Effects of a fearful emotional state on financial decisions in the presence of prior outcome information

Negative emotions have been shown to influence financial risk-taking. However, how receiving salient information about prior outcomes interacts with a decision-maker's emotional state is not well known. In a laboratory experiment, we induced a fearful emotional state to investigate its effects on financial investment when outcome probabilities are unknown but decision-makers observe prior outcomes. The effects of fear on investment depended on whether the sequence of previous outcomes was favorable or unfavorable and contained weak or strong information. Our findings suggest that fear affected investment, at least in part, through changes in expectations of success.

No Moral Wiggle Room in an Experimental Corruption Game

Recent experimental evidence reveals that information is often avoided by decision makers in order to create and exploit a so-called “moral wiggle room,” which reduces the psychological and moral costs associated with selfish behavior. Despite the relevance of this phenomenon for corrupt practices from both a legal and a moral point of view, it has hitherto never been examined in a corruption context. We test for information avoidance in a framed public procurement experiment, in which a public official receives bribes from two competing firms and often faces a tradeoff between maximizing bribes and citizen welfare. In a treatment where officials have the option to remain ignorant about the implications of their actions for citizens, we find practically no evidence of information avoidance. We discuss possible reasons for the absence of willful ignorance in our experiment.

Masculinity and Lying

Dishonesty in communication has important economic implications. The standing literature has shown that lying is less pervasive than predicted by standard economic theory. We explore whether biology can help to explain this behavior. In a sample of men, we study whether masculine traits are related to (dis)honesty in a sender-receiver game. We study three masculine physical traits: the second-to-fourth digit ratio, facial morphometric masculinity and the facial width-to-height ratio. These biomarkers display significant associations with lying and deception in the game. We also explore the extent to which these effects operate through social preferences or through beliefs about the behavior of receivers.

Adolescent Time and Risk Preferences: Measurement, Determinants and Field Consequences

We use experimental and survey measures to evaluate the time and risk preferences of nearly 500 adolescents aged 16-19 years old. We find that survey questions about time and risk preferences are weakly correlated with corresponding experiments in which participants trade-off monetary rewards. We find potentially substantial inter-generational transfer of time and risk preferences: parent time and risk preferences are strongly predictive of adolescent preferences for both survey and experimental measures. There are also interesting heterogeneities: girls are less risk seeking and more patient than boys when risk and time preferences are measured via surveys. Interestingly, the survey measures have more predictive power for field outcomes than the experimental measures. Higher patience as measured by the survey is significantly associated with lower body mass index (BMI), less time spent on sedentary activities, more time spent on physical activity and lower consumption of fast food and sweets.

The Modest Effects of Fact Boxes on Cancer Screening

As health care becomes increasingly personalized to the needs and values of individual patients, informational interventions that aim to inform and debias consumer decision-making are likely to become important tools. In a randomized controlled experiment, we explore the effects of providing participants with published fact boxes on the benefits and harms of common cancer screening procedures. Female participants were surveyed about breast cancer screening by mammography, while male participants were surveyed about prostate cancer screening by prostate-specific antigen (PSA) testing. For these screening procedures, we expect consumers to have overly optimistic prior beliefs about the benefits and harms. We find that participants update their beliefs about the net benefits of screening modestly, but we observe little change in their stated preferences to seek screening. Participants who scored higher on a numeracy test updated their beliefs about screening benefits more in response to the fact boxes than did participants who scored lower on the numeracy test.

Risk Preferences of Children and Adolescents in Relation to Gender, Cognitive Skills, Soft Skills, and Executive Functions

We conduct experiments eliciting risk preferences with over 1,400 children and adolescents aged 3-15 years old. We complement our data with an assessment of cognitive and executive function skills. First, we find that adolescent girls display significantly greater risk aversion than adolescent boys. This pattern is not observed among young children, suggesting that the gender gap in risk preferences emerges in early adolescence. Second, we find that at all ages in our study, cognitive skills (specifically math ability) are positively associated with risk taking. Executive functions among children, and soft skills among adolescents, are negatively associated with risk taking. Third, we find that greater risk-tolerance is associated with higher likelihood of disciplinary referrals, which provides evidence that our task is equipped to measure a relevant behavioral outcome. For academics, our research provides a deeper understanding of the developmental origins of risk preferences and highlights the important role of cognitive and executive function skills to better understand the association between risk preferences and cognitive abilities over the studied age range.

Toward an understanding of the development of time preferences: Evidence from field experiments

Time preferences have been correlated with a range of life outcomes, yet little is known about their early development. We conduct a field experiment to elicit time preferences of over 1,200 children ages 3-12, who make several intertemporal decisions. To shed light on how such primitives form, we explore various channels that might affect time preferences, from background characteristics to the causal impact of an early schooling program that we developed and operated. Our results suggest that time preferences evolve substantially during this period, with younger children displaying more impatience than older children. We also find a strong association with race: black children, relative to white or Hispanic children, are more impatient. Finally, assignment to different schooling opportunities is not significantly associated with child time preferences.

