Experimental Instructions Liability Neutral

Thank you very much for participating in this experiment. Please do not to talk to any other participant. Please turn off your mobile phone or put it into flight mode.

2 Roles and 16 Rounds

This experiment consists of 16 Rounds, each of which has the same sequence of decisions. The sequence of decisions is explained in detail below.

There are 2 roles in this experiment: Player AandPlayer B. At the beginning of the experiment you will be randomly assigned to one role and remain in that role throughout the experiment. On the first screen of the experiment you will see which role you have been assigned to.

Player A always interacts with Player B. However, the pair will change after each round, meaning that in each round you will interact with a different participant (in the opposite role).

All participants receive exactly the same information regarding the rules of the game, including information about costs and payoffs of both players.

Overview of the Sequence of Decisions in a Round

Each round consists of a maximum of 4 decisions, which are made sequentially. Decisions 1, 3 and 4 are made by Player A, Decision 2 is made by Player B. At the start of the round Player B is randomly assigned a type (Type I or Type II).

Sequence of Decisions in a Round (in short)

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2. Player B is informed about the prices chosen by Player A. Player B then decides whether they want to interact with Player A.

3. Player A (butnotPlayer B) is informed about the type of Player B. Then Player A is asked to choose either Action I or Action II.

4. Player A charges one of the prices specified in Decision 1. The price charged does notnecessarily have to be the price for the action actually chosen by Player A in Decision 3, it can also be the price of the other action.

5. The results of this round, based on the decisions of Player A and Player B, will be announced.

Detailed Description of the Decisions and their

Consequences in Terms of Payoffs

Decision 1

Player Awill later choose between two actions, Action I and Action II. ForAction IPlayer A incurs costs of 2 points(=experimental currency). ForAction IIPlayer A incurs costs of 6 points.

Player A can charge prices for these actions from Player B. In Decision 1 Player A has to set theprices(in points)for both actions. Both prices have to be positive integers between 1 and 11, i.e., only 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 or 11 are valid prices. Also, the price for Action I must not exceed the price for Action II.

Decision 2

Player Bis informed about the prices set by Player A for the two actions in Decision 1. Then Player B decides whether they want to interact with Player A.

If Player B decidesnot to interact, the round endsand both players receive apayoff of 1.6 points for this round.

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If Player B decides to interact, Player A can choose an action in Decision 3 and charge a price for this action in Decision 4. Player B is not able to observe which action is chosen by Player A.

Decision 3

At the beginning of the round Player B was randomly assigned a type. Player B can be one of two types: Type IorType II.

Player B iswith a 50% ofType Iandwith a 50% of Type II. Imagine that a coin is tossed for each Player B in each round. If the coin comes up “heads”, Player B is of Type I, if it comes up as “tails”, Player B is of Type II.

Player A is informed about the type of Player Bbefore they enter Decision 3. Then Player A chooses an action for Player B, either Action I or Action II. Player A can choose between the following possibilities:

• If Player B is of Type I, Player A can either choose Action I or Action II.

• If Player B is of Type II, Player A can only choose Action II.

Player Bwill never be informed whether they are of Type I or Type II or which action Player A has chosen.

Decision 4

Player A charges Player B one of the two prices specified in Decision 1 for the two actions. This price doesnothave to be the price of the action actually chosen in Decision 3, but could also be the price of the other action.

Payoffs

If Player B chooses not to interact with Player A (decision “Don’t interact” by Player B) both players get1.6 pointsfor the round.

Otherwise (decision “Interact” by Player B) the payoffs are as follows: Player Areceives theprice(denoted in points) charged in Decision 4minus thecostsfor the action chosen in Decision 3.

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Player Breceives10 points minusthepricecharged in Decision 4.

At the beginning of the experiment you receive an initial endowment of 10 points. You are able to cover losses that might occur in some rounds with this initial endowment. Furthermore, losses can also be compensated by gains in other rounds. If your total payoff is negative at the end of the experiment, you will have to pay this amount to the supervisor of the experiment. By participating in this experiment you agree to this condition. Please note that it isalwayspossible to avoid losses in this experiment.

To calculate your total earnings the initial endowment and the profits from all rounds are added up. This sum is then converted into cash using the following exchange rate:

1 point = 50 Cent (i.e. 2 points = 1 Dollar)