42 results on '"Georg Weizsäcker"'
Search Results
2. Hidden Skewness: On the Difficulty of Multiplicative Compounding Under Random Shocks.
- Author
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Ludwig Ensthaler, Olga Nottmeyer, Georg Weizsäcker, and Christian Zankiewicz
- Published
- 2018
- Full Text
- View/download PDF
3. Beliefs and actions in the trust game: Creating instrumental variables to estimate the causal effect.
- Author
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Miguel A. Costa-Gomes, Steffen Huck, and Georg Weizsäcker
- Published
- 2014
- Full Text
- View/download PDF
4. Learning from Unrealized versus Realized Prices
- Author
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M. Kathleen Ngangoue and Georg Weizsäcker
- Subjects
Rational expectations ,050208 finance ,05 social sciences ,Event study ,TheoryofComputation_GENERAL ,Information asymmetry ,Benchmark (surveying) ,0502 economics and business ,Value (economics) ,Econometrics ,Economics ,ComputingMilieux_COMPUTERSANDSOCIETY ,Insider trading ,050207 economics ,Robustness (economics) ,General Economics, Econometrics and Finance - Abstract
Our experiments investigate the extent to which traders learn from the price, differentiating between situations where orders are submitted before versus after the price has realized. In simultaneous markets with bids that are conditional on the price, traders neglect the information conveyed by the hypothetical value of the price. In sequential markets where the price is known prior to the bid submission, traders react to price to an extent that is roughly consistent with the benchmark theory. The difference’s robustness to a number of variations provides insights about the drivers of this effect. (JEL D44, D82, D84, G12, G14)
- Published
- 2021
5. Neue Grundsätze im Ethikkodex des Vereins für Socialpolitik
- Author
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Alexander Kriwoluzky, Aderonke Osikominu, Doris Weichselbaumer, and Georg Weizsäcker
- Subjects
Ethikkodex ,Grundsätze guter beruflicher Praxis ,330 Wirtschaft ,Political Science and International Relations ,Geography, Planning and Development ,ddc:330 ,Verein für Socialpolitik ,Frauen und Minderheiten in der akademischen Volkswirtschaftslehre - Abstract
Dieser Beitrag ist mit Zustimmung des Rechteinhabers (De Gruyter) frei zugänglich., Die Mitglieder des Vereins für Socialpolitik haben auf ihrer Mitgliederversammlung am 8. Dezember 2021 mit deutlicher Mehrheit beschlossen, den seit 2012 bestehenden Ethikkodex um Inhalte der „guten beruflichen Praxis“ zu erweitern. Neben ethischen Standards für die wissenschaftliche Arbeit haben sich die Vereinsmitglieder mit diesem Beschluss auch dem Streben nach Inklusion, Nicht-Diskriminierung und Nicht-Feindseligkeit im beruflichen Umfeld verpflichtet. Alexander Kriwoluzky, Aderonke Osikominu, Doris Weichselbaumer und Georg Weizsäcker, Mitglieder einer vom Erweiterten Vorstand des Vereins mit einem ersten Entwurf betrauten Arbeitsgruppe, stellen in diesem Artikel die Motivation, den Forschungshintergrund und die Umsetzung der Erweiterung des Ethikkodexes in die Praxis dar.
- Published
- 2022
- Full Text
- View/download PDF
6. Ignoring the rationality of others: evidence from experimental normal-form games.
- Author
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Georg Weizsäcker
- Published
- 2003
- Full Text
- View/download PDF
7. Expectation management of policy leaders: Evidence from COVID-19
- Author
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Peter, Haan, Andreas, Peichl, Annekatrin, Schrenker, Georg, Weizsäcker, and Joachim, Winter
- Subjects
Economics and Econometrics ,Finance - Abstract
This paper studies how the communication of political leaders affects the expectation formation of the public. Specifically, we examine the expectation management of the German government regarding COVID-19-related regulatory measures during the early phase of the pandemic. We elicit beliefs about the duration of these restrictions via a high-frequency survey of individuals, accompanied by an additional survey of firms. To quantify the success of policy communication, we use a regression discontinuity design and study how beliefs about the duration of the regulatory measures changed in response to three nationally televised press conferences by former Chancellor Angela Merkel and the Prime Ministers of the German federal states. We find that the announcements of Angela Merkel and her colleagues significantly prolonged the expected duration of restrictions, with effects being strongest for individuals with higher ex-ante optimism.
- Published
- 2022
8. Long-run expectations of households
- Author
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Peter Haan, Georg Weizsäcker, Iuliia Grabova, Felix Weinhardt, and Christoph Breunig
- Subjects
Returns to education ,Rational expectations ,Long-run expectations ,Financial economics ,media_common.quotation_subject ,D18 ,Sample (statistics) ,Pessimism ,Biased beliefs ,Identification (information) ,D84 ,Economics ,ddc:330 ,Stock market ,D14 ,J31 ,Empirical evidence ,Finance ,media_common - Abstract
The rational expectations assumption, e.g. in life-cycle models and portfolio-choice models, prescribes that all actions are in line with a well-structured and unbiased system of expectations. In reality, justification and identification of expectations are nontrivial, and we lack empirical evidence especially for the long run. This paper starts to fill this gap and elicits short-run and long-run expectations of a sample of households that is designed to be representative of the universe of German households. We focus on expectations about three highly welfare-relevant markets: the stock market, the labor market, and the housing market. We show that linear extrapolations of short-run expectations can approximate long-run expectations in the labor market, but not in financial or housing markets. In the latter two markets, long-run expectations of households are severely below linear price growth and far below historical values. This extreme pessimism does not extend to the labor market, where expectations are fairly close to historical values. We also document substantial heterogeneity of expectations by socio-economic and personal characteristics, e.g., females are more pessimistic than males about outcomes in all markets.
