We investigate the effects that transparency may have on people’s reactions to a simple nudge. ... more We investigate the effects that transparency may have on people’s reactions to a simple nudge. Using an incentivized task and eliminating possible confounds due to strategic reasoning, we test two behavioral predictions: (a) that increasing the quantity and quality of information affects significantly the efficacy of nudges; and (b) that people mind about being nudged and reverse their decisions when the behavioral policy is transparent. Our results indicate that transparency does not necessarily trigger reactance (people in general do not mind being nudged), but the quality and quantity of information can have a significant effect on the efficacy of a behavioral policy.
The current experimental study examined the effect of monetary rewards on tax compliance. Eighty-... more The current experimental study examined the effect of monetary rewards on tax compliance. Eighty-six participants were randomly assigned to one control and two reward conditions (low vs. high reward). Overall, tax compliance was not affected by the rewards. However, a change in compliance strategies was observed. It seems that rewards provoked an all-or-nothing behavior. Whereas in the reward conditions, participants were either completely honest or evaded all of their income, in the control condition, the amount of evasion varied more strongly. Furthermore, audited compliant taxpayers who are rewarded evaded less in the following period compared with audited compliant taxpayers who experienced no rewards.
We used decision-making experiments to investigate tax compliance of women and men and focused on... more We used decision-making experiments to investigate tax compliance of women and men and focused on gender-role orientation as well as on the second-to-fourth digit ratio (2D:4D), a putative marker of prenatal testosterone exposure. In 60 experimental periods, participants were endowed with a certain amount of money representing income and had to pay taxes. They were audited with a certain probability and fined in case of detected evasion. Both demographic sex and gender-role orientation were significantly related to tax compliance, whereas 2D:4D was not. Women and less male-typical individuals were more compliant than men and more male-typical individuals. Women and men also differed regarding their taxpaying strategies. Whereas for men audits increased subsequent evasion, women's tax payments were less affected by prior audits.
Our paper reproduces the cash posters framework aI€ la Homans (1953, 1954) in a laboratory settin... more Our paper reproduces the cash posters framework aI€ la Homans (1953, 1954) in a laboratory setting with a twofold aim: first of all, it explores the gift-exchange between employers and employees, both in terms of wage- effort and in terms of effort-potential leniency in punishment; secondly, it investigates whether employees’ behavior is driven also by solidarity concerns towards their unlucky peers. We propose a novel experimental design with a modified version of the gift-exchange game with real effort, punishment, and multiple rounds (Fehr et al., 1997): each employer is matched with two employees and she has the possibility to punish each of them if their individual production is lower than that asked. Each employee’s production risks to be reduced by a random intervention and, in our treatment, each employee has the possibility to renounce to a part of his production to give it to his coworker in need. Our data support the well-known relation between wage and effort, but su...
Many anthropological records exist of seemingly worthless tokens exchanged in traditional societi... more Many anthropological records exist of seemingly worthless tokens exchanged in traditional societies. The most famous instances of such tokens are probably the Kula necklaces and armbands first described by B. Malinowski. In our experiment, each participant can send a token to another participant before each round of a repeated public good game. We use as examples of tokens a bracelet built by the participants in the lab, a simple piece of cardboard provided by the experimenter, and an object brought from home by the participants. Notwithstanding the cheap-talk nature of the decision to send the token, both sending and receiving the token are associated with a significant increase in contributions to the public good. Regression analysis shows that contributions to the public good in the treatments featuring a bracelet and a cardboard piece are higher than in a control study. The home object appears not to have been equally useful in increasing contributions.
