Ultimatum decision-making: A test of reciprocal kindness

While fairness is often mentioned as a determinant of ultimatum bargaining behavior, few data sets are available that can test theories that incorporate fairness considerations. This paper tests the reciprocal kindness theory in Rabin (1993 Incorporating fairness into game theory and economics, The American Economic Review 83: 1281-1302) as an application to the one-period ultimatum bargaining game. We report on data from 100 ultimatum games that vary the financial stakes of the game from $1 to $15. Responder behavior is strongly in support of the kindness theory and proposer behavior weakly in support of it. Offer percentages and past offers influence behavior the most, whereas the size of the pie has a marginally significant effect on offer percentages. The data is more in support of reciprocal kindness than alternative theories of equal-split or learning behavior, although the data also weakly support a minimum percentage threshold hypothesis. As a whole, our results together with existing studies suggest that, for smaller stakes games, fairness considerations dominate monetary considerations. This has implications for more complicated naturally occurring bargaining environments in which the financial stakes can vary widely.     

Interpersonal comparisons of utility in bargaining: evidence from a transcontinental ultimatum game

This article presents the experimental results of a “Transcontinental Ultimatum Game” implemented between India and France. We use a standard ultimatum game, but in one treatment, Indian subjects made offers to French subjects (ItoF treatment) and, in another treatment, French subjects made offers to Indian subjects (FtoI treatment). We observed that FtoI treatment bargaining mostly ended up with unequal splits of money in favor of French, while nearly equal splits were the most frequent outcome in ItoF treatment interactions. The experimental results are organized through a standard social reference model, modified for taking into account the different marginal value of money for bargainers. In our model, bargaining is driven by relative standing comparisons between players, occurring in terms of real earnings (that is monetary earnings corrected for a purchasing power factor) obtained in the game. The norm of equity behind the equalization of real earnings is called local equity norm, and contrasted to a global equity norm which would encompass the wealth of players beyond the game. According to what we observed, no beyond-game concern seems to be relevantly endorsed by subjects.     

No Switchbacks: Rethinking Aspiration-Based Dynamics in the Ultimatum Game

Aspiration-based evolutionary dynamics have recently been used to model the evolution of fair play in the ultimatum game showing that incredible threats to reject low offers persist in equilibrium. We focus on two extensions of this analysis: we experimentally test whether assumptions about agent motivations (aspiration levels) and the structure of the game (binary strategy space) reflect actual play, and we examine the problematic assumption embedded in the standard replicator dynamic that unhappy agents who switch strategies may return to a rejected strategy without exploring other options. We find that the resulting “no switchback” dynamic predicts the evolution of play better than the standard dynamic and that aspirations are a significant motivator for our participants. In the process, we also construct and analyze a variant of the ultimatum game in which players can adopt conditional (on their induced aspirations) strategies.     

Moral judgments,gender, and antisocial preferences: an experimental study

We study questionnaire responses to situations in which sacrificing one life may save many other lives. We demonstrate gender differences in moral judgments: males are more supportive of the sacrifice than females. We investigate a source of the endorsement of the sacrifice: antisocial preferences. First, we measure individual proneness to spiteful behavior, using an experimental game with monetary stakes. We demonstrate that spitefulness can be sizable—a fifth of our participants behave spitefully—but it is not associated with gender. Second, we find that gender is consistently associated with responses even when we account for individual differences in the propensity to spitefulness.     

Central bank credibility and monetary policy in Indonesia

This paper examines the role of central bank credibility in achieving an inflation target and proposes monetary policy rules for Indonesia. Towards that end, we construct and estimate a forward-looking small scale macroeconomic model (SSMM) of the Indonesian economy by adapting the theoretical underpinnings of the well-known Batini–Haldane model, along with the Taylor policy rule. Our results indicate that it is crucial for the Indonesian central bank to bolster its credibility in order to achieve a lower inflation rate. The inflation–output volatility trade-off frontier we derived from the SSMM shows that a monetary policy rule that targets both inflation and output gaps will result in less macroeconomic volatility. We also found that the inclusion of the exchange rate into the rule as an additional feedback variable warrants consideration in the future course of monetary policy management.     

Policy simulations with a macroeconometric model of the Indian economy

In this paper, the results of various dynamic policy simulations are analyzed within the context of a macroeconometric model of the Indian economy. The model contains 35 equations and offers a consistent framework for policy analysis. It is considerably expanded on the side of the fiscal sector and usefully incorporates the interdependence between monetary and fiscal sectors and gives due attention to supply side considerations. Magnitudes of effects of sustained policy changes are analyzed for the period 1964–1965 to 1974–1975. Impact multipliers and elasticities are also analyzed. Government expenditures variables and deficit financing are shown to have substantial impact on the system whereas changes in tax-rates, discount-rates, and liquidity ratios for commercial banks are shown to have only a marginal impact. The model is used for exploring the growth potential of the economy in a forecast period of five years under alternative assumptions regarding policy options.     

