Showing papers in "Journal of Economic Behavior and Organization in 2018"

The psychology of intergroup conflict: A review of theories and measures

Abstract: We review psychological research on intergroup conflict. First, we outline psychological perspectives on forms and functions of groups. Second, we present the most influential psychological theories of intergroup conflict and describe their similarities and differences in predicting individual prejudice, discrimination, and conflict engagement. Third, we review popular measures of intergroup discrimination, including rating measures, behavioral measures, and allocation tasks. Furthermore, we call for a refined semantic framework to structure and differentiate between different measures of intergroup bias. Fourth, we highlight several interventions that can de-bias intergroup relations and facilitate conflict resolution. Lastly, we propose that research on the psychology of intergroup conflict may benefit from a stronger interdisciplinary orientation regarding both theoretical perspectives and methods used and point out promising avenues for future research.

Crime and the legalization of recreational marijuana

Abstract: First-pass evidence is provided that the legalization of the cannabis market across US states is inducing a crime drop. We exploit the staggered legalization of recreational marijuana enacted by the adjacent states of Washington (end of 2012) and Oregon (end of 2014). Combining county-level difference-in-differences and spatial regression discontinuity designs, we find that the policy caused a significant reduction in rapes and property crimes on the Washington side of the border in 2013–2014 relative to the Oregon side and relative to the pre-legalization years 2010–2012. The legalization also increased consumption of marijuana and reduced consumption of other drugs and both ordinary and binge alcohol. Four possible mechanisms are discussed: the direct psychotropic effects of cannabis; substitution away from violence-inducing substances; reallocation of police effort; reduced role of criminals in the marijuana business.

Broadband infrastructure, ICT use and firm performance: Evidence for UK firms

Abstract: The recent economics literature has begun to recognise that ICT is a heterogeneous technology altering information storage, processing and communication in distinct ways. In this paper we use the arrival of a new communication technology, ADSL broadband, to study the effects of heterogeneous types of ICT on firm performance. To do so free from endogeneity bias, we construct instruments using postcode-level geographic variation in the infrastructure underlying broadband internet – the pre-existing telephone network. We show that after placing various restrictions on the sample, instruments based on the timing of ADSL broadband enablement and the cable distance to the local telephone exchange satisfy the conditions for instrument relevancy and validity. We find in turn, that ICT causally affects firm size (captured by either sales or employment) but not productivity.

Targeting with machine learning: An application to a tax rebate program in Italy

Abstract: This paper shows how machine learning (ML) methods can be used to improve the effectiveness of public schemes and inform policy decisions. Focusing on a massive tax rebate scheme introduced in Italy in 2014, it shows that the effectiveness of the program would have significantly increased if the beneficiaries had been selected according to a transparent and easily interpretable ML algorithm. Then, some issues in estimating and using ML for the actual implementation of public policies, such as transparency and accountability, are critically discussed.

Increasing perseverance in math: Evidence from a field experiment in Norway

Abstract: Research by psychologists and economists demonstrates that many non-cognitive skills are malleable in both children and adolescents, but we have limited knowledge on what schools can do to foster these skills. In a field experiment requiring real effort, we investigate how schools can increase students’ perseverance in math by shaping students’ beliefs in their abilities to learn, a concept referred to by psychologists as “mindset.” Using protocols adapted from psychology, we experimentally manipulate students’ beliefs in their ability to learn. Three weeks after our treatment, we find persistent treatment effects on students’ perseverance and academic performance in math. When investigating subsamples, we find that students, who prior to the experiment had less of a belief in their ability to learn, generate the treatment effect. The findings suggest that a low-cost intervention focused on students’ mindset can improve students’ engagement and performance.

