Xiaoyue Shan, Ulf Zölitz, Peers affect personality development, In: CEPR Discussion Papers, No. 17241, 2022. (Working Paper)
Do the people around us influence our personality? To answer this question, we conduct an experiment with 543 university students who we randomly assign to study groups. Our results show that students become more similar to their peers along several dimensions. Students with more competitive peers become more competitive, students with more open-minded peers become more open-minded, and students with more conscientious peers become more conscientious. We see no significant effects of peers’ extraversion, agreeableness, or neuroticism. To explain these results, we propose a simple model of personality development under the influence of peers. Consistent with the model’s prediction, personality spillovers are concentrated in traits predictive of performance. Students adopt personality traits that are productive in the university context from their peers. Our findings highlight that socialization with peers can influence personality development. |
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Alex Mari, Andreina Mandelli, René Algesheimer, Shopping with Voice Assistants: How Empathy Affects Individual and Family Decision-Making Outcomes, In: UZH Business Working Paper Series, No. 399, 2023. (Working Paper)
Artificial intelligence (AI)-enabled voice assistants (VAs) such as Amazon Alexa increasingly assist shopping decisions and exhibit empathic behavior. The advancement of empathic AI raises concerns about machines nudging consumers into purchasing undesired or unnecessary products. Yet, it is unclear how the machine’s empathic behavior affects consumer responses and decision-making outcomes during voice-enabled shopping. This article draws from the service robot acceptance model (sRAM) and social response theory (SRT) and presents an individual-session experiment where families (vs. individuals) complete actual shopping tasks using an ad-hoc Alexa app featuring high (vs. standard) empathic capabilities. We apply the experimental conditions as moderators to the structural model, bridging selected functional, social-emotional, and relational variables. Our framework collocates affective empathy,
explicates the bases of consumers’ beliefs, and predicts behavioral outcomes. Findings demonstrate (i) an increase in consumers’ perceptions, beliefs, and adoption intentions with empathic Alexa, (ii) a positive response to empathic Alexa holding constant in family settings, and (iii) an interaction effect only on the functional model dimensions whereby families show greater responses to empathic Alexa while individuals to standard Alexa. |
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Pascal Flurin Meier, Raphael Flepp, Egon Franck, Replication: Do Coaches Stick with What Barely Worked? Evidence of Outcome Bias in Professional Sports, In: UZH Business Working Paper Series, No. 400, 2023. (Working Paper)
Consistent with outcome bias, we replicate the finding of Lefgren et al. (2015) showing that professional basketball coaches in the NBA discontinuously change their starting lineup more often after narrow losses than after narrow wins, even though this outcome is conditionally uninformative. As our paper shows, this pattern is not restricted to the NBA; we find evidence of outcome bias in the top women’s professional basketball league and college basketball. Finally, we show that outcome bias in coaching decisions generalizes to the National Football League (NFL). We conclude that outcome bias is credible and robust, although it has weakened over time. |
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Gianluca De Nard, Robert F Engle, Bryan Kelly, Factor mimicking portfolios for climate risk, In: Working paper series / Department of Economics, No. 429, 2024. (Working Paper)
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. |
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Elliot Beck, Gianluca De Nard, Michael Wolf, Improved inference in financial factor models, In: Working paper series / Department of Economics, No. 430, 2023. (Working Paper)
Conditional heteroskedasticity of the error terms is a common occurrence in financial factor models, such as the CAPM and Fama-French factor models. This feature necessitates the use of heteroskedasticity consistent (HC) standard errors to make valid inference for regression coefficients. In this paper, we show that using weighted least squares (WLS) or adaptive least squares (ALS) to estimate model parameters generally leads to smaller HC standard errors compared to ordinary least squares (OLS), which translates into improved inference in the form of shorter confidence intervals and more powerful hypothesis tests. In an extensive empirical analysis based on historical stock returns and commonly used factors, we find that conditional heteroskedasticity is pronounced and that WLS and ALS can dramatically shorten confidence intervals compared to OLS, especially during times of financial turmoil. |
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David R Bell, Olivier Ledoit, Michael Wolf, A novel estimator of earth's curvature (allowing for inference as well), In: Working paper series / Department of Economics, No. 431, 2023. (Working Paper)
