Research in progress (Economics)
“Too much or too little information: how unknown uncertainty fuels time inconsistency,” with K. Gamble (It has been accepted for publication in SN Business & Economics, 2022).
Abstract
Under uncertainty, there is considerable heterogeneity in expectations of results, and the outcome of each choice is a reflection of those expectations. This study aims to understand the role of subjective probabilistic inference in updating information for decision-making procedures under uncertainty. We show that adding uncertainty of trade-offs in decision-making criteria induces more inconsistent present preferences. We find that subjective probabilistic inference results in different levels of information acquisition, which plays a central role in many everyday cases of forecasting. The result of forecasting exerts substantive constraints on cognitive processes and shapes a type of restriction or stimulus in decision-making procedures. As uncertainty increases, generated fear of losses turns into an obstacle to the information acquisition process, and especially participants with low probabilistic inference tend to overestimate or underestimate future unknown rewards. In addition, our experiment shows that risk preference does not play a key role in decision-making procedures under unknown uncertainty. This finding is an experimental manifestation of Knight’s argument (1921), which explains unknown uncertainty, and shows the relationship between cognitive ability and time inconsistency.
"The Vanishing Dream: A Study of African American Homeownership in St. Louis." (working progress)
The aftermath of the 2008 financial crisis has left the global economy in a prolonged low-interest-rate environment, prompting many borrowers to consider refinancing their mortgages. However, low-interest rates have also led some individuals to make poor financial decisions, and concerns remain regarding future economic uncertainty and increased risk. To investigate the obstacles hindering refinancing opportunities, this paper utilizes data from the National Survey of Mortgage Originations (NSMO) on borrowers who obtained mortgages between the first quarter of 2014 and the second quarter of 2018. It explores the impact of information acquisition ability, risk preferences, and mortgage shopping behavior on mortgage satisfaction and refinancing decisions.
The decreasing rate of homeownership among African Americans is a source of social concern. While financial literacy is widely recognized as a crucial determinant of wealth accumulation, there are opposing views on the subject. This paper examines the conflicting ideologies between financial knowledge and the racial wealth gap. However, estimating the economic impact of closing the racial wealth gap is a challenging task due to the complex interplay of social, historical, political, and institutional forces. To gain a comprehensive understanding, this paper turns to mortgage satisfaction and explores how a poor understanding of financial instruments can lead to dissatisfaction and reduced homeownership rates for African Americans. The study also highlights the need for institutional support and financial information to increase access to credit and narrow disparities.
African Americans have been systematically excluded from opportunities to build wealth through homeownership, and market forces alone may not be sufficient to address this issue. The design, promotion, and regulation of products that cater to the needs of underprivileged borrowers are inherently challenging, as argued by Bucks and Pence (2008). To tackle racial wealth inequality, policymakers, experts, and mortgage lenders must recognize and account for the contradictory housing market participation concerning risk preferences.
“Behavioral barriers to mortgage: how satisfied are you with your home loan?” (Under Review)
Abstract
Despite the benefits of the new environment of the mortgage market, there are nevertheless reasons for concern: future uncertainty and increased domestic and international economic risk. This paper explores a source of obstacles that causes refinance opportunities to slip by. It analyzes the impact of information acquisition ability, risk preferences, and mortgage shopping behavior on mortgage satisfaction and refinancing decisions. It provides evidence of the impact of risk preferences on the preferred method of closing costs payment and refinance decisions. However, in the sample data, borrowers with independent shopping behavior express lower satisfaction with mortgage outcomes than borrowers with dependent shopping behaviors, even at a high level of information acquisition. In terms of understanding the racial wealth gap, the ever-decreasing rate of African Americans’ homeownership is raising social concerns. I highlight that risk-seeking borrowers do not make active long-term investments in the housing market. In particular, the ratio of risk-seeking black or African Americans in this study is significantly lower than that of white Americans, and I posit this low participation in the housing market could be one explanation for black or African Americans' lower homeownership. Low income and low credit scores also contribute greatly to the increase in racial wealth gap between black or African Americans and white Americans. Lastly, low homeownership of black or African Americans in the United States is driven by dissatisfaction from a poor understanding of certain financial instruments that can reduce future financial burden. I also show that the lower rate of African Americans’ homeownership is due not only to their poor understanding of the mortgage processes but also to lack of financial information needed in institutional support. Understanding these behaviors may provide insight into good ways to mitigate the remaining disparities.
“Trade Liberalization and Job Polarization,” with W. Suwanprasert (submitted).
In this paper, we develop Yeaple (2005) to study the effects of trade liberalization on the job polarization phenomenon in the labor market. We show that trade liberalization causes a reallocation of workers between sectors that results in the job polarization phenomenon, and margins of change in technology and wage distribution resulting in income inequality. Additionally, this study investigates how much the reduction in transportation costs can improve the market economy indicators while eliminating middle-class occupations. In conclusion, international trade creates a more economically wealth, but it may also deepen income inequality.