optimal exchange intervention for a small open economy abstract this paper investigates the optimal exchange intervension strategy for a small open economy in which both the domestic price level and domestic real gnp are endogenous with the authority s objective being to stabilize a function involving both these variables a special feature of the underlying macro model is that real balances are productive ultimately this will mean that aggregate supply is sensitive to nominal interest rates additionally both expectations and the intervention policy are designed to exploit the fact that financial market data such as exchange and interest rates are observable on a fairly current basis contrary to conventional wisdom optimal intervention will usually require accentuating not moderating current exchange rate movements

the temporary help industry a response to the dual internal labor market this study of the rapidly growing temporary help industry draws on commerce department data and the results of the authors national mail survey of employers the authors also conducted interviews in the san francisco area with employers of temporary help and with representatives of temporary help agencies and labor unions they provide a taxonomy of employer responses to temporary increases in work loads ranging from the more intensive use of full time employees to a variety of arrangements with part time temporary and casual employees the authors show how these employer responses vary by industry occupation size of the firm stability of product demand and the level of fringe benefits

can there be a market for cheap talk information an experimental investigation abstract this paper reports on experiments testing the viability of markets for cheap talk information we find that the level of trade in these markets is very small and eventually vanishes sellers provide low quality information even when doing so does not increase their monetary payoff this contributes to the low demand in the market for information moreover we observe the same very low level of activity in the market for information when sellers face no conflict of interest and the noise in the quality of the transmitted information is much lower hence we argue that the collapse of the market for information is a demand phenomenon and even small uncertainty over the quality of information seems to have a large impact

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

on the determinants of employer demand for part time workers this paper uses a survey of private establishments to examine the determinants of the firm s relative demand for partand full time workers the elasticity of substitution of part time for full time workers is about 1 5 considerably lower than previous estimates with aggregate data the results indicate that the quasi fixed labor costs have a negative impact on the proportion of part timers in a firm s work force

correlates of narrow bracketing we examine whether different phenomena of narrow bracketing can be traced back to some common characteristic and whether and how different phenomena are related we find that making dominated lottery choices or ignoring the endowment when making risky choices are related phenomena and are both associated with low levels of cognitive reflection in contrast the phenomena of setting narrow goals or narrow mental budgets seem not to reflect choice errors due to low cognitive reflection but are tools to overcome self control problems buying small scale insurance is associated with having narrow mental budgets suggesting that people buy such insurance to insure themselves against the consequences of their own self control strategy

the hyperbolic consumption model calibration simulation and empirical evaluation ur preferences for the long run tend to conflict with our short run behavior when planning for the long run we intend to meet our deadlines exercise regularly and eat healthfully but in the short run we have little interest in revising manuscripts jogging on the stairmaster and skipping the chocolate souffleala mode delay of gratification is a nice long term goal but instant gratification is disconcertingly tempting this gap between long run intentions and short run actions is apparent across a wide range of behaviors including saving choices a 1997 survey found that 76 percent of respondents believe they should be saving more for retirement looking only at respondents who believed they were at an age where you should be seriously saving already the survey found that 55 percent reported being behind in their savings and only 6 percent reported being ahead farkas and johnson 1997 the report on the survey concluded t he gaps between people s atti tudes intentions and behavior are troubling and threaten increased insecurity and dissatisfaction for people when they retire americans are simply not doing what logic and their own reasoning suggests they should be doing a 1993 luntz webber merrill lynch survey found similar answers when baby boomers were asked what percentage of your annual household income do you think you should save for retirement and what percentage of your annual

social motives vs social influence an experiment on interdependent time preferences we report experimental evidence on the effects of social preferences on intertemporal decisions to this aim we design an intertemporal dictator game to test whether dictators modify their discounting behavior when their own decision is imposed on their matched recipients we run four different treatments to identify the effect of payoffs externalities from those related to information and beliefs our descriptive statistics show that heterogeneous social time preferences and information about others time preferences are significant determinants of choices dictators display a marked propensity to account for the intertemporal preferences of recipients both in the presence of externalities social motives and or when they know about the decisions of their matched partners social influence we also perform a structural estimation exercise to control for heterogeneity in risk attitudes as for individual behavior our estimates confirm previous studies in that high risk aversion is associated with low discounting as for social behavior we find that social motives outweigh social influence especially when we restrict our sample to pairs of dictators and recipients who satisfy minimal consistency conditions

the canadian u s exchange rate evidence from a vector autoregression a vector autoregression is used to elicit the empirical facts co ncerning exchange rate movements the author finds 1 the exchange rate relati ve price levels and trade balances are closely related 2 most other lagged v ariables have no perceptible influence in theexchange rate equation 3 exchan ge rate innovations are negativelycorrelated with innovations in output and pri ces positively with innovations in the balance of trade and almost not at all with innovations in money and 4 impulses in money trade balances and govern ment spending are followed by opposing future movements in theexchange rate and the price level taken as a whole the evidence suggests that exchange rate cha nges may be associated with real rather than monetary shocks copyright 1986 by mit press

do professional traders exhibit myopic loss aversion an experimental analysis two behavioral concepts loss aversion and mental accounting have been combined to provide a theoretical explanation of the equity premium puzzle recent experimental evidence supports the theory as students behavior has been found to be consistent with myopic loss aversion mla yet much like certain anomalies in the realm of riskless decision making these behavioral tendencies may be attenuated among professionals using traders recruited from the cbot we do indeed find behavioral differences between professionals and students but rather than discovering that the anomaly is muted we find that traders exhibit behavior consistent with mla to a greater extent than students

