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on Experimental Economics |
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Issue of 2024‒05‒06
thirty papers chosen by |
| By: | Shigehiro Serizawa; Natsumi Shimada; Tiffany Tsz Kwan Tse |
| Abstract: | This study explores two key factors influencing subjects’ deviation from dominant bidding in Vickrey auction experiments. The first factor examines subjects’ understanding of strategy-proofness (SP), while the second focuses on “human interaction” which includes social preferences (spite and altruism), responses to strategic uncertainty, and tacit collusion. To analyze the effect of understanding SP, we quiz subjects before an experimental Vickrey auction and examine whether their bidding behavior changes if one of the quizzes includes hints about SP. We design the quiz carefully, incorporating implicit hints about SP and ensuring the avoidance of explicit demands or advice to mitigate experimenter demand effects. However, completing the quiz enables the subjects to understand SP themselves. To analyze the effects of human interaction, we examine whether subjects’ bidding behavior changes if they compete against robots instead of human rivals in the auctions. We design 2 × 2 treatments by varying the type of quiz (with or without hints about SP) and the nature of the rivals (humans or robots). We found that the quiz with hints about SP increases dominant bidding. The nature of rivals also influences the bidding behavior; nonetheless, its impact is not as robust as that of SP hints. Thus, the main factor causing dominated bidding in Vickrey auction experiments is not human interaction but a lack of understanding of SP. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1229r&r=exp |
| By: | Duk Gyoo Kim; Ahram Moon |
| Abstract: | We ran a controlled laboratory experiment to examine whether ChatGPT’s aid can increase the participants’ performance in three different—reading and writing, mathematical problem-solving, and computational thinking—tasks. We find that the math score significantly decreases with ChatGPT’s assistance. This result is mainly because the low-ability subjects couldn’t discern the hallucinated answers with the correct ones, and it contests the general idea that ChatGPT can complement the workers with less expertise. |
| Keywords: | laboratory experiment, ChatGPT, labor productivity |
| JEL: | C91 J24 O33 D83 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11002&r=exp |
| By: | David L. Dickinson (Appalachian State University - UNC - University of North Carolina System, IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics); David Masclet (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, CIRANO - Centre interuniversitaire de recherche en analyse des organisations - UQAM - Université du Québec à Montréal = University of Québec in Montréal) |
| Abstract: | Insufficient sleep is costly to organizations (e.g., direct health costs, cognitive errors, accident risk, and lower labor productivity). In this current study, we examine another more hidden cost associated with insufficient sleep- unethical behaviors. Using a hybrid field/lab experimental approach, participants were randomly assigned to a week of sleep -restriction or well-rested sleep levels in their at-home (naturalistic) environment prior to decision making. We found that sleep restricted participants cheated significantly more in two honesty tasks, while anti-social choices were, surprisingly, not affected. Because sleep restriction promotes reduced deliberation, these results contribute to our understanding of the cognitive underpinnings of decision making. Importantly, these findings have practical implications to managers who want to reduce dishonesty in the workplace. For example, our results suggest that workplace health promotion programs focused on good sleep hygiene would additionally benefit the company in terms of indirectly promoting ethical conduct in the workplace.and COPY; 2023 Elsevier Inc. All rights reserved. |
| Keywords: | Ethical choice, Dishonesty, Antisocial behavior, Sleep |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04223180&r=exp |
| By: | Ezzat Elokda; Heinrich Nax; Saverio Bolognani; Florian D\"orfler |
| Abstract: | A system of non-tradable credits that flow between individuals like karma, hence proposed under that name, is a mechanism for repeated resource allocation that comes with attractive efficiency and fairness properties, in theory. In this study, we test karma in an online experiment in which human subjects repeatedly compete for a resource with time-varying and stochastic individual preferences or urgency to acquire the resource. We confirm that karma has significant and sustained welfare benefits even in a population with no prior training. We identify mechanism usage in contexts with sporadic high urgency, more so than with frequent moderate urgency, and implemented as an easy (binary) karma bidding scheme as particularly effective for welfare improvements: relatively larger aggregate efficiency gains are realized that are (almost) Pareto superior. These findings provide guidance for further testing and for future implementation plans of such mechanisms in the real world. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.02687&r=exp |
