EXPERIMENTAL ECONOMICS (30022) ASSIGNMENT 2 General information about the assignment Aim: The aim of the assignment is to give you an opportunity to practice for the exam by letting you answer some questions similar to ones you will see in the exam. Deadline: This assignment is due on Sunday, October 24th by 23:00. The assignment should be uploaded on Canvas. Length & Format: The assignment should not exceed 1500 words. Please use Times New Roman, 12-point fonts, 1.5 line spacing and 2.54 cm margins (the default in Word). Tables, figures and references are excluded from the word count. The word count should be explicitly stated in the assignment. The word limit should be more than adequate. Write what you mean to say using as few words as possible (but do not use bullet points). Tables and figures should be numbered using Arabic numbers and placed in the text (not the end of the text). Contribution to final grade: The assignment accounts for 10% of your final grade. Plagiarism: You are allowed to discuss the general problem with others. Under no circumstances are you to share your written work with others. Make sure you cite properly any resources you use. In case I suspect plagiarism of any sort, I will use statistical software to compare assignments. In case plagiarism is detected, all parties involved will receive a grade of 0. I hope that I won’t find myself in this unpleasant position. [Turn over for the assignment] Question 1: Ultimatum and Dictator games (20 points) 1. ‘Experimentalists should try to recreate in the lab an environment that as closely as possible matches the real-world situations they wish to study’. Do you agree? Use the ultimatum game as an example to explain your view. (5 points) 2. What are outcome-based preferences? Use one of the Dana et al. (moral wiggle room) experiments to explain how this set of experiments tests whether the preferences of dictators are outcome based. (Note: I am looking for you to explain the idea of the experiment and will deduct no points if you don't recall the precise money amounts used, or other particularities that are not crucial to the basic idea.) (8 points) 3. What is an experimenter demand effect? Do you think an experimenter demand effect is likely in the Dictator game? How about the Ultimatum Game? Explain your answer carefully. (7 points) Question 2: Common Value Auctions (20 points) 1. Discuss the difference between a Private Value and a Common Value auction environment and provide one example for each environment. Make sure to explain why your example fits the environment. (6 points) Consider a Common Value auction with two bidders who both receive a signal X that is uniformly distributed between 0 and 1. The (common) value V of the good the players are bidding for is the average of the two signals, i.e. V = 1 2 (1 + 2). 2. Compute the symmetric Nash equilibrium bidding strategy for the second- price sealed-bid auction assuming that players are risk-neutral and have standard selfish preferences. Furthermore, you may assume that the other bidder is following a linear bidding strategy. Make sure to explain your notation and the steps you take to derive the result. (8 points) 3. The symmetric Nash equilibrium for the first-price sealed-bid auction is to bid half your signal. How does behaviour in the laboratory compare to the theoretical predictions? (3 points) If there are any deviations from the theoretical predictions, how can we explain them? (3 points)