Carolina Feher da Silva, Todd Anthony Hare, A note on the analysis of two-stage task results: how changes in task structure affect what model-free and model-based strategies predict about the effects of reward and transition on the stay probability, In: bioRxiv, No. 187856, 2017. (Working Paper)
Many studies that aim to detect model-free and model-based influences on behavior employ two-stage behavioral tasks of the type pioneered by Daw and colleagues in 2011. Such studies commonly modify existing two-stage decision paradigms in order to better address a given hypothesis, which is an important means of scientific progress. It is, however, critical to fully appreciate the impact of any modified or novel experimental design features on the expected results. Here, we use two concrete examples to demonstrate that relatively small changes in the two-stage task design can substantially change the pattern of actions taken by model-free and model-based agents. In the first, we show that, under specific conditions, computer simulations of purely model-free agents will produce the reward by transition interactions typically thought to characterize model-based behavior on a two-stage task. The second example shows that model-based agents' behavior is driven by a main effect of transition-type in addition to the canonical reward by transition interaction whenever the reward probabilities of the final states do not sum to one. Together, these examples emphasize the benefits of using computer simulations to determine what pattern of results to expect from both model-free and model-based agents performing a given two-stage decision task in order to design choice paradigms and analysis strategies best suited to the current question. |
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Johannes Kunz, Kevin E Staub, Rainer Winkelmann, Estimating Fixed Effects: Perfect Prediction and Bias in Binary Response Panel Models, with an Application to the Hospital Readmissions Reduction Program, In: IZA Discussion Papers, No. 11182, 2017. (Working Paper)
The maximum likelihood estimator for the regression coefficients, β, in a panel binary response model with fixed effects can be severely biased if N is large and T is small, a consequence of the incidental parameters problem. This has led to the development of conditional maximum likelihood estimators and, more recently, to estimators that remove the O(T–1) bias in β^. We add to this literature in two important ways. First, we focus on estimation of the fixed effects proper, as these have become increasingly important in applied work. Second, we build on a bias-reduction approach originally developed by Kosmidis and Firth (2009) for cross-section data, and show that in contrast to other proposals, the new estimator ensures finiteness of the fixed effects even in the absence of within-unit variation in the outcome. Results from a simulation study document favourable small sample properties. In an application to hospital data on patient readmission rates under the 2010 Affordable Care Act, we find that hospital fixed effects are strongly correlated across different treatment categories and on average higher for privately owned hospitals. |
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Gregory S. Crawford, Nicola Pavanini, Fabiano Schiwardi, Asymmetric information and imperfect competition in lending markets, In: CEPR Discussion Papers, No. 10473, 2017. (Working Paper)
We study the effects of asymmetric information and imperfect competition in the market for small business lines of credit. We estimate a structural model of credit demand, loan use, pricing, and firm default using matched firm-bank data from Italy. We find evidence of adverse selection in the form of a positive correlation between the unobserved determinants of demand for credit and default. Our counterfactual experiments show that while increases in adverse selection increase prices and defaults on average, reducing credit supply, banks’ market power can mitigate these negative effects. |
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Maria Paula Gerardino, Stephan Litschig, Dina Pomeranz, Can audits backfire? Evidence from public procurement in Chile, In: NBER Working Paper Series, No. 23978, 2017. (Working Paper)
Audits are generally intended to monitor compliance with existing rules. However, audits can also create unintended impacts and incentives through the specific protocol by which they are executed. In particular, audits can discourage the use of complex administrative procedures with more rules for auditors to check. This paper investigates the effects of procurement audits on public entities' choice of purchase procedures in Chile. While the national procurement legislation tries to promote the use of more transparent and competitive auctions rather than discretionary direct contracts for selection of suppliers, auctions are significantly more complex and the audit protocol mechanically leads to more scrutiny and a higher probability of further investigation for auctions than for direct contracts. Using a regression discontinuity design based on a scoring rule of the National Comptroller Agency, we find that audits lead to a decrease in the use of auctions and a corresponding increase in the use of direct contracts. In order to further test the underlying mechanism, we develop a new approach to conduct subgroup analysis in regression discontinuity designs while holding other observables constant. |
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Jan Feld, Nicolas Salamanca, Ulf Zölitz, Students are almost as effective as professors in university teaching, In: Melbourne Institute Working Papers, No. 23/17, 2017. (Working Paper)
