This is an experiment in the economics of decision making. Texas A&M University has provided funds for this research. If you follow the instructions and make good decisions, you can earn an appreciable amount of money. At the end of today’s session, you will be paid your earnings in private and in cash.
It is important that you remain silent and do not look at other people’s work. If you have any questions, or need assistance of any kind, please raise your hand and an experimenter will come to you. If you talk, laugh, exclaim out loud, etc. you will be asked to leave and you will not be paid. We expect and appreciate your cooperation.
During this session you will be acting as a firm who is selling a good. You will be selling your good to 30 independent markets. You can think of these as 30 geographically separated islands. In each of the 30 markets (islands) you are the only seller of the good. This means that nothing any other seller or firm does can affect you or your market. Each period represents a new market and you will have to make a decision about how many units you want to produce for that market. It is costly to produce this good and if you produce units that do not get sold in that market, you will not be able to keep those units for use in other markets. At the end of each period you will earn profits on the units of your good that you do sell in that market.
At the beginning of each period you will receive a marketing report that contains information regarding some market conditions for the current market. You can think of this as information about the market that has been gathered for you by the marketing department of your firm. Gathering this data is costly to your firm, as such your marketing department is not able to gather all information in every market. Therefore, the information that your marketing department does collect can vary from market to market. However, nothing you or anyone else does can change what information is gathered in any market.
After gathering the data the marketing department sends it to you. Unfortunately there is an error that occurs during that transmission. Instead of receiving the actual data all you receive is a list of the market conditions that were collected and a table of symbols representing the actual data. Fortunately the error is consistent. This means that identical symbols for a given market condition represent the same actual data. For instance, if the marketing department gathers data that says median income is $35,000 and a blue triangle gets transmitted, then whenever the marketing department reports $35,000 for median income it will be transmitted as a blue triangle in the marketing report. However, a blue triangle can also appear for other market conditions, where it does not necessarily stand for $35,000. For example, if the marketing department gathers data on a high inflation rate and this information gets transmitted as a blue triangle, then all marketing reports with a high inflation rate will have a blue triangle in the table for inflation rate.
After you have received the current marketing report you will be asked to choose a production Value of 50, 100, 150, or 200 units. Your profits each period depend on your production value and may also depend upon some of the market conditions. After you have made your production choice, you will be informed of your profits for that market. You will then proceed to the next market where you will be given the new market’s current marketing report. You will then be asked to choose a production value for that market. The session will continue in this manner until you have made production choices for 30 markets.
In order to help you with your decisions, for each market the experimenter has included four different scenarios. In each of these scenarios the experimenter was given a marketing report similar to the marketing reports that you will be given. The experimenter then chose a production value in such a manner that each of the four production choices was chosen once. The Profits reported in these scenarios are the profits that would have been earned in that market given the reported market conditions and the chosen production value. The profits reported in these scenarios will not be included in your total profits. Your total profits consist only of those profits that you earn during the session, i.e. when you are making the production decision. Your total profits will be calculated by simply adding up the profits you earn in each of your markets.
Figure 1 gives an example of the decision screen. At the top right of the screen you will see labeled the current market. At the bottom right of the screen you will see your total profits, which will include all profits you have earned so far. On the left side of the screen you will also see a table with the four scenarios for the current market. In the first column from the left you will see labels for the market conditions, the production values, and profits. So in this market, your marketing department has gathered information on: the tourist population, the wind, the humidity, the UV factor, and the temperature. Looking at the symbols in the table you can see that there is a blue triangle for tourist population in scenario 1 and scenario 2. This means that the Tourist Population was the same in both of these scenarios. You can also see that there is a blue triangle for Humidity in scenario 3. While this is the same symbol that was present in scenarios 1 and 2 for the tourist population, it does not necessarily represent the same thing that it did for tourist population. Below the scenarios you will see the production values and profits for those scenarios. Again, the production values were chosen so that each value was chosen exactly once. The profits that you see are the profits that would have been earned had the given production value been chosen with the given scenario. On the right side of the screen you will see the Marketing Report for the current market, in the left hand column are the symbols representing the data from the report and in the right hand column are the labels for the different market conditions that are reported. On the bottom of the screen you will see the menu of choices for your production value.
In order to select a production value simply use your mouse to click in the circle to the left of the value you wish to choose. After clicking in one of the circles you must click the confirm button before your choice will be submitted. If you wish to change your choice you may do so at any time before clicking the confirm button. You may change your choice of production value as many times as you wish. However, once you have clicked the confirm button you will NOT be able to change your production value for the current market. After you have clicked confirm a results screen will appear and inform you of your profits for the current market. Once you have finished viewing these results click continue to move on. After you have clicked continue, you will proceed to the next market where you will be given the new market’s marketing reports and asked to make a production choice for that market.
After you have made production choices for 30 markets the session will be over. A screen will appear informing you of your total profits and total earnings. Your total earnings are the amount you will be paid in cash. Your total earnings are calculated by dividing your total profits by 6000. In other words for every $6000 in Profits that you made you will earn $1.00 in cash. For instance, if you earn a total profit of $96,000 then your total earnings will be $16. If you did not choose to receive a hang tag for parking then you will receive a $5.00 show-up fee in addition to your total earnings. In that case your total payment will be calculated by adding the $5.00 show-up fee to your total earnings. So in the above example your total payment would be $16.00 + $5.00 or $21.00 in cash. However, if you did choose to take a hang tag for parking your total payment will be the same as your total earnings. Once the session is over and everyone has viewed their total earnings you will be called up, one at a time, to be paid privately and in cash. The session will not be finished until everyone has made decisions for all 30 of their markets. After you have finished please wait patiently for all remaining markets to finish.