Ordinal equivalence of power notions in voting games

In this paper, we are concerned with the preorderings (SS) and (BC) induced in the set of players of a simple game by the Shapley–Shubik and the Banzhaf–Coleman's indices, respectively. Our main result is a generalization of Tomiyama's 1987 result on ordinal power equivalence in simple games; more precisely, we obtain a characterization of the simple games for which the (SS) and the (BC) preorderings coincide with the desirability preordering (T), a concept introduced by Isbell (1958), and recently reconsidered by Taylor (1995): this happens if and only if the game is swap robust, a concept introduced by Taylor and Zwicker (1993). Since any weighted majority game is swap robust, our result is therefore a generalization of Tomiyama's. Other results obtained in this paper say that the desirability relation keeps itself in all the veto-holder extensions of any simple game, and so does the (SS) preordering in all the veto-holder extensions of any swap robust simple game.     

An experimental study of the generosity game

We study ultimatum and dictator variants of the generosity game. In this game, the first mover chooses the amount of money to be distributed between the players within a given interval, knowing that her own share is fixed. Thus, the first mover is not confronted with the typical trade-off between her own and the other’s payoff. For each variant of the game, we study three treatments that vary the range of potential pie sizes so as to assess the influence of these changes on the first movers’ generosity. We find that removing the trade-off inspires significant generosity, which is not always affected by the second mover’s veto power. Moreover, the manipulation of the choice set indicates that choices are influenced by the available alternatives.     

On the independence of history: experience spill-overs between experiments

A central understanding in experimental economics is that subjects’ decisions in the lab are independent of history. We test whether this assumption of between-experiment independence is indeed justified. We analyze experiments with an allocation decision (like a dictator or ultimatum game) and find that participation in previous experiments tends to increase the amount subjects allocate to themselves. Hence, independence between experiments cannot be presumed if subjects participate repeatedly. The finding has implications for the interpretation of previous allocation decision results and deserves attention when running future experiments.     

A Banzhaf share function for cooperative games in coalition structure

A cooperative game with transferable utility–or simply a TU-game– describes a situation in which players can obtain certain payoffs by cooperation. A value function for these games assigns to every TU-game a distribution of payoffs over the players. Well-known solutions for TU-games are the Shapley and the Banzhaf value. An alternative type of solution is the concept of share function, which assigns to every player in a TU-game its share in the worth of the grand coalition. In this paper we consider TU-games in which the players are organized into a coalition structure being a finite partition of the set of players. The Shapley value has been generalized by Owen to TU-games in coalition structure. We redefine this value function as a share function and show that this solution satisfies the multiplication property that the share of a player in some coalition is equal to the product of the Shapley share of the coalition in a game between the coalitions and the Shapley share of the player in a game between the players within the coalition. Analogously we introduce a Banzhaf coalition structure share function. Application of these share functions to simple majority games show some appealing properties.     

Regional asymmetries in monetary transmission: The case of South Africa

PPP is unlikely to hold instantaneously for all commodities across the different regions of a monetary area. It is therefore possible that monetary expansions or contractions will have different effects in different regions, if there are regional asymmetries in the monetary transmission mechanism. We estimate the size of such asymmetries across the nine provinces of South Africa over the period 1997–2005. There are large and statistically significant differences in the response of prices to monetary expansions and contractions. The problems arising from transmission mechanism asymmetries are not restricted to international monetary unions.     

The inflation–output volatility trade-off: a case where anti-inflation monetary policy turns out to be successful, a historical assessment

Over the period 1988–2000, the Greek monetary authorities seemed to have implemented a successful disinflation policy. The question, however, is whether this disinflation was optimal or not. This paper, through a theoretical model and the GMM approach, constructs an optimal policy frontier in terms of a trade-off between output and inflation variabilities. The frontier yields increases in the output variance when policymakers attempt to decrease inflation variances, and vice versa. The location of the actual monetary policy performance suggests a policy close to the frontier, implying a successful monetary policy.     

On Primary Commodity Prices: The Impact of Macroeconomic/Monetary Shocks

The hypothesis of a long-run quantifiable relationship between non-oil primary commodity prices and macroeconomic/monetary variables—focusing industrial production and effective exchange rate of the US dollar—is tested by cointegration technique using quarterly data for 1970q2–93q3. This confirmed equilibrium adjustment explains the origin of the observed coincidence of commodity price variations with the fluctuations of macroeconomic/monetary variables. An error correction specification, including interest rate, is therefore applied to estimate the observed disequilibrium prices of commodities in the context of steady-state solutions. This instantaneous adjustment explains why commodity prices have fluctuated more strongly over the last 2 decades than before.     

What accounts for China''s trade balance dynamics?

