Economic Theory Commons^™

Group-Identity And Long-Run Cooperation: An Experiment, Gabriele Camera, Lukas Hohl

ESI Working Papers

We stress-test the limits of the power of group identity in the context of cooperation by constructing laboratory economies where participants confront an indefinitely repeated social dilemma as strangers. Group identity is artificially induced by random assignment to color-coded groups, and reinforced by an initial cooperation task played in-group and in fixed pairs. Subsequently subjects interact in-group and out-group in large economies, as strangers. Indefinite repetition guarantees full cooperation is an equilibrium. Decision-makers can discriminate based on group affiliation, but cannot observe past behaviors. We find no evidence of group biases. This suggests that group effects are less likely to …

Classical Theory Of Competitive Market Price Formation, Sabiou M. Inoua, Vernon L. Smith

ESI Working Papers

We offer an information theory of market price formation, formalizing and elaborating on an old, implicit, classical tradition of supply and demand based on buyers’ and sellers’ mone-tary valuations of commodities (formally their reservation prices) and competition as a multilat-eral higgling and bargaining process. The early laboratory market experiments, as it turns out with hindsight, established the remarkable stability, efficiency, and robustness of the old view of competitive price discovery, and not the neoclassical price theory (based on individual utility and profit maximization for given prices). Herein, we present a partial-equilibrium version of the the-ory in which wealth is implicitly …

Do Wealth And Inequality Associate With Health In A Small-Scale Subsistence Society?, Adrian V. Jaeggi, Aaron D. Blackwell, Christopher Von Rueden, Benjamin C. Trumble, Jonathan Stieglitz, Angela R. Garcia, Thomas S. Kraft, Bret A. Beheim, Paul L. Hooper, Hillard Kaplan, Michael Gurven

ESI Publications

In high-income countries, one’s relative socio-economic position and economic inequality may affect health and well-being, arguably via psychosocial stress. We tested this in a small-scale subsistence society, the Tsimane, by associating relative household wealth (n = 871) and community-level wealth inequality (n = 40, Gini = 0.15–0.53) with a range of psychological variables, stressors, and health outcomes (depressive symptoms [n = 670], social conflicts [n = 401], non-social problems [n = 398], social support [n = 399], cortisol [n = 811], body mass index [n = 9,926], blood pressure [n = 3,195], self-rated health [n = 2523], morbidities [n = …

Taxes And The Incentive To Work Under Flat And Progressive Tax Systems In Slovakia, Orkhan Nadirov, Bruce Dehning, Drahomira Pavelkova

Accounting Faculty Articles and Research

This study examines the impact of taxes on the incentive to work under flat and progressive tax systems. Of particular interest are the changes from progressive-to-flat and flat-to-progressive tax conditions. To measure the impact of taxes on the incentive to work under both scenarios, we relate hours worked with the effective marginal tax rates. Using national accounts data and the Prescott’s (2004) labor market model, Slovakian work hours were examined at points in time around the adoption of a flat tax system in 2004 and a progressive tax system in 2013. In Slovakia, there was a transition from a progressive …

Trustors’ Disregard For Trustees Deciding Intuitively Or Reflectively: Three Experiments On Time Constraints, Antonio Cabrales, Antonio M. Espín, Praveen Kujal, Stephen Rassenti

ESI Working Papers

Human decisions in the social domain are modulated by the interaction between intuitive and reflective processes. Requiring individuals to decide quickly or slowly triggers these processes and is thus likely to elicit different social behaviors. Meanwhile, time pressure has been associated with inefficiency in market settings and market regulation often requires individuals to delay their decisions via cooling-off periods. Yet, recent research suggests that people who make reflective decisions are met with distrust. If this extends to external time constraints, then forcing individuals to delay their decisions may be counterproductive in scenarios where trust considerations are important. In three Trust …

Standard Vs Random Dictator Games: On The Effects Of Role Uncertainty And Framing On Generosity, Ernesto Mesa-Vázquez, Ismael Rodriguez-Lara, Amparo Urbano

ESI Working Papers

We show that generosity is affected when we vary the level of role uncertainty, i.e., the probability that the dictator’s decision will be implemented. We also show that framing matters for generosity in that subjects are less generous when they are told that their choices will be implemented with a certain probability, compared with a setting in which they are told that their choices will not be implemented with certain probability.

