Econs_different - journal of Economic Perspr’clnrmi Valium 5 Number 2—Spring I 991—l’ogras 171—1 77 Are Economists Different john R

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Unformatted text preview: journal of Economic Perspr’clnrmi Valium 5. Number 2—Spring I 991—l’ogras 171—1 77 Are Economists Different? john R. Carter and Michael D. Irons re economists different? They profess to have a distinctive way of understanding and interpreting the world. But are they different in more fundamental ways? Do they make choices that are measurably different? Some evidence suggests they do. In a well—known study of the provision ol'public goods, Marwell and Ames (198]) found that free riding was significantly greater among a group of economics graduate students than among other student groups in their experiments. Marwell and Ames offered two conjectures for why economics students might in fact behave differently. First. students who are particularly concerned with economic incentives might self-select into economics. In addition. or alternatively, economics students might adapt their behavior over time to the basic axioms of the theories they study. These conjectures may be called respectively the selection and learning hypotheses. in this paper we explore whether Marwell and Ames’ result is robust— whelher economists are indeed different. In particular, we use a simple ultima- tum bargaining experiment to test whether economics students behave more in accordance with predictions of the rational/self—interest model of economics. l jolt-n R. Curler is Associate. Professor of Economics, College of the Holy Cross, Worcester, Mossorlnoells. Michael D. 1mm is o 1989 honors graduate of Holy Cross. 172 journal of Economic Prrxpcrliws How Might We Tell If Economists Are Different? In designing our experiment, we wanted to allow for both selection and learning effects. Hence, using randomized lists provided by the college regis- trar, we recruited 92 student subjects from four populations at the College of the Holy Cross: (1) freshman noneconomists, who had declared a major other than economics and were not enrolled in an economics course; (2) freshman economists, who had declared economics as their major and were enrolled in the first—semester macroeconomics course; (3) senior noneconomists, who had majored in a subject other than economics and had taken no college courses in economics; and (4) senior economists. who were completing a major in eco- nomics. Potential subjects Were invited to participate in an experiment which involved “decision—making processes" and would require approximately 30 minutes of their time. Experimental sessions were scheduled during evenings over a one-and«a-half Week period. Uniformity across sessions was maintained by conducting the experiment with a tape reCording and printed instructions. Subjects were given $2 for participating and were told that additional monetary payments would be made subsequently depending upon the outcome of the experiment. The experiment involved a simple ultimatum bargaining game similar to that used originally by Guth, Schmittberger. and Schwarze (1982) and modified by Kahneman, Knetsch, and 'l‘haler ([986). 'I‘haler (1988) presents a succinct introduction to ultimatum games in this journal; additional reviews are pro- vided by Sutton (1987) and Ochs and Roth (1989). The particular game we employed consists of two players, called here Proposer and Responder, whose task is to divide $10 between themselves. Proposer proposes a division of the 2510. Any division is permissible as long as the two amounts are in multiples of $0.50 and sum to $10. Responder decides whether the proposed division is acceptable. If Responder accepts the proposed division, the $10 is di- vided accordingly. If Responder rejects the proposed division, each player receives $0. The game-theoretic solution is straightforward. at least in comparison to many other experimental games. Assume that both players act in accordance with the rational/selllinterest model. Responder prefers any positive offer to $0. Knowing this. Proposer proposes a division with $9.50 to Proposer and $0.50 to Responder. Responder accepts. The experiment was designed to solicit from subjects their decisions for both the Responder and the Proposer roles. First, from the position of Respon- der, subjects were required to indicate which divisions. if proposed by Pro— poser, were acceptable and which were unacceptable. From this information we determined each subject’s minimum acceptable amount as Responder. Next. from the position of Proposer, they were required to propose a division of the 3H]. From this information we determined each subject‘s proposed amount to john R. Carter and Mathew! D. [ram 1 73 Table 1 Sample Mean Amounts A. Sample Mearzsfar Responders hfz'rtimum Acceptable :lmmm! Freshmen Seniors 'l'otal Economists 1.38 1.98 I .70 (1.54) (1.82) (1.70) Noneconomists 2.85 LS3?) 2.44 (1.57) (1.70) {1.67) Total ‘ 2.21 1.98 2.09 (1.70) (1.74) (1.72) .8. Sample Means for Pmpnsrr'x Amount Kppt Freshmen Seniors 'l'otal Economists 6.30 6.02 6.15 (1.4)) (L30) (L37) Noneconomisls 5.55 5.20 5.44 (1.07) (0.49) (0.87) Total 5.93 5.61 5.77 (1.525) (1.11)) (1.18) Standard deviations are in parentheses. be kept as Proposer. These two amounts. Responder's minimum acceptable amount and Proposer’s amount to be kept, constitute the dependent variables in our statistical analysis. For convenience, we call them amount acceptable and amount kept. At the completion of the experimentation. subjects were ran- domly paired. roles assigned, and payoffs determined and distributed. Economists Accept Less and Keep More In Table l we report sample means for our two dependent variables: Responder's amount acceptable and Proposer’s amount kept. Note that on average economists accepted a minimum of'$l.70 and proposed to keep $6.15. Corresponding figures for noneconomists were $2.44 and $5.44, thus suggest- ing that economists are different. for amount acceptable and amount kept _ the null hypothesis of no difference is rejected at better than the 2.5 percent significance level (one-tailed). Pooling freshmen and seniors, economists” behavior on average is closer to that 174 journal ol'Emnomir Perwprrtiwx predicted by the economic model: economists accept less and propose to keep more. lfo journal of Erriitmrtit' Perspectives Concluding Remarks Several final points about oLtr experiment should be noted. First, some student subjects might have taken an economics course in high schoolr thus allowng learning,r (and selection) prior to the freshman year. Clearly. it might be useful in future experimentation to control for this possibility. While we have no data, ottr sense is that in the past only a small minority of freshmen have had prior trainng in economics. Also. we are somewhat reassured by the fact that our senior economists had completed three years of undergraduate study in economics. yet for them we found no clear learnng effect. This also lessens our concern that the freshman economists had completed two months of econotnics principles at the time of the experiment. Further, these two tnonths involved macroecom)mics, not microecottomics where the axioms of neoclassical economics are tnore explicit. Some readers have also expressed concern that if our subjects were permitted to play the bargaining game, say. four or live times. their choices would converge toward the economic solution due to increased understanding of the game; the gap between economists and noneconomists would thereby narrow. lll experiments tnore complex than ours, Neelin. Sonnenschein. and Spiegel (1988) and ()chs and Roth “989) find no such convergence in multi- john R. Carter and Michael D. from I 77 stage ultimatum games with repeat play. Moreover, as indicated above, when we controlled for subjects' understanding of economic incentives, we still found that economists were different. LaStly, we note that while economists in our experiment behaved more in accordance with the rational/self-interest model, this does not mean that their behavior was accurately predicted by the model. Economists in our sample on average were willing to accept no less than $1.70, four standard deviations from the predicted $0.50. On average they proposed to keep $6.15, fifteen standard deviations from the predicted $9.50. Forty percent of them proposed an even split of the $l0.00. It seems even economists sometimes fall short of the behavior expected of all good homines economici. Our results, like those of Marwell and Ames, indicate that economists are different. Reactions to our findings have ranged from “yes,just what I thought" to “ no, [just don't buy it." We fall somewhere in-between and would like to see more evidence generated. We are happy to provide complete instruCtions for our experiment. Our hope is that others will try the experiment or one like it at their schools and let us know what they find. I This research was supported the College of the Holy Cross and Procter {9° Gamble and Household International grants to the Department of Economics. Special apprecia— tion is due to Charles Anderton, james Andreoni, Olivier Blanchard, Elaine Rymlers, Kathryn Dorman, Robert Frank, Ann Gillette, Robert Haveman, Michael Lynch, Michael Peddle, David Schap, Carl Shapiro, jams Shepperd, Timothy Taylor, and Richard Thaler. References Guth, Werner. Rolf Sehmittberger, and Bernd Schwaree, "An Experimental Analysis of Ultimatum Bargaining," jounial ofEcortomic Behavior and Organization. December 1982, 3. 367—88. Kahneman, Daniel, Jack I... Knetsch, and Richard H. Thaler, "Fairness and the As- sumptions of Economics." journal of Business, October 1986. 59, 8285—5300. Marwell, Gerald. and Ruth E. Ames, “Economists Free Ride. Does Anyone Else?" journal of Public Economics. June l98l. l5. 295—3l0. Neelin, Janet. Hugo Sonnenschein, and Matthew Spiegel, "A Further Test of Nonco- operative Bargaining Theory: Comment." American Economic Review, September l988. 78. 824—836. Ochs, Jack, and Alvin E. Roth, "An Experi- mental Study of Sequential Bargaining," American Economec Review. june 1989. 79, 355—34. Sutton, john, “Bargaining Experiments," European Economic Review, February/March [987, 3!, 272—8‘1 Thaler, Richard H., “The Ultimatum Game." journal of Economic Perspectives. Fall 1988. 2. “35—206. ...
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Econs_different - journal of Economic Perspr’clnrmi Valium 5 Number 2—Spring I 991—l’ogras 171—1 77 Are Economists Different john R

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