History Dependence in an Experimental Labor Market

We examine the possibility that other regarding preferences may change in response to past observations. We use a repeated gift exchange game (an experimental labor market), where an employer decides on a wage and an employee decides on an effort level. In our treatments, low or high wages are imposed by the computer for 10 periods, followed by subject-determined wages for 10 periods. We find that the computer-imposed wages affect subjects’ subsequent play in terms of both the wages offered and the wage–effort relationship.