- Published
- 2021
9. The Standard Portfolio Choice Problem in Germany
- Author
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Steffen Huck, Tobias F. N. Schmidt, and Georg Weizsäcker
- Subjects
Economics and Econometrics ,Financial economics ,Risk premium ,Monetary economics ,financial literacy ,Stock exchange ,Economics ,Capital asset pricing model ,Asset (economics) ,D14 ,G11 ,Investment performance ,health care economics and organizations ,Financial market ,Investment (macroeconomics) ,stock market expectations ,portfolio choice ,Incentive ,D1 ,D84 ,stock market participation ,Portfolio ,ddc:300 ,Holding period return ,Stock market ,Business ,Project portfolio management ,complexity - Abstract
We study an investment experiment with a representative sample of German households. Respondents invest in a safe asset and a risky asset whose return is tied to the German stock market. Experimental investments correlate with beliefs about stock market returns and exhibit desirable external validity at least in one respect: they predict real-life stock market participation. But many households are unresponsive to an exogenous increase in the risky asset’s return. The data analysis and a series of additional laboratory experiments suggest that task complexity decreases the responsiveness to incentives. Modifying the safe asset’s return has a larger effect on behaviour than modifying the risky asset’s return.
- Published
- 2021
10. Misunderstandings : False Beliefs in Communication
- Author
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Georg Weizsäcker and Georg Weizsäcker
- Subjects
- Miscommunication, Conversation analysis, Pragmatics
- Abstract
What do we expect when we say something to someone, and what do they expect when they hear it? When is a conversation successful? The book considers a wide set of two-person conversations, and a bit of game theory, to show how conversational statements and their interpretations are governed by beliefs. Thinking about beliefs is suitable for communication analysis because beliefs are well-defined and measurable, allowing to differentiate between successful understandings and their less successful counterparts: misunderstandings. The book describes the theoretical framework and empirical measurements of misunderstandings – written by an economist, but in simple words and using interdisciplinary concepts. The material will benefit students and researchers of behavioural economics and its neighbouring fields, and anyone interested in human language.
- Published
- 2023
11. Starke Erwartungsreaktionen auf Angela Merkels Covid-Erklärungen (Expectations about Covid Shutdown React Strongly to Angela Merkel’s Announcements)
- Author
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Peter Haan, Georg Weizsäcker, Annekatrin Schrenker, Andreas Peichl, and Joachim Winter
- Subjects
German ,education.field_of_study ,Shutdown ,Political science ,Population ,Economic history ,language ,education ,language.human_language - Abstract
German Abstract: Wir fuhren hochfrequente Befragungen der in Deutschland lebenden Personen durch und erheben die Erwartungen zur Dauer der Covid-bedingten Beschrankungen des offentlichen Lebens. In einer ersten Analyse der Daten finden wir Hinweise, dass zwei in den Erhebungszeitraum fallenden offentlichen Auftritte von Bundeskanzlerin Angela Merkel die Erwartungen stark beeinflussen. Insbesondere messen wir nach Merkels Pressekonferenz vom 15.4.2020 eine deutlich pessimistische Bewegung der Erwartungen und die beabsichtigten Konsumausgaben der Haushalte sinken zeitgleich. Die Ergebnisse legen nahe, dass die deutsche Politik uber die Moglichkeit eines sehr wirksamen Erwartungsmanagements verfugt. English Abstract: We conduct a high-frequency elicitation of expectations held by Germany’s general population about the lifting of restrictions that policymakers impose in response to the Covid pandemic. Our first data analysis covers a time period during which period Chancellor Angela Merkel made two widely broadcasted public appearances. The data suggest that her statements have a strong effect on the public’s expectations about the restrictions, especially in her appearance on Aril 15, 2020. Immediately after the appearance, expectations become significantly more pessimistic and intended consumption expenditures falls sharply. The results illustrates that German policymakers can manage expectations effectively.
- Published
- 2020
12. Flipping a coin: Evidence from university applications
- Author
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Nadja Dwenger, Georg Weizsäcker, and Dorothea Kübler
- Subjects
Economics and Econometrics ,Matching (statistics) ,Economics ,preference for randomization ,Outcome (game theory) ,Basic Research, General Concepts and History of Economics ,0502 economics and business ,ddc:330 ,050207 economics ,Expected utility hypothesis ,050205 econometrics ,Coin flipping ,05 social sciences ,matching markets ,individual decision making ,Wirtschaft ,Decision maker ,Data set ,Allgemeines, spezielle Theorien und Schulen, Methoden, Entwicklung und Geschichte der Wirtschaftswissenschaften ,university admissions ,D01 ,D03 ,Mathematical economics ,Finance - Abstract
We empirically investigate the possibility that a decision maker prefers to avoid making a decision and instead delegates it to an external device, e.g., a coin flip. A large data set from the centralized clearinghouse for university admissions in Germany shows a choice pattern of applicants that is consistent with coin flipping and that entails substantial consequences for the matching outcome. In a series of experiments capturing the relevant features of university choice, participants often choose lotteries between allocations rather than certain allocations. This contradicts most theories of choice such as expected utility. A survey among university applicants links their choices to the experiments and confirms that the choice of random allocations is intentional
- Published
- 2018
13. Correlation Neglect in Portfolio Choice: Lab Evidence
- Author
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Georg Weizsäcker and Erik Eyster
- Subjects
Correlation ,Actuarial science ,Heuristic ,media_common.quotation_subject ,Econometrics ,Economics ,Portfolio ,Imperfect ,Uncorrelated ,Modern portfolio theory ,Neglect ,media_common - Abstract
Optimal portfolio theory depends upon a sophisticated understanding of the correlation among financial assets. In this paper, we examine people’s understanding of correlation using portfolio-allocation problems and find it to be strongly imperfect. Our experiment uses pairs of problems having the same span of assets — identical sets of attainable returns — but different correlations between assets. While expected-utility theory makes the same prediction across paired problems, subjects behave very differently within pairs. We find evidence for correlation neglect — treating correlated variables as uncorrelated — as well as for the “1/n heuristic” — investing half of wealth each of the two available assets.
