Abstract
This paper combines laboratory with field data from professional sellers to study whether social preferences are related to performance in open-air markets. The data show that sellers who are more pro-social in a laboratory experiment are also more successful in natural markets: They achieve higher prices for similar quality, have superior trade relations and better abilities to signal trustworthiness to buyers. These findings suggest that social preferences play a significant role for outcomes in natural markets.
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Notes
Bowles et al. (2001) argue that there are different “predisposition(s) to truth-telling” and that truth-telling is an “incentive-enhancing” preference that attenuates tensions in principal-agent relationships.
In this setting, there is free access to the fishing grounds and capital requirements for becoming a fisherman selling shrimp in markets are low.
The vast majority uses modified plastic bottles to catch shrimp. Thus, there are no significant differences in equipment used.
I tested the existence of incomplete/asymmetric information in a “guessing game” where buyers and sellers took part. In this game the most accurate guess about the average shrimp size in a pile was rewarded with a high monetary reward (worth several days’ income). The sellers guessed the average shrimp size in their pile and the buyers guessed the average shrimp size in a pile they were about to buy. It turned out that both sellers and buyers significantly overestimated the average shrimp size by on average 0.297 centimeters (t=2.29, p=0.027, that overestimates are equal to zero) and that buyers overestimated the average size considerably more than sellers (0.437 centimeters buyers vs. 0.243 centimeters sellers).
There may be other ways to misrepresent quality or to cheat which I could not observe. For example, sellers often have the chance to cheat on the quantity of shrimp sold.
I collected data on the average shrimp size over consecutive weeks from 24 sellers. As expected there is a significant correlation of average shrimp size across weeks (Spearman Rank Correlation, r=0.493, p=0.014), but considerable variance as well.
Sellers do not always go to the market to sell shrimp. They also sometimes commission other sellers to sell their shrimp.
Sellers color their shrimp red with natural or chemical substances to be suggestive to be tastier. I use a binary measure to assess the probability that a sample of shrimp was colored. This measure was derived from the experimenters’ estimation of the redness of shrimps.
Participants earned significantly more than a typical daily income. They took also part in other experiments than the PGE and RAE (a stag-hunt experiment, competition experiment, time preference experiment, charity experiment). To minimize the risk that there are behavioral spillovers between experiments, participants did not know the behavior of the other participants before the end of all experiments. In addition, participants were told that they did not get to know whether their behavior in any experiment became payoff relevant before the end of all experiments because only two experiments were chosen for payment. The experimental instructions are available in an on-line appendix.
Note that the group size in the PGE was four in one experimental session (N=16). The behavior in this session is very similar compared to all other sessions (average contribution in this session=3.75, in all other sessions=3.66; t=−0.12, p=0.90). Excluding this session from further analysis would not lead to systematic different results.
Appendix Table 4 shows that there is a significant relationship between pro-sociality and shrimp price for both samples. The sample which uses prices that were directly collected at the market is highly significantly related to pro-sociality (p=0.007, N=47) and the other sample that uses prices which were collected outside the market is marginally significantly related to pro-sociality (p=0.096, N=91).
Not specialized shrimp sellers sometimes temporarily only sell fish. This may explain why they have more problems keeping trade relations alive.
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Appendix: Tables and figure
Appendix: Tables and figure
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Leibbrandt, A. Are social preferences related to market performance?. Exp Econ 15, 589–603 (2012). https://doi.org/10.1007/s10683-012-9315-y
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DOI: https://doi.org/10.1007/s10683-012-9315-y