UC Santa Cruz

Abstract 1: We present a three-player game in which a decision-maker, in the role of referee, accepts or rejects the offer made by a proposer to a passive receiver. If the offer is accepted, the split takes place as suggested, if rejected both proposer and passive receiver get $0. The payoff of the decision-maker, on the other hand, will be the treatment variable. Our results show a decision-maker that ignores his payoffs, but that is so concerned about equality among other players rejecting both selfish and generous offers. When we introduce a cost to rejecting proposals, we are able to show that inequality aversion is the only reason behind rejections.

Abstract 2: When should a necessary inconvenience be introduced gradually, and when should it be imposed all at once? The question is crucial to web content providers. In a setting where people eventually fully adapt to changes, the answer depends on the shape of the "survivor curve" S(x), which represents the fraction of a user population willing to tolerate inconveniences of size x.We report a laboratory experiment that estimates the shape of survivor curves in several different settings. Our key finding is that web content providers will generally find it profitable to introduce inconveniences gradually over time.

Abstract 3: There is consensus that the recent financial crisis revolved around a crash of the short-term credit market. Yet there is no agreement around the necessary policies to prevent another credit freeze. In this experiment we test the effects that contract length has on the market-wide supply of short-term credit. Our main result is that, while credit markets with shorter maturities are less prone to freezes, the optimal policy should be state-dependent, favoring long contracts when the economy is in good shape, and allowing for short-term contracts when the economy is in a recession. We also report runs on firms with strong fundamentals, and rich learning dynamics, with a text-book bubble and crash pattern in the short-term credit market.