Contributions published at Department of Economics (Florian Scheuer)

Der Einsatz von Klimaanlagen in Wohnräumen und Büros wird bei uns mit dem Stromfresser- und Klimazerstörer-Argument verhindert. Dann lieber zwei Monate leiden – für den Planeten, so das Motto. Doch diese moralinsaure Selbstkasteiung läuft ins Leere. Sie ignoriert die Solarstrom-Option.

Early Childhood Development (ECD) programs are currently understood as critical for children’s cognitive and socioemotional development, especially for those from disadvantaged backgrounds or most at risk for poor outcomes. Nevertheless, while the pioneering ECD programs evaluated in the literature have shown large and long-lasting impacts, replicating their successes has proven challenging in more recent years. We characterize this replication crisis and provide perspectives on how wearable technologies could help overcome it.

Regional banking integration allows credit to be reallocated to regions with high credit demand. Using the natural experiment of Japan's lost decade, we show that this reallocation channel mitigated the real effects from the bank liquidity shock in prefectures with many bank-dependent small firms. We propose an instrument for modern-day regional banking integration that exploits the fact that regional segmentation of banking markets in Japan goes back to the institutions set up for silk export finance in the late 19th century. We illustrate how the difference between the OLS and IV estimates can provide information about unobserved cross-regional heterogeneity in bank-firm matches when only aggregate regional data is available. Our results highlight that well-integrated banking markets are important and complementary to bond markets in limiting macroeconomic asymmetries in a monetary union, in particular during major financial crises.

After the inception of the euro, the real economy in most member countries remained dependent on credit by domestic banks, which increasingly funded themselves through cross-border interbank funding. We find that this pattern of ‘double-decker’ banking integration exposed domestic banks to sharp declines in cross-border interbank lending during the eurozone crisis. As a result, domestic banks reduced lending, which led to large declines in output in sectors with many small (bank-dependent) firms. We propose a quantitative small open economy model to account for these patterns and conclude that a global banking shock leading to a sudden stop in cross-border interbank lending in the eurozone is required to account for them.

Empirical evidence has shown that visually enhancing the saliency of reward probabilities can ease the cognitive demands of value comparisons and improve value-based decisions in old age. In the present study, we used a time-varying drift diffusion model that includes starting time parameters to better understand (1) how increasing the saliency of reward probabilities may affect the dynamics of value-based decision-making and (2) how these effects may interact with age. We examined choices made by younger and older adults in a mixed lottery choice task. On a subset of trials, we used a color-coding scheme to highlight the saliency of reward probabilities, which served as a decision-aid. The results showed that, in control trials, older adults started to consider probability relative to magnitude information sooner than younger adults, but that their evidence accumulation processes were less sensitive to reward probabilities than that of younger adults. This may indicate a noisier and more stochastic information accumulation process during value-based decisions in old age. The decision-aid increased the influence of probability information on evidence accumulation rates in both age groups, but did not alter the relative timing of accumulation for probability versus magnitude in either group.

BACKGROUND: Predicting adverse events from past experience is fundamental for many biological organisms. However, some individuals suffer from maladaptive memories that impair behavioral control and well-being, e.g., after psychological trauma. Inhibiting the formation and maintenance of such memories would have high clinical relevance. Previous preclinical research has focused on systemically administered pharmacological interventions, which cannot be targeted to specific neural circuits in humans. Here, we investigated the potential of noninvasive neural stimulation on the human sensory cortex in inhibiting aversive memory in a laboratory threat conditioning model. METHODS: We build on an emerging nonhuman literature suggesting that primary sensory cortices may be crucially required for threat memory formation and consolidation. Immediately before conditioning innocuous somatosensory stimuli (conditioned stimuli [CS]) to aversive electric stimulation, healthy human participants received continuous theta-burst transcranial magnetic stimulation (cTBS) to individually localized primary somatosensory cortex in either the CS-contralateral (experimental) or CS-ipsilateral (control) hemisphere. We measured fear-potentiated startle to infer threat memory retention on the next day, as well as skin conductance and pupil size during learning. RESULTS: After overnight consolidation, threat memory was attenuated in the experimental group compared with the control cTBS group. There was no evidence that this differed between simple and complex CS or that CS identifi- cation or initial learning were affected by cTBS. CONCLUSIONS: Our results suggest that cTBS to the primary sensory cortex inhibits threat memory, likely by an impact on postlearning consolidation. We propose that noninvasive targeted stimulation of the sensory cortex may provide a new avenue for interfering with aversive memories in humans.

