In this dissertation, we experimentally examine individual preferences of effort, including time and risk preferences. In Chapter 3, we find that at least in certain settings and mindsets, individuals are very patient in their time preferences for effort, choosing to distribute effort evenly over time periods. However, they do not always live up to the stated plans, suggesting dynamic inconsistency or possibly two separate decision-making systems in the mind. This relates to our model in Chapter 2: a dual-self model of allocating effort between time periods in working toward a larger goal including incomplete information between different mindsets in the same person. Chapter 4 examines the risk preferences for effort, as a measurement of the utility function of effort, and finds that in this setting, subjects are very risk-averse over effort, compared to their preferences over money: they greatly avoid the possibility of having to complete a large number of tasks. These experiments and model help provide an understanding of how individuals allocate the scarce resource of time and energy to tasks they must complete.

This dissertation comprises three essays. The unifying theme is experiments used as the empirical methodology. Each essay is an independent study, but aspects of behavior related to cooperation, trust, and entitlement are present in each essay. The first essay looks at the efficiency-equality tradeoff of increasing redistribution in a small group setting. Subjects generate a stronger sense of entitlement to their labor earnings by performing a real effort task. Subjects must trust other members of their group to work in order to keep labor a profitable activity under higher levels of redistribution. We find a significant efficiency-equality tradeoff explained by lowered work incentives. Labor supply decisions also show strategic and cooperative behavior similar to behavior found in public goods experiments. The efficiency-equality tradeoff calls for a reconsideration of increasing dependence on the public sector for charity provision. The second essay investigates how the application of a role-reversal protocol affects behavior in cooperative games. Subjects play all possible player roles in the game under a role-reversal protocol. We test if behavior results from a two-role trust game are robust to applying a role-reversal protocol. We find that paying subjects for one role leads to no significant role-reversal effect whereas previous studies paying for both roles find reductions in generosity in both roles. The third essay is co-authored with Dr. James C. Cox. We test for differences in trust-related behavior under private and common property environments. Subjects participate in payoff equivalent 2-person Private Property Trust Game or Common Property Trust Game. We strengthen property right entitlements by asking subjects perform a real effort task to earn their private or common property endowments. Strengthening entitlements leads to behavioral differences in the two trust games not previously found. We find second mover generosity in response to first mover decisions is lower in the Common Property Trust Game. Second movers are relatively less generous because first movers overturn the status quo opportunity set which is most generous and signals “full trust.” Many first movers anticipate this and respond optimally by choosing extremes which signal “full trust” or “no trust” in the game.

