Public Goods

8/13/2017 Experiment:
Influence of Cognitive Biases on
Cooperation

Research Project Report

M-EF_3 Applied Research Project

HOCHSCHULE RHEIN-WAAL

Faculty of Society and Economics

Supervised By:
Mr. Achiel Fenneman

Syed Zuhair Hussain Naqvi – 20466

Participants:

Abid Zain Alam – 20391

Muhammad Hasnat Khalid – 20964
Mehmana Elmanali – 20921
 Acknowledgement

We would like to express our deepest appreciation to all those who provided us the possibility in
completion of this report. A special gratitude we would like to give to Mr. Achiel Fenneman, whose
contribution in guidance, stimulating suggestions and encouragement, helped us to coordinate
our experiment especially in writing this report.

We would also like to thank the participants who took part in our experiment and filled out the
survey research. Moreover, we would like to thank every group mate for providing their assistance
and support throughout the period. Further, we would like to ask your attention on few points,
initially we were a group of 5 people and the 5th participant was Syeda Nuzhat Fatima (Matr. #
21011). We worked together till the date of presentation but unfortunately a day before
submission, she had some problems and was not able to complete and submit her part. Therefore,
we covered the remaining part which pertains to her area.

In order to differentiate the working areas and the efforts of each group member, below mentioned
is the breakdown for their contributions;

Syed Zuhair Naqvi: Abid Zain Alam: M. Hasnat Khalid: Mehmana Elmanali:
 Abstract  Acknowledgement  Literature  Introduction
 Conceptual  Literature Review Review  Conclusion
Framework  Graphical and  Findings
 Methodology Tabular
and Design Representations
 Questionnaire

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Table of Contents
Abstract ........................................................................................................................................................ 3
1. INTRODUCTION ............................................................................................................................................ 3
2. LITERATURE REVIEW .................................................................................................................................... 4
2.1. ENVIRONMENTAL FACTORS AND INDIVIDUAL TRAITS .......................................................................... 8

3. CONCEPTUAL FRAMEWORK.......................................................................................................................10
3.1. BOUNDED RATIONALITY ......................................................................................................................11
3.2. COMPONENTS OF A PUBLIC GOOD GAME .........................................................................................12

4. HYPOTHESIS ...............................................................................................................................................12
5. METHODOLOGY .........................................................................................................................................12
6. FINDINGS ....................................................................................................................................................14
7. CONCLUSION ..............................................................................................................................................15
References .................................................................................................................................................17
APPENDIX - I ...............................................................................................................................................21

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Abstract:

Descriptive decision theories analyzes that how irrational agents can possibly influence decision
making and it is evident from the empirical research that the cognitive biases and heuristics often
guides the choices that an individual make which is opposed to neoclassical assumption of rationality
of economic agents in economic decisions. Our study attempts to examine the influences of cognitive
biases created as a result of variation in presentation of a situation on the cooperation in a public
good experiment.

1. Introduction:

Believe it or not, we receive free goods and services very day. We are just so habitual that we don’t
notice them often. For instance, when you are studying in a public library on a hot summer day, you
are getting the benefits of air conditioning that you are not paying for. This is an example of public
goods. The main characteristics of public goods that they are non-excludable and non-rival in
consumption. Non-excludability means that no one is excluded from consumption of certain public
good, non-rivalry means one person’s use of public good doesn’t diminish the amount availability for
others.

In experimental economics one of the most investigated issue is provision of public goods. There
are some noticeable reasons why public goods are getting so much attention. Firstly, the Nash-
equilibrium outcome of the public good game is inefficient. Individuals in a public good experiment
are faced with confusion that to behave in individually rational and selfish way does not generate
efficient allocation (Weimann et al., 2012). This makes game very interesting because in classical
assumptions where individuals behave strictly rational in their self-interest is thrown, the questions
come out whether non-selfish or rational individual can find a way to rescue the social dilemma which
appear in a public good game. Second reason why public good experiments so attractive that the
provision of public goods is critical in many real world environments. For example, security of energy
supply, climate preservation, protection of cultural heritage can only be provided if a lot of people
are willing to contribute voluntarily. Accordingly, economics op public goods have strong political
impact and the history of public good experiments (Ledyrard,1995) can be characterized as a part
of search for solutions for many real world problems.

