Discussion Papers

Discussion Paper No. 158
May 31, 2019

Decentralizing Centralized Matching Markets: Implications From Early Offers in University Admissions

Authors:

Grenet, Julien (Paris School of Economics)
He, Yinghua (Rice University)
Kübler, Dorothea (WZB Berlin Social Science Center)

Abstract:

The matching literature commonly rules out that market design itself shapes agent preferences. Underlying this premise is the assumption that agents know their own preferences at the outset and that preferences do not change throughout the matching process. Under this assumption, a centralized matching market can often outperform a decentralized one. Using a quasi-experiment in Germany's university admissions, we provide evidence against this assumption. We study a centralized clearinghouse that implements the early stages of the university-proposing Gale-Shapley deferred-acceptance mechanism in real time, resembling a decentralized market with continuous offers, rejections, and acceptances. With data on the exact timing of every decision, we show that early offers are more likely to be accepted than (potential) later offers, despite early offers not being made by more desirable universities. Furthermore, early offers are only accepted after some time rather than immediately. These results and direct survey evidence are consistent with a model of information acquisition: it is costly for students to learn about universities and accepting a university that turns out to be inferior causes regret. We discuss and rule out some alternative hypotheses. Our findings motivate a hybrid mechanism that balances centralization and decentralization. By allowing sequential learning, it improves welfare, especially in markets with substantial learning costs.

Keywords:

centralized matching market; gale-shapley deferred acceptance mechanism; university admissions; early offers; information acquisition

JEL-Classification:

C78; D47; I23; D81; D83

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Discussion Paper No. 157
May 28, 2019

Dynamics and Heterogeneity of Subjective Stock Market Expectations

Authors:

Heiss, Florian (University of Dusseldorf)
Hurd, Michael (RAND)
Rossmann, Tobias (University of Munich)
Winter, Joachim (LMU Munich)
van Rooij, Maarten (De Nederlandsche Bank)

Abstract:

Between 2004 and 2016, we elicited individuals' subjective expectations of stock market returns in a Dutch internet panel at bi-annual intervals. In this paper, we develop a panel data model with a finite mixture of expectation types who differ in how they use past stock market returns to form current stock market expectations. The model allows for rounding in the probabilistic responses and for observed and unobserved heterogeneity at several levels. We estimate the type distribution in the population and find evidence for considerable heterogeneity in expectation types and meaningful variation over time, in particular during the financial crisis of 2008/09.

Keywords:

expectations; stock markets; financial crisis; mixture models; surveys

JEL-Classification:

D12; D84; G11

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Discussion Paper No. 156
May 24, 2019

Explaining Gaps in Educational Transitions Between Migrant and Native School Leavers

Author:
Zimmermann, Markus (HU Berlin)
Abstract:

This paper analyzes the reasons for the large and persistent gaps in transitions after secondary school between native pupils compared to second- and third generation immigrant pupils in Germany. I first document that differences in parental background, skills (such as school degrees or test scores), and school fixed effects explain part of the migrant-native gaps, but are not sufficient. Conditional on these factors, there is a "polarization" of educational choices: migrants are more likely to attend tertiary education, less likely to attend vocational education, and more likely to end without qualified training than their background and skills would predict. I then show that this polarization is driven by the migrant pupils' more academically oriented career aspirations and expectations before leaving school. On the one hand, these higher ambitions allow higher skilled migrants to hieventertiary education despite their less favourable background characteristics. On the other hand, less skilled migrants who in Germany's tracked school system do not have the option to enter academic education, may be diverted from vocational training as a more viable alternative. These patterns are stronger for boys than for girls. Finally, I discuss various possible explanations for the migrants' different career plans, including expected labour market returns to education, expected discrimination, the intention to leave Germany, overconfidence, or information deficits.

Keywords:
migrant youth; vocational education; tertiary education; aspirations; expectations
JEL-Classification:
I24; I21; J24; J15
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Discussion Paper No. 155
May 24, 2019

The Disciplinary Effect of Post-Grant Review
Causal Evidence From European Patent Opposition

Authors:

Nagler, Markus (LMU Munich)
Sorg, Stefan (MPI for Innovation and Competition)

Abstract:

We study the causal impact of invalidating marginally valid patents during post-grant opposition at the European Patent Office on affected inventors' subsequent patenting. We exploit exogenous variation in invalidation by leveraging the participation of a patent's original examiner in the opposition division as an instrument. We find a disciplinary effect of invalidation: Affected inventors file 20% fewer patent applications in the decade after the decision. This effect is entirely driven by a reduction in low-quality filings, i.e., filings that examiners associate with prior art that threatens the application's novelty or inventive step. We do not observe shifts into national patenting.

Keywords:

inventors; marginal patents; patent invalidation; patent opposition; postgrant review; epo; innovation

JEL-Classification:

O31; O34

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Discussion Paper No. 154
May 2, 2019

An Experimental Analysis of Overconfidence in Tariff Choice

Authors:

Dowling, Katharina (LMU Munich)
Spann, Martin (LMU Munich)
Stich, Lucas (LMU Munich)

Abstract:

Digitalization has changed existing business models and enabled new ones. This development has been accompanied by the emergence of new pricing options and the possibility of applying established pricing models in new domains. Today, consumers can, for example, pay for accessing a product instead of buying it. Within such sharing services, consumers can usually choose between a flat-rate and a pay-per-use option. Prior work demonstrated that consumers' tariff choices are often systematically biased. Overconfidence was identified as one of the key drivers. Yet, prior research is non-experimental and focused on the so-called flat-rate bias. By contrast, we examine the effects of overconfidence on tariff choice experimentally. We show that overconfident consumers overestimate their ability to predict their future usage, which leads them to underestimate their actual usage, and eventually leads them to choose a pay-per-use (vs. a flat-rate) option more frequently. We discuss theoretical and managerial implications.

Keywords:

overconfidence; tariff choice; pay-per-use; flat-rate; experiment

JEL-Classification:

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Discussion Paper No. 153
April 30, 2019

Experiments On Matching Markets: A Survey

Authors:

Hakimov, Rustamdjan (WZB Berlin)
Kübler, Dorothea (WZB Berlin)

Abstract:

The paper surveys the experimental literature on matching markets. It covers house allocation, school choice, and two-sided matching markets such as college admissions. The main focus of the survey is on truth-telling and strategic manipulations by the agents, on the stability and efficiency of the matching outcome, as well as on the distribution of utility.

Keywords:

experiments; matching markets; survey

JEL-Classification:

C92; D47; D83

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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
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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:
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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

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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

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