Entrepreneurship and income inequality

Abstract: Entrepreneurship research highlights entrepreneurship as a simultaneous source of enhanced income mobility for some but a potential source of poverty for others. Research on inequality has furthered new types of models to decompose and problematize various sources of income inequality, but attention to entrepreneurship as an increasingly prevalent occupational choice in these models remains scant. This paper seeks to bridge these two literatures using regression-based income decomposition among entrepreneurs and paid workers distinguishing between self-employed (SE) and incorporated self-employed (ISE) individuals in Sweden. We find that the proportion of self-employed in the workforce increases income dispersion by way of widening the bottom end of the distribution, whereas the proportion of incorporated self-employed contributes to income dispersion at the top end of the distribution. Implications for research are discussed.

Leaders as role models and ‘belief managers’ in social dilemmas

Abstract: We investigate the link between leadership, beliefs and pro-social behavior in social dilemmas. This link is interesting because field evidence suggests that people's behavior in domains like charitable giving, tax evasion, corporate culture and corruption is influenced by leaders (CEOs, politicians) and beliefs about others’ behavior. Our framework is a repeated experimental public goods game with and without a leader who makes a contribution to the public good before others (the followers). We find that leaders strongly shape their followers’ initial beliefs and contributions. In later rounds, followers put more weight on other followers’ past behavior than on the leader's current action. This creates a path dependency the leader can hardly correct. We discuss the implications for understanding belief effects in naturally occurring situations.

Culture and financial literacy: Evidence from a within-country language border

Abstract: We study the effect of culture on financial literacy by comparing secondary-school students along the German–French language border within Switzerland. We find that students in the French-speaking region have a lower level of financial literacy than students in the German-speaking region. The difference in financial literacy across the language groups is stronger for native students and monolingual students than for immigrant students and bilingual students. This supports the hypothesis that embedded cultural differences rather than unobserved heterogeneity in schooling are driving the effect. A mediation analysis suggests that the cultural divide in financial literacy is related to systematic differences in financial socialisation across the language groups. Students in the German speaking region are more likely to receive pocket money at an early age, and are more likely to have independent access to a bank account than students in the French speaking region.

Experimental methods: Measuring effort in economics experiments

Abstract: The study of effort provision in a controlled setting is a key research area in experimental economics. There are two major methodological paradigms in this literature: stated effort and real effort. In the stated-effort paradigm the researcher uses an “effort function” that maps choices to outcomes. In the real-effort paradigm, participants work on a task, and outcomes depend on their performance. The advantage of the stated-effort design is the control the researcher has over the cost of effort, which is particularly useful when testing theory. The advantage of the real-effort design is that it may be a better match to the field environment, particularly with respect to psychological aspects that affect behavior. An open question in the literature is the degree to which the results obtained by the two paradigms differ, and if they do, why. We present a review of methods used and discuss the results obtained from using these different approaches, and issues to consider when choosing and implementing a task.

Google Trends and reality: Do the proportions match?: Appraising the informational value of online search behavior: Evidence from Swiss tourism regions

Abstract: This study examines the extent to which real-world economic activity is reflected in aggregate online search behavior on Google Search. As opposed to previous studies, being subject to potential mismeasurement problems when examining search queries along their longitudinal dimension, we apply an alternative investigative approach that exploits the cross-sectional instead of the longitudinal informational content embodied in Googles data. Moreover, while previous studies most often examine a single Google Trends series, our analyses are based on over 60 distinct series, which allow us to assess how informative the data are, not only within each series, but also between series. Finally, our Google Trends indices are based on the recently launched Google Knowledge Graph technology, allowing for a remarkably accurate measurement of relevant search query volumes. We assess the informational value of the data as strong, semi-strong, or weak based on unbiasedness and efficiency considerations in a Mincer–Zarnowitz-type regression model. Here, the context of (Swiss) tourism demand proves particularly useful, and we find that search-based tourism demand predictions are, on average, highly accurate approximations of reality. This indicates that search-based indicators may serve as valuable real-time complements for the guidance of economic policy.

