Lorenzo Casaburi, Jack Willis, Value chain microfinance, Oxford Review of Economic Policy, Vol. 40 (1), 2024. (Journal Article)
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. |
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Christian Ewerhart, A game-theoretic implication of the Riemann hypothesis, Mathematical Social Sciences, Vol. 128, 2024. (Journal Article)
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. |
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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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Luca Bagnato, From taxation to fighting for the nation: historical fiscal capacity and military draft evasion during WWI, In: Working paper series / Department of Economics, No. 423, 2024. (Working Paper)
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. |
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Stephan Nebe, André Kretzschmar, Maike C Brandt, Philippe Tobler, Characterizing Human Habits in the Lab, Collabra: Psychology, Vol. 10 (1), 2024. (Journal Article)
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. |
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Giuseppe Sorrenti, Ulf Zölitz, Denis Ribeaud, Manuel Eisner, The causal impact of socio-emotional skills training on educational success, Review of Economic Studies, 2024. (Journal Article)
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. |
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Maximilian D Gilger, Lydia Hellrung, Philipp T Neukam, Nils B Kroemer, Stephan Nebe, Shakoor Pooseh, Yacila I Deza-Lougovski, Michael N Smolka, Arbitration between model-free and model-based control is not affected by transient changes in tonic serotonin levels, Journal of Psychopharmacology, Vol. 38 (2), 2024. (Journal Article)
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. |
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Fadong Chen, Zhi Zhu, Qiang Shen, Ian Krajbich, Todd Anthony Hare, Intrachoice dynamics shape social decisions, Management Science, Vol. 70 (2), 2024. (Journal Article)
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. |
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Aljosha Henkel, Ernst Fehr, Julien Senn, Thomas Epper, Beliefs about inequality and the nature of support for redistribution, In: Working paper series / Department of Economics, No. 442, 2024. (Working Paper)
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. |
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Christian Ewerhart, Guang-Zhen Sun, The n-player Hirshleifer contest, Games and Economic Behavior, Vol. 143, 2024. (Journal Article)
While the game-theoretic analysis of conflict is often based on the assumption of multiplicative noise, additive noise such as considered by Hirshleifer (1989) may be equally plausible depending on the application. In this paper, we examine the equilibrium set of the n-player difference-form contest with heterogeneous valuations. For high and intermediate levels of noise, the equilibrium is in pure strategies, with at most one player being active. For small levels of noise, however, we find a variety of equilibria in which some but not necessarily all players randomize. In the case of homogeneous valuations, we obtain a partial uniqueness result for symmetric equilibria. As the contest becomes increasingly decisive, at least two contestants bid up to the valuation of the second-ranked contestant, while any others ultimately drop out. Thus, in the limit, equilibria of the Hirshleifer contest share important properties of equilibria of the corresponding all-pay auction. |
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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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Dina Pomeranz, Felipe Kast, Savings accounts to borrow less: experimental evidence from Chile, Journal of Human Resources, Vol. 59 (1), 2024. (Journal Article)
Poverty is often characterized not only by low and unstable income, but also by heavy debt burdens. In a randomized field experiment with over 3,500 low-income micro-entrepreneurs in Chile, we find that providing access to free savings accounts decreases participants’ shortterm debt. In addition, participants who experience an economic shock have less need to reduce consumption, and subjective well-being improves significantly. Precautionary savings and credit therefore act as substitutes in providing self-insurance, and participants prefer borrowing less when a free formal savings account is available. Take-up patterns suggest that requests by others for participants to share their resources may be a key obstacle to saving. |
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Olivier Ledoit, Michael Wolf, Markowitz portfolios under transaction costs, In: Working paper series / Department of Economics, No. 420, 2024. (Working Paper)
Markowitz portfolio selection is a cornerstone in finance, in academia as well as in the industry. Most academic studies either ignore transaction costs or account for them in a way that is both unrealistic and suboptimal by (i) assuming transaction costs to be constant across stocks and (ii) ignoring them at the portfolio-selection state and simply paying them `after the fact'. Our paper proposes a method to fix both shortcomings.. As we show, if transaction costs are accounted for (properly) at the portfolio-selection stage, net performance in terms of the Sharpe ratio often increases, in particular for high-turnover strategies. |
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Sandro Ambühl, B Douglas Bernheim, Interpreting the will of the people: social preferences over ordinal outcomes, In: Working paper series / Department of Economics, No. 395, 2024. (Working Paper)
We investigate the nature of social preferences when a decision maker's information is limited to group members' ordinal rankings. By studying choices made on behalf of others, we identify social choice rules that embody the normative values decision makers implicitly favor. Few people are attracted to majority or plurality rule as a normative principle. Most favor scoring rules that promote compromise. People evaluate relative sacrifice by inferring cardinal utility from ordinal ranks, but also care about ranks intrinsically. Cluster analysis reveals that our social preference classification is comprehensive. Ordinal aggregation principles are stable across domains and countries with divergent traditions. |
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Eva M Berger, Ernst Fehr, Henning Hermes, Daniel Schunk, Kirsten Winkel, The impact of working memory training on children’s cognitive and noncognitive skills, In: Working paper series / Department of Economics, No. 347, 2024. (Working Paper)
Working memory capacity is a key component of executive functioning and is thought to play an important role for a wide range of cognitive and noncognitive skills such as fluid intelligence, math, reading, the inhibition of pre-potent impulses or more general self-regulation abilities. Because these abilities substantially affect individuals’ life trajectories in terms of health, education, and earnings, the question of whether working memory (WM) training can improve them is of considerable importance. However, whether WM training leads to spillover effects on these other skills is contested. Here, we examine the causal impact of WM training embedded in regular school teaching by a randomized educational intervention involving a sample of 6–7 years old first graders. We find substantial immediate and lasting gains in working memory capacity. In addition, we document positive spillover effects on geometry, Raven’s fluid IQ measure, and the ability to inhibit pre-potent impulses. Moreover, these spillover effects emerge over time and only become fully visible after 12–13 months. Finally, we document that three years after the intervention the children who received training have a roughly 16 percentage points higher probability of entering the academic track in secondary school. |