- Published
- 2016
14. Do We Follow Others when We Should? A Simple Test of Rational Expectations
- Author
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Georg Weizsäcker
- Subjects
jel:C92 ,Economics and Econometrics ,Rational expectations ,jel:C72 ,jel:D82 ,failure of rational expectations, information cascades, social learning, meta analysis ,Social learning ,information cascades ,failure of rational expectations ,meta analysis ,Regression analysis ,Variance (accounting) ,Ask price ,If and only if ,Economics ,Econometrics ,Situational ethics ,Information cascade ,Set (psychology) - Abstract
The paper presents a new meta data set covering 13 experiments on the social learning games by Bikhchandani, Hirshleifer, and Welch (1992). The large amount of data makes it possible to estimate the empirically optimal action for a large variety of decision situations and ask about the economic significance of suboptimal play. For example, one can ask how much of the possible payoffs the players earn in situations where it is empirically optimal that they follow others and contradict their own information. The answer is 53% on average across all experiments – only slightly more than what they would earn by choosing at random. The players’ own information carries much more weight in the choices than the information conveyed by other players’ choices: the average player contradicts her own signal only if the empirical odds ratio of the own signal being wrong, conditional on all available information, is larger than 2:1, rather than 1:1 as would be implied by rational expectations. A regression analysis formulates a straightforward test of rational expectations, which rejects, and confirms that the reluctance to follow others generates a large part of the observed variance in payoffs, adding to the variance that is due to situational differences.
- Published
- 2010
15. Stated Beliefs and Play in Normal-Form Games
- Author
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Georg Weizsäcker and Miguel A. Costa-Gomes
- Subjects
Economics and Econometrics ,Consistency (negotiation) ,Strategic thinking ,Control (management) ,Economics ,Cognition ,Experimental economics ,Set (psychology) ,Bounded rationality ,Cognitive psychology ,Statistical hypothesis testing - Abstract
Using data on one-shot games, we investigate whether players' actions can be viewed as responses to underlying expectations about their opponent's behaviour. In our laboratory experiments, subjects play a set of 14 two-person 3 × 3 games and state beliefs about which actions they expect their opponents to play. The data sets from the two tasks are largely inconsistent. Rather, we find evidence that the subjects perceive the games differently when they (i) choose actions and (ii) state beliefs - their stated beliefs reveal deeper strategic thinking than their actions. On average, they fail to best respond to their own stated beliefs in almost half of the games. The inconsistency is confirmed by estimates of a unified statistical model that jointly uses the actions and the belief statements. There, we can control for decision noise and formulate a statistical test that rejects consistency. Effects of the belief elicitation procedure on subsequent actions are mostly insignificant. © 2008 The Review of Economic Studies Limited.
- Published
- 2008
16. Learning from Unrealized versus Realized Prices
- Author
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Kathleen Ngangoué and Georg Weizsäcker
- Subjects
TheoryofComputation_MISCELLANEOUS ,jel:D81 ,jel:C91 ,Naive expectations, asymmetric information, rational expectations, sequential markets ,jel:D82 ,TheoryofComputation_GENERAL - Abstract
Our market experiment investigates the extent to which traders learn from the price, differentiating between situations where orders are submitted before versus after the price has realized. When market participants have to submit their bids conditional on the price, they show a bias by reacting only to their private information and not to the hypothetical value of the price. In a sequential trading mechanism, where the price is known at the bid submission, bids react to price to an extent that is roughly consistent with the benchmark theory.
- Published
- 2015
17. Learning from Unrealized Versus Realized Prices
- Author
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M. Kathleen Ngangoue and Georg Weizsäcker
- Subjects
TheoryofComputation_MISCELLANEOUS ,Microeconomics ,Reservation price ,Market depth ,Law of one price ,Price mechanism ,Economics ,Market price ,Mid price ,TheoryofComputation_GENERAL ,Bid price ,Limit price - Abstract
Our market experiment investigates the extent to which traders learn from the price, differentiating between situations where orders are submitted before versus after the price has realized. When market participants have to submit their bids conditional on the price, they show a bias by reacting only to their private information and not to the hypothetical value of the price. In a sequential trading mechanism, where the price is known at the bid submission, bids react to price to an extent that is roughly consistent with the benchmark theory.
- Published
- 2015
18. Markets for Leaked Information
- Author
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Steffen Huck and Georg Weizsäcker
- Subjects
Oligopoly ,Information transmission ,Harm ,Commerce ,Third party ,Value (economics) ,Business ,Monopoly ,Personally identifiable information - Abstract
We study markets for sensitive personal information. An agent wants to communicate with another party but any revealed information can be intercepted and sold to a third party whose reaction harms the agent. The market for information induces an adverse sorting effect, allocating the information to those types of third parties who harm the agent most. In equilibrium, this limits information transmission by the agent, but never fully deters it. We also consider agents who naively provide information to the market. Their presence renders traded information more valuable and, thus, harms sophisticated agents by increasing the third party's demand for information. Half-baked regulatory interventions may hurt naive agents without helping sophisticated agents. Comparing monopoly and oligopoly markets, we find that oligopoly is often better for the agent: it requires a higher value of traded information and therefore has to grant the agent more privacy.
