Reference no: EM132215353

Question 1. Name and discuss two common psychological biases that affect the decisions of policymakers. Explain how these biases translate into sub-optimal policymaking. Discuss two methods to correct these biases.

Question 2. Experiment critique: identify what is wrong with the following experiment, and provide a detailed explanation. An experimenter wants to test whether advertising affects market price and quantity. He induces demand and supply using standard induced value procedures in a group of subjects with 10 buyers and 10 sellers. He has a friend of his stand up and "advertise" the product, by reading a script he has provided, saying how great "units" are. He then conducts an oral double auction experiment. He finds no effect of advertising, and concludes that advertising does not affect demand.

Question 3. What are the main findings from trust game experiments? What do they tell us about human behaviour? Particularly, do you think behaviour in this setting measures trust?

Question 4. What are the main advantages and disadvantages of using experiments to test theories?

Question 5. Suppose that, instead of paying subjects in rupees, you decide to pay subjects in lottery tickets for a Rs.100,000 prize. (Assume there are 1000 tickets, so the expected value of a ticket is Rs. 100). Would this satisfy the requirements of Induced Value Theory? Explain carefully why or why not, using your knowledge of the requirements of the theory.

Question 6. Experiment critique: identify what is wrong with the following experiment, and provide a detailed explanation. A published paper reports that, in ultimatum games, Pakistan Peoples Party (PPP) supporters are more likely than Pakistan Tehreek-e-Insaaf (PTI) supporters to reject unequal offers. The experiment was for hypothetical $100 stakes, and run over the internet, after a survey conducted by a polling organization asking people their perceptions of different policy alternatives. PPP supporters were asked different sets of survey questions than PTI supporters: PPP supporters answered questions about welfare-to-work programs and the PTI supporters about responses to the war in Afghanistan.

Question 7. Describe the strategy method of eliciting experimental decisions. List, and briefly explain three advantages and three disadvantages of the strategy method.

Question 8. In public goods games where participants can punish other members of their groups, we often observe "anti-social" punishment, i.e., punishment of high contributors. Why do you think this happens? Then, propose an original experimental design that will help you provide at least one answer to this question.

Question 9. In view of the results of experimental tests of expected utility theory, should we stop using that theory?

Question 10. Suppose that all of the numbered diamonds and spades from a deck of cards (excluding Ace, King, Queen, and Jack) are used to set up a market. The diamonds determine demand, e.g., a 10 represents a buyer with a redemption value of $10. Similarly, the spades determine supply. There are nine buyers and nine sellers, each with a single card. Graph supply and demand and derive the competitive price and quantity predictions. What is the predicted effect of removing the 3, 4, and 5 of spades?

Question 11. Consider an asset that pays a dividend of $2 per period and has a 1/10 chance of being destroyed (after the dividend payment) in each round. The asset can be redeemed for $20 at the end of the fifth round. What is the fundamental value of the asset in each round? Given the pattern of prices observed in these types of experiments, please graph the fundamental value, and your predicted price for each round. Would your predictions change if you had subjects from planned economies (as opposed to standard subject pools of subjects from market economies). Why or why not?

Question 12. Please list and describe four sources of motivation for human being to exert effort. Describe how effort responds to multiple sources of motivation (i.e. when two or more are operating at the same time).

Question 13. Why is anonymity important in a dictator game? What is a double blind protocol, and how does it affect what people do in this game? Which do you think is a more important test: what people choose when decisions are anonymous, or when decisions are known to others? Defend your answer.

Question 14. Explain the concept of ‘endowment effects'. How far does experimental evidence support the hypothesis that endowment effects exist?

Question 15. Set up an incentivized game to measure time preferences of subjects. Please describe any and all aspects of the design, including how the outcome variable relates to time preferences.

Note: Need only 2, 5 6 and 8 Question.