Legalized Same-Sex Marriage And Coming Out In America: Evidence From Catholic Seminaries, Avner Seror, Rohit Ticku

ESI Working Papers

We study the effect of legalization of same-sex marriage on coming out in the United States. We overcome data limitations by inferring coming out decisions through a revealed preference mechanism. We exploit data on enrollment in seminary studies for the Catholic priesthood, hypothesizing that Catholic priests' vow of celibacy may lead gay men to self-select as a way to avoid a heterosexual lifestyle. Using a differences-in-differences design that exploits variation in the timing of legalization across states, we find that city-level enrollment in priestly studies fell by about 15% exclusively in states adopting the reform. The celibacy norm appears to …

An Investigation Of Health Insurance Policy And Behavior In A Virtual Environment, J. Dustin Tracy, Kevin A. James, Hillard Kaplan, Stephen Rassenti

ESI Publications

We introduce a new experimental approach to measuring the effects of health insurance policy alternatives on behavior and health outcomes over the life course. In a virtual environment with multi-period lives, subjects earn virtual income and allocate spending, to maximize utility, which is converted into cash payment. We compare behavior across age, income and insurance plans—one priced according to an individual’s expected cost and the other uniformly priced through employer-implemented cost sharing. We find that 1) subjects in the employer-implemented plan purchased insurance at higher rates; 2) the employer-based plan reduced differences due to income and age; 3) subjects in …

Examining The Impact Of Socioeconomic Variables On Covid-19 Death Rates At The State Level, James L. Doti

Economics Faculty Articles and Research

This study uses a step-wise regression model to identify the socioeconomic variables most significant in explaining COVID-19 death rates on a state-level basis. The regression tests cover the 1/1/2020 to 12/1/2020 period as well as the first and second halves of 2020. This study also uses the Oxford stringency index to measure more precisely the efficacy of governmental mandates at the state level. The results in this study rigorously showed that while the density variables were the most significant explanatory variables during the first half of the year, their significance fell during the second half. Use of the Oxford stringency …

The Influence Of Food Recommendations: Evidence From A Randomized Field Experiment, Kamal Bookwala, Caleb Gallemore, Joaquín Gómez-Miñambres

ESI Working Papers

We report results from a randomized field experiment conducted at two food festivals. Our primary aim is to assess the impact of two types of recommendations commonly observed in food settings: most popular and chef’s choice. Subjects select a cupcake from a binary menu. The two options, offered by the same bakery, are the best seller in the bakery and the baker’s recommended cupcake. Our treatments manipulate whether the recommendation is disclosed in tandem with the cupcakes in the menu. We find that the most popular is the only recommendation that statistically significantly increased consumers’ demand relative to …

Very Low Prevalence And Incidence Of Atrial Fibrillation Among Bolivian Forager-Farmers, Christopher J. Rowan, Michael A. Eskander, Edmond Seabright, Daniel Eid Rodriguez, Edhitt Cortez Linares, Raul Quispe Gutierrez, Juan Copajira Adrian, Daniel Cummings, Bret Beheim, Kirsten Tolstrup, Abinash Achrekar, Thomas Kraft, David E. Michalik, Michael I. Miyamoto, Adel H. Allam, L. Samuel Wann, Jagat Narula, Benjamin C. Trumble, Jonathan Stieglitz, Randall C. Thompson, Gregory S. Thomas, Hillard S. Kaplan, Michael D. Gurven

ESI Publications

Background: Atrial fibrillation is the most common arrhythmia in post-industrialized populations. Older age, hypertension, obesity, chronic inflammation, and diabetes are significant atrial fibrillation risk factors, suggesting that modern urban environments may promote atrial fibrillation.

Objective: Here we assess atrial fibrillation prevalence and incidence among tropical horticulturalists of the Bolivian Amazon with high levels of physical activity, a lean diet, and minimal coronary atherosclerosis, but also high infectious disease burden and associated inflammation.

