Contributions published at Department of Economics (Florian Scheuer)

The idea that students benefit from same-sex teachers has motivated policies around the world aimed at reducing gender inequalities. However, we do not know the size or generalizability of such same-sex teacher effects. We fill this gap by conducting a meta-analysis and our own study using data from 90 countries. Our meta-analysis summarizes the literature, highlights that estimates are difficult to compare because of differences in methods, and shows evidence of publication bias. Our multi-country study overcomes these shortcomings by providing many comparable estimates which are free of publication bias. Those estimates are ideal for learning about the generalizability of an effect. Our results reveal an interesting pattern. In primary education, effects vary substantially by country and outcome. In secondary education, same-sex teacher effects are near-universally positive for all countries and outcomes. Our paper showcases how we can use multi-country studies to learn about the generalizability of an effect.

We use surveys, laboratory experiments and administrative data to study how heterogeneity in the perceived immorality of work and in workers’ aversion to acting immorally impact labor market outcomes. Immoral work is associated with higher wages, both in administrative data and in causal experimental evidence. Individuals more willing to engage in immoral conduct find employment in firms and industries perceived as immoral less aversive and have higher employment rates in immoral work in the laboratory. These phenomena appear to be driven by impure social motives, reflecting a desire not to be involved with immoral work, rather than by consequentialist concerns.

When a sample combines data from two or more groups, multivariate regression yields a matrix-weighted average of the group-specific coefficient vectors. However, it is possible that the weighted average of a specific coefficient falls outside the range of the group-specific coefficients, and it may even have a different sign compared to both group-level coefficients, a manifestation of Simpson’s paradox. The result of the combined regression is then prone to misinterpretation. The purpose of this paper is to raise awareness of this problem and to state conditions under which such non-convex weighting or sign reversal can arise, for a model with two regressors and two groups. Two illustrative examples, an investment equation estimated with panel data, and a cross-sectional earnings equation for men and women, highlight the relevance of these findings for applied work.

From deciding which meal to prepare for our guests to trading-off the pro-environmental effects of climate protection measures against their economic costs, we often must consider the consequences of our actions for the well-being of others (welfare). Vexingly, the tastes and views of others can vary widely. To maximize welfare according to the utilitarian philosophical tradition, decision makers facing conflicting preferences of others should choose the option that maximizes the sum of subjective value (utility) of the entire group. This notion requires comparing intensities of preferences across individuals. However, it remains unclear whether such comparisons are possible at all, and (if they are possible) how they might be implemented in the brain. Here, we show that female and male participants can both learn the preferences of others by observing their choices, and represent these preferences on a common scale to make utilitarian welfare decisions. On the neural level, multivariate support vector regressions revealed that a distributed activity pattern in the ventromedial prefrontal cortex (VMPFC), a brain region previously associated with reward processing, represented preference strength of others. Strikingly, also the utilitarian welfare of others was represented in the VMPFC and relied on the same neural code as the estimated preferences of others. Together, our findings reveal that humans can behave as if they maximized utilitarian welfare using a specific utility representation and that the brain enables such choices by repurposing neural machinery processing the reward others receive.Significance statementIn many situations politicians and civilians strive to maximize the welfare of social groups. If the preferences of group members are in conflict, identifying the utilitarian welfare-maximizing option requires that decision makers can compare the strengths of conflicting preferences on a common scale. Yet, there is a fundamental lack of understanding which brain mechanisms enable such comparisons of conflicting utilities. Here, we show that brain regions involved in reward processing compute welfare comparisons by representing the preferences of others with a common neural code. This provides a neurobiological mechanism to compute utilitarian welfare maximization as desired by moral philosophy in the Humean tradition.

We study the provision of financial services to small firms, consumers, and workers in developing countries as part of value chain relationships: value chain microfinance (VCMF). We first explore how VCMF can both overcome barriers to financial access—including asymmetric information, enforcement, and behavioural biases—and strengthen value chains, but also how it can introduce new challenges. We then review a recent empirical literature at the intersection of value chains and microfinance, studying the demand for and effects of VCMF in credit, insurance, and savings markets. We conclude by highlighting promising directions for future work.