Many universities around the world rely on student instructors—current bachelor’s and master’s degree students—for tutorial teaching, yet we know nothing about their effectiveness. In a setting with random assignment of instructors to students, we show that student instructors are almost as effective as senior instructors at improving their students’ short- and longer-run academic achievement and labor market outcomes. We find little heterogeneity across different course types, student characteristics, or instructors’ personal academic quality. Our results suggest that the use of student instructors can serve as an effective tool for universities to reduce their costs with negligible negative effects on students. |
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Christian Hansen, Damian Kozbur, Sanjog Misra, Targeted undersmoothing, In: arXiv, No. 1706.07328, 2017. (Working Paper)
This paper proposes a post-model selection inference procedure, called targeted undersmoothing, designed to construct uniformly valid confidence sets for a broad class of functionals of sparse high-dimensional statistical models. These include dense functionals, which may potentially depend on all elements of an unknown high-dimensional parameter. The proposed confidence sets are based on an initially selected model and two additionally selected models, an upper model and a lower model, which enlarge the initially selected model. We illustrate application of the procedure in two empirical examples. The first example considers estimation of heterogeneous treatment effects using data from the Job Training Partnership Act of 1982, and the second example looks at estimating profitability from a mailing strategy based on estimated heterogeneous treatment effects in a direct mail marketing campaign. We also provide evidence on the finite sample performance of the proposed targeted undersmoothing procedure through a series of simulation experiments. |
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Bruno Caprettini, Hans-Joachim Voth, Rage against the machines: labor-Saving technology and unrest in England, 1830-32, In: CEPR Discussion Papers, No. 11800, 2018. (Working Paper)
Can new technology cause social instability and unrest? We examine the ‘Captain
Swing’ riots in 1830s England. Newly-collected data on threshing machine adoption shows
that new technology was associated with both higher unemployment and more riots. We
instrument technology adoption with access to water power and wheat suitability: IV
estimates suggest that threshing machines were an important cause of unrest. Where vibrant
labor markets softened the blow of new technology, there was less rioting. In the aftermath of
the riots, technology adoption and patenting rates slowed down in areas close to Swing riots
in 1830-32. |
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Donja Darai, Shimon Kogan, Anthony M Kwasnica, Roberto A. Weber, Aggregate sentiment and investment: an experimental study, In: SSRN Electronic Journal, No. 3008722, 2017. (Working Paper)
Sentiment indices, such as measures of consumer confidence, are often discussed as potential indicators of future investment, consumption and growth. However, documenting a causal relationship between consumer confidence and output — and understanding the precise nature of the relationship — using field data has been challenging. We rely on the high degree of control afforded by a laboratory setting to experimentally test a simple model of investment with complementarities and time-varying fundamentals. Our experiment manipulates the presence of aggregate confidence measures to test both how they reflect available information and how they influence future output. We find that an aggregate sentiment measure can be as effective as a highly precise exogenous public signal in coordinating behavior on more efficient equilibria. Furthermore, our analysis indicates that the confidence measure also impacts expectations by influencing beliefs about aggregate investment. |
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Carolina Feher da Silva, Yuan-Wei Yao, Todd Anthony Hare, Model-free reinforcement learning operates over information stored in working-memory to drive human choices, In: bioRxiv, No. 107698, 2017. (Working Paper)
Model-free learning creates stimulus-response associations, but are there limits to the types of stimuli it can operate over? Most experiments on reward-learning have used discrete sensory stimuli, but there is no algorithmic reason to restrict model-free learning to external stimuli, and theories suggest that model-free processes may operate over highly abstract concepts and goals. Our study aimed to determine whether model-free learning can operate over environmental states defined by information held in working memory. We compared the data from human participants in two conditions that presented learning cues either simultaneously or as a temporal sequence that required working memory. There was a significant influence of model-free learning in the working memory condition. Moreover, both groups showed greater model-free effects than simulated model-based agents. Thus, we show that model-free learning processes operate not just in parallel, but also in cooperation with canonical executive functions such as working memory to support behavior. |
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Philipp Ager, Leonardo Bursztyn, Hans-Joachim Voth, Killer incentives: status competition and pilot performance during World War II, In: NBER Working Paper Series, No. 22992, 2017. (Working Paper)
