General information on the experiment

You are now participating in an economics experiment in which you may be able to earn money depending on your decisions and the decisions of others. During the experiment, you are not allowed to communicate with other participants. If you have any question related to the experiment, please feel free to email your question to mengxing.wei@hotmail.com, who will answer your question immediately.

During the experiment, our unit of money will be tokens, hence, all monetary amounts are quoted in terms of tokens. Your total income from the experiment, expressed in tokens (after rounding), will be converted into pound sterling in cash after the experiment at an exchange rate of 1 token = 0.5 pound. Additionally, you will receive 4 pounds, as a show-up fee for participating in this experiment.

Outline of experiment

We now describe the broad outline of the experiment in brief, to be followed by a more complete description later. You will be randomly paired with a partner whose identity you will never learn (and vice-versa). You will be paired with the same partner for the entire duration of the experiment. The experiment consists of the following two stages.

In Stage 1 (Voluntary contributions decision),you and your partner are provided an identical Stage 1 endowment by the experimenter. Using only these endowments, you and your partner will simultaneously, and independently, make contributions to a joint project. You cannot observe or influence each other’s choices at the time of making your contribution decisions. The joint project benefits both of you equally, even if your contributions are unequal. At the end of Stage 1, you and your partner can observe each other’s actual contributions. At this stage, we shall also elicit the emotions that you are experiencing; these are Frustration, Anger, Indignation, Shame, Elation, Satisfaction, Dissatisfaction.

In Stage 2 (Voluntary reduction decision), you and your partner have observed Stage 1 contributions, and both of you are given identical Stage 2 endowment by the experimenter. Using only the Stage 2 endowment, you and your partner can reduce each other’s Stage 2 incomes by paying a cost. At a cost of 1 token, you can reduce your partner’s income by 3 tokens. The Stage 2 reduction decisions by you and your partner are made simultaneously, and independently, without observing or influencing each other’s choices.

Your income in tokens is calculated separately in each stage and it depends on your decisions and the decisions of your partner. After the experiment, only one stage will be randomly chosen to pay you. The identity of your partner stays anonymous to you, and vice-versa.

Complete description of experiment

We now explain the economic environment in more detail before you make your actual decisions in the experiment. After reading the details, you will need to answer several questions to make sure that the instructions are clear and well understood.

Stage 1: Voluntary Contribution Decision

You and your partner both receive an identical Stage 1 endowment of 20 tokens from the experimenter and this is known to you and to your partner. You can choose any number of tokens, between 0 and 20 tokens, to contribute to a joint project. The joint project benefits you and your partner equally irrespective of the actual individual contributions that you and your partner make. The remaining tokens, net of your contributions to the public project belong to you and are yours to keep. Your partner makes an identical decision, i.e., contribute between 0 to 20 tokens to the joint project and keep the rest for themselves. While making your decisions, neither you, nor your partner, observes how much the other contributes to the joint project. Thus, the decisions are made simultaneously and without a chance to communicate with each other. This is the only decision you make in Stage 1.

Suppose that you contribute t1 tokens (between 0 and 20 tokens) towards the joint project and keep 20-t1tokens for yourself. Suppose that your partner contributes t2 tokens (between 0 and 20 tokens) and keeps 20-t2 tokens for themselves. Then total investment in the joint project is denoted by G=t1+t2.

The joint project generates a total return that is 160% of the investment G (or 1.6 times G). This return is shared equally between you and the partner, or an 80% return for each of you (or 0.8 times G).

Your total income in Stage 1 is calculated as follows:
1. Tokens kept for yourself = 20-t1 tokens
2. Return from the project = 0.8*G = 0.8*(t1+t2) tokens
Total income is the sum of tokens kept for yourself and the return from the project, or(20-t1)+(0.8*G) tokens.

Similarly, your partner’s Stage 1 income is (20-t2)+(0.8*G) tokens. Both of you receive identical incomes from the project but if you contribute different number of tokens, the first part of your income (tokens kept for yourself) is different.

Hypothetical example 1:

[Recall that you and your partner choose contributions simultaneously, and independently]
Total investment in the public project is G = 10 + 15 = 25 tokens.
You and your partner get an identical return 0.8*G or 0.8*25 = 20 tokens despite the fact that the contributions are unequal.

Your Stage 1 income is:
Tokens kept for yourself (20 - 10 = 10) + project returns (0.8 * 25) = 10 + 20 = 30 tokens.

Your partner’s Stage 1 income is:
Tokens kept for himself/herself (20 - 15 = 5) + project returns (0.8 * 25) = 5 + 20 = 25 tokens.

Hypothetical example 2:

[Recall that you and your partner choose contributions simultaneously, and independently]
Total investment in the public project is G = 20 + 10 = 30 tokens.
You and your partner get an identical return 0.8*G or 0.8*30 = 24 tokens despite the fact that the contributions are unequal.

Your partner’s Stage 1 income is:
Tokens kept for yourself (20-20=0) + project returns (0.8 x 30) = 0 + 24 = 24 tokens.

Your partner’s Stage 1 income is:
Tokens kept for himself/herself (20-10) + project returns (0.8 x 30) = 10 + 24 = 34 tokens.

