Contributions published at Department of Economics (Florian Scheuer)

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 empirically identified characteristics of distributional preferences and how they are affected by merit, luck, and risk considerations as well as by concerns for equality of opportunity. In addition, we identify what is known about belief-dependent social preferences such as reciprocity and guilt aversion. The evidence indicates that the big majority of individuals have some sort of social preference while purely self-interested subjects are a minority. Our review also shows how the findings from laboratory experiments involving social preferences provide a deeper understanding of important field phenomena such as the consequences of wage inequality on work morale, employees’ resistance to wage cuts, individuals’ self-selection into occupations and sectors that are more or less prone to morally problematic behaviors, as well as issues of distributive politics. However, although a lot has been learned in recent decades about social preferences, there are still many important, unresolved, yet exciting, questions waiting to be tackled.

Subventionierte Kinderkrippen sollen der Schweizer Wirtschaft zu einem neuen Wachstumsschub verhelfen. Doch der Zürcher Professor Josef Zweimüller warnt vor überzogenen Erwartungen.

Theoretical accounts disagree on the role of dopamine in intertemporal choice and assume that dopamine either promotes delay of gratification by increasing the preference for larger rewards or that dopamine reduces patience by enhancing the sensitivity to waiting costs. Here, we reconcile these conflicting accounts by providing empirical support for a novel process model according to which dopamine contributes to two dissociable components of the decision process, evidence accumulation and starting bias. We re-analyzed a previously published data set where intertemporal decisions were made either under the D2 antagonist amisulpride or under placebo by fitting a hierarchical drift diffusion model that distinguishes between dopaminergic effects on the speed of evidence accumulation and the starting point of the accumulation process. Blocking dopaminergic neurotransmission not only strengthened the sensitivity to whether a reward is perceived as worth the delay costs during evidence accumulation (drift rate) but also attenuated the impact of waiting costs on the starting point of the evidence accumulation process (bias). In contrast, re-analyzing data from a D1 agonist study provided no evidence for a causal involvement of D1R activation in intertemporal choices. Taken together, our findings support a novel, process-based account of the role of dopamine for cost-benefit decision making, highlight the potential benefits of process-informed analyses, and advance our understanding of dopaminergic contributions to decision making.

We incorporate externalities into the stable matching theory of two-sided markets. Extending the classical substitutes condition to markets with externalities, we establish that stable matchings exist when agent choices satisfy substitutability. We show that substitutability is a necessary condition for the existence of a stable matching in a maximal-domain sense and provide a characterization of substitutable choice functions. In addition, we extend the standard insights of matching theory, like the existence of side-optimal stable matchings and the deferred acceptance algorithm, to settings with externalities even though the standard fixed-point techniques do not apply.

Actual and perceived gender norms are key to understanding gender inequality in society. In this paper, using newly collected nationally representative datasets from 60 countries that cover over 80% of the world population, we study gender norms on two distinct policy issues: 1) basic rights, allowing women to work outside of the home, and 2) affirmative action, prioritizing women when hiring for leadership positions. We establish that misperceptions of gender norms are pervasive across the world. The nature of the misperception, however, is context-dependent. In less gender-equal countries, people underestimate support for both policies, particularly among men; in more gender-equal countries, people overestimate support for affirmative action, particularly among women, and underestimate support for basic rights. We provide evidence of gender stereotyping and overweighting of the minority view as potential drivers of the global patterns of misperceptions. Together, our findings indicate how misperceptions of gender norms may obstruct progress toward gender equality, but also may contribute to sustaining gender policies that are not necessarily favored by women themselves.

Much economic analysis derives policy recommendations based on social welfare criteria intended to model the preferences of a policy maker. Yet, little is known about policy maker’s normative views in a way amenable to this use. In a behavioral experiment, we elicit German legislators’ social welfare criteria unconfounded by political economy constraints. When resolving preference conflicts across individuals, politicians place substantially more importance on least-favored than on most-favored alternatives, contrasting with both common aggregation mechanisms and the equal weighting inherent in utilitarianism and the Kaldor-Hicks criterion. When resolving preference conflicts within individuals, we find no support for the commonly used “long-run criterion” which insists that choices merit intervention only if the lure of immediacy may bias intertemporal choice. Politicians’ and the public’s social welfare criteria largely coincide.