A random variable is difference-form decomposable (DFD) if it may be written as the difference of two i.i.d. random terms. We show that densities of such variables exhibit a remarkable degree of structure. Specifically, a DFD density can be neither approximately uniform, nor quasiconvex, nor strictly concave. On the other hand, a DFD density need, in general, be neither unimodal nor logconcave. Regarding smoothness, we show that a compactly supported DFD density cannot be analytic and will often exhibit a kink even if its components are smooth. The analysis highlights the risks for model consistency resulting from the strategy widely adopted in the economics literature of imposing assumptions directly on a difference of noise terms rather than on its components.

Is the role of our sensory systems to represent the physical world as accurately as possible? If so, are our preferences and emotions, often deemed irrational, decoupled from these 'ground-truth' sensory experiences? We show why the answer to both questions is 'no'. Brain function is metabolically costly, and the brain loses some fraction of the information that it encodes and transmits. Therefore, if brains maximize objective functions that increase the fitness of their species, they should adapt to the objective-maximizing rules of the environment at the earliest stages of sensory processing. Consequently, observed 'irrationalities', preferences, and emotions stem from the necessity for our early sensory systems to adapt and process information while considering the metabolic costs and internal states of the organism.

The Riemann hypothesis (RH) is one of the major unsolved problems in pure mathematics. In the present paper, a parameterized family of non-cooperative games is constructed with the property that, if RH is true, then any game in the family admits a unique Nash equilibrium. We argue that this result is not degenerate. Indeed, neither is the conclusion a tautology, nor is RH used to define the family of games.

Colonel Blotto games with discrete strategy spaces effectively illustrate the intricate nature of multidimensional strategic reasoning. This paper studies the equilibrium set of such games where, in line with prior experimental work, the tie-breaking rule is allowed to be flexible. We begin by pointing out that equilibrium constructions known from the literature extend to our class of games. However, we also note that, irrespective of the tie-breaking rule, the equilibrium set is excessively large. Specifically, any pure strategy that allocates at most twice the fair share to each battlefield is used with positive probability in some equilibrium. Furthermore, refinements based on the elimination of weakly dominated strategies prove ineffective. To derive specific predictions amid this multiplicity, we compute strategies resulting from long-run adaptive learning.

We review the vast literature on social preferences by assessing what is known about their fundamental properties, their distribution in the broader population, and their consequences for important economic and political behaviors. We provide, in particular, an overview of the empirical characteristics of distributional preferences and how they are affected by merit, luck, and concerns for equality of opportunity. In addition, we identify what is known about belief-dependent social preferences such as reciprocity and guilt aversion. Furthermore, we discuss and assess the empirical relevance of self image and social image concerns in prosocial behaviors. The overall evidence indicates that a large majority of individuals have some sort of social preference, while purely selfinterested subjects are a minority. We also document the converging insights from lab and field evidence on the role of social preferences for a deeper understanding of important phenomena such as the consequences of wage inequality on work morale, employees’ resistance to wage cuts, individuals’ self-selection into occupations that are more or less prone to morally problematic behaviors, as well as issues of distributive politics. However, although much has been learned in recent decades, there are still many important, unresolved, yet exciting, questions waiting to be tackled.

We propose and implement a procedure to optimally hedge climate change risk. First, we construct climate risk indices through textual analysis of newspapers. Second, we present a new approach to compute factor mimicking portfolios to build climate risk hedge portfolios. The new mimicking portfolio approach is much more efficient than traditional sorting or maximum correlation approaches by taking into account new methodologies of estimating large-dimensional covariance matrices in short samples. In an extensive empirical out-of-sample performance test, we demonstrate the superior all-around performance delivering markedly higher and statistically significant alphas and betas with the climate risk indices.

