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One of the functions of reputations in societies is to enable coordination, and some of the most familiar instances of this occur when reputations are based on past actions. For example, a history of aggressive play is often interpreted as predicting more aggressive play in the future. This permits a pair of individuals with unequal reputations for aggressiveness to avoid wasteful conßict that would result from aggressive play by both. This paper describes a laboratory experiment designed to explore whether, in a population of subjects, such coordination through reputation formation will emerge spontaneously, what form it will take, and how reliably it will be observed by the individuals in the population. Reputation-based coordination of the sort illustrated above did arise in all experimental sessions, but the rate of adherence to the social rule implicitly adopted by the group varied across the experimental populations as a function of treatment variables. * We are grateful to a referee, to participants at seminars at M.I.T. and Boston University for helpful suggestions, to the National Science Foundation for Þnancial support, and to Sumon Majumdar for research assistance. Data from these experiments is downloadable (in Stata 6.0 format) at www.wws.princeton.edu/~rjmorgan.

The issue of climate change is often framed as one in which contemporary actions, often with affixed costs, are necessary in order to prevent even greater costs being paid during a period in the future. Under such a framework it is thus necessary to calculate the rate in which future benefits are discounted to reflect current values. In this paper we examine how individual level discount rates affect their support for a policy tool that incurs contemporary costs in an effort to prevent future environmental damages. We find that individuals with higher discount rates are significantly less likely to support the imposition of a carbon tax in comparison with individuals that have lower discount rates. Even when controlling for other individual level attributes such as party affiliation a person’s rate for discounting the future is shown to be a strong predictor of their support for a carbon tax.

The Ratio-Bias phenomenon, observed by psychologist Seymour Epstein and colleagues, is a systematic manifestation of irrationality. When offered a choice between two lotteries, individuals consistently choose the lottery with the greater number of potential successes, even when it offers a smaller probability of success. In the current study, we conduct experiments to confirm this phenomenon and test for the existence of Bias as distinct from general irrationality. Moreover, we examine the effect of introducing a monetary incentive of varying size (depending on the treatment) on the extent of irrational choices within this framework. We confirm the existence of the Bias. Moreover, the existence of an incentive significantly reduces the extent of irrationality exhibited, and that this effect is roughly linear in response to changes in the size of the incentive within the magnitudes investigated.

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