Economics: The Open-Access, Open-Assessment E-Journal, 2014
This paper extends choice theory by allowing for the interaction between cognitive costs and imit... more This paper extends choice theory by allowing for the interaction between cognitive costs and imitative dynamics. The authors experimentally investigate the role of imitation when participants face a task which is costly in cognitive terms. In order to disentangle different choice dynamics, they devise a laboratory experiment with a novel experimental task in which they model the choice of different alternatives through high or low cognitive costs and feedback information provided to subjects. Their results provide evidence for imitative behavior driven by under-confidence about own skills and by the beliefs regarding others' performance. They also find a temporal pattern in the distribution of choices, both in the highcost and low-cost cognitive conditions, that may represent another cognitive shortcut.
This paper extends choice theory by allowing for the interaction between cognitive costs and soci... more This paper extends choice theory by allowing for the interaction between cognitive costs and social norms. We experimentally investigate the role of imitation when participants face a task which is costly in cognitive terms. We identify two main reasons for imitative behavior. First, individuals belonging to a community might want to conform to others to obey to social norms. Second, individuals might be boundedly rational and consider imitation as a decisional device when comparing alternatives is cognitively demanding. In order to disentangle the two effects, we devise a laboratory experiment with a novel experimental task in which we model the choice of different alternatives through high or low cognitive costs and feedback information provided to subjects. Our results provide evidence for imitative behavior only through the channel of beliefs regarding others' performance. We also find a temporal pattern in the distribution of choices, both in the high-cost and low-cost cognitive conditions, that may represent another cognitive shortcut.
Inspired by Karl Polanyi's writings on three allocation modes, namely reciprocity, exchange and r... more Inspired by Karl Polanyi's writings on three allocation modes, namely reciprocity, exchange and redistribution, we first tested a reciprocity ring with ten players. The baseline treatment, with no possibility of socialisation, displayed very low levels of allocative efficiency. Consistently with the Polanyian approach to reciprocity, we found that inducing the notion of symmetry among the players increased efficiency levels significantly. We then simulated a market exchange, with significant allocative efficiency gains. We conclude that indirect-reciprocity rings among anonymous players can seldom function in the absence of definite institutional refinements, promoting forms of symmetry-acknowledgement.
External validity is the problem of generalizing results from laboratory to non-laboratory condit... more External validity is the problem of generalizing results from laboratory to non-laboratory conditions. In this paper we review various ways in which the problem can be tackled, depending on the kind of experiment one is doing. Using a concrete example, we highlight in particular the distinction between external validity and robustness, and point out that many experiments are not aimed at a well-specified real-world target but rather contribute to a 'library of robust phenomena', a body of experimental knowledge to be applied case by case.
Although it is now recognized that norms play an important role in many economic decisions, compl... more Although it is now recognized that norms play an important role in many economic decisions, compliance with conventions is generally considered to be driven by rational self-interest only. We report instead experimental data showing that (1) 'external' norms of fairness sustain social conventions that have emerged from repeated play of simple coordination games; and (2) with repetition such conventions acquire an 'intrinsic' normative power of their own. This creates pressure towards conformity, and patterns of regular behaviour that are far stronger and more stable than those that would be generated by mere self-interest and rationality. * Research for this paper was financed by the ESRC grant RES-000-22-1591 and the Computable and Experimental Economics Laboratory of the University of Trento. Early drafts were presented at the universities of Amsterdam, Cambridge, and Trento, a seminar of the British Society for Philosophy of Science, meetings of the International Network of Economic Method and of the Italian Society for the History of Economic Thought. We are grateful to members of these audiences, Ivan Moscati, Mario Gilli, Matteo Ploner, Marco Failla and two anonymous ESRC reviewers for their constructive feedback. Tim Miller and Marco Tecilla provided invaluable help in designing the software and running the experiments. The usual disclaimers apply.
this paper I have benefited from the valuable assistance of Marco Tecilla, and Dominique Cappelle... more this paper I have benefited from the valuable assistance of Marco Tecilla, and Dominique Cappelletti from CEEL. Marco wrote the software used to run the experiments and participated in all the different phases of the project and Dominique helped me with the statistical analysis. I also wish to thank Paul Webley, who helped me with ideas and constructive criticisms and by running one of the experiments at Exeter. As usual, all responsibility for mistakes or omissions is mine alone.