Bringing the patient back in: behavioral decision-making and choice in medical economics

We explore the behavioral methodology and "revolution" in economics through the lens of medical economics. We address two questions: (1) Are mainstream economic assumptions of utility-maximization realistic approximations of people's actual behavior? (2) Do people maximize subjective expected utility, particularly in choosing from among the available options? In doing so, we illustrate-in terms of a hypothetical experimental sample of patients with dry eye diagnosis-why and how utility in pharmacoeconomic assessments might be valued differently by patients when subjective psychological, social, cognitive, and emotional factors are considered. While experimentally-observed or surveyed behavior yields stated (rather than revealed) preferences, behaviorism offers a robust toolset in understanding drug, medical device, and treatment-related decisions compared to the optimizing calculus assumed by mainstream economists. It might also do so more perilously than economists have previously understood, in light of the intractable uncertainties, information asymmetries, insulated third-party agents, entry barriers, and externalities that characterize healthcare. Behavioral work has been carried out in many sub-fields of economics. Only recently has it been extended to healthcare. This offers medical economists both the challenge and opportunity of balancing efficiency presumptions with relatively autonomous patient choices, notwithstanding their predictable, yet seemingly consistent, irrationality. Despite its comparative youth and limitations, the scientific contributions of behaviorism are secure and its future in medical economics appears to be promising.

Facts and Misconceptions about 2D:4D, Social and Risk Preferences

We study how the ratio between the length of the second and fourth digit (2D:4D) correlates with choices in social and risk preferences elicitation tasks by building a large dataset from five experimental projects with more than 800 subjects. Our results confirm the recent literature that downplays the link between 2D:4D and many domains of economic interest, such as social and risk preferences. As for the former, we find that social preferences are significantly lower when 2D:4D is above the median value only for subjects with low cognitive ability. As for the latter, we find that a high 2D:4D is not correlated with the frequency of subjects' risky choices.

Self-confidence, Overconfidence and Prenatal Testosterone Exposure: Evidence from the Lab

This paper examines whether foetal testosterone exposure predicts the extent of confidence and over-confidence in own absolute ability in adulthood. To study this question, we elicited incentive-compatible measures of confidence and over-confidence in the lab and correlate them with measures of right hand 2D:4D, used as as a marker for the strength of prenatal testosterone exposure. We provide evidence that men with higher prenatal testosterone exposure (i.e., low 2D:4D ratio) are less likely to set unrealistically high expectations about their own performance. This in turn helps them to gain higher monetary rewards. Men exposed to low prenatal testosterone levels, instead, set unrealistically high expectations which results in self-defeating behavior.

Grade Expectations: Rationality and Overconfidence

Confidence and overconfidence are essential aspects of human nature, but measuring (over)confidence is not easy. Our approach is to consider students' forecasts of their exam grades. Part of a student's grade expectation is based on the student's previous academic achievements; what remains can be interpreted as (over)confidence. Our results are based on a sample of about 500 second-year undergraduate students enrolled in a statistics course in Moscow. The course contains three exams and each student produces a forecast for each of the three exams. Our models allow us to estimate overconfidence quantitatively. Using these models we find that students' expectations are not rational and that most students are overconfident, in agreement with the general literature. Less obvious is that overconfidence helps: given the same academic achievement students with larger confidence obtain higher exam grades. Female students are less overconfident than male students, their forecasts are more rational, and they are also faster learners in the sense that they adjust their expectations more rapidly.

Increased Risk Taking in Relation to Chronic Stress in Adults

Chronic stress is a public health problem that affects a significant part of the population. While the physiological damage it causes is under ongoing scrutiny, its behavioral effects have been overlooked. This is one of the first studies to examine the relation between chronic stress and decision-making, using a standard lottery paradigm. We measured risk taking in the gain domain through binary choices between financially incentivized lotteries. We then measured self-reported chronic stress with the Trier Inventory for the Assessment of Chronic Stress (TICS). We additionally collected hair samples in a subsample of volunteers, in order to quantify accumulation of the stress hormone cortisol. We discovered a significant positive, though modest, correlation between self-reported chronic stress and risk taking that is stronger for women than for men. This confirms part of the findings in acute stress research that show a connection between higher stress and increased risk taking. However, unlike the biologically-based results from acute stress research, we did not identify a significant relation between hair cortisol and behavior. In line with previous literature, we found a clear gender difference in risk taking and self-reports: women generally take less risk and report slightly higher stress levels than men. We conclude that perceived chronic stress can impact behavior in risky situations.

