Fabienne Jedelhauser, Raphael Flepp, Pascal Flurin Meier, Egon Franck, Does Performance Pressure Accentuate Outcome Bias? Evidence from Managerial Dismissals, In: UZH Business Working Paper Series, No. 402, 2024. (Working Paper)
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Outcome bias refers to the tendency to overweight the informativeness of observed outcomes in evaluations, consequently underestimating the influence of luck. However, observed outcomes that fall short of expectations simultaneously trigger performance pressure, potentially reinforcing outcome bias in evaluation decisions such as managerial dismissals. Using data from European football, we investigate whether managerial dismissal decisions are influenced by luck operationalized as opponent player injuries and whether this influence is more pronounced under performance pressure. Our findings reveal that luck significantly impacts dismissal decisions, particularly as performance pressure mounts. Importantly, this amplified outcome bias under performance pressure is predominantly driven by instances of bad luck. These results suggest that the extent of outcome bias has been underappreciated, especially in situations involving bad luck. |
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Sebastian Klaus Dörr, Philipp Schaz, Bank loan supply during crises: the importance of geographic diversification, In: Working paper series / Department of Economics, No. 288, 2019. (Working Paper)
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We classify a large sample of banks according to the geographic diversification of their international syndicated loan portfolio. Our results show that diversified banks maintain higher loan supply during banking crises in borrower countries. The positive loan supply effects lead to higher investment and employment growth for firms. Diversified banks are stabilizing due to their ability to raise additional funding during times of distress, which also shields connected markets from spillovers. Further distinguishing banks by nationality reveals a pecking order: diversified domestic banks are the most stable source of funding, while foreign banks with little diversification are the most fickle. Our findings suggest that the decline in financial integration since the recent crisis increases countries’ vulnerability to local shocks. |
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Andrew Clausen, Carlo Strub, Envelope theorems for non-smooth and non-concave optimization, In: Working paper series / Department of Economics, No. 62, 2012. (Working Paper)
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We study general dynamic programming problems with continuous and discrete choices and general constraints. The value functions may have kinks arising (1) at indifference points between discrete choices and (2) at constraint boundaries. Nevertheless, we establish a general envelope theorem: first-order conditions are necessary at interior optimal choices. We only assume differentiability of the utility function with respect to the continuous choices. The continuous choice may be from any Banach space and the discrete choice from any non-empty set. |
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Alessandro Borin, Elisa Macchi, Michele Mancini, Eu transfers and euroscepticism: can’t buy me love?, In: Working paper series / Department of Economics, No. 289, 2018. (Working Paper)
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This paper investigates whether EU redistributive policies improved the public attitude toward European integration, both in terms of public opinion and in terms of political preferences. We build a new dataset combining data from the European Social Survey, different data sources for political parties’ stances and transfer records from EU institutions. We focus on the regional Cohesion Policy, within which the Convergence Objective program offers a quasi-experimental framework that allows us to single out these effects by means of a regression discontinuity approach. Results show that EU transfers have mitigated the rise of Eurosceptic attitudes and reduced the political consensus for anti-EU parties in long-time recipient regions. We estimate that increasing the regional per capita EU transfers by 1000€ over the 2000-2014 period reduces the share of Eurosceptic individuals by about 8 percentage points and voters’ support for anti-EU parties by 10 percentage points. The effects are homogeneous across different socio-economic groups, including the most disadvantaged ones. Other attitudes that are often associated with Euroscepticism (i.e. anti-trade and anti-immigration stances) are not substantially affected by EU regional transfers. |
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Gianluca De Nard, Olivier Ledoit, Michael Wolf, Factor models for portfolio selection in large dimensions: the good, the better and the ugly, In: Working paper series / Department of Economics, No. 290, 2018. (Working Paper)
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This paper injects factor structure into the estimation of time-varying, large-dimensional covariance matrices of stock returns. Existing factor models struggle to model the covariance matrix of residuals in the presence of time-varying conditional heteroskedasticity in large universes. Conversely, rotation-equivariant estimators of large-dimensional time-varying covariance matrices forsake directional information embedded in market-wide risk factors. We introduce a new covariance matrix estimator that blends factor structure with time-varying conditional heteroskedasticity of residuals in large dimensions up to 1000 stocks. It displays superior all-around performance on historical data against a variety of state-of-the-art competitors, including static factor models, exogenous factor models, sparsity-based models, and structure-free dynamic models. This new estimator can be used to deliver more efficient portfolio selection and detection of anomalies in the cross-section of stock returns. |
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Antonio Miralles, Marek Pycia, Large vs. continuum assignment economies: efficiency and envy-freeness, In: Barcelona GSE Working Paper Series, No. 950, 2017. (Working Paper)
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Continuum models are often used to study large finite assignment economies. However, some subtleties must be taken into account. We show that in the large finite random assignment problem without transfers, Competitive Equilibrium with vanishing income differences does not asymptotically characterize the set of efficient and envy-free random assignment profiles. This is in sharp contrast with the continuum model counterpart (Ashlagi and Shi, 2015). The problem is driven by the failure of local non-satiation inherent in no-transfer assignment. |