A growing theoretical and empirical literature shows that public recognition can lead employees to exert greater effort. However, status competition is also associated with excessive expenditure on status goods, greater likelihood of bankruptcy, and more risk taking by money managers. This paper examines the effects of recognition and status competition jointly. In particular, we focus on the spillover effects of public recognition on the performance and risk taking of peers. Using newly collected data on monthly “victory” scores of more than 5,000 German pilots during World War II, we find that status competition had important effects: After the German armed forces bulletin mentioned the accomplishments of a particular fighter pilot, his former peers performed considerably better. This outperformance varied across skill groups. When a former squadron peer was mentioned, the best pilots tried harder, scored more, and died no more frequently; in contrast, average pilots won only a few additional victories but died at a significantly higher rate. Hence our results show that the overall efficiency effect of nonfinancial rewards can be ambiguous in settings where both risk and output affect aggregate performance. |
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Christian Ewerhart, Julia Lareida, Voluntary disclosure in asymmetric contests, In: Working paper series / Department of Economics, No. 279, 2023. (Working Paper)
This paper studies the incentives for interim voluntary disclosure of verifiable information in probabilistic all-pay contests with two-sided incomplete information. Private information may concern marginal cost, valuations, and ability. Our main result says that, if the contest is uniformly asymmetric, then full revelation is the unique perfect Bayesian equilibrium outcome. This is so because the weakest type of the underdog reveals her type in an attempt to moderate the favorite while, similarly, the strongest type of the favorite tries to discourage the underdog––so that the contest unravels. This strong-form disclosure principle is robust with respect to correlation, partitional evidence, randomized disclosures, sequential moves, and continuous type spaces. Moreover, the assumption of uniform asymmetry is not needed when incomplete information is one-sided. However, the principle breaks down when contestants are potentially too similar in strength, possess commitment power, or when information is unverifiable. In fact, cheap talk will always be ignored, even if mediated by a trustworthy third party. |
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Marc Fleurbaey, Hannes Schwandt, Do People Seek to Maximize Their Subjective Well‐Being?, In: IZA Discussion Paper, No. 9450, 2015. (Working Paper)
In a new survey we ask respondents, after a standard Subjective Well‐Being (SWB) question, if they can think of changes in their lives that would improve their SWB score. If the SWB score is just one argument among others in the respondents’ goals in life, they should easily find ways to improve it, at the expense of other dimensions they care about. Our results suggest that close to 90% of the respondents actually seek to maximize their SWB. The life satisfaction question appears the best contender as the “maximand” in the contest, before the ladder‐of‐life question and felt happiness. Among the other goals that people pursue and for which they are willing to sacrifice some of their SWB, the prominent appear to be about their relatives and about their future self. |
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Roberto A. Weber, The economics of effective leadership, In: UBS Center Public Paper Series, No. 3, 2015. (Working Paper)
Economists have typically assumed that the only way for leaders to get people to do things is to use carrots (e.g., pay raises) or sticks (e.g., threats of firing) to incentivize a desired behavior. One of the important contributions of recent research on leadership is to test the extent to which this really is true. Can leaders also motivate and inspire workers by their statements and speeches? Or, is the best way to get followers to do something by creating hard incentives for them? You will receive the answers to these and related questions from Prof. Roberto Weber, a leading specialist in behavioral and experimental economics. |
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Dina Pomeranz, The promise of microfinance and women's empowerment: what does the evidence say?, In: EY Thought Leadership Series, No. n/a, 2014. (Working Paper)
The microfinance revolution has transformed access to financial services for low-income populations worldwide. As a result, it has become one of the most talked-about innovations in global development in recent decades. However, its expansion has not been without controversy. While many hailed it as a way to end world poverty and promote female empowerment, others condemned it as a disaster for the poor. Female empowerment has often been seen as one of the key promises of the industry. In part, this is based on the fact that more than 80% of its poorest clients, i.e., those who live on less than $1.25/day, are women. This paper discusses what we have learned so far about the potential and limits of microfinance and how insights from research and practice can help inform the industry's current products, policies and future developments. |
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Michel Maréchal, Alain Cohn, Tobias Gesche, Honesty in the digital age, In: Working paper series / Department of Economics, No. 280, 2020. (Working Paper)