There are a lot of theories what we should expect to happen in public goods experiment. One, as a
game-theoretic prediction no one will ever contribute anything. Each potential contributor will try to
“free ride” on the others (John, 1993). Another theory, which I call the sociologic-psychologic
prediction, is that each subject will contribute something. Although it is hard to find exact statements,

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it is sometimes claimed that altruism, social norms or group identification will lead each to contribute
some amount.

Economists have used laboratory experiments extensively to study the tension between making
voluntary contributions to a public good and free riding on others’ contributions. In a typical one-shot
play of the public goods game, a group of n participants are told that each of them has an endowment
of m tokens. Each participant must make a decision on how to allocate those tokens between a
private account and a public account, typically in whole numbers. Contributions by all the participants
in a group are made simultaneously and without any communication.

In a finitely repeated version of this game, the one-shot game described above is played over a
number of rounds where each successive round proceeds in the same manner, starting with a new
endowment of m for each participant. Participants know ex-ante how many rounds they will be
playing. The dominant strategy in the stage game is full free riding, which is also the subgame perfect
equilibrium in finitely repeated games. However, the social optimum is for each participant to
contribute his entire token endowment to the public account in each round.

2. Literature Review:

There is a fundamental assumption of many economic and game theories that people tend to be
both selfish and rational. For example, probability of defection in prisoner’s dilemma and free ride in
public goods are in the result of these two assumptions. Possibilities being carried out by these
assumptions of selfishness and rational behavior are however, manipulated in many different
scenarios. For example, Funds raising is quite easy through viewers in order to keep on showing
their broadcast for public television or even when go out in a restaurant which will be never likely to
be visited again, many patrons tip the server.

Social preferences are reason for declined the voluntary corporation. Several research shows that,
confusion and argue in contribution is not due to confusion it might be possible related to social
preferences. Social preference for the declined of corporation is depend on the contribution of other
players “contributors are well coordinated with the contributors and free riders with free riders”
(gachter, 2008) Putter man and Unel (2005); Gunnth orsdottir, Houser and McCabe (2007) “As a
result contributors are more contributed if the free riders are disappeared from a group” (Guala,
2005). It shows that heterogeneity of social preferences is the corrosion of corporation of irregular
group, so its means that contributor are only conditionally cooperative that is why they have selfish
and rational behaviour.

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A further indirect approach to analyse the behaviour and change in behaviour of groups under
generalize and specific sets of condition. Naturally the over contribution in public good games
depends on the contributors care to the favour of others participants either it is negative or positive.
Outcomes of utility maximization in over contribution is depends on your own payoff and payoff of
other players. (Dmitry A. Shapiro, 2008). It is an assumption that Utility interdependence is the
reason of over contribution because payoff and utility function can’t explain the behaviour either it is
negative and positive, average contribution of subject below the benchmark is doesn’t matter it
should be above zero and when participants belief than average contribution is as high as the
endowment.

In public good game, all the members in group having equal benefits from the common resources
(public goods). Public goods might be anything like awareness to cleaning, healthy environment etc.
all goods are maintained to put some contribution by the other members. In research (Allen, 2011)
contributions are voluntary, but benefits everyone from the Public good. Here is the problem
generate because public good experiment has no built-In incentive to contribute. Only dreams are
not be able to making things better to every one they desire contribution, so without contributing
anything FREE RIDERS take benefits from others contribution. There is a theory Tragedy of the
Commons, people just stop contributing altogether because they didn't need the advantages of their
diligent work to compensate the individuals who didn't contribute. Contributions declined over the
time because participant realizes that Free Riders are exploit their efforts so that is why they behave
like Rational. This tragedy also goes reverse by taking few steps, on the off chance that every one
of the members are known each other and have a connection to each other under the counter on
settings beside the amusement than they concerns one's notoriety can inspire individuals to
contribute ( Rand et al 2009) (Milinski, 2002). That is the same method which we can adopt in our
experiment.

