I use economic experiments to investigate individual behavior under uncertainty.
The first essay examines the consistency of risk preferences over two institutions. The two institutions I use are the first price sealed bid auction and a Holt-Laury lottery. There is some controversy as to whether or not observed overbidding in first price auction is actually caused by risk aversion or simply consistent with it. Behavior in the Holt-Laury lottery being caused by risk aversion is not in dispute. By having the same subjects participate in both institutions, I show that subjects' risk preferences in the lottery are consistent with subjects' risk preferences in the auction. This supports the notion that behavior in the first price sealed bid auction is in fact driven by risk aversion. I also find support for the constant relative risk aversion model (CRRAM). Using CRRAM I find that the risk parameters derived in the lottery are consistent with the risk parameters derived in the auction.
The second essay examines how individuals respond to random monitoring. I design a real effort laboratory experiment with incentives similar to those faced by many workers. Subjects are allowed to engage two tasks; one task mimics work for an employer, the other task allows for gains due to shirking. Employee shirking has the potential to be extremely costly to firms. To counter the productivity loss due to shirking, firms may institute various monitoring schemes. Previous experimental research has shown that while monitoring does decrease shirking, some subjects work without explicit financial incentives. My experimental design corrects for the possibility of these past results being artifacts of past experimental design. I find that subjects who are given incentives to shirk do in fact shirk, but monitoring and an attainable quota lead to increased productivity. However, when the quota is unattainable, subjects revolt and engage in a high amount of shirking.