This paper empirically evaluates whether adopting a common currency has changed the level of consumption smoothing of euro area member states. We construct a counterfactual dataset of macroeconomic variables through the synthetic control method. We then use the output variance decomposition of Asdrubali et al. (1996) on both the actual and the synthetic data to study if there has been a change in risk sharing and through which channels. We find that the euro adoption has reduced risk sharing and consumption smoothing. We further show that this reduction is mainly driven by the periphery countries of the euro area who have experienced a decrease in risk sharing through private credit.

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.

Non-linear probability weighting is an integral part of descriptive theories of choice under risk such as prospect theory. But why do these objective errors in information processing exist? Should we try to help individuals overcome their mistake of overweighting small and underweighting large probabilities? In this paper, we argue that probability weighting can be seen as a compensation for preexisting biases in evaluating payoffs. In particular, inverse S-shaped probability weighting is a flipside of S-shaped payoff valuation. Probability distortions may thus have survived as a second-best solution to a fitness maximization problem, and it can be counter-productive to correct them while keeping the value function unchanged.

This paper studies the impact of a key feature of competitive markets on moral behavior: the possibility that a competitor might step in and conclude the deal if a conscientious market actor forgoes a profitable business opportunity for ethical reasons. In a series of experiments, we study whether people invoke the replacement excuse, that is, the argument “if I don't do it, someone else will,” to justify narrowly self-interested actions. Our data are consistent with the possibility that the existence of a clear social norm of moral conduct can limit the impact of the availability of the replacement excuse on behavior.

Surveys that measure subjective states like happiness or preferences often generate discrete ordinal data. Ordered response models, which are commonly used to analyze such data, suffer from a fundamental identification problem. Their conclusions depend on unjustified assumptions about the distribution of a latent variable. In this paper, we propose using survey response times to solve that problem. Response times contain information about the distribution of the latent variable even among subjects who give the same survey response, through a chronometric effect. Using an online survey, we test and verify the existence of the chronometric effect. We then provide theoretical conditions under which group differences in happiness or other variables are detectable based on response time data without making distributional assumptions. In our survey, we find evidence supporting the assumptions of traditional ordered response models for some common survey questions but not for others.

Expectancies, which are higher order prognostic beliefs, can have powerful effects on experiences, behavior and brain. However, it is unknown where, how, and when, in the brain, prognostic beliefs influence appetitive interoceptive experiences and related economic behavior. This study combined a placebo intervention on hunger with computational modelling and functional magnetic resonance imaging of value-based decision-making. The results show that prognostic beliefs about hunger shape hunger experiences, how much participants value food and food-value encoding in the prefrontal cortex. Computational modelling further revealed that these placebo effects were underpinned by how much and when during the decision process taste and health information are integrated into the accumulation of evidence toward a food choice. The drift weights of both sources of information further moderated ventromedial and dorsolateral prefrontal cortex interactions during choice formation. These findings provide novel insights into the neurocognitive mechanisms that translate higher order prognostic beliefs into non-aversive interoceptive sensitivity and shape decision-making.

Altruism is critical for cooperation and productivity in human societies but is known to vary strongly across contexts and individuals. The origin of these differences is largely unknown, but may in principle reflect variations in different neurocognitive processes that temporally unfold during altruistic decision making (ranging from initial perceptual processing via value computations to final integrative choice mechanisms). Here, we elucidate the neural origins of individual and contextual differences in altruism by examining altruistic choices in different inequality contexts with computational modeling and electroencephalography (EEG). Our results show that across all contexts and individuals, wealth distribution choices recruit a similar late decision process evident in model-predicted evidence accumulation signals over parietal regions. Contextual and individual differences in behavior related instead to initial processing of stimulus-locked inequality-related value information in centroparietal and centrofrontal sensors, as well as to gamma-band synchronization of these value-related signals with parietal response-locked evidence-accumulation signals. Our findings suggest separable biological bases for individual and contextual differences in altruism that relate to differences in the initial processing of choice-relevant information.