Methods: Between 2005–2019, 1314 Tsimane aged 40–94 years (52% female) and 534 Moseten Amerindians aged 40–89 years (50% female) underwent resting 12-lead electrocardiograms to assess atrial fibrillation prevalence. …

Negative Shocks Predict Change In Cognitive Function And Preferences: Assessing The Negative Affect And Stress Hypothesis, Francesco Bogliacino, Cristiano Codagnone, Felipe Montealegre, Frans Folkvord, Camilo Gómez, Rafael Charris, Giovanni Liva, Francisco Lupiáñez-Villanueva, Giuseppe A. Veltri

ESI Publications

In the context of the current COVID-19 pandemic, households throughout the world have to cope with negative shocks. Previous research has shown that negative shocks impair cognitive function and change risk, time and social preferences. In this study, we analyze the results of a longitudinal multi-country survey conducted in Italy (N = 1652), Spain (N = 1660) and the United Kingdom (N = 1578). We measure cognitive function using the Cognitive Reflection Test and preferences traits (risk, time and social preferences) using an experimentally validated set of questions to assess the differences between people exposed to a shock compared to …

A Class Of N-Player Colonel Blotto Games With Multidimensional Private Information, Christian Ewerhart, Dan Kovenock

ESI Working Papers

In this paper, we study N-player Colonel Blotto games with incomplete information about battlefield valuations. Such games arise in job markets, research and development, electoral competition, security analysis, and conflict resolution. For M ≥ N + 1 battlefields, we identify a Bayes-Nash equilibrium in which the resource allocation to a given battlefield is strictly monotone in the valuation of that battlefield. We also explore extensions such as heterogeneous budgets, the case M ≤ N, full-support type distributions, and network games.

Economics Students: Self-Selected In Preferences And Indoctrinated In Beliefs, Antonio M. Espín, Manuel Correa, Alberto Ruiz-Villaverde

ESI Working Papers

There is much debate as to why economics students display more self-interested behavior than other students: whether homo economicus self-select into economics or students are instead “indoctrinated” by economics learning, and whether these effects impact on preferences or beliefs about others’ behavior. Using a classroom survey (n>500) with novel behavioral questions we show that, compared to students in other majors, econ students report being: (i) more self-interested (in particular, less compassionate or averse to advantageous inequality) already in the first year and the difference remains among more senior students; (ii) more likely to think that people will be unwilling …

Institutions And Opportunistic Behavior: Experimental Evidence, Antonio Cabrales, Irma Clots-Figueras, Roberto Hernán-González, Praveen Kujal

ESI Working Papers

Risk mitigating institutions have long been used by societies to protect against opportunistic behavior. We know little about how they are demanded, who demands them or how they impact subsequent behavior. To study these questions, we run a large-scale online experiment where insurance can be purchased to safeguard against opportunistic behavior. We compare two different selection mechanisms for risk mitigation, the individual and the collective (voting). We find that, whether individual or collective, there is demand for riskmitigating institutions amongst high-opportunism individuals, while low-opportunism individuals demand lesser levels of insurance. However, high-opportunism individuals strategically demand lower insurance institutions when they …

In-Group Versus Out-Group Preferences In Intergroup Conflict: An Experiment, Subhashish M. Chowdhury, Anwesha Mukherjee, Roman M. Sheremeta

ESI Working Papers

Individuals participating in a group conflict have different preferences, e.g., maximizing their own payoff, maximizing the group’s payoff, or defeating the rivals. When such preferences are present simultaneously, it is difficult to distinctly identify the impact of those preferences on conflict. In order to separate in-group and out-group preferences, we conduct an experiment in which human in-group or out-group players are removed while keeping the game strategically similar. Our design allows us to study (i) how effort in a group conflict vary due to in-group and out-group preferences, and (ii) how the impact of these preferences vary when the two …

Identifying Bedrest Using Waist-Worn Triaxial Accelerometers In Preschool Children, J. Dustin Tracy, Thomas Donnelly, Evan C. Sommer, William J. Heerman, Shari L. Barkin, Maciej S. Buchowski

ESI Publications

Purpose

To adapt and validate a previously developed decision tree for youth to identify bedrest for use in preschool children.

Methods

Parents of healthy preschool (3-6-year-old) children (n = 610; 294 males) were asked to help them to wear an accelerometer for 7 to 10 days and 24 hours/day on their waist. Children with ≥3 nights of valid recordings were randomly allocated to the development (n = 200) and validation (n = 200) groups. Wear periods from accelerometer recordings were identified minute-by-minute as bedrest or wake using visual identification by two independent raters. To automate visual identification, chosen decision tree …

Do Truth-Telling Oaths Improve Honesty In Crowd-Working?, Nicolas Jacquemet, Alexander G. James, Stéphane Luchini, James J. Murphy, Jason F. Shogren

