In an earlier paper (Raymond C. Battalio, John H. Kagel, and Don N. Mac Donald, 1985), we reported Allais-type violations of the independence axiom of expected utility theory with rats choosing over positively valued payoffs (food rewards). This note extends this research, examining animals' choices over losses, testing for (1) standard Allais-type common ratio effect violations of expected utility theory and (2) fanning out of indifference curves for random prospects, tests of Mark J. Machina's (1982, 1987) hypothesis II (hereafter H2), over previously unexplored areas of the unit probability triangle. Results from a parallel series of experiments using human subjects choosing over real losses are also reported. For both rats and people, we find standard Allais-type violations of expected utility theory and a systematic failure of the fanning out hypothesis in the southeast corner of the unit probability triangle, in the case of losses. Thus, the fanning out hypothesis (Machina 1982, 1987) cannot provide a satisfactory explanation for behavioral deviations from expected utility theory.

What causes individual suppliers to allocate goods in such a way that the aggregate allocation satisfies the law of one price? A satisfactory answer to this question must confront two related problems: Equal net prices at all allocations provide no information to suppliers about the quantity to deliver to a specific location, and strategic uncertainty makes an observed violation of the law of one price an unreliable indicator of a profit opportunity. This paper develops a simple analytical framework to formalize these two problems, reviews some solutions found in the literature, and reports laboratory evidence on how people solve them. In addressing these issues, we focus on the role historical prices play in coordinating decentralized allocation decisions.

What causes individual suppliers to allocate goods in such a way that the aggregate allocation satisfies the law of one price? A satisfactory answer to this question must confront two related problems: Equal net prices at all allocations provide no information to suppliers about the quantity to deliver to a specific location, and strategic uncertainty makes an observed violation of the law of one price an unreliable indicator of a profit opportunity. This paper develops a simple analytical framework to formalize these two problems, reviews some solutions found in the literature, and reports laboratory evidence on how people solve them. In addressing these issues, we focus on the role historical prices play in coordinating decentralized allocation decisions.

Data on individual labor earnings are reported from two experimental economies where the primary factors responsible for income differences were differences in tastes for market income versus leisure and differences in abilities working manual job tasks. Measured income dispersion under these conditions was strikingly similar to that in the United states and other market economies, indicating that these two factors alone are sufficient to generate such income differences. Further, in tests of the functional form of the distributions of income, the hypothesis of lognormality fit better than the hypothesis of normality, just as it does in national data.

Raymond C. Battalio, John H. Kagel, Robin C. Winkler, Richard A. Winett, Residential Electricity Demand: An Experimental Study, The Review of Economics and Statistics, Vol. 61, No. 2 (May, 1979), pp. 180-189

Results of recent empirical and theoretical research have shown the applicability of consumer demand theory in describing and predicting choices of nonhuman consumers (see A. Covich, D. Rapport and J. Turner, Battalio et al., Kagel et al., 1975, 1980). Commodities used in these studies have been largely limited to different kinds of edibles: food grains, water, and sweet tasting (preferred) fluids. A natural extension of the commodity choice model is to consider leisure as a good. This paper presents results of experiments showing that nonhuman workers (pigeons) are willing to trade off income for leisure if the price is right. More specifically our results show that the Slutsky-substitution effect is positive for (exactly) compensated wage decreases, and that leisure is a normal good at all points in the choice space. In addition to demonstrating the pervasiveness of income-leisure tradeoffs, the experiments show strong regularities in the size of the substitution and income effects at varying wage rates; with increases in real wages both income and substitution effects get smaller, but the substitution term decreases more rapidly than the income term resulting in a backward bending labor supply curve at higher wages. The plan of the paper is as follows. In Section I we characterize the procedures employed in the laboratory for studying labor supply, and summarize well-established characteristics of this behavior as it is relevant to the present experiments. Sections II and III describe the hypotheses tested and the experimental procedures employed in the tests. Results of the experiments are given in Section IV. Some of the implications of these results are discussed in a brief concluding section. Space considerations do not permit a detailed discussion of the reasons why economists should take seriously the investigation of economic theories using nonhuman subjects (see Kagel and Battalio for this argument). For the more skeptical reader we simply note that if one defines economics as .. . .the study of the allocation of scarce resources among unlimited and competing uses (Albert Rees, 1968, p. 472), then animal psychologists, ecologists and biologists have been involved in studying economic behavior for some time now (Rapport and Turner; Jack Hirschleifer; H. Rachlin). It is but a small step to take the technologies of these related disciplines and apply them to behavior of interest to economists, for example labor supply behavior. At a minimum, such studies expand considerably the scope for comparative economic analysis. At a maximum they provide a laboratory for identifying, testing, and better understanding general laws of economic behavior. Use of this laboratory is predicated on the fact that behavior as well as structure vary continuously across species, and that principles of economic behavior would be unique among behavioral principles if they did not apply, with some variation, of course, to the behavior of nonhumans.

Results are reported from experiments showing that both income-compensated and ordinary (uncompensated) demand curves for nonhuman consumers are negatively sloped. Essential commodities are determined to be gross complements, while nonessential goods are independent or gross substitutes. The experiments extend the concepts underlying value theory to nonhumans and provide a basis for intensive experimental investigations of additional aspects of the theory.

Starting from an initial (baseline) budget line, income-compensated price changes always resulted in substitution effects consistent with the Slutsky-Hicks theory. This behavior cannot be explained by a simple random-behavior model. Similar changes in relative prices that did not originate from the initial (baseline) budget line resulted in "undersubstitution effects": The composition of consumption changed in the expected direction, but the magnitude of change was not large enough to be consistent with the initial commodity bundle chosen. These undersubstitution effects are not explainable by shifting preference patterns or anchoring effects found in inconsistent choice sequences with human subjects.