We experimentally study how institutional changes that incentivize blowing the whistle through a ... more We experimentally study how institutional changes that incentivize blowing the whistle through a leniency program affect tax compliance and corruption. In our experimental set up, we nest tax compliance within a corruption framework and systematically change the institutional environments in which participants have to declare taxes. Across four treatments, our design embodies between and within changes of institutions and thus allows us to analyze how deviant behavior and collusion is affected by both the history and the exogenous changes of institutions. We find higher tax compliance in the presence of a leniency program, while the introduction of such a regime causes the opposite reaction. Our results suggest that this effect is vastly different across gender and mainly driven by females. We provide evidence that the effectiveness of new political measures cannot reliably be judged in isolation, but must be considered in view of the actual institutional history, that is, the parti...
This paper experimentally investigates indirect tax evasion that requires the cooperation of an i... more This paper experimentally investigates indirect tax evasion that requires the cooperation of an intermediary. We explore the effectiveness of the introduction of a principal witness regulation as a means to facilitate tax compliance. Reactions show a significant drop in tax compliance that, surprisingly, is vastly different across gender with the effect being mainly driven by women. As a result, women decrease their tax compliance significantly reaching an even lower level than men who in turn do not react to the institutional change.
Business sustainability and real options are closely connected, as real options are managerial fl... more Business sustainability and real options are closely connected, as real options are managerial flexibility that allows organizations to adapt to changes in their environment, thus making the organization more robust and economically sustainable. Studies in real options theory abound, yet there is still a lack of evidence on whether people make decisions consistently with the predictions made by real options models. We run a laboratory experiment to study the role of option value and the laboratory time required to resolve uncertainty in individuals’ decision to price and adopt an option to wait. Specifically, we compare decision makers’ choices in two investment scenarios: One with a short time to maturity (implying a low option value), and another with a longer time to maturity (implying a high option value). In the lab, both scenarios are implemented with the waiting time of twenty and sixty minutes. Our results show that decision makers deviate from the theoretical predictions, r...
Managers frequently make decisions under conditions of fundamental uncertainty due the stochastic... more Managers frequently make decisions under conditions of fundamental uncertainty due the stochastic nature of the outcomes and competitive rivalry. In this study, we experimentally test a theoretical model under fundamental uncertainty and competitive rivalry by designing a sequential interaction game between two players. The first mover can decide either to choose a sure outcome that assigns a risky outcome to the second mover or to pass the decision to the second mover. If the second player gets the chance to decide, she can choose between a sure outcome, conditioned by the assignment of a risky payoff to the first mover, or the sharing of the risky outcome with the first mover. We then introduce the following experimental treatments: i) relegating second-mover participants to a purely passive role and substituting them with a random device (absence of strategic uncertaintythat is, when the source of uncertainty is a human subject); ii) providing information about the behaviour of second-mover counterparts; and iii) completely removing the second-mover participant. We find that decision makers are sensitive to the presence or absence of strategic uncertainty; indeed, in the presence of strategic uncertainty, first movers more often diverge from the behaviour predicted by the model. Given our experimental results, the theoretical model needs to be revisited. The standard model of monetary payoff-maximizing agents should be substituted by one of decision makers who maximize a utility function which includes the psychological cost induced by strategic uncertainty.
Arguably, for many citizens the perceived expected disutility from sanctions is smaller than the ... more Arguably, for many citizens the perceived expected disutility from sanctions is smaller than the monetary gain from tax evasion. Nevertheless most people pay their taxes most of the time. In a lab experiment, we show that the willingness to pay taxes even absent enforcement is indeed pronounced. Yet voluntary compliance is reduced if participants learn that income is heterogeneous. The effect is driven by participants with the lowest income. The reduction obtains irrespective of the tax regime. If the tax is proportional to income, or progressive, participants become more skeptical about the willingness of participants with high income to comply.
