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"Economic behavior"
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The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets
Languages differ widely in the ways they encode time. I test the hypothesis that the languages that grammatically associate the future and the present, foster future-oriented behavior. This prediction arises naturally when well-documented effects of language structure are merged with models of intertemporal choice. Empirically, I find that speakers of such languages: save more, retire with more wealth, smoke less, practice safer sex, and are less obese. This holds both across countries and within countries when comparing demographically similar native households. The evidence does not support the most obvious forms of common causation. I discuss implications for theories of intertemporal choice.
Journal Article
Getting to the Top of Mind: How Reminders Increase Saving
We provide evidence from field experiments with three different banks that reminder messages increase commitment attainment for clients who recently opened commitment savings accounts. Messages that mention both savings goals and financial incentives are particularly effective, whereas other content variations such as gain versus loss framing do not have significantly different effects. Nor do we find evidence that receiving additional late reminders has an additive effect. These empirical results do not map neatly into existing models, so we provide a simple model where limited attention to exceptional expenses can generate undersaving that is in turn mitigated by reminders.
Data, as supplemental material, are available at
http://dx.doi.org/10.1287/mnsc.2015.2296
.
This paper was accepted by Teck-Hua Ho, behavioral economics
.
Journal Article
KINSHIP, COOPERATION, AND THE EVOLUTION OF MORAL SYSTEMS
Across the social sciences, a key question is how societies manage to enforce cooperative behavior in social dilemmas such as public goods provision or bilateral trade. According to an influential body of theories in psychology, anthropology, and evolutionary biology, the answer is that humans have evolved moral systems: packages of functional psychological and biological mechanisms that regulate economic behavior, including a belief in moralizing gods; moral values; negative reciprocity; and emotions of shame, guilt, and disgust. Based on a stylized model, this article empirically studies the structure and evolution of these moral traits as a function of historical heterogeneity in extended kinship relationships. The evidence shows that societies with a historically tightly knit kinship structure regulate behavior through communal moral values, revenge taking, emotions of external shame, and notions of purity and disgust. In loose kinship societies, on the other hand, cooperation appears to be enforced through universal moral values, internalized guilt, altruistic punishment, and an apparent rise and fall of moralizing religions. These patterns point to the presence of internally consistent but culturally variable functional moral systems. Consistent with the model, the relationship between kinship ties, economic development, and the structure of the mediating moral systems amplified over time.
Journal Article
Collusion by Algorithm: Does Better Demand Prediction Facilitate Coordination Between Sellers?
We build a game-theoretic model to examine how better demand forecasting resulting from algorithms, machine learning, and artificial intelligence affects the sustainability of collusion in an industry. We find that, although better forecasting allows colluding firms to better tailor prices to demand conditions, it also increases each firm’s temptation to deviate to a lower price in time periods of high predicted demand. Overall, our research suggests that, despite concerns expressed by policy makers, better forecasting and algorithms can lead to lower prices and higher consumer surplus.
This paper was accepted by Joshua Gans, business strategy.
Journal Article
Power Laws in Economics: An Introduction
Many of the insights of economics seem to be qualitative, with many fewer reliable quantitative laws. However a series of power laws in economics do count as true and nontrivial quantitative laws—and they are not only established empirically, but also understood theoretically. I will start by providing several illustrations of empirical power laws having to do with patterns involving cities, firms, and the stock market. I summarize some of the theoretical explanations that have been proposed. I suggest that power laws help us explain many economic phenomena, including aggregate economic fluctuations. I hope to clarify why power laws are so special, and to demonstrate their utility. In conclusion, I list some power-law-related economic enigmas that demand further exploration. A formal definition may be useful.
Journal Article