BACKGROUND: The effect of psychological health on cardiovascular disease is an underappreciated yet important area of study. Understanding the relationship between these two entities may allow for more comprehensive care of those with cardiovascular disease. The primary objective of this meta-analysis is to evaluate the relationship between optimism and risk of developing adverse events such as all-cause mortality or fatal and non-fatal cardiovascular disease in community-based populations. METHOD: A systematic search of electronic databases was conducted from inception through November 2021 for prospective studies evaluating optimism and adverse outcomes. Two reviewers independently selected prospective cohort studies that evaluated optimism and either all-cause mortality or cardiovascular disease and reported hazard ratios of these outcomes between optimistic and non-optimistic groups. Studies that reported odds ratio or other risk assessments were excluded. Pooled hazard ratios were calculated in random-effects meta-analyses. RESULTS: Pooled analysis of six studies (n = 181,709) showed a pooled hazard ratio of 0.87 (95% confidence interval [CI], 0.82-0.92) for all-cause mortality among those with more optimistic mindset. Analysis of seven studies (n = 201,210) showed a pooled hazard ratio of 0.59 (95% CI, 0.37-0.93) for cardiovascular disease and pooled hazard ratio of 0.57 (95% CI, 0.07-4.56) for stroke. CONCLUSIONS: In this pooled meta-analysis, optimism was associated with a reduced risk of all-cause mortality and of cardiovascular disease. These results suggest an important relationship between psychological health and cardiovascular disease that may serve as an area for intervention by clinicians.

Although cooperation can lead to mutually beneficial outcomes, cooperative actions only pay off for the individual if others can be trusted to cooperate as well. Identifying trustworthy interaction partners is therefore a central challenge in human social life. How do people navigate this challenge? Prior work suggests that people rely on facial appearance to judge the trustworthiness of strangers. However, the question of whether these judgments are actually accurate remains debated. The present research examines accuracy in trustworthiness detection from faces and three moderators proposed by previous research. We investigate whether people show above-chance accuracy (a) when they make trust decisions and when they provide explicit trustworthiness ratings, (b) when judging male and female counterparts, and (c) when rating cropped images (with non-facial features removed) and uncropped images. Two studies showed that incentivized trust decisions (Study 1, n = 131 university students) and incentivized trustworthiness predictions (Study 2, n = 266 university students) were unrelated to the actual trustworthiness of counterparts. Accuracy was not moderated by stimulus type (cropped vs. uncropped faces) or counterparts' gender. Overall, these findings suggest that people are unable to detect the trustworthiness of strangers based on their facial appearance, when this is the only information available to them.

Firms often discourage certain categories of individuals from buying their products, seemingly at odds with typical assumptions about profit maximization. This paper provides a potential rationale for such firm behavior: Consumers seek to signal that they have “desirable” ideological values to themselves and others by avoiding products popular among people with “undesirable” values. In laboratory experiments and surveys, I provide causal evidence that consumption can be diagnostic of consumers’ ideologies and that demand for a product is lower if its customer base consists of individuals whose ideological values are widely considered undesirable. These effects occur for both observable and unobservable consumption and for products that do not possess any inherent ideological or undesirable qualities.

The endowment and attachment effect are empirically well-documented in bilateral trade situations. Yet, the theoretical literature has so far failed to formally identify these effects. We fill this gap by introducing expectations-based loss aversion, which can explain both effects, into the classical setting by Myerson and Satterthwaite (1983). This allows us to formally identify the endowment and attachment effect and study their impact on information rents, allowing us to show that, in contrast to other behavioral approaches to the bilateral trade problem, the impossibility of inducing materially efficient trade persists in the presence of loss aversion. We then turn to the design of optimal mechanisms and consider the problem of maximizing the designer's revenue as well as gains from trade. We find that the designer optimally provides the agents with full insurance in the money dimension and, depending on the distribution of types, optimally increases or decreases the trade frequency in the presence of loss aversion.

Existing literature has argued that firms benefit from confusing consumers of homogeneous goods. This paper shows that this insight generally breaks down with differentiated goods and heterogeneous preferences: with polarised taste distributions, firms fully educate consumers. In cases where firms nevertheless confuse consumers, the welfare consequences are worse than for homogeneous goods, as consumers choose dominated options. Similar insights are also obtained for political contests, in which candidates compete for voters with heterogeneous preferences: parties choose ambiguous platforms only when preferences are ‘indecisive’, featuring a concentration of indifferent voters.

How can quality be improved in markets in developing countries, which are known to be plagued by substandard and counterfeit (“fake”, in short) products? We study the market for antimalarial drugs in Uganda, where we randomly assign entry of a retailer (non-governmental organization (NGO)) providing a superior product - an authentic drug priced below the market - and investigate how incumbent firms and consumers respond. We find that the presence of the NGO had economically important effects. Approximately one year after the new market actor entered, the share of incumbent firms selling fake drugs dropped by more than 50% in the intervention villages, with higher quality drugs sold at significantly lower prices. Household survey evidence further shows that the quality improvements were accompanied by consumers expecting fewer fake drugs sold by drug stores. The intervention increased use of the antimalarial drugs overall. The results are consistent with a simple model where the presence of a seller committed to high quality, as opposed to an average firm, strengthens reputational incentives for competing firms to improve quality in order to not be forced out of the market, leading to “good driving out bad”.

