Anja Achtziger, Carlos Alos-Ferrer, Alexander Ritschel, Cognitive load in economic decisions, In: Working paper series / Department of Economics, No. 354, 2020. (Working Paper)
Intuitive decision making has a large and often negative impact in economic decisions, but its measurement and quantification remains challenging. Following research from psychology, behavioral economists have often attempted to causally manipulate the balance of intuition and deliberation by relying on experimental manipulations as cognitive load. However, these attempts have resulted in mixed success, with many null results and no clear general pattern. We explain the possible reasons behind these developments and offer avenues for improvement. First, we show that a very simple formal model of decision processes offers a straightforward test to determine whether cognitive load has been successfully induced, hence disentangling failed inductions and true null results. Specifically, cognitive load in economically-relevant tasks must result in shorter response times. Second, we show that the intuitive arguments on the behavioral implications of cognitive load do not hold on closer, formal examination, unless strong assumptions are made that may or may not hold in typical economic experiments. We then report on seven economic experiments (joint N = 628) using different cognitive load manipulations and confirm the implications of the model. While the effect on response times is strong and pervasive, behavioral effects are weak and elusive. Our research serves as a warning on the differences between economic tasks and psychological experiments and the difficulties associated with importing methods uncritically. |
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David Tannenbaum, Alain Cohn, Christian Lukas Zünd, Michel Maréchal, What do cross-country surveys tell us about social capital?, In: Working paper series / Department of Economics, No. 352, 2022. (Working Paper)
We assess the predictive power of survey measures of social capital with a new behavioral data set that examines whether citizens report a lost wallet to its owner. Using data from more than 17,000 “lost” wallets across 40 countries, we find that survey measures of social capital — especially questions concerning generalized trust or generalized morality—are strongly and significantly correlated with country-level differences in wallet reporting rates. A second finding is that lost wallet reporting rates predict unique variation in the outputs of social capital, such as economic development and government effectiveness, not captured by existing measures. |
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Florian H Schneider, Fanny Brun, Roberto A. Weber, Sorting and wage premiums in immoral work, In: Working paper series / Department of Economics, No. 353, 2024. (Working Paper)
We use surveys, laboratory experiments and administrative data to study how heterogeneity in the perceived immorality of work and in workers’ aversion to acting immorally impact labor market outcomes. Immoral work is associated with higher wages, both in administrative data and in causal experimental evidence. Individuals more willing to engage in immoral conduct find employment in firms and industries perceived as immoral less aversive and have higher employment rates in immoral work in the laboratory. These phenomena appear to be driven by impure social motives, reflecting a desire not to be involved with immoral work, rather than by consequentialist concerns. |
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Christian Ewerhart, Finite blockchain games, In: Working paper series / Department of Economics, No. 355, 2020. (Working Paper)
This paper studies the dynamic construction of a blockchain by competitive miners. In contrast to the literature, we assume a finite time horizon. Moreover, miners are rewarded for blocks that eventually become part of the longest chain. It is shown that popular mining strategies such as adherence to conservative mining or to the longest-chain rule constitute pure-strategy Nash equilibria. However, these equilibria are not subgame perfect. |
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Gianluca De Nard, Robert F Engle, Olivier Ledoit, Michael Wolf, Large dynamic covariance matrices: enhancements based on intraday data, In: Working paper series / Department of Economics, No. 356, 2022. (Working Paper)
Multivariate GARCH models do not perform well in large dimensions due to the so-called curse of dimensionality. The recent DCC-NL model of Engle et al. (2019) is able to overcome this curse via nonlinear shrinkage estimation of the unconditional correlation matrix. In this paper, we show how performance can be increased further by using open/high/low/close (OHLC) price data instead of simply using daily returns. A key innovation, for the improved modeling of not only dynamic variances but also of dynamic correlations, is the concept of a regularized return, obtained from a volatility proxy in conjunction with a smoothed sign of the observed return. |
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Finkelfarb Lichand Guilherme Lichand, Sharon Wolf, Arm-wrestling in the classroom: the non-monotonic effects of monitoring teachers, In: Working paper series / Department of Economics, No. 357, 2021. (Working Paper)
