Publications

Paying for inattention (with Ala Avoyan)

Economics Letters (May 2023, Volume 226)

We augment the standard rational inattention model by allowing the decision maker to alter the distribution of payoffs. The model captures real-life circumstances in which decision makers choose their incentives to pay attention, for instance, through the choice of insurance (full-coverage contracts reduce the incentives to pay attention compared to partial coverage). This new framework, specifically the ability to observe the decision maker’s choice of payoff redistribution, allows us to elicit the decision maker’s targeted attention level. This is a novel method of eliciting the object of interest—attention—typically obtained through performance (i.e., repetitions) in the literature. Furthermore, by manipulating the cost of payoff redistribution, the framework allows us to examine rational inattention models without making parametric assumptions on the cost of attention function. With a laboratory experiment, we validate novel comparative static predictions of our model. The subjects respond to the link between payoff redistribution decisions and attention in accordance to the theory.

Why are open ascending auctions popular? The role of information aggregation and behavioral biases (with Theo Offerman and Andreas Ziegler)

Quantitative Economics  (May 2022, Volume 13, Issue 2)

The popularity of open ascending auctions is often attributed to the fact that openly observable bidding allows to aggregate dispersed information. Another reason behind the frequent utilization of open auction formats may be that they activate revenue enhancing biases. In an experiment, we compare three auctions that differ in how much information is revealed and in the potential activation of behavioral biases: (i) the ascending Vickrey auction, a closed format; and two open formats, (ii) the Japanese-English auction and (iii) the Oral Outcry auction. Even though bidders react to information conveyed in others’ bids, information aggregation fails in both open formats. In contrast, the Oral Outcry raises higher revenue than the other two formats by stimulating bidders to submit unprofitable jump bids and triggering a quasi-endowment effect.

Belief Elicitation when more than money matters: Controlling for "Control" (with Jean-Pierre Benoît and Juan Dubra)

American Economic Journal: Microeconomics (August 2022, Vol. 14 No. 3)

Elicitation mechanisms typically presume only money enters utility functions. However, non-monetary objectives are confounders. In particular, psychologists argue people favour bets where ability is involved over equivalent random bets— a preference for control. Our new elicitation method mitigates control objectives and determines that under the ostensibly incentive compatible matching probabilities method, subjects report beliefs 18% higher than their true beliefs to increase control. Non-monetary objectives account for 68% of what would normally be measured as overconfidence. We also find that control is only a desire to bet on doing well; betting on doing badly is perceived as a negative.                

Affordable prices without threatening the oncological R&D pipeline - An economic experiment on transparency in price negotiations (with Nora Franzen, Andreas Ziegler, Valeska Retèl, Theo Offerman and Wim van Harten)

Cancer Research Communications (2022) 2 (1): 49–57

The high prices of innovative pharmaceutical treatments endanger access to care world-wide. Sustainable prices need to be affordable while sufficiently incentivizing R&D investments. A proposed solution is increased transparency. Proponents argue that price and R&D cost confidentiality are drivers of high prices. On the contrary, opponents claim that confidentiality enables targeted discounts which make treatments affordable in low-income countries; moreover, pharmaceutical companies argue that R&D investments would suffer with more transparency. Despite the political relevance, limited empirical evidence exists and the current debate is centered on theoretical and counterfactual arguments. We contribute to fill this gap with an experiment where we replicate the EU pharmaceutical market in a laboratory setting. In a randomized-controlled study, we analyzed how participants located in 4 European countries negotiated in the current system of Price Secrecy in comparison to innovative bargaining settings where either prices only (Price Transparency) or prices and R&D costs (Full Transparency) were made transparent to buyers. Price transparency had no statistically significant effect on average prices or number of patients treated and made R&D investments significantly smaller. On the other hand, Full Transparency reduced prices and held the number of patients constant at the level of Price Secrecy. It produced price convergence between low- and high-income countries and, despite lower prices, had no effect on R&D investments. 

Improving the affordability of anticancer medicines demands evidence-based policy solutions (with Nora Franzen, Andreas Ziegler, Valeska Retèl, Theo Offerman and Wim van Harten)

Cancer Discovery (2022) 12:1–4

The high cost of many new anticancer medicines significantly impedes breakthrough discoveries from reaching patients. A commonly heard refrain is that high prices are necessary to compensate for the high costs of research and development.   Yet, there are promising policy proposals aimed at improving affordability without compromising innovation.  In seeking new policy solutions, we argue for a shift away from entrenched opinion towards an evidence-based discourse that is grounded in experiments and real-world pilot studies.

