A02
Biased Beliefs in Dynamic Decisions in Competitive Markets
Discussion Papers

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Discussion Paper No. 325
April 25, 2022

Explicit and Implicit Belief-Based Gender Discrimination: A Hiring Experiment

Authors:
Barron, Kai (WZB Berlin)
Ditlmann, Ruth (Hertie School Berlin)
Gehrig, Stefan (WZB Berlin)
Schweighofer-Kodritsch, Sebastian (HU Berlin)
Abstract:
Understanding discrimination is key for designing policy interventions that promote equality in society. Economists have studied the topic intensively, typically taxonomizing discrimination as either taste-based or (accurate) statistical discrimination. To reveal the limitations of this taxonomy and enrich it psychologically, we design a hiring experiment that rules out (by design) both of these sources of discrimination with respect to gender. Yet, we still detect substantial discrimination against women. We provide evidence of two forms of discrimination, explicit and implicit belief-based discrimination. Both rely on statistically inaccurate beliefs but differ in how clearly they reveal that the choice was based on gender. Our analysis highlights the central role played by contextual features of the choice setting in determining whether and how discrimination will manifest. We conclude by discussing how policy makers may design effective regulation to address the specific forms of discrimination identified in our experiment.
Keywords:
discrimination; hiring decisions; gender; beliefs; experiment
JEL-Classification:
D90; J71; D83
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Discussion Paper No. 313
January 21, 2022

House Price Expectations

Authors:
Gohl, Niklas (DIW Berlin and University of Potsdam)
Haan, Peter (DIW Berlin, FU Berlin and Netspar)
Michelsen, Claus (DIW Berlin and Leuphana University Lueneburg)
Weinhardt, Felix (European University Viadrina and DIW Berlin)
Abstract:
This study examines short-, medium-, and long-run price expectations in housing markets. We derive and test six hypothesis about the incidence, formation, and relevance of price expectations. To do so, we use data from a tailored household survey, past sale and rental offerings, satellites, and from an information RCT. As novel findings, we show that price expectations exhibit mean reversion in the long-run. Moreover, we do not find evidence for biases related to individual housing tenure decisions or regret aversion. Confirming existing findings, we show that local market characteristics matter for expectations throughout, as well as aggregate price information. Lastly, we corroborate existing evidence that expectations are relevant for portfolio choice.
Keywords:
housing markets; price expectations
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Discussion Paper No. 308
December 27, 2021

The Bargaining Trap

Authors:
Schweighofer-Kodritsch, Sebastian (HU Berlin)
Abstract:
I revisit the Rubinstein (1982) model for the classic problem of price hag- gling and show that bargaining can become a “trap,” where equilibrium leaves one party strictly worse off than if no transaction took place (e.g., the equilibrium price exceeds a buyer’s valuation). This arises when one party is impatient about capturing zero surplus (e.g., Rubinstein’s example of fixed bargaining costs). Augmenting the protocol with unilateral exit options for responding bargainers generally removes the trap.
Keywords:
alternating offers; bargaining; time preferences; haggling costs; outside options
JEL-Classification:
C78; D03; D74
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Discussion Paper No. 302
November 29, 2021

The Effects of an Increase in the Retirement Age on Health – Evidence from Administrative Data

Authors:
Barschkett, Mara (DIW Berlin and FU Berlin)
Geyer, Johannes (DIW Berlin and Netspar)
Haan, Peter (DIW Berlin, FU Berlin and Netspar)
Hammerschmid, Anna (DIW Berlin)
Abstract:
This study analyzes the causal effect of an increase in the retirement age on health. We exploit a sizable cohort-specific pension reform for women using two complementary empirical approaches – a Regression Discontinuity Design and a Difference-in-Differences approach. The analysis is based on official records covering all individuals insured by the public health system in Germany and including all certified diagnoses by practitioners. This enables us to gain a detailed understanding of the multi-dimensionality in these health effects. The empirical findings reflect the multi-dimensionality but allow for deriving two broader conclusions. We provide evidence that the increase in the retirement age negatively affects health outcomes as the prevalence of several diagnoses, e.g., mental health, musculoskeletal diseases, and obesity, increases. In contrast, we do not find support for an improvement in health related to a prolonged working life since there is no significant evidence for a reduction in the prevalence of any health outcome we consider. These findings hold for both identifica- tion strategies, are robust to sensitivity checks, and do not change when correcting for multiple hypothesis testing.
Keywords:
Germany; retirement; pension reform; health, ICD-10, regression discontinuity design, difference-in-differences
JEL-Classification:
I10; I12; I18; J14; J18; J26
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Discussion Paper No. 299
November 15, 2021