Religion, moral attitudes and economic behavior

Abstract: Using data for a representative sample of the Dutch population with information about participants’ religious background, we study the association between religion and moral behavior and attitudes. We find that religious people are less accepting of unethical economic behavior (e.g., tax evasion, bribery) and report more volunteering. They are equally likely as non-religious people to betray trust in an experimental game, where social behavior is unobservable and not directed to a self-selected group of recipients. Religious people also report lower preference for redistribution. Considering differences between denominations, Catholics betray less than non-religious people, while Protestants betray more than Catholics and are indistinguishable from the non-religious. We also explore the intergenerational transmission and the potential causality of these associations.

Gender, Age, and Competition: a Disappearing Gap?

Abstract: Research on competitiveness at the individual level has emphasized sex as a physiological determinant, focusing on the gap in preference for competitive environments between men and women. This study presents evidence that women's preferences over competition change with age such that the gender gap, while large for young adults, disappears in older populations due to the fact that older women are much more competitive. Our finding that tastes for competition appear just as strong among older women as they are among men suggests a simple gender-based view of competitiveness is misleading; age seems just as important as sex.

Psychological characteristics and household savings behavior: The importance of accounting for latent heterogeneity

Abstract: We employ a finite mixture model with maximum likelihood (ML) estimation to analyze latent heterogeneity in the relationship between psychological characteristics and household savings behavior. In a one-step ML estimation approach, we estimate a class membership model and a behavioral model of the classes jointly. Adopting this approach enables us to simultaneously assess how socio-demographic characteristics affect class membership probabilities and estimate class-specific regression coefficients, to test whether psychological characteristics predict savings behavior differently across latent classes. We apply this approach to a representative sample of UK households (n = 3382) and identify two different latent classes: striving versus established households. We find that the relationship between psychological characteristics and savings behavior differs across these two classes, demonstrating the importance of accounting for latent heterogeneity when studying the drivers of savings behavior. Our results have implications for policymakers attempting to improve household savings behavior.

An empirical analysis of taxi, Lyft and Uber rides: Evidence from weather shocks in NYC

Abstract: Using all taxi, Lyft and Uber rides in New York City, we show that the number of Uber and Lyft rides is significantly correlated with whether it rained. The number of Uber (Lyft) rides per hour is about 22 (19)% higher when it is raining, while the number of taxi rides per hour increases by only 5% in rainy hours-suggesting that surge pricing (prime time) encourages an increase in supply. We show that while the number of taxi rides, passengers and fare income all significantly decreased after Uber entered the market in May 2011, taxis do not respond differently to increased demand in rainy hours than non-rainy hours since the entrance of Uber. Last, we test whether Lyft’s entry in the market affected Uber. Our estimates suggest that Uber was still growing after Lyft entered the market, but that Uber rides during rainy hours decreased by about 9%. Our findings suggest that dynamic pricing make Lyft and Uber drivers compete for rides when demand suddenly increases, i.e., during rainy hours.

Improving out-of-sample predictions using response times and a model of the decision process

Abstract: A basic problem in empirical economics involves using data from one domain to make out-of-sample predictions for a different, but related environment. When the choice data are binary, a canonical method for making these types of predictions is the logistic choice model. This paper investigates whether it is possible to improve out-of-sample predictions by changing two aspects of the canonical approach: 1) Using response times in addition to the choice data, and 2) Combining them using a model from the psychology and neuroscience literature, the Drift-Diffusion Model (DDM). Two experiments compare the out-of-sample choice prediction accuracies of both methods and in both cases the DDM method outperforms a logistic prediction method. Furthermore, the DDM allows for out-of-sample process predictions. Both experiments validate the DDM as a method for predicting out-of-sample response times.

