quasi-experimental market shock in the observable quality of VW diesel vehicles. We consider a classical model for adverse selection and sorting to derive an empirically testable hypothesis about the impact of observable quality on the supply of used cars. We test the hypothesis with data collected from an online car selling platform which reflects about 50% of the German used-car market. The empirical approach is based on a conditional difference-in-differences method. We find that the supply of used VW diesel vehicles increases after the VW emission scandal. This finding is consistent with the predictions of the theoretical model. Furthermore, we find the positive supply effects increase with the probability of manipulation.
Different sources of errors affect measurement of economic preferences. We demonstrate how different sources of error can be disentangled from systematic components of response. Specifically, we consider measurement error/imprecision, response error/trembling hand, random preferences/utility or preference imprecision, and misspecification error.
