A01
Heterogeneity of Expectations and Preferences and their Joint Impact on Individual Choices
Discussion Papers

Discussion Paper No. 195
October 23, 2019

Decision-Making Traits and States as Determinants of Risky Choices

Author:

Gärtner, Manja (DIW Berlin)
Tinghög, Gustav (Linköping University)
Västfjäll, Daniel (Linköping University)

Abstract:

We test the effects of dual processing differences in both individual traits and decision states on risk taking. In an experiment with a large representative sample (N = 1,832), we vary whether risky choices are induced to be based on either emotion or reason, while simultaneously measuring individual decision-making traits. Our results show that decision-making traits are strong and robust determinants of risk taking: a more intuitive trait is associated with more risk taking, while a more deliberative trait is associated with less risk taking. Experimentally induced states, on the other hand, have no effect on risk taking. A test of state-trait interactions shows that the association between an intuitive trait and risk taking becomes weaker in the emotion-inducing state and in the loss domain. In contrast, the association between a deliberative trait and risk taking is stable across states. These findings highlight the importance of considering state-trait interactions when using dual processing theories to predict individual differences in risk taking.

Keywords:

risk preferences; intuition; emotion; reason; experiment

JEL-Classification:

C91; D81; D91

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Discussion Paper No. 184
September 18, 2019

The Wage Penalty of Regional Accents

Author:

Grogger, Jeffrey (University of Chicago)
Steinmayr, Andreas (LMU Munich)
Winter, Joachim (LMU Munich)

Abstract:

Previous work has documented that speaking one’s native language with an accent distinct from the mainstream is associated with lower wages. In this study, we seek to estimate the causal effect of speaking with a distinctive regional accent, disentangling the effect of the accent from that of omitted variables. We collected data on workers’ speech in Germany, a country with wide variation in regional dialects. We use a variety of strategies in estimation, including an instrumental variables strategy in which the instruments are based on research findings from the linguistics of accent acquisition. All of our estimators show that speaking with a distinctive regional accent reduces wages by an amount that is comparable to the gender wage gap. We also find that workers with distinctive regional accents tend to sort away from occupations that demand high levels of face-to-face contact, consistent with various occupational sorting models.

Keywords:

accent; dialect; wage penalty; discrimination; SOEP

JEL-Classification:

J24; J07

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Discussion Paper No. 182
September 16, 2019

Student Performance and Loss Aversion

Author:

Karle, Heiko (Frankfurt School of Finance & Management)
Engelmann, Dirk (HU Berlin)
Peitz, Martin (University of Mannheim)

Abstract:

In this paper, we match data on student performance in a multiple-choice exam with data on student risk preferences that are extracted from a classroom experiment. We find that more-loss-averse students leave more questions unanswered and perform worse in the multiple-choice exam when giving an incorrect answer is penalized compared to not answering. We provide evidence that loss aversion parameters extracted from lottery choices in a controlled experiment have predictive power in a field environment of decision making under uncertainty. Furthermore, the degree of loss aversion appears to be persistent over time, as the experiment was conducted three months prior to the exam. We also find important differences across genders; they are partly explained by differences in loss aversion.

Keywords:

loss aversion; decision making under uncertainty; multiple choice

JEL-Classification:

C91; D01; D11; D83

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Discussion Paper No. 181
August 23, 2019

Does Experience Shape Subjective Expectations?

Author:

Rossmann, Tobias (LMU Munich)

Abstract:

This paper documents that individuals' expectations about macroeconomic outcomes are systematically linked with the experiences of these macroeconomic outcomes they have made during life. Focusing on expectations about national inflation, national unemployment and national business conditions, I measure individual-specific experiences as weighted averages of these variables over the respondents' lifetime, respectively. I find that experience significantly predicts respondents' expectations in each of these domains and show that individuals generally put more weight on recent rather than distant years when aggregating past information. The empirical model also allows for heterogeneity with respect to observed socio-economic characteristics. The estimates suggest the existence of a gender effect. Compared to females, males put relatively more weight on distant years when aggregating past information, and the association between expectations and past experiences is generally weaker for men.