Teacher absenteeism and shirking are common problems in developing countries. While monitoring teachers should ameliorate those problems, mobilizing parents to do so often leads to small or even negative effects on learning outcomes. This paper provides causal evidence that this might result from non-monotonic effects of monitoring teachers. Cross-randomizing nudges to teachers and parents in Ivory Coast – to motivate and monitor teachers directly, and to mobilize parents –, we find that, in schools where parents are nudged, numeracy and literacy test scores improve by an additional school quarter, and student dropouts decrease by over 50%. In contrast, in schools where both are nudged, there is no effect on either learning outcomes or dropouts – even though the latter also fall by nearly 50% where teachers are nudged alone. In those schools, teachers show up less frequently, allocate less time to career development, and target instruction to top students to a greater extent than in schools where only parents are nudged. Monitoring backfires precisely for teachers who were most motivated at baseline, consistent with monitoring intensity eventually crowding out intrinsic motivation. Our results have implications for the design of accountability programs above and beyond education. |
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Björn Bartling, Vanessa Valero, Roberto A. Weber, Lan Yao, Public discourse and socially responsible market behavior, In: Working paper series / Department of Economics, No. 359, 2023. (Working Paper)
We investigate the causal impact of public discourse on socially responsible market behavior. Across three laboratory experiments, having market participants engage in public discourse generally increases market social responsibility. These positive impacts are robust to variation in several characteristics of the discourse and appear to be partly driven by strengthening beliefs that others support socially responsible exchange. However, relaxing requirements to engage in discourse sharply reduces its effectiveness. Our findings suggest that campaigns encouraging discussion of appropriate market behavior can have powerful impacts on addressing inefficiencies due to market failures, but that policies encouraging broad public engagement may be important. |
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Björn Bartling, Ernst Fehr, Yagiz Özdemir, Does market interaction erode moral values?, In: Working paper series / Department of Economics, No. 360, 2021. (Working Paper)
The widespread use of markets leads to unprecedented material well-being in many societies. We study whether market interaction, as a side effect, erodes moral values. In an influential paper, Falk and Szech (2013) provide experimental data that seem to suggest that “market interaction erodes moral values.” Although we replicate their main treatment effect, we show that additional treatments are necessary to corroborate their conclusion. These treatments reveal that playing repeatedly, and not market interaction, causes the erosion of moral values. Our paper thus shows that neither Falk and Szech’s data nor our data support the claim that markets erode morals. |
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Christian Ewerhart, Guang-Zhen Sun, The n-player Hirshleifer contest, In: Working paper series / Department of Economics, No. 361, 2023. (Working Paper)
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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Igor Letina, Armin Schmutzler, Regina Seibel, Killer acquisitions and beyond: policy effects on innovation strategies, In: Working paper series / Department of Economics, No. 358, 2023. (Working Paper)
This paper provides a theory of strategic innovation project choice by incumbents and start-ups which serves as a foundation for the analysis of acquisition policy. We show that, in spite of countervailing incentives on incumbents and entrants, prohibiting acquisitions has a weakly negative overall innovation effect. We provide conditions determining the size of the effect and, in particular, conditions under which it is zero. We further analyze the effects of less restrictive policies, including merger remedies and the tax treatment of acquisitions and initial public offerings. Such interventions tend to prevent acquisitions only if the entrant has sufficiently high stand-alone profits. |
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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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Eric Bettinger, Nina Cunha, Finkelfarb Lichand Guilherme Lichand, Ricardo Madeira, Are the effects of informational interventions driven by salience?, In: Working paper series / Department of Economics, No. 350, 2021. (Working Paper)
Informational interventions have been shown to significantly change behavior across a variety of settings. Is that because they lead subjects to merely update beliefs in the right direction? Or, alternatively, is it to a large extent because they increase the salience of the decision they target, affecting behavior even in the absence of inputs for belief updating? We study this question in the context of an informational intervention with school parents in Brazil. We randomly assign parents to either an information group, who receives text messages with weekly data on their child’s attendance and school effort, or a salience group, who receives messages that try to redirect their attention without child-specific information. We find that information makes parents more accurate about student attendance, and has large impacts on their test scores and grade promotion relative to the control group. Even though salience messages, in contrast, do not make parents more accurate about attendance levels, learning outcomes in the salience group improve by at least as much. Why? We show that treated parents across both conditions become more accurate about changes in their children’s grades over time, although not about grade levels. Such coarse belief updating is consistent with independent information acquisition in response to salience effects from both interventions. Our results have implications for the design and interpretation of informational interventions across a range of domains. |