a designer s choice between single prize and parallel tournaments in this article i theoretically and experimentally compare a designer s profits from two tournament designs the first design is a standard winner take all tournament with a single prize the second design features two winner take all parallel tournaments with different prizes where individuals choose which tournament to enter before competing i develop a simple model that illustrates how the relative performances of these designs change as contestants abilities differ the theoretical model shows that the designer s profit is higher lower in the parallel tournament when contestants abilities differ greatly are similar i complement these findings with experimental evidence the experiments show that the parallel tournament is more profitable under high heterogeneity whereas under low heterogeneity the designer is better off with the single prize tournament furthermore high ability agents under participate and low ability agents over participate in the high prize tournament relative to the theoretical prediction jel c72 d82 j33 m51 m52

is addiction rational theory and evidence this paper makes two contributions to the modeling of addiction first we provide new and convincing evidence that smokers are forward looking in their smoking decisions using state excise tax increases that have been legislatively enacted but are not yet effective and monthly data on consumption second we recognize the strong evidence that preferences with respect to smoking are time inconsistent with individuals both not recognizing the true dife culty of quitting and searching for self control devices to help them quit we develop a new model of addictive behavior that takes as its starting point the standard rational addiction model but incorporates time inconsistent preferences this model also exhibits forward looking behavior but it has strikingly different normative implications in this case optimal government policy should depend not only on the externalities that smokers impose on others but also on the internalities imposed by smokers on themselves we estimate that the optimal tax per pack of cigarettes should be at least one dollar higher under our formulation than in the rational addiction case

decision costs and price sensitivity field experimental evidence from india abstract poor people often exhibit puzzlingly high sensitivity to low prices of important consumer health goods this paper proposes decision costs as one explanation whether a person buys at a price depends on whether she carefully considers the offer which itself depends on price a simple model predicts that deliberation costs 1 increase sensitivity to low prices 2 can prevent cost sharing from targeting products to buyers with high value and 3 can have larger effects on poorer people the principal contribution of this paper is a field experiment that sold hand washing soap in rural india participants were randomly assigned to be offered soap for either a low or very low price which was experimentally crossed with assignment to a control group or to a treatment that required deliberation results matched predictions of the model the treatment decreased price sensitivity relative to the control group and increased targeting of product take up by need

selecting public goods institutions who likes to punish and reward we study the link between individual attitudes toward uncertainty on the one hand and preferences over as well as behavior within various public goods institutions on the other hand we incentive compatibly elicit preferences over voluntary contribution mechanisms with and without reward and punishment options and then randomly assign subjects to play in one of the four institutions we find that payoffs are significantly greater when punishment is allowed but that only a small minority of participants prefers such an environment somewhat surprisingly preferences over institutions are generally independent of individual characteristics conversely individual characteristics including institutional preferences are significantly predictive of behavior in the public goods game for instance risk averse individuals preemptively punish more often this suggests that when studying sanctions and rewards it is important to consider individual attitudes toward risk and uncertainty although they may not affect the original selection into institutions

egalitarianism and competitiveness competition is a cornerstone of economic life some environments are however more competitive than others and individuals are often confronted with the decision whether to self select into a competitive environment an important example is occupational choice a self employed lawyer is in constant competition for clients whereas a lawyer working as a civil servant in a public authority is not likewise some people vigorously compete for promo tion to better paid jobs associated with a high prestige while others don t understanding who self selects into competitive environments and who shies away from them is thus important in this paper we test the hypothesis that individu als with a preference for egalitarian outcomes are more reluctant to self select into competitive environments our hypothesis is based on i the observation that payoff inequalities among winners and losers arise as a natural by product of competition and ii the empirical literature showing that a nonnegligible share of children and adults is willing to incur costs to reduce earnings inequalities see e g christopher dawes et al 2007 ernst fehr helen bernhard and bettina rockenbach 2008 we analyze data from several economic experiments implemented in a household survey study with mothers of preschool children we

distributional preferences and competitive behavior we study experimentally the relationship between distributional preferences and competitive behavior we find that spiteful subjects react strongest to competitive pressure and win in a tournament significantly more often than efficiency minded and inequality averse subjects however when given the choice between a tournament and a piece rate scheme efficiency minded subjects choose the tournament most often while spiteful and inequality averse subjects avoid it when controlling for distributional preferences risk attitudes and past performance the gender gap in the willingness to compete is no longer significant indicating that gender related variables explain why twice as many men as women self select into competition

the fourfold pattern of risk attitudes in choice and pricing tasks we examine the robustness of the fourfold pattern of risk attitudes under two elicitation procedures we find that individuals are on average risk seeking over low probability gains and high probability losses and risk averse over high probability gains and low probability losses when we elicit prices for the gambles however a choice based elicitation procedure where participants choose between a gamble and its expected value yields individual decisions that are indistinguishable from random choice sensitivity to elicitation procedure holds between and within participants and remains when participants are allowed to review and change decisions the price elicitation procedure is more complex this finding may be further evidence that an increase in cognitive load exacerbates behavioural anomalies

the structural determinants of union bargaining power this paper investigates the structural determinants of variation in union power across manufacturing industries using a pooled sample of unionized establishments from the expenditure on employee compensation surveys of 1968 72 the author estimates wage equations augmented with measures of product market structure bargaining structure and the size distribution of unions the results suggest that union wage gains are greatest where discretionary pricing power enhances employers ability to pay and where unions achieve high coverage practice centralized bargaining and avoid union fragmentation on the other hand centralized bargaining provides no advantage in competitive industries

