Discussion Papers

Discussion Paper No. 219
December 16, 2019

The E-Word – On the Public Acceptance of Experiments

Author:

Fischer, Mira (WZB Berlin)
Grewenig, Elisabeth (ifo Institute)
Lergetporer, Philipp (ifo Institute)
Werner, Katharina (ifo Institute)

Abstract:

Randomized experiments are often viewed as the “gold standard” of scientific evidence but people’s scepticism towards experiments has compromised their viability in the past. We study preferences for experimental policy evaluations in a representative survey in Germany (N>1,900). We find that a majority of 75% supports the idea of small-scale evaluations of policies before enacting them at a large scale. Experimentally varying whether the evaluations are explicitly described as “experiments” has a precisely estimated overall zero effect on public support. Our results indicate political leeway for experimental policy evaluation, a practice that is still uncommon in Germany.

Keywords:

experiment aversion; policy experimentation; education

JEL-Classification:

I28; H40; C93

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Discussion Paper No. 218
December 16, 2019

Long-run Expectations of Households

Author:

Breunig, Christoph (Emory University)
Grabova, Iuliia (HU and DIW Berlin)
Haan, Peter (FU and DIW Berlin)
Weinhardt, Felix (HU and DIW Berlin)
Weizsäcker, Georg (HU and DIW Berlin)

Abstract:

The rational expectations assumption, e.g. in life-cycle models and portfolio-choice models, prescribes agents to have model-consistent beliefs and to avoid systematic prediction errors. In reality, justi cation and identi cation of expectations are nontrivial. One way to solve this problem is to elicit expectations collecting survey data. We utilize the German SOEP Innovation Sample to analyze short-run and long-run expectations of households in three di erent domains: stock market, labor market and housing market. Our main contribution to the existing literature is that we study expectations about price developments over longer periods, which is of central relevance since many important economic decisions of households concern the long run. Previous studies have mainly focused on short-run or medium-run expectations. We document that while expectations about wages are similar to historical values, the long-run expectations about the developments of the stock market index and about house prices are strongly pessimistic. In the case of the stock market, respondents expect only a small percentage of historical growth. We also observe substantial heterogeneity of expectations by socio-economic background.

Keywords:

long-run expectations; biased beliefs; returns to education

JEL-Classification:

D63; H23; I24; I38; J22; J31

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Discussion Paper No. 217
December 13, 2019

On the Origins of National Identity

Author:

Kersting, Felix (HU Berlin)
Wolf, Nikolaus (HU Berlin)

Abstract:

What are the origins of national identity? We extend the model by Alesina et al. (2019) to analyze the incentives of elites to use specific types of identity policies in response to shocks, and the extent to which such policies should be effective. To elicit changes in identity we use data on first names given in German cities between 1800 and 1875. We show that parents in cities treated by nation building policies responded by choosing first names of German origin for their children. To control for familyspecific confounding factors, we exploit within family variation. We also show that the response can be conditional on cultural distance to the elite. Finally, Germanic first names had remarkable predictive power for behaviour. We find that individuals with Germanic first names made different marriage choices and were more likely to get actively involved and decorated during the German-French War in 1870/71 and the First World War.

Keywords:

JEL-Classification:

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Discussion Paper No. 216
December 13, 2019

Intertemporal Preferences and the Adoption Decision for Bluetooth Speakers

Author:

Guhl, Daniel (HU Berlin)
Klapper, Daniel (HU Berlin)

Abstract:

The adoption decision for durable goods is intertemporal by definition. However, estimating utility and discount functions from revealed preference data using dynamic discrete choice models is difficult because of an inherent identification problem. To overcome this issue, we use stated preference data. Specifically, we employ the experimental design of Dubé, Hitsch, and Jindal (2014), where future prices are known and that elicits intertemporal adoption decisions for Bluetooth speakers in a discrete choice framework. We estimate several models of discounting (e.g., static, myopic, geometric, and quasi-hyperbolic) and find considerably lower discount factors than typical market interest rates would suggest. The values are also smaller compared to respondents’ matching-based discount factors, even though the correlation is positive and significant. Furthermore, there are substantial differences in discounting across respondents (i.e., heterogeneity in time-preferences) and lastly, there is no strong empirical evidence for quasi-hyperbolic discounting. Thus, the standard economic model seems to be appropriate for the data at hand.

Keywords:

intertemporal preferences; dynamic discrete choice models; durable goods adoption

JEL-Classification:

C35; D9; D12; M31

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Discussion Paper No. 215
December 13, 2019

Standing on the Shoulders of Science

Author:

Watzinger, Martin (LMU Munich)
Schnitzer, Monika (LMU Munich)

Abstract:

The goal of science is to advance knowledge, yet little is known about its value for marketplace inventions. While important breakthrough technologies could not have been developed without scientific background, skeptics argue that this is the exception rather than the rule, questioning the usefulness of basic research for private sector innovations and the effectiveness of the knowledge transfer from university to industry. We analyze the universe of U.S. patents to establish three new facts about the relationship between science and the value of inventions. First, we show that a patent that directly builds on science is on average 2.9 million U.S. dollars more valuable than a patent in the same technology that is unrelated to science. Based on the analysis of the patent text, we show second that the novelty of patents predicts their value, and third that science-intensive patents are more novel. This documents that science introduces new concepts that are valuable for marketplace inventions. Our study informs the debate on the merits of science for corporate innovation and the origins of breakthrough inventions.

