Contributions published at Microeconomics and Experimental Economic Research (Ernst Fehr)

Standard economic models view risk taking and time discounting as two independent dimensions of decision makers' behavior. However, mounting experimental evidence demonstrates the existence of robust and systematic interaction effects. There are striking parallels in patterns of risk taking and time discounting behavior, which suggests that there is a common underlying force driving these interactions. Here we show that decision makers' anticipation of something going wrong in the future conjointly with their proneness to probability weighting generates a unifying framework for explaining seven puzzling regularities: delay-dependent risk tolerance, aversion to sequential resolution of uncertainty, preferences for resolution timing, hyperbolic discounting, subadditive discounting, the differential discounting of risky and certain outcomes, and the order dependence of prospect valuation. Finally, we discuss the implications of our framework for understanding real-world behavior, such as the coexistence of underinsuring and overinsuring.

The World Health Organization defines female genital cutting as any procedure that removes or injures any part of a female's external genitalia for nonmedical reasons (1). Cutting brings no documented health benefits and leads to serious health problems. Across six African countries, for example, a cohort of 15-year-old girls is expected to lose nearly 130,000 years of life because of cutting (2). We report data that question an influential approach to promoting abandonment of the practice.

Until the late 1980s, textbooks portrayed economics as a nonexperimental science because it was thought that “Economists…cannot perform the controlled experiments of chemists or biologists.…Like astronomers or meteorologists, they generally must be content largely to observe” (1). Since then, economics has experienced an experimental revolution (2–6). However, there has been a debate on the extent to which insights from economic lab experiments can be generalized to field settings (7–11). On page 545 of this issue, Herbst and Mas (12) show that the results of a class of lab experiments can be generalized to the field because they provide quantitatively precise descriptions of productivity spillovers between workers.

Philosophers, psychologists, and economists have long argued that certain decision rights carry not only instrumental value but may also be valuable for their own sake. The ideas of autonomy, freedom, and liberty derive their intuitive appeal - at least partly - from an assumed positive intrinsic value of decision rights. Providing clean evidence for the existence of this intrinsic value and measuring its size, however, is intricate. Here, we develop a method capable of achieving these goals. The data reveal that the large majority of our subjects intrinsically value decision rights beyond their instrumental benefit. The intrinsic valuation of decision rights has potentially important consequences for corporate governance, human resource management, and optimal job design: it may explain why managers value power, why employees appreciate jobs with task discretion, why individuals sort into self-employment, and why the reallocation of decision rights is often very difficult and cumbersome. Our method and results may also prove useful in developing an empirical revealed preference foundation for concepts such as "freedom of choice" and "individual autonomy".

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Authority and power permeate political, social, and economic life, but empirical knowledge about the motivational origins and consequences of authority is limited. We study the motivation and incentive effects of authority experimentally in an authority-delegation game. Individuals often retain authority even when its delegation is in their material interest—suggesting that authority has nonpecuniary consequences for utility. Authority also leads to overprovision of effort by the controlling parties, while a large percentage of subordinates underprovide effort despite pecuniary incentives to the contrary. Authority thus has important motivational consequences that exacerbate the inefficiencies arising from suboptimal delegation choices.

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Ernst Fehr, Initiant des 100-Millionen-Sponsoringvertrages der Uni Zürich mit der UBS, wehrt sich gegen die Kritik der Wissenschaftler im «Zürcher Appell». Die Bank nehme keinen Einfluss auf die Forschung.

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Intertemporal choices - involving decisions which trade off instant and delayed outcomes - are often made under stress. It remains unknown, however, whether and how stress affects intertemporal choice. We subjected 142 healthy male subjects to a laboratory stress or control protocol, and asked them to make a series of intertemporal choices either directly after stress, or 20 minutes later (resulting in four experimental groups). Based on theory and evidence from behavioral economics and cellular neuroscience, we predicted a bidirectional effect of stress on intertemporal choice, with increases in impatience or present bias immediately after stress, but decreases in present bias or impatience when subjects are tested 20 minutes later. However, our results show no effects of stress on intertemporal choice at either time point, and individual differences in stress reactivity (changes in stress hormone levels over time) are not related to individual differences in intertemporal choice. Together, we did not find support for the hypothesis that psychosocial laboratory stressors affect intertemporal choice.

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The presence of workers who reciprocate higher wages with greater effort can have important consequences for labor markets. Knowledge about the determinants of reciprocal effort choices is, however, incomplete. We investigate the role of fairness perceptions and social preferences in workers’ performance in a field experiment in which workers were hired for a one-time job. We show that workers who perceive being underpaid at the base wage increase their performance if the hourly wage increases, while those who feel adequately paid or overpaid at the base wage do not change their performance. Moreover, we find that only workers who display positive reciprocity in a lab experiment show reciprocal performance responses in the field, while workers who lack positive reciprocity in the lab do not respond to the wage increase even if they feel underpaid at the base wage. Our findings suggest that fairness perceptions and social preferences are key in workers’ performance response to a wage increase. They are the first direct evidence of the fair-wage effort hypothesis in the field and also help interpret previous contradictory findings in the literature.

In Bartling, Fehr and Schmidt (2012) we show theoretically and experimentally that it is optimal to grant discretion to workers if (i) discretion increases productivity, (ii) workers can be screened by past performance, (iii) some workers reciprocate high wages with high effort and (iv) employers pay high wages leaving rents to their workers. In this paper we show experimentally that the productivity increase due to discretion is not only sufficient but also necessary for the optimality of granting discretion to workers. Furthermore, we report representative survey evidence on the impact of discretion on workers’ welfare, confirming that workers earn rents.

The paucity of pharmacokinetic data on testosterone gel formulations and absence of such data on estradiol administration in healthy young men constitutes a fundamental gap of knowledge in behavioral endocrinological research. We addressed this issue in a double-blind and placebo controlled study in which we applied a topical gel containing either 150mg of testosterone (N=10), 2mg of estradiol (N=8) or a respective placebo (N=10) to 28 healthy young men. We then assessed serum concentrations of estradiol and testosterone in one hour intervals up to seven hours after drug application, measured LH, SHBG and cortisol levels once at baseline and three, four as well as six hours after gel administration. Treatment with testosterone gel resulted in maximum total serum testosterone concentration three hours after administration and did not suppress LH, cortisol and SHBG levels at any time point. Administration of estradiol gel led to maximum estradiol serum concentration two hours after administration. There was no suppression of cortisol, SHBG and absolute LH levels. We report here, for the first time, pharmacokinetic data on both high dose testosterone and estradiol gel application in healthy young males. The proposed model will assist in the design of future studies that seek to establish causality between testosterone and estradiol gel administration and behavioral as well as neurophysiological effects.

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