cognitive performance in competitive environments evidence from a natural experiment competitive situations that involve cognitive performance are widespread in labor markets schools and organizations including test taking competition for promotion in firms and others this paper studies cognitive performance in a high stakes competitive environment the analysis takes advantage of a natural experiment that randomly allocates different emotional states across professional subjects competing in a cognitive task the setting is a chess match where two players play an even number of chess games against each other alternating the color of the pieces white pieces confer an advantage for winning a chess game and who starts the match with these pieces is randomly decided the theoretical analysis shows that in this setting there is no rational reason why winning frequencies should be better than 50 50 in favor of the player drawing the white pieces in the first game yet we find that observed frequencies are about 60 40 differences in performance are also stronger when the competing subjects are more similar in cognitive skills we conclude that the evidence is consistent with the hypothesis that psychological elements affect cognitive performance in the face of experience competition and high stakes

who is behavioral cognitive ability and anomalous preferences in this paper we ask whether variation in preference anomalies is related to variation in cognitive ability evidence from a new laboratory study of chilean high school students with similar schooling backgrounds shows that small stakes risk aversion and short run discounting are less common among those with higher standardized test scores the relationship with test scores survives controls for parental education and wealth we find some evidence that elementary school gpa is predictive of preferences measured at the end of high school two laboratory interventions provide suggestive evidence of a possible causal impact of cognitive resources on expressed preferences jel j24 d14 c91

revisiting the trade off between risk and incentives the shocking effect of random shocks despite its central role in the theory of incentives empirical evidence of a trade off between risk and incentives remains scarce we reexamine this trade off in a workplace lab environment and find that in line with theory principals increase fixed pay while lowering performance pay when the relationship between effort and output is noisier unexpectedly agents produce substantially more in the noisy environment than in the baseline despite weaker incentives in addition principals earnings are significantly higher in the noisy environment we show that these findings can be accounted for when agents maximize a non cara utility function or when they exhibit loss aversion data and the online appendix are available at https doi org 10 1287 mnsc 2017 2914 this paper was accepted by uri gneezy behavioral economics

how endogenous risk preferences and sample selection affect analysis of firm survival the roles of selection and endogeneity in measured risk preferences are illustrated using the correlation between risk attitudes and firm survival selection bias occurs when risk attitudes are elicited only from current entrepreneurs so that the risk attitudes of unsuccessful entrepreneurs are excluded from the analysis risk attitudes measured after agents enter entrepreneurship will endogenously reflect business success data on entrepreneurs from the national longitudinal survey of youth 1979 and the panel study of income dynamics shows that when risk attitudes are measured subject to selection and endogeneity mixed or even positive correlations between risk acceptance and the probability of firm exit occur however firm exits fall monotonically with willingness to accept risk when risk preference measures are not subject to selection or endogeneity related to business success

the importance of being confident gender career choice and willingness to compete abstract this study investigates the extent to which gender differences in choosing to enter competitive tournaments are due to women s lower taste for competition or differences in confidence we examine three types of confidence and find that confidence measured by expected ranking is the most important determinant of decisions to enter tournaments conditional on ability this measure eliminates gender differences in winner take all tournaments and when entered with risk measures eliminates differences in ranked compensation tournaments when the sample is split by career choice there are no gender differences for students in stem fields and in the humanities and the social sciences differences can be explained by confidence however for business school students gender differences in willingness to compete in winner take all tournaments persist even after accounting for risk aversion and confidence men in business set themselves apart from the rest of the population men and women alike with the highest levels of tournament entry and the most positive performance responses to competition

how general are risk preferences choices under uncertainty in different domains we analyze the extent to which individuals choices over five employer provided insurance coverage decisions and one 401 k investment decision exhibit systematic patterns as would be implied by a general utility component of risk preferences we provide evidence consistent with an important domain general component that operates across all insurance choices we find a considerably weaker relationship between one s insurance decisions and 401 k asset allocation although this relationship appears larger for more financially sophisticated individuals estimates from a stylized coverage choice model suggest that up to thirty percent of our sample makes choices that may be consistent across all six domains

cognitive abilities and portfolio choice we study the relation between cognitive abilities and stockholding using the recent survey of health ageing and retirement in europe share which has detailed data on wealth and portfolio composition of individuals aged 50 in 11 european countries and three indicators of cognitive abilities mathematical verbal fluency and recall skills we find that the propensity to invest in stocks is strongly associated with cognitive abilities for both direct stock market participation and indirect participation through mutual funds and retirement accounts since the decision to invest in less information intensive assets such as bonds is less strongly related to cognitive abilities we conclude that the association between cognitive abilities and stockholding is driven by information constraints rather than by features of preferences or psychological traits

segmented labour markets and the estimation of wage functions this paper uses a stratified random sample of private sector employees to estimate wage equations for both the male labour market as a whole and six segments of the labour market segement which are defined with respect to the industry and size characteristics of the employing establishmen highly conventional results are obtained when wage equations are estimated for the male labour market as a whole or within two segements comprising almost half the survey population however one can reject conclusively the hypothesis that the same estimating equation is appropriate for modelling wage determination in all segments and if a human capital hk model is within segements tested against more appropriate alternative hypotheses for wage determination using the davidson and mackinnon 1981 methodology for the testing of non nested hypotheses the conclusion is that one should reject the hk specification and not reject the alternative it is therefore argued that the disaggregation of labour market dat

schooling and economic well being the role of nonmarket effects standard estimates of the economic value of additional schooling based on earnings differences associated with differences in the level of schooling attained cover only a portion of the total effects of education that are valued by citizens we first identify a catalog of nonmarketed effects many of which have been recently studied by economists and then propose a procedure for estimating a willingness to pay value for these effects using empirical estimates of the magnitude of a selection of these effects found in the literature we calculate willingness to pay values using our proposed procedure these illustrative calculations suggest that standard estimates of the benefit of incremental schooling substantially understate the full value of such investments

what explains differences in smoking drinking and other health related behaviors we explore economic model of health behaviors while the standard economic model of health as an investment is generally supported empirically the ability of this model to explain heterogeneity across individuals is extremely limited most prominently the correlation of different health behaviors across people is virtually zero suggest that standard factors such as variation in discount rates or the value of life are not the drivers of behavior we focus instead on two other factors genetics and behavioral specific situational factors the first factor is empirically important and we suspect the second is as well this abstract was borrowed from another version of this item

