Payment schemes in random-termination experimental games
Majah-Leah Ravago and
Tatsuyoshi Saijo ()
No 2011-9, Working Papers from University of Hawaii Economic Research Organization, University of Hawaii at Manoa
We consider payment schemes in experiments that model infinite-horizon games by using random termination. We compare paying subjects cumulatively for all periods of the game; with paying subjects for the last period only; with paying for one of the periods, chosen randomly. Theoretically, assuming expected utility maximization and risk neutrality, both the cumulative and the last-period payment schemes induce preferences that are equivalent to maximizing the discounted sum of utilities. The last-period payment is also robust under different attitudes towards risk. In comparison, paying subjects for one of the periods chosen randomly creates a present-period bias. Experimentally, we find that the cumulative payment appears the best in inducing long-sighted behavior.
Keywords: economic experiments; infinite-horizon games; random termination (search for similar items in EconPapers)
JEL-codes: C73 C90 (search for similar items in EconPapers)
Pages: 34 pages
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Working Paper: Payment schemes in random-termination experimental games (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:hae:wpaper:2011-9
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