We investigate the effects that transparency may have on people’s reactions to a simple nudge. ... more We investigate the effects that transparency may have on people’s reactions to a simple nudge. Using an incentivized task and eliminating possible confounds due to strategic reasoning, we test two behavioral predictions: (a) that increasing the quantity and quality of information affects significantly the efficacy of nudges; and (b) that people mind about being nudged and reverse their decisions when the behavioral policy is transparent. Our results indicate that transparency does not necessarily trigger reactance (people in general do not mind being nudged), but the quality and quantity of information can have a significant effect on the efficacy of a behavioral policy.
The current experimental study examined the effect of monetary rewards on tax compliance. Eighty-... more The current experimental study examined the effect of monetary rewards on tax compliance. Eighty-six participants were randomly assigned to one control and two reward conditions (low vs. high reward). Overall, tax compliance was not affected by the rewards. However, a change in compliance strategies was observed. It seems that rewards provoked an all-or-nothing behavior. Whereas in the reward conditions, participants were either completely honest or evaded all of their income, in the control condition, the amount of evasion varied more strongly. Furthermore, audited compliant taxpayers who are rewarded evaded less in the following period compared with audited compliant taxpayers who experienced no rewards.
We used decision-making experiments to investigate tax compliance of women and men and focused on... more We used decision-making experiments to investigate tax compliance of women and men and focused on gender-role orientation as well as on the second-to-fourth digit ratio (2D:4D), a putative marker of prenatal testosterone exposure. In 60 experimental periods, participants were endowed with a certain amount of money representing income and had to pay taxes. They were audited with a certain probability and fined in case of detected evasion. Both demographic sex and gender-role orientation were significantly related to tax compliance, whereas 2D:4D was not. Women and less male-typical individuals were more compliant than men and more male-typical individuals. Women and men also differed regarding their taxpaying strategies. Whereas for men audits increased subsequent evasion, women's tax payments were less affected by prior audits.
Our paper reproduces the cash posters framework aI€ la Homans (1953, 1954) in a laboratory settin... more Our paper reproduces the cash posters framework aI€ la Homans (1953, 1954) in a laboratory setting with a twofold aim: first of all, it explores the gift-exchange between employers and employees, both in terms of wage- effort and in terms of effort-potential leniency in punishment; secondly, it investigates whether employees’ behavior is driven also by solidarity concerns towards their unlucky peers. We propose a novel experimental design with a modified version of the gift-exchange game with real effort, punishment, and multiple rounds (Fehr et al., 1997): each employer is matched with two employees and she has the possibility to punish each of them if their individual production is lower than that asked. Each employee’s production risks to be reduced by a random intervention and, in our treatment, each employee has the possibility to renounce to a part of his production to give it to his coworker in need. Our data support the well-known relation between wage and effort, but su...
Many anthropological records exist of seemingly worthless tokens exchanged in traditional societi... more Many anthropological records exist of seemingly worthless tokens exchanged in traditional societies. The most famous instances of such tokens are probably the Kula necklaces and armbands first described by B. Malinowski. In our experiment, each participant can send a token to another participant before each round of a repeated public good game. We use as examples of tokens a bracelet built by the participants in the lab, a simple piece of cardboard provided by the experimenter, and an object brought from home by the participants. Notwithstanding the cheap-talk nature of the decision to send the token, both sending and receiving the token are associated with a significant increase in contributions to the public good. Regression analysis shows that contributions to the public good in the treatments featuring a bracelet and a cardboard piece are higher than in a control study. The home object appears not to have been equally useful in increasing contributions.
Economics: The Open-Access, Open-Assessment E-Journal, 2014
This paper extends choice theory by allowing for the interaction between cognitive costs and imit... more This paper extends choice theory by allowing for the interaction between cognitive costs and imitative dynamics. The authors experimentally investigate the role of imitation when participants face a task which is costly in cognitive terms. In order to disentangle different choice dynamics, they devise a laboratory experiment with a novel experimental task in which they model the choice of different alternatives through high or low cognitive costs and feedback information provided to subjects. Their results provide evidence for imitative behavior driven by under-confidence about own skills and by the beliefs regarding others' performance. They also find a temporal pattern in the distribution of choices, both in the highcost and low-cost cognitive conditions, that may represent another cognitive shortcut.
