A02
Biased Beliefs in Dynamic Decisions in Competitive Markets
Discussion Papers

Discussion Paper No. 479
December 13, 2023

Do We Talk Too Much?

Author:

Emanuel Vespa (UC San Diego)
Georg Weizsäcker (HU Berlin)

Abstract:

We consider the trade-off between talking and listening in a laboratory experiment where two team members need to coordinate on the use of an information channel. Each team member indicates their preference to “talk” and share her own information with her teammate, or to “listen” and obtain knowledge of the teammate’s information. The nature of the information varies across treatments. For stylized urns-and-balls treatments, we formalize a version of the “hard-easy effect” of over- and under-confidence: players talk more in situations where information is relatively precise – not only for the talker but also for the listener. Indeed we find that a more precise information structure induces a higher talking frequency, with a difference of 5 percentage points, relative to a baseline of 48 percent. The game-theoretic equilibrium, with rational expectations, predicts no such treatment effect. In treatments where information arises from real-world contexts, the hard-easy effect on the talking frequency is even stronger, at about 13 percentage points, relative to a baseline of about 38 percent.

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Discussion Paper No. 478

Public Appeals and Collective Crisis Mitigation

Author:

Peter Haan (DIW Berlin, FU Berlin)
Lea Heursen (HU Berlin)
Jule Specht (HU Berlin)
Bruno Veltri (HU Berlin)
Georg Weizsäcker (HU Berlin)

Abstract:

Arrivals of crises often trigger public appeals by policy leaders, attempting to motivate crisis-mitigating behaviors. We run a controlled experiment among a general-population sample to investigate the impact of such appeals and of their tonality. Varying the language, an identical content of the appeal—a plea to contribute to mitigating a crisis—is formulated with either positive or negative wordings. Relative to the case with no appeal, both types of appeals successfully raise contributions, each by about 20 percent. A separate sample of policy-makers is presented with our design and asked to estimate the effect of the appeals. They correctly predict the effect of the positively worded appeal but fail to predict the effect of the negatively worded one.

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Discussion Paper No. 477

Attempting to Detect a Lie: Do We Think it Through?

Author:

Iuliia Grabova (HU Berlin, DIW Berlin)
Hedda Nielsen (HU Berlin)
Georg Weizsäcker (HU Berlin)

Abstract:

Game-theoretic analyses of communication rely on beliefs – especially, the receiver’s belief about the truth status of an utterance and the sender’s belief about the reaction to the utterance – but research that provides measurements of such beliefs is still in its infancy. Our experiment examines the use of second-order beliefs, measuring belief hierarchies regarding a message that may be a lie. In a two-player communication game between a sender and a receiver, the sender knows the state of the world and has a transparent incentive to deceive the receiver. The receiver chooses a binary reaction. For a wide set of non-equilibrium beliefs, the reaction and the receiver’s second-order belief should dissonate: she should follow the sender’s statement if and only if she believes that the sender believes that she does not follow the statement. The opposite is true empirically, constituting a new pattern of inconsistency between actions and beliefs.

Keywords:

strategic information transmission; lying; higher-order beliefs;

JEL-Classification:

D01; D83;

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Discussion Paper No. 463
November 24, 2023

Robust Decision-Making under Risk and Ambiguity

Author:

Maximilian Blesch (HU Berlin, DIW Berlin)
Philipp Eisenhauer (Amazon)

Abstract:

Economists often estimate economic models on data and use the point estimates as a stand-in for the truth when studying the model’s implications for optimal decision-making. This practice ignores model ambiguity, exposes the decision problem to misspecification, and ultimately leads to post-decision disappointment. Using statistical decision theory, we develop a framework to explore, evaluate, and optimize robust decision rules that explicitly account for estimation uncertainty. We show how to operationalize our analysis by studying robust decisions in a stochastic dynamic investment model in which a decision-maker directly accounts for uncertainty in the model’s transition dynamics.

Keywords:

decision-making under uncertainty; robust Markov decision process;

JEL-Classification:

D81; C44; D25;

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Discussion Paper No. 457
November 21, 2023

Promotion Prospects and Within-level Wage Growth: A Decomposition of the Part-time Penalty for Women

Author:

Boryana Ilieva (DIW Berlin, HU Berlin)

Abstract:

I study the life-cycle pattern of part-time employment and its impact on wage growth in female careers. I show that the part-time wage penalty consists of two essential components: i) a penalty for promotions and ii) a within-career-level wage penalty. Using dynamic structural modeling, I quantify the relative importance of the channels. The penalty for working half a day for two consecutive years in one's early thirties is one Euro per hour. 70% of it is due to slowdowns in experience accumulation within career levels. A part-time spell of four years marks the point at which forgone chances of promotion and within-level wage losses contribute to the wage penalty to an equal degree. Counterfactual simulations demonstrate that financial incentives to increase the time spent working can be well complemented by policies which ensure that experienced young women are promoted early in their careers.