simultaneous decision making in competitive and cooperative environments we experimentally investigate simultaneous decision making in two contrasting environments a competitive environment a contest and a cooperative environment a voluntary contribution mechanism we find that the cooperative nature of the voluntary contribution mechanism spills over to the contest decreasing sub optimal overbidding in the contest however contributions to the public good are not affected by simultaneous participation in the contest there is a significant negative correlation between decisions made in competitive and cooperative environments i e more cooperative subjects tend to be less competitive and vice versa this correlation can be rationalized by heterogeneous social preferences towards inequality but not by bounded rationality theory

do women shy away from competition do men compete too much we examine whether men and women of the same ability differ in their selection into a competitive environment participants in a laboratory experiment solve a real task first under a noncompetitive piece rate and then a competitive tournament incentive scheme although there are no gender differences in performance men select the tournament twice as much as women when choosing their compensation scheme for the next performance while 73 percent of the men select the tournament only 35 percent of the women make this choice this gender gap in tournament entry is not explained by performance and factors such as risk and feedback aversion only playa negligible role instead the tournament entry gap is driven by men being more overconfident and by gender differences in preferences for performing in a competition the result is that women shy away from competition and men embrace it

are risk aversion and impatience related to cognitive ability is the way that people make risky choices or tradeoffs over time related to cognitive ability this paper investigates whether there is a link between cognitive ability risk aversion and impatience using a representative sample of the population and incentive compatible measures we conduct choice experiments measuring risk aversion and impatience over an annual time horizon for a randomly drawn sample of roughly 1 000 german adults subjects also take part in two different tests of cognitive ability which correspond to sub modules of one of the most widely used iq tests interviews are conducted in subjects own homes we find that lower cognitive ability is associated with greater risk aversion and more pronounced impatience these relationships are significant and robust to controlling for personal characteristics educational attainment income and measures of credit constraints we perform a series of additional robustness checks which help rule out other possible confounds

individual preferences monetary gambles and stock market participation a case for narrow framing we argue that narrow framing whereby an agent who is offered a new gamble evaluates that gamble in isolation may be a more important feature of decision making than previously realized our starting point is the evidence that people are often averse to a small independent gamble even when the gamble is actuarially favorable we find that a surprisingly wide range of utility functions including many nonexpected utility specifications have trouble explaining this evidence but that this difficulty can be overcome by allowing for narrow framing our analysis makes predictions as to what kinds of preferences can most easily address the stock market participation puzzle

addiction and cue triggered decision processes we propose a model of addiction based on three premises 1 use among addicts is frequently a mistake 2 experience sensitizes an individual to environmental cues that trigger mistaken usage 3 addicts understand and manage their susceptibilities we argue that these premises find support in evidence from psychology neuroscience and clinical practice the model is tractable and generates a plausible mapping between behavior and the characteristics of the user substance and environment it accounts for a number of important patterns associated with addiction gives rise to a clear welfare standard and has novel implications for policy

lost in translation the effect of cultural values on mergers around the world we find strong evidence that three key dimensions of national culture trust hierarchy and individualism affect merger volume and synergy gains the volume of cross border mergers is lower when countries are more culturally distant in addition greater cultural distance in trust and individualism leads to lower combined announcement returns these findings are robust to year and country level fixed effects time varying country pair and deal level variables as well as instrumental variables for cultural differences based on genetic and somatic differences the results are the first large scale evidence that cultural differences have substantial impacts on multiple aspects of cross border mergers

who is more rational we report on the results of a large scale field experiment that enables us to test for consistency with utility maximizing behavior and to investigate the correlation between individual behavior and demographic and economic characteristics we conducted the experiment with the centerpanel a representative sample of over 2 000 dutch households using procedures similar to those used by choi et al 2007b in a setting with risk we find a high level of consistency in the individual level decisions there is also considerable heterogeneity in subjects consistency scores high income and high education subjects display greater levels of consistency men are more consistent than women and young subjects are more consistent than those who

iq and stock market participation stock market participation is monotonically related to iq controlling for wealth income age and other demographic and occupational information the high correlation between iq and participation exists even among the affluent supplemental data from siblings studied with an instrumental variables approach and regressions that control for family effects demonstrate that iq s influence on participation extends to females and does not arise from omitted familial and nonfamilial variables high iq investors are more likely to hold mutual funds and larger numbers of stocks experience lower risk and earn higher sharpe ratios we discuss implications for policy and finance research

risk aversion and expected utility theory a calibration theorem within the expected utility framework the only explanation for risk aversion is that the utility function for wealth is concave a person has lower marginal utility for additional wealth when she is wealthy than when she is poor this paper provides a theorem showing that expected utility theory is an utterly implausible explanation for appreciable risk aversion over modest stakes within expected utility theory for any concave utility function even very little risk aversion over modest stakes implies an absurd degree of risk aversion over large stakes illustrative calibrations are provided

a dual self model of impulse control we propose that a simple dual self model gives a unified explanation for several empirical regularities including the apparent time inconsistency that has motivated models of quasi hyperbolic discounting and rabin s paradox of risk aversion in the large and small the model also implies that self control costs imply excess delay as in the o donoghue and rabin models of quasi hyperbolic utility and it explains experimental evidence that increased cognitive load makes temptations harder to resist the base version of our model is consistent with the gul pesendorfer axioms but we argue that these axioms must be relaxed to account for the effect of cognitive load