Testing the effect of serve order in tennis tiebreak

Abstract: The order of actions in contests may generate different psychological effects which, in turn, may influence contestants’ probabilities to win. The Prouhet-Thue-Morse sequence in which the first ‘n’ moves is the exact mirror image of the next ‘n’ moves should theoretically terminate any advantage to any of the contestants in a sequential pair-wise contest. The tennis tiebreak sequence of serves is the closest to the Prouhet-Thue-Morse sequence that one can find in real tournament settings. In a tiebreak between two players, A and B, the order of the first two serves (AB) is a mirror image of the next two serves (BA), such that the sequence of the first four serves is ABBA. Then, this sequence is repeated until one player wins the tiebreak. This sequence has been used not only in tennis, but also recently in the US TV presidential debates. In this study we analyse 1701 men’s and 920 women’s tiebreak games from top-tier tournaments between the years 2012 to 2015. Using several different strategies to disentangle the effect of serving first from the effect of selection, we find that, for both genders, serving first does not have any significant effect on the winning probabilities of the two players. Thus, it might be useful for other sports, and contests in general, to consider adopting the ABBA sequence.

Does managerial personality matter? Evidence from firms in Vietnam

Abstract: Using novel data from micro, small and medium firms in Vietnam, we estimate the relationship between behavioural and personality traits of owners/managers – risk attitudes, locus of control, and innovativeness – and firm-level decisions. We extend the analysis beyond standard metrics of firm performance such as revenue and growth to study intermediate investments, including product innovation, worker training, and adoption of workplace safety measures that are potentially conducive to observed firm performance. Our results show that innovativeness and locus of control are positively correlated with revenue while risk aversion predicts lower revenue. Risk aversion is positively correlated with the adoption of safety measures. Innovativeness, as expected, is associated with an increased probability of product innovations. An internal locus of control predicts higher probability of investments, innovations and worker training. Heterogeneity analyses indicate that innovativeness and risk aversion matter more for firm outcomes in provinces characterized by better business climate. Our results are robust to a variety of checks. We contribute to a nascent and rapidly growing literature on the importance of managerial capital by shedding light on the role of managerial personality characteristics for decision-making in firms in a dynamic transition economy.

Inequality, household debt and financial instability: An agent-based perspective

Abstract: Our paper contributes to the literature on the causes of the 2007–2008 financial crisis in the United States. By means of an agent-based model, we replicate an artificial credit-network economy in order to assess the impact of growing income inequality in the presence of peer effects and home equity borrowing. We show that the resulting debt-financed consumption boom jeopardises the stability of the economic system, thus paving the way for a financial crisis. Our model includes a behavioural rule for consumption based on expenditure cascades, a hierarchical structure of household finance, an articulated credit market with collateralised consumption loans and mortgages and a simple housing market. Results show that the model is able to capture the economic and social pressure of inequality on low and middle income households that pushes them to increase their consumption via home equity extraction. Rising non-performing loans lead to higher bad debt on the banks’ balance sheets and, consequently, to the emergence of a crisis as an endogenous dynamic.

Cohesion policy and inequality dynamics: Insights from a heterogeneous agents macroeconomic model

Abstract: Regions within the European Union differ substantially not only with respect to per capita GDP, but also with respect to income inequality within the regions. This paper studies the effects of different types of technology-oriented cohesion policies, aiming at the reduction of regional differences, on the convergence of regions and the dynamics of income inequality within regions. In particular, policies are analyzed using a two-region agent-based macroeconomic model – the Eurace@Unibi model – where firms in the lagging region receive subsidies for investment in physical capital. It is demonstrated that the short-, medium- and long-term effects of the policies on per-capita output and between- as well as within-regional inequality differ substantially. Effects depend on how successful the policy is in incentivizing firms to choose best available capital vintages and on how flexible labor markets are in the targeted region.

Social capital, religion and small business activity

Abstract: Within the theoretical framework of social capital, we explore how different religious traditions influence small business activity in U.S. counties. We motivate the analysis by emphasizing the ways in which religious organizations may facilitate social capital, a key factor in business formation and performance. We find that communities with a large concentration of religious congregations have a correspondingly higher level of small business activity. We also find important differences across religious traditions, suggesting that religion should not be treated as a monolithic dimension of social capital. In addition, by exploring different traditions, beliefs, and norms, proxied by religion, finer insights into social capital and community economic development can be gained.

