This year’s Forum for Economic Dialogue held by the UBS International Center of Economics in Society at the University of Zurich reflected on how prosperity and culture interact. Armin Falk presented his insights from the Global Preferences Survey.
A recent strand of the economics literature tried to understand the origin of cultural norms and beliefs. Different studies have documented the continuity of cultural norms over remarkably long periods of time.
In her first of two lectures she recently gave at briq, Paola Giuliano (UCLA Anderson School of Management) reviewed work on the origin of differences in gender norms, with particular emphasis on differences in agricultural technologies. Look to history and you will find plenty of examples of farming communities where women worked as much as men. But in plough-intensive societies, where cultivation and planting relied on physical strength, men were the primary farmers. Today many of these societies still show the same division of labor.
Paola Giuliano reviewed her work which shows that at present the descendants of societies that traditionally practiced plough agriculture have lower rates of female participation in the workplace, in politics and in entrepreneurial activities, as well as greater prevalence of attitudes favoring gender inequality, and even a higher male-to-female sex ratio in every age group.
In the same lecture she more broadly reviewed the most recent empirical evidence on various historical determinants of contemporary difference in gender roles and how these differences are transmitted from parents to children and therefore persist until today. This included work on female labor force participation, fertility, education, marriage arrangements, competitive attitude and even domestic violence.
Although cultural beliefs can be quite persistent, there are also many examples of dramatic changes. This raises the natural question: When does culture change and does it persist? In particular, what determines a society’s willingness to adopt new customs and beliefs rather than hold on to traditions?
In her second lecture, Paola examined a determinant that has been put forth in the anthropology literature to answer this question: the variability of the environment from one generation to the next. She shows that populations with ancestors who lived in an environment with more stability from one generation to the next not only place a greater importance on maintaining tradition today, but they also exhibit more persistence in their traditions over time.
Chris Roth, post-doc at briq since May 2018, and his respective co-authors won two prestigious prizes. At the EEA-ESEM Congress in Cologne, his work with Lukas Hensel, Johannes Hermle and Anselm Rink was honored with the Young Economist Award of the European Economic Association. A few days later his paper with Johannes Wohlfart received the Reinhard Selten Award (Young Author Best Paper Award) presented by the German Economic Association (VfS) at their annual meeting in Freiburg.
Political activists as free-riders
The first paper asks whether political activists’ effort choices depend on their beliefs about the effort of their peers and how they do so. To shed light on this issue, the authors present evidence from a field experiment in a Western European country which randomizes among party members the provision of true information about intentions of other party members to contribute to the party’s campaign. The data show that the information successfully shifted supporters’ self-stated intentions to help in the door-to-door campaign as well as their actual canvassing effort.
Specifically, the authors find that activists who learn that fellow party members engage in more canvassing than they thought reduce their canvassing activities. Effects are particularly large among first-time canvassers, suggesting that informational treatments work more strongly among inexperienced party members.
In sum, the authors find that political activists’ effort choices exhibit strategic substitutability. This is a clever field experiment answering an important question on political participation. The presence of a free riding effect is novel, as several other studies have instead documented in different settings the importance of positive spillovers coming from peer effects. Thus, this paper offers valuable evidence on the mechanisms of political participation.
Macroeconomic forecasts and personal expectations
The second paper uses a representative online panel from the US to examine how individuals’ macroeconomic expectations causally affect their personal economic prospects and their behavior. Provided with different professional forecasts about the likelihood of a recession, respondents update their aggregate economic outlook in response to the forecasts, extrapolate to expectations about their personal economic circumstances and adjust their consumption behavior and stock purchases.
The findings are consistent with models of “sticky information”: First, consumers are initially uninformed about relevant signals about the macroeconomy. Second, people update their economic expectations in response to news about the macroeconomic environment. Third, updating of personal expectations indicates that respondents have an understanding of how the economy works.
At a practical level, the findings identify specific groups that policymakers can expect to react to an improved macroeconomic outlook if they succeed in making people more optimistic. Specifically, groups with the largest exposure to aggregate risk, such as individuals working in cyclical industries, are most likely to respond to an improved macroeconomic outlook, while a large fraction of the population is unlikely to react.
At the 13th International SOEP User Conference, the seventh Felix Büchel Award was presented to Armin Falk. After previous awards went to economists, a psychologist, a political scientist, and a sociologist, this is the first time that an economist working in the field of experimental economics receives the prize.
The award includes a 1,000 € cash prize and an invitation to deliver the keynote at the SOEP conference, which Armin Falk gave on “Global Evidence on Economic Preferences”. The prize certificate was conferred by Constantin Terton of IHK Berlin, who represented the award sponsor, the Society of Friends of the DIW Berlin (VdF).
Excerpt from the prize statement:
Armin Falk’s research deals with the psychological foundations of economic behavior. He has shown, for instance, that attempting to monitor and control employees may be less effective than trusting them. He has proven that alongside self-interest, social comparisons are an important aspect of human behavior, and that people reward fairness. In past award presentations, it has been noted that Armin Falk’s findings have significant implications for basic economic research as well as important practical applications. In other words: Armin Falk’s work represents knowledge transfer at its best. His findings aim at improving the explanatory power of economic models and have provided the basis for empirically well-founded economic policy.
In a number of field and laboratory experiments, Armin Falk has tested what motivations drive people’s behavior in different economic situations. In his work, he is not afraid to combine methodologies from life sciences with data from surveys or experiments.
Economic theories often focus on the decisions of individuals, despite the fact that many important commercial, political and social decisions are made by groups of people. How do individuals and groups differ in their decision-making processes and what are the wider consequences of this group interaction?
Michal Bauer (CERGE-EI) tackles this issue through his research in the fields of development microeconomics, experimental economics and behavioral economics. His recent work has focused on the causes and consequences of group conflict, discrimination and the formation of preferences. In July he presented two lectures at briq in which he discussed measuring attention in the field to better understand discrimination and poverty, and the sources of “nasty behavior” in groups.
The presentation covered a recent field experiment conducted in Uganda and Slovakia in order to test selfish and anti-social behavior of individuals and groups. Consistent with previous research, it was found that groups are much less likely to display cooperative behavior than individuals. The study also revealed that groups are more likely to also act anti-socially, by punishing outsiders even when it is costly to themselves. The group context also made people much more aggressively competitive.
The greater nastiness of groups arises almost exclusively due to the psychological effect of being a part of a group on individual preferences, rather than due to deliberation and joint decision-making among group members. Strikingly similar patterns on both continents suggest that the elevation of the dark side of human social motivations is a deeply rooted behavioral response when individuals are banded in a group. The findings have implications for economic theory and can help explain the prevalence of self-destructive group conflicts.
As part of the briq short lecture series, Alex Imas (Carnegie Mellon University) presented his research on the dynamics of decision-making. People do not make decisions in isolation. When choosing whether to buy stocks or stick to bonds, they usually consider how their portfolio had done in the past; when debating to accept or reject an offer, people are affected by how their partner had treated them throughout the negotiation even in one-shot interactions.
In his work, Alex shows that features of decisions over time, such as whether a prior outcome closes the associated mental account, whether a previous decision was a good one or not, and the amount of time elapsed between choices, have significant and lasting effects on subsequent behavior. His research aims to incorporate these features into theory to improve our understanding of dynamic decision-making and identify the implications for structuring more effective policy. By better understanding the dynamics of how prior outcomes are mentally grouped with prospects, managers can better structure contracts to align their risk preferences with those of their employees; by identifying how prior returns affect attention, even experienced fund managers can improve their performance.