gender stock market participation and financial literacy abstract women participate less than men in the stock market and score lower on financial literacy we explore the link between this gender gap in stock market participation and financial literacy using survey data on a random sample of 1300 individuals that is representative of the swedish population we show that the estimated gender gap in stock market participation diminishes when we control for basic financial literacy essentially a measure of numeracy a gender gap in risk taking remains significant also when controlling for financial literacy

gender effects in the credence goods market an experimental study abstract in this paper we offer further explanation for differences in earnings across genders we investigate difference in preferences in payment systems for credence goods we find that women were no less likely to select variable rate payment schemes as compensation for providing credence goods than men however overall earnings remained higher for men than for women disaggregating behavior by type of payment and gender reveals that women who chose fee for service provided significantly fewer units of services paid for than men who chose fee for service this difference accounts for the lower overall earnings for women in our experiments

a systems approach to simultaneity and the demand for money in canada the demand for money has been the subject of much empirical investigation in canada and the u s over the past two decades a common feature of this research is the formulation of a real demand for money equation whose arguments include real income or wealth and nominal interest rates real income is expected to have a positive effect and nominal interest rates a negative effect on the demand for real cash balances narrowly defined mi the direction of these effects is taken to be axiomatic indeed most formulations take as their starting point what goldfeld 16 has called the conventional specification and proceed to make alterations to it as occasion demands against this background of convention recent research on the demand for money in canada has addressed the issue of simultaneous equations se bias from ordinary least squares ols estimation of a conventional single equation demand for money model 30 19 for example gregory and mcaleer 19 applied formal tests for endogeneity of real income and the nominal interest rate and found that the degree of se bias was not statistically significant it might accordingly appear that the issue has been resolved and that real income and the nominal interest rate may reasonably be treated as exogenous in the canadian demand for money equation however a drawback of the analysis of endogeneity in these studies is its reliance on single equation methods while these methods are easy to apply there are at least three reasons for reconsidering the issue of simultaneity within the context of a system of equations the first concerns the power of the tests for endogeneity and its asymptotic justification in order to apply the test for endogeneity 10 22 one simply determines whether the difference between ols estimates and those obtained by instrumental variables iv methods is statistically significant or not a significant difference would indicate the

state dependent price setting rules under implicit thresholds an experiment how firms make their pricing decisions is a fundamental question of macroeconomics we use a laboratory experiment to examine individual choices in a price updating task that provide insight into how well state dependent models reflect behavior we find that in general subjects behave as if they recognize the importance of a state dependent pricing strategy but they are unable to ascertain this threshold with precision and they also exhibit a substantial degree of time dependence as a result they update prices too frequently and perform statistically significantly fewer real effort profit generating tasks than theoretically optimal under full state dependence which results in statistically significantly lower profits as well

does affirmative action reduce gender discrimination and enhance efficiency new experimental evidence we investigate experimentally the impact of quota policies on gender discrimination in hiring decisions by testing whether affirmative action increases female employment we also ask whether firm performance is affected by such policies our experiment consists of three treatments in the baseline no quota treatment groups of two employers and six potential job candidates are formed employers have to hire two workers based on information on candidate characteristics including gender and years and subject of study the second low penalty treatment is identical to the baseline except there is a quota such that at least half of the employees hired must be women if this quota is not respected the firm has to pay a penalty the last high penalty treatment is the same as the low penalty treatment except that the penalty is significantly higher we find that women are ranked unfavorably in the absence of a quota and the introduction of a quota significantly reduces gender discrimination firm performance is not affected by the introduction of quotas

anchoring and cognitive ability abstract we find that the actual willingness to pay for various consumer goods can be manipulated by an uninformative anchor replicating ariely et al 2003 we furthermore demonstrate that the anchoring effect decreases but does not vanish with higher cognitive ability

selection bias demographic effects and ability effects in common value auction experiments inexperienced women along with economics and business majors are much more susceptible to the winner s curse as are subjects with lower sat act scores there are strong selection effects in bid function estimates for inexperienced and experienced subjects due to bankruptcies and bidders who have lower earnings returning less frequently as experienced subjects these selection effects are not identified using standard econometric techniques but are identified through experimental treatment effects ignoring these selection effects leads to misleading estimates of learning

on the merit of equal pay performance manipulation and incentive setting abstract work performance is often difficult to assess thus leaving room for manipulation of commonly used metrics we created a laboratory workplace in which we can precisely assess both work performance along with manipulation activities using two independent experiments we show that whenever pay for performance is used manipulation is pervasive leading to both a waste of organizational resources and a weakening of incentives by contrast paying organizational members equally effectively deters manipulation attempts leading to higher organizational production

can opec cause inflation and recession abstract this paper addresses an issue that has been the subject of debate in the media and in academic circles the issue concerns the effect of higher oil prices initiated by opec on economic activity in oecd countries results of cointegration tests indicate that there is no long run relationship between oil prices and macroeconomic variables in oecd countries however causality testing indicates the existence of unidirectional causality from oil prices to domestic prices and output

the effect of cognitive load on economic decision making a survey and new experiments abstract psychologists and economists have examined the effect of cognitive load in a variety of situations from risk taking to snack choice we review previous experiments that have directly manipulated cognitive load and summarize their findings we report the results of two new experiments where participants engage in a digit memorization task while simultaneously performing a variety of economic tasks including 1 choices involving risk 2 choices involving intertemporal substitution 3 choices with anchoring effects 4 choices over healthy and unhealthy snacks and 5 math problems we find that higher cognitive load reduces numeracy as measured by performance in math problems moreover within subject analysis indicates that cognitive load leads to more risk averse behavior more impatience over money and nominally more likelihood to anchor we do not find any evidence that cognitive load increases impatience over consumption goods or unhealthy snack choices exploiting the panel nature of our data set we find that those individuals who are most sensitive to cognitive load as measured by a large drop in their own math performance across 1 and 8 digit memorization treatments are driving much of the effect