| By: | Tiziana Assenza (Toulouse School of Economics, University of Toulouse Capitole, IAST); Alberto Cardaci (Goethe University, Frankfurt. E-mail: albertocardaci@gmail.com); Stefanie J. Huber (Department of Economics, University of Bonn; ECONtribute Research Cluster) |
| Abstract: | This paper investigates and quantifies citizens’ susceptibility to fake news and assesses, using a randomized control trial, the effectiveness of a policy intervention to raise awareness. We find that the average citizen lacks proficiency in identifying fake news and harbors an inflated perception of his/her ability to differentiate between true and fake news content. Increasing awareness by providing information about personal susceptibility to fall for fake news causally adjusts individuals’ beliefs about their fake news detection ability. Most importantly, we show that the simple intervention of informing citizens about their personal susceptibility to fall for fake news causally increases their willingness to pay for the fact-checking service. |
| Keywords: | Fake news, misinformation, disinformation, fact checking, information provision experiments, belief updating, willingness to pay |
| JEL: | C83 D83 D84 D91 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:290&r=exp |
| By: | Steffen Altmann (University of Duiburg-Essen, University of Copenhagen); Andreas Grunewald (Frankfurt School of Finance and Management); Jonas Radbruch (Humboldt University Berlin) |
| Abstract: | Nudge-based policies are an important instrument for many policymakers. Based on a laboratory experiment featuring a dual-task paradigm, we examine the effects of two common types of nudge interventions—the simplification of complex decisions and the implementation of high-quality defaults. We find that these interventions do not only improve choices in the targeted domain, but also yield substantial positive indirect effects on non-targeted domains. The latter emerge through a reallocation of cognitive resources. Furthermore, the relative importance of direct and indirect effects varies systematically across the population. Evaluations that focus only on the targeted domain therefore significantly underestimate the interventions’ overall effectiveness and provide a biased assessment of their distributional consequences. |
| Keywords: | nudges; default options; administrative burden; limited attention; limited cognitive resources; behavioral economics; laboratory experiment; |
| Date: | 2024–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:503&r=exp |
| By: | Antonio Alfonso (LoyolaBehLab/Universidad Loyola Andalucía); Pablo Brañas-Garza (LoyolaBehLab/Universidad Loyola Andalucía); Diego Jorrat (LoyolaBehLab/Universidad Loyola Andalucía); Benjamín Prissé (Singapore University of Technology and Design); María José Vázquez-De Francisco (Fundación ETEA-Development Institute/Universidad Loyola Andalucía) |
| Abstract: | The purpose of this study is to examine whether girls and boys exhibit different risk and timepreferences and how this difference evolves during the critical phase of adolescence. To achievethis, we use a large and powered sample of 4830 non-self-selected teenagers from 207 classesacross 22 Spanish schools with very different socioeconomic backgrounds. Alongside time andrisk preferences, we also collected additional information about class attributes, social networkmeasures, students’ characteristics, and the average level of economic preferences of friends.These measures enable us to account for potentially omitted variables that were not consideredin previous studies. The results indicate that there are no significant gender differences intime and risk preferences, but older subjects exhibit more sophisticated time preferences andhigher risk aversion. We also perform an exploratory heterogeneity analysis, which unveils twoimportant results: first, cognitive abilities play a critical role in the development of time andrisk preferences; second, interaction within the class social network does matter. |
| Keywords: | Developmental Decision-Making, Field Experiment, Economic Preferences, Teenagers. |
| JEL: | C91 D81 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:316&r=exp |
| By: | Katherine B. Coffman; Scott Kostyshak; Perihan O. Saygin; Katie Coffman |
