Does fairness prevent market clearing

Reference no: EM133203228 , Length: Words Count:2000

Assignment:

Please answer ONE of the following TWO possible questions. Each question has three subparts (a, b, c) - please answer all parts of the question you attempt.

Whichever question you select, you will write three short essays. It is up to you how you use the words at your disposal, but the total word count should not exceed 2000 words. This is a strict maximum word limit. Note that in-text referencing is included in the word count, but
the reference list at the end is not. All referencing should be in a Harvard style. Weightings appear after each sub-part.

Question 1

a) Consider the article by Harrison and List (2004). Using the taxonomy proposed by the authors in the article, explain the differences between Controlled Lab Experiments and Natural Field Experiments. You should support your discussion with examples from the Experimental Economics literature.

b) Consider the article from Fehr et al. (1993): the authors design a lab experiment in order to test the fair wage-effort hypothesis.

Describe the Experimental Design used in the lab experiment. Explain how the two-stage game used in the experiment allows the authors to test the fair wage-effort hypothesis. Interpret the experimental results: are wages and level of efforts converging to the market-clearing level?

c) In their article "Putting Behavioral Economics to Work: Testing for Gift Exchange in Labor Markets Using Field Experiments" Gneezy and List (2006) examine the fair wage-effort hypothesis by means of a Field Experiment. Discuss the Experimental Design. In particular, you should explain the type of experiment used by the authors, the treatments chosen and the tasks undertaken by the participants. Compare the results between the Library Task and the Fundraising Task, highlighting common points and main differences. Discuss the contribution that the paper by Gneezy and List (2006) brings to the Experimental Economics literature on the Fair Wage-Effort Hypothesis. You should reflect on the difference between Lab and Field Experiments in the context of the Fair Wage-Effort Hypothesis supporting your discussion with experimental economics evidence.

- Fehr, E., Kirchsteiger, G., & Riedl, A. (1993) "Does Fairness Prevent Market Clearing? An Experimental Investigation." The Quarterly Journal of Economics, 108(2), 437-459.

- Gneezy, U. & List, J. A. (2006) "Putting Behavioral Economics to Work: Testing for Gift Exchange in Labor Markets Using Field Experiments," Econometrica, vol. 74(5), pages 1365-1384.

- Harrison, G. W. and List, J. A. (2004) "Field Experiments", Journal of Economic Literature, Vol. 42, No. 4., pp. 1009-1055.

Question 2

a) Explain the Allais Paradox illustrating the violation of the Expected Utility Theory. Consider the paper by John Conlisk (1989). Describe the "Three Steps Allais Question" experiment and how the author proposes to solve the Allais Paradox.

b) Kahneman and Tversky (1979) criticize the Expected Utility Theory as a descriptive model of decision making under risk, and they propose the Prospect Theory as an alternative model for describing risk preferences of individual decision makers.

Discuss the Certainty Effect and The Reflection Effect. Illustrate the main points of the Value Function, explaining how the reference point is determined and how gains and losses are evaluated under this theory. You should graphically support your explanation of the Value Function.

c) Consider the article by Imas et al. (2016). Discuss the Experimental Design. In particular, you should explain the type of experiment used by the authors, the treatments chosen and the tasks undertaken by the participants. Compare the results between Experiment 1 and Experiment 2 reflecting on the underlying theoretical predictions.

- Conlisk, J. (1989) "Three Variants on the Allais Example," The American Economic Review, Vol. 79, No. 3, Jun., 1989 pp. 392-396.

- Imas, A., Sadoff, S. &, Samek, A. (2016) "Do People Anticipate Loss Aversion?" Management Science 63(5):1271-1284.

- Kahneman, D., & Tversky, A. (1979). "Prospect Theory: An Analysis of Decision under Risk." Econometrica, 47(2), 263-291.

Reference no: EM133203228

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