We collect new data and present new evidence on the effects of labor scarcity on the adoption of labor-saving technology in industrializing England. Where the British armed forces recruited heavily, more machines that economized on labor were adopted. For purposes of identification, we focus on naval recruitment. Using warships’ ease of access to coastal locations as an instrument, we show that exogenous shocks to labor scarcity led to technology adoption. The same shocks are only weakly associated with the adoption of non-labor saving technologies. Importantly, there is also a synergy between skill abundance and labor scarcity boosting technology adoption. Where labor shortages led to the adoption of labor-saving machines, technology afterwards improved more rapidly.

An important but poorly understood form of firm tax evasion arises from “ghost firms” - fake firms that issue fraudulent receipts so that their clients can claim false deductions. We provide a unique window into this global phenomenon using transaction-level tax data from Ecuador. 5% of firms use ghost invoices annually and, among these firms, ghost transactions comprise 14% of purchases. Ghost transactions are particularly prevalent among large firms and firms with high-income owners, and exhibit suspicious patterns, such as bunching below financial system thresholds. An innovative enforcement intervention targeting ghost clients rather than ghosts themselves led to substantial tax recovery.

It is widely accepted in political science – and remarkably established in public discourse – that status anxieties fuel a far right backlash against progressive politics. This narrative suggests that right-wing conservatives perceive the status of women, racial, or sexual minorities as threatening. Using open-ended survey questions fielded in Germany, we show that women and minorities do figure in people’s perceptions of status hierarchies, but in very specific ways: First, overall, people still perceive status as largely socioeconomically determined. Second, sociocultural groups figure in perceptions of who is gaining/losing status, less so in perceptions of the top/bottom of society. Third, more than authoritarian voters, it is social progressives who perceive women and minorities as “winners”. While on race/ethnicity, we find evidence for a backlash, on gender and sexuality we find more evidence for a progressive momentum. This matters for progressive politics today and for how we empirically study status concerns.

Existing research on the effects of women’s descriptive representation on citizens’ attitudes has mainly investigated potential positive effects, namely on the political engagement of women themselves or the perceived legitimacy of outcomes. However, long-term shifts in representation have rarely been theorized as potential causes of resentment. It is crucial to consider discontent, as perceptions of relative decline among men and unfulfilled expectations of reaching equality among women have been shown to be powerful sources of resentment in other contexts. This article brings together research on women’s representation with a focus on discontent, social status and backlash. It asks about the consequences of perceived shifts in the gender composition of parliament for political behavior, including voting propensities. Using a survey experiment fielded in Germany, the results show that men do not lash back against women’s representation, even if they realize that this means a slightly lower standing for themselves.

It is commonly accepted that income deprivation suppresses civic engagement. Yet, it is still unclear how policies that seek to tackle deprivation, such as anti-poverty schemes, affect political participation in targeted constituencies: Do they mobilize new citizens (mobilization) or keep engaged those with the habit of voting (mitigation)? I theoretically distinguish between these two mechanisms by focusing on cash transfers, the most widely adopted anti-poverty scheme worldwide. Empirically, I evaluate the Renda Básica de Cidadania, the largest unconditional cash transfer in Latin America, which allows for isolating the effect of cash payments on voting behavior. Estimates from a difference-in-differences design reveal a three percentage points increase (a net growth of 4%) in voter turnout in posttreatment elections. Leveraging municipal-level data in a synthetic control method approach, I show that a mitigation mechanism induces this effect, i.e., the payment of monthly cash transfers reduced the incentives to abstain in elections.

We demonstrate an important complementarity between patriotism and public-good provision. After 1933, the New Deal led to an unprecedented expansion of the U.S. federal government’s role. Those who benefited from social spending were markedly more patriotic during World War II: they bought more war bonds, volunteered more, and, as soldiers, won more medals. This pattern was new—World War I volunteering did not show the same geography of patriotism. We match military service records with the 1940 census to show that this pattern holds at the individual level. Using geographical variation, we exploit two instruments to suggest that the effect is causal: droughts and congressional committee representation predict more New Deal agricultural support, as well as bond buying, volunteering, and medals.