We study the impact of overconfidence on investment decisions by financial institutions. These institutions are characterized by the delegation of investment decisions to portfolio managers and the design of contracts that aim at aligning managers' incentives with those of the institution. We...

Virtual communities like Second Life (SL) represent an economic factor with increasing potential, but may induce behavior that deviates from real-world experience. This article introduces a new experimental design that is based on the trust game (Berg, Dickhaut, & McCabe, 1995), but eliminates...

We study a gift exchange game with 12 employees and one employer. When the employer can offer individually differentiated wages in a setting without collective action, we observe high levels of wages, effort choices, and total earnings. When the employer is restricted to offering a uniform wage,...

When employers can incur losses from the labor relationship in a gift exchange game, they offer lower wages on average than in a no-loss relationship. Taking employers’ risk of losing money into account, employees exert more effort per wage unit.

We use a laboratory experiment to study the extent to which investors’ choices are affected by limited loss deduction in income taxation. We first compare investment behavior in the no tax baseline to a tax control setting, in which the income from investments is taxed. We find that investors...