| Abstract: | Most studies of gender discrimination consider how male versus female candidates are assessed given otherwise identical information about them. But, in many settings of interest, evaluators have a choice about how much information to acquire about a candidate before making a final assessment. We use a large controlled experiment to explore how this type of endogenous information acquisition amplifies discriminatory outcomes in a simulated hiring environment. Across evaluators, we vary the composition of candidate pools, exploring not only environments where men outperform women on average but also environments with no gender difference or with a female advantage. Perhaps surprisingly, we observe no gender discrimination overall: conditional on their likelihood of being qualified, male and female candidates receive indistinguishable evaluations. But, we observe important differences across candidate pools. Candidates belonging to an advantaged group—the gender with the performance advantage in the pool—receive significantly better evaluations than equally qualified candidates in pools with no gender gap in performance. Similarly, candidates belonging to a disadvantaged group—the gender with a performance disadvantage in the pool—receive significantly worse evaluations relative to equally qualified candidates in pools with no gender gap in performance. This “relative advantage” bias appears in initial assessments, influences how evaluators update their beliefs about a candidate after acquiring more information, and persists in final evaluations. This bias has a significantly larger impact on evaluations when evaluators endogenously acquire information compared to treatments where we exogenously provide it, in part because we observe significant under-acquisition of information. We show that this bias leads to two important types of mistakes: evaluators miss out on talented candidates from disadvantaged groups and over-select less talented candidates from advantaged groups. |
| Keywords: | discrimination, information acquisition, beliefs, belief updating, stereotypes |
| JEL: | J16 J71 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11024&r=exp |
| By: | Anne Corcos (CURAPP-ESS UMR 7319, CNRS and Université de Picardie Jules Verne); François Pannequin (CEPS, ENS Paris-Saclay and University of Paris-Saclay); Claude Montmarquette (Cirano and Université de Montréal) |
| Abstract: | Although it avoids the negative externalities associated with the damages caused by uninsured individuals, compulsory insurance raises the issue of insurance crowding out prevention. Interestingly, Pannequin and Corcos ((2020)) show that on a theoretical level, although compulsory insurance and self-insurance (prevention investments dedicated to loss reduction) are substitutes for risk averters, they are complementary for risk lovers. The present contribution aims to test, in the Lab, these surprising results using a model-based experimental design. Our experimental results support the theoretical predictions: compulsory insurance and self-insurance are complementary for risk lovers and substitutes for risk averters. This contribution fully supports public policies that aim to implement mandatory insurance. Far from deterring prevention activities and providing that its level is high enough, mandatory insurance increases prevention levels. |
| Keywords: | compulsory insurance, self-insurance, experiment, risk-attitudes, substitutability, complementarity |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:eve:wpaper:23-01&r=exp |
| By: | Gächter, Simon (University of Nottingham); Kaiser, Esther (Zurich University of Applied Sciences (ZHAW)); Königstein, Manfred (University of Erfurt) |
| Abstract: | Explicit and implicit incentives and opportunities for mutually beneficial voluntary cooperation co-exist in many contractual relationships. In a series of eight laboratory gift-exchange experiments, we show that incentive contracts can lead to crowding out of voluntary cooperation even after incentives have been abolished. This crowding out occurs also in repeated relationships, which otherwise strongly increase effort compared to one-shot interactions. Using a unified econometric framework, we unpack these results as a function of positive and negative reciprocity, as well as the principals' wage offer and the incentive-compatibility of the contract. Crowding out is mostly due to reduced wages and not a change in reciprocal wage-effort relationships. Our systematic analysis also replicates established results on gift exchange, incentives, and crowding out of voluntary cooperation while exposed to incentives. Overall, our findings show that the behavioral consequences of explicit incentives strongly depend on the features of the situation in which they are embedded. |
| Keywords: | principal-agent games, gift-exchange experiments, incomplete contracts, explicit incentives, implicit incentives, repeated games, crowding out |
| JEL: | C70 C90 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16872&r=exp |
| By: | Henning Finseraas; Ole Henning Nyhus; Kari Vea Salvanes; Astrid Marie Jorde Sandsør |
| Abstract: | Recent research suggests that using additional teachers to provide small-group instruction or tutoring substantially improves student learning. However, treatment effects on test scores can fade over time, and less is known about the lasting effects of such interventions. We leverage data from a Norwegian large-scale field experiment to examine the effects of small-group instruction in mathematics for students aged 7-9. This intervention shares many features with other high-impact tutoring programs, with some notable exceptions: instruction time was kept fixed, it had a lower dosage, and it targeted students of all ability levels. The latter allows us to assess fadeout across the ability distribution. Previous research on this intervention finds positive short-run effects. This paper shows that about 60% of the effect persists 3.5 years later. The effect size and degree of fadeout are surprisingly similar across the ability distribution. The study demonstrates that small-group instruction in mathematics successfully targets student performance and that effects can be sustained over time. |
