Basic Concepts: Decisions, Game Theory, and Market Equilibrium | p. 1 |

Introduction | p. 3 |

Origins | p. 3 |

Overview | p. 5 |

Methodology | p. 8 |

A Brief History of Experimental Economics | p. 16 |

Questions | p. 18 |

A Pit Market | p. 21 |

A Simple Example | p. 21 |

A Classroom Experiment | p. 22 |

Chamberlin's Results and Vernon Smith's Reaction | p. 27 |

Extensions | p. 31 |

Questions | p. 32 |

Some Simple Games: Competition, Coordination, and Guessing | p. 35 |

Game Theory and the Prisoner's Dilemma | p. 35 |

A Prisoner's Dilemma Experiment | p. 37 |

A Coordination Game | p. 40 |

A Guessing Game | p. 42 |

Extensions | p. 44 |

Questions | p. 45 |

Risk and Decision Making | p. 47 |

Who Wants to Be a Millionaire? | p. 47 |

A Simple Lottery-Choice Experiment | p. 50 |

Payoff Scale, Order, and Demographics Effects | p. 54 |

Extensions | p. 58 |

Questions | p. 58 |

Randomized Strategies | p. 59 |

Symmetric Matching Pennies Games | p. 59 |

Battle of the Sexes | p. 63 |

Extensions | p. 67 |

Questions | p. 67 |

Market Experiments | p. 69 |

Monopoly and Cournot Markets | p. 71 |

Monopoly | p. 71 |

Cournot Duopoly | p. 75 |

Cournot Oligopoly | p. 77 |

Extensions | p. 80 |

Optional Quick Calculus Review | p. 80 |

Questions | p. 81 |

Vertical Market Relationships | p. 83 |

Double Marginalization | p. 83 |

The Newsvendor Problem | p. 87 |

The Bullwhip Effect | p. 90 |

Extensions | p. 92 |

Questions | p. 93 |

Market Institutions and Power | p. 95 |

Introduction | p. 95 |

The Exercise of Seller Market Power without Explicit Collusion | p. 99 |

Edgeworth Cycles and Random Prices | p. 102 |

The Effects of Market Power | p. 103 |

Extensions | p. 107 |

Calculation of a Mixed-Strategy Equilibrium in Prices | p. 107 |

Questions | p. 109 |

Collusion and Price Competition | p. 111 |

Collusion in Posted-Offer Markets: "This Is Economics" | p. 111 |

Collusion with Secret Discounts | p. 114 |

Extensions: Cheap Talk, Mutual Forbearance, and the "V Word" | p. 117 |

Questions | p. 120 |

Market Failure Due to Unraveling: Lemons and Matching Markets | p. 123 |

Endogenous Product Quality | p. 123 |

Clearinghouse Mechanisms and Unraveling in Labor Markets | p. 127 |

Extensions: Baseball, Dorm Rooms, School Choice, Deep Space, Sorority Rush,...but Marriage? | p. 131 |

Questions | p. 131 |

Asset Markets and Price Bubbles | p. 133 |

Bubbles and Crashes | p. 133 |

A Digression on Present Value | p. 137 |

The Limit Order Market Experiment | p. 138 |

Other Research on the Call Market Institution | p. 141 |

Questions | p. 143 |

Bargaining and Behavioral Labor Economics | p. 145 |

Ultimatum Bargaining | p. 147 |

Strategic Advantage and Ultimatums | p. 147 |

Bargaining in the Bush | p. 148 |

Bargaining in the Lab | p. 151 |

Multi-Stage Bargaining | p. 153 |

Extensions: "I Will Be Spending Years Trying to Figure Out What This All Meant" | p. 156 |