How people behave to contribute with information or without information? What Should One Expect
to Happen in this Public Goods Experiment?

Presently there is an alternate situation, worldwide difficulties like environmental change, natural
protection, and supportable utilization of assets. It is too difficult to overcome and trace problems like
fishing and pollution to individual or companies responsible? If the scale is too large, complex and
individual than participant invest in the institutions because they have an authority to investigate and
decide to punish and reward (Gureck et al 2006; Sigmund et al 2010). According to John O. Ledyard
there are theories like Economic/Game-Theoretic Prediction/Game Theory is the conflict and
cooperation between intelligent rational decision-makers. It tended to zero-total diversions, in which
one individual's increases result in misfortunes for alternate members. Sociologic-psychologic
prediction from the point of view of this theory, there is no conflict between individual and group

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interests. It is in some cases asserted that unselfishness, social standards or gathering recognizable
proof will lead each to contribute most noteworthy the gathering ideal result (Ledyard, August 1993).

Examination of the patron's conduct that neither one of the theory’s is correct. As a rule, some
contribute most astounding, some contribute nothing and some pick a centre course and contribute
something in the middle. Both economists and sociologists perceive that the coveted result is for all
to contribute most noteworthy. The trials confirm recommends that intentional commitments won't
deliver that coveted result. Monetary hypothesis propose that it might be conceivable to change the
foundations by which bunch decisions are made in a way that makes the result be nearer to the
gathering ideal. There are three possible outcomes.

 In one-shot trials and in the underlying phases of limitedly rehashed trials, subjects for the
most part give commitments somewhere between the Pareto-effective level and the free
riding level.
 Commitments decrease with repetition
 Eye to eye correspondence enhances the rate of commitment

In the previous literature everyone thinks and clarifying the rot of participation was taking in the free
rider methodology. At the end of the day, a few aggregate activity situations end up being effectively
tended to, despite the fact that the nearness of free riders can't be precluded. Comparative
conclusions have been come to, in the most recent decades, through trial explore on private
arrangement of open products, predominantly directed inside the notable Voluntary Contribution
Mechanism (VCM) or Public Goods Game (PGG) structure. As (DAVID MASCLET, 2003) observe,
this game is appealing as “it starkly isolates the conflict between self-interest and group interest and
permits a basic measure of the degree of gathering intrigued conduct”.

An interest for behavioural standards emerges at the point when individuals from a gathering have
singular motivating forces to take activities that lessen the gathering's general welfare. (Coleman,
1990) Standards require implementation with an arrangement of authorizations that punish
deviations from adequate conduct (Homans, May, 1958). (R.Mark Isaac et al 1985) (Andreoni. 1988)
(Isaac and James M. Walker 1988) (Joachim Weimann, 1994) (Keser, 1996) the extent of
contribution declines with reputation. Contribution rates expanded if correspondence between the
social affairs is allowed before each play. Observing each other assembling part's dedication, has
an opportunity to diminish the benefit of any of interchange players in his social occasion, at a cost
to himself. In the unique sub game-perfect equilibrium to the two-stage game, operators never
ignoring since it brings down their own result, and in light of the fact that the discipline is not
trustworthy, there are no commitments in that stage. The open door for operators to diminish the
money related result of others subsequent to watching their choices expands commitment levels.

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(Samuel Bowles et al. 2001) and (Jeffrey Carpenter 2002) obtain similar results as (Fehr and
Gachter) they find that the points when an authorizing structure is available huge gatherings make
increase per capita commitment than little gatherings.