Expectation Management of Policy Leaders: Evidence from COVID-19

Authors:
Haan, Peter (FU Berlin and DIW Berlin)
Peichl, Andreas (LMU Munich and ifo Institute)
Schrenker, Annekatrin (FU Berlin and DIW Berlin)
Weizsäcker, Georg (HU Berlin)
Winter, Joachim (LMU Munich)
Abstract:
This paper studies how the communication of political leaders affects the expectation formation of the public. Specifically, we examine the expectation management of the German government regarding COVID-19-related regulatory measures during the early phase of the pandemic. We elicit beliefs about the duration of these restrictions via a high-frequency survey of individuals, accompanied by an additional survey of firms. To quantify the success of policy communication, we use a regression discontinuity design and study how beliefs about the duration of the regulatory measures changed in response to three nationally televised press conferences by Chancellor Angela Merkel and the Prime Ministers of the German federal states. We find that the announcements of Angela Merkel and her colleagues significantly prolonged the expected duration of restrictions, with effects being strongest for individuals with higher ex-ante optimism.
Keywords:
expectations; belief updating; covid-19; shutdown
JEL-Classification:
D12; D84; H12
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Discussion Paper No. 273
January 21, 2021

Alcohol and Short-Run Mortality: Evidence from a Modern-Day Prohibition

Author:

Barron, Kai (WZB Berlin)
Bradshaw, Debbie (SAMRC & University of Cape Town)
Parry, Charles D. H. (SAMRC & Stellenbosch University)
Dorrington, Rob (University of Cape Town)
Groenewald, Pam (SAMRC)
Laubscher, Ria (SAMRC)
Matzopoulos, Richard (SAMRC & University of Cape Town)

Abstract:

On July 13, 2020 a complete nation-wide ban was placed on the sale and transport of alcohol in South Africa. This paper evaluates the impact of this sudden and unexpected five-week alcohol prohibition on mortality due to unnatural causes. We find that the policy reduced the number of unnatural deaths by 21 per day, or approximately 740 over the five-week period. This constitutes a 14% decrease in the total number of deaths due to unnatural causes. We argue that this represents a lower bound on the impact of alcohol on short-run mortality, and underscores the severe influence that alcohol has on society—even in the short-run.

Keywords:

alcohol; mortality; economics; health; South Africa; COVID-19; violence

JEL-Classification:

I18; I12; K42

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Discussion Paper No. 257
September 8, 2020

Do Women Expect Wage Cuts for Part-Time Work?

Author:

Schrenker, Annekatrin (DIW and FU Berlin)

Abstract:

Wage expectations for full- and part-time employment are key for understanding the labor supply decisions of women. However, whether women expect different wages between part-time and full-time work is not fully understood. Using German survey data, I quantify the expected full-time/part-time wage differential for a representative sample of female workers. I document that women, on average, expect only minor part-time wage penalties (1-3 percent). Comparing beliefs to selectivity-adjusted estimates of the part-time wage gap indicates that women’s mean expectations are realistic. I also show that women with children and those in managerial positions expect sizeable part-time wage cuts, with mothers overestimating the part-time wage penalty.

Keywords:

expectations; female labor supply; part-time wage gap

JEL-Classification:

D84; J22; J31

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Discussion Paper No. 254
August 14, 2020

Bargaining and Time Preferences: An Experimental Study

Author:

Kim, Jeongbin (National University of Singapore)
Lim, Wooyoung (The Hong Kong University of Science and Technology)
Schweighofer-Kodritsch, Sebastian (HU Berlin)

Abstract:

We generalize the Rubinstein (1982) bargaining model by disentangling payoff delay from bargaining delay. We show that our extension is isomorphic to generalized discounting with dynamic consistency and characterize the unique equilibrium. Using a novel experimental design to control for various confounds, we then test comparative statics predictions with respect to time discounting. All bargaining takes place within a single experimental session, so bargaining delay is negligible and dynamic consistency holds by design, while payoff delay per disagreement round is significant and randomized transparently at the individual level (week/month, with/without front-end delay). In contrast to prior experiments, we obtain strong behavioral support for the basic predictions that hold regardless of the details of discounting. Testing differential predictions of different forms of discounting, we strongly reject exponential discounting in favor of present-biased discounting.

Keywords:

alternating-offers bargaining; time preferences; present bias; laboratory experiments

JEL-Classification:

C78; C91; D03

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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. 218
December 16, 2019

Long-run Expectations of Households

Author:

Breunig, Christoph (Emory University)
Grabova, Iuliia (HU and DIW Berlin)
Haan, Peter (FU and DIW Berlin)
Weinhardt, Felix (HU and DIW Berlin)
Weizsäcker, Georg (HU and DIW Berlin)

Abstract:

The rational expectations assumption, e.g. in life-cycle models and portfolio-choice models, prescribes agents to have model-consistent beliefs and to avoid systematic prediction errors. In reality, justi cation and identi cation of expectations are nontrivial. One way to solve this problem is to elicit expectations collecting survey data. We utilize the German SOEP Innovation Sample to analyze short-run and long-run expectations of households in three di erent domains: stock market, labor market and housing market. Our main contribution to the existing literature is that we study expectations about price developments over longer periods, which is of central relevance since many important economic decisions of households concern the long run. Previous studies have mainly focused on short-run or medium-run expectations. We document that while expectations about wages are similar to historical values, the long-run expectations about the developments of the stock market index and about house prices are strongly pessimistic. In the case of the stock market, respondents expect only a small percentage of historical growth. We also observe substantial heterogeneity of expectations by socio-economic background.

Keywords:

long-run expectations; biased beliefs; returns to education

JEL-Classification:

D63; H23; I24; I38; J22; J31

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