ESI Publications

This study explores whether an oath to honesty can reduce both shirking and lying among crowd-sourced internet workers. Using a classic coin-flip experiment, we first confirm that a substantial majority of Mechanical Turk workers both shirk and lie when reporting the number of heads flipped. We then demonstrate that lying can be reduced by first asking each worker to swear voluntarily on his or her honor to tell the truth in subsequent economic decisions. Even in this online, purely anonymous environment, the oath significantly reduced the percent of subjects telling “big” lies (by roughly 27%), but did not affect shirking. …

Benefit-Cost Analysis Of Covid-19 Policy Intervention At The State And National Level, James L. Doti

Economics Faculty Articles and Research

This study analyzes the benefits of statewide policy intervention in reducing COVID-19 deaths and the costs of that intervention in lost jobs and lower real gross state product (RGSP). Policy interventions are measured by the Oxford stringency index which places a daily numerical value on the level of a state’s policy intervention.

Empirical evidence is provided that shows policy interventions have reduced COVID-19 deaths by 375,000 lives in 2020. On the cost side, it was found that policy intervention resulted in a loss of 7.3 million jobs and a decline of $410 billion in RGSP.

The study concludes by integrating …

Do Global Pandemics Matter For Stock Prices? Lessons From The 1918 Spanish Flu, Marco Del Angel, Caroline Fohlin, Marc D. Weidenmier

Business Faculty Articles and Research

We study the impact of the 1918 Spanish Flu on U.S. stock prices. We use the death rate to control for the impact of the global pandemic and war news reported in the New York Times to capture the positive effects of the end of World War I on stock prices. Using a new weekly hand collected NYSE stock price index, we show that there is a -.73 correlation between the aggregate stock market and the death rate. Furthermore, vector autoregressions demonstrate that the death rate can explain up to 24 percent of the forecast error variance in the aggregate …

Differences In Cognitive Reflection Mediate Gender Differences In Social Preferences, Antonio M. Espín, Valerio Capraro, Brice Corgnet, Simon Gächter, Roberto Hernán-González, Praveen Kujal, Stephen Rassenti

ESI Working Papers

Previous studies have shown that women tend to be more egalitarian and less self-interested than men whereas men tend to be more concerned with social efficiency motives. The roots of such differences, however, remain unknown. Since different cognitive styles have also been associated with different distributional social preferences, we hypothesise that gender differences in social preferences can be partially explained by differences in cognitive styles (i.e., women rely more on intuition whereas men are more reflective). We test this hypothesis meta-analytically using data from seven studies conducted in four countries (USA, Spain, India, and UK; n=6,910) where cognitive reflection and …

Strategically Revealing Intentions In General Lotto Games, Keith Paarporn, Rahul Chandan, Dan Kovenock, Mahnoosh Alizadeh, Jason R. Marden

ESI Working Papers

Strategic decision-making in uncertain and adversarial environments is crucial for the security of modern systems and infrastructures. A salient feature of many optimal decision-making policies is a level of unpredictability, or randomness, which helps to keep an adversary uncertain about the system’s behavior. This paper seeks to explore decision-making policies on the other end of the spectrum – namely, whether there are benefits in revealing one’s strategic intentions to an opponent before engaging in competition.We study these scenarios in a well-studied model of competitive resource allocation problem known as General Lotto games. In the classic formulation, two competing players simultaneously …

Culture, Institutions & The Long Divergence, Alberto Bisin, Jared Rubin, Avner Seror, Thierry Verdier

ESI Working Papers

During the medieval and early modern periods the Middle East lost its economic advantage relative to the West. Recent explanations of this historical phenomenon— called the Long Divergence—focus on these regions’ distinct political economy choices regarding religious legitimacy and limited governance. We study these features in a political economy model of the interactions between rulers, secular and clerical elites, and civil society. The model induces a joint evolution of culture and political institutions converging to one of two distinct stationary states: a religious and a secular regime. We then map qualitatively parameters and initial conditions characterizing the West and …

A Simple Measure Of Economic Complexity, Sabiou M. Inoua

ESI Working Papers

Contrary to conventional economic growth theory, which reduces a country’s output to one aggregate variable (GDP), product diversity is central to economic development, as recent, “economic complexity”, research suggests. A country’s product diversity reflects its diversity of knowhow or “capabilities”. Researchers proposed the Economic Complexity Index (ECI) and the country Fitness index to estimate a country’s number of capabilities from international export data; these measures predict economic growth better than conventional variables such as human capital. This paper offers a simpler measure of a country’s knowhow, Log Product Diversity (or LPD, the logarithm of a country’s number of products), which …