Questions | p. 157 |

Trust, Reciprocity, and Principal-Agent Games | p. 159 |

The Trust Game | p. 159 |

A Labor Market Reciprocity Game | p. 162 |

Extensions: Field Experiments | p. 164 |

Questions | p. 165 |

Public Choice | p. 167 |

Voluntary Contributions | p. 169 |

Social Norms and Public Goods | p. 169 |

"Economists Free-Ride, Does Anyone Else?" | p. 171 |

Single-Round Experiments | p. 172 |

Multi-Round Experiments | p. 176 |

Extensions | p. 178 |

Questions | p. 180 |

The Volunteer's Dilemma | p. 183 |

Sometimes It Only Takes One Hero | p. 183 |

Initial Experimental Evidence | p. 184 |

The Mixed-Strategy Equilibrium | p. 186 |

An Experiment on Group Size Effects | p. 189 |

Extensions | p. 191 |

Questions | p. 191 |

Externalities, Congestion, and Common Pool Resources | p. 193 |

Water | p. 194 |

Ducks and Traffic | p. 195 |

Fish | p. 200 |

Extensions | p. 202 |

Questions | p. 203 |

Rent Seeking | p. 205 |

Government with "a Smokestack on Its Back" | p. 205 |

Rent Seeking in the Classroom Laboratory | p. 207 |

The Nash Equilibrium | p. 208 |

Comparative Statics for Changes in Cost and the Number of Competitors | p. 209 |

Extensions | p. 210 |

Questions | p. 212 |

Voting and Politics Experiments | p. 215 |

The Median Voter Theorem | p. 215 |

Experimental Tests of Spatial Voting Models | p. 217 |

Fairness and Deviations from Core Outcomes | p. 220 |

Legislative Bargaining | p. 221 |

Agendas and Strategic Voting | p. 222 |

Polls, Runoffs, and Other Coordinating Devices | p. 224 |

Participation Games | p. 225 |

Field Experiments | p. 227 |

Extensions | p. 228 |

Questions | p. 229 |

Auctions | p. 231 |

Private Value Auctions | p. 233 |

Introduction | p. 233 |

Auctions: Up, Down, and the "Little Magical Elf" | p. 234 |

Bidding against a Uniform Distribution | p. 237 |

Bidding Behavior in a Two-Person, First-Price Auction | p. 240 |

Extensions | p. 242 |

Risk Aversion | p. 244 |

Questions | p. 246 |

The Takeover Game | p. 247 |

Wall Street (the Film) | p. 247 |

A Takeover Game Experiment | p. 248 |

Quality Unraveling | p. 250 |

Extensions: The Loser's Curse | p. 252 |

Questions | p. 252 |

Common-Value Auctions and the Winner's Curse | p. 255 |

"I Won the Auction but I Wish I Hadn't" | p. 255 |

The Nash Equilibrium | p. 258 |

The Winner's Curse | p. 261 |

Extensions | p. 262 |

Questions | p. 263 |

Multi-Unit and Combinatorial Auctions | p. 265 |

Dry 2K | p. 265 |

FCC Bandwidth Auctions and Package Bidding Alternatives | p. 272 |

Experimental Tests of Package Bidding Alternatives | p. 276 |

Extensions | p. 278 |

Questions | p. 279 |

Behavioral Game Theory: Treasures and Intuitive Contradictions | p. 281 |

Multi-Stage Games | p. 285 |

Extensive Forms and Strategies | p. 285 |

Two-Stage Trust Games | p. 288 |

The Centipede Game | p. 291 |

Extensions | p. 292 |

Questions | p. 293 |

Generalized Matching Pennies | p. 295 |

The Case of Balanced Payoffs | p. 295 |

Noisy Best Responses | p. 296 |

The Effects of Payoff Imbalances | p. 299 |

Probabilistic Choice | p. 302 |

Extensions | p. 304 |

Questions | p. 305 |

The Traveler's Dilemma | p. 307 |

A Vacation with an Unhappy Ending? | p. 307 |

Data | p. 309 |

Learning and Experience | p. 310 |

Iterated Rationality and Quantal Response Equilibrium | p. 312 |

Extensions | p. 316 |

Bounded Rationality in the Traveler's Dilemma-A Spreadsheet-Based Analysis | p. 318 |

Questions | p. 323 |

Coordination Games | p. 325 |

"The Minimum Effort Game? That's One I Can Play!" | p. 325 |

Nash Equilibria, Numbers Effects, and Experimental Evidence | p. 328 |

Effort-Cost Effects | p. 329 |

Equilibrium with Noisy Behavior | p. 331 |

Extensions | p. 333 |

An Analysis of Noisy Behavior in the Coordination Game | p. 334 |

Questions | p. 337 |

Individual Decision Experiments | p. 339 |

Probability Matching | p. 341 |

Being Treated Like a Rat | p. 341 |

Are Rats Really More Rational Than Humans? | p. 342 |

Siegel and Goldstein's Experiments | p. 343 |

A Simple Model of Belief Learning | p. 345 |

Reinforcement Learning | p. 346 |

Extensions | p. 347 |

Questions | p. 348 |

Lottery Choice Anomalies | p. 351 |

Introduction | p. 351 |

The Allais Paradox | p. 352 |

Prospect Theory: Probability Misperception | p. 354 |

Prospect Theory: Gains, Losses, and "Reflection Effects" | p. 356 |

Extensions | p. 359 |

Questions | p. 360 |

ISO (in Search of...) | p. 361 |

Introduction | p. 361 |

Search from a Uniform Distribution | p. 362 |

Experimental Data | p. 363 |

Optimal Search | p. 364 |

Extensions | p. 366 |

Questions | p. 367 |

Information, Learning, and Signaling | p. 369 |

Bayes' Rule | p. 371 |

Introduction | p. 371 |

A Simple Example and a Counting Heuristic | p. 373 |

Relating the Counting Heuristic to Bayes' Rule | p. 376 |

Experimental Results | p. 378 |

Bayes' Rule with Elicited Probabilities | p. 379 |

A Follow-Up Experiment with a Rare Event | p. 382 |

Extensions | p. 383 |

Truthful Elicitation | p. 384 |

Questions | p. 385 |

Information Cascades | p. 389 |

"To Do Exactly as Your Neighbors Do Is the Only Sensible Rule" | p. 389 |

A Model of Rational Learning from Others' Decisions | p. 390 |

Experimental Evidence | p. 392 |

Extensions | p. 395 |

Questions | p. 396 |

Statistical Discrimination | p. 397 |

"Brown-Eyed People Are More Civilized" | p. 397 |

Being Purple or Green | p. 399 |

Data on Statistical Discrimination | p. 401 |

"Are Emily and Greg More Employable than Lakisha and Jamal?" | p. 405 |

Extensions | p. 406 |

Derivation of the Discriminatory Equilibrium | p. 407 |

Questions | p. 408 |

Signaling Games | p. 409 |

Real Men Don't Eat Quiche | p. 409 |

Separating Equilibria | p. 410 |

Pooling | p. 412 |

Unintuitive Beliefs and Reverse Type Dependence | p. 413 |

"Stripped Down Poker" | p. 416 |

Extensions: "Too Cool for School" | p. 419 |

Questions | p. 420 |

Prediction Markets | p. 423 |

The Rationale for Prediction Markets | p. 423 |

The Success of Political Event Markets | p. 426 |

Information Aggregation and "Common Value Trading" | p. 428 |

Extensions | p. 431 |

Questions | p. 431 |

References | p. 433 |

Index | p. 451 |

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