Experimental Design Details
In the main task of the experiment (investment task), participants are divided into groups of three and assume the role of either the decision maker or a group member. Each group has one decision maker (DM) and two members. [Note: In the experiment, we refer to the DM as the “Leader” of the group.]
The DM makes an investment choice (either low or high investment) that affects the payoffs of themselves and their group members. Both investment options can either succeed or fail. The DM and each group member receive a high payoff if the chosen investment succeeds and a low payoff if it fails. A high investment is more costly to the DM, but it increases the chance that the investment succeeds.
The group members do not observe the DM’s investment choice, but they are asked to report their beliefs about the investment chosen by the DM. Specifically, members are asked to report their prior belief of the likelihood that the DM has chosen the high investment. Then, they are asked to report their posterior beliefs under two scenarios: (i) assuming that the investment has succeeded (i.e., good outcome) and (ii) assuming that the investment has failed (i.e., bad outcome).
Participants will participate in three identical rounds of the investment task, where the payoffs of the investment options vary across each round. Participants remain in the same group and roles for all rounds of the task.
At the end of the last round of the investment task, participants then participate in a dictator game in groups of two. Each participant is asked to divide an endowment of 300 ECU between themselves and another participant from the same session.
At the end of the experiment, participants are asked to complete a questionnaire eliciting their demographic variables and asking them questions about the decisions they have made during the experiment. In the questionnaire, participants will also complete an incentivized risk task (Gneezy and Potters, 1997) which will enable us to elicit their risk preferences.
PARTICIPANT POOL AND PAYMENTS:
The experiments will be conducted online at the University of Melbourne. Participants will be recruited using the ORSEE recruitment system managed by the Experimental Economics Laboratory. Session sizes will range between 12 and 30, depending on the show-up rate for each session.
Within each session, all the participants will be paid for either one round of the investment task or the dictator game, randomly determined at the session level by the experimental software (oTree). If participants are paid for a given round of the investment game, then the DMs will be paid for their investment decisions while the members will be paid for either their DM’s decisions or their beliefs. Members’ beliefs are incentivized using the binarized scoring rule (BSR). If participants are paid for the dictator game, then, within each pair, one decision will be randomly chosen to determine the payoffs of both participants. All the participants will also receive payments from the risk task in the questionnaire.
The between-subject treatments include:
Treatment 1: All participants first make investment choices in the role of the DM, and then all participants are asked to state their beliefs in the role of group members. In other words, decisions of both DMs and group members are elicited using the strategy method.
Treatment 2: Participants are informed of their roles at the beginning of the experiment. They remain in the same group and role for all three rounds of the investment task. They then make their decisions in their respective roles. At the end of each round, we also ask members to report (hypothetically) the investment they would have chosen if they were the DM of the group.