The Art Of Concession In General Lotto Games, Rahul Chandan, Keith Paarporn, Dan Kovenock, Mahnoosh Alizadeh, Jason R. Marden

ESI Working Papers

Success in adversarial environments often requires investment into additional resources in order to improve one’s competitive position. But, can intentionally decreasing one’s own competitiveness ever provide strategic benefits in such settings? In this paper, we focus on characterizing the role of “concessions” as a component of strategic decision making. Specifically, we investigate whether a player can gain an advantage by either conceding budgetary resources or conceding valuable prizes to an opponent. While one might na¨ıvely assume that the player cannot, our work demonstrates that – perhaps surprisingly – concessions do offer strategic benefits when made correctly. In the context of …

The Conservatism Principle And Asymmetric Preferences Over Reporting Errors, Jivas Chakravarthy, Timothy W. Shields

ESI Working Papers

At present, accounting conservatism is generally viewed from a measurement or reporting perspective. In contrast, we consider whether it relates to a moral rule of conduct. Conservatism has been described as deriving from a preference for reporting errors to be in the direction of understatement rather than overstatement. We experimentally pair Reporters who provide information with Users who rely on the information. We posit that under misaligned incentives that motivate aggressive reporting, Users view an aggressive report as reflecting Reporters’ exploitative intent and expect that a social norm prohibiting aggressive reporting applies. We predict that Users use noisy reporting errors …

A Capital Asset Pricing Model With Idiosyncratic Risk And The Sources Of The Beta Anomaly, Mark Schneider, Manuel A. Nunez

ESI Working Papers

We introduce a generalization of the classical capital asset pricing model in which market uncertainty, market sentiment, and forms of idiosyncratic volatility and idiosyncratic skewness are priced in equilibrium. We derive two versions of the model, one based on a representative agent who cares about three criteria (risk, robustness, and expected returns), and the other with a microfoundation based on three types of investors (speculators, hedgers, and arbitrageurs). We apply the resulting capital asset pricing model with idiosyncratic risk (IR-CAPM) to provide a new theoretical account of the beta anomaly, one of the most fundamental and widely studied empirical limitations …

Financial Reporting And Moral Sentiments, Radhika Lunawat, Timothy W. Shields, Gregory B. Waymire

ESI Working Papers

Dating back at least to Adam Smith (1790), philosophers and researchers expect that people will behave differently when they know their actions are observable to others. We hypothesize that financial reporting reveals managers’ actions and leads them to take different actions that are better aligned with investor interests. We posit that the reason why is the activation of our internal mental self-evaluation that Smith refers to as an “Impartial Spectator.” We test this hypothesis with an experiment in which we manipulate the availability of a financial report that makes managerial actions transparent. Our evidence shows that financial reporting leads a …

Quantitative Description Of The Pastoral Economy Of Western Tuvan Nomads, Paul L. Hooper

ESI Publications

Nomadic pastoralism persists at a substantial scale in Tuva and neighboring regions of Inner Asia. Tuvan pastoral lifeways reflect adaptations to both local environments and current economic realities. Much of our quantitative understanding of the economics of Tuvan nomads is derived from data collected in the first half of the 20th century. Accordingly, this paper provides an updated picture of the inner workings of nomadic households using data collected in Barun-Khemchik and Bai-Taiga provinces in 2013–2015. It analyzes herd composition and size, and compares the frequency of different animals kept today with values recorded in Tuva in 1916 and 1931. …

Productivity Loss Associated With Functional Disability In A Contemporary Small-Scale Subsistence Population, Jonathan Stieglitz, Paul L. Hooper, Benjamin C. Trumble, Hillard Kaplan, Michael D. Gurven

ESI Publications

In comparative cross-species perspective, humans experience unique physical impairments with potentially large consequences. Quantifying the burden of impairment in subsistence populations is critical for understanding selection pressures underlying strategies that minimize risk of production deficits. We examine among forager-horticulturalists whether compromised bone strength (indicated by fracture and lower bone mineral density, BMD) is associated with subsistence task cessation. We also estimate the magnitude of productivity losses associated with compromised bone strength. Fracture is associated with cessation of hunting, tree chopping, and walking long distances, but not tool manufacture. Age-specific productivity losses from hunting cessation associated with fracture and lower BMD …