Discussion Paper No. 40
November 3, 2021
Gender Differences in Willingness to Compete: The Role of Public Observability
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Abstract:
A recent literature emphasizes the importance of the gender gap in willingness to compete as a partial explanation for gender differences in labor market outcomes. However, whereas experiments investigating willingness to compete typically do so in anonymous environments, real world competitions often have a more public nature, which introduces potential social image concerns. If such image concerns are important, we should expect public observability to further exacerbate the gender gap. We test this prediction using a laboratory experiment that varies whether the decision to compete, and its outcome, is publicly observable. Across four different treatments, however, all treatment effects are close to zero. We conclude that the public observability of decisions and outcomes does not exert a significant impact on male or female willingness to compete, indicating that the role of social image concerns related to competitive decisions may be limited.
Keywords:
gender differences; competitiveness; social image; experiment;
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Discussion Paper No. 39
Trading under Market Impact
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We use a model with agency frictions to analyze the structure of a dealer market that faces competition from a crossing network. Traders are privately informed about their types (e.g. their portfolios), which is something the dealer must take into account when engaging his counterparties. Instead of participating in the dealer market, the traders may take their business to a crossing network. We show that the presence of such a network results in more trader types being serviced by the dealer and that, under certain conditions, the book's spread shrinks. We allow for the pricing on the dealer market to determine the structure of the crossing network and show that the same conditions that lead to a reduction of the spread imply the existence of an equilibrium book or crossing network pair.
Keywords:
asymmetric information; crossing networks; dealer markets; non-linear pricing; principal-agent games;
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Discussion Paper No. 38
Time Preferences and Bargaining
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This paper presents an analysis of general time preferences in the canonical Rubinstein (1982) model of bargaining, allowing for arbitrarily history-dependent strategies. I derive a simple sufficient structure for optimal punishments and thereby fully characterize (i) the set of equilibrium outcomes for any given preference profile, and (ii) the set of preference profiles for which equilibrium is unique. Based on this characterization, I establish that a weak notion of present bias—implied, e.g., by any hyperbolic or quasi-hyperbolic discounting—is sufficient for equilibrium to be unique, stationary and efficient. Conversely, I demonstrate how certain violations of present bias give rise to multiple (non-stationary) equilibria that feature delayed agreement under gradually increasing offers.
Keywords:
time preferences; dynamic inconsistency; alternating offers; bargaining; optimal punishments; delay;
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Discussion Paper No. 37
Does Financial Education Impact Financial Literacy and Financial Behavior, and if so, When?
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In a meta-analysis of 126 impact evaluation studies, we find that financial education significantly impacts financial behavior and, to an even larger extent, financial literacy. These results also hold for the subsample of randomized experiments (RCTs). However, intervention impacts are highly heterogeneous: Financial education is less effective for low- income clients as well as in low and lower-middle income economies. Specific behaviors, such as the handling of debt, are more difficult to influence and mandatory financial education tentatively appears to be less effective. Thus, intervention success depends crucially on increasing education intensity and offering financial education at a “teachable moment".
Keywords:
financial education; financial literacy; financial behavior; meta-analysis; meta-regression; impact evaluation;
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Discussion Paper No. 36
Knowing Me, Imagining You: Projection and Overbidding in Auctions
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Overbidding in auctions has been attributed to e.g. risk aversion, loser regret, level-k, and cursedness, relying on varying identifying assumptions. I argue that “type projection” organizes these findings and largely captures observed behavior. Type projection formally models that people tend to believe others have object values similar to their own—a robust psychological phenomenon that naturally applies to auctions. First, I show that type projection generates the main behavioral phenomena observed in auctions, including increased sense of competition (“loser regret”) and broken Bayesian updating (“cursedness”). Second, re-analyzing data from seven experiments, I show that type projection explains the stylized facts of behavior across private and common value auctions. Third, in a structural analysis relaxing the identifying assumptions made in earlier studies, type projection consistently captures behavior best, in-sample and out-of-sample. The results reconcile bidding patterns across conditions and have implications for behavioral and empirical analyses as well as policy.
Keywords:
auctions; overbidding; projection; risk aversion; cursed equilibrium; depth of reasoning;
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Discussion Paper No. 35
Discrete Choice with Presentation Effects
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Experimenters have to make theoretically irrelevant decisions concerning user inter- faces and ordering or labeling of options. Such presentation decisions affect behavior and cause results to appear contradictory across experiments, obstructing utility esti- mation and policy recommendations. The present paper derives a model of choice allowing analysts to control for both presentation effects and stochastic errors in econometric analyses. I test the model in a comprehensive re-analysis of dictator game experiments. Controlling for presentation effects, preference estimates are con- sistent across experiments and predictive out-of-sample, highlighting the fundamen- tal role of presentation for choice, and this notwithstanding the possibility of reliable estimation and prediction.
Keywords:
discrete choice; presentation effects; utility estimation; counterfactual predictions; laboratory experiment;
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Discussion Paper No. 33
Motivated Health Risk Denial and Preventative Health Care Investments
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People deny health risks, invest too little in disease prevention, and are highly sensitive to the price of preventative health care, especially in developing countries. Moreover, private sector R&D spending on developing-country diseases is almost non-existent. To explain these empirical observations, I propose a model of motivated belief formation, in which an agent’s decision to engage in health risk denial balances the psychological benefits of reduced anxiety with the physical cost of underprevention. I use the model to study firms’ price-setting behaviour and incentive to innovate. I also show that tax-funded prevention subsidies are welfare enhancing.
Keywords:
health risk denial; optimal expectations; motivated beliefs; disease prevention; self-protection;
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Discussion Paper No. 34
Bonus Taxes and International Competition for Bank Managers
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We analyze the competition in bonus taxation when banks compensate their managers by means of fixed and incentive pay and bankers are internationally mobile. Banks choose bonus payments that induce excessive managerial risk-taking to maximize their private benefits of existing government bailout guarantees. In this setting the international competition in bonus taxes may feature a ‘race to the bottom’ or a ‘race to the top’, depending on whether bankers are a source of net positive tax revenue or inflict net fiscal losses on taxpayers as a result of incentive pay. A ‘race to the top’ becomes more likely when governments’ impose only lax capital requirements on banks, whereas a ‘race to the bottom’ is more likely when bank losses are partly collectivized in a banking union.
Keywords:
bonus taxes; international tax competition; migration;
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Discussion Paper No. 32
Deterministic Mechanisms, the Revelation Principle, and Ex-Post Constraints
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This note establishes a revelation principle in terms of payoff for deterministic mech- anisms under ex-post constraints: the maximal payoff implementable by a feasible deterministic mechanism can also be implemented by a feasible deterministic direct mechanism.
Keywords:
mechanism design; revelation principle; ex-post contraints;
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Discussion Paper No. 31
Competition and Incentives
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We report on two experiments that identify non-monetary incentive effects of competition. As the number of competitors increases, monetary incentives to engage in cost reduction tend to decrease. We test the hypothesis that there are non-monetary incentive effects of competition going in the opposite direction. In the experiments we change the number of competitors exogenously keeping the monetary incentives to spend effort constant. The first experiment shows that subjects spend significantly more effort in duopolistic and oligopolistic markets than in a monopoly. The second experiment focuses on so- cial comparisons as one potential mechanism for this effect. It shows that competition turns the effort decisions of competing managers into strategic complements.
Keywords:
incentive effects of competition; behavioral industrial organization;
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