The Impact of Fine Size and Uncertainty on Punishment and Deterrence: Evidence from the Laboratory

We use a laboratory experiment to test the impacts of uncertainty, the magnitude of fines and aversion against making type-I and type-II errors on legal decision making. Measuring uncertainty as the noise of a signal on the defendant's guilt observed by legal decision makers, we observe that a supposed wrongdoer is less likely to be punished if fines and uncertainty are high. Furthermore, judges care far more about type-I errors and violators steal far less often than expected payoff maximizers would. While our results support the theoretical predictions on average, a cluster analysis provides evidence for heterogeneous behavior of participants, many of whom don't respond to changes in the parameters or are far more driven by uncertainty than the magnitude of fines.