Papers - All

John A List, Anya Samek, Terri Zhu

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We use a field experiment to investigate the effect of incentives on food purchase decisions at a grocery store. We recruit over 200 participants and track their purchases for a period of 6 months, permitting us a glimpse of more than 3,500 individual shopping trips. We randomize participants to one of several treatments, in which we incentivize fresh fruit and vegetable purchases, provide tips for fruit and vegetable preparation, or both. We report several key insights. First, our informational content treatment has little effect. Second, we find an important price effect: modest pecuniary incentives more than double the proportion of dollars spent on produce in the grocery store. Third, we find an interesting pattern of consumption after the experiment ends: even when incentives are removed, the treatment group has higher fruit and vegetable purchases compared to the control group. These long-term results are in stark contrast to either a standard price model or a behavioral model of 'crowd out.' Rather, our results are consonant with a habit formation model. This opens up the distinct possibility that short term incentives can be used as a key instrument to combat obesity.

Andreas Lange, John A List, Michael K Price

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Auction theory represents one of the richest areas of research in economics over the past three decades. Yet, whether, and to what extent, the introduction of secondary resale markets influences bidding behavior in sealed bid first-price auctions remains under researched. This study begins by examining field data from a unique data set that includes nearly 3,000 auctions (over 10,000 individual bids) for cutting rights of standing timber in British Columbia from 1996-2000. In comparing bidding patterns across agents who are likely to have resale opportunities with those who likely do not, we find evidence that is consistent with theory. Critical evaluation of the reduced-form bidding model, however, reveals that sharp tests of the theoretical predictions are not possible because several other differences may exist across these bidder types. We therefore use a laboratory experiment to examine if the resale opportunity by itself can have the predicted theoretical effect. We find that while it does have the predicted effect, a theoretical model based on risk-averse bidders explains the overall data patterns more accurately than a model based on risk-neutral bidders. Beyond testing theory, the paper highlights the inferential power of combining naturally occurring data with laboratory data.

Junsoo Lee, John A List, Mark Strazicich

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In this paper we examine temporal properties of eleven natural resource real price series from 1870-1990 by employing a Lagrangian Multiplier unit root test that allows for two endogenously determined structural breaks with and without a quadratic trend. Contrary to previous research, we find evidence against the unit root hypothesis for all price series. Our findings support characterizing natural resource prices as stationary around deterministic trends with structural breaks. This result is important in both a positive and normative sense. For example, without an appropriate understanding of the dynamics of a time series, empirical verification of theories, forecasting, and proper inference are potentially fruitless. More generally, we show that both pre-testing for unit roots with breaks and allowing for breaks in the forecast model can improve forecast accuracy.

Nick Drydakis

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This research examines the possible discrimination faced by gay men compared to heterosexuals when applying for jobs in the Greek private sector. This issue was addressed through the observation of employer hiring decisions. Mailing pairs of curriculum vitae, distinguished only by the sexual orientation of the applicants, led to the observation that gay men faced a significantly lower chance of receiving an invitation for an interview. However, in cases where employers called applicants back, the wages offered did not differ significantly between gay and heterosexual applicants. Nevertheless, there is substantial evidence to suggest that discrimination based on sexual orientation does exist in the Greek labour market, and at alarmingly high levels.

Ted Gayer, John Horowitz, John A List

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Clear Skies is an economist's approach to pollution reduction. We heartily endorse its core approach, while recommending surgery for a few minor blemishes.

Craig Gallet, John A List, Peter Orazem

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The 1987 academic market was strong, whereas the 1997 market was weak. A multimarket theory of optimal search suggests that job seekers will respond to a weakening market by changing their search strategies at the extensive margin (which markets to enter) and the intensive margin (how many applications to submit per market). Employers respond to the weakening market by raising their hiring standards. High-quality applicants will obtain an increased share of academic interviews in weak markets while applicants from weaker schools will increasingly secure interviews outside of the academic market. Empirical results show that in the bust market, graduates of elite schools shifted their search strategies to include weaker academic institutions, while graduates of lower-ranked schools shifted their applications away from academia and toward the business sector. In bust conditions, academic institutions increasingly concentrate their interviews on elite school graduates, women, and U.S. residents

Jie Bai

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There is often a lack of reliable high quality provision in many markets in developing countries. I designed an experiment to understand this phenomenon in a setting that features typical market conditions in a developing country: the retail watermelon market in a major Chinese city. I begin by demonstrating empirically that there is substantial asymmetric information between sellers and buyers on sweetness, the key indicator of quality for watermelons, yet sellers do not sort and price watermelons by quality. I then randomly introduce one of two branding technologies into 40 out of 60 markets-one sticker label that is widely used and often counterfeited and one novel laser-cut label. I track sellers' quality, pricing and sales over an entire season and collect household panel purchasing data to examine the demand side's response. I find that laser branding induced sellers to provide higher quality and led to higher sales profits, establishing that reputational incentives are present and can be made to pay. However, after the intervention was withdrawn, all markets reverted back to baseline. To rationalize the experimental findings, I build an empirical model of consumer learning and seller reputation. The structural estimates suggest that consumers are hesitant to upgrade their perception about quality under the existing branding technology, which makes reputation building a low return investment. While the new technology enhances consumer learning, the resulting increase in profits is not sufficient to cover the fixed cost of the technology for small individual sellers. Counterfactual analysis shows that information frictions and fragmented markets lead to significant under-provision of quality. Third-party interventions that subsidize initial reputation building for sellers could improve welfare.