Kreps et al (1982), Andreoni & Miller (1993) was given a theory named as REPUTATION BUILDING
THEORY. This theory mainly studied the cooperation part in a public goods game. The suspicion of
hypothesis was that players are self-intrigued yet once they enjoy monotonous amusements they
build up a feeling of collaboration among themselves. The model concentrated on the premise that
motivating forces to participate increment and desire that other player will likewise increment, goes
high.

All above investigations frame building squares which add to the data supportive in public goods
game. Through studies and experiments on living individuals, social scientists can analyse different
factors that influence decision making and impact individual cooperation. Then again, scientific
investigations shape premise and enable analysts to reveal diverse states of mind and practices of
individual players in an amusement. By fortifying these methodologies, compelling utilization of
arrangements can be made to upgrade pay offs and energizes contribution. In the field of business,
shared participation between both the business person and the speculator is the key driver on the
grounds that the measure of venture another business can get from the financial specialist for the
most part relies upon the level of collaboration between the business person and the financial
specialist.

Most of the literature related to public goods provision emphasis on the problems associated with
behavior of free riding to group size as it is one factor which has an influence. Previously, many
researchers have already discussed the possibility of separating the components through which we
can differentiate larger versus smaller groups (Isaac and Walker, 1988). IW (1988) gather the data
for small groups as well as larger groups in order to find out the influence on the output. They also
concluded that there is distinguish between pure versus impure public goods and in this instance
group size is partially motivated. Through further results in their research, it was developed that when
group size will increase there will be increase in severity of free riding. Therefore, when group size
will increase, marginal benefit will not be reduced of public goods. Based on this research, later on
research conducted by (Isaac, Walker and Williams, 1992) got new findings about the existence of
group size effect in pure public good provision.

The main idea of conducting the experiment is to identify the behavior and change in behavior of
groups within a set of conditions. Normally, the number of groups participate in public goods game
tend to produce less optimum amount under the situation of voluntary contribution (Isaac, McCue
and Plott, 1985). When the decision of contribution turns to be voluntary than individuals will more

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likely to be free riders (Schneider and Pommerehne, 1981, p. 702). The main problem which occurs
in this experiment is when a person plays in repetition rounds, the more they will be aware of the
dominant strategy. It is also being observed that in two-stage experiment rate of contribution declines
with the repetition of rounds, because during the experiment participants figured it out that free riding
is a dominant strategy and therefore adopted it (Dawes and Thaler, 1988).

In the research (Andreoni, 1988), it was observed that free riding equilibrium lies on an assumption
that all the participants in the experiments are behaving rationally however, there will be the
possibility of not having complete information. Main reason behind this hypothesis is that subjects
have not learnt the incentives and other participants may belief that their partners will behave
irrationally. When this problem occurs, there will be a great shift of incentives in total which is directly
proportional to the individual’s contributions. Moreover, if X assumes that all the other participants
think he does not have an idea of free riding, then by free riding he would reveal himself to be rational.

In other researches, there were quite a number of invalidating factors found, therefore, an experiment
should be held with the intention of avoiding all those factors so there would be a definite prediction
of free riding problem. Then, if no significant free riding behavior is observed, it was constructed that
there is no such economic model or theories to predict phenomena of free riding behavior (Kim and
Walker, 1984).

2.1 Environmental Factors and Individual Traits:

In this section, several aspects should be discussed that pertains to environment, ambiguity, clarity
of information, reliability of source and cognitive profile of investor. This paper will analyze the impact
and relationship between environmental aspects and cognitive profile on decision making.

When an investor makes up the mind to invest in a fund, traits of cognitive profile normally controls
their decision. It is also being observed that cognitive profile plays a role and has an influence on
decision making process which will split up into different phases. It has already been discussed that
genetics got the bigger proportion as compared to other characteristics like age, education and
gender and hence nature is an important component in investors decision making (Barnea et al.,
2010). Additional knowledge cannot result in improved financial behaviors, investors should have
concrete evidences to make investment decisions (Braunstein and Welch, 2002).

