Rudolf Kerschbamer, Daniel Neururer, Matthias Sutter
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Honesty is a fundamental pillar for cooperation in human societies and thus for their economic welfare. However, humans do not always act in an honest way. Here, we examine how insurance coverage affects the degree of honesty in credence good markets. Such markets are plagued by strong incentives for fraudulent behavior of sellers, resulting in estimated annual costs of billions of dollars to costumers and the society as a whole. Prime examples of credence goods are all kinds of repair services, the provision of medical treatments, the sale of software programs, and the provision of taxi rides in unfamiliar cities. We examine in a natural field experiment how computer repair shops take advantage of costumers' insurance for repair costs. In a control treatment, the average repair price is about EUR 70, whereas the repair bill increases by more than 80% when the service provider is informed that an insurance would reimburse the bill. Our design allows decomposing the sources of this economically impressive difference, showing that it is mainly due to the overprovision of parts and overcharging of working time. A survey among repair shops shows that the higher bills are mainly ascribed to insured costumers being less likely to be concerned about minimizing costs because a third party (the insurer) pays the bill. Overall, our results strongly suggest that insurance coverage greatly increases the extent of dishonesty in important sectors of the economy with potentially huge costs to costumers and whole economies.
Loukas Balafoutas, Nikos Nikiforakis, Bettina Rockenbach
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The degree of human cooperation among strangers is a major evolutionary puzzle. A prominent explanation is that cooperation maintained because many individuals have a predisposition to punish those violating group-beneficial norms. A critical condition for cooperation to evolve in evolutionary models is that punishment increases with the severity of the violation. Here we present evidence from a field experiment with real-life interactions that, unlike in lab experiments, altruistic punishment does not increase with the severity of the violation, regardless of whether it is direct (confronting a violator) or indirect (withholding help). We also document growing concerns for counter-punishment as the severity of the violation increases, indicating that the marginal cost of direct punishment increases with the severity of violations. The evidence suggests that altruistic punishment may not provide appropriate incentives to deter large violations. Our findings thus offer a rationale for the emergence of formal institutions for prompting large-scale cooperation among strangers.
Loukas Balafoutas, Nikos Nikiforakis, Bettina Rockenbach
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Many interactions in modern human societies are among strangers. Explaining cooperation in such interactions is challenging. The two most prominent explanations critically depend on individuals' willingness to punish defectors: In models of direct punishment, individuals punish antisocial behavior at a personal cost, whereas in models of indirect reciprocity, they punish indirectly by withholding rewards. We investigate these competing explanations in a field experiment with real-life interactions among strangers. We find clear evidence of both direct and indirect punishment. Direct punishment is not rewarded by strangers and, in line with models of indirect reciprocity, is crowded out by indirect punishment opportunities. The existence of direct and indirect punishment in daily life indicates the importance of both means of understanding the evolution of cooperation.
Omar Isaac Asensio, Magali A Delmas
Cited by*: 3 Downloads*: None

Little is known about the effect of message framing on conservation behavior over time. In a randomized controlled trial with residential households, we use advanced metering and information technologies to test how different messages about household energy use impact the dynamics of conservation behavior down to the appliance level. Our results, based on 374 million panel observations of kilowatt-hour (kWh) electricity consumption for 118 households over 9 months, show that differences in behavioral responses due to message framing become more significant over time. We find that a health-based frame, in which households consider the human health effects of their marginal electricity use, induced persistent energy savings behavior of 8-10% over 100 days; whereas a more traditional cost savings frame, drove sharp attenuation of treatment effects after 2 weeks with no significant savings versus control after 7 weeks. We discuss the implications for the design of effective information campaigns to engage households in conservation behavior.
Ufuk Akcigit, Fernando Alvarez, Stephane Bonhomme, George M Constantinides, Douglas W Diamond, Eugene F Fama, David W Galenson, Michael Greenstone, Lars Peter Hansen, Uhlig Harald, James J Heckman, Ali Hortacsu, Emir Kamenica, Greg Kaplan, Anil K Kashyap, Steven D Levitt, John A List, Robert E Lucas Jr., Magne Mogstad, Roger Myerson, Derek Neal, Canice Prendergast, Raghuram G Rajan, Philip J Reny, Azeem M Shaikh, Robert Shimer, Hugo F Sonnenschein, Nancy L Stokey, Richard H Thaler, Robert H Topel, Robert Vishny, Luigi Zingales
Cited by*: 0 Downloads*: 207

