• Bandits in the Lab Johannes Hoelzemann and Nicolas Klein We conduct an experimental test of the main theoretical predictions of the model of strategic experimentation with exponential bandits by Keller, Rady, Cripps (2005). We find strong evidence for their prediction of free-riding because of strategic concerns. While experimental subjects are not able to update their beliefs precisely, we nonetheless find strong support for the equilibrium prediction of non-cutoff behavior as well.

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  • Coordination in the Network Minimum Game Johannes Hoelzemann and Hongyi Li We study organizational design and its role in coordination failure using the network minimum game: a version of the minimum-effort game where dependencies between players are captured by a directed network. We show, theoretically and experimentally, that acyclic networks are most conducive to successful coordination. Indeed, introducing a single link to complete a cycle of dependencies may destroy coordination. Further, acyclic networks make coordination resilient: initial coordination failure is often overcome after repeated play in acyclic networks, but not in cyclic networks. Our findings provide a novel perspective on the near-ubiquity of acyclic (e.g., hierarchical) structures in organizations.

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  • Outside Options, the Hold-Up Problem and Trade Effects Johannes Hoelzemann and Richard Holden Hold-ups arise in bilateral trade when specific investments are involved and contracting is incomplete. This means that parties will invest less than the social optimum. Outside options can help improve efficiency in asymmetric information environments. These options can be thought of as reflecting ownership of an asset. In this paper, we consider an environment with an ex-ante investment stage and where ex-post bargaining takes place under one-sided asymmetric information. We present an example where only the presence of an outside option allows for mechanisms that achieve approximately ex-ante efficiency. Without an outside option, any static or sequential mechanism performs worse, which we see as a justification for the role of ownership allocation in contracting under incomplete information. We take these theoretical predictions to a laboratory setting, and find that outside options as implemented through asset ownership are valuable, not because of efficient ex-ante investment but because they reduce ex-post frictions.