- Published
- 2015
19. Are Longer Cascades More Stable?
- Author
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Georg Weizsäcker and Dorothea Kübler
- Subjects
Computer science ,Cascade ,Econometrics ,HC Economic History and Conditions ,General Economics, Econometrics and Finance - Abstract
Yes, they are. We consider data from experimental cascade games that were run in different laboratories, and find uniformly that subjects are more willing to follow the crowd, the bigger the crowd is �although the decision makers who are added to the crowd should in theory simply follow suit and hence reveal no information. This correlation of length and strength of cascades appears consistently across games with different parameters and different choice sets for the subjects. It is also observed in games where it runs counter to the theoretical prediction, so behavior moves away from equilibrium play over the stages of the games.
- Published
- 2005
20. Do players correctly estimate what others do?
- Author
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Georg Weizsäcker and Steffen Huck
- Subjects
Organizational Behavior and Human Resource Management ,Economics and Econometrics ,Quadratic equation ,Group (mathematics) ,Scoring rule ,Aggregate (data warehouse) ,Statistics ,Belief elicitation ,Conservatism ,Bidding ,Set (psychology) ,Social psychology ,Mathematics - Abstract
In a simple experimental environment a group of subjects was asked to give estimates of a second group’s choice frequencies in a set of lottery-choice tasks. The results show that subjects in the first group are on average able to correctly predict the option that is chosen with higher frequency by the second group, but the predictions are systematically inaccurate in that they are distorted toward the uniform prior. Two mechanisms to elicit the expectations were used in the experiment, a quadratic scoring rule and a bidding mechanism. Aggregate results being similar under both mechanisms, the use of the former mechanism consistently yields more accurate predictions.
- Published
- 2002
21. Hidden Skewness: On the Difficulty of Multiplicative Compounding under Random Shocks
- Author
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Olga Nottmeyer, Ludwig Ensthaler, Georg Weizsäcker, and Christian Zankiewicz
- Subjects
Exponential Growth Bias ,Multiplicative Compounding ,G02 ,Strategy and Management ,media_common.quotation_subject ,binomial tree ,Random shocks ,behavioral economics, irrational expectations, binomial tree ,Skewness Neglect ,behavioral economics ,Management Science and Operations Research ,Behavioral economics ,jel:G02 ,Asymmetry ,jel:D03 ,jel:G2 ,0502 economics and business ,C91 ,Econometrics ,Economics ,ddc:330 ,Behavioral Economics, Multiplicative Compounding, Skewness Neglect, Exponential Growth Bias ,D14 ,050207 economics ,media_common ,050208 finance ,jel:C91 ,Multiplicative function ,05 social sciences ,irrational expectations ,Outcome (probability) ,jel:D14 ,Behavioral modeling ,Skewness ,jel:D3 ,Binomial options pricing model ,D03 - Abstract
Multiplicative growth processes that are subject to random shocks often have an asymmetric distribution of outcomes. In a series of incentivized laboratory experiments, we show that a large majority of participants either strongly underestimate the asymmetry or ignore it completely. Participants misperceive the spread of the outcome distribution to be too narrowband, and they estimate the median and the mode to lie too close to the center of the distribution, failing to account for the compound nature of average growth. The observed biases are measured irrespective to risk preferences and they appear under a variety of conditions. The biases are largely consistent with a behavioral model in which geometric growth is confused with linear growth. This confusion is a possible driver of investors’ difficulties with real-world financial products like leveraged exchange-traded funds and retirement savings plans. Data and the online appendix are available at https://doi.org/10.1287/mnsc.2016.2618 . This paper was accepted by Teck-Hua Ho, behavioral economics.
- Published
- 2014
22. Preference for Randomization: Empirical and Experimental Evidence
- Author
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Nadja Dwenger, Dorothea Kübler, and Georg Weizsäcker
- Subjects
Stochastic dominance violations, individual decision making, university choice, matching ,jel:D01 ,jel:D03 - Abstract
We investigate violations of consequentialism in the form of the stochastic dominance property. The property is shared by many theories of choice and implies that the decision-maker prefers receiving the best outcome for sure over all lotteries that involve multiple outcomes. We run experiments to demonstrate that dominated randomization can be attractive. In treatments where decision-makers are asked to submit multiple decisions without knowing which one is relevant, many participants submit contradictory sets of decisions and thereby induce a dominated lottery between outcomes. Explicit choice of non-consequentialist randomization is observed in a separate treatment. A possible reason for the e ect is the desire to avoid having to make the decision. A large data set on (high-stake) university applications in Germany shows patterns that are consistent with a preference for randomization.
- Published
- 2013
23. Hidden Skewness: On the Difficulty of Multiplicative Compounding Under Random Shocks
- Author
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Ludwig Ensthaler, Christian Zankiewicz, Olga Nottmeyer, and Georg Weizsäcker
- Subjects
Skewness ,media_common.quotation_subject ,Statistics ,Multiplicative function ,Econometrics ,Economics ,Random shocks ,Binomial options pricing model ,Behavioral economics ,Asymmetry ,Outcome (probability) ,media_common ,Behavioral modeling - Abstract
Multiplicative growth processes that are subject to random shocks often have an asymmetric distribution of outcomes. In a series of incentivized laboratory experiments we show that a large majority of participants either strongly underestimate the asymmetry or ignore it completely. Participants misperceive the outcome distribution's spread to be too narrow-band and they estimate the median and the mode to lie too close to the distribution's center, failing to account for the compound nature of average growth. The observed biases are measured irrespective to risk preferences and they appear under a variety of conditions. The biases are largely consistent with a behavioral model in which geometric growth is confused with linear growth. This confusion is a possible driver of investors' difficulties with real-world financial products like leveraged ETFs and retirement savings plans.
