A compensation election for binary social choice.

Abstract

We report experimental results examining the properties of a bidding mechanism, the "Compensation Election," which is designed to implement a simple binary choice between two options. We may think of the group decision problem as a choice between a new rule and the status quo. The rule and the status quo are each common outcomes that apply across all individuals, but the value or cost that they induce on each individual differs according to each individual's circumstances: some gain, some lose, and others are unaffected by a change to the new from the old. Rather than casting votes, each subject submits a bid reflecting his willingness to pay to induce the group to select one option and the amount he wishes to be paid if the alternative option is selected. The Compensation Election chooses the option that receives the highest sum of bids. We find that, although the Compensation Election allows subjects to strategically bid above their value (or even for the option they do not prefer), such behavior is not the norm. We also find that subjects' bids more truthfully reveal their values when there are more bidders in the election.