Paper #1150

Title:

Can sanctions induce pessimism? An experiment

Authors:

Roberto Galbiati, Karl Schlag and Joël van der Weele

Date:

March 2009

Abstract:

We run an experiment in which two subjects play a two-round minimum effort game in the presence of a third player (principal) who is the only one informed about past effort choices and benefits from a higher minimum effort of the others. Sanctions introduced in the second round by the experimenter lead to more optimistic beliefs and higher efforts. This is not true when sanctions have been imposed by the principal. The possibility that the choice of a sanction is a signal of low effort levels causes players who chose high effort in the first round to be less optimistic.

Keywords:

Sanctions, beliefs, expressive law, deterrence, coordination, minimum effort game, leex

JEL codes:

C92, D83, K42

Area of Research:

Behavioral and Experimental Economics

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