Gripping the Reins:

Is there an endowment effect for power?

Gigi Foster (UNSW)

Matt Nagler (CUNY)

June 2019

Sydney Market Design Workshop, UTS

Motivation

“Power tends to corrupt, and absolute power corrupts

absolutely” – Lord Acton

How can economists interrogate the effects of power?

Fehr et al AER 2013 Lure of Authority: Higher effort

provision by principals in principal-agent games, and

evidence that powerful principals (seemingly irrationally)

want to retain their power

Because of “disutility for being overruled”? (p. 1327)

A behavioral economics observation: The endowment

effect for goods

Research question

(it’s in the title) but what does “power” mean?

(from Wikipedia, excluding the physics/electrical definitions):

(A) the ability or capacity to do something or act in a particular

way

(B) the capacity or ability to direct or influence the behavior of

others or the course of events

Power in the real world often brings with it a potential to get

resources; actual resources themselves; and feelings.

How to translate these ideas to the lab?

Approach

Construct power differences between pairs of people via

two standard lab games (DG and PGG)

Validate that a power difference is perceived in each case

Use the multiple price list mechanism to elicit WTP and

WTA for that power

Run a third stage to elicit the endowment effect for a

tangible good (a mug or water bottle)

With the data:

1. Estimate the EE for the two different types of power

2. Compare the estimated EE for power to the EE for the

tangible item

3. Predict the EE for power based on observables

Design sketch

Earn endowment (high or low, depending on performance)

EE setting 1

EE setting 2

EE setting 3

Questionnaire

Payout

Main stages consist of TI, DG, PGG.

one 16-subject and one 32-subject session: ordering is

PGGTIDG

one 24-subject session: DGTIPGG

N=72 total

“Main stages”, each consisting of multiple rounds

(next slide…)

Based on performance in a boring task (“Finding

Letters on Pages,” Azar 2019)

Replenishes the wallet in each round

Main stagesEach main stage (TI, DG, PGG) consists of multiple rounds.

1st 5 rounds: subjects practice, playing two roles simultaneously

• the more and less powerful roles in DG and PGG

• owning vs not owning “tokens” in the TI game

• matched randomly to members of their half of subjects (high or low

endowment)

Then (in DG and PGG) power perception elicitation:

• half: just before assignment to roles (“hypothetical”)

• other half: just after assignment (“non-hypothetical”)

Random assignment to roles (powerful/less powerful, own/don’t own)

Then market-clearing trades of roles

Then play one round, as one (randomly assigned or traded) role or as the

(randomly assigned or traded) owner or potential buyer of a TI, that “counts”

Instructions for responding to the MPL mechanism are presented either before the TI

practice rounds (if TI is the first main stage) or after the DG/PGG practice rounds (if

DG or PGG is the first main stage)

Design sketch: Streamlined

5 practice rounds, playing both roles

Power perceptions elicitation (DG and PGG), before

or after random single role assignment

MPL market-clearing role trades

Play a round that counts, with each subject in one

role

[“Counting” means the round is entered into a group of three,

from which one is chosen to be paid out at the end of the

experiment (experimental dollars converted to AUD at an

exchange rate that gives us a match to the average per-

hour payment level convention at the Bizlab)]

Parametrizing powerIn DG: The dictator is more powerful than the receiver (we use

neutral language to describe the roles… shape names)

In (dyadic) PGG: Create a power difference by giving one party the

role of “civilian” and the other the role of “gendarme.” The gendarme

has the option to pre-commit to punishing or rewarding the civilian

depending on her ex-post observed level of contribution to the public

good.

Marginal per capita return for both players of 0.75. Assume

endowment of 100. The gendarme may commit up to 25 of his

post-contribution ED to reward (add 25 ED) or punish (destroy

75 ED) his partner. Max contribution to the public good is 25

ED.

With these settings, neither player can come away with less than

zero income from a round of the PGG

What’s on the questionnaireAge, gender, country of identifying culture, program of study,

international student status

To what degree are you influenced by your peers?

Position on the political spectrum

Mother’s and father’s education levels

When you were a child, how well off were your parents or

guardians, in a financial sense?

Rosenberg generalized trust item

Pearlin and Schooler Locus of Control item battery

Rosenberg self-esteem item set

Initial questions

Q1: What is the EE for the tangible item?