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Simon Stefan Hänni, Finkelfarb Lichand Guilherme Lichand, Harming to signal: child marriage vs. public donations in Malawi, In: Working paper series / Department of Economics, No. 348, 2021. (Working Paper)
In Malawi, only 5% of parents state that the right age for a woman to marry is below 18, but 42% of girls get married before they reach that legal age. We document that social image concerns are likely an important mechanism behind that wedge: where the prevalence of child marriage is high, those who do not marry off their under-age daughters are perceived as less altruistic, reciprocal and trustworthy than those who do. We then randomly assign 412 villages to a public donation drive, through which participants could donate maize to be redistributed to the poorest in their village. The idea is that increasing the visibility of charitable behavior – which also contributes to social image – might provide a less costly but as visible alternative to child marriage for parents who are only willing to engage in it out of social image concerns. One year after the intervention, we find that girls’ marriages and teenage pregnancies decrease by roughly 30% in treated villages relative to the control group. Consistent with the social image mechanism, (1) charitable behavior increases the most in villages where child marriage was most prevalent at baseline, and (2) in those villages, parents who do not marry off their under-age daughters are no longer perceived as less pro-social than others. We rule out that child marriage is delayed merely because poor families have additional resources due to donations from the drive, and provide evidence that treatment effects increase with the visibility of the intervention. Our findings provide novel evidence on how far individuals might go to protect their social image, and inform new strategies to disrupt arguably inefficient norms when there is a wedge between private and social motives. |
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Finkelfarb Lichand Guilherme Lichand, Eric Bettinger, Nina Cunha, Ricardo Madeira, The psychological effects of poverty on investments in children’s human capital, In: Working paper series / Department of Economics, No. 349, 2021. (Working Paper)
Do poor parents respond inefficiently to future returns on investments, even when they would have the financial means to invest optimally? Combining multiple experiments, we document that when parents of high-school students in Brazil are offered the opportunity to invest in an educational program, (1) prior experience with the program closes the gap in willingness to invest between high- and low-SES parents, but (2) financial worries reopen that gap. We show that financial worries lead parents to respond to small but immediate returns as if they were large, and to large but future returns as if they were small. |
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Carlos Alos-Ferrer, Johannes Buckenmaier, Georg Kirchsteiger, Do traders learn to select efficient market institutions?, In: Working paper series / Department of Economics, No. 364, 2020. (Working Paper)
When alternative market institutions are available, traders have to decide both where and how much to trade. We conducted an experiment where traders could decide to trade either in an (efficient) double-auction institution or in a posted-offers one, which should favor sellers. When sellers face decreasing returns to scale (increasing production costs), fast coordination on the double-auction occurs, with the posted-offers institution becoming inactive. In contrast, under constant returns to scale, both institutions remain active and coordination is slower. The reason is that, in a finite-horizon setting, sellers trade off larger efficiency in a market with dwindling profits for biased-up profits in a market with vanishing customers. Hence, our results indicate that efficiency alone might not be sufficient to guarantee coordination on a single market institution if the distribution of the gains from trade is asymmetric. Trading behavior approaches equilibrium predictions (market clearing) within each institution, but switching behavior across institutions is explained by simple rules of thumb, with buyers chasing low prices and sellers considering both prices and trader ratios. |
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Michele Garagnani, The predictive power of risk elicitation tasks, In: Working paper series / Department of Economics, No. 362, 2020. (Working Paper)
This work reports an online experiment with a general-population sample examining the performance of budget-choice tasks for elicitation of risk attitudes. First, I compare the investment task of Gneezy and Potters (1997) with the standard choicelist method of Holt and Laury (2002), and evaluate their performance in terms of the number of correctly-predicted binary decisions in a set of out-of-sample lottery choices. There are no significant differences between the tasks in this sense, and performance is modest. Second, I included three additional budget-choice tasks (selection of a lottery from a linear budget set) where optimal decisions should have been corner solutions, and find that a large majority of participants provided interior solutions instead, casting doubts on subjects’ understanding of tasks of this type. |