| Keywords: | small-group instruction, tutoring, sustained effects, RCT, teacher density |
| JEL: | C93 H52 I21 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11021&r=exp |
| By: | Felix Chopra (Department of Economics, University of Copenhagen); Ingar Haaland (NHH Norwegian School of Economics); Christopher Roth (University of Cologne) |
| Abstract: | We examine the relative importance of accuracy concerns and belief confirmation motives in driving the demand for news. In experiments with US voters, we first vary beliefs about whether an outlet reports thenews in a right-wing biased, left-wing biased, or unbiased way. We then measure demand for a newsletter covering articles from this outlet. Right-wing voters strongly reduce their demand for left-wing biased news, but not for right-wing biased news. The reverse patterns hold for left-wing voters. These results suggest a trade-off between accuracy concerns and belief confirmation motives. We quantify this trade-off using a structural model and find a similar quantitative importance of both motives. |
| Keywords: | News Demand, Media Bias, Accuracy Concerns, Belief Confirmation |
| JEL: | D83 D91 L82 P00 |
| Date: | 2024–04–17 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kucebi:2407&r=exp |
| By: | Gsottbauer, Elisabeth; Kirchler, Michael; König-Kersting, Christian |
| Abstract: | To address the climate crisis, it is necessary to transform the economy, with the finance industry taking a central role by implementing sustainable investment policies. This study aims to understand the motivations and preferences of its key players—financial professionals and climate experts. Here we use an incentivized experiment to measure the willingness to forgo payout to curb carbon emissions and a survey to elicit attitudes and beliefs toward the climate crisis. We provide suggestive evidence that financial professionals have a lower willingness to curb carbon emissions, are less concerned about climate change, and are less supportive of carbon taxes compared to climate experts. We report differences in motivations and priorities, with financial professionals emphasizing economic and reputational considerations and climate experts prioritizing ecological and social consequences of the crisis. Our findings highlight the importance of financial incentives and reputational concerns in motivating financial professionals to address the climate crisis. |
| JEL: | N0 |
| Date: | 2024–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:122590&r=exp |
| By: | Shohei Yamamoto; Shuma Iwatani; Koki Shimazu |
| Abstract: | This research examined the impacts of peer skill levels and perseverance through two experiments resembling online learning platforms. Study 1 recruited current English learners, while Study 2 involved participants who had not engaged in studying for more than six months. The results in both experiments revealed negative rather than positive peer effects. The participants ceased studying earlier and displayed reduced performance when learning with peers possessing lower perseverance, compared to when studying alone. This pattern was observed for similarly-skilled peers in Study 1 and higher-skilled peers in Study 2. Further analysis indicated that the negative peer effects predominantly originated from participants with lower levels of motivation. Additionally, it was shown that social proximity could foster positive effects when peers possess similar skills and higher perseverance levels. Our findings suggest that the strategic pairing of learners with appropriate partners is crucial for diminishing negative peer effects and enhancing positive peer influences. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1242&r=exp |
| By: | Patrick M. Kline; Evan K. Rose; Christopher R. Walters |
| Abstract: | We develop an empirical Bayes ranking procedure that assigns ordinal grades to noisy measurements, balancing the information content of the assigned grades against the expected frequency of ranking errors. Applying the method to a massive correspondence experiment, we grade the race and gender contact gaps of 97 U.S. employers, the identities of which we disclose for the first time. The grades are presented alongside measures of uncertainty about each firm’s contact gap in an accessible report card that is easily adaptable to other settings where ranks and levels are of simultaneous interest. |
| JEL: | C11 C13 J71 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32313&r=exp |
| By: | KATO, Hiroki; KIM, Youngrok |
