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Laboratory studies of social stratification and “class” Anna Gunnthorsdottir Australian School of Business and Vienna

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

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  1. 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

  2. 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.

  3. “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.

  4. The Group-based Meritocracy Mechanism (GBM) Level1 (VCM) Level 2 Competition for unit membership

  5. 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.

  6. Divide endowment between two accounts For a social dilemma, set g > 1 and g < n

  7. The 2nd GBM layer Level1 (VCM) Level 2 Competition for team membership

  8. 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

  9. 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.

  10. Theorem

  11. 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

  12. 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

  13. Means per round

  14. Frequency of strategies observed/predicted

  15. Robust!

  16. A 2-type society where mingling cannot be avoided

  17. 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]

  18. … 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

  19. A “segregated society” with “castes”

  20. …“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?

  21. 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)

  22. Highs: VCM bounded from below by the endowment of the Lows Lows: GBM (NEE)

  23. Choice frequencies, w = 80 (“Lows”)

  24. Mean contribution, w = 120 (“Highs’)

  25. Choice frequencies, w = 120 (Highs)

  26. 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.

  27. 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

  28. 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?)

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