This paper estimates the curvature of the Earth, defined as one over its radius, without relying on physical measurements. The orthodox model states that the Earth is (nearly) spherical with a curvature of π/20'000 km. By contrast, the heterodox flat-Earth model stipulates a curvature of zero. Abstracting from the well-worn arguments for and against both models, rebuttals and counter-rebuttals ad infinitum, we propose a novel statistical methodology based on verifiable flight times along regularly scheduled commercial airline routes; this methodology allows for both estimating and making inference for Earth's curvature. In particular, a formal hypothesis test resolutely rejects the flat-Earth model, whereas it does not reject the orthodox spherical-Earth model. |
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Ernst Fehr, Gary Charness, Social preferences: fundamental characteristics and economic consequences, In: Working paper series / Department of Economics, No. 432, 2024. (Working Paper)
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. |
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Jannik Hensel, Giacomo Mangiante, Luca Moretti, Carbon pricing and inflation expectations: evidence from France, In: Working paper series / Department of Economics, No. 434, 2023. (Working Paper)
This paper studies the impact of carbon pricing on firms’ inflation expectations and discusses the potential implications for what constitutes the core of most central banks’ mandate: price stability. Carbon policy shocks are identified from high-frequency changes in carbon futures price around regulatory events. The shock series is combined with French firm-level survey data. We document that a change in the price of carbon increases firms’ inflation expectations. We then investigate how firms’ business conditions are affected by carbon policy shocks and we find that firms’ own expected and realized price growth respond similarly to inflation expectations. The effect on price expectations is more persistent than on actual price growth leading to positive forecast errors in the medium-/long-run. We also show that a sizable share of the increase in inflation expectations is due to indirect effects. Firms rely on their own business conditions to form expectations about the aggregate price dynamics. Therefore, the expected positive growth in their own prices significantly contributes to the observed increase in inflation expectations. Finally, we study how firms’ responses are heterogeneously influenced by the shocks based on the share of input costs devoted to energy expenditures. We find that high energy-intensive firms tend to overreact relatively more in terms of their own price expectations compared to the actual price change the shocks induce. |
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Thomas Epper, Julien Senn, Ernst Fehr, Social preferences across subject pools: students vs. general population, In: Working paper series / Department of Economics, No. 435, 2024. (Working Paper)
The empirical evidence on the existence of social preferences - or lack thereof - is predominantly based on student samples. Yet, knowledge about whether these findings can be extended to the general population is still scarce. In this paper, we compare the distribution of social preferences in a student and in a representative general population sample. Using descriptive analysis and a rigorous clustering approach, we show that the distribution of the general population’s social preferences fundamentally differs from the students’ distribution. In the general population, three types emerge: an inequality averse, an altruistic, and a selfish type. In contrast, only the altruistic and the selfish types emerge in the student population. We show that differences in age and education are likely to explain these results. Younger and more educated individuals - which typically characterize students - not only tend to have lower degrees of other-regardingness but this reduction in other-regardingness radically reduces the share of inequality aversion among students. Differences in income, however, do not seem to affect social preferences. We corroborate our findings by examining nine further data sets that lead to a similar conclusion: students are far less inequality averse than the general population. These findings are important in view of the fact that almost all applications of social preference ideas involve the general population. |
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Björn Bartling, Alexander W Cappelen, Henning Hermes, Marit Skivenes, Bertil Tungodden, Free to fail? Paternalistic preferences in the United States, In: Working paper series / Department of Economics, No. 436, 2023. (Working Paper)
We study paternalistic preferences in two large-scale experiments with participants from the general population in the United States. Spectators decide whether to intervene to prevent a stakeholder, who is mistaken about the choice set, from making a choice that is not aligned with the stakeholders’ own preferences. We find causal evidence for the nature of the intervention being of great importance for the spectators’ willingness to intervene. Only a minority of the spectators implement a hard intervention that removes the stakeholder’s freedom to choose, while a large majority implement a soft intervention that provides information without restricting the choice set. This finding holds regardless of the stakeholder’s responsibility for being mistaken about the choice set - whether the source of mistake is internal or external - and in different subgroups of the population. We introduce a theoretical framework with two paternalistic types - libertarian paternalists and welfarists - and show that the two types can account for most of the spectator behavior. We estimate that about half of the spectators are welfarists and that about a third are libertarian paternalists. Our results shed light on attitudes toward paternalistic policies and the broad support for soft interventions. |