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Mathias Hoffmann, Lilia Ruslanova, Softening the blow: U.S. state-level banking deregulation and sectoral reallocation after the China trade shock, In: Working paper series / Department of Economics, No. 365, 2021. (Working Paper)
U.S. state-level banking deregulation during the 1980’s mitigated the impact of the China trade shock (CTS) on local economies (states and commuting zones) a decade later, in the 1990s. Local economies, where local banking markets opened up earlier, were also effectively financially more integrated by the 1990’s and saw smaller declines in house prices, wages, and income following the CTS. We explain this pattern in a theoretical model that emphasizes the stabilizing effect of financial integration on demand for housing and on housing prices: faced with an adverse shock to their region’s terms-of-trade (i.e. the CTS), households in more open states can more easily access credit to smooth consumption. This stabilizes consumer demand for housing, keeps the relative price of housing up, stabilizes wages in the non-tradable sector and thus facilitates the sectoral reallocation of labor away from import-exposed manufacturing towards the housing sector. This in turn stabilizes income and consumption. We corroborate these predictions of our model in state- and commuting zone level data. Then, using granular bank-county-level data,we show that household consumption smoothing in response to the CTS was easier in financially open areas, because geographically diversified banks were more elastic in their lending response to household’s increased demand for credit. Our findings highlight that household access to finance is important to ease adjustment after asymmetric terms-of-trade shocks in monetary unions, in particular when the geographical mobility of labor is limited. |
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Abi Adams-Prassl, Teodora Boneva, Marta Golin, Christopher Rauh, Work that can be done from home: evidence on variation within and across occupations and industries, In: IZA Discussion Papers, No. 13374, 2020. (Working Paper)
Using large, geographically representative surveys from the US and UK, we document variation in the percentage of tasks workers can do from home. We highlight three dimensions of heterogeneity that have previously been neglected. First, the share of tasks that can be done from home varies considerably both across as well as within occupations and industries. The distribution of the share of tasks that can be done from home within occupations, industries, and occupation-industry pairs is systematic and remarkably consistent across countries and survey waves. Second, as the pandemic has progressed, the share of workers who can do all tasks from home has increased most in those occupations in which the pre-existing share was already high. Third, even within occupations and industries, we find that women can do fewer tasks from home. Using machine-learning methods, we extend our working-from-home measure to all disaggregated occupation-industry pairs. The measure we present in this paper is a critical input for models considering the possibility to work from home, including models used to assess the impact of the pandemic or design policies targeted at reopening the economy. |
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Pietro Biroli, Steven Bosworth, Marinella Della Giusta, Amalia Di Girolamo, Sylvia Jaworska, Jeremy Vollen, Family life in lockdown, In: HCEO Working Paper, No. 2020-51, 2020. (Working Paper)
The lockdown imposed following the COVID-19 pandemic of spring 2020 dramatically changed the daily lives and routines of millions of people worldwide. We analyse how such changes contributed to gender inequality within the household using a novel survey of Italian, British, and American families in lockdown. A high percentage report disruptions in the patterns of family life, manifesting in new work patterns, chore allocations, and household tensions. Though men have taken an increased share of childcare and grocery shopping duties, reallocations are not nearly as stark as disruptions to work patterns might suggest, and families having to reallocate duties report greater tensions. Our results paint a picture of tightened constraints budging up against stable and gendered patterns of intra-household cooperation. While the long-run consequences of the COVID-19 lockdown on family life cannot be assessed at this stage, we point towards the likely opportunities and challenges. |
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Abi Adams-Prassl, Teodora Boneva, Marta Golin, Christopher Rauh, The impact of the coronavirus lockdown on mental health: evidence from the US, In: HCEO Working Paper, No. 2020-30, 2020. (Working Paper)
The coronavirus outbreak has caused significant disruptions to people’s lives. We document the impact of state-wide stay-at-home orders on mental health using real time survey data in the US. The lockdown measures lowered mental health by 0.085 standard deviations. This large negative effect is entirely driven by women. As a result of the lockdown measures, the existing gender gap in mental health has increased by 66%. The negative effect on women’s mental health cannot be explained by an increase in financial worries or childcare responsibilities. |
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