No abstract available
Cody Cook, Rebecca Diamond, Jonathan Hall, John A List, Paul Oyer
Cited by*: 0 Downloads*: 60

The growth of the "gig" economy generates worker flexibility that, some have speculated, will favor women. We explore one facet of the gig economy by examining labor supply choices and earnings among more than a million rideshare drivers on Uber in the U.S. Perhaps most surprisingly, we find that there is a roughly 7% gender earnings gap among drivers. The uniqueness of our data - knowing exactly the production and compensation functions - permits us to completely unpack the underlying determinants of the gender earnings gap. We find that the entire gender gap is caused by three factors: experience on the platform (learning-by-doing), preferences over where/when to work, and preferences for driving speed. This suggests that, as the gig economy grows and brings more flexibility in employment, women's relatively high opportunity cost of non-paid-work time and gender-based preference differences can perpetuate a gender earnings gap even in the absence of discrimination.
Michael J. Seiler, Eric Walden
Cited by*: 0 Downloads*: 1

Great debate is being waged between whether strategic mortgage defaulters follow a herd for social reasons or mimic others' behavior for informational gain. Using functional magnetic resonance imaging (fMRI), the latest neurological technology allowing for observation of brain activity during strategic mortgage default decision-making, we find that when defaulters learn of peer default behavior, they acknowledge the social component of the decision, but feel freer to make their own decisions. Alternatively, when observing the behavior of a maven (real estate expert), borrowers still consider the social aspect of the decision (although to a lesser extent), but ultimately follow the maven who presumably possesses a greater information set. Alarmingly, borrowers only significantly follow the herd when mavens advocate strategic default, not when they recommend against it.
Michael J. Seiler, Eric Walden
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This study examines strategic mortgage default on a neurological level. Specifically, we test two mainstream behavioral finance/economic theories: sunk cost fallacy and cognitive dissonance. Using fMRI technology, we identify a number of substrates within the brain that provide a neurobiological explanation for why some homeowners exercise their mortgage put option while others do not. We find that borrowers rationally do not suffer from the sunk cost fallacy as it relates to strategic default in that stye significantly prioritize their negative equity position over the amount of their initial down payment. We do, however, find neurological support that cognitive dissonance is relevant in homeowners' thought processes as they toil with the hesitancy brought on by the belief that strategic default is immortal against strong financial incentive to walk away from a substantially underwater mortgage.
Mark A. Lane, Vicky L Seiler, Michael J. Seiler
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This study is the first to examine the widely debated merits of staging a home for sale. We find that both homeowners and real estate agents believe staging conditions (furnishings and wall color) will significantly impact homeowners' willingness to pay for a property. Our results show that homeowners rationally do not significantly differ in their valuations based on staging conditions. However, staging conditions do influence the process, as we find a neutral wall color and good furnishings do significantly influence a buyers' perceived liability and overall opinion of the home. While these are a necessary condition for purchase, staging is not enough to result in a higher selling price.
Eli Beracha, Michael J. Seiler
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In this study, we examine whether homebuyers favor homes associated with just below pricing strategies or those with rounded prices (e.g., $199,900 vs. $200,000). The inclination for just below pricing allows sellers that use just below pricing to set a higher asking price without driving away potential buyers. Rounded priced homes, on the other hand, sell significantly faster and at a smaller discount from list price compared with just below priced homes. We find that the just below pricing strategy yields the highest transaction price relative to the true underlying home value. This suggests sellers exploit buyers' preference for just below priced homes with a higher initial listing price that outweighs the lower discount and shorter time on market associated with similar round priced homes, making just below pricing the more effective pricing strategy.
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