Volume 7, Number 3, 249-269, DOI: 10.1023/B:EXEC.0000040560.94572.60

Individual Decision Making in a Negative Externality Experiment

J. Spraggon

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Abstract

The experimental treatments analysed in this paper are simple in that there is a unique Nash equilibrium resulting in each player having a dominant strategy. However, the data show quite clearly that subjects do not always choose this strategy. In fact, when this dominant strategy is not a ldquofocalrdquo outcome it does not even describe the average decision adequately. It is shown that average individual decisions are best described by a decision error model based on a censored distribution as opposed to the truncated regression model which is typically used in similar studies. Moreover it is shown that in the treatments where the dominant strategy is not ldquofocalrdquo dynamics are important with average subject decisions initially corresponding to the ldquofocalrdquo outcome and then adjusting towards the Nash prediction. Overall, 66.7% of subjects are consistent with Payoff Maximization, 27.8% are consistent with an alternate preference maximization and 5.6% are random.

quantal response - moral hazard in groups - exogenous targeting instruments - experiments

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