Thesis (Ph. D.)--University OF MICHIGAN.

Thesis (Ph. D.)--University OF MICHIGAN.

Thesis (Ph. D.)--University OF MICHIGAN.

Thesis (Ph. D.)--University OF MICHIGAN.

Thesis (Ph. D.)--University OF MICHIGAN.

Thesis (Ph. D.)--University OF MICHIGAN.

The Behavioral Bargaining Problem poses a trio of questions: (1) How do real economic agents behave in bargaining environments? (2) Why do they behave the way they do? and (3) What conditions/institutions sustain that behavior? This dissertation is about experimental results which suggest answers to each of these questions. Chapter 1 is a brief overview of early experiments which address how economic agents behave in bargaining environments. Under a wide variety of conditions a significant proportion of subjects' behavior deviates from that predicted by non-cooperative game theory. Chapter 2 tests several theories from behavioral game theory which aim at explaining why subjects cooperate in bargaining games. These models can be partitioned into two classes: outcome-based and intention-based. Outcome-based models treat the intentions that players attribute to one another as unnecessary for predicting behavior. Intention-based approaches, and in particular the trust and reciprocity hypothesis, rely on this attribution of intentions in an essential way. I report laboratory data from simple two-person trust games which is inconsistent with outcome-based models, but predicted by the trust and reciprocity hypothesis. Chapter 3 is devoted to exploring one way of sustaining cooperative behavior in a simple two-person trust environments. It is well-known in evolutionary game theory that "clustering" in a population can allow an evolutionary stable strategy to be invaded in a finitely repeated Prisoners' Dilemma game. This idea can be adapted to bargaining by noting that an agent's history of choices gives him a track record. Players can be typed based on their recent track record as whether or not they are trusting (for Players 1), and whether or not they are trustworthy (for Players 2). Once the players are typed, they can then be paired according to those types: trustors with trustworthy types, and similarly non-trustors with untrustworthy types. This sort of matching protocol induces clustering within the population. The empirical question is whether this adaptation of clustering to bargaining environments can sustain cooperative play analogous to the situation in finitely repeated Prisoners' Dilemma games. The results indicate that such a sorting mechanism allows cooperative play to emerge and, once it emerges, sustains it over time.

Some scarce resources, like a factory production line, produce a steady but fixed flow of goods or services. The difficulties common to their efficient use are exemplified by the problem of scheduling a single machine. Scheduling even a single machine is NP-hard--nonetheless, simulated bidders and human bidders can achieve 80 to 99 percent efficiency in a market for scheduling. These success rates are higher than heuristic algorithms currently in use. A market for scheduling provides an incentive to accurately report valuations. Combining operations research and experimental economics, this study presents and tests a prototype for a continuous time, combinatorial market for scheduling. This study reveals that real-time combinatorial markets are possible with off-the-shelf technology. In addition, such markets could be implemented to more efficiently solve problems of personnel and resource scheduling.

This dissertation investigates human economic behavior in contexts which are characterized by different types of human interaction. First, we analyze the effects of introducing asymmetric information in an investment game (Berg et al., 1995), in which the division of an economic surplus between a trustor and a trustee is not contractible. Backward induction suggests that rational self-interested players would not voluntarily engage in any transaction, unless they expect trust and reciprocity to play a role in determining the behavior of their counterparts. In our experiment, only the trustee is aware of the size of the surplus obtained, so the trustor cannot tell if a low back-payment corresponds to a low or a high level of reciprocity. The introduction of asymmetric information in the investment game does not reduce the amounts sent and returned, when compared with previous experimental studies. Moreover, average payback levels increase with the average amount sent. Expectations about other's behavior and risk attitude are also elicited in the experiment. Our results show that the first movers' choices are functions of their expectations about the second movers' payback, and the second movers' choices depend on the difference between the amount the first movers have sent to them and their expectations about this amount. In the second part of the dissertation, we carry out a theoretical and experimental analysis of the problem of double moral hazard arising in a context of asymmetric information. We design a two-stage experiment to analyze a market for durable goods with warranties. In such a market, double moral hazard may arise as the seller can reduce (or increase) the initial quality of the product, while the buyer can reduce (or increase) the maintenance effort. In the first stage of the experiment, we analyze the impact of the warranty on the equilibrium levels of the product's initial quality and the effort of the buyer. In the second stage, we analyze the role of signaling and reputation in an intertemporal model. There, we show the suboptimality of the equilibria with warranty. We conclude that buyers will accept deviation from equilibrium price induced by sellers of durable goods with warranties. In the third and, last part of the dissertation, we design an experiment to study the strategic dependency in two-person iterated zero-sum games, and propose an account of the evidence for large variance in players' win rates across pairs of opponents. Our experiment controls the structure of the interdependence between players. This is achieved by using a computer program as one of the two players. The experimental analysis allows us to distinguish strategic dependence from non-strategic dependence in subjects' play.

Trade developed through barter, an institution requiring the double coincidence of wants. Fiat money subsequently arose to provide traders with a mechanism for exchange in decentralized markets while avoiding the problems associated with commodity monies. Currently, every major modern economy uses fiat money and numerous Internet economies are developing private fiat monies, yet traditional economic theories, such as general equilibrium or Walrasian models, provide little insight. This work develops the concept of a coordination equilibrium model, which maintains fiat money's role as a medium of exchange. The potential instability of fiat money is apparent from observed hyperinflationary episodes. Civil unrest and real purchases financed by printing money are also associated with hyperinflations. These factors lead to an experimental design addressing the stability of intrinsically valueless money. Via controlled laboratory experiments, subjects trade fictitious commodities for fiat money in a circular flow economy. The experimental results indicate that under a long trading horizon with no money creation, fiat money provides a stable medium of exchange and the economy realizes almost maximum efficiency, a result consistent with the coordination equilibrium model but not with standard economic models. Shortening the trade horizon causes a decrease in efficiency. However, the ability to create money leads to hyperinflationary trade patterns independent of the horizon. Further, the experimental results demonstrate that the collapse is not caused by an increasing money supply but rather the result of interference in the real price discovery process. As the party issuing money is often an active participant, this economic instability creates a problem in the design of decentralized economic systems. Forcing the monetary authority to balance fiscal spending with the level of tax collection is a potential solution. Experimental evidence demonstrates that a balanced budget results in a pattern of market activity similar to that observed in fiat money economies when the government is inactive. This level of trade is achieved by private agents "crowding out" the government. Further, this effect is not due to the introduction of inside money, money that derives value within the system as tender for tax payment.