Can firms see into the future? Survey evidence from Germany

Abstract: This paper presents new evidence on the expectation formation process of firms from a survey of the German manufacturing sector. First, firms become too optimistic after their business has improved, consistent with the over-extrapolation of their experience. Second, firms extrapolate improvements in their business more than deteriorations. Third, firms are more optimistic (pessimistic) than usual during business cycle peaks (troughs), suggesting that they do not anticipate reversals. Fourth, the German reunification provided a positive exogenous shock to the business of West German products. The industries most positively affected by the shock initially over-extrapolated the past downward trend just as much as the less affected industries, and thus failed to anticipate the reversal. Fifth, more overoptimistic firms subsequently report larger inventories and lower profits, suggesting that expectation errors entail (opportunity) costs. Sixth, older and larger firms show a smaller extrapolation bias, indicating that time and resources can alleviate the extrapolation bias. Seventh, firms that expect their business to improve tend to also expect their prices to increase, suggesting that firms mostly try to forecast demand shocks as opposed to supply shocks. Overall, these observations suggest that firms have a limited ability to anticipate changes in their activity and extrapolate their experience too much.

Women and corruption: What positions must they hold to make a difference?

Abstract: This paper examines in what roles women have an impact on corruption by focusing on female labor force participation and their presence in the parliament. Since much of the corruption literature is plagued either by the lack of instruments or weak instruments, this paper makes a methodological contribution by drawing inferences based on Moreira’s (2003) conditional likelihood ratio approach. We provide robust evidence that women’s presence in parliament has a causal and negative impact on corruption while other measures of female participation in economic activities are shown to have no effect. Further, this negative relationship between women’s presence in government and corruption is also found to hold in a regional analysis of 17 European countries alleviating concerns that the relationship is driven by unobservable country-fixed characteristics. Finally, we show that this relationship does not disappear when women gain similarity in social status.

Can behavioral tools improve online student outcomes? Experimental evidence from a massive open online course

Abstract: In order to address poor outcomes for online students, I leverage insights from behavioral economics to design three software tools including (1) a commitment device, (2) an alert tool, and (3) a distraction blocking tool. I test the impact of these tools in a massive open online course (MOOC). Relative to students in the control group, students in the commitment device treatment spend 24% more time working on the course, receive course grades that are 0.29 standard deviations higher, and are 40% more likely to complete the course. In contrast, outcomes for students in the alert and distraction blocking treatments are statistically indistinguishable from the control.

Winner-Take-All and Proportional-Prize Contests: Theory and Experimental Results

Abstract: This study provides a unified framework to compare three canonical types of contests: winner-take-all contests won by the best performer, winner-take-all lotteries where probability of success is proportional to performance, and proportional-prize contests in which rewards are shared in proportion to performance. We derive equilibria and observe outcomes from each contest in a laboratory experiment. Equilibrium and observed efforts are highest in winner-take-all contests. Lotteries and proportional-prize contests have the same Nash equilibrium, but empirically, lotteries induce higher efforts and lower, more unequal payoffs. Behavioral deviations from theoretical benchmarks in different contests are caused by the same underlying attributes, such as risk-aversion and the utility of winning. Finally, we find that subjects exhibit consistent behavior across different types of contests, with subjects exerting higher effort in one contest also exerting higher effort in another contest.

Geopolitics and Asia’s little divergence: State building in China and Japan after 1850

Abstract: We provide a new framework to account for the diverging paths of political development in China and Japan during the late nineteenth century. The arrival of Western powers not only brought opportunities to adopt new technologies, but also fundamentally threatened the sovereignty of both countries. These threats and opportunities produce an unambiguous impetus toward centralization and modernization for small states, but place conflicting demands on larger states. We use our theory to study why China, which had been centralized for much of its history, experienced gradual disintegration upon the Western arrival, and how Japan rapidly unified and modernized.