Keywords:

expectations; experience; inflation; unemployment; business conditions

JEL-Classification:

D84; E24; E31

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Discussion Paper No. 160
June 25, 2019

Economic Uncertainty and Subjective Inflation Expectations

Author:

Rossmann, Tobias (LMU Munich)

Abstract:

Measuring economic uncertainty is crucial for understanding investment decisions by individuals and firms. Macroeconomists increasingly rely on survey data on subjective expectations. An innovative approach to measure aggregate uncertainty exploits the rounding patterns in individuals' responses to survey questions on inflation expectations (Binder, 2017). This paper uses the panel dimension of household surveys to study individual-level heterogeneity in this measure of individual uncertainty. The results provide evidence for the existence of considerable heterogeneity in individuals' response behavior and inflation expectations.

Keywords:

uncertainty; inflation; expectations; mixture models

JEL-Classification:

C10; D80; D83; D84; E31

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Discussion Paper No. 159
June 24, 2019

Magnitude Effect in Intertemporal Allocation Tasks

Authors:

Sun, Chen (HU Berlin)
Potters, Jan (Tilburg University)

Abstract:

We investigate how intertemporal allocation of monetary rewards is influenced by the size of total budget, with a particular interest in the channels of influence. We find a significant magnitude effect: the budget share allocated to the later date increases with the size of the budget. At the aggregate level as well as at the individual level, we find magnitude effects both on the discount rate and on intertemporal substitutability (i.e. utility curvature). The latter effect is consistent with theories in which the degree of asset integration is increasing in the stake.

Keywords:

time preference; magnitude effect; convex time budget method

JEL-Classification:

C91; D12; D91

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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. 113
August 28, 2018

Historic Sex-Ratio Imbalances Predict Female Participation in the Market for Politicians

Authors:

Grant, Iris (KU Leuven)
Kesternich, Iris (KU Leuven)
Steckenleiter, Carina (University of St. Gallen)
Winter, Joachim (LMU Munich)

Abstract:

We analyze the long-term effects of gender imbalances on female labor force participation, in particular in the market for politicians. We exploit variation in sex ratios - the number of men divided by the number of women in a region - across Germany induced by WWII. In the 1990 elections, women were more likely to run for office in constituencies that had relatively fewer men in 1946. We do not find a significant effect of the sex ratio on the likelihood of a woman winning the election. These results suggest that while women were more likely to run for a seat in parliament in constituencies with lower historical sex ratios, voters were not more inclined to vote for them. Voter demand effects thus do not appear to be as strong as candidate supply effects.

Keywords:

female politicians; gender stereotypes; occupational choice; sex imbalance

JEL-Classification:

J16; J24; N44

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Discussion Paper No. 112
August 13, 2018

Social Image Concerns and Welfare Take-Up

Authors:

Friedrichsen, Jana (DIW Berlin and HU Berlin)
König, Tobias (WZB Berlin and HU Berlin)
Schmacker, Renke (DIW Berlin)

Abstract:

Using a laboratory experiment, we present first evidence that social image concerns causally reduce the take-up of an individually beneficial transfer. Our design manipulates the informativeness of the take-up decision by varying whether transfer eligibility is based on ability or luck, and how the transfer is financed. We find that subjects avoid the inference both of being low-skilled (ability stigma) and of being willing to live off others (free-rider stigma). Using a placebo treatment, we exclude other explanations for the observed stigma effects. Although stigma reduces take-up, elicitation of political preferences reveals that only a minority of "taxpayers" vote for the public transfer.

Keywords:

stigma; signaling; redistribution; non take-up; welfare program

JEL-Classification:

C91; D03; H31; I38

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Discussion Paper No. 89
March 28, 2018

Welfare-Based Altruism

Authors:

Breitmoser, Yves (HU Berlin)
Vorjohann, Pauline (HU Berlin)

Abstract:

Why do people give when asked, but prefer not to be asked, and even take when possible? We show that standard behavioral axioms including separability, narrow bracketing, and scaling invariance predict these seemingly inconsistent observations. Specifically, these axioms imply that interdependence of preferences ("altruism") results from concerns for the welfare of others, as opposed to their mere payoffs, where individual welfares are captured by the reference-dependent value functions known from prospect theory. The resulting preferences are non-convex, which captures giving, sorting, and taking directly. Re-analyzing choices of 981 subjects in 83 treatments covering many variants of dictator games, we find that individual reference points are distributed consistently across studies, allowing us to classify subjects as either non-givers, altruistic givers, or social pressure givers and use welfare-based altruism to reliably predict giving, sorting, and taking across experiments.

Keywords:

social preferences; axiomatic foundation; robustness; giving; charitable donations

JEL-Classification:

C91; D64; D03

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