Discussion Paper No. 438
October 30, 2023
Putting a Human in the Loop: Increasing Uptake, but Decreasing Accuracy of Automated Decision-Making
Author:
Abstract:
Are people algorithm averse, as some previous literature indicates? If so, can the retention of human oversight increase the uptake of algorithmic recommendations, and does keeping a human in the loop improve accuracy? Answers to these questions are of utmost importance given the fast-growing availability of algorithmic recommendations and current intense discussions about regulation of automated decision-making. In an online experiment, we find that 66% of participants prefer algorithmic to equally accurate human recommendations if the decision is delegated fully. This preference for algorithms increases by further 7 percentage points if participants are able to monitor and adjust the recommendations before the decision is made. In line with automation bias, participants adjust the recommendations that stem from an algorithm by less than those from another human. Importantly, participants are less likely to intervene with the least accurate recommendations and adjust them by less, raising concerns about the monitoring ability of a human in a Human-in-the-Loop system. Our results document a trade-off: while allowing people to adjust algorithmic recommendations increases their uptake, the adjustments made by the human monitors reduce the quality of final decisions.
Keywords:
automated decision-making; algorithm aversion; algorithm appreciation; automation bias;
JEL-Classification:
O33; C90; D90;
Download:
Discussion Paper No. 437
October 24, 2023
Inefficient Labor Market Sorting
Author:
Abstract:
A growing empirical literature attributes much of the productivity advantages of large, "superstar" firms to their adoption of best practice management techniques that allow them to better identify and use talented workers. The reasons for the incomplete adoption of these "structured management practices" and their welfare implications are not well understood. This paper provides a positive and normative analysis of these issues in a theoretical framework in which structured management practices induce sorting of talent across firms. Incomplete adoption arises because worker talent is in limited supply. In equilibrium there is excessive adoption of structured management practices and too much sorting of talented workers into large firms. In this second-best environment, policy changes that favor large firms, such as trade liberalization, have the potential to lower welfare.
Keywords:
labor market imperfection; misallocation; productivity; wage inequality; international trade; welfare;
JEL-Classification:
F12; F16; J31; J33; J42; M51;
Download:
Discussion Paper No. 436
Have Preferences Become More Similar Worldwide?
Author:
Abstract:
Recent evidence shows substantial heterogeneity in time, risk, and social preferences across and within populations; yet little is known about the dynamics of preference heterogeneity across generations. We apply a novel identification strategy based on dyadic differences in preferences using representative data for 80,000 individuals from 76 countries. Our results document that, among more recent birth cohorts, preferences are more similar across countries and gender gaps in preferences are smaller within countries. This decline in preference heterogeneity across cohorts relates to country-specific differences in preference endowments, population composition, and socioeconomic conditions during formative years, and points at global cultural convergence.
Keywords:
cohort effects; patience; willingness to take risks;
JEL-Classification:
D01; J10; J11;
Download:
Discussion Paper No. 435
Accommodation of Right-Wing Populist Rhetoric: Evidence From Parliamentary Speeches in Germany
Author:
Abstract:
We provide novel evidence on how right-wing (populist) rhetoric spreads. Using several thousand speeches from the German parliament, we show that exposure to politicians from the right-wing populist Alternative for Germany (AfD) leads mainstream politicians to adopt a more distinctively right-wing populist language. We measure similarity to right-wing populist rhetoric via cosine similarity to both parliamentary speeches by the AfD and extremist speeches at far-right rallies, as well as using a populist dictionary method. To induce individual-level variation in exposure to AfD politicians, we exploit a quasi-exogenous allocation rule for committee members in the German parliament. Comparing a politician with the highest to one with the lowest relative AfD exposure increases the cosine similarity to right-wing populist speech by 0.1 of a standard deviation. Our results seem specific to right-wing populism and suggest strategic motives related to local electoral competition behind rhetorical changes among individual politicians.
Keywords:
right-wing populism; AfD; Germany; NLP;
JEL-Classification:
Download:
Discussion Paper No. 434
Self-preferencing, Quality Provision, and Welfare in Mobile Application Markets
Author:
Abstract:
Platforms often display their products ahead of third-party products in search. Is this due to consumers preferring platform-owned products or platforms engaging in self-preferencing by biasing search towards their own products? What are the welfare implications? I develop a structural model of mobile application markets to identify self-preferencing and quantify its welfare effects, taking into account third-party developers' quality adjustment. A new dataset on app downloads, prices, characteristics, and search rankings is used to estimate the model. Estimates indicate self-preferencing. Simulations show higher consumer welfare and third-party profits without self-preferencing.