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Lasse Mononen, Computing and comparing measures of rationality, In: Working paper series / Department of Economics, No. 437, 2023. (Working Paper)
The rationality of choices is one of the most fundamental assumptions of traditional economic analysis. Yet, substantial evidence has documented that choices often cannot be rationalized by utility maximization. Several measures of rationality have been introduced in the literature to quantify the size of rationality violations. However, it is not clear which of these measures should be used in applications, and many measures are computationally very demanding, which has restricted their widespread use. First, we introduce novel variations of the measures that allow us to establish connections between the different measures. Second, we develop methods to compute the most-used measures of rationality. Exploiting this computational progress, we offer simulation-based comparisons of the accuracy of the measures. These simulations show that a new type of measure that combines the size of rationality violations with the number of rationality violations outperforms other measures. Finally, we offer a method to calculate statistical significance levels for rationality violations. |
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Alexandra de Gendre, Jan Feld, Nicolás Salamanca, Ulf Zölitz, Same-sex role model effects in education, In: Working paper series / Department of Economics, No. 438, 2023. (Working Paper)
We study same-sex role model effects of teachers with a meta-analysis and our own study of three million students in 90 countries. Both approaches show that role model effects on performance are, on average, small: 0.030 SD in the meta-analysis and 0.015 SD in our multi-country study. Going beyond test scores, our multi-country study documents larger average role model effects on job preferences (0.063 SD). To understand the universality of these effects, we estimate the distributions of country-level same-sex role model effects. Although role model effects on test scores appear universally small, we find substantial cross-country variation for job preferences, with larger effects in countries with larger gender gaps. These results are consistent with role models inspiring students to overcome gender stereotypes and pursue a STEM career. However, in countries with negligible gender gaps, role models do not seem to have this equalizing function. |
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David Autor, Anne Beck, David Dorn, Gordon Hanson, Help for the heartland? The employment and electoral effects of the Trump tariffs in the United States, In: CEPR Discussion Papers, No. 18202, 2023. (Working Paper)
We study the economic and political consequences of the 2018-2019 trade war between the United States, China and other U.S. trade partners at the detailed geographic level, exploiting measures of local exposure to U.S. import tariffs, foreign retaliatory tariffs, and U.S. compensation programs. So far, the trade-war has not provided economic help to the U.S. heartland: import tariffs on foreign goods neither raised nor lowered U.S. employment in newly-protected sectors; retaliatory tariffs had clear negative employment impacts, primarily in agriculture; and these harms were only partly mitigated by compensatory U.S. agricultural subsidies. Nevertheless, consistent with expressive views of politics, the tariff war appears to have been a political success for the governing Republican party. Residents of regions more exposed to import tariffs became less likely to identify as Democrats, more likely to vote to reelect Donald Trump in 2020, and more likely to elect Republicans to Congress. Foreign retaliatory tariffs only modestly weakened that support. |
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Paul Carrillo, Dave Donaldson, Dina Pomeranz, Monica Singhal, Misallocation in firm production: a nonparametric analysis using procurement lotteries, In: CESifo Working Papers, No. 10485, 2023. (Working Paper)
How costly is the misallocation of production that we might expect to result from distortions such as market power, incomplete contracts, taxes, regulations, or corruption? This paper develops new tools for the study of misallocation that place minimal assumptions on firms’ underlying technologies and behavior. We show how features of the distribution of marginal products can be identified from exogenous variation in firms’ input use, and how these features can be used both to test for misallocation and to quantify the welfare losses that it causes. We then consider an application in which thousands of firms experience demand shocks derived from a lottery-based assignment of public procurement contracts for construction services in Ecuador. Using administrative tax data about these firms, we reject the null of efficiency but estimate that the welfare losses resulting from misallocation are only 1.6% relative to the first-best. Standard parametric assumptions applied to the same setting would suggest losses that are at least an order of magnitude larger. |
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Christian Ewerhart, Stanisław Kaźmierowski, An equilibrium analysis of the Arad-Rubinstein game, In: Working paper series / Department of Economics, No. 443, 2024. (Working Paper)
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. |
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Ana Mão-de-Ferro, Stefano Ramelli, Inflation, the corporate greed narrative, and the value of corporate social responsibility, In: Swiss Finance Institute Research Paper, No. 23-06, 2023. (Working Paper)