This paper proposes a structural VAR model which extends the frameworks of Hoffmaister and Roldós [Hoffmaister, A. W., & Roldós, J. E. (2001). The sources of macroeconomic fluctuations in developing countries: Brazil and Korea. Journal of Macroeconomics, 23, 213–239] and Prasad [Prasad, E. S. (1999). International trade and the business cycle. Economic Journal, 109, 588–606]. The model is then used to analyse the sources of China's trade balance fluctuations in the period of 1985–2000. Efforts are made to distinguish the forces which underlie the long-run trend in trade balance from those with transitory impacts. The effects of four types of shock are examined—the foreign supply shock, the domestic supply shock, the relative demand shock and the nominal shock. Among other findings, two emerge as important. First, the movements in China's trade balance are largely the result of real shocks. Second, the Renminbi is undervalued, yet changes in the exchange rate bear little on the trade balance. Therefore, monetary measures would not suffice to redress China's trade ‘imbalance’.     

Do broad money, output, and prices stand for a stable relationship in India?

This study investigates the stability of the relationship among M3 money, output, and prices. The empirical results derived from conventional stability tests, cointegration and error correction models and a test for structural break in a cointegrating vector provide evidence for the existence of a fairly stable relationship among these variables during 1951–1952 to 2000–2001. The evidence suggests that the growth of M3 money can be used as one of the potential indicators of future movement in prices within the multiple indicators framework of the Reserve Bank of India (RBI). However, evidence regarding the short run dynamic adjustment among these variables indicates that active monetary policy to stabilize short run fluctuation in prices must be handled with caution, as it would amplify rather than moderate price fluctuations in the long run.     

Implementing equal division with an ultimatum threat

We modify the payment rule of the standard divide the dollar (DD) game by introducing a second stage and thereby resolve the multiplicity problem and implement equal division of the dollar in equilibrium. In the standard DD game, if the sum of players’ demands is less than or equal to a dollar, each player receives what he demanded; if the sum of demands is greater than a dollar, all players receive zero. We modify this second part, which involves a harsh punishment. In the modified game \((D\!D^{\prime })\) , if the demands are incompatible, then players have one more chance. In particular, they play an ultimatum game to avoid the excess. In the two-player version of this game, there is a unique subgame perfect Nash equilibrium in which players demand (and receive) an equal share of the dollar. We also provide an \(n\) -player extension of our mechanism. Finally, the mechanism we propose eliminates not only all pure strategy equilibria involving unequal divisions of the dollar, but also all equilibria where players mix over different demands in the first stage.     

On the predictive power of the term structure of interest rates for future inflation changes in the presence of political instability: the Turkish economy

This study investigates whether the term structure contains useful information about future inflation for Turkey during 1990–2000, a period of high inflation, high budget deficits, and political instability. Constant parameter and time varying parameter models are rejected by the data. The relationship between term structure of interest rates and inflation changes is found to be explained by a time-varying-parameter model with Markov-switching heteroskedastic disturbances. Thus, the term structure of interest rates is limited as a guide for monetary policy in an economy subject to regime changes such as that of Turkey. Stability can be achieved only by reducing inflation through circumscribing substantial government budget deficits and the political instability underlying them.     

Are corrupt acts contagious?: Evidence from the United States

This paper adds to the literature by shedding new light on the causes of corruption. Specifically, we provide evidence on the extent to which corruption might be contagious. In other words, what is the extent to which a demonstration effect is at play at inducing corrupt acts? Using state-level U.S. data over the 1995–2004 period, the results show that the effect of neighboring corruption is positive and statistically significant in all cases, implying that corruption does appear to be contagious. Specifically, a 10% increase in corruption in neighboring states appears to increase corruption in a state by about 4–11%. Of the different types of government activity, the size of defense and non-defense federal sectors in a state seem to have opposite effects on corruption, with the former contributing to corruption and the latter serving as a deterrent. The size of the state and local governments does not seem to be relevant. Of the variables controlling for detection and punishment of corrupt individuals, greater corrections employment reduces corruption, while greater judicial employment seems to increase corruption. Changes in the police force do not seem to have a statistically significant impact. These findings generally hold when we control for the disproportionate effects of the Washington, DC area and when a pooled data set is estimated. Contagion effects are also found for other crimes. Policy implications are discussed.     

Living Healthy and Living Long: Valuing the Nonpecuniary Loss from Disability and Death

This analysis uses three valuation approaches—risk–risk tradeoff, paired risk–dollar comparison, and utility function estimation—to estimate the nonpecuniary cost associated with disability in late life. In addition, we obtain an estimate of the value of life using a paired risk–dollar comparison. The data were obtained from interviews with 548 persons using an iterative computerized questionnaire. Respondents reported a median value of life of $12 million. They were willing-to-pay .7–1.4 million to avoid disability in late life or approximately $47–$95 thousand for each year of disability over age 62. The results were robust to the valuation technique employed.     

The Euro, income disparity and monetary union

This paper looks at the impact of the UK joining the Euro on compatibility between the UK and the Euro zone. We construct a theoretical model to capture such effects, and then estimate the model using data from the period 1980–1999 (the period covering the existence of the ECU and the Euro). Particular attention is paid to the actual dynamics of the system and the important roles of monetary and fiscal policy. We find that the dynamic path of the UK and Euro members is stable and that UK monetary policy is in line with that of its Euro zone neighbours in a way that would be close to that expected if the UK were already a member of the Euro zone.