Discussion Paper No. 33
November 3, 2021
Motivated Health Risk Denial and Preventative Health Care Investments
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Abstract:
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. 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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Discussion Paper No. 19
The 2016 Nobel Memorial Prize in Contract Theory
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Oliver Hart and Bengt Holmström were awarded the 2016 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for their fundamental contributions to contract theory. This article offers a short summary and discussion of their path breaking work.
Keywords:
contract theory; nobel prize; optimal incentive schemes; incomplete contracts;
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Discussion Paper No. 12
Auction versus Negotiations
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For the procurement of complex goods the early exchange of informa- tion is important to avoid costly renegotiation. If the buyer can specify the main characteristics of possible design improvements in a complete contingent contract, a scoring auction implements the efficient allocation. If this is not feasible, the buyer must choose between a price-only auction (discouraging early information exchange) and bilateral negotiations with a preselected seller (reducing compe- tition). Bilateral negotiations are superior if potential design improvements are important, if renegotiation is particularly costly, and if the buyer’s bargaining position is strong. Moreover, negotiations provide stronger incentives for sellers to investigate design improvements.
Keywords:
adaption costs; auctions; behavioral contract theory; loss aversion; negotiations; procurement; renegotiation;
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Discussion Paper No. 23
Cooperating Over Losses and Competing Over Gains: a Social Dilemma Experiment
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Evidence from studies in international relations, the politics of reform, collective action and price competition suggests that economic agents in social dilemma situations cooperate more to avoid losses than in the pursuit of gains. To test whether the prospect of losses can induce cooperation, we let experimental subjects play the traveler’s dilemma in the gain and loss domain. Subjects cooperate substantially more over losses. Furthermore, our results suggest that this treatment effect is best explained by reference-dependent risk preferences and reference-dependent strategic sophistication. We discuss the implications of our results and relate our findings to other experimental games played in the loss domain.
Keywords:
traveler's dilemma; loss domain; diminishing sensitivity; strategic sophistication;
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Discussion Paper No. 25
Deception and Self-Deception
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Why are people so often overconfident? We conduct an experiment to test the hypothesis that people become overconfident to more effectively persuade or deceive others. After performing a cognitively challenging task, half of our subjects are informed that they can earn money by convincing others of their superior performance. The privately elicited beliefs of informed subjects are significantly more confident than the beliefs of subjects in the control condition. By generating exogenous variation in confidence with a noisy performance signal, we are also able to show that higher confidence indeed makes subjects more persuasive in the subsequent face-to-face interactions.
Keywords:
overconfidence; self-deception; motivated cognition; persuasion; deception;
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Discussion Paper No. 1
January 7, 2017
You Owe Me
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Abstract:
In business and politics, gifts are often aimed at influencing the recipient at the expense of third parties. In an experimental study, which removes informational and incentive confounds, subjects strongly respond to small gifts even though they understand the gift giver’s intention. Our findings question existing models of social preferences. They point to anthropological and sociological theories about gifts creating an obligation to reciprocate. We capture these effects in a simple extension of existing models. We show that common policy responses (disclosure, size limits) may be ineffective, consistent with our model. Financial incentives are effective but can backfire.
Keywords:
gift exchange; externalities; lobbyism; corruption; reciprocity; social preferences;
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