Inflation can significantly undermine companies’ relationships with their customers, employees, and other stakeholders, spawning a crisis of trust. This is particularly true in a period when many citizens accuse corporations of excessively raising prices to maximize profits. Studying the cross-sectional reactions of U.S. stocks to inflation over the period 2018-2022, we find that in the month following a higher inflation rate, equity investors reward firms with stronger social capital, as proxied by their corporate social responsibility (CSR) levels. The effect holds using different measures of inflation, including region-specific ones. The inflation-hedging property of CSR is stronger for firms headquartered in Democratic U.S. states (those most exposed to the “corporate greed” narrative of inflation) and appears to operate through the firm’s cash flows. Analyst forecast revisions provide additional evidence of the value of CSR in inflationary periods. Overall, the findings spotlight inflation as a crisis in stakeholder trust and provide new insights into the importance of social capital for firm value. |
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Geraldo Cerqueiro, Ana Mão-de-Ferro, María Fabiana Penas, Political uncertainty and the geographic allocation of credit: evidence from small businesses, In: TILEC Discussion Paper, No. DP 2020-00, 2023. (Working Paper)
We investigate how banks change the geographic distribution of their small business loan portfolio when they face political uncertainty in some of the states where they operate. Using exogenous variation in gubernatorial elections with binding term limits, we show that political uncertainty causes local banks to increase out-of-state lending to small firms, especially to firms located in the wealthiest out-of-state counties. This effect follows a decrease in lending in the local market and is stronger for banks that are more capital constrained. The increase in credit availability leads to an increase in employment growth and net firm creation in sectors that need larger amounts of startup capital. Our results indicate that geographic diversification and financial integration enable banks to sidestep the negative local economic effects of political uncertainty. |
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Rajna Gibson, Matthias Sohn, Carmen Tanner, Alexander Wagner, Earnings management and managerial honesty: the investors’ perspectives, In: Swiss Finance Institute Research Paper, No. 17-03, 2020. (Working Paper)
This paper studies how investors infer CEO commitment to honesty from earnings management and how these perceptions – in conjunction with investors’ own social and moral preferences – shape their investment choices. We conduct two laboratory experiments simulating investment choices. Our results show that participants perceive a CEO to be more committed to honesty when they infer that the CEO engaged less in earnings management. For investment decisions, a one standard deviation increase in a CEO's perceived commitment to honesty compared to another CEO reduces the relevance of differences in the CEOs’ claimed future returns by 40%. This effect is most prominent among investors with a proself value orientation. To prosocial investors, their own honesty values and those attributed to the CEO matter directly, while returns only play a secondary role. Overall, our results suggest that moral motives are not a niche concern for norm-constrained investors, but instead matter to different categories of investors for distinct reasons. |
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Florian Heeb, Julian Kölbel, Stefano Ramelli, Anna Vasileva, Sustainable Investing and Political Behavior, In: Swiss Finance Institute Research Paper, No. 23-46, 2024. (Working Paper)
A major concern regarding sustainable investing is that it may crowd out political support for government interventions targeting negative externalities. We test the validity of this concern in a preregistered experiment shortly before a real referendum on a climate law with a representative sample of the Swiss population (N = 2,051). We find that the opportunity to invest in a climate conscious fund does not erode individuals’ support for climate regulation. Our experimental results are consistent with actual voting and investing behavior across Switzerland. We conclude that the spillover effects of sustainable investing on individual political behavior are limited. |
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Yucheng Yang, Redistributive Inflation and Optimal Monetary Policy, In: SSRN, No. 4275770, 2023. (Working Paper)
Inflation has heterogeneous impacts on households, which then affects optimal monetary policy design. I study optimal monetary policy rules in a quantitative heterogeneous agent New Keynesian (HANK) model where inflation has redistributive effects on households through their different (1) consumption baskets, (2) nominal wealth positions, and (3) earnings elasticities to business cycles. I parameterize the model based on the empirical analysis of these channels using the most recent data. Unlike in representative agent models, a utilitarian central bank should adopt an asymmetric monetary policy rule that is accommodative towards inflation and aggressive towards deflation. Specifically, by accommodating stronger demand and higher inflation, the central bank benefits low-income and low-wealth households through nominal debt devaluation and higher earnings growth. |
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