Do strong states affect the culture and actions of their citizens in a persistent way? And if so, can the capacity to tax, by itself, drive this effect? I study how the historical capacity of a state to collect taxes affects the decision of citizens to evade the mandatory military draft. I look at Italy during World War I and identify quasi-exogenous variation in tax collection induced by the administrative structure of Piedmont during the 1814-1870 period. Using newly collected individual data on the universe of the 1899 cohort drafted in the province of Turin, I find that citizens born in towns with lower historical fiscal capacity are more likely to evade the military draft, and that the effect transmits through changes in culture. Placebo estimates confirm that the effect can be attributed to fiscal capacity and is not confounded by legal capacity. Additional results on voter turnout support the interpretation that higher fiscal capacity led citizens to perceive higher state capacity and, consequently, higher returns to participation.

Habits pose a fundamental puzzle for those aiming to understand human behavior. They pervade our everyday lives and dominate some forms of psychopathology but are extremely hard to elicit in the lab. In this Registered Report, we developed novel experimental paradigms grounded in computational models, which suggest that habit strength should be proportional to the frequency of behavior and, in contrast to previous research, independent of value. Specifically, we manipulated how often participants performed responses in two tasks varying action repetition without, or separately from, variations in value. Moreover, we asked how this frequency-based habitization related to value-based operationalizations of habit and self-reported propensities for habitual behavior in real life. We find that choice frequency during training increases habit strength at test and that this form of habit shows little relation to value-based operationalizations of habit. Our findings empirically ground a novel perspective on the constituents of habits and suggest that habits may arise in the absence of external reinforcement. We further find no evidence for an overlap between different experimental approaches to measuring habits and no associations with self-reported real-life habits. Thus, our findings call for a rigorous reassessment of our understanding and measurement of human habitual behavior in the lab.

We study the long-term effects of a randomized intervention targeting children's socio-emotional skills. The classroom-based intervention for primary school children has positive impacts that persist for over a decade. Treated children become more likely to complete academic high school and enrol in university. Two mechanisms drive these results. Treated children show fewer attention deficit/hyperactivity disorder symptoms: they are less impulsive and less disruptive. They also attain higher grades, but they do not score higher on standardized tests. The long-term effects on educational attainment thus appear to be driven by changes in socio-emotional skills rather than cognitive skills.

Background: Serotonin has been suggested to modulate decision-making by influencing the arbitration between model-based and model-free control. Disruptions in these control mechanisms are involved in mental disorders such as drug dependence or obsessive-compulsive disorder. While previous reports indicate that lower brain serotonin levels reduce model-based control, it remains unknown whether increases in serotonergic availability might thus increase model-based control. Moreover, the mediating neural mechanisms have not been studied yet. Aim: The first aim of this study was to investigate whether increased/decreased tonic serotonin levels affect the arbitration between model-free and model-based control. Second, we aimed to identify the underlying neural processes. Methods: We employed a sequential two-stage Markov decision-task and measured brain responses during functional magnetic resonance imaging in 98 participants in a randomized, double-blind cross-over within-subject design. To investigate the influence of serotonin on the balance between model-free and model-based control, we used a tryptophan intervention with three intervention levels (loading, balanced, depletion). We hypothesized that model-based behaviour would increase with higher serotonin levels. Results: We found evidence that neither model-free nor model-based control were affected by changes in tonic serotonin levels. Furthermore, our tryptophan intervention did not elicit relevant changes in Blood-Oxygenation-Level Dependent activity.