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The experiments presented and analyzed in this dissertation concern two well-established phenomena in behavioral economics: that human decision makers hold biased beliefs about probability and that free-form communication between economic agents promotes cooperation far in excess of what standard theory predicts. First, Chapter 2 studies subjective probability, focusing on the well-established existence of both the Hot Hand and Gambler's Fallacies — the false expectation of positive and negative autocorrelation, respectively. Both biases are prevalent throughout a wide variety of real-world contexts; what causes a person to favor one over the other? We conduct an experiment in which we observe fully informed subjects switching between the Hot Hand and Gambler's Fallacies when predicting future outcomes of mathematically identical sequences. Subjects exhibit the Gambler's Fallacy when predicting single outcomes but favor the Hot Hand when asked explicitly to estimate probabilities. Connecting our results to existing theory suggests that very subtle changes in framing lead decision makers to employ substantially different approaches to form predictions. The remainder of this dissertation studies cheap talk communication between human subjects playing incentivised trust games. In Chapter 3, we study free-form communication using a dataset of over 1000 messages sent between participants in a laboratory Trust game. We employ Natural Language Processing to systematically generate meaningful partitions of the messages space which we can then examine with established regression approaches. Our investigation reveals features correlated with trust that have not previously been considered. Most notably, highly detailed, specific promises establish trust more effectively than other messages which signal the same intended action. Additionally, we observe that the most and least trusted messages in our dataset differ starkly in their quality. Highly trusted messages are longer, more detailed, and contain fewer grammatical errors whereas the least trusted messages tend to be brief and prone to errors. In Chapter 4, we examine whether the difference is message quality affects trust by acting as a signal of effort. We report the results of an experiment designed to test whether promises which require higher levels of effort result in greater trust from their recipients. We find that more costly promises lead recipients to trust more frequently. However, there is no corresponding, significant difference in the trustworthiness of their senders. Further, when asked their beliefs explicitly, recipients do not believe that higher cost promises are more likely to be trustworthy. This presents a potential challenge to our understanding of trust between economic decision makers. If effort increases trust without altering receivers' beliefs, receivers must be concerned with factors other than their own payoff maximization. We conclude by presenting a follow-up experiment where varying effort cost cannot convey the sender's intentions, however, the results are inconclusive. / Doctor of Philosophy / This dissertation presents three projects in which we examine how human decision makers' choices differ from those predicted by standard economic theory. The experiments we conduct cover two broad topics: the way humans estimate the probability of random events and how communication leads to greater cooperation between agents with potentially conflicting monetary interests. It is well established that humans often hold distorted beliefs about probability. Depending on the direction of their bias, these beliefs are consistent with either the Hot Hand or Gambler's Fallacy. In Chapter 2, we examine the factors which may cause people to change the direction of their bias. Subjects exhibit the Gambler's Fallacy when predicting single outcomes, but favor the Hot Hand when asked explicitly to estimate probabilities. Chapters 3 and 4 study cheap talk communication between decision makers — messages which carry with them no commitment mechanism. It is no surprise to the average person that communication may enhance cooperation and trust between people. Experimental economists have verified this intuition in laboratory experiments and found that free-form communication is particularly effective. However, the precise mechanism through which free-form communication enhances cooperation is unclear. In Chapter 3, we collect a large dataset of free-form messages transmitted between players of an investment game. We then employ Natural Language Processing tools, novel to the Economics laboratory, to parse the unstructured data and identify message features associated with changes in trust and trustworthiness. Chapter 4 continues to examine communication, investigating whether the effort required to a promise affects its perceived or actual trustworthiness. We find that higher effort promises lead to greater trust, but find no corresponding increase in trustworthiness.

This dissertation reports a series of studies on social influences in decision making with wide ranging marketing implications in areas such as gamification initiatives, participative pricing mechanisms, and charity fundraising strategies. The body of this work comprises of three indepth, stand-alone studies. The first study, "Contagion of the Competitive Spirit: The Influence of a Competition on Non-Competitors", investigates the influence of a competition on noncompetitors who do not participate in it but are aware of it. In a series of experimental studies, the study shows that the mere awareness of a competition can affect a non-competitor's performance in similar tasks. These experiments provide confirmatory and process evidence for this contagion effect, showing that it is driven by heightened social comparison motivation due to mere awareness of the competition. In addition, the study finds evidence that the reward level for the competitors could moderate the contagion effect on the non-competitors. The second study, "The Negative Effects of Precommitment on Reciprocal Behaviour: Evidence from a Series of Voluntary Payment Experiments", examines the effects of precommitment on reciprocal behaviour towards a forthcoming benefit. Through a series of experiments in several countries, the study shows that precommitment often weakens reciprocal behaviour. In two field experiments, a laboratory and an online experiment, the study finds consistent evidence that voluntary payment amounts decrease for individuals who are asked to precommit their payment. The results from a final online trust-game experiment support the posited mental-accounting mechanism for the effect. The third study, "Hold-Up Induced by Demand for Fairness: Theory and Experimental Evidence", explores the domain of hold-up and fairness concerns. While recent research suggests that fairness concerns could mitigate hold-up problems, this study proposes a starkly opposite possibility: that fairness concerns can also induce hold-up problems and thus significant inefficiencies. The study reports theoretical analysis and experimental evidence of hold-up in scenarios in which it will not occur if agents are purely self-interested, but could occur if they care about fairness at ex post negotiation.