There are several characteristics of cognitive profile of the investor. Cognitive style is one of the
critical factor which has impact on the behavior of an individual that how do they select information
and the way they interpret that information (Hayes and Allinson, 1998). Another characteristic of
cognitive profile that has a greater influence is ambiguity tolerance. It shows that how an individual

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reacts to an ambiguous situation when the data turns out in complex form. When an individual has
lower ambiguity tolerance, they would restrict themselves being at risky position in certain situations
(Sully de Luque and Sommer, 2000; Ling et al., 2005). Whereas, as compared to the individuals with
low ambiguity tolerance, the individuals with high ambiguity tolerance reacts valiantly in such
situations and acts accordingly whether the available information is confusing or the data is in
complex form (McNally et al., 2009).

Investment decisions are strongly influenced by the proactivity behavior of an investor that how they
are interpreting the information or reacting to situations where they could have confusing situations.
Proactivity is the last characteristic of cognitive profile. Proactive individuals has clear understanding
and knowledge of opportunities and the situations where they can get benefit of and the initiatives in
order to attain the level of gathering information from the surroundings through which they can
achieve their goals (Seibert et al., 2001).

Characteristics and factors related to individual traits has already been discussed in accordance to
previous researches. Now, environmental factors should be taken into consideration as well.

Nowadays, situations are not consistent and one cannot predict the outcomes or returns on an
investment. There is always a margin for ambiguous events which can impact the selection of funds.
As the financial markets are really uncertain, ambiguity is one of the major factor. A situation, which
is ambiguous leads an individual to predict the possibility of what happens next and without enough
information, unable to figure out the various outcomes (Frisch and Baron, 1988; Ghosh and Ray,
1997). Ambiguity impacts the outcomes of decision similarly as the risk, because from the several
finance theories it has been proven that one cannot calculate risk however they can only predict the
probability of the risk (Ellsberg, 1961). It has been investigated that how ambiguity being present in
the information can change the dimensions of the overall portfolio which will ultimately change the
weights of portfolio whether in positive or negative directions. Therefore, less ambiguous
circumstances make the trading more positive and observable (Epstein and Schneider, 2007;
Garlappi et al., 2007; and Epstein and Schneider 2008). It has been empirically testify that the quality
of information reduces down the inconsistencies and the brokers or agents can easily interpret such
information which is issued by the market regulators (Ahmed and Song, 2009)

Second factor is information clarity which falls under environmental factors or it can also be narrated
as the ability to understand the information well. Mischel (1973) carried out empirical evidence that
how does clarity influences on decision making. He also discussed the differences of weak and
strong situations. Weak situations allow two individuals to interpret the same information in a diverse
way. But when there is a strong situation same individuals will react differently in such situations.

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Returns of an individual would be at stake, it might be a deliberate action of their competitors or
environmental forces where a small piece of deviating information can affect the sense making role.
It was also discussed that rumors create doubts and which eventually leaves out such impressions
where an individual does not find secure standards of evidence (Allport and Postman, 1945). There
is a connection between the two drivers i.e. rumors and behavior in the stock market. When there
are these sort of highly uncertain circumstances similarly as financial markets, rumors can deviate
an individual from decision making (DiFonzo and Bordia, 1997).

3. Conceptual Framework:

The core theory used in economics is based on an assumption that economic agents are rational.
Individuals make the appropriate use of available information to make decisions which maximize
their utility function. This underlying assumption is also pervasive in the economic or game
theoretical prediction of public good game which predicts non-cooperation as the dominant strategy
by participants in this experiment, as it maximizes the individual benefit (Ledyard, 1994). According
to the perspective of this theory there exist a clash between individual and group interest.

Although the neoclassical framework of economic theory often disregard the role of psychology in
human decision making and behavior, the psychological assumptions whether implicitly or explicitly
often guides the choices that an individual make (Döbrich, 2012). It is unarguably recognized in this
era that systematic biases act as a constraint in human cognitive processing and prevent them in
reaching at the objectively rational or an optimal decision (Gary, Dosi, & Lovallo, 2008; Hastie &
Dawes, 2001). The preliminary theoretical grounds to incorporate the psychology of human behavior
in economic research were laid down by Clark (1918), which was conflicting with the traditional
assumption of economic theory which does not take in to account the irrationality of human behavior.
However the research work of Kahneman has driven the growth of this emerging discipline of
behavioral economics in previous decade.

