Research
Abstract: In a theory-guided experiment, I study how outcome bias, a tendency of principals to reward and punish economic agents as if they could have anticipated a random state of the world, shapes the incentives and choices of agents. Agents choose between two lotteries on behalf of their principal. One lottery is first-order stochastically dominant, but the dominated lottery is more likely to yield a higher payoff state-by-state. Despite perfectly observing the agent’s choice, principals tend to reward agents if they choose the lottery, which realizes a higher payoff. As a result, they incentivize agents to choose the dominated lottery. Although most agents anticipate these incentives, only strategically sophisticated agents tend to choose the dominated lottery when they believe they have an incentive to do so. Structural estimation suggests that principals are either fully outcome biased or fully unbiased, with less cognitively sophisticated principals displaying more outcome bias. The results imply that outcome bias might be most relevant in settings where sophisticated agents meet relatively unsophisticated principals.
2023 SCOR-EGRIE Young Economist Best Paper Award 2022, Excellent Paper award of the 4th China Behavioral and Experimental Economics Forum
Abstract: Allowing risk preferences to be sensitive to the correlation between lottery outcomes can resolve classical deviations from expected utility theory and provides a plausible explanation for phenomena in various real-world settings. However, evidence on correlation sensitivity is limited and mixed. In this paper, we first show that correlation-sensitive preferences in the general framework of Lanzani (2022) can be classified into three categories. We propose a novel experimental task that allows to classify experimental subjects according to this categorization. In a series of experiments, we find that aggregate choices display correlation sensitivity but in the opposite direction as often assumed in regret and salience theory. Individual level analysis suggests that the aggregate findings are driven by a minority who consistently exhibit this behavior even when it violates first-order stochastic dominance. Finally, we disentangle between correlation sensitivity due to deliberate within-state comparisons and incidental payoff comparisons due to the framing of decision problems, and find that both channels produce correlation sensitivity, with deliberate comparisons being somewhat more important.
Abstract: Salience theory relies on the assumption that not only the marginal distribution of lotteries, but also the correlation of payoffs across states impacts choices. Recent experimental studies on salience theory seem to provide evidence in favor of such correlation effects. However, these studies fail to control for event-splitting effects (ESE). In this paper, we seek to disentangle the role of correlation and event-splitting in two settings: 1) the common consequence Allais paradox as studied by Bordalo et al. (2012), Frydman and Mormann (2018), and Bruhin et al. (2022); 2) choices between Mao pairs as studied by Dertwinkel-Kalt and K¨oster (2020). In both settings, we find evidence suggesting that recent findings supporting correlation effects are largely driven by ESE. Once controlling for ESE, we find no consistent evidence for correlation effects. Our results thus shed doubt on the validity of salience theory in describing risky behavior.
How winners and losers see the world – implications of motivated reasoning (with Astrid Hopfensitz, ongoing)
Abstract: In many economic settings, accurate belief formation is the basis for good decision making. Past research has documented self-serving biases in how individuals form such beliefs about themselves. Many individuals have been found to display a tendency to attribute success to internal factors (ability, effort), but failure to external factors (luck). However, little is known about how such biased assessments of personal experiences of success