Keywords:
competition policy; platform design; consumer search; endogenous product choice;
JEL-Classification:
D12; D83; L13; L86;
Download:
Discussion Paper No. 433
Religion and Growth
Author:
Abstract:
We use the elements of a macroeconomic production function—physical capital, human capital, labor, and technology—together with standard growth models to frame the role of religion in economic growth. Unifying a growing literature, we argue that religion can enhance or impinge upon economic growth through all four elements because it shapes individual preferences, societal norms, and institutions. Religion affects physical capital accumulation by influencing thrift and financial development. It affects human capital through both religious and secular education. It affects population and labor by influencing work effort, fertility, and the demographic transition. And it affects total factor productivity by constraining or unleashing technological change and through rituals, legal institutions, political economy, and conflict. Synthesizing a disjoint literature in this way opens many interesting directions for future research.
Keywords:
religion; growth; Christianity; Judaism; Islam; preferences; norms; institutions; capital; saving; financial development; human capital; education; population; labor; demography; fertility; total factor productivity; technological change; rituals; political economy; conflict;
JEL-Classification:
Z12; O40; N30; I25; O15;
Download:
Discussion Paper No. 432
October 19, 2023
Monopsony and Automation
Author:
Abstract:
We examine the impact of labor market power on firms' adoption of automation technologies. We develop a model that incorporates labor market power into the task-based theory of automation. We show that, due to higher marginal cost of labor, monopsonistic firms have stronger incentives to automate than wage-taking firms, which could amplify or mitigate the negative employment effects of automation. Using data from US commuting zones, our results show that commuting zones that are more exposed to industrial robots exhibit considerably larger reductions in both employment and wages when their labor markets demonstrate higher levels of concentration.
Keywords:
automation; employment; labor market concentration; industrial robots; wage setting;
JEL-Classification:
J23; J30; J42; L11; O33;
Download:
Discussion Paper No. 431
Export Induced Spatial Divergence
Author:
Abstract:
How does export liberalization affect firm location choice and the spatial concentration of economic activity? We address these questions using the geo-coordinates of Chinese manufacturing firms and find that export widens inter-city and intra-city spatial disparities by reinforcing initially large industry centers. We first show that there has been an increased spatial concentration across cities in response to improved foreign market access. Only industry city pairs that were large initially increase their employment density following trade liberalization. Second, there has also been an increased spatial concentration within cities. For a given industry, districts closer to city centers are getting denser, mainly driven by the extensive margin. Third, the above effects are not exclusive to industries directly exposed to export shocks but also spill over positively to upstream and downstream industries and negatively to industries competing for the same workers locally.
Keywords:
firm location; localization; spatial concentration; regional inequality; export; comparative advantage;
JEL-Classification:
F6; F14; R12;
Download:
Discussion Paper No. 430
October 13, 2023
Organizational Change and Reference-Dependent Preferences
Author:
Abstract:
Reference-dependent preferences can explain several puzzling observations about organizational change. We introduce a dynamic model in which a loss-neutral firm bargains with loss-averse workers over organizational change and wages. We show that change is often stagnant or slow for long periods followed by a sudden boost in productivity during a crisis. Moreover, it accounts for the fact that different firms in the same industry often have significant productivity differences. The model also demonstrates the importance of expectation management even if all parties have rational expectations. Social preferences explain why it may be optimal to divide a firm into separate entities.
Keywords:
organizational change; productivity; reference points; loss aversion; social preferences;
JEL-Classification:
D23; D91; L2;
Download:
Discussion Paper No. 429
September 19, 2023
Can Patience Account for Subnational Differences in Student Achievement? Regional Analysis with Facebook Interests
Author:
Abstract:
Decisions to invest in human capital depend on people’s time preferences. We show that differences in patience are closely related to substantial subnational differences in educational achievement, leading to new perspectives on longstanding within-country disparities. We use social-media data – Facebook interests – to construct novel regional measures of patience within Italy and the United States. Patience is strongly positively associated with student achievement in both countries, accounting for two-thirds of the achievement variation across Italian regions and one-third across U.S. states. Results also hold for six other countries with more limited regional achievement data.
Keywords:
patience; student achievement; regions; social media;
JEL-Classification:
I21; Z10;