getting a healthy start the effectiveness of targeted benefits for improving dietary choices there is growing policy interest in encouraging better dietary choices we study a nationallyimplemented policy the uk healthy start scheme that introduced vouchers for fruit vegetables and milk we show thatthe policy has increased spending on fruit and vegetables and has been more effective than an equivalent value cash benefit we also show that the policy improved the nutrient composition of households shopping baskets with no offsetting changes in spending on other foodstuffs

hormonal contraceptives do not impact economic preferences evidence from a randomized trial a growing body of correlational studies suggests that sex hormones such as those contained in or affected by oral contraceptives ocs may impact economic behavior however despite widespread use of ocs among women in western countries little is known about their potential behavioral effects the present study investigates whether ocs causally influence economic preferences we randomly allocate 340 women aged 18 35 to three months of a widely used oc or placebo treatment at the end of treatment we conduct an economic experiment measuring altruism financial risk taking and willingness to compete the statistical power is 80 to detect an effect size equal to a cohen s d of 0 30 at the 5 level we find no significant effects of ocs on any of the measured preferences indicating that this widely used oc treatment commonly used throughout the world does not significantly affect the measured economic preferences further we find no relation between menstrual cycle phase and economic preferences in

temporal stability and psychological foundations of cooperation preferences abstract a core element of economic theory is the assumption of stable preferences we test this assumption in public goods games by repeatedly eliciting cooperation preferences in a fixed subject pool over a period of five months we find that cooperation preferences are very stable at the aggregate level and to a smaller degree at the individual level allowing us to predict future behavior fairly accurately furthermore our results provide evidence on the psychological foundations of cooperation preferences the personality dimension agreeableness is closely related to both the type and the stability of cooperation preferences

a theory of dual labor markets with application to industrial policy discrimination and keynesian unemployment this paper develops a model of dual labor markets based on employers need to motivate workers in order to elicit effort from their workers employers may find it optimal to pay more than the going wage this changes fundamentally the character of labor markets the model is applied to a wide range of labor market phenomena it provides a coherent framework for understanding the claims of industrial policy advocates it also can provide the basis for a theory of occupational segregation and discrimination that will not be eroded by market forces finally the model provides the basis for a theory of involuntary unemployment

do quotas help women to climb the career ladder a laboratory experiment abstract women are less likely to enroll in selective or scientific courses applying for promotions and are particularly underrepresented in both middle and top positions in the stem field quota are often advocated as an instrument to reduce this gender gap but it remains unclear at what step of the career ladder they more effectively foster women s reaching the top many factors may affect quota s success or failure such as how they would in turn affect teamwork and trust between members within organizations or coordination in applying for promotions in this paper by means of a laboratory experiment implementing a two stage tournament we evaluate the impact of three different interventions in affecting individual decision to climb the career ladder abstracting away from other possible confounding factors we find that compared with no intervention a gender quota introduced in the initial stage of competition was ineffective in encouraging women to compete for the top quotas introduced in the final stage of competition or at both stages increased women s willingness to compete for the top without distorting the performance of the winners

the expansion of temporary help employment in the us 1982 1992 a test of alternative economic explanations employment in the temporary help supply ths industry more than tripled in the us between 1982 and 1992 during that period the variability and cyclical sensitivity of ths jobs their average weekly hours and real hourly earnings were extraordinarily high in addition changes in temporary employment levels disproportionately affect aggregate employment flows over this period one possible explanation of the dramatic rise and variability in ths jobs is demographic changes in the composition of the labour force towards groups believed to prefer impermanent job commitment or temporal flexibility in supplying labour services a contrasting view considers it part of an explicit human resource strategy increasingly adopted by firms seeking greater numerical or cost flexibility this strategy may reflect an employer response to greater volatility in demand intensifying price competition pressures in product markets and rising quasi fixed costs incurred for permanent employees such as nonwage benefits a tw

the effects of human resource management on small firms productivity and employees wages this paper analyses whether employees and firms differently benefit from particular human resource hr practices the focus is on small firms that may be badly informed on the impact of hr practices on firm performance in this study on dutch pharmacies it is found that firms do not reward employees skills according to their contribution to firms productivity as 1 employees are over rewarded for their sector specific skills and under rewarded for the productivity enhancing effect of their computer skills and 2 employees work experience positively affects their wages but does not have real productivity effects moreover it is found that training employees in case of vacancy problems seems to be an adequate hr practice since it increases productivity without affecting the average wage level the opposite holds for offering higher wages to newly recruited employees furthermore we find that only the employees benefit from performance evaluation interviews whereas employing many employees by tem

is there a daily discount rate evidence from the food stamp nutrition cycle abstract quasi hyperbolic discounting predicts impatience over short run tradeoffs i present a direct non laboratory test of this implication using data on the nutritional intake of food stamp recipients caloric intake declines by 10 to 15 percent over the food stamp month implying a significant preference for immediate consumption these findings constitute a rejection of the permanent income hypothesis and are extremely difficult to reconcile with exponential discounting the data support an explanation based on time preference and reject several alternative explanations including highly elastic intertemporal substitution i explore implications for the optimal timing of transfer payments under alternative assumptions about preferences

cognitive imprecision and small stakes risk aversion observed choices between risky lotteries are difficult to reconcile with expected utility maximization both because subjects appear to be too risk averse with regard to small gambles for this to be explained by diminishing marginal utility of wealth as stressed by rabin 2000 and because subjects responses involve a random element we propose a unified explanation for both anomalies similar to the explanation given for related phenomena in the case of perceptual judgments they result from judgments based on imprecise and noisy mental representations of the decision situation in this model risk aversion results from a sort of perceptual bias but one that represents an optimal decision rule given the limitations of the mental representation of the situation we propose a quantitative model of the noisy mental representation of simple lotteries based on other evidence regarding numerical cognition and test its ability to explain the choice frequencies that we observe in a laboratory experiment