Do people have well-defined social preferences waiting to be applied when making decisions? Or do they have to construct social decisions on the spot? If the latter, how are those decisions influenced by the way in which information is acquired and evaluated? These temporal dynamics are fundamental to understanding how people trade off selfishness and prosociality in organizations and societies. Here, we investigate how the temporal dynamics of the choice process shape social decisions in three studies using response times and mouse tracking. In the first study, participants made binary decisions in mini-dictator games with and without time constraints. Using mouse trajectories and a starting time drift diffusion model, we find that, regardless of time constraints, selfish participants were delayed in processing others’ payoffs, whereas the opposite was true for prosocial participants. The independent mouse trajectory and computational modeling analyses identified consistent measures of the delay between considering one’s own and others’ payoffs (self-onset delay, SOD). This measure correlated with individual differences in prosociality and predicted heterogeneous effects of time constraints on preferences. We confirmed these results in two additional studies, one a purely behavioral study in which participants made decisions by pressing computer keys, and the other a replication of the mouse-tracking study. Together, these results indicate that people preferentially process either self or others’ payoffs early in the choice process. The intrachoice dynamics are crucial in shaping social preferences and might be manipulated via nudge policies (e.g., manipulating the display order or saliency of self and others’ outcomes) for behavior in managerial or other contexts.

Acute stress can change our cognition and emotions, but what specific consequences this has for human prosocial behaviour is unclear. Previous studies have mainly investigated prosociality with financial transfers in economic games and produced conflicting results. Yet a core feature of many types of prosocial behaviour is that they are effortful. We therefore examined how acute stress changes our willingness to exert effort that benefits others. Healthy male participants – half of whom were put under acute stress – made decisions whether to exert physical effort to gain money for themselves or another person. With this design, we could independently assess the effects of acute stress on prosocial, compared to self-benefitting, effortful behaviour. Compared to controls (n = 45), participants in the stress group (n = 46) chose to exert effort more often for self- than for other-benefitting rewards at a low level of effort. Additionally, the adverse effects of stress on prosocial effort were particularly pronounced in more selfish participants. Neuroimaging combined with computational modelling revealed a putative neural mechanism underlying these effects: more stressed participants showed increased activation to subjective value in the dorsal anterior cingulate cortex and anterior insula when they themselves could benefit from their exerted effort relative to when someone else could. By using an effort-based task that better approximates real-life prosocial behaviour and incorporating trait differences in prosocial tendencies, our study provides important insights into how acute stress affects prosociality and its associated neural mechanisms.

Suggestions about hunger can generate placebo effects on hunger experiences. But, the underlying neurocognitive mechanisms are unknown. Here, we show in 255 women that hunger expectancies, induced by suggestion-based placebo interventions, determine hunger sensations and economic food choices. Functional magnetic resonance imaging in a subgroup (n = 57/255) provides evidence that the strength of expecting the placebo to decrease hunger moderates medial prefrontal cortex activation at the time of food choice and attenuates ventromedial prefrontal cortex (vmPFC) responses to food value. Dorsolateral prefrontal cortex activation linked to interference resolution formally mediates the suggestion-based placebo effects on hunger. A drift-diffusion model characterizes this effect by showing that the hunger suggestions bias participants’ food choices and how much they weigh tastiness against the healthiness of food, which further moderates vmPFC–dlPFC psychophysiological interactions when participants expect decreased hunger. Thus, suggestion-induced beliefs about hunger shape hunger addressing economic choices through cognitive regulation of value computation within the prefrontal cortex.

Do beliefs about inequality depend on distributive preferences? What is the joint role of preferences and beliefs about inequality for support for redistribution? We study these questions in a staggered experiment with a representative sample of the Swiss population conducted in the context of a vote on a highly redistributive policy proposal. Our sample comprises a majority of inequality averse subjects, a sizeable group of altruistic subjects, and a minority of predominantly selfish subjects. Irrespective of preference types, individuals vastly overestimate the extent of income inequality. An information intervention successfully corrects these large misperceptions for all types, but essentially does not affect aggregate support for redistribution. These results hide, however, important heterogeneity because the effects of beliefs about inequality for demand for redistribution are preference-dependent: only affluent inequality averse individuals, but not the selfish and altruistic ones, significantly reduce their support for redistribution. These findings cast a new light on the seemingly puzzling result that, in the aggregate, large changes in beliefs about inequality often do not translate into changes in demand for redistribution.