There are two main reasons for inadequacy of human cognitive processing to reach objectively
rational decisions . Firstly, there is an inability to recognize course of action with entirety for decision
makers, secondly, a deficiency to objectively acquire and evaluate the information to extent which
is required to assess the anticipated consequences accurately and to decide accordingly (Cyert &
March, 1963; Morecroft, 1985; Sterman, 1987).

Simon (1955) has described these inadequacies as cognitive limits of rationality. As a result of these
limitations decision makers often make use of simplifying mental strategies known as “heuristics”
which are basically just rules of thumbs which human mind has learned as an evolutionary process
to deal with the complexities of a problem (Bazerman, 2010; Nelson & Winter, 1982; Schwenk, 1986;

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Twersky & Kahneman, 1974). For example; Twersky and Kahneman (1974) found in their research
that individuals tend to disregard the prior probabilities when a description is provided regarding the
choices and they are asked to predict an outcome. They found that when someone will be asked to
predict the performance of a company or an outcome of a match they tend to make different
prediction when a description about the choices is provided and their predictions are affected by type
of description, i.e., if description of a company sounds better they will forecast better performance.
Our research also follow an identical foundations, as it attempts to study the influence of adding a
description of Public Project to create decision bias in favor of it.

These heuristics are often helpful for problem solving but they also come with systematic decision
biases. Some researchers argued that even the strategic decisions are also vulnerable to these
cognitive biases (Barnes, 1984; Billett & Qian, 2008). The researchers have identified innumerable
classifications of the systematic biases in objective decision making in the last four decades
(Bazerman, 2010; March & Shapira, 1987). These existing biases in decision making has been
comprehensively classified into nine separate groups (availability cognition, base rate, commitment,
confirmatory, control illusion, output evaluation, persistence, presentation, and reference point) with
respect to psychological and business research. These nine groups encircle the extensive list of
seventy six different decision biases (Kaufmann, Michel, & Carter, 2009). Our study is exclusively
limited to presentation biases and “information” is selected as the criteria for this decision bias.

3.1 Bounded Rationality:

March and Simon (1958) was the first to question the rationality postulate and argued that the
judgement of an individual is bounded in rationality. The research approach of March and Simon
(1958) was extended by Twersky and Kahneman (1974) when they studied the negative effects of
systematic biases and judgement in decision making.

The bounded rationality view of Simon (1955) is very relevant in this regard as Bayesian games are
characterized by incomplete information and an underlying assumption of game theorists is that the
actual player is not rational enough to identify true model (Matsushima, 1997).

Simon (1955) also argued that real individuals are not rational enough to accomplish the payoff-
maximization and therefore ideal rationality should be replaced by more realistic view of bounded
rationality.

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3.2 Components of a Public Good Game:

Ledyard (1994) has identified environments, outcomes, performance, institutions and model of
behavior as the main components featured in public goods experiments and by creating variations
in the other components the outcomes of the game can be altered (Palfray & Ledyard, 1994).

The aim of this research is to study the influence of cognitive biases on cooperation in a public good
game. The design of this study attempts to create these biases by producing variations in institutional
component.

4. Hypothesis:

The presented hypothesis in this research is that the heuristics or cognitive biases influence the
decision making process of economic agent, because cognitive limitations of rationality aspect of
bounded rationality guides human behavior (Simon, A Behavioral Model of Rational Choice, 1955) .
This viewpoint is supported by evidences from numerous empirical studies (Twersky & Kahneman,
1974). The counterstatement that refuse any influence of discussed biases in the performance
component of experiment clearly comprises our null hypothesis. Following statements explicitly
represent the first and null hypothesis of this study.