Are happier people less judgmental of other people's selfish behaviors? Experimental survey evidence from trust and gift exchange games

What determines people's moral judgments of selfish behaviors? Here we study whether people's normative views in trust and gift exchange games, which underlie many situations of economic and social significance, are themselves functions of positive emotions. We use experimental survey methods to investigate the moral judgments of impartial observers empirically, and explore whether we could influence subsequent judgments by deliberately making some individuals happier. We find that moral judgments of selfish behaviors in the economic context depend strongly on the behavior of the interaction partner of the judged person, but their relationships are significantly moderated by an increase in happiness for the person making the judgment.

Conditioning on What? Heterogeneous Contributions and Conditional Cooperation

We experimentally investigate how different information about others' individual contributions affects people's willingness to cooperate in a one-shot linear public goods game. We find that when information about individual contributions is provided, contributions are generally higher than when only average information is available. This effect is particularly strong when others' individual contributions are relatively homogeneous. When both types of information are provided, this effect is moderated. In the case of individual feedback we find the willingness to contribute to be higher the lower the variation in others' contributions, but with pronounced heterogeneity in individuals' reactions. While the majority of people are mainly guided by others' average contributions, more people follow the bad example of a low contributor than the good example of a high contributor. Overall, we provide evidence that information (and lack thereof) about others' individual contributions affects people's willingness to cooperate in systematic ways.

Digit ratio (2D:4D) and altruism: evidence from a large, multi-ethnic sample

We look at the links between the Digit Ratio—the ratio of the length of the index finger to the length of the ring finger—for both right and left hands, and giving in a Dictator Game. Unlike previous studies with exclusively Caucasian subjects, we consider a large, ethnically diverse sample. Our main results are as follows. First, for Caucasian subjects we estimate a significant positive regression coefficient for the right hand digit ratio and a significant negative coefficient for its squared measure. These results replicate the findings of Brañas-Garza et al. (2013), who also observe an inverted U-shaped relationship for Caucasian subjects. Second, we are not able to find any significant association of the right hand digit ratio with giving in the Dictator Game for the other main ethnic groups in our sample, nor in the pooled sample. Third, we find no significant association between giving in the Dictator Game and the left hand digit ratio.

Profit or patients' health benefit? Exploring the heterogeneity in physician altruism

This paper investigates physician altruism toward patients' health benefit using behavioral data from Hennig-Schmidt et al.'s (2011) laboratory experiment. In the experiment, medical students in the role of physicians decide on the provision of medical services. The experimental setup allows us to identify the influence of profits and patients' health benefit on the choice of medical treatment. We estimate physician altruism, the weight individuals attach to patients' health benefit, by fitting mixed logit and multinomial logit regression models to the experimental data. Estimation results provide evidence for physician altruism. We find, however, substantial variation in the degree of physician altruism. We also discuss some implications of our results for the design of physician payment schemes in the light of the theoretical literature.

Testing the rate of preference reversal in personal and social decision-making

Classic preference reversal, where choice and valuation procedures generate inconsistent preference orderings, has rarely been tested in hypothetical health care treatment scenarios. Two studies - the first non-incentivised and the second incentivised - are reported in this article. In both studies, respondents are asked to make decisions that affect themselves (a personal decision making frame) and those for whom they are responsible (a social decision making frame). The results show non-negligible and systematic rates of preference reversal in both frames, although these rates are slightly, but non-significantly, lower in the incentivised condition. Moreover, in both studies, the rate of predicted preference reversal was somewhat higher in the social than in the personal decision making frame, a finding that is explained by greater risk aversion when choosing treatment options for others than when choosing treatments for oneself.

Increasing organ donation via changes in the default choice or allocation rule

This research utilizes a laboratory experiment to evaluate the effectiveness of alternative public policies targeted at increasing the rate of deceased donor organ donation. The experiment includes treatments across different default choices and organ allocation rules inspired by the donor registration systems applied in different countries. Our results indicate that the opt-out with priority rule system generates the largest increase in organ donation relative to an opt-in only program. However, sizeable gains are achievable using either a priority rule or opt-out program separately, with the opt-out rule generating approximately 80% of the benefits achieved under a priority rule program.

FORGETTING WE FORGET: OVERCONFIDENCE AND MEMORY

Do individuals have unbiased beliefs, or are they over- or underconfident? Overconfident individuals may fail to prepare optimally for the future, and economists who infer preferences from behavior under the assumption of unbiased beliefs will make mistaken inferences. This paper documents overconfidence in a new domain, prospective memory, using an experimental design that is more robust to potential confounds than previous research. Subjects chose between smaller automatic payments and larger payments they had to remember to claim at a six-month delay. In a large sample of college and MBA students at two different universities, subjects make choices that imply a forecast of a 76% claim rate, but only 53% of subjects actually claimed the payment.