| Abstract: | Donors entrust their resources to charitable organizations, which use these to carry out activities that contribute to society. Thus, the donation market carries the potential for moral hazard on the part of charitable organizations. However, empirical insights into the negative consequences of this problem are scarce. This study creates a unique game by incorporating elements of principal-agent relationships into the dictator game, in order to quantitatively examine the consequences of moral hazard in the donation market through laboratory experiments. The results reveal that moral-hazard environments hinder the average donation amount from donors and, furthermore, decrease recipients’ average payoffs. To address this negative outcome, non-binding promises are introduced to inform donors beforehand of the actions to be taken by charitable organizations. Although these promises succeed in offsetting the decrease in donation amounts, they do not sufficiently improve recipient welfare. |
| Keywords: | Charity market, Dictator game, Fraud, Hidden action, Promise |
| JEL: | C71 C92 D64 D82 |
| Date: | 2024–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hiasdp:hias-e-139&r=exp |
| By: | Maria A. Cattaneo; Christian Gschwendt; Stefan C. Wolter |
| Abstract: | Advances in technology have always reshaped labor markets, increasing demand for highly skilled workers and automating human labor in many areas, leading to job creation but also losses. However, emerging AI innovations like ChatGPT may reduce labor demand in occupations previously considered "safe" from automation. While initial studies suggest that individuals adjust their educational and career choices to mitigate automation risk, the subjective monetary value of reduced automation risk is unknown. This study quantifies this value by assessing individuals' preferences for occupations for a hypothetical child in a discrete-choice experiment with almost 6'000 participants. The results show that survey respondents' willingness to accept lower wages for an occupation with a lower exposure to automation of 10 percentage points is substantial and amounts to almost 20 percent of an annual gross wage. Although the preferences are quite homogeneous, there are still some significant differences in willingness to pay between groups, with men, younger people, those with higher levels of education, and those with a higher risk tolerance showing a lower willingness to pay. |
| Keywords: | Artificial intelligence, automation, willingness to pay, survey experiment |
| JEL: | J24 O33 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:iso:educat:0213&r=exp |
| By: | Guillouët, Louise; Khandelwal, Amit K.; Macchiavello, Rocco; Malhotra, Madhav; Teachout, Matthieu |
| Abstract: | We study communication frictions within multinationals (MNCs), hypothesizing that language barriers reduce management knowledge transfers within the organization. A distinct feature of such MNCs is a three-tier hierarchy: foreign managers (FMs) supervise domestic managers (DMs) who supervise production workers. Tailored surveys from our setting – MNCs in Myanmar – reveal that language barriers impede interactions between FMs and DMs. A first experimental protocol offers DMs free English courses and confirms that lowering communications costs increases their interactions with FMs. A second experimental protocol that asks human-resource managers at domestic firms to rate hypothetical resumes reveals that multinational experience and, specifically, DM-FM interactions are valued in the domestic labor market. Together, these results suggest that reducing language barriers can improve transfers of management knowledge, an interpretation supported by improvements in soft skills among treatment DMs in the first experiment. A model in which communication within MNCs is non-contractible – a realistic feature of workplace life – reveals that the experimental results are consistent with underinvestment in language training and provide a rationale for policy intervention. |
| Keywords: | FDI; multinationals; knowledge transfers; language barriers; management |
| JEL: | F00 F23 L20 |
| Date: | 2024–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:122568&r=exp |
| By: | Abarca, Alejandro; Juan, Felipe; Lyu, Ke; Prettyman, Alexa; Tanrisever, Idil |
| Abstract: | Wu et al. (2023) estimate the effect of classroom seating arrangements in China using a randomized control trial with two treatment schemes. The first treatment scheme involves seating high and low achieving students together, and the second treatment involves this same seating arrangement with financial incentives for the high-achieving students, if their deskmates' test scores improved. All statistically significant impacts come from the incentivized treatment scheme. Wu et al. (2023) find that low-achieving students sitting next to incentivized high-achieving students perform 0.24 SD (p-value=0.018) better on math exams. In addition, being assigned to the incentive treatment scheme increased extraversion and agreeableness for low and high achieving students. Lastly, they do not find much evidence of peer effects on test scores nor personality traits. This study is computationally reproducible using their provided replication package. We ran their code using Stata 14, 17, and 18. After running their replication package, we further investigated Tables 2-5. The main conclusions are generally robust to various coding decisions. Notably, in investigating the peer effects, when we change the specification to also control for the difference in baseline scores between the student and their deskmate, we find that the more dissimilar deskmates are at baseline, the bigger the peer effects. |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:i4rdps:111&r=exp |