Guess Your Partner's Contribution Decision

Before you make the Stage 1 contribution decision, you are asked to guess how much your partner will contribute to the project out of their endowment of 20 tokens. Your guess won’t be revealed to any other participant and it remains your private information. At the end of the experiment, the computer will randomly choose one participant whose guess matches his/her partner's actual contribution and give this participant an additional prize of 5 tokens. If nobody guessed correctly, then the computer will randomly choose one participant whose guess is the closest to the partner's actual contribution, and give this participant a prize of 2 tokens.

After you write your guess of the partner’s contribution, you will make your Stage 1 contribution decision.

At the end of Stage 1, the following information will be publicly announced within your group: your contributions t1; your partner’s contributions t2; the total investment G; your returns from project 0.8 * G; and your and your partner’s total Stage 1 income.

Your last task in Stage 1 is to reveal the emotions that you are feeling now [Frustration, Anger, Indignation, Shame, Elation, Satisfaction, Dissatisfaction] and the intensity of these emotions.

Stage 2: Voluntary Reduction Decision

At the beginning of Stage 2, you and your partner are given the Stage 2 endowment of 20 tokens each. All the Stage 2 decisions that you make can only use Stage 2 endowment of 20 tokens, and no other source of income. Both you and your partner possess this information.

Your only decision in Stage 2 is to choose to reduce your partner’s Stage 2 endowment at some cost to yourself. We call this a reduction decision. If you pay a cost of 1 token from your endowment, you can reduce your partner’s income by 3 tokens. You can use between 0 to 5 tokens of your endowment to reduce your partner’s income. The table below shows the reduction in your partner’s Stage 2 income, as you choose to give up 0 to 5 tokens. [You can also use fractions between 0 and 5, such as 1.5, 2.3, e.g., by giving up 2.5 tokens, you can reduce your partner’s income by 3x2.5=7.5 tokens.]

Cost paid by you in tokens 0 1 2 3 4 5
Reduction of partner’s income in tokens 0 3 6 9 12 15

Your partner, who also has a Stage 2 endowment of 20 tokens, faces an identical choice. S/he can also give up 1 token to reduce your income by 3 tokens. Like you, s/he can choose between 0 to 5 tokens to reduce your endowment.

Both you and your partner make the reduction decision simultaneously without knowing the choice of the partner and without influencing each other in any way. The only information you have is the Stage 1 contribution decisions made by you and your partner and your respective incomes.

Your Stage 2 income is calculated using the following formula:
[Tokens left over after reducing the partner’s income] - [the reduction in your endowment due to your partner’s decision to reduce your income].

Hypothetical Example 3:

You pay a cost of 4 tokens to reduce your partner’s endowment by 3 * 4 = 12 tokens. Simultaneously, and unobserved to you when you make your decision to reduce your partner’s income, your partner chooses 5 tokens to reduce your income by 3 * 5 = 15 tokens.

Your Stage 2 income is: Tokens left over by you (20 - 4 = 16) – reduction in your income by the partner’s reduction decision (3 * 5 = 15) = 16 - 15 = 1 token.

Your partner’s Stage 2 income is: Tokens left over by your partner (20 - 5 = 15) – reduction in partner’s income by your reduction decision (3 * 4 = 12) = 15 - 12 = 3 tokens.

Hypothetical Example 4:

You pay a cost of 1 token to reduce your partner’s endowment by 3 * 1 = 3 tokens. Simultaneously, and unobserved to you when you make your decision to reduce your partner’s income, your partner chooses 3 tokens to reduce your income by 3 * 3 = 9 tokens.

Your Stage 2 income is: Tokens left over by you (20 - 1 = 19) – reduction in your income by the partner’s reduction decision (3 * 3 = 9) = 19 - 9 = 10 tokens.

Your partner’s Stage 2 income is: Tokens left over by your partner (20 - 3 = 17) – reduction in partner’s income by your reduction decision (3 * 1 = 3) = 17 - 3 = 14 tokens.

After you make your decision to reduce your partner’s income, but before you are informed about your partner’s decision to reduce your income, we elicit the emotions that you are feeling [Frustration, Anger, Indignation, Shame, Elation, Satisfaction, Dissatisfaction] and the intensity of these emotions.

Guess Your Partner's Reduction Decision

Before you make the Stage 2 reduction decision, you are asked to guess your partner’s reduction decision, i.e., how many tokens will your partner give up to reduce your income. Your guess won’t be revealed to any other participant and it remains your private information. At the end of the experiment, the computer will randomly choose one participant whose guess matches his/her partner's actual reduction decision and give this participant an additional prize of 5 tokens. If nobody guessed correctly, then the computer will randomly choose one participant whose guess is the closest to the partner's actual contribution, and give this participant a prize of 2 tokens.

After you write your guess of the partner’s reduction decision, you will make your Stage 2 reduction decision.

Finally, you learn about your partner’s decision to reduce your income and your Stage 2 income.

Note: After the experiment, only one stage will be randomly chosen by the computer to pay you.

End of Experimental Instructions