Working papers

Price information, inter-village networks and ‘bargaining spillovers’: Experimental evidence from Ghana (with Nicole Hildebrandt, Yaw Nyarko and Emilia Soldani)  

R&R at Journal of Development Economics

We conducted a randomized field experiment to determine the impact of providing rural farmers with commodity price information delivered via text messages on their mobile phones. Using a novel index of inter-village communication networks, we show that the intervention: (1) led to a sustained positive increase of about 9% in the prices received by treatment group farmers, and (2) had substantial indirect benefits on the prices received by certain control group farmers. We discuss a novel mechanism of bargaining spillovers which can explain the rise of such positive externalities, even in the absence of information sharing between the treatment and the control groups. Accounting for spillovers is crucial because otherwise the longer-run estimates would be biased and one could erroneously conclude that the intervention had no long-run benefit for farmers. The direct return on investment of the service exceeds 200%, a result that underscores the huge potential of ICT interventions in emerging markets.

Morals in multi-units markets (with Theo Offerman and Andreas Ziegler)

R&R at Journal of the European Economic Association

We examine how the erosion of morals in markets depends on the market power of individual traders. Previously studied single-unit markets provide market power to individual traders by limiting the roles of two forces: (i) the replacement logic, whereby immoral trading is justified by the belief that others would trade otherwise; (ii) market selection, by which the least moral trader determines quantities. In an experiment, we compare single-unit to (more common) multi-unit markets which may activate these forces. We find that, in contrast to single-unit markets, multi-unit markets show full erosion of morals. Especially the replacement logic drives this finding. In addition, we find that (i) market experience leads to biased social learning, whereby subjects believe that others are less moral than they actually are; (ii) erosion of morals persists partially after multi-unit markets; (iii) changes in social norms are not driving these results.

Should Individuals Choose their own Incentives? Evidence from a Mindfulness Meditation Intervention (with Andrej Woerner, Birgit Probst, Nina Bartmann, Jonathan Cloughesy and Jan Willem Lindemans)

R&R at Management Science

This paper theoretically and empirically investigates the effects of letting people choose from a menu of increasingly challenging incentive schemes. We derive the conditions under which a policy maker profits from leaving the choice to the individuals by leveraging their private information about the expected benefits from the targeted behavior. We test the theoretical predictions in a field experiment in which we pay participants monetary rewards for completing daily meditation sessions. We randomly assign some participants to one of two incentive schemes and allow others to choose between the two schemes. As predicted, participants sort into schemes in (partial) agreement with the objectives of the policy maker. In contrast to our theoretical predictions, participants who could choose complete significantly fewer meditation sessions than participants that were randomly assigned. Since the results are not driven by poor selection, we infer that letting people choose between incentive schemes may bring in psychological effects that discourage adherence.

Status Quo Bias under uncertainty: An experimental study (with Amnon Maltz) 

Individuals’ tendency to stick to the current state of affairs, known as the status quo bias, has been widely documented over the past 30 years. Yet, the determinants of this phenomenon remain elusive. Following the intuition suggested by Bewley (1986), we conduct a systematic experiment exploring the role played by different types of uncertainty on the emergence of the bias. We find no bias when the status quo option and the alternative are both risky (gambles with known probabilities) or both ambiguous (gambles with unknown probabilities). The bias emerges under asymmetric presence of ambiguity, i.e., when the status quo option is risky and the alternative ambiguous, or vice versa. These findings are not predicted by existing models based on loss aversion (Kahneman and Tversky, 1979) or incomplete preferences (Bewley, 1986) and suggest a novel determinant of the status quo bias: the dissimilarity between the status quo option and the alternative.

Testing the separation of tastes and beliefs (with Veronica Cappelli and Fabio Maccheroni)

 A large body of empirical evidence shows violations of expected utility. In response, decision theory and behavioral economics have provided a variety of non-expected utility theories. However, the existing evidence does not clearly discriminate among such theories. Many of the most well-known non-expected utility models belong to the class of biseparable preferences, which includes Rank Dependent Utility models (Choquet Expected Utility, Prospect Theory and Choice-Acclimating Personal Equilibria), models of Disappointment Aversion, Maxmin Expected Utility and its Alpha-maxmin extension. Biseparable preferences satisfy the minimal behavioral restrictions that allow to separate tastes (as captured by a utility function on outcomes) and beliefs (as captured by the willingness to bet on events, often a distorted probability). In this paper we derive a non-parametric procedure for testing the biseparability of preferences hypothesis and we apply it to the results of a preliminary lab experiment. In the data we find little support for the separation of utility and beliefs as characterized by biseparable preferences. The observed behavior can be accommodated by alternative models, such as Smooth Ambiguity and Source Dependent Expected Utility.