does self control depletion affect risk attitudes abstract a core prediction of recent dual self models is that risk attitudes depend on self control while these models have received a lot of attention empirical evidence regarding their predictions is lacking we derive hypotheses from three prominent models for choices between risky monetary payoffs under regular and reduced self control we test the hypotheses in a lab experiment using a well established ego depletion task to reduce self control and measuring risk attitudes via finely graduated choice lists manipulation checks document the effectiveness of the depletion task we find no systematic evidence in favor of the theoretical predictions in particular depletion does not increase risk aversion

looking at the bright side the motivational value of confidence abstract the motivational value of confidence postulates that individual effort provision is increasing in beliefs on one s own ability this relation is supposed to also hold for overconfident individuals who have exaggerated ability beliefs we present the first empirical evidence on the existence of a motivational value of absolute confidence that many microeconomic models with overconfident agents build on moreover we document that negative debiasing information on individual ability diminishes effort provision a result that is of obvious relevance for many contexts such as labor relations or learning at school we also offer a strategy for identifying significant absolute overconfidence at the individual level

the today and tomorrow of kids time preferences and educational outcomes of children abstract we experimentally investigate the distribution of children s time preferences along gender and racial lines we find that boys are more impatient than girls and black children are more impatient than white children black boys have the highest discount rates of all groups most importantly we show that impatience has a direct correlation with behavior that is predictive of economic success an increase of one standard deviation in the discount rate is associated with an increase in the number of disciplinary referrals that a child has the following school year by 14 our results suggest that impatience might play an important role in determining the success of performance incentive programs for school children

wealth accumulation and the propensity to plan why do similar households end up with very different levels of wealth we show that differences in the attitudes and skills with which they approach e nancial planning are a signie cant factor we use new and unique survey data to assess these differences and to measure each household s propensity to plan we show that those with a higher such propensity spend more time developing e nancial plans and that this shift in planning is associated with increased wealth these e ndings are consistent with broad psychological evidence concerning the benee cial impacts of planning on goal pursuit those with a high propensity to plan may be better able to control their spending and thereby achieve their goal of wealth accumulation we e nd direct evidence supporting this effortful self control channel in the very strong relationship we uncover between the propensity to plan and budgeting behavior

balance of power and the propensity of conflict we study the role of an imbalance in fighting strengths when players bargain in the shadow of conflict our experimental results suggest in a simple bargaining game with an exogenous mediation proposal the likelihood of conflict is independent of the balance of power if bargaining involves endogenous demand choices however the likelihood of conflict is higher if power is more imbalanced even though endogenous bargaining outcomes reflect the players unequal fighting strengths strategic uncertainty causes outcomes to be most efficient when power is balanced in turn the importance of exogenous mediation proposals depends on the balance of power

narrow bracketing and dominated choices an experiment by tversky and kahneman 1981 illustrates that people s tendency to evaluate risky decisions separately can lead them to choose combinations of choices that are first order stochastically dominated by other available combinations we investigate the generality of this effect both theoretically and experimentally we show that for any decisionmaker who does not have constant absolute risk averse preferences and who evaluates her decisions one by one there exists a simple pair of independent binary decisions where the decisionmaker will make a dominated combination of choices we also characterize as a function of a person s preferences the amount of money that she can lose due to a single mistake of this kind the theory is accompanied by both a real stakes laboratory experiment and a large sample survey from the general u s population replicating tversky and kahneman s original experiment where decisionmakers with prototypical prospect theory preferences will choose a dominated combination we find that 28 of the participants do so in the survey we ask the respondents about several hypothetical large stakes choices and find higher proportions of dominated choice combinations a statistical model that estimates preferences from the survey results is best fit by assuming people have utility functions that are close to prospect theory value functions and that about 83 of people bracket narrowly none of these results varies strongly with the personal characteristics of participants we also demonstrate directly that dominated choices are driven by narrow bracketing when we eliminate the possibility of narrow bracketing by using a combined presentation of the decisions the dominated choices are eliminated in the laboratory experiment and are greatly reduced in the survey

the brain as a hierarchical organization based on recent neuroscience evidence we model the brain as a dual system organization subject to three conflicts asymmetric information temporal hori zon and incentive salience under the first and second conflicts we show that the uninformed system imposes a positive link between consumption and labor at every period furthermore decreasing impatience endogenously emerges as a consequence of these two conflicts under the first and third conflicts it becomes optimal to set a consumption cap finally we discuss the behavioral implications of these rules for choice bracketing and expense tracking and for consumption over the life cycle jel dil d74 d82 d87 d91

entrepreneurs embrace competition evidence from a lab in the field study referring to isreal m kirzner 1973 and schumpeter 1934 who emphasized the competitive nature of entrepreneurship this study investigates whether potential and revealed entrepreneurs are more likely to seek competition than non entrepreneurs we provide a conceptual framework that links entrepreneurship to three facets of individual competitiveness drawn from economic entrepreneurship and psychological research a desire to win striving for personal development and an enjoyment of competition following economic research linking competitive behavior in experiments to career choices we conduct a lab in the field study and demonstrate that entrepreneurs are more likely to enter competitions than non entrepreneurs accounting for individual desires to win and mastery related achievement motivations our results indicate that entrepreneurs tend to enter competition for the sake of competition itself rather than for the prospect of winning it or personal development our results suggest that enjoyment of competition might be an additional factor driving entrepreneurs market entry decisions beyond well known factors like overconfidence and risk taking

