Essays in behavioral economics: Applied game theory and experiments

Behavioral Economics aims at understanding the decision of economic agents who are not necessarily monetary utility maximizers and accounts for the fact that agents may have other concerns next to economic gain. This thesis contributes to the literature by studying the behavior of economic agents who are not necessarily monetary utility maximizers in situations with strategic interaction. The second chapter solves a game-theoretic model of contests assuming that agents have reference-dependent preferences. The results help to explain behavior observed in recent experiments that is hard to reconcile with the assumption of standard preferences. The optimal price mechanism is derived which differs markedly from the one derived under the assumption of standard preferences. The third and fourth chapters use laboratory experimentation which allows for careful scrutinizing of behavioral assumptions made in economic models. The third chapter experimentally investigates agents’ cooperative behavior in indefinitely-repeated dilemma games with different strategic environments. It is reported that subjects play collusive choices significantly more often when actions exhibit strategic substitutability than when actions exhibit strategic complementarity. In Chapter 4 we experimentally study information acquisition in a social dilemma game. It is reported that in a twice-repeated trust game trustors choose to be informed about the type of the trustee in a setting where, theoretically, having such information is detrimental for cooperation and material payoffs.