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Samira Marti, Isabel Martínez, Florian Scheuer, Does a progressive wealth tax reduce top wealth inequality? Evidence from Switzerland, In: URPP Equality of Opportunity Discussion Paper Series, No. 43, 2023. (Working Paper)
Like in many other countries, wealth inequality has increased in Switzerland over the last fifty years. By providing new evidence on cantonal top wealth shares for each of the 26 cantons since 1969, we show that the overall increase in concentration masks striking differences across cantons, both in levels and trends. Combining this with variation in cantonal wealth taxes, we then estimate an event study model to identify the dynamic effects of reforms to top wealth tax rates on the subsequent evolution of wealth concentration. Our results imply that a reduction in the top marginal wealth tax rate by 0.1 percentage points increases the top 1% (0.1%) wealth share by 0.9 (1.2) percentage points five years after the reform. This suggests that wealth tax cuts over the last 50 years explain roughly 18% (25%) of the increase in wealth concentration among the top 1% (0.1%). |
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Michel Maréchal, Alain Cohn, Jeffrey Yusof, Raymond Fisman, Whose preferences matter for redistribution: cross-country evidence, In: URPP Equality of Opportunity Discussion Paper Series, No. 42, 2023. (Working Paper)
Using cross-sectional data from 93 countries, we investigate the relationship between the desired level of redistribution among citizens from different socioeconomic backgrounds and the actual extent of government redistribution. Our focus on redistribution arises from the inherent class conflicts it engenders in policy choices, allowing us to examine whose preferences are reflected in policy formulation. Contrary to prevailing assumptions regarding political influence, we find that the preferences of the lower socioeconomic group, rather than those of the median or upper strata, are most predictive of realized redistribution. This finding contradicts the expectations of both leading experts and regular citizens. |
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Anja Grob, Garret Binding, Judith Spirig, Introducing HESSS: home economics at Swiss secondary schools, In: URPP Equality of Opportunity Discussion Paper Series, No. 40, 2023. (Working Paper)
Education policy has increasingly gained the attention of political scientists. Owing to its decentralised structure and the ensuing variation across cantons, the Swiss education system is a great place to study questions about the determinants and consequences of education policy. However, partly for the same reason, structured and detailed (historical) comparative data about curricula — who was was taught what, when, where and how — is relatively rare. We contribute to closing this gap by introducing HESSS, a novel dataset on the provision of home economics education (“Hauswirtschaft") in Switzerland in ten German-speaking cantons for vocational- and university track secondary schools since 1980 and 1991, respectively. The new dataset can help social science scholars explore variation in various aspects of home economics education over time and across cantons, and facilitate research on the Swiss educational system. In this research note, we outline the main features of the data and illustrate how it can be used in two applications: (i) tracking the switch from gender segregated to co-educated classes in response to the 1981 vote on equality for men and women; and (ii) describing the impact of cantonal education budget cuts and popular opposition to such cuts on home economics at secondary schools in the canton of Zurich. |
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Thomas Epper, Ernst Fehr, Julien Senn, The fundamental properties, stability and predictive power of distributional preferences, In: URPP Equality of Opportunity Discussion Paper Series, No. 45, 2023. (Working Paper)
Parsimony is a desirable feature of economic models but almost all human behaviors are characterized by vast individual variation that appears to defy parsimony. How much parsimony do we need to give up to capture the fundamental aspects of a population’s distributional preferences and to maintain high predictive ability? Using a Bayesian nonparametric clustering method that makes the trade-off between parsimony and descriptive accuracy explicit, we show that three preference types—an inequality averse, an altruistic and a predominantly selfish type—capture the essence of behavioral heterogeneity. These types independently emerge in four different data sets and are strikingly stable over time. They predict out-of-sample behavior equally well as a model that permits all individuals to differ and substantially better than a representative agent model and a state-of-the-art machine learning algorithm. Thus, a parsimonious model with three stable types captures key characteristics of distributional preferences and has excellent predictive power. |
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Thomas Epper, Ernst Fehr, Julien Senn, Social preferences and redistributive politics, In: URPP Equality of Opportunity Discussion Paper Series, No. 47, 2023. (Working Paper)
Increasing inequality and associated egalitarian sentiments have put redistribution on the political agenda. In this paper, we take advantage of Swiss direct democracy, where people voted several times on strongly redistributive policies in national plebiscites, to study the link between social preferences and a behaviorally validated measure of support for redistribution in a broad sample of the Swiss population. Using a novel nonparametric Bayesian clustering algorithm, we uncover the existence of three fundamentally distinct preference types in the population: predominantly selfish, inequality averse and altruistic individuals. We show that inequality averse and altruistic individuals display a much stronger support for redistribution, particularly if they are more affluent. In addition, we show that previously identified key motives underlying opposition to redistribution – such as the belief that effort is an important driver of individual success – play no role for selfish individuals but are highly relevant for other-regarding individuals. Finally, while inequality averse individuals display strong support for policies that primarily aim to reduce the incomes of the rich, altruistic individuals are considerably less supportive of these policies. Thus, knowledge about the qualitative properties of social preferences and their distribution in the population also provides insights into which preference type supports specific redistributive policies, which has implications for how policy makers may design redistributive packages to maximize political support for them. |
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