Discussion Papers

Discussion Paper No. 152
April 15, 2019

Earn More Tomorrow: Overconfident Income Expectations and Consumer Indebtedness

Authors:
Grohmann, Antonia (DIW Berlin)
Menkhoff, Lukas (DIW and HU Berlin)
Merkle, Christoph (Kühne Logistics University)
Schmacker, Renke (DIW Berlin)
Abstract:

This paper examines whether biased income expectations due to overconfidence lead to higher levels of debt-taking. In a lab experiment, participants can purchase goods by borrowing against their future income. We exogenously manipulate income expectations by letting income depend on relative performance in hard and easy quiz tasks. We successfully generate biased income expectations and show that participants with higher income expectations initially borrow more. Overconfident participants scale back their consumption after feedback. However, at the end of the experiment they remain with higher debt levels, which represent real financial losses. To assess the external validity, we nd further evidence for the link between overcondence and borrowing behavior in a representative survey (GSOEP-IS).

Keywords:
consumption; borrowing; overcondence; income expectations
JEL-Classification:
D14; D84; G40
Download:
Open PDF file

Discussion Paper No. 151
April 8, 2019

Obviousness Around the Clock

Authors:
Breitmoser, Yves (Bielefeld University)
Schweighofer-Kodritsch, Sebastian (HU Berlin and WZB Berlin)
Abstract:

Li (2017) supports his theoretical notion of obviousness of a dominant strategy with experimental evidence that bidding is closer to dominance in the dynamic ascending-clock than the static second-price auction (private values). We replicate his experimental study and add three intermediate auction formats to decompose this behavioral improvement into cumulative effects of (1) seeing an ascending-price clock (after bid submission), (2) bidding dynamically on the clock and (3) getting drop-out information. Li's theory predicts dominance to become obvious through (2) dynamic bidding. We find no significant behavioral effect of (2). However, both (1) and (3) are highly significant.

Keywords:
JEL-Classification:
Download:
Open PDF file

Discussion Paper No. 150
March 26, 2019

Effects of Timing and Reference Frame of Feedback
Evidence From a Field Experiment

Authors:

Fischer, Mira (WZB Berlin)
Wagner, Valentin (University of Mainz)

Abstract:

Information about past performance has been found to sometimes improve and sometimes worsen subsequent performance. Two factors may help to explain this puzzle: which aspect of one's past performance the information refers to and when it is revealed. In a field experiment in secondary schools, students received information about their absolute rank in the last math exam (level feedback), their change in ranks between the second-last and the last math exam (change feedback), or no feedback. Feedback was given either 1-3 days (early) or immediately (late) before the final math exam of the semester. Both level feedback and change feedback significantly improve students' grades in the final exam when given early and tend to worsen them when given late. The largest effects are found for negative change feedback and are concentrated on male students, who adjust their ability beliefs downwards in response to feedback.

Keywords:

timing of feedback; type of feedback; beliefs; education; field experiment

JEL-Classification:

D83; D91; I21

Download:

Open PDF file

Discussion Paper No. 149
March 20, 2019

Do Party Positions Affect the Public’s Policy Preferences?

Authors:

Grewenig, Elisabeth (ifo Institute)
Lergetporer, Philipp (ifo Institute)
Werner, Katharina (ifo Institute)
Woessmann, Ludger (ifo Institute and LMU Munich)

Abstract:

The standard assumption of exogenous policy preferences implies that parties set their positions according to their voters' preferences. We investigate the reverse effect: Are the electorates' policy preferences responsive to party positions? In a representative German survey, we inform randomized treatment groups about the positions of political parties on two family policies, child care subsidy and universal student aid. In both experiments, results show that the treatment aligns the preferences of specific partisan groups with their preferred party's position on the policy under consideration, implying endogeneity of policy preferences. The information treatment also affects non-partisan swing voters.

Keywords:

political parties; partisanship; survey experiment; information; endogenous preferences; voters; family policy

JEL-Classification:

D72; D83; H52; J13; I28; P16

Download:

Open PDF file

Discussion Paper No. 148
March 18, 2019

Peer Effects of Ambition

Authors:

Albert, Philipp (WZB Berlin)
Kübler, Dorothea (WZB Berlin)
Silva-Goncalves, Juliana (University of Sydney)

Abstract:

Ambition as the desire for personal achievement is an important driver of behavior. Using laboratory experiments, we study the role of social influence on ambition in two distinct domains of achievement, namely performance goals and task complexity. In the first case, participants set themselves a performance goal for a task they have to work on. The goal is associated with a proportional bonus that is added to a piece rate if the goal is reached. In the second case, they choose the complexity of the task, which is positively associated with the piece rate compensation and effort. In both cases we test whether observing peer choices influences own choices. We find strong evidence of peer effects on performance goals. In contrast, we find no support for peer effects on the choice of task complexity.