H0 : Availability of information about projects where Public Funds are intended to be used will have
no effect on the cooperation from the participants.
H1 : Information about the projects where Public Funds are intended to be used will positively effect
on the cooperation from the participants.

5. Methodology:

The objective of our research was to study the heuristics in decision making in a public goods
experiment or to be more precise the impact of cognitive biases caused by “presentation”. To fulfil
this we have executed similar standard linear public good game employed by Fischbacher, Gächter
and Fehr (2001) in their paper.

A binary decision situation is immersed in our experiment where the subjects had to make an
investment decision from two given option, i.e. a public project and a private investment, they were
given a limited endowment fund of twenty tokens for this purpose. To create cognitive bias related
presentation in favor of cooperation a small description of pubic project was added in the experiment.
The sample was divided in to two groups, where in one of the groups subjects had to make their

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decision in the absence of any description of public project, while the other group was provided with
a short description of public project. We have named the group with description as “Group 1” and
the one without description as “Group 2”. The availability of the information regarding project or a
description was only variant between the two groups and every other feature of an experiment was
homogenous. The following description was provided to group one about the project.

“A public project of research and development of production plant which aims to produce renewable
fuels and chemicals by using carbon-dioxide in the atmosphere. Researchers strongly believe that
this kind of projects have a high commercial significance as these technologies have potential to
create new business opportunities, especially for companies benefiting from the carbon circular
economy and chemical companies.”

A following payoff function was introduced to the sample for both cases , i.e. with and without
description about the projects before starting the experiment, to eliminate any bias for payoffs in the
participants.
Payoff = Ei – Xi + ( ∑𝑛𝑖=𝑛 𝑋 × 0.2 )
Where;
Ei = Endowment Fund
Xi = Investment in Public Fund
n = Sample size

The subjects were given instructions prior to the experiment which described the decision situation.
A set of control questions were given to the participants subsequently after they had read the
instructions to validate the understanding of experiment in the sample. The participants were able to
successfully solve those questions which demonstrate that they have gained the understanding of
the experiment.

Specifically, in our experiment the decision situation of the two groups differ in a way that the
subjects in group 2 had to make their decision strategically considering the decisions of other
participants in the group. The dominant strategy in this case shall be free riding as the situation of
prisoner’s dilemma exists. While the group 1 has additional information as the description of public
project which can potentially activate the heuristic pattern of decision making as there is a prevailing
aspect of cognitive limitations of rationality in human behavior when making a decision.

The sample size of sixty subjects was selected for this research. The subjects were equally divided
into two groups of thirty. The experiment was executed by using an online tool named
“surveymonkey”.

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6. Findings:

Our experiment found out some important points in simple public goods experiment:
 Increase in marginal value of public good leads to increase in contribution.
 In the presence of altruism, participant's total contribution increases.
 Free riding observed when provided no appropriate information regarding public good
 Positive influence of other’s high contribution on one’s contribution.
 Individual’s expected payoffs is determined by distribution of other’s decision
 Provision of more precise information positively affect contribution.

Group 1 - With Information Group 2 - Without Information

No. of Tokens Invested No. of Tokens Invested
Participants Public Private Participants Public Private
1 10 10 1 10 10
2 8 12 2 10 10
3 10 10 3 20 0
4 0 20 4 10 10
5 10 10 5 20 0
6 12 8 6 8 12
7 15 5 7 20 0
8 0 20 8 10 10
9 19 1 9 10 10
10 20 0 10 15 5
11 20 0 11 20 0
12 10 10 12 10 10
13 20 0 13 20 0
14 20 0 14 20 0
15 10 10 15 20 0
16 12 8 16 0 20
17 16 4 17 10 10
18 15 5 18 20 0
19 16 4 19 1 19
20 15 5 20 10 10
21 1 19 21 0 20
22 9 11 22 0 20
23 20 0 23 20 0
24 10 10 24 5 15
25 10 10 25 15 5
26 18 2 26 15 5
27 20 0 27 10 10
28 10 10 28 20 0
29 15 5 29 0 20
30 10 10 30 8 12

