The Impact of Financial Histories on Individuals and Societies: A Replication of and Extension of Berg et al. (1995)

Abstract

We replicate and extend the social history treatment of the Berg, Dickhaut, and McCabe (1995) investment game, to further document how the reporting of financial history influences how laboratory societies organize themselves over time. We replicate Berg et al. (1995) by conducting a No History and a Financial History session to determine whether a report summarizing the financial transactions of a previous experimental session will significantly reduce entropy in the amounts sent by Investors and returned by Stewards in the investment game, as Berg et al. (1995) found. We extend Berg et al. (1995) in two ways. First, we conduct a total of five sessions (one No History and four Financial History sessions). Second, we introduce Shannon’s (1948) measure of entropy from information theory to assess whether the introduction of financial transaction history reduces the amount of dispersion in the amounts invested and returned across generations of players. Results across sessions indicate that entropy declined in both the amounts sent by Investors and the percentage returned by Stewards, but these patterns are weaker and mixed compared to those in the Berg et al. (1995) study. Additional research is needed to test how initial conditions, path dependencies, actors’ strategic reasoning about others’ behavior, multiple sessions, and communication may mediate the impact of financial history. The study’s multiple successive Financial History sessions and entropy measure are new to the investment game literature.

Citation

Jiang, X., Lunawat, R. and Shapiro, B. (2015), "The Impact of Financial Histories on Individuals and Societies: A Replication of and Extension of Berg et al. (1995)", Replication in Experimental Economics (Research in Experimental Economics, Vol. 18), Emerald Group Publishing Limited, Leeds, pp. 95-135. https://doi.org/10.1108/S0193-230620150000018004