- Published
- 2013
24. Preference for Randomization: Empirical and Experimental Evidence
- Author
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Nadja Dwenger, Georg Weizsäcker, and Dorothea Kübler
- Subjects
Matching (statistics) ,Coin flipping ,Economics ,Allocative efficiency ,Mathematical economics ,Preference (economics) ,Randomness ,Expected utility hypothesis - Abstract
We investigate the possibility that a decision-maker prefers to avoid making a decision and instead delegates it to an external device, e.g., a coin flip. In a series of experiments the participants often choose lotteries between allocations, which contradicts most theories of choice such as expected utility but is consistent with a theory of responsibility aversion that implies a preference for randomness. A large data set on university applications in Germany shows a choice pattern that is also consistent with this theory and entails substantial allocative consequences.
- Published
- 2012
25. Correlation Neglect in Financial Decision-Making
- Author
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Erik Eyster and Georg Weizsäcker
- Subjects
Portfolio choice, correlation neglect, 1/n heuristic, biases in beliefs ,jel:B49 - Abstract
Good decision-making often requires people to perceive and handle a myriad of statistical correlations. Notably, optimal portfolio theory depends upon a sophisticated understanding of the correlation among financial assets. In this paper, we examine people's understanding of correlation using a sequence of portfolio-allocation problems and find it to be strongly imperfect. Our experiment uses pairs of portfolio-choice problems that have the same asset span - identical sets of attainable returns - and differ only in the assets' correlation. While any outcome-based theory of choice makes the same prediction across paired problems, subjects behave very differently across pairs. We find evidence for correlation neglect - treating correlated variables as uncorrelated - as well as for a form of "1/N heuristic" - investing half of wealth each of the two available assets.
- Published
- 2011
26. Beliefs and Actions in the Trust Game: Creating Instrumental Variables to Estimate the Causal Effect
- Author
-
Miguel A. Costa-Gomes, Georg Weizsäcker, and Steffen Huck
- Subjects
Variable (computer science) ,Dictator game ,Stochastic process ,Causal relations ,Instrumental variable ,Causal effect ,Variation (game tree) ,Psychology ,Social capital ,Cognitive psychology - Abstract
In many economic contexts, an elusive variable of interest is the agent's expectation about relevant events, e.g. about other agents' behavior. Recent experimental studies as well as surveys have asked participants to state their beliefs explicitly, but little is known about the causal relation between beliefs and other behavioral variables. This paper discusses the possibility of creating exogenous instrumental variables for belief statements, by shifting the probabilities of the relevant events. We conduct trust game experiments where the amount sent back by the second player (trustee) is exogenously varied by a random process, in a way that informs only the first player (trustor) about the realized variation. The procedure allows detecting causal links from beliefs to actions under plausible assumptions. The IV estimates indicate a significant causal effect, comparable to the connection between beliefs and actions that is suggested by OLS analyses.
- Published
- 2010
27. Correlation Neglect in Financial Decision-Making
- Author
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Georg Weizsäcker and Erik Eyster
- Subjects
Actuarial science ,Decision theory ,Replicating portfolio ,media_common.quotation_subject ,Economics ,Econometrics ,Imperfect ,Asset (economics) ,Portfolio optimization ,Outcome (probability) ,Modern portfolio theory ,Neglect ,media_common - Abstract
Good decision-making often requires people to perceive and handle a myriad of statistical correlations. Notably, optimal portfolio theory depends upon a sophisticated understanding of the correlation among nancial assets. In this paper, we examine people’s understanding of correlation using a sequence of portfolio-allocation problems and nd it to be strongly imperfect. Our experiment uses pairs of portfolio-choice problems that have the same asset span|identical sets of attainable returns|and dier only in the assets’ correlation. While any outcome-based theory of choice makes the same prediction across paired problems, subjects behave very differently across pairs. We nd evidence for correlation neglect|treating correlated variables as uncorrelated|as well as for a form of \1/n heuristic"|investing half of wealth each of the two available assets. (JEL B49)
- Published
- 2010
28. Stated Beliefs and Play in Normal-Form Games
- Author
-
Miguel A. Costa-Gomes and Georg Weizsäcker
- Subjects
Consistency (negotiation) ,Strategic thinking ,Operations research ,Control (management) ,Economics ,Statistical model ,Experimental economics ,Set (psychology) ,Bounded rationality ,Statistical hypothesis testing ,Cognitive psychology - Abstract
Using data on one-shot games, we investigate whether players' actions can be viewed as responses to underlying expectations about their opponent's behavior. In our laboratory experiments, subjects play a set of 14 two-person 3x3 games, and state beliefs about which actions they expect their opponents to play. The data sets from the two tasks are largely inconsistent. Rather, we find evidence that the subjects perceive the games differently when they (i) choose actions, and (ii) state beliefs - their stated beliefs reveal deeper strategic thinking than their actions. On average, they fail to best respond to their own stated beliefs in almost half of the games. The inconsistency is confirmed by estimates of a unified statistical model that jointly uses the actions and the belief statements. There, we can control for decision noise, and formulate a statistical test that rejects consistency. Effects of the belief elicitation procedure on subsequent actions are mostly insignificant.