| By: | Brooke, Sian; Rao, Aliya |
| Abstract: | Online labour markets (OLMs) are a vital source of income for globally diverse and dispersed freelancers. Despite their promise of neutrality, OLMs are known to perpetuate hiring discrimination, vested in how OLMs are designed and what kinds of interactions they enable between freelancers and hirers. In this study, we go beyond understanding mechanisms of hiring discrimination in OLMs, to identifying platform design features that can minimise hiring discrimination. To do so, we draw on a methodology guided by the design justice ethos. Drawing on a survey on UK-based freelancers and interviews with a purposefully drawn sub-sample, we collaboratively identify five platform design interventions to minimise hiring discrimination in OLMs: community composition, identity-signalling flairs, text only reviews, union membership, and an antidiscrimination prompt. The core of our study is an innovative experiment conducted on a purpose-built, mock OLM, Mock-Freelancer.com. On this mock OLM, we experimentally test mechanisms of discrimination, including how these mechanisms fare under the five altered platform design interventions through a discrete-choice experiment. We find that both community and flairs were important in encouraging the hiring of women and non-White freelancers. We also establish that anonymity universally disadvantages freelancers. We conclude with recommendations to design OLMs that minimise labour market discrimination. |
| Keywords: | future of work; gender; design justice; ethnicity; platforms; affordances; STICERD; SRG21\210549; REF fund |
| JEL: | R14 J01 |
| Date: | 2024–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:122152&r=exp |
| By: | Valerio Capraro |
| Abstract: | Over the last two decades, a growing body of experimental research has provided evidence that linguistic frames influence human behaviour in economic games, beyond the economic consequences of the available actions. This article proposes a novel framework that transcends the traditional confines of outcome-based preference models. According to the LENS model, the Linguistic description of the decision problem triggers Emotional responses and suggests potential Norms of behaviour, which then interact to shape an individual's Strategic choice. The article reviews experimental evidence that supports each path of the LENS model. Furthermore, it identifies and discusses several critical research questions that arise from this model, pointing towards avenues for future inquiry. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.15293&r=exp |
| By: | Vazirani, Ashish; Bhattacharjee, Titas |
| Abstract: | New venture investment decisions reflect misvaluations as many deserving proposals are rejected, while most invested proposals fail to provide the required financial returns. This suggests that investors overvalue and undervalue investment proposals. We have used the arguments of dual process theory and salience theory to explain the cause of misvaluations. An experimental setup is used where the treated group is given time constraints to make the investment. Results show that investors under time constraints overvalue investment proposals, while reference-based comparison of salient information signals results in undervaluation. Results further show a significant impact of time constraints on the reference for comparison of proposals. Investors under time constraints consider only the last proposal as a reference to compare salient information signals, in contrast, they consider information from multiple previous proposals in the absence of time constraints. This study provides the specific source of misvaluations as per the context of overvaluation and undervaluation of new venture investment proposals. |
| Date: | 2024–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:az4yr&r=exp |
| By: | Thomas Graeber (Harvard Business); Christopher Roth (University of Cologne, IZA, ECONtribute, CEPR, NHH, and Max-Planck Institute for Research on Collective Goods); Constantin Schesch (Harvard Business School) |