Following the line of classification-based two-sample testing, tests based on the Random Forest classifier are proposed. The developed tests are easy to use, require almost no tuning, and are applicable for any distribution on R^d. Furthermore, the built-in variable importance measure of the Random Forest gives potential insights into which variables make out the difference in distribution. An asymptotic power analysis for the proposed tests is conducted. Finally, two real-world applications illustrate the usefulness of the introduced methodology. To simplify the use of the method, the R-package “hypoRF” is provided.

We investigate the implications of Salience Theory for the classical preference reversal phenomenon, where monetary valuations contradict risky choices. It has been stated that one factor behind reversals is that monetary valuations of lotteries are inflated when elicited in isolation, and that they should be reduced if an alternative lottery is present and draws attention. We conducted two preregistered experiments, an online choice study (N=256) and an eye-tracking study (N=64), in which we investigated salience and attention in preference reversals, manipulating salience through the presence or absence of an alternative lottery during evaluations. We find that the alternative lottery draws attention, and that fixations on that lottery influence the evaluation of the target lottery as predicted by Salience Theory. The effect, however, is of a modest magnitude and fails to translate into an effect on preference reversal rates in either experiment. We also use transitions (eye movements) across outcomes of different lotteries to study attention on the states of the world underlying Salience Theory, but we find no evidence that larger salience results in more transitions.

Influential economic approaches as random utility models assume a monotonic relation between choice frequencies and “strength of preference,” in line with widespread evidence from the cognitive sciences, which also document an inverse relation to response times. However, for economic decisions under risk, these effects are largely untested, because models used to fit data assume them. Further, the dimension underlying strength of preference remains unclear in economics, with candidates including payoff-irrelevant numerical magnitudes. We provide a systematic, out-of-sample empirical validation of these relations (both for choices and response times) relying on both a new experimental design and simulations.

There is substantial evidence that women tend to support different policies and political candidates than men. Many studies also document gender differences in a variety of important preference dimensions, such as risk-taking, competition and pro-sociality. However, the degree to which differential voting by men and women is related to these gaps in more basic preferences requires an improved understanding. We conduct an experiment in which individuals in small laboratory “societies” repeatedly vote for redistribution policies and engage in production. We find that women vote for more egalitarian redistribution and that this difference persists with experience and in environments with varying degrees of risk. This gender voting gap is accounted for partly by both gender gaps in preferences and by expectations regarding economic circumstances. However, including both these controls in a regression analysis indicates that the latter is the primary driving force. We also observe policy differences between male- and female-controlled groups, though these are substantially smaller than the mean individual differences - a natural consequence of the aggregation of individual preferences into collective outcomes.

How do parents plan to and effectively share resources with their children over time? In a lab-in-the-field experiment in Malawi, we show that, for many parents, plans become more generous the further in the future consumption is. These parents are, however, way more likely to reverse past plans, reallocating away from children’s consumption as it gets closer, even when consumption is still in the future. Reallocating from children’s future consumption towards one’s own - what we call parent-bias - cannot be explained by present-bias. Commitment devices designed for present-bias do not mitigate parent-bias. Our findings provide a new explanation for underinvestment in children and inform the design of new interventions to address it.

Profit shifting by multinational corporations is thought to reduce tax revenue around the world. We analyze the introduction of standard regulations aimed at limiting profit shifting. Using administrative tax and customs data from Chile in difference-in-differences event-study designs, we find that the reform was ineffective in reducing multinationals’ transfers to lower-tax countries and did not significantly raise tax payments. At the same time, interviews with tax advisors reveal a drastic increase in tax advisory services. The qualitative interviews also allow us to identify and then quantitatively confirm a common tax planning strategy in response to the reform. These results illustrate that when enforcement can be circumvented by sophisticated tax planning, it can benefit tax consultants at the expense of tax authorities and taxpayers.

Socioeconomic status (SES) correlates with brain structure, a relation of interest given the long-observed relations of SES to cognitive abilities and health. Yet, major questions remain open, in particular, the pattern of causality that underlies this relation. In an unprecedently large study, here, we assess genetic and environmental contributions to SES differences in neuroanatomy. We first establish robust SES–gray matter relations across a number of brain regions, cortical and subcortical. These regional correlates are parsed into predominantly genetic factors and those potentially due to the environment. We show that genetic effects are stronger in some areas (prefrontal cortex, insula) than others. In areas showing less genetic effect (cerebellum, lateral temporal), environmental factors are likely to be influential. Our results imply a complex interplay of genetic and environmental factors that influence the SES-brain relation and may eventually provide insights relevant to policy.

We establish a sizable shift in the individual labor shares of Danish firms since 1999. Whereas the mean and median labor shares have increased by around 5 points, the labor share of the largest firms is much lower today, in particular the labor share of manual workers. A substantial part of this is driven by the top 1 per cent of firms that have grown substantially bigger. The main driver of this is an increase in markups, though large firms have become more capital intensive during the period. We show that investments in capital and R&D predict declines in the labor share. Though offshoring activities have impacted the labor share it is not a strong quantitative driver of the results. We show that these changes tie strongly to the firms' export behavior: Large firms with lower labor share scale up value of exports, though not number of destinations nor product category. The increase in value comes predominantly from increases in quantity.