- Published
- 2007
29. Narrow Bracketing and Dominated Choices
- Author
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Matthew Rabin and Georg Weizsäcker
- Subjects
Economics and Econometrics ,education.field_of_study ,Generality ,jel:D81 ,media_common.quotation_subject ,Population ,Statistical model ,Mistake ,jel:D12 ,Prospect theory ,Statistics ,Economics ,Econometrics ,education ,Function (engineering) ,Bracketing ,Value (mathematics) ,media_common - Abstract
An experiment by Tversky and Kahneman (1981) illustrates that people's tendency to evaluate risky decisions separately can lead them to choose combinations of choices that are first-order stochastically dominated by other available combinations. We investigate the generality of this effect both theoretically and experimentally. We show that for any decisionmaker who does not have constant-absolute-risk-averse preferences and who evaluates her decisions one by one, there exists a simple pair of independent binary decisions where the decisionmaker will make a dominated combination of choices. We also characterize, as a function of a person's preferences, the amount of money that she can lose due to a single mistake of this kind. The theory is accompanied by both a real-stakes laboratory experiment and a large-sample survey from the general U.S. population. Replicating Tversky and Kahneman's original experiment where decisionmakers with prototypical prospect-theory preferences will choose a dominated combination, we find that 28% of the participants do so. In the survey we ask the respondents about several hypothetical large-stakes choices, and find higher proportions of dominated choice combinations. A statistical model that estimates preferences from the survey results is best fit by assuming people have utility functions that are close to prospect-theory value functions and that about 83% of people bracket narrowly. None of these results varies strongly with the personal characteristics of participants. We also demonstrate directly that dominated choices are driven by narrow bracketing: when we eliminate the possibility of narrow bracketing by using a combined presentation of the decisions, the dominated choices are eliminated in the laboratory experiment and are greatly reduced in the survey.
- Published
- 2007
30. Advance market commitments for vaccines against neglected diseases: estimating costs and effectiveness
- Author
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Rachel Glennerster, Michael Kremer, Heidi Williams, Georg Weizsäcker, Ernst R. Berndt, Ruth Levine, and Jean Lee
- Subjects
Marginal cost ,Drug Industry ,media_common.quotation_subject ,Cost-Benefit Analysis ,Health Care Sector ,HIV Infections ,Commit ,HV Social pathology. Social and public welfare. Criminology ,HN Social history and conditions. Social problems. Social reform ,Economics ,Revenue ,Humans ,Tuberculosis ,Economics, Pharmaceutical ,Developing Countries ,health care economics and organizations ,media_common ,Vaccines ,Actuarial science ,Health Policy ,Immunization (finance) ,Payment ,United Kingdom ,Malaria ,Product (business) ,Biological Therapy ,Advance market commitments ,Value (economics) ,Communicable Disease Control ,RA Public aspects of medicine ,Drug Evaluation - Abstract
The G8 is considering committing to purchase vaccines against diseases concentrated in low-income countries (if and when desirable vaccines are developed) as a way to spur research and development on vaccines for these diseases. Under such an “advance market commitment,” one or more sponsors would commit to a minimum price to be paid per person immunized for an eligible product, up to a certain number of individuals immunized. For additional purchases, the price would eventually drop to close to marginal cost. If no suitable product were developed, no payments would be made. We estimate the offer size which would make revenues similar to the revenues realized from investments in typical existing commercial pharmaceutical products, as well as the degree to which various model contracts and assumptions would affect the cost-effectiveness of such a commitment. We make adjustments for lower marketing costs under an advance market commitment and the risk that a developer may have to share the market with subsequent developers. We also show how this second risk could be reduced, and money saved, by introducing a superiority clause to a commitment. Under conservative assumptions, we document that a commitment comparable in value to sales earned by the average of a sample of recently launched commercial products (adjusted for lower marketing costs) would be a highly cost-effective way to address HIV/AIDS, malaria, and tuberculosis. Sensitivity analyses suggest most characteristics of a hypothetical vaccine would have little effect on the cost-effectiveness, but that the duration of protection conferred by a vaccine strongly affects potential cost-effectiveness. Readers can conduct their own sensitivity analyses employing a web-based spreadsheet tool.
- Published
- 2006
31. Advance Market Commitments for Vaccines Working Paper and Spread Sheet
- Author
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Ernst R. Berndt, Jean Lee, Ruth Levine, Heidi Williams, Rachel Glennerster, Michael Kremer, and Georg Weizsäcker
- Subjects
Product (business) ,Marginal cost ,Actuarial science ,media_common.quotation_subject ,Value (economics) ,Advance market commitments ,Economics ,Revenue ,Commit ,Duration (project management) ,Payment ,health care economics and organizations ,media_common - Abstract
The G8 is considering committing to purchase vaccines against diseases concentrated in low-income countries (if and when desirable vaccines are developed) as a way to spur research and development on vaccines for these diseases. Under such an "advance market commitment," one or more sponsors would commit to a minimum price to be paid per person immunized for an eligible product, up to a certain number of individuals immunized. For additional purchases, the price would eventually drop to close to marginal cost. If no suitable product were developed, no payments would be made. We estimate the offer size which would make revenues similar to the revenues realized from investments in typical existing commercial pharmaceutical products, as well as the degree to which various model contracts and assumptions would affect the cost-effectiveness of such a commitment. We make adjustments for lower marketing costs under an advance market commitment and the risk that a developer may have to share the market with subsequent developers. We also show how this second risk could be reduced, and money saved, by introducing a superiority clause to a commitment. Under conservative assumptions, we document that a commitment comparable in value to sales earned by the average of a sample of recently launched commercial products (adjusted for lower marketing costs) would be a highly cost-effective way to address HIV/AIDS, malaria, and tuberculosis. Sensitivity analyses suggest most characteristics of a hypothetical vaccine would have little effect on the cost-effectiveness, but that the duration of protection conferred by a vaccine strongly affects potential cost-effectiveness. Readers can conduct their own sensitivity analyses employing a web-based spreadsheet tool.