Modern communication technologies enable effcient exchange of information but often sacrifice direct human interaction inherent in more traditional forms of communication. This raises the question of whether the lack of personal interaction induces individuals to exploit informational asymmetries. We conducted two experiments with a total of 848 subjects to examine how human versus machine interaction influences cheating for financial gain. We find that individuals cheat about three times more when they interact with a machine rather than a person, regardless of whether the machine is equipped with human features. When interacting with a human, individuals are particularly reluctant to report unlikely and, therefore, suspicious outcomes, which is consistent with social image concerns. The second experiment shows that dishonest individuals prefer to interact with a machine when facing an opportunity to cheat. Our results suggest that human presence is key to mitigating dishonest behavior and that self-selection into communication channels can be used to screen for dishonest people. |
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Stefan Bruder, Inference for structural impulse responses in SVAR-GARCH models, In: Working paper series / Department of Economics, No. 281, 2018. (Working Paper)
Conditional heteroskedasticity can be exploited to identify the structural vector autoregressions (SVAR) but the implications for inference on structural impulse responses have not been investigated in detail yet. We consider the conditionally heteroskedastic SVAR-GARCH model and propose a bootstrap-based inference procedure on structural impulse responses. We compare the finite-sample properties of our bootstrap method with those of two competing bootstrap methods via extensive Monte Carlo simulations. We also present a three-step estimation procedure of the parameters of the SVAR-GARCH model that promises numerical stability even in scenarios with small sample sizes and/or large dimensions. |
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Damian Kozbur, Testing-Based Forward Model Selection, In: Working paper series / Department of Economics, No. 283, 2018. (Working Paper)
This paper introduces and analyzes a procedure called Testing-Based Forward Model Selection (TBFMS) in linear regression problems. This procedure inductively selects covariates that add predictive power into a working statistical model before estimating a final regression. The criterion for deciding which covariate to include next and when to stop including covariates is derived from a profile of traditional statistical hypothesis tests. This paper proves probabilistic bounds for prediction error and the number of selected covariates, which depend on the quality of the tests. The bounds are then specialized to a case with heteroskedastic data with tests derived from Huber-Eicker-White standard errors. TBFMS performance is compared to Lasso and Post-Lasso in simulation studies. TBFMS is then analyzed as a component into larger post-model selection estimation problems for structural economic parameters. Finally, TBFMS is used to illustrate an empirical application to estimating determinants of economic growth. |
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Anne Ardila Brenøe, Ulf Zölitz, Exposure to more female peers widens the gender gap in STEM participation, In: Working paper series / Department of Economics, No. 285, 2018. (Working Paper)
This paper investigates how high school gender composition affects students’ participation in STEM college studies. Using Danish administrative data, we exploit idiosyncratic within-school variation in gender composition. We find that having a larger proportion of female peers reduces women’s probability of enrolling in and graduating from STEM programs. Men’s STEM participation increases with more female peers present. In the long run, women exposed to more female peers earn less because they (1) are less likely to work in STEM occupations, and (2) have more children. Our findings show that the school peer environment has lasting effects on occupational sorting and the gender wage gap. |
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Christian Ewerhart, Guang-Zhen Sun, Equilibrium in the symmetric Hirshleifer contest: uniqueness and characterization, In: Working paper series / Department of Economics, No. 286, 2018. (Working Paper)
The symmetric two-player Hirshleifer (1989) contest is shown to admit a unique equilibrium. The support of the equilibrium strategy is finite and includes, in particular, the zero expenditure level. We also establish a lower bound for the cardinality of the support and an upper bound for the undissipated rent. |
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Björn Bartling, Alexander Cappelen, Mathias Ekström, Erik Sørensen, Bertil Tungodden, Fairness in winner-take-all markets, In: Working paper series / Department of Economics, No. 287, 2018. (Working Paper)
The paper reports the first experimental study on people’s fairness views on extreme income inequalities arising from winner-take-all reward structures. We find that the majority of participants consider extreme income inequality generated in winner-take-all situations as fair, independent of the winning margin. Spectators appear to endorse a “factual merit” fairness argument for no redistribution: the winner deserves all the earnings because these earnings were determined by his or her performance. Our findings shed light on the present political debate on redistribution, by suggesting that people may object less to certain types of extreme income inequality than commonly assumed. |
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