Omar Al-Ubaydli, John A List

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A commonly held view is that laboratory experiments provide researchers with more "control" than natural field experiments, and that this advantage is to be balanced against the disadvantage that laboratory experiments are less generalizable. This paper presents a simple model that explores circumstances under which natural field experiments provide researchers with more control than laboratory experiments afford. This stems from the covertness of natural field experiments: laboratory experiments provide researchers with a high degree of control in the environment which participants agree to be experimental subjects. When participants systematically opt out of laboratory experiments, the researcher's ability to manipulate certain variables is limited. In contrast, natural field experiments bypass the participation decision altogether and allow for a potentially more diverse participant pool within the market of interest. We show one particular case where such selection is invaluable: when treatment effects interact with participant characteristics.

John A List

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No abstract available

Lester Lusher

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Procrastination, an issue linked to poor performance and decreased well-being, is a pervasive problem in education. This paper examines the role of commitment and motivation by evaluating a program called CollegeBetter.com which acts as a commitment device and monetary incentive to help college students battle problems of present bias. The zero-sum mechanism is based off a parimutuel betting market, where students join a pool by placing a monetary wager on themselves to achieve the pool's "commitment challenge." Students who successfully commit to the challenge 1) recover their wagers and 2) split losing wagers proportionally. Through a series of lab and field experiments, I find that students interested in the mechanism were low-achieving, overconfident, self-identified procrastinators, while traditional measures of time-preferences were weak predictors of selection. Across all pools, students randomly selected to participate were more likely to achieve the commitment challenge than students who applied for a spot but were randomly excluded. Consistent with loss aversion, having the student risk their own money is a principal contributor to the effectiveness of the mechanism.

John A List, Jason F Shogren, Michael Spencer , Stephen Swallow

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This paper considers how six alternative rebate rules affect voluntary contributions in a threshold public-good experiment. The rules differ by (1) whether an individual can receive a proportional rebate of excess contributions, a winner-takes-all of any excess contributions, or a full rebate of one's contribution in the event the public good is provided and excess contributions exist, and (2) whether the probability of receiving a rebate is proportional to an individual's contribution relative to total contributions or is a simple uniform probability distribution set by the number of contributors. The paper adds to the existing experimental economics literature on threshold public goods by investigating both aggregate and individual demand revelation under the winner-take-all and random full-rebate rules. Half of the rules (proportional rebate, winner-take-all with uniform probability among all group members, and random full-rebate with uniform probability) provide total contributions that nearly equal total benefits, while the rest (winner-take-all with proportional probability, winner-take-all with uniform probability among contributors only, and random full-rebate with proportional probability) exceed benefits by over 30 percent. Only the proportional rebate rule is found to achieve both aggregate and individual demand revelation. Our experimental results have implications for both fundraisers and valuation practitioners.

Sera Linardi, Nita Rudra

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Can globalization change our willingness to redistribute to the poor? We propose the hypothesis that in developing countries, the 'glitter' of foreign direct investment (FDI) reduces public support for redistribution by creating perceptions of better employment opportunities for the poor. Initial evidence is derived from World Value Survey responses from developing economies. Delving deeper, a framed field experiment in India reveals foreign ownership of low-skilled firms reduces redistribution to the poor. We further find that rich conservatives drive this reduction. This analysis provides the first experimental evidence of the causal impact of globalization on redistribution, mediated by ideology and income.

John A List

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Recently an abundance of experimental evidence has been gathered that is consonant with the notion that individual preferences are inconsistent and unstable. These empirical results potentially undermine the theoretical foundation of welfare economics, as the degree of preference liability claimed suggests that perhaps no optimization principles underlie even the most straightforward of choices. Yet policymakers in the environmental arena continue to prescribe policies based on economics-based methods that are constructed on the very principles that have been directly refuted. Are policymakers creatures of habit that move at glacial speed or is there something deeper behind their inertness? In this study, I explore this issue within the U.S. context and argue that there is some rationality behind current public policy decision making. I then explore whether the empirical evidence supports the view that policymakers should take preference anomalies seriously. As a case study, I focus on some of my recent findings on preference inconsistencies in the marketplace.