| Abstract: | When people exchange ideas, both truths and falsehoods can proliferate. We study the role of explanations for the spread of truths and falsehoods in 15 financial decision tasks. We pay participants to record the reasoning behind each of their answers, providing over 6, 900 unique verbal explanations in total. A separate group of participants either only observe one orator’s choice or additionally listen to their explanation before making their own choice. Listening to explanations strongly improves aggregate accuracy. This effect is asymmetric: explanations enable the spread of truths, but do not curb the contagion of falsehoods. To study mechanisms, we extract every single argument provided in the explanations alongside a large collection of speech features, revealing the nature of financial reasoning on each topic. Explanations for truths exhibit a significantly richer message space and higher argument quality than explanations for falsehoods. These content differences in the supply of explanations for truths versus falsehoods account for 60% of their asymmetric benefit, whereas orator and receiver characteristics play a minor role. |
| Keywords: | : Explanations, Social Learning, Speech Data, Financial Knowledge, Financial Reasoning |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:291&r=exp |
| By: | Auzepy, Alix; Bannier, Christina E.; Gärtner, Florian |
| Abstract: | We assess how sustainable finance literacy affects people's sustainable investment behavior, using a pre-registered experiment. We find that an increase in sustainable finance literacy leads to a 4 to 5% increase in the probability of investing sustainably. This effect is moderated by sustainability preferences. In the absence of moderate sustainability preferences, any additional increase in sustainable finance literacy is at minimum irrelevant, and we find some evidence that it might even reduce sustainable investments. Our findings underscore the role of knowledge in shaping sustainable investment decisions, highlighting the importance of factors beyond sustainability preferences. |
| Keywords: | Sustainable finance literacy, sustainable investments, behavioral finance, SFDR, MIFID |
| JEL: | G11 G18 G53 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:289626&r=exp |
| By: | Domonkos F. Vamossy |
| Abstract: | I explore the relationship between investor emotions expressed on social media and asset prices. The field has seen a proliferation of models aimed at extracting firm-level sentiment from social media data, though the behavior of these models often remains uncertain. Against this backdrop, my study employs EmTract, an open-source emotion model, to test whether the emotional responses identified on social media platforms align with expectations derived from controlled laboratory settings. This step is crucial in validating the reliability of digital platforms in reflecting genuine investor sentiment. My findings reveal that firm-specific investor emotions behave similarly to lab experiments and can forecast daily asset price movements. These impacts are larger when liquidity is lower or short interest is higher. My findings on the persistent influence of sadness on subsequent returns, along with the insignificance of the one-dimensional valence metric, underscores the importance of dissecting emotional states. This approach allows for a deeper and more accurate understanding of the intricate ways in which investor sentiments drive market movements. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.03792&r=exp |
| By: | Raymond Kluender; Neale Mahoney; Francis Wong; Wesley Yin |
| Abstract: | Two in five Americans have medical debt, nearly half of whom owe at least $2, 500. Concerned by this burden, governments and private donors have undertaken large, high-profile efforts to relieve medical debt. We partnered with RIP Medical Debt to conduct two randomized experiments that relieved medical debt with a face value of $169 million for 83, 401 people between 2018 and 2020. We track outcomes using credit reports, collections account data, and a multimodal survey. There are three sets of results. First, we find no impact of debt relief on credit access, utilization, and financial distress on average. Second, we estimate that debt relief causes a moderate but statistically significant reduction in payment of existing medical bills. Third, we find no effect of medical debt relief on mental health on average, with detrimental effects for some groups in pre-registered heterogeneity analysis. |
| JEL: | G51 I1 I18 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32315&r=exp |
| By: | Karun Adusumilli (University of Pennsylvania); Francesco Agostinelli (University of Pennsylvania); Emilio Borghesan (Princeton University) |
| Abstract: | This paper examines the scalability of the results from the Tennessee Student- Teacher Achievement Ratio (STAR) Project, a prominent educational experiment. We explore how the misalignment between the experimental design and the econometric model affects researchers’ ability to learn about the intervention’s scalability. We document heterogeneity in compliance with class-size reduction that is more extensive than previously acknowledged and discuss its consequences for the evaluation of the experiment. Guided by this finding, we implement a new econometric framework incorporating heterogeneous treatment effects and endogenous class size determination. We find that the effect of class size on test scores differs considerably across schools, with only a small fraction of schools having significant benefits from reduced class sizes. We discuss the challenges this poses for the intervention’s scalability and conclude by analyzing targeted class-size interventions. |