This paper extends choice theory by allowing for the interaction between cognitive costs and soci... more This paper extends choice theory by allowing for the interaction between cognitive costs and social norms. We experimentally investigate the role of imitation when participants face a task which is costly in cognitive terms. We identify two main reasons for imitative behavior. First, individuals belonging to a community might want to conform to others to obey to social norms. Second, individuals might be boundedly rational and consider imitation as a decisional device when comparing alternatives is cognitively demanding. In order to disentangle the two effects, we devise a laboratory experiment with a novel experimental task in which we model the choice of different alternatives through high or low cognitive costs and feedback information provided to subjects. Our results provide evidence for imitative behavior only through the channel of beliefs regarding others' performance. We also find a temporal pattern in the distribution of choices, both in the high-cost and low-cost cognitive conditions, that may represent another cognitive shortcut.
Inspired by Karl Polanyi's writings on three allocation modes, namely reciprocity, exchange and r... more Inspired by Karl Polanyi's writings on three allocation modes, namely reciprocity, exchange and redistribution, we first tested a reciprocity ring with ten players. The baseline treatment, with no possibility of socialisation, displayed very low levels of allocative efficiency. Consistently with the Polanyian approach to reciprocity, we found that inducing the notion of symmetry among the players increased efficiency levels significantly. We then simulated a market exchange, with significant allocative efficiency gains. We conclude that indirect-reciprocity rings among anonymous players can seldom function in the absence of definite institutional refinements, promoting forms of symmetry-acknowledgement.
External validity is the problem of generalizing results from laboratory to non-laboratory condit... more External validity is the problem of generalizing results from laboratory to non-laboratory conditions. In this paper we review various ways in which the problem can be tackled, depending on the kind of experiment one is doing. Using a concrete example, we highlight in particular the distinction between external validity and robustness, and point out that many experiments are not aimed at a well-specified real-world target but rather contribute to a 'library of robust phenomena', a body of experimental knowledge to be applied case by case.
Although it is now recognized that norms play an important role in many economic decisions, compl... more Although it is now recognized that norms play an important role in many economic decisions, compliance with conventions is generally considered to be driven by rational self-interest only. We report instead experimental data showing that (1) 'external' norms of fairness sustain social conventions that have emerged from repeated play of simple coordination games; and (2) with repetition such conventions acquire an 'intrinsic' normative power of their own. This creates pressure towards conformity, and patterns of regular behaviour that are far stronger and more stable than those that would be generated by mere self-interest and rationality. * Research for this paper was financed by the ESRC grant RES-000-22-1591 and the Computable and Experimental Economics Laboratory of the University of Trento. Early drafts were presented at the universities of Amsterdam, Cambridge, and Trento, a seminar of the British Society for Philosophy of Science, meetings of the International Network of Economic Method and of the Italian Society for the History of Economic Thought. We are grateful to members of these audiences, Ivan Moscati, Mario Gilli, Matteo Ploner, Marco Failla and two anonymous ESRC reviewers for their constructive feedback. Tim Miller and Marco Tecilla provided invaluable help in designing the software and running the experiments. The usual disclaimers apply.
this paper I have benefited from the valuable assistance of Marco Tecilla, and Dominique Cappelle... more this paper I have benefited from the valuable assistance of Marco Tecilla, and Dominique Cappelletti from CEEL. Marco wrote the software used to run the experiments and participated in all the different phases of the project and Dominique helped me with the statistical analysis. I also wish to thank Paul Webley, who helped me with ideas and constructive criticisms and by running one of the experiments at Exeter. As usual, all responsibility for mistakes or omissions is mine alone.