Keywords:

peer effects; ambition; goal setting; task difficulty; laboratory experiment

JEL-Classification:

C91; D83; D91; I24; M05

Download:

Open PDF file

Discussion Paper No. 147
March 11, 2019

Metric and Scale Effects in Consumer Preferences for Environmental Benefits

Author:
Pleshcheva, Vlada (Institut für Marketing Humboldt-Universität zu Berlin)
Abstract:

The present study investigates how the framing of information on the environmental impact of vehicles affects consumers’ preferences for identical improvements in carquality. In online choice experiments, the effects of two metrics (fuel consumption vs. CO2 emissions) and three scales of one metric (CO2 in kg/km vs. g/km vs. g/100km) are examined. First, from a technical perspective, fuel consumption (FC) and CO2 emissions are linearly connected by a constant factor and are thus isomorphic indescribing the environmental friendliness of a car. Second, rescaling identical informa-tion should not change consumer decisions. However, as this study demonstrates, the type of information presented to consumers significantly affects consumers’ valuation of environmental benefits from a reduction in FC or CO2. The study’s contribution lies in quantifying the differences in consumers’ preferences for two measures of the same information that have not been previously directly compared. Additionally, the differences in the framing effects are explored for diesel and gasoline vehicles. The estimation accounts for heterogeneity in the tastes, environmental attitudes and knowledge of the respondents. The insights of this study serve to guide policy makers and carmanufacturers on how to present information on car offers.

Keywords:
choice architecture; environmental impact; framing effects; vehicle choice
JEL-Classification:
D12; D90; M31; Q51
Download:
Open PDF file

Discussion Paper No. 146
March 11, 2019

Incentives, Search Engines, and the Elicitation of Subjective Beliefs: Evidence From Representative Online Survey Experiments

Authors:
Grewenig, Elisabeth (ifo Institute)
Lergetporer, Philipp (ifo Institute)
Werner, Katharina (ifo Institute)
Woessmann, Ludger (ifo Institute and LMU Munich)
Abstract:

A large literature studies subjective beliefs about economic facts using unincentivized survey questions. We devise randomized experiments in a representative online survey to investigate whether incentivizing belief accuracy affects stated beliefs about average earnings by professional degree and average public school spending. Incentive provision does not impact earnings beliefs, but improves school-spending beliefs. Response patterns suggest that the latter effect likely reflects increased online-search activity. Consistently, an experiment that just encourages search-engine usage produces very similar results. Another experiment provides no evidence of experimenter-demand effects. Overall, results suggest that incentive provision does not reduce bias in our survey-based belief measures.

Keywords:
beliefs; incentives; online search; survey experiment
JEL-Classification:
D83; C83; C90
Download:
Open PDF file

Discussion Paper No. 145
February 27, 2019

The Political Economy of Higher Education Finance: How Information and Design Affect Public Preferences for Tuition

Authors:

Lergetporer, Philipp (ifo Institute at the University of Munich)
Woessmann, Ludger (ifo and LMU Munich)

Abstract:

Public preferences for charging tuition are important for determining higher education finance. To test whether public support for tuition depends on information and design, we devise several survey experiments in representative samples of the German electorate (N > 19,500). The electorate is divided, with a slight plurality opposing tuition. Providing information on the university earnings premium raises support for tuition by 7 percentage points, turning the plurality in favor. The opposition-reducing effect persists two weeks after treatment. Information on fiscal costs and unequal access does not affect public preferences. Designing tuition as deferred income-contingent payments raises support by 16 percentage points, creating a strong majority favoring tuition. The same effect emerges when framed as loan payments. Support decreases with higher tuition levels and increases when targeted at non-EU students.

Keywords:

tuition; higher education; political economy; survey experiments; information; earnings premium; income-contingent loans; voting

JEL-Classification:

I22; H52; D72; D83

Download:

Open PDF file

Discussion Paper No. 144
February 27, 2019

Job Creation in Tight and Slack Labor Markets

Authors:
Buchheim, Lukas (LMU Munich)
Watzinger, Martin (LMU Munich)
Wilhelm, Matthias (LMU Munich)
Abstract:

Do investment programs create more jobs in tight or in slack labor markets? We study this question using data from a large, long-term photovoltaic investment scheme in Germany. Comparing counties with high and low unemployment both over time and across space, we find that photovoltaic installations created at least twice as many jobs in slack than in tight labor markets. Our results suggest that the differences in job-creation are not driven by changes in the composition or prices of investment, capital-labor substitution, or regional migration. This leaves crowding-out as the most plausible mechanism.

Keywords:
local employment multiplier; state-dependent multiplier
JEL-Classification:
E24; E62; J23; R23
Download:
Open PDF file

Discussion Paper No. 143
February 27, 2019

Persistence and Activation of Right-Wing Political Ideology

Authors:

Cantoni, Davide (LMU Munich and CESifo)
Hagemeister, Felix (LMU Munich)
Westcott, Mark (Vivid Economics)

Abstract:

We argue that a long-run cultural persistence of right-wing ideology can explain the recent rise of right-wing populism. Shifts in the supply of party platforms can interact with this existing demand, and give rise to patterns of historical persistence. We study the context of Germany in the 2017 federal election, when the emergence of the AfD offered voters a populist right-wing option, with little social stigma attached. We show that municipalities that expressed strong support for the Nazi party in 1933 are more likely to vote for the AfD now, but not in 2013, when the AfD was a more moderate, fiscally conservative party. Using opinion surveys, we show that these dynamics are not generated by a concurrent demand shift: political attitudes do not shift sharply to the right in the municipalities with a history of Nazi support.

Keywords:

persistence; culture; right-wing ideology; germany

JEL-Classification:

D72; N44; P16

Download:

Open PDF file