The timing of uncertainty resolution in gift-exchange experiments

Abstract

In this study, we investigate the effect of random outcomes and timing of outcome realization on labor market by conducting gift-exchange laboratory experiment. The employer makes a wage offer and the agent, upon observing this offer, decided how much effort to extract. In baseline experiment named as simultaneous game, after deciding and committing effort level on computer screen, agent learns the random outcomes of each effort level at the same time. To test the effect of timing of outcome realization, we construct sequential game that agent learns random value of selected effort level immediately after increasing effort decision by one unit. According to findings, we found that timing of outcome realization has less power on subjects’ decisions nevertheless they chooses wage and effort level above the competitive market outcomes under uncertain outcomes.