Essays on social preferences and strategic interactions : an experimental economics analysis

This thesis consists of four self-contained essays on social preferences and strategic interactions. Chapter 1 explores non-binding default options in voluntary contribution games. It is well documented that people are reluctant to switch from a default option. We experimentally test the robustness of this behavioral inertia by varying the default option type. We examine the impacts of automatic-participation and no-participation default options on subjects’ participation in a public goods provision and their contributions. Our experimental results square with the evidence of behavioral inertia only when the automatic-participation default is used. This default boosts contributions in the linear public goods game but not in the threshold public goods game. The evidence of partial stickiness is robust to the variation of the game employed, but the effect on contribution is sensitive to it. Chapter 2 studies the role of liquidation policy and disclosure of credit history in financial contracting. In the presence of contract incompleteness and asymmetric information, liquidation policy plays an important role in financial contracting. Liquidation is a double-edged sword. It deters borrowers from defaulting strategically, but it could be harsh to borrowers experiencing short-term liquidity problems. This chapter presents an experimental analysis of the impacts of (1) liquidation policy on borrowers’ incentive to engage in strategic default and (2) disclosure of credit history information on lending relationships and borrowers’ behaviors. We show that liquidation policy deters borrowers from defaulting strategically, and the availability of credit information softens the liquidation policy and helps reduce strategic defaults. Chapter 3 studies altruistic punishment in the face of direct externality and selfish temptation. By giving the third party an opportunity to misappropriate the punishment-induced windfall money, we investigate to what extent a third party’s willingness to punish is motivated by kind intentions. We find that a significant proportion of third parties succumb to this temptation. Interestingly, more altruistic third parties impose lesser punishments suggesting that they are aware of the temptation and want to pre-commit to reducing the misappropriation by reducing the windfall money available. We also explore the motivation behind altruistic punishment. Two broad motives are examined: the retributive motive and the distributive motive. Our results are in line with the retributive motive. Chapter 4 experimentally investigates the role of information transparency for equilibrium selection in stag hunt coordination games. These games can be transformed from a prisoner’s dilemma game by introducing a centralized reward or punishment scheme. We aim to explore the impact of the disclosure of information on how final payoffs are derived from players’ incentive to coordinate on the payoff-dominant equilibrium. We find that such information disclosure significantly increases the tendency of players to play payoff-dominant action and reduces the occurrence of coordination failure. The mechanism works directly through the positive impact of disclosure on the saliency of the payoff-dominant equilibrium, and indirectly through the positive influence of disclosure on players’ belief about the likelihood of payoff-dominant plays by other players.DOCTOR OF PHILOSOPHY (HSS