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 0
10
15
20
25
0
5
10
15
20
25

5
Participant 1 Participant 1
Participant 2 Participant 2

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Participant 3 Participant 3
Participant 4 Participant 4
Participant 5 Participant 5
Participant 6 Participant 6

7. Conclusion:
Participant 7 Participant 7
Participant 8 Participant 8
Participant 9 Participant 9
Participant 10 Participant 10
Participant 11 Participant 11
Participant 12 Participant 12
Group 2
Group 1

Participant 13 Participant 13
Participant 14 Participant 14

Public
Public
Participant 15 Participant 15
Participant 16 Participant 16
T-TEST

Participant 17 Participant 17

Private
Private
Participant 18 Participant 18
Participant 19 Participant 19
Participant 20 Participant 20
0.156025521
0.017168688

Group 1 - With Information

Group 2 - Without Information

Participant 21 Participant 21
Participant 22 Participant 22
Participant 23 Participant 23
Participant 24 Participant 24
Participant 25 Participant 25
Participant 26 Participant 26
Participant 27 Participant 27
Participant 28 Participant 28
Participant 29 Participant 29
Participant 30 Participant 30

The typical behaviour of subjects can be characterized by mutual or conditional cooperation.

Voluntary contributions beyond the game-theoretic prediction are a relatively robust phenomenon.

Conditionally cooperative subjects seem to use mutual as an instrument to attain a cooperative

outcome in the interaction with others (Claudio, 2000). However, we also observe free-riders who
make no voluntary contributions to public goods and where possible, actively seek to take advantage
of contributions made by others.

This paper presented the results of an experiment designed to to find out that, whether or not the
provision of more information influences the decision making in favor of one option over other in a
linear public good experiment. In our design, individuals can contribute to public good and private
investment. We made two questionnaires with and without information of public good projects in
order to determine individual’s behaviour. As a result, we can see that group 1 whose we provided
with more information, tend to contribute towards to public investment more rather that private
investment. Whereas, group 2 invested more to private investment out of 20 tokens which were
given to them. The game was only played once because we were interested in obtaining preferences
based on the information itself and don’t want to take into account the considerations of the
participant due to the repetitions of the game.

Many of our participants are conditional co-operators who are willing to match the contributions of
others. Those with optimistic beliefs start out with high contributions. But there are two problems
here: one is that not all conditional co-operators have equally optimistic beliefs about others’
contributions. We do have a group of pessimists who contribute low amounts to start with since they
expect others to do the same. Over time as they find that others are contributing more they do
increase their contributions, but this increase is gradual and is not enough to offset the sharp drop
in contributions coming from the disillusioned optimists. The second problem, which reinforces the
first, is the presence of a small number of free-riders which also contributes to the decay in
contributions.

Moreover, free riding observed when provided no appropriate information regarding public good.
Participants, under the assumption of full rationality, should contribute zero towards the public good
in both the single-shot and finitely repeated game. A single-shot game is not sufficient to allow
subjects to learn the free riding incentives (James, 1988). With enough repetition, subjects begin
understanding the incentives in the game and choose the individually optimal Nash investment.
Thus, repeated play allows for learning what in turn could explain the decay in contributions.

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 APPENDIX – I

Questionnaire

Please identify the income function for the public project that was introduced to you
1
in the instructions.

Which of the following expressions represents income from private account in our
2
experiment?

3 What wil be your income from the Public Project?

4 What will be your total income in the given situation?

5 What will each group member will earn from public project in this situation?

6 What will be your total income in this situation?

7 What will be your income from public project?

8 What will be your total income from your investments?

What will be your total income from both public project and private account? (Tip:
9 Income from Public Project = 0.2 x Sum of contributions to the Public Project and
Total income is the sum of income from project and private account)

Please specify the amount of tokens you want to invest in the given public project
10 in the box below. You can choose to invest any amount from 0 to 20, the remaining
amount of tokens will be considered as your investments in your private account.

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