Discussion Papers

Discussion Paper No. 247
June 21, 2020

Mentoring and Schooling Decisions: Causal Evidence

Author:

Falk, Armin (University of Bonn)
Kosse, Fabian (LMU Munich)
Pinger, Pia (University of Cologne)

Abstract:

Inequality of opportunity strikes when two children with the same academic performance are sent to diff erent quality schools because their parents di ffer in socio-economic status. Based on a novel dataset for Germany, we demonstrate that children are signi ficantly less likely to enter the academic track if they come from low socio-economic status (SES) families, even after conditioning on prior measures of school performance. We then provide causal evidence that a low-intensity mentoring program can improve long-run education outcomes of low SES children and reduce inequality of opportunity. Low SES children, who were randomly assigned to a mentor for one year are 20 percent more likely to enter a high track program. The mentoring relationship aff ects both parents and children and has positive long-term implications for children's educational trajectories.

Keywords:

mentoring; childhood intervention programs; education; human capital investments; inequality of opportunity; socio-economic status

JEL-Classification:

C90; I24; J24; J62

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Discussion Paper No. 246
May 29, 2020

On the Causes and Consequences of Deviations from Rational Behavior

Author:

Strittmatter, Anthony (University of St. Gallen)
Sunde, Uwe (LMU Munich)
Zegners, Dainis (Erasmus University Rotterdam)

Abstract:

This paper presents novel evidence for the prevalence of deviations from rational behavior in human decision making – and for the corresponding causes and consequences. The analysis is based on move-by-move data from chess tournaments and an identification strategy that compares behavior of professional chess players to a rational behavioral benchmark that is constructed using modern chess engines. The evidence documents the existence of several distinct dimensions in which human players deviate from a rational benchmark. In particular, the results show deviations related to loss aversion, time pressure, fatigue, and cognitive limitations. The results also demonstrate that deviations do not necessarily lead to worse performance. Consistent with an important influence of intuition and experience, faster decisions are associated with more frequent deviations from the rational benchmark, yet they are also associated with better performance.

Keywords:

Rational strategies; artificial intelligence; behavioral bias

JEL-Classification:

D01; D9; C7; C8

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Discussion Paper No. 245
May 29, 2020

Aging, Proximity to Death, and Religiousness

Author:

Lechler, Marie (LMU Munich)
Sunde, Uwe (LMU Munich)

Abstract:

Considerable evidence has documented that the elderly are more religious and that religiousness is associated with better health and lower mortality. Yet, little is known about the reverse role of life expectancy or proximity to death, as opposed to age, for religiousness. This paper provides evidence for the distinct role of expected remaining life years for the importance of religion in individuals’ lives. We combine individual survey response data for more than 311,000 individuals from 95 countries over the period 1994-2014 with information from period life tables. Contrary to wide-held beliefs, religiousness decreases with greater expected proximity to death. The findings have important implications regarding the consequences of population aging for religiousness and associated outcomes.

Keywords:

Religiousness; demographics; proximity of death; remaining life years

JEL-Classification:

J10; N30; Z12

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Discussion Paper No. 244
May 29, 2020

Self-Assessment: The Role of the Social Environment

Author:

Falk, Armin (University of Bonn)
Kosse, Fabian (LMU Munich) 
Schildberg-Hörisch, Hannah (University of Düsseldorf) 
Zimmermann, Florian (University of Bonn) 

Abstract:

This study presents descriptive and causal evidence on the role of the social environment in shaping the accuracy of self-assessment. We introduce a novel incentivized measurement tool to measure the accuracy of self-assessment among children and use this tool to show that children from high socioeconomic status (SES) families are more accurate in their self-assessment, compared to children from low SES families. To move beyond correlational evidence, we then exploit the exogenous variation of participation in a mentoring program designed to enrich the social environment of children. We document that the mentoring program has a causal positive e ffect on the accuracy of children's self-assessment. Finally, we show that the mentoring program is most e ffective for children whose parents provide few social and interactive activities for their children.

Keywords:

Self-Assessment; Beliefs; Experiments; Randomized Intervention; Children

JEL-Classification:

D03; C21; C91; I24

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Discussion Paper No. 243
May 14, 2020

Covid-19 Crisis Fuels Hostility against Foreigners

Author:

Bartoš, Vojtěch (LMU Munich)
Bauer, Michal (CERGE-EI Prague) 
Cahlíková, Jana (MPI for Tax Law and Public Finance Munich) 
Chytilová, Julie (CERGE-EI Prague) 

Abstract:

Intergroup conflicts represent one of the most pressing problems facing human society. Sudden spikes in aggressive behavior, including pogroms, often take place during periods of economic hardship or health pandemics, but little is known about the underlying mechanism behind such change in behavior. Many scholars attribute it to scapegoating, a psychological need to redirect anger and to blame an out-group for hardship and problems beyond one's own control. However, causal evidence of whether hardship triggers out-group hostility has been lacking. Here we test this idea in the context of the Covid-19 pandemic, focusing on the common concern that it may foster nationalistic sentiments and racism. Using a controlled money-burning task, we elicited hostile behavior among a nationally representative sample (n = 2,186) in a Central European country, at a time when the entire population was under lockdown and border closure. We find that exogenously elevating salience of thoughts related to Covid-19 pandemic magnifies hostility and discrimination against foreigners, especially from Asia. This behavioral response is large in magnitude and holds across various demographic sub-groups. For policy, the results underscore the importance of not inflaming racist sentiments and suggest that efforts to recover international trade and cooperation will need to address both social and economic damage. 

