Strategic interaction is ubiquitous in settings of economic importance, such as bargaining and group decision making. However, real decision makers often behave differently in strategic settings than standard economic theory would predict. Possible reasons for such behavior include cognitive limitations which may lead to sub-optimal decisions (bounded rationality) and preferences which may depend on the well-being of others (social preferences). In this dissertation, I examine how bounded rationality and social preferences affect strategic decisions and outcomes in a variety of settings of economic interest, including competitive bargaining and the provision of public goods. I combine theoretical analysis with empirical evidence from controlled laboratory experiments with incentivized human subjects.In the first chapter, I show how improper conditioning of beliefs can lead to under-contribution in public goods environments with interdependent values. I consider a simple model of a binary, excludable public good. In equilibrium, provision of the public good is good news about its value. Naive players who condition their expectations only on their private information will contribute too little, despite the absence of free-riding incentives. In a laboratory experiment, subjects indeed under-contribute relative to equilibrium. Using modified games with different belief conditioning effects, I verify that under-contribution is due to improper conditioning of beliefs. I find little evidence of learning over multiple rounds of play.In the second chapter, I study a three-player ultimatum game in which two proposers with unequal amounts of money simultaneously submit offers to one responder, who may accept at most one offer. I derive predictions for responder behavior under inequity aversion and advantage-seeking preferences. Unlike previously studied cases of symmetric proposer competition, the predictions of these two types of social preferences differ from each other and from self-interest. Both models predict that responders will sometimes accept the smaller offer. Results suggest heterogeneity among responders, with each of these two types of social preference occurring more frequently than self-interested money maximization.In the third chapter, I reexamine the effects of framing on cooperation in linear public goods experiments, decomposing these effects along two distinct dimensions: (C)ontributing vs. (T)aking and (G)ains vs. (L)osses. These framing dimensions are varied independently in four treatments (CG, CL, TG, and TL) to separately identify their effects. The results show decreased cooperation under the taking frame, while the effect of loss framing is relatively small. I also find that framing effects on average cooperation are driven primarily by men. However, both men and women choose the free-riding dominant strategy more frequently under the taking frame. Finally, I find evidence of several interactions between framing effects and Big Five personality traits.
Economics, Economic Theory, Experiments, Behavioral Economics, Game Theory, Laboratory Experiments, Public Goods
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