Keywords:

wage growth; female labor supply; part-time employment; promotions;

JEL-Classification:

J21; J21; J24; J31;

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Discussion Paper No. 452
November 13, 2023

In-utero Exposure to Violence and Child Health in Iraq

Author:

Sulin Sardoschau (HU Berlin)

Abstract:

This paper examines the impact of exposure to violence during pregnancy on anthropometric and cognitive outcomes of children in the medium-run. I combine detailed household-level data on more than 36,000 children with geo-coded information on civilian casualties in the aftermath of the US invasion of Iraq between 2003 and 2009 and exploit within mother differences in prenatal exposure to violence. I find that one violent incident during pregnancy decreases height and weight for age scores by 0.13 standard deviations and lowers cognitive and behavioral skills of children. Leveraging information on the severity, type and perpetrator of violence, I isolate the effect of stress from access to prenatal care. I show that the results hold when restricting attention to incidents with little impact on the local infrastructure and are largest for more stressful events; primarily those that target the civilian population and involve execution and torture.

Keywords:

stress; child health; Iraq;

JEL-Classification:

I12; J13; O15;

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Discussion Paper No. 451

Chinese Aid in Africa: Attitudes and Conflict

Author:

Sulin Sardoschau (HU Berlin)
Alexandra Jarotschkin (World Bank)

Abstract:

This study examines Chinese aid projects’ impact on conflict and perceptions of China in 820 African districts from 2000 to 2012. We show that a 10% increase in Chinese aid projects results in a 6% increase in conflict incidents. This rise is mainly due to confrontations involving non-state actors, such as militias and rebel groups, and clashes between these groups and government forces. Civilian attitudes toward China’s presence do not drive this increase, as evidenced by both revealed and stated preferences. We find that Chinese aid does not provoke protests, riots, or strikes, nor does it amplify critical views among Africans regarding Chinese culture, resource extraction, or land acquisitions. Our evidence suggests that Africans attribute the rise in conflict to the interaction of resource influx and local politics, rather than to China itself, reflecting a discerning perspective on China’s influence on the continent.

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Discussion Paper No. 411
July 28, 2023

Biased Wage Expectations and Female Labor Supply

Author:

Maximilian Blesch (HU Berlin and DIW Berlin)
Philipp Eisenhauer (Amazon)
Peter Haan (FU Berlin and DIW Berlin)
Boryana Ilieva (HU Berlin and DIW Berlin)
Annekatrin Schrenker (FU Berlin and DIW Berlin)
Georg Weizsäcker (HU Berlin)

Abstract:

Wage growth occurs almost exclusively in full-time work, whereas it is close to zero in part-time work. German women, when asked to predict their own potential wage outcomes, show severely biased expectations with strong over-optimism about the returns to part-time experience. We estimate a structural life-cycle model to quantify how beliefs influence labor supply, earnings and welfare over the life cycle. The bias increases part-time employment strongly, induces flatter long-run wage profiles, and substantially influences the employment effects of a widely discussed policy reform, the introduction of joint taxation. The most significant impact of the bias appears for college-educated women.

Keywords:

returns to experience; biased beliefs; part-time work; dynamic life-cycle models; ;

JEL-Classification:

D63; H23; I24; I38; J22; J31;

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Discussion Paper No. 384
February 14, 2023

Scared Straight? Threat and Assimilation of Refugees in Germany

Author:

Philipp Jaschke (Institute for Employment Research (IAB))
Sulin Sardoschau (HU Berlin)
Marco Tabellini (Harvard Business School)

Abstract:

This paper studies the effects of local threat on cultural and economic assimilation of refugees, exploiting plausibly exogenous variation in their allocation across German regions between 2013 and 2016. We combine novel survey data on cultural preferences and economic outcomes of refugees with corresponding information on German respondents, and construct a threat index that integrates contemporaneous and historical variables. On average, refugees assimilate both culturally and economically. However, while refugees assigned to more hostile regions converge to German culture more quickly, they do not exhibit faster economic assimilation. Our evidence suggests that refugees exert more assimilation effort in response to local threat, but that higher discrimination prevents them from integrating more quickly in more hostile regions.

Keywords:

refugees; cultural change; assimilation; identity;

JEL-Classification:

F22; J15; Z10;

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Discussion Paper No. 372
January 23, 2023

Causal Misperceptions of the Part-Time Pay Gap

Author:

Annekatrin Schrenker (DIW Berlin and FU Berlin)

Abstract:

This paper studies if workers infer from correlation about causal effects in the context of the part-time wage penalty. Differences in hourly pay between full-time and part-time workers are strongly driven by worker selection and systematic sorting. Ignoring these selection effects can lead to biased expectations about the consequences of working part-time on wages (`selection neglect bias'). Based on representative survey data from Germany, I document substantial misperceptions of the part-time wage gap. Workers strongly overestimate how much part-time workers in their occupation earn per hour, whereas they are approximately informed of mean full-time wage rates. Consistent with selection neglect, those who perceive large hourly pay differences between full-time and part-time workers also predict large changes in hourly wages when a given worker switches between full-time and part-time employment. Causal analyses using a survey experiment reveal that providing information about the raw part-time pay gap increases expectations about the full-time wage premium by factor 1.7, suggesting that individuals draw causal conclusions from observed correlations. De-biasing respondents by informing them about the influence of worker characteristics on observed pay gaps mitigates selection neglect. Subjective beliefs about the part-time/full-time wage gap are predictive of planned and actual transitions between full-time and part-time employment, necessitating the prevention of causal misperceptions.

Keywords:

part-time pay gap; wage expectations; selection neglect; causal misperceptions;

JEL-Classification:

J31; D83; D84;

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