IFREE Funds Three New Experimental Studies

Three proposals were funded under the IFREE Small Grants Program, on recommendation of the Proposal Evaluation Committee, at the IFREE Board meeting, April 11, 2016.

“An Experimental Study of Matching Markets with Incomplete Information,” Leeat Yariv, Marina Aganov, and Ahrash Dianat, California Institute of Technology; Larry Samuelson, Yale.

Exchange in some important markets occurs through two-sided matching processes: matching hospitals with interns, workers with employers, organ donors with patients, children available for adoption with adoptive parents, and students with schools. Market design for these applications apply algorithmic procedures for efficient matching—say schools with students—based on one or each side’s rank order preference for the other side. The theoretical literature has dealt with the problem under the assumption that the participants have complete information on the preferences of others. But recent theory enables the prediction of final outcomes in match-rematch processes that are expected to emerge as preferences are revealed by decisions in decentralized repeat interactions.  The theory, for example, might predict convergence to efficient stable outcomes in matching temporary workers with firms through an agency. But, how would you test that prediction? In the field, precise preferences cannot be readily and independently elicited or deduced for comparison with final allocations.  In the lab, one can use payoffs to induce preferences, vary payoff structures and initial allocations (which define stable efficient outcomes). In the baseline experiments, subjects know all others’ value types. In the incomplete information setting, all know firms’ value types, but workers’ value types are strictly private.  Hence, a target prediction is well defined; then, information and the sophistication requirement of firms’ decisions about workers is varied across treatments.  By inaugurating the study of matching markets under incomplete information, this research holds promise for improving and expanding the many applications.

“Status and Trust in Representative Leaders:  A Lab-in-the-Field Experiment,” Nor Izzatina Abdul Aziz, Robert Sudgen, University of East Anglia, UK.

This research will study the role of representative leadership in the setting of villages in a rural Sarawak, Federation of Malaysia, by investigating how the relative status rankings between representative leaders and their followers affect the level of mutual trust and the resulting impact on a groups’ ability to achieve efficient outcomes.  The experiment will use a novel modification of a public goods game. This research will contribute to a better understanding of the factors that support or hinder trust relationships between groups involved in team production and their “representative leaders.” In particular, the research will aim to gain understanding of the relationship between naturally occurring prestige and trust and trustworthiness. Findings may possibly show how NGOs and government agencies can assist economic development in small-scale societies and discourage leadership from engaging in rent-seeking.

“Experiments on Social Safety Nets,” Peter DeScioli, Scott Bokemper, Stony Brook University.

Many workers face uncertain job markets and uncertainty about their income next year, month, or even tomorrow. Unemployed workers can request aid from peers or government sources but they might claim they need assistance even when they do not. How can individuals decide whether a worker honestly needs help? Treatments in three experiments will vary whether the same partners interact repeatedly, with a partner of their choosing, or a new partner each period. This research will test how these different interaction protocols enable honest communication to help individuals insure each other against short-term hardship. Can reciprocity and partner selection promote honest signaling to achieve socially desirable outcomes? How can honest communication allow individuals to create a social safety net when help comes from other individuals or a central institution? Many social relationships are maintained by reciprocity, wherein the long run benefit of cooperation outweighs the short-term incentives’ benefits they receive by defection.  Understanding how people’s ability to change who they interact with can eliminate subtle cheating is a key challenge for understanding economic exchange.