Keywords:

COVID-19 pandemic; scapegoating; hostility; inter-group conflict; discrimination; experiment

JEL-Classification:

C90; D01; D63; D91; J15

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Discussion Paper No. 242
May 14, 2020

Robust Contracting in General Contract Spaces

Author:

Backhoff-Veraguas, Julio (University of Twente)
Beissner, Patrick (Australian National University)
Horst, Ulrich (HU Berlin)

Abstract:

We consider a general framework of optimal mechanism design under adverse selection and ambiguity about the type distribution of agents. We prove the existence of optimal mechanisms under minimal assumptions on the contract space and prove that centralized contracting implemented via mechanisms is equivalent to delegated contracting implemented via a contract menu under these assumptions. Our abstract existence results are applied to a series of applications that include models of optimal risk sharing and of optimal portfolio delegation.

Keywords:

robust contracts; nonmetrizable contract spaces; ambiguity; financial markets

JEL-Classification:

C02; D82

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Discussion Paper No. 241
May 4, 2020

Two Field Experiments on Self-Selection, Collaboration Intensity, and Team Performance

Author:

Fischer, Mira (WZB Berlin)
Rilke, Rainer Michael (WHU - Otto Beisheim School of Management)
Yurtoglu, B. Burcin (WHU - Otto Beisheim School of Management)

Abstract:

We analyze how the team formation process influences the ability composition and performance of teams, showing how self-selection and random assignment affect team performance for different tasks in two natural field experiments. We identify the collaboration intensity of the task as the key driver of the effect of self-selection on team performance. We find that when the task requires low collaborative efforts, the team performance of self-selected teams is significantly inferior to that of randomly assigned teams. When the task involves more collaborative efforts, self-selected teams tend to outperform randomly assigned teams. We observe assortative matching in self-selected teams, with subjects more likely to match with those of similar ability and the same gender.

Keywords:

team performance; self-selection; field experiment; education

JEL-Classification:

I21; M54; C93

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Discussion Paper No. 240
April 29, 2020

Financial Education Affects Financial Knowledge and Downstream Behaviors

Author:

Kaiser, Tim (University of Koblenz-Landau & DIW Berlin)
Lusardi, Annamaria (George Washington University)
Menkhoff, Lukas (HU & DIW Berlin)
Urban, Carly (Montana State University)

Abstract:

We study the rapidly growing literature on the causal effects of financial education programs in a meta-analysis of 76 randomized experiments with a total sample size of over 160,000 individuals. The evidence shows that financial education programs have, on average, positive causal treatment effects on financial knowledge and downstream financial behaviors. Treatment effects are economically meaningful in size, similar to those realized by educational interventions in other domains and are at least three times as large as the average effect documented in earlier work. These results are robust to the method used, restricting the sample to papers published in top economics journals, including only studies with adequate power, and accounting for publication selection bias in the literature. We conclude with a discussion of the cost-effectiveness of financial education interventions.

Keywords:

financial education; financial literacy; financial behavior; RCT; meta-analysis

JEL-Classification:

D14; G53; I21

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Discussion Paper No. 239
April 29, 2020

Starke Erwartungsreaktionen auf Angela Merkels Covid-Erklärungen

Author:

Haan, Peter (DIW Berlin)
Peichl, Andreas (LMU Munich & ifo Institute)
Schrenker, Annekatrin (DIW Berlin)
Weizsäcker, Georg (HU Berlin)
Winter, Joachim (LMU Munich)

Abstract:

Wir führen hochfrequente Befragungen der in Deutschland lebenden Personen durch und erheben die Erwartungen zur Dauer der Covid-bedingten Beschränkungen des öffentlichen Lebens. In einer ersten Analyse der Daten finden wir Hinweise, dass zwei in den Erhebungszeitraum fallenden öffentlichen Auftritte von Bundeskanzlerin Angela Merkel die Erwartungen stark beeinflussen. Insbesondere messen wir nach Merkels Pressekonferenz vom 15.4.2020 eine deutlich pessimistische Bewegung der Erwartungen und die beabsichtigten Konsumausgaben der Haushalte sinken zeitgleich. Die Ergebnisse legen nahe, dass die deutsche Politik über die Möglichkeit eines sehr wirksamen Erwartungsmanagements verfügt.

Keywords:

ökonomische Erwartungen; Covid-Shutdown

JEL-Classification:

D12; D84

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Discussion Paper No. 238
April 28, 2020

Selling Dreams: Endogenous Optimism in Lending Markets

Author:

Bridet, Luc (University of St Andrews)
Schwardmann, Peter (LMU Munich)

Abstract:

We propose a simple model of borrower optimism in competitive lending markets with asymmetric information. Borrowers in our model engage in self-deception to arrive at a belief that optimally trades off the anticipatory utility benefits and material costs of optimism. Lenders’ contract design shapes these benefits and costs. The model yields three key results. First, the borrower’s motivated cognition increases her material welfare, regardless of whether or not she ends up being optimistic in equilibrium. Our model thus helps explain why wishful thinking is not driven out of markets. Second, in line with empirical evidence, a low cost of lending and a booming economy lead to optimism and the widespread collateralization of loans. Third, equilibrium collateral requirements may be inefficiently high.

Keywords:

optimal expectations; motivated cognition; wishful thinking; financial crisis; lending markets; screening

JEL-Classification:

D86; D82; G33

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