David Ong

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A large body of chiefly laboratory research has attempted to demonstrate that people can exhibit choice-averse behavior from cognitive overload when faced with many options. However, meta-analyses of these studies, which are generally of one or two product lines, reveal conflicting results. Findings of choice-averse behavior are balanced by findings of choice-loving behavior. Unexplored is the possibility that many consumers may purchase to reveal their tastes for unfamiliar products, rather than attempt to forecast their tastes before purchase. I model such ‘sampling-search’ behavior and predict that the purchases of unfamiliar consumers increase with the available number of varieties for popular/mainstream product lines and decrease for niche product lines. To test these predictions, I develop a measure of popularity based on a survey of 1,440 shoppers for their preferences over 24 product lines with 339 varieties at a large supermarket in China. 35,694 shoppers were video recorded after the varieties they faced on shelves were randomly reduced. As found in the meta-studies, choice-averse behavior was balanced by choice-loving behavior. However, as predicted, the probability of choice-loving behavior increases with the number of available varieties for popular product lines, whereas choice-averse behavior increases with available varieties for niche product lines. These findings suggest that increasing the number of varieties has predictable opposing effects on sales, depending upon the popularity of the product line, and opens the possibility of reconciling apparently conflicting prior results.

Paul J Ferraro

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Economic analyses of asymmetric information typically start with the assumption that individuals know more about their own characteristics than outside observers. This assumption implies that individuals can accurately assess their own competence in a given domain. However, individuals can only judge their competence if they are sufficiently competent. The relationship between competence and self-awareness explains a great deal of the overconfidence observed among economic agents. More specifically, overconfidence is inversely proportional to competence. Through a series of experiments and analyses of field data, the link between incompetence and overconfidence is confirmed and its implications for economic theory are explored.

Anne M Farrell, Susan D Krische, Karen L Sedatole

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Complementing proprietary archival data with an experiment, we examine employees' subjective valuations of their employee stock options and explore a stock option education program as a mechanism for influencing those valuations. We argue that the conflicting evidence on employee subjective valuations in prior studies can be attributed in part to knowledge differences. Our archival and experimental results show most employees value their options lower than the corresponding Black-Scholes cost. We find that a stock option education program that provides descriptive information about the Black-Scholes option pricing model and quantitative information about option values using that model increases not only employees' subjective valuations but also their self-reported loyalty and motivation. We complement our primary results with analyses of the cross-sectional determinants of subjective valuations, the differential effects on valuations of different components of the education program, and the heuristics used to formulate subjective valuations.

Ronald G Cummings, Paul J Ferraro

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Economists have paid increasing attention to the role of cultural diversity in explaining the variability of economic outcomes across societies. We develop an experimental framework that complements existing research in this area. We implement the framework with two cultures that coexist in an industrialized society: the Hispanic and Navajo cultures in the southwestern United States. We vary the ethnic mix of our experimental sessions in order to infer the effect of intercultural interactions on economic behavior and outcomes. We control for demographic differences in our subject pools and elicit beliefs directly in order to differentiate between statistical discrimination and preference-based discrimination. We present clear evidence that Hispanic and Navajo subjects behave differently and that their behavior is affected by the ethnic composition of the experimental session. Our experimental framework has the potential to shed much needed light on economic behavior and outcomes in societies of mixed ethnicity, race and religion.

Craig Gallet, John A List

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This paper uses market share data to infer the nature of rivalry in the U.S. cigarette industry over the 1934-94 period. Unlike previous studies, which measure rivalry from various constructs of market share instability, we examine the time-series properties of market shares to determine whether or not rivalry is evident. Our empirical results imply that a majority of firm-level market shares are martingales, suggesting market shares have been unstable from 1934-94. This result leads us to conclude that rivalry in the cigarette industry has remained strong.

Shachar Kariv, Daniel J. Lee, John A List, Michael K Price

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We build on previous work in the charitable giving literature by examining not only how much subjects give to charity, but also which charities subjects prefer. We operationalize this choice in an artefactual field experiment with a representative sample of respondents. We then use these data to structurally model motives for giving. The novelty of this design allows us to ask several interesting questions regarding the choices one undertakes when deciding both whether and how much to give to charity. Further, we ask these questions in the context of a standard utility framework. Given the unique set up of this experiment, we also explore how these distributional preference parameters differ by charity choice and from what we have observed in the past. We find that there is more variation within demographics and charity types than across distributions.

Pieter A Gautier, Bas van der Klaauw

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We use data from a promotion campaign of NH-Hoteles to study self-selection of participants in a gift-exchange experiment. The promotion campaign allowed guests to pay any non negative amount of money for a stay in one of 36 hotels in Belgium and the Netherlands. The data allow us to distinguish between `regular guests', who booked prior to the announcement of the promotion campaign and guests who booked after the campaign was announced. During the promotion campaign we varied the posted price of a room that was communicated to the guests. Only the regular guests respond to the exogenous variation in the posted price and they pay substantially more on average. This different behavior cannot be explained by differences in satisfaction or observed compositional differences between both groups. We argue that the promotion campaign mainly attracted individuals who find it relatively unimportant to be viewed of as prosocial.