JEL-Classification:

O30; O34; O33; O31

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Discussion Paper No. 214
December 12, 2019

Personality Traits Across the Life Cycle: Disentangling Age, Period, and Cohort Effects

Author:

Fitzenberger, Bernd (HU Berlin)
Mena, Gary (HU Berlin)
Nimczik, Jan (ESMT Berlin)
Sunde, Uwe (LMU Munich)

Abstract:

Despite the importance for socio-economic outcomes, there is an ongoing debate about the stability of personality traits over the life cycle. By disentangling age, period and cohort influences on personality traits, this paper adds to the existing empirical contributions, which often focus on age patterns and disregard cohort and period influences. We present the results from systematic specification tests that provide novel evidence for the separability of age, period, and cohort effects in almost all personality traits. Our estimates also document that for different cohorts, the evolution of personality traits across the life-cycle follows a stable, though non-constant, age-profile, while there are sizeable differences across time periods.

Keywords:

big five personality traits; locus of control; risk attitudes; age-period-cohort decomposition; life cycle

JEL-Classification:

D8; J1

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Discussion Paper No. 213
December 12, 2019

Does Relative Performance Information Lower Group Morale?

Author:

Heursen, Lea (HU Berlin)

Abstract:

In many organizations, productivity relies not just on individual effort but also on group morale, that is, the willingness of co-workers to help each other perform better at work. Relative performance evaluations (RPE) are known to increase individual work morale but may negatively affect group morale because they create a sense of competition among members of a reference group. In a novel experiment, I vary whether or not members of a reference group obtain relative performance information on a task that is relevant for their social image or selfimage, a general knowledge test. I measure how this affects the subsequent willingness to help the productivity of others by sharing knowledge with them at a personal cost. I find that RPE cause members of a reference group to compete as intensely as under relative pay, compared to a baseline with no relative performance information and fixed piece-rates. It also increases the perceived social distance between them. Yet, I show that even after a performance competition, individuals are willing to help the productivity of others in the group. These findings advance our understanding of how relative concerns among co-workers affect the way they work together.

Keywords:

relative performance information; rank feedback; social incentives; on-the-job help; group productivity; social and self-image; experiment

JEL-Classification:

D23; C92; J24; D91

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Discussion Paper No. 212
December 11, 2019

Working Life and Human Capital Investment: Causal Evidence from Pension Reform

Author:

Gohl, Niklas (DIW Berlin and Potsdam University)
Haan, Peter (DIW Berlin and FU Berlin)
Kurz, Elisabeth
Weinhardt, Felix (DIW Berlin, CESifo, IZA, CEP/LSE)

Abstract:

In this paper we present a life-cycle model with human capital investment during working life through training and provide a novel empirical test of human capital theory. Using a sizable pension reform which shifts the retirement age between two adjacent cohorts by three years, we document causal evidence that an increase in the working life increases investment into human capital through training. We estimate this effect using a regression discontinuity design based on a large sample from the German microcensus. We discuss and test further predictions regarding the relation between initial schooling, training, and the reform effect and show that only individuals with a college degree increase human capital investment. Our results speak to a large class of human capital models as well as policies extending or shortening working life.

Keywords:

human capital; retirement policies; RDD

JEL-Classification:

J24; J26; H21

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Discussion Paper No. 211
December 11, 2019

Are Strategies Anchored?

Author:

Ivanova-Stenzel, Radosveta (TU Berlin)
Seres, Gyula (HU Berlin)

Abstract:

Anchoring is one of the most studied and robust behavioral biases, but there is little knowledge about its persistence in strategic settings. This article studies the role of anchoring bias in private-value auctions. We test experimentally two different anchor types. The announcement of a random group identification number but also of an upper bid limit in the first-price sealed-bid auction result in higher bids. We show that such behavior can be explained as a rational response to biased beliefs. In Dutch auctions, the effect of a starting price, is negative. We demonstrate that the long-established ranking that the Dutch auction generates lower revenue than the first-price sealed-bid auction crucially depends on the size of the anchor.

Keywords:

anchoring bias; games; incomplete information; auctions

JEL-Classification:

D44; D91; C72; C91

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Discussion Paper No. 210
December 9, 2019

Risk-Taking under Limited Liability: Quantifying the Role of Motivated Beliefs

Author:

Bosch-Rosa, Ciril (TU Berlin)
Gietl, Daniel (LMU Munich)
Heinemann, Frank (TU Berlin)

Abstract:

This paper investigates whether limited liability affects risk-taking through motivated beliefs. To do so, we run a within-subject experiment in which subjects invest in a risky asset under full or limited liability. In both cases, before the investment is made, subjects observe a noisy signal that indicates whether the investment will succeed or fail. They then state the likelihood of the investment's success and decide how much to invest. Our results show a strong effect of limited liability on both the investment decision and the formation of motivated beliefs. Compared to subjects under full liability, subjects under limited liability not only invest larger amounts but are also significantly more optimistic about the success of their investments. Finally, we show that more than one-third of the increase in investment under limited liability can be explained through motivated beliefs.

Keywords:

limited liability; motivated beliefs; experiment

JEL-Classification:

C91; D84; G11; G41

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