coping with complexity experimental evidence for narrow bracketing in multi stage contests abstract this paper investigates whether decision makers bracket their choices narrowly to facilitate complex decision problems evidence from a framing variation of rewards in experimental two stage pairwise elimination contests indicates that decision makers neglect the option value of participation in future stages of the contest if the reward frame facilitates the separate consideration of stages but not if the reward frame induces forward looking behavior decision makers account for the option value of participation in future stages of the contest independently of the reward frame however when complex strategic interactions in future stages of the contest are replaced by simple lotteries that facilitate the determination of the option value the results present novel evidence for the prevalence and the determinants of choice bracketing as a means to cope with complexity

female hires and the success of start up firms in this paper we investigate the relationship between females among the first hires of start up companies and business success our results show that firms with female first hires have a higher share of female workers at the end of the first year after entry further we find that firms with female first hires are more successful and stay longer in the market we conclude that our results support the hypothesis that gender diversity in leading positions is an advantage for start up firms this abstract was borrowed from another version of this item

decision environment effects on intertemporal financial choices how relevant are resource depletion models a large literature in psychology studies the effects of the immediate decision environment on behavior and conceptualizes both cognitive capacity and self control as scarce resources that can be depleted by recent use and replenished by factors like rest and nutrition we assess the relevance of resource depletion models for intertemporal financial decisions by estimating the effects of three interventions prior impulse controlling activity consumption of a sugared drink and consumption of a placebo sugar free drink on intertemporal monetary choices in a cash advance framework these manipulations have large impacts on the demand for advances but contrary to resource based models prior impulse controlling activity and placebo drink consumption increase patience to understand these effects we estimate treatment effects on the three parameters of a decision utility model for every subject in our sample all treatments reduce utility curvature and present bias and these movements are highly correlated together we argue that these patterns suggest that the treatments are acting not on subjects fundamental utility parameters but on subjects tendencies to frame financial decisions narrowly within the frame of the lab experiment versus broadly in the context of their other financial options thus while decision environments have large effects on intertemporal financial decisions both the direction and the mechanisms underlying these effects appear to be quite different from those suggested by resource depletion models

estimating individual discount rates in denmark a field experiment we estimate individual discount rates with respect to time streams of money using controlled laboratory experiments these discount rates are elicited by means of field experiments involving real monetary rewards the experiments were carried out across denmark using a representative sample of 268 people between 19 and 75 years of age individual discount rates are estimated for various households differentiated by socio demographic characteristics such as income and age our conclusions are that discount rates are constant over the 12 month to 3 year horizons used in these experiments and that discount rates vary substantially with respect to several socio demographic variables hence we conclude that it would be reasonable to assume constant discount rates for specific household types but not the same rates across all households

cognitive ability and bidding behavior in second price auctions an experimental study behavioral biases are more pronounced for individuals with lower cognitive abilities this paper examines what connection if any there is between cognitive ability and bidding strategy in second price auctions despite truthful revelation being a weakly dominant strategy previous experiments have consistently observed overbidding which makes use of such auctions for inferring homegrown value problematic examining the effect of cognitive ability is important as it may help identify when one can reliably recover values from bids the results indicate that more cognitively able subjects behave in closer accordance with theory and that cognitive ability partially explains heterogeneity in bidding behavior

a behavioral economics view of poverty standard theorizing about poverty falls into two camps social scientists regard the behaviors of the economically disadvantaged either as calculated adaptations to prevailing circumstances or as emanating from a unique culture of poverty rife with deviant values the first camp presumes that people are highly rational that they hold coherent and justified beliefs and pursue their goals effectively without mistakes and with no need for help the second camp attributes to the poor a variety of psychological and attitudinal short fallings that render their views often misguided and their choices fallible leaving them in need of paternalistic guidance we propose a third view the behavioral patterns of the poor we argue may be neither perfectly calculating nor especially deviant rather the poor may exhibit the same basic weaknesses and biases as do people from other walks of life except that in poverty with its narrow margins for error the same behaviors often manifest themselves in more pronounced ways and can lead to worse outcomes in what follows we illustrate the kinds of insights that might be gained from a behaviorally more realistic analysis of the economic conditions of the poor and we propose that alternative policies for alleviating poverty be considered

costes de contratacion y empresas de trabajo temporal una explicacion de la disparidad regional en espana the temporary work agencies twa industry experienced continuous growth throughout the 90s and now represents around 15 of temporary hiring in spain more interestingly are markable regional disparity in this sector exists across spanish provinces by developing a simple theoretical model and using panel data methodology this article examines the spanish caseand suggests that the costs of recruiting training and screening could explain a large part of the regional disparity this result is supported by the empirical fact that the twa firms have greater success in markets with low unemployment rates where the average duration of unemploymen tis longer and in provinces with higher concentrations of urban population respectively

does atypical work help the jobless evidence from a caeas cps cohort analysis atypical employment such as temporary on call and contract work has been found disproportionately to attract the jobless but there is no consensus in the literature as to the labour market consequences of such job choice by unemployed individuals using data from the current population survey we investigate the implications of the initial job finding strategies pursued by the jobless for their short and medium term employment stability at first sight it appears that taking an offer of regular employment provides the greatest degree of employment continuity for the jobless however closer inspection indicates that the jobless who take up atypical employment are not only more likely to be employed 1 month and 1 year later than those who continue to search but also to enjoy employment continuity that is not less favourable than that offered by regular open ended employment

happiness and time preference the effect of positive affect in a random assignment experiment abstract we conduct a random assignment experiment to investigate whether positive affect impacts time preference where time preference denotes a preference for present over future utility our result indicates that compared to neutral affect mild positive affect significantly reduces time preference over money this result is robust to various specification checks and alternative interpretations of the result are considered our result has implications for the effect of happiness on time preference and the role of emotions in economic decision making in general finally we reconfirm the ubiquity of time preference and start to explore its determinants djel d12 d83 i31