Research

Negative emotions have been shown to influence financial risk-taking. However, how receiving salient information about prior outcomes interacts with a decision-maker’s emotional state is not well known. In a laboratory experiment, we induced a fearful emotional state to investigate its effects on financial investment when outcome probabilities are unknown but decision-makers observe prior outcomes. The effects of fear on investment depended on whether the sequence of previous outcomes was favorable or unfavorable and contained weak or strong information. Our findings suggest that fear affected investment, at least in part, through changes in expectations of success.

While previous studies documented the existence of gift exchange at work, none of them identified the distinct influences of positive reciprocity and affective state. In this study, a field experiment was conducted in an effort to disentangle these two mechanisms. A subset of workers were promised an unexpected pay rise. Some of them started working immediately after the announcement, whereas others started working a week later. Because the pay rise announcement produced an immediate boost in elicited mood that disappeared after a week, this study design enabled separation of the reciprocity and mood motives. The results showed that the announcement increased productivity both among the workers who commenced work immediately after the announcement and among those who commenced work a week later. Moreover, while the increase in productivity was mainly driven by positive reciprocity, the boost in mood played a significant role immediately after the announcement.

We explore how risk preferences affect pro-social behavior under uncertainty. We analyze a modified dictator game in which the dictator can, by reducing her own sure payoff, increase the odds that an unknown recipient wins a lottery. We first augment a standard social preferences model with reference-dependent risk attitudes and then test the model’s predictions for the dictator’s giving behavior using a laboratory experiment. Consistent with the predictions of the model, we find that the relationship between giving behavior and a giver’s loss aversion is mediated by the strength of the giver’s pro-social preferences. Among more (less) pro-social dictators, an increase in loss aversion increases (decreases) the likelihood that a dictator contributes to a recipient. 

I experimentally investigate how diversification decisions are affected by information about historical outcomes. In the experiment, subjects have the opportunity to diversify between two simple binary gambles. When subjects lack information about previous outcomes, a vast majority diversify. By contrast, only a minority diversify after learning that one of the gambles has experienced better outcomes than the other in the past. Subjects’ posterior beliefs about winning probabilities predict the propensity to diversify. However, most of the subjects who do not diversify tend to chase the gamble with better historical outcomes, regardless of their beliefs. This behavior is consistent with subjects following a reinforcement heuristic. 

Previous research has shown that individual decision making is often characterized by inertia—that is, a tendency for decision makers to choose options that maintain the status quo. In this study, I conduct a laboratory experiment to investigate two potential determinants of inertia in uncertain environments: (i) regret aversion and (ii) ambiguity-driven indecisiveness. I use a between-subjects design with varying conditions to identify the effects of these two mechanisms on choice behavior. In each condition, participants choose between two simple real gambles, one of which is the status quo option. The findings indicate that regret aversion and ambiguity-driven indecisiveness are equally important determinants of inertia, which in turn plays a major role in individual decision making. 

Despite being generally inefficient, price controls are often imposed by policy-makers and tend to be popular in opinion polls. We conducted a laboratory experiment to study consumers’ support for a price cap in a competitive commodity market. We focused on two potential determinants of such support: (1) information about the impact of a price cap on market outcomes, and (2) consumers’ lack of direct responsibility for policy decisions, which provides them with little incentive to oppose price controls. In the experiment, we manipulated whether consumers were personally exposed to the price cap or received factual information about its effect on quantities, as well as consumers’ agency in the decision to implement the policy. We report three main findings. First, while personal exposure to the price cap significantly reduced support for it, a sizeable fraction of consumers still endorsed the policy. Second, simply providing consumers with factual information about market outcomes was less effective than personal exposure. Third, consumers who were directly responsible for the decision to impose the price cap were more responsive to both types of information and hence less willing to implement the policy. Overall, our results suggest that endorsement of price caps may be partially resistant to experience and factual information, and that consumers’ lack of agency in policy decisions may help to explain the popularity of price controls. 

We study consumer decision-making at grocery stores. Using both scanner data and experiments, we analyze an intervention aimed at simplifying consumers’ search process by reducing price information frictions. Our goal is to assess the effects of such intervention on consumers’ product searches, their purchases, and their welfare. We also intend to investigate supply-side responses to the intervention.