A survey of belief-based guilt aversion in trust and dictator games

Abstract: The evidence for belief-based guilt aversion is reviewed with a particular focus on trust games and dictator games. By way of comparison an alternative model to belief-based guilt aversion is proposed which is based on an internalized norm. We show that the experimental evidence to date is consistent with belief-based guilt aversion but that it is difficult to distinguish one model from another. The review compares the many different approaches that have been used to elicit beliefs. It also looks at the role of exposure and communication.

Contests as selection mechanisms: The impact of risk aversion

Abstract: We investigate how individual risk preferences affect the likelihood of selecting the more able contestant within a two-player Tullock contest. Our theoretical model yields two main predictions: First, an increase in the risk aversion of a player worsens her odds unless she already has a sufficiently large advantage. Second, if the prize money is sufficiently large, a less able but less risk averse contestant can achieve an equal or even higher probability of winning than a more able but more risk averse opponent. In a laboratory experiment we confirm both, the non-monotonic impact and the compensating effect of risk aversion on winning probabilities. Our results suggest a novel explanation for the gender gap and the optimality of limited monetary incentives in selection contests.

Market entry waves and volatility outbursts in stock markets

Abstract: We develop a simple agent-based financial market model in which speculators’ market entry decisions are subject to herding behavior and market risk In addition, speculators’ orders depend on price trends, market misalignments and fundamental news Using a mix of analytical and numerical tools, we show that a herding-induced market entry wave may amplify excess demand, triggering lasting volatility outbursts Eventually, however, higher stock market risk reduces stock market participation and volatility decreases again Simulations furthermore reveal that our approach is also able to produce bubbles and crashes, excess volatility, fat-tailed return distributions and serially uncorrelated price changes Moreover, trading volume is persistent and correlated with volatility

One size fits all? Tailoring retirement plan defaults

Abstract: Default investment options in retirement plans are a potent influence on member choice, however little is known about how plans set them. We investigate how retirement plan providers choose default investment strategies for passive members. We interview plan executives and survey members during a review of default settings in 2013-14 prompted by a change in the regulation of the Australian retirement system. Passive plan members are different from active members in ways that matter for investment strategy. Passive members are less willing to take financial risks; they are also younger, less wealthy and more often female. Executives say they design defaults with passive members in mind, but they seem to overlook some key factors. For example, plan executives set high risk exposure in default investment strategies. Executives also assume motivations for defaulting that do not match those reported by members. Most plan executives think of passive members as uninterested in their retirement savings but passive members say they trust their plans, and lack skill rather than interest. The heterogeneity, trust and low skill of passive members make opting out of the default less likely and smart defaults more appealing.

Attitude–behavior consistency in tax compliance: A cross-national comparison

Abstract: Are individuals’ attitudes about paying taxes consistent with their behavior? A direct link between attitudes (tax morale) and behavior (tax compliance) has long been assumed, despite an extensive social scientific literature attesting to the generally weak congruence between the two. This study builds on an emerging body of work questioning the link between tax morale and compliance. It innovates with a cross-national experimental research design whose results indicate that populations with high levels of tax morale exhibit higher evasion rates than those with low levels of tax morale; thus, the study finds that individual self-reported tax morale cannot predict actual evasion choices. Methodologically, the paper contributes the first results of a laboratory experiment on taxation in Denmark, comparing them to laboratory findings from Italy; while previous research indicates that these two countries lie at opposite extremes in tax compliance and morale, our findings run contrary to “culturalist” explanations. Our results show that Danes are more likely to evade tax than Italians, and that individuals’ attitudes toward tax do not significantly predict their actual evasion choices. Finally, we show that discrepancies in tax behavior between Italian and Danish subjects are affected by gender and risk aversion.