- Published
- 2006
32. Advanced Purchase Commitments for a Malaria Vaccine: Estimating Costs and Effectiveness
- Author
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Ruth Levine, Michael Kremer, Ernst R. Berndt, Rachel Glennerster, Heidi Williams, Georg Weizsäcker, and Jean Lee
- Subjects
Marginal cost ,Actuarial science ,Public economics ,Malaria vaccine ,media_common.quotation_subject ,Commit ,Payment ,medicine.disease ,Product (business) ,Economics ,medicine ,Revenue ,Duration (project management) ,health care economics and organizations ,Malaria ,media_common - Abstract
To overcome the problem of insufficient research and development (R&D) on vaccines for diseases concentrated in low-income countries, sponsors could commit to purchase viable vaccines if and when they are developed. One or more sponsors would commit to a minimum price that would be paid per person immunized for an eligible product, up to a certain number of individuals immunized. For additional purchases, the price would eventually drop to short-run marginal cost. If no suitable product were developed, no payments would be made. We estimate the offer size which would make the revenues from R&D investments on a malaria vaccine similar to revenues realized from investments in typical existing commercial pharmaceutical products, as well as the degree to which various contract models and assumptions would affect the cost-effectiveness of such a commitment for the case of a malaria vaccine. Under conservative assumptions, we document that the intervention would be highly cost-effective from a public health perspective. Sensitivity analyses suggest most characteristics of a hypothetical malaria vaccine would have little effect on the cost-effectiveness, but that the duration of protection against malaria conferred by a vaccine strongly affects potential cost-effectiveness. Readers can conduct their own sensitivity analyses employing a web-based spreadsheet tool.
- Published
- 2005
33. Advanced Purchase Commitments for a Malaria Vaccine: Estimating Costs and Effectiveness
- Author
-
Ernst R. Berndt, Rachel Glennerster, Michael R. Kremer, Jean Lee, Ruth Levine, and Georg Weizsäcker
- Subjects
jel:O31 ,jel:I18 ,advance purchase commitment, R&D, pharmaceuticals, vaccines, malaria ,jel:O38 ,health care economics and organizations ,jel:O19 - Abstract
To overcome the problem of insufficient research and development (R&D) on vaccines for diseases concentrated in low-income countries, sponsors could commit to purchase viable vaccines if and when they are developed. One or more sponsors would commit to a minimum price that would be paid per person immunized for an eligible product, up to a certain number of individuals immunized. For additional purchases, the price would eventually drop to short-run marginal cost. If no suitable product were developed, no payments would be made. We estimate the offer size which would make the revenues from R&D investments on a malaria vaccine similar to revenues realized from investments in typical existing commercial pharmaceutical products, as well as the degree to which various contract models and assumptions would affect the cost-effectiveness of such a commitment for the case of a malaria vaccine. Under conservative assumptions, we document that the intervention would be highly cost-effective from a public health perspective. Sensitivity analyses suggest most characteristics of a hypothetical malaria vaccine would have little effect on the cost-effectiveness, but that the duration of protection against malaria conferred by a vaccine strongly affects potential cost-effectiveness. Readers can conduct their own sensitivity analyses employing a web-based spreadsheet tool.
- Published
- 2005
34. Stated Beliefs and Play in Normal Form Games
- Author
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Miguel A. Costa-Gomes and Georg Weizsäcker
- Published
- 2004
35. Limited depth of reasoning and failure of cascade formation in the laboratory
- Author
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Georg Weizsäcker and Dorothea Kübler
- Subjects
Economics and Econometrics ,H Social Sciences (General) ,business.industry ,ComputingMilieux_PERSONALCOMPUTING ,Process (computing) ,Machine learning ,computer.software_genre ,Signal ,Cascade ,Robustness (computer science) ,Economics ,Artificial intelligence ,Information cascade ,business ,computer ,Private information retrieval - Abstract
We examine the robustness of information cascades in laboratory experiments. Apart from the situation in which each player can obtain a signal for free (as in the experiment by Anderson and Holt (1997) , American Economic Review, 87 (5), 847-862), the case of costly signals is studied where players decide whether or not to obtain private information, at a small but positive cost. In the equilibrium of this game, only the first player buys a signal and makes a decision based on this information whereas all following players do not buy a signal and herd behind the first player. The experimental results show that too many signals are bought and the equilibrium prediction performs poorly. To explain these observations, the depth of the subjects' reasoning process is estimated, using a statistical error-rate model. Allowing for different error rates on different levels of reasoning, we find that the subjects' inferences become significantly more noisy on higher levels of the thought process, and that only short chains of reasoning are applied by the subjects. Copyright 2004, Wiley-Blackwell.
- Published
- 2004
36. Are Longer Cascades More Stable?
- Author
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Georg Weizsäcker and Dorothea Kübler
- Subjects
Cascade ,business.industry ,Economics ,Herding ,Artificial intelligence ,Experimental economics ,Social learning ,business ,Mathematical economics - Abstract
Yes, they are. We consider data from experimental cascade games that were run in different laboratories, and find uniformly that subjects are more willing to follow the crowd, the bigger the crowd is - although the decision makers who are added to the crowd should in theory simply follow suit and hence reveal no information. This correlation of length and strength of cascades appears consistently across games with different parameters and different choice sets for the subjects. It is also observed in games where it runs counter to the theoretical prediction, so behavior moves away from equilibrium play over the stages of the games.
