Thursday, 22 November 2018

Drinking increases the chances of coming to an agreement?

Experimental economics allows researchers to abstract from the real world, presenting research participants with choices where the impact of individual features of the choice can be investigated. Or sometimes the context in which choices are made can be manipulated to test their effects on behaviour.

In a 2016 article published in the Journal of Economic Behavior & Organization (I don't see an ungated version, but it looks like it might be open access anyway), Pak Hung Au (Nanyang Technological University) and Jipeng Zhang (Southwestern University of Finance and Economics) look at the effect of drinking alcohol on bargaining.

They essentially ran three experiments, where participants drank either: (1) a can of 8.8% alcohol-by-volume beer; (2) a can of non-alcoholic beer; or (3) a can of non-alcoholic beer (and where they were told it was non-alcoholic). They then got participants to play a bargaining game where each participant was given a random endowment of between SGD1 and SGD10, then paired up with another and:
...chose whether to participate in a joint project or not. If either one subject in the matched pair declined to participate in the joint project, they kept their respective endowments. If both of them agreed to start the joint project, the total output of the project was equally divided between them. The project’s total output was determined by the following formula: 1.2 × sum of the paired subjects’ endowment.
So, if Participant X had an endowment of 4 and Participant Y had an endowment of 8, and they both chose to participate in the joint project, they would each receive $7.20 (12 * 1.2 / 2). So, it should be easy to see that participants with a low endowment are more likely to be better off participating than participants with a high endowment (who will be made worse off, like Participant Y in the example above, unless the person they are paired with also has a high endowment). Au and Zhang show that participating in the joint project should only be chosen by those with an endowment of 3 or less.

Using data from 114 NTU students, they then find that:
...[w]hen the endowment is between 1 and 4 dollars, almost all subjects participate in the alcohol treatment and a large proportion (around 90–95%) of the subjects join the project in the two nonalcohol treatments. When the endowment is above 8 dollars, the participation ratio drops to around 0.2...
...subjects in the alcohol treatment are more likely to join the project at almost all endowment levels, compared with their counterparts in the two nonalcohol treatments.
Importantly, they show that drinking alcohol has no effect on altruism or risk aversion, ruling out those as explanations for the effect, leading them to conclude that: settings in which skepticism can lead to a breakdown in negotiation, alcohol consumption can make people drop their guard for each others’ actions, thus facilitating reaching an agreement.
Drinking makes people more likely to come to an agreement. I wonder how you could reconcile those results with the well-known effects of alcohol on violent behaviour? Perhaps alcohol makes people more likely to agree to engage in violent confrontation?

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