| Keywords: | scalability, treatment effects, heterogeneity |
| JEL: | C51 H52 I20 J13 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2024-007&r=exp |
| By: | Alberto Prati (University of Oxford, UCL - University College of London [London], LSE - London School of Economics and Political Science); Charlotte Saucet (UP1 UFR02 - Université Paris 1 Panthéon-Sorbonne - École d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | The paper estimates the causal effect of a health treatment on patients' beliefs, preferences and memories about the treatment. It exploits a natural experiment which occurred in the United Kingdom during the COVID-19 vaccination campaign. UK residents could choose to opt into the vaccination program, but not which vaccine they received. The assignment to a vaccine offered little objective information for learning about its qualities, but triggered strong psychological demand for reassuring beliefs. We surveyed a sample of UK residents about their beliefs on the different COVID-19 vaccines before and after receiving their jab. Before vaccination, individuals exhibit similar prior beliefs and stated preferences about the different vaccines. After vaccination, however, they update their beliefs overly optimistically about the safety and effectiveness of the vaccine they received, state that they would have chosen it if they could, and have distorted memories about their past beliefs. These results cannot be explained by conventional experience effects. At the aggregated level, they show that random assignment to a health treatment predicts a polarization of opinions about its quality. At the individual level, these findings provide evidence in line with the predictions of motivated beliefs and over-inference from weak signals in a real-world health setting. |
| Keywords: | COVID-19, Motivated beliefs, Motivated memory, Over-inference, Natural experiment, Behavioral health economics |
| Date: | 2024–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04512861&r=exp |
| By: | José Mª Durán-Cabré (Universitat de Barcelona & IEB); Alejandro Esteller-Moré (Universitat de Barcelona & IEB); Daniel Montolio (Universitat de Barcelona & IEB); Javier Vázquez-Grenno (Universitat de Barcelona & IEB) |
| Abstract: | In a two-country model, the citizens of a ‘big home country’ can either fictitiously move residence to a ‘small foreign country’ where residence-based taxes are lower (external tax avoidance), or under-report the tax base at home (internal tax avoidance). Tax setting is the result of Cournot-Nash competition between revenue maximizing governments, with the home government also setting two types of administration policies, one for each form of tax avoidance. We show that although it is optimal to employ both types of administration policies, which in themselves are both effective at tackling the targeted form of tax avoidance, the optimum is characterized by a tradeoff in terms of policy outcomes: either internal avoidance increases and external avoidance decreases, or the opposite, depending on the characteristics of the fiscal environment. |
| Keywords: | Tax perceptions/preferences, experimental design, student/teacher gender bias |
| JEL: | A23 H20 I2 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:doc2024-02&r=exp |
| By: | Halkos, George; Gkargkavouzi, Anastasia |
| Abstract: | Behavioral environmental economics (BEE) is an emerging field that combines principles from behavioral and environmental economics along with psychological theory to study how human behavior influences environmental issues. It recognizes that human behavior often deviates from the rational actor model assumed in traditional environmental economics and seeks to understand the psychological, social, and emotional factors that influence people's decisions related to the environment. By gaining insights intothe human decision-making mechanism, BEE can better explain economically relevant environmental behavior and increase the predictive power of existing models. The fieldguidesthe design of effective and tailored-specific policy interventions that work with human behavioral tendencies, such as using defaults, framing, and social reinforcement to "nudge" people toward environmentally friendly choices. While behavioral insights can complement traditional policy tools, broader reforms are also needed to achieve sustainability. New trends derived from interdisciplinary research combining Environmental Psychology and Behavioral Economics are discussed. Overall, BEE offers a more realistic understanding of human decision-making and can help maximize the environmental benefits achieved through limited resources. |
| Keywords: | Behavioral environmental economics; Human decision-making; Environmentalism; Environmental policy; Sustainability. |
| JEL: | I30 Q00 Q51 Q59 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120752&r=exp |