You have $100 (hypothetical) to invest in one of two assets. Asset A pays a fixed return of 5 percent on your investment. Asset B pays a return of 10 percent on the total class investment, to be divided equally among all students in the class. So, for example, if the class decides to invest $1,000 in Asset B, each of the 30 students in the class will receive a (hypothetical) return of $3.33 (1/30th of 10% of $1,000) regardless of his or her investment in the asset. You may divide your money between the two assets in any way you choose.
How much do you want to invest in:
Asset A _____________
Asset B _____________
Additional information:
Age __________
Sex __________
Political Party ________________
Major ________________
Source: From Prof. Jane Leuthold, Department of Economics, University of Illinois at Urbana-Champaign.
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This experiment deals with a situation where an optimal outcome will not generally be achieved by individual maximizing behavior. The optimal outcome is achieved when all individuals invest all of their resources in the Asset B, the one with the highest return. (Note that Asset B has the characteristics of a pure public good because of the property of non-exclusion.) Free-riding behavior will lead to the choice of Asset A by many participants.
45 students participated, $3,080 was invested in Asset A and $1,420 was invested in Asset B.
Actual Average Payoff: $6.58
Actual Minimum Payoff: $3.16 (students who invested totally in Asset B)
Actual Maximum Payoff: $8.16 (students who invested totally in Asset A)
Minimum Possible Average Payoff: $5.00 (if all students invest totally in Asset A)
Maximum Possible Average Payoff: $10.00 (if all students invest totally in Asset B)
Male: $6.41
Female: $6.83
Republican: $7.09
Democratic: $6.44
Independent: $6.09