- Published
- 2004
37. Information cascades in the labor market
- Author
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Georg Weizsäcker and Dorothea Kübler
- Subjects
Microeconomics ,HB Economic Theory ,Economics and Econometrics ,Labour economics ,SIGNAL (programming language) ,Economics ,Herding ,Information cascade ,General Business, Management and Accounting ,Herd behavior ,Public finance - Abstract
A model of herding behavior in the labor market is presented where employers receive signals with limited precision about the workers’ types, and can observe previous employers’ decisions. Both the employer and the worker can influence the signal probabilities. In particular, the employer tries to increase the precision of the signal about the worker’s type whereas the worker wants to get a good signal, independent of her type. In a two-period model, we derive conditions for an equilibrium in which only down-cascades occur, i.e., the second employer does not hire a worker with a bad history even if he receives a favorable private signal about the worker’s type, but he follows his own signal if the worker’s history is good.
- Published
- 2003
38. Ignoring the Rationality of Others: Evidence from Experimental Normal-form Games
- Author
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Georg Weizsäcker
- Subjects
Quantal response equilibrium ,Order (exchange) ,Experimental data ,Rationality ,Type (model theory) ,Game play ,Mathematical economics ,Palfrey ,Parametric statistics ,Mathematics - Abstract
In this paper, two models of two-person normal-form game play behavior are presented and estimated, using three experimental data sets. The models are variants of the Quantal Response Equilibrium model defined by McKelvey and Palfrey (1995, "Games and Economic Behavior"), and allow a player to hold inaccurate beliefs about the behavior of her opponent. Each model involves two parameters: One captures the player's own level of response rationality, the other the level she attributes to her opponent. In order to allow for type heterogeneity among the subjects in the experiments, parametric distributions of these parameters are assumed. The estimation results indicate that in all three data sets the subjects' choices follow a specific anomalous pattern: On average, subjects play as if they significantly underestimated their opponent's rationality.
- Published
- 2001
39. Limited Depth of Reasoning and Failure of Cascade Formation in the Laboratory
- Author
-
Dorothea Kübler and Georg Weizsäcker
- Subjects
Robustness (computer science) ,Cascade ,business.industry ,Statistics ,SIGNAL (programming language) ,Process (computing) ,Artificial intelligence ,Information cascade ,business ,Private information retrieval ,Mathematics - Abstract
We examine the robustness of information cascades in laboratory experiments. Apart from the situation in which each player can obtain a signal for free (as in the experiment by Anderson and Holt, 1997, QTR {American Economic Review}), the case of costly signals is studied where players decide whether to obtain private information or not, at a small but positive cost. In the equilibrium of this game, only the first player buys a signal and chooses an urn based on this information whereas all following players do not buy a signal and herd behind the first player. The experimental results show that too many signals are bought and the equilibrium prediction performs poorly. To explain these observations, the depth of the subjects' reasoning process is estimated, using a statistical error-rate model. Allowing for different error rates on different levels of reasoning, we find that the subjects' inferences become significantly more noisy on higher levels of the thought process, and that only short chains of reasoning are applied by the subjects.
- Published
- 2001
40. Renegotiation in the repeated amnesty dilemma: with economic applications
- Author
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Georg Weizsäcker, Joseph Farrell, Chatterjee, Kalyan, and Samuelson, William F.
- Subjects
Dilemma ,HB Economic Theory ,Public economics ,media_common.quotation_subject ,Economics ,Repeated game ,QA Mathematics ,Amnesty ,Law and economics ,Interest rate ,media_common - Published
- 2001
41. Beliefs and actions in the trust game: Creating instrumental variables to estimate the causal effect
- Author
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Georg Weizsäcker, Steffen Huck, Miguel A. Costa-Gomes, European Research Council, and University of St Andrews. School of Economics and Finance
- Subjects
jel:C81 ,Social psychology (sociology) ,Economics and Econometrics ,jel:D84 ,HB ,Social Capital,trust game,instrumental variables,belief elicitation ,Variation (game tree) ,Instrumental variables ,social capital, trust game, instrumental variables, belief elicitation ,C72 ,Dictator game ,Social capital ,C91 ,ddc:330 ,Economics ,HB Economic Theory ,jel:C91 ,business.industry ,Belief elicitation ,Instrumental variable ,Causal effect ,jel:C72 ,Trust game ,Public relations ,humanities ,Variable (computer science) ,D84 ,C81 ,business ,Social psychology ,Game theory ,Finance - Abstract
We are grateful for financial support from the U.K. Economic and Social Research Council (ESRC-RES-1973), the European Research Council (ERC-263412) and the ELSE centre at UCL. In many economic contexts, an elusive variable of interest is the agent's belief about relevant events, e.g. about other agents' behavior. A growing number of surveys and experiments ask participants to state beliefs explicitly but little is known about the causal relation between beliefs and actions. This paper discusses the possibility of creating exogenous instrumental variables for belief statements, by informing the agent about exogenous manipulations of the relevant events. We conduct trust game experiments where the amount sent back by the second player (trustee) is exogenously varied. The procedure allows detecting causal links from beliefs to actions under plausible assumptions. The IV-estimated effect is significant, confirming the causal role of beliefs. Publisher PDF
- Full Text
- View/download PDF
42. Risk, complexity, and deviations from expected-value maximization: Results of a lottery choice experiment *
- Author
-
Steffen Huck and Georg Weizsäcker
- Subjects
HB Economic Theory ,Economics and Econometrics ,Sociology and Political Science ,Cognition ,Maximization ,Expected value ,Task (project management) ,Lottery ,Econometrics ,Risk avoidance ,Heuristics ,Risk taking ,Psychology ,Social psychology ,Applied Psychology - Abstract
Varying several parameters of single-stage lottery choice tasks we investigate the question which features of a decision task lead subjects to deviate from maximizing expected monetary value (EV). Despite small differences in EV between the two lotteries in the choice sets, the subjects on average chose the lottery with the higher EV in every task. Risk avoidance occurs, but not consistently over all tasks. Further results are that subjects prefer less complex lotteries over more complex ones, and that risk matters the more the less complex the decision task is.
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