Q2: What is the EE for the dictator role in the DG?

Q3: What is the EE for the gendarme role in the

PGG?

Q4: How do the above values compare?

Q5: Did subjects really perceive power differences

across the DG and PGG roles?

Q6: What information from the questionnaire predicts

the elicited values for the tangible item and/or the two

types of power, and the perceptions of power?

Initial results: Power perceptions (adapted

from Anderson et al 2012)

Role/Type Power perception (1 to

7 scale)

Gendarme (n=36) 4.03*Civilian (n=36) 3.51*Dictator (n=36) 4.08*Receiver (n=36) 3.02*

* p-value of one-sided t-test of difference between role

types lies between 0.05 and 0.01

There is a perceived power difference of between 0.5 and 1

points on the 7-point scale of power perceptions.

In the ____ role in the game,

1. I could get the other player to do what I want.

2. My wishes would not carry much weight. (RC)

3. I think I would have a great deal of power.

4. Even if I try, I would not able to get my way.

(RC)

5. If I want to, I would get to make the decisions.

Initial results: The estimation target, High

Endowment TypesRole/Side of Market Elicited value in

experimental dollars

Gendarme WTA (by gendarme) 131.11**

Gendarme WTP (by civilian) 46.67**

Dictator WTA (by dictator) 163.89**Dictator WTP (by receiver) 84.44**Mug WTA (by owner) 104.44*Mug WTP (by non-owner) 69.44*

WTA/WTP results, High Endowment Types (n=36)

* p-value of one-sided t-test of difference between role types lies between 0.05 and 0.01

** p-value of one-sided t-test of difference between role types is smaller than 0.01

There is a strong endowment effect for power and a modest

endowment effect for the tangible item for high-type subjects.

WTA/WTP = 2.8 for the gendarme role power; 1.9 for the

dictator role power; and 1.5 for the mug

Initial results: The estimation target, Low

Endowment TypesRole/Side of Market Elicited value in

experimental dollars

Gendarme WTA (by gendarme) 69.44*Gendarme WTP (by civilian) 46.67*Dictator WTA (by dictator) 81.67*Dictator WTP (by receiver) 50.56*Water bottle WTA (by owner) 50.56Water bottle WTP (by non-owner) 46.11

WTA/WTP results, Low Endowment Types (n=36)

* p-value of one-sided t-test of difference between role types lies between 0.05 and 0.01

There is a modest endowment effect for power and no

significant endowment effect for the tangible item for low-type

subjects.

WTA/WTP = 1.5 for the gendarme role power; 1.6 for the

dictator role power; and virtual unity for the water bottle

Initial results: What predicts rein-gripping?

Predicting WTA for the Gendarme Role in the Public Goods Game

Independent Variables

Full sample

(n=36)

High types

(n=18)

Low types

(n=18)

Constant 59.19 *** 57.03 ** 77.13 *

(18.90) (22.92) (34.69)

Age>22 56.22 *** 86.15 ** 20.05

(17.01) (28.95) (24.04)

Left-leaning politically 66.21 *** 109.55 ** -5.26

(21.30) (33.63) (31.15)

Right-leaning politically 58.48 *** 63.44 * 56.15 *

(17.97) (34.23) (25.82)

Trusting -63.87 *** -77.11 * -65.76 **

(17.17) (35.99) (27.37)

Econ program student 47.14 28.96 123.89 **

(30.03) (48.87) (50.61)

Eng program student 30.62 * 49.80 * 3.61

(15.68) (25.63) (25.49)

High type 19.83

(16.03)

Adjusted R-sq 0.5522 0.5305 0.2899

*** p < .01 ; ** .01 < p < .05 ; * .05 < p < .10. Dummies for session included (not shown).

Initial conclusionsOur power-game manipulations appear to “work”: power

differences between roles are perceived by subjects

We estimate modest to strong endowment effects for the power

residing in both the dictator role and the gendarme role

The tangible item endowment effect is not in evidence for low-

endowment (water bottle) subjects, but modest and significant

for high-endowment (mug) subjects

Rein-gripping is strongly predicted by age, political extremity,

and lack of trust, particularly for high-endowment types