We experimentally study how institutional changes that incentivize blowing the whistle through a ... more We experimentally study how institutional changes that incentivize blowing the whistle through a leniency program affect tax compliance and corruption. In our experimental set up, we nest tax compliance within a corruption framework and systematically change the institutional environments in which participants have to declare taxes. Across four treatments, our design embodies between and within changes of institutions and thus allows us to analyze how deviant behavior and collusion is affected by both the history and the exogenous changes of institutions. We find higher tax compliance in the presence of a leniency program, while the introduction of such a regime causes the opposite reaction. Our results suggest that this effect is vastly different across gender and mainly driven by females. We provide evidence that the effectiveness of new political measures cannot reliably be judged in isolation, but must be considered in view of the actual institutional history, that is, the parti...
This paper experimentally investigates indirect tax evasion that requires the cooperation of an i... more This paper experimentally investigates indirect tax evasion that requires the cooperation of an intermediary. We explore the effectiveness of the introduction of a principal witness regulation as a means to facilitate tax compliance. Reactions show a significant drop in tax compliance that, surprisingly, is vastly different across gender with the effect being mainly driven by women. As a result, women decrease their tax compliance significantly reaching an even lower level than men who in turn do not react to the institutional change.
Business sustainability and real options are closely connected, as real options are managerial fl... more Business sustainability and real options are closely connected, as real options are managerial flexibility that allows organizations to adapt to changes in their environment, thus making the organization more robust and economically sustainable. Studies in real options theory abound, yet there is still a lack of evidence on whether people make decisions consistently with the predictions made by real options models. We run a laboratory experiment to study the role of option value and the laboratory time required to resolve uncertainty in individuals’ decision to price and adopt an option to wait. Specifically, we compare decision makers’ choices in two investment scenarios: One with a short time to maturity (implying a low option value), and another with a longer time to maturity (implying a high option value). In the lab, both scenarios are implemented with the waiting time of twenty and sixty minutes. Our results show that decision makers deviate from the theoretical predictions, r...
Managers frequently make decisions under conditions of fundamental uncertainty due the stochastic... more Managers frequently make decisions under conditions of fundamental uncertainty due the stochastic nature of the outcomes and competitive rivalry. In this study, we experimentally test a theoretical model under fundamental uncertainty and competitive rivalry by designing a sequential interaction game between two players. The first mover can decide either to choose a sure outcome that assigns a risky outcome to the second mover or to pass the decision to the second mover. If the second player gets the chance to decide, she can choose between a sure outcome, conditioned by the assignment of a risky payoff to the first mover, or the sharing of the risky outcome with the first mover. We then introduce the following experimental treatments: i) relegating second-mover participants to a purely passive role and substituting them with a random device (absence of strategic uncertaintythat is, when the source of uncertainty is a human subject); ii) providing information about the behaviour of second-mover counterparts; and iii) completely removing the second-mover participant. We find that decision makers are sensitive to the presence or absence of strategic uncertainty; indeed, in the presence of strategic uncertainty, first movers more often diverge from the behaviour predicted by the model. Given our experimental results, the theoretical model needs to be revisited. The standard model of monetary payoff-maximizing agents should be substituted by one of decision makers who maximize a utility function which includes the psychological cost induced by strategic uncertainty.
Arguably, for many citizens the perceived expected disutility from sanctions is smaller than the ... more Arguably, for many citizens the perceived expected disutility from sanctions is smaller than the monetary gain from tax evasion. Nevertheless most people pay their taxes most of the time. In a lab experiment, we show that the willingness to pay taxes even absent enforcement is indeed pronounced. Yet voluntary compliance is reduced if participants learn that income is heterogeneous. The effect is driven by participants with the lowest income. The reduction obtains irrespective of the tax regime. If the tax is proportional to income, or progressive, participants become more skeptical about the willingness of participants with high income to comply.
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Papers by Luigi Mittone