Individual Decision Making in Moral Hazard in Groups Experiments

By John Spraggon

Abstract

This paper investigates individual decision making in an experimental environment where exogenous targeting instruments are used to mitigate the problem of moral hazard in groups. The experimental treatments analyzed in this paper are simple in that there is a unique Nash equilibrium resulting in each player having a dominant strategy. However, the data show quite clearly that subjects do not always choose this strategy. In fact, when this dominant strategy is not a "focal" outcome it does not even describe the average decision adequately. Models of altruism and equity coupled with a decision error model based on either a truncated or censored error distribution are applied to the data and estimated. It is shown that individual decisions are best described by equity and a decision error model based on a censored distribution.