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Laboratory studies of social stratification and “class” Anna Gunnthorsdottir Australian School of Business and Vienna Univ. of Economics & Business Kevin McCabe George Mason Univ . Stefan Seifert Technical Univ. Karlsruhe Jianfei Shen , Univ. of New South Wales

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Laboratory studies of

social stratification and “class”

Anna Gunnthorsdottir

Australian School of Business and Vienna Univ. of Economics & Business

Kevin McCabeGeorge Mason Univ.

Stefan Seifert Technical Univ. Karlsruhe

JianfeiShen, Univ. of New South Wales

Palmar Thorsteinsson, Univ. of Iceland

Roumen Vragov The Right Incentive, NY

J. Pub. Econ. 2010; Res. Exptal Econ. 2010

three main findings from the program
Three main findings from the program

1) We are responsive to social stratification (“class”)

2) We respond efficiently & precisely (eqm!) to social organization based on contribution (“merit”)

3) We can, in the aggregate, tacitly coordinate complex non-obvious asymmetric equilibria.

It is however not quite clear how.

magic
“Magic”

“…to a psychologist [the tacit coordination of an asymmetric equilibrium in a (simple) Market Entry game] looks like ‘Magic’.”

Kahneman, 1988, p.12

Kahneman, D. (1988). Experimental economics: a psychological perspective. In Tietz, R., Albers, W., Selten, R. (Eds.), Bounded Rational Behavior in Experimental Games and Markets. Berlin: Springer, pp. 11-18.

the group based meritocracy mechanism gbm
The Group-based Meritocracy Mechanism (GBM)

Level1

(VCM)

Level 2

Competition for unit membership

the voluntary contribution mechanism vcm

The Voluntary Contribution Mechanism (VCM)

Isaac, R.M., McCue, K. F., & Plott, C. R. (1984). Public goods provision in an experimental environment. Journal of Public Economics, 26, 51-74.

divide endowment between two accounts
Divide endowment between two accounts

For a social dilemma, set g > 1 and g < n

the 2 nd gbm layer
The 2nd GBM layer

Level1

(VCM)

Level 2

Competition for team membership

basic requirements for a model of contribution based grouping
Basic requirements for a model of contribution-based grouping
  • Group membership is competitively and solely based on individual contributions
  • The equilibrium analysis extends across all players and all groups, since players compete for membership in groups that vary in their payoff
  • In the causal chain, the contribution decision precedes grouping and associated payoff
gbm equilibria in pure strategies
GBM equilibria (in pure strategies)
  • Free-riding equilibrium where nobody contributes

2) “Near-efficient” equilibrium (NEE)

    • z < n contribute 0, the rest contribute their entire endowment
    • Payoff dominant*

* Harsanyi, J. & R. Selten, 1988. A General Theory of Equilibrium Selection in Games.Cambridge, MA: MIT Press.

for the near efficient equilibrium players must
For the near-efficient equilibrium, players must:
  • Coordinate which of the two equilibria to play
  • “Grasp” a non-obvious asymmetric equilibrium
  • Play only 2 out of their 101 strategies
  • Play only their corner strategies (0 or 100)
  • Play the two corner strategies in the right frequencies
  • Tacitly coordinate who plays which strategy
experiment parameters
Experiment parameters

w(i=1,2,…N) = 100

N = total number of players = 12

Group sizen= 4

g = 2

MPCR = 0.5

z = 2

# rounds = 80

one type more able to contribute than the other type
One type more able to contribute than the other type

Type “Low”: wL = 80

Type“High”: wH= 120

N = 12

NH= 6

NL= 6

n = 4

g/n = MPCR = 0.5

# rounds= 80

Equilibria in pure strategies:

[0, 0, 0, 0, 0, 0, 0, 0, 0, 0, 0, 0]

[0, 0, 80, 80, 80, 80, 120, 120, 120, 120, 120, 120]

mingling cannot be avoided
… mingling cannot be avoided

Low ability members try to sponge off high-ability members in the mixed group

High-ability members would like to escape this exploitation but can’t

segregated with castes
…“segregated with castes”

Assume NH mod n = 0 and NL≥ 2n

For example:

wL = 80 and wH = 120

NH = 4 and NL = 8

Is there an equilibrium w. positive contributions?

payoff dominant equilibrium prediction
Payoff-dominant equilibrium prediction

s* = {0, 0, 80, 80, 80, 80, 80, 80, 81, 81, 81, 81, 81}

(Non-contribution by all

remains an alternative pure-strategy equilibrium)

a simple model of merit based grouping
A simple model of merit-based grouping

No lags, no reputation, no information asymmetry about contribution or the distribution of abilities to contribute

What you contribute determines where you find yourself (with an element of chance incorporated), with whom, and how much you earn.

A “perfect” world in that contribution, or a change in behavior for the better, is instantly recognized, and “transgressions”are immediately forgotten.

class
Class

E (1-12) = {80, 85, … 130, 135}

N = 12

n = 4

g/n = 0.5

T= 80

No NEE, not even considering that the strategy space is discrete

Only a ZEE, a pure-mixed strategy eqm not yet fully excluded

conclusions
Conclusions

Experimental subject respond in a natural, efficient and predictable way to contribution-based organization (policy?) – and they respond as “homini economici”

Subjects respond to differences based on ability (Rousseau: “products of nature”) and aim to maintain and exploit positions that stem from these differences

Aggregates of subjects are capable of tacit coordination to much larger extent than previously realized (How?)