Instrumenting Beliefs in Threshold Public Goods

Area of Science:

• Behavioral Economics
• Experimental Economics
• Game Theory

Background:

• Beliefs are crucial for understanding contributions in Threshold Public Goods (TPGs) games, as optimal outcomes depend on them.
• Previous research faces endogeneity issues when trying to isolate the causal effect of beliefs on behavior.
• Threshold Public Goods games are a key area for studying collective action and social dilemmas.

Purpose of the Study:

• To causally investigate the impact of beliefs on contributions in Threshold Public Goods (TPGs) settings.
• To address endogeneity concerns by developing and utilizing exogenous belief manipulation instruments.
• To differentiate the roles of beliefs, history, and prior decisions in one-shot and repeated TPG games.

Main Methods:

• Developed and validated instrumental variables through exogenous and non-deceptive manipulation of participants' beliefs.
• Conducted experiments in both one-shot and repeated Threshold Public Goods (TPGs) decision-making environments.
• Employed econometric techniques to instrument for beliefs and prior decisions to assess their causal impact.

Main Results:

• Validated instruments confirmed the exogenous manipulation of beliefs without deception.
• Contrary to expectations, beliefs were found to be non-endogenous in both one-shot and repeated TPG settings.
• In repeated TPGs, second-round allocations were equally influenced by beliefs and decision history after accounting for first-round allocations.

Conclusions:

• Beliefs play a less direct causal role in Threshold Public Goods (TPGs) contributions than previously assumed.
• Decision history significantly impacts subsequent choices in repeated TPGs, but its importance is often overestimated without proper instrumentation.
• The study provides a robust method for identifying the causal effects of beliefs in economic decision-making.