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Marek Pycia, M Utku Ünver, Arrovian efficiency in allocation of discrete resources, In: Boston College Working Papers in Economics, No. 916, 2016. (Working Paper)
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Efficiency in the Pareto sense and strategy-proofness have been the central design desiderata in market design for allocation of discrete resources, such as dorm allocation, school choice, and kidney exchange. However, more precise efficiency objectives, such as welfare maximization, have been neglected. In a setting where heterogeneous indivisible
goods are being allocated without monetary transfers and each agent has a unit demand, we use Arrovian efficiency as the notion of welfare optimization and show that a mechanism is individually strategy-proof and Arrovian efficient, i.e., it always selects the best outcome with respect to some Arrovian social welfare function, if and only if the mechanism is group strategy-proof and Pareto efficient. If the Arrovian social welfare function completely ranks all matchings, then the individually strategy-proof and Arrovian-efficient mechanisms are almost sequential dictatorships. |
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Marek Pycia, Peter Troyan, Obvious dominance and random priority, In: SSRN, No. 2853563, 2018. (Working Paper)
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We characterize the full class of obviously strategy-proof mechanisms in environments without transfers as clinch-or-pass games that we call millipede games. Some millipede games are simple and widely used in practice, while others may be complex, requiring agents to perform lengthy backward induction, and are rarely observed. We introduce a natural strengthening of obvious strategy-proofness called strong obvious strategy-proofness, which eliminates these complex millipede games. We use our definition to characterize the well-known Random Priority mechanism as the unique mechanism that is efficient, fair, and simple to play, thereby explaining its popularity in practical applications. |
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Marek Pycia, Kyle Woodward, Pay-as-bid: selling divisible goods, In: SSRN, No. 2417512, 2016. (Working Paper)
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Pay-as-bid is the most popular auction format for selling treasury securities. We prove the uniqueness of pure-strategy Bayesian-Nash equilibria in pay-as-bid auctions where symmetrically-informed bidders face uncertain supply, and we establish a tight sufficient condition for the existence of this equilibrium. Equilibrium bids have a convenient separable representation: the bid for any unit is a weighted average of marginal values for larger quantities. With optimal supply and reserve price, the pay-as-bid auction is revenue-equivalent to the uniform-price auction. |
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Qingmin Liu, Marek Pycia, Ordinal efficiency, fairness, and incentives in large markets, In: SSRN, No. 1872713, 2016. (Working Paper)
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Efficiency and symmetric treatment of agents are the primary goals of resource allocation in environments without transfers. Focusing on ordinal mechanisms in which no small group of agents can substantially change the allocations of others, we show that all asymptotically efficient, symmetric, and asymptotically strategy-proof mechanisms lead to the same allocations in large markets. In particular, many mechanisms - both well-known and newly developed - are allocationally equivalent. This equivalence is consistent with prior empirical findings that different mechanisms lead to similar allocations in school choice. We also show that uniform randomizations over deterministic efficient mechanisms are asymptotically efficient. |
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Marek Pycia, Swaps on networks, In: SSRN, No. 2735524, 2016. (Working Paper)
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A group of agents exchange discrete resources on a network without recourse to monetary transfers. Allowing for an arbitrary network structure, we show that there is a unique core outcome in the exchange problem. This unique outcome may be implemented via a natural extension of Gale’s Top Trading Cycle mechanism, which is shown to be the unique mechanism that is individually strategy-proof, Pareto efficient, and individually rational. |
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Marek Pycia, M Bumin Yenmez, Matching with externalities, In: SSRN : CEPR Discussion Paper, No. DP13994, 2019. (Working Paper)
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We incorporate externalities into the stable matching theory of two-sided markets. Extending the classical substitutes condition to allow for externalities, we establish that stable matchings exist when agent choices satisfy substitutability. Furthermore, 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 establish novel comparative statics on externalities and show that the standard insights of matching theory, like the existence of side-optimal stable matchings and the deferred acceptance algorithm, remain valid despite the presence of externalities even though the standard fixed-point techniques do not apply. |
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Peter Chen, Michael Egesdal, Marek Pycia, M Bumin Yenmez, Quantile stable mechanisms, In: SSRN, No. 2526505, 2015. (Working Paper)
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We construct quantile stable mechanisms, show that they are distinct in sufficiently large markets, and analyze how they can be manipulated by market participants. As a step to showing that quantile stable mechanisms are well defined, we show that median and quantile stable matchings exist when contracts are strong substitutes and satisfy the law of aggregate demand. This last result is of independent interest as experiments show that agents who match in a decentralized way tend to coordinate on the median stable matching when it exists. |
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Marek Pycia, The cost of ordinality, In: SSRN, No. 2460511, 2014. (Working Paper)
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School districts and other institutions allocating objects without the use of transfers tend to rely on mechanisms that only elicit agents’ ordinal preferences. The present note shows that the welfare loss imposed by only eliciting ordinal preferences can be arbitrarily large. |
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Marek Pycia, M Utku Ünver, Marek G Pycia, Trading cycles for school choice, In: SSRN, No. 1899344, 2011. (Working Paper)
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In this note we study the allocation and exchange of discrete resources in environments in which monetary transfers are not allowed. We allow each discrete resource to be represented by several copies, extend onto this environment the trading cycles mechanisms of Pycia and Ünver [2009], and show that the extended mechanisms are Pareto efficient and strategy-proof. In particular, we construct the counterpart of Pápai [2000] hiererachical exchange mechanisms for environments with copies. |
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Carlos Alos-Ferrer, Jaume García-Segarra, Alexander Ritschel, The Big Robber Game, In: Working paper series / Department of Economics, No. 291, 2018. (Working Paper)
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We present a novel design measuring a correlate of social preferences in a high-stakes setting. In the Big Robber Game, a "robber" can obtain large personal gains by appropriating the gains of a large group of "victims" as seen in recent corporate scandals. We observed that more than half of all robbers take as much as possible. At the same time, participants displayed standard, prosocial behavior in the Dictator, Ultimatum, and Trust games. That is, prosocial behavior in the small is compatible with highly selfish actions in the large, and the essence of corporate scandals can be reproduced in the laboratory even with a standard student sample. We show that this apparent contradiction is actually consistent with received social-preference models. In agreement with this view, in the experiment more selfish robbers also behaved more selfishly in other games and in a donation question. We conclude that social preferences are compatible with rampant selfishness in high-impact decisions affecting a large group. |
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Carlos Alos-Ferrer, Johannes Buckenmaier, Cognitive sophistication and deliberation times, In: Working paper series / Department of Economics, No. 292, 2019. (Working Paper)
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Differences in cognitive sophistication and effort are at the root of behavioral heterogeneity in economics. To explain this heterogeneity, behavioral models assume that certain choices indicate higher cognitive effort. A fundamental problem with this approach is that observing a choice does not reveal how the choice is made, and hence choice data is insufficient to establish the link between cognitive effort and behavior. We show that deliberation times provide the missing link, in the form of an individually-measurable correlate of cognitive effort. We present a model of heterogeneous cognitive depth, incorporating stylized facts from the psychophysical literature, which makes predictions on the relation between choices, cognitive effort, incentives, and deliberation times. We confirm the predicted relations experimentally in different kinds of games. However, we also show that imputing cognitive depth from choices alone can lead to erroneous conclusions when the features leading to iterative thinking are not salient. |
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Jan Feld, Nicolas Salamanca, Ulf Zölitz, Are professors worth it? The value-added and costs of tutorial instructors, In: Working paper series / Department of Economics, No. 293, 2018. (Working Paper)
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A substantial share of university instruction happens in tutorial sessions—small group instruction given parallel to lectures. In this paper, we study whether instructors with a higher academic rank teach tutorials more effectively in a setting where students are randomly assigned to tutorial groups. We find this to be largely not the case. Academic rank is unrelated to students’ current and future performance and only weakly positively related to students’ course evaluations. Building on these results, we discuss different staffing scenarios that show that universities can substantially reduce costs by increasingly relying on lower-ranked instructors for tutorial teaching. |
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Anne Ardila Brenøe, Origins of gender norms: sibling gender composition and women's choice of occupation and partner, In: Working paper series / Department of Economics, No. 294, 2018. (Working Paper)
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I examine how one central aspect of the childhood family environment—sibling gender composition—affects women's gender conformity, measured through their choice of occupation and partner. Using Danish administrative data, I causally estimate the effect of having a second-born brother relative to a sister for first-born women. The results show that women with a brother acquire more traditional gender norms with negative consequences for their labor earnings. I provide evidence of increased gender-specialized parenting in families with mixed-sex children, suggesting a stronger transmission of traditional gender norms. Finally, I find indications of persistent effects to the next generation of girls. |
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Johannes Buckenmaier, Eugen Dimant, Luigi Mittone, Effects of institutional history and leniency on collusive corruption and tax evasion, In: Working paper series / Department of Economics, No. 295, 2018. (Working Paper)
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We investigate the effects of an institutional mechanism that incentivizes taxpayers to blow the whistle on collusive corruption and tax compliance. We explore this through a formal leniency program. In our experiment, we nest collusive corruption within a tax evasion framework. We not only study the effect of the presence of such a mechanism on behavior, but also the dynamic effect caused by the introduction and the removal of leniency. We find that in the presence of a leniency mechanism, subjects collude and accept bribes less often while paying more taxes, but there is no increase in bribe offers. Our results show that the introduction of the opportunity to blow the whistle decreases the collusion and bribe acceptance rate, and increases the collected tax yield. It also does not encourage bribe offers. In contrast, the removal of the institutional mechanism does not induce negative effects, suggesting a positive spillover effect of leniency that persists even after the mechanism has been removed. |
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