The FCA was the first financial regulator with a behavioural economics unit and published an influential paper on the organisation’s use of behavioural economics back in 2013. Our more recent work includes lab and field experiments on fund charges, overdraft alerts and credit card repayments.
Many Internet service companies such as providers of two-sided markets, social networks, or online games rely on the social interaction between their user base and thus capitalize from positive network effects. For such companies, a common strategy is to offer (basic) services for free (and thereby abolish entry barrier of a one-off or recurring price) and to charge their users for premium services. Companies such as eBay, PayPal, LinkedIn, or Skype added paid services to their originally free business models, either via subscriptions, PAYG, or direct sales of virtual items. Their strategy how to make money and whom to bill however differs widely. In the Internet business, ‘monetization’ has become a frequently used buzzword for all aspects of a company’s revenue strategy which includes the decision who should be billed (e.g., for a two-sided market: seller vs. buyer vs. advertisers only), with which price model (e.g., mandatory subscription vs. optional subscriptions vs. selling virtual currency or items) and price level (e.g., differentiated between user groups), and – in case of a freemium strategy – how a new (free) user can be converted most efficiently into a paying and remunerative customer (e.g., via effective CRM measures). The overarching objective of all monetization measures is to maximize the company’s revenue and/or profit. The field of monetization offers a wide field of research opportunities. Four of these are covered in this dissertation: The Name-your-own-price model, users’ spending behavior in virtual communities, the monetization of network effects in social networks, and the legal boundaries of social network usage. As a result, this dissertation solves a series of questions currently being worked on by practitioners and uses a wide range of methods from various disciplines such as economic, psychological, and game theory.
|By:||Romeo Matthew Balanquit (School of Economics, University of the Philippines Diliman)|
This study presents how selection of equilibrium in a game with many equilibria can be made possible when the common knowledge assumption (CKA) is replaced by the notion of common belief. Essentially, this idea of pinning down an equilibrium by weakening the CKA is the central feature of the global game approach which introduces a natural perturbation on games with complete information. We argue that since common belief is another form of departure from the CKA, it can also obtain the results attained by the global game framework in terms of selecting an equilibrium. We provide here necessary and sufficient conditions. Following the program of weakening the CKA, we weaken the notion of common belief further to provide a less stringent and a more natural way of believing an event. We call this belief process as iterated quasi-common p-belief which is a generalization to many players of a two-person iterated p-belief. It is shown that this converges with the standard notion of common p-belief at a sufficiently large number of players. Moreover, the agreeing to disagree result in the case of beliefs (Monderer & Samet, 1989 and Neeman, 1996a) can also be given a generalized form, parameterized by the number of players.
|Keywords:||common p-belief; common knowledge assumption; global games|
|By:||Tiziana Medda (University of Cagliari)
Vittorio Pelligra (University of Cagliari)
Tommaso Reggiani (LUMSA University)
One of the most common criticisms about the external validity of lab experiments in economics concerns the representativeness of participants usually considered in these studies. The ever-increasing number of experiments and the prevalent location of research centers in university campuses produced a peculiar category of subjects: Students with high level of laboratory experience built through repeated participations in experimental sessions. We investigate whether the experience accumulated in this way biases subjects’ behaviour in a set of simple games widely used to study social preferences (Dictator Game, Ultimatum Game, Trust Game, and Prisoner’s Dilemma Game). Our main finding shows that subjects with a high level of experience in lab experiments do not behave in a significantly different way from novices.
|Keywords:||Experimental Methodology, External Validity, Experience, Lab Experiment|
|JEL:||D03 D83 C91 C92|
The recent literature on individual and group choices over risk has led to different results. In some studies under unanimity, groups were found to be less risk averse than individuals, while those under majority did not highlight significant differences. However, both the types of studies impose the decision rule to the group. In the present work we elicited groups’ preference under risk using a consensus rule, i.e. groups are free to solve disagreement endogenously, just as in the real life. Results from our pairwise choices experiment shows that when group members are free to use any rule they want in order to reach unanimity, there is no statistical difference between individuals’ and groups’ risk aversion.
|Keywords:||Risk; uncertainty; decision-making; group decision; lottery; experimental economics; experiment;|
|By:||Raphaële Préget (LAMETA – Laboratoire Montpelliérain d’Économie Théorique et Appliquée – Montpellier SupAgro – Centre international d’études supérieures en sciences agronomiques – UM3 – Université Paul-Valéry – Montpellier 3 – INRA Montpellier – Institut national de la recherche agronomique [Montpellier] – UM – Université de Montpellier – CNRS – Centre National de la Recherche Scientifique)
Phu Nguyen Van (UMR Beta – CNRS – Centre National de la Recherche Scientifique)
Marc Willinger (LAMETA – Laboratoire Montpelliérain d’Économie Théorique et Appliquée – Montpellier SupAgro – Centre international d’études supérieures en sciences agronomiques – UM3 – Université Paul-Valéry – Montpellier 3 – INRA Montpellier – Institut national de la recherche agronomique [Montpellier] – UM – Université de Montpellier – CNRS – Centre National de la Recherche Scientifique, Université de Montpellier)
We rely on the methodology of Fischbacher et al. (2001) in order to identify subjects’ behavioral types. We then link the likelihood to act as a leader in a repeated public goods game to the elicited behavioral types. The leader in a group is defined as the subject who voluntarily decides in the first place about his contribution. The leader’s contribution is then reported publicly to the remaining group members who take their contribution decisions simultaneously. Our main findings are that leaders emerge in almost all rounds and that subjects who are identified as conditional cooperators are more likely to act as leaders than other types, e.g. free-riders or triangle-contributors. We also find that voluntary leaders, irrespective of their behavioral type, contribute always more than followers. However the presence of leadership does not prevent the decay that is commonly observed in linear public goods experiments.
|Keywords:||Voluntary Contribution Mechanism,Leadership,Public Goods,Experimental Economics|
|By:||Christoph Engel (MPI for Research on Collective Goods, Bonn)
Oliver Kirchkamp (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
We provide an example for an errors in variables problem which might be often neglected but which is quite common in lab experimental practice: In one task, attitude towards risk is measured, in another task participants behave in a way that can possibly be explained by their risk attitude. How should we deal with inconsistent behaviour in the risk task? Ignoring these observations entails two biases: An errors in variables bias and a selection bias. We argue that inconsistent observations should be exploited to address the errors in variables problem, which can easily be done within a Bayesian framework.
|Keywords:||Risk, lab experiment, public good, errors in variables, Bayesian inference|
|JEL:||C91 D43 L41|
|By:||Musegaas, Marieke (Tilburg University, Center For Economic Research)
Dietzenbacher, Bas (Tilburg University, Center For Economic Research)
Borm, Peter (Tilburg University, Center For Economic Research)
We consider the problem of computing the in uence of a neuronal structure in a brain network. Abraham, Kotter, Krumnack, and Wanke (2006) computed this influence by using the Shapley value of a coalitional game corresponding to a directed network as a rating. Kotter, Reid, Krumnack, Wanke, and Sporns (2007) applied this rating to large-scale brain networks, in particular to the macaque visual cortex and the macaque prefrontal cortex. We introduce an alternative coalitional game that is more intuitive from a game theoretical point of view. We use the Shapley value of this game as an alternative rating to analyze the macaque brain networks and corroborate the findings of Kotter et al. (2007). Moreover, we show how missing information on the existence of certain connections can readily be incorporated into this game and the corresponding Shapley rating.
|Keywords:||brain networks; coalitional games; Shapley value|
Using data from a unique household survey and an artefactual field experiment conducted in rural Bangladesh, this study evaluates the impact on trust in community members of an incentive to maintain a risk-sharing arrangement between villagers. Risk sharing is a major opportunity for cooperation in rural economies, and the experience of cooperation could facilitate trust. In order to test this hypothesis, this study characterizes the incentive for risk sharing by the patterns of exogenous income shocks in the real world and risk preference, and trust in community members is elicited experimentally. The empirical results from dyadic regression demonstrate that villagers connected by a stronger incentive form higher level of trust. It is also found that villagers are more likely to share risks in villages that have stronger incentives. These findings suggest that the introduction of formal insurance, which reduces the incentive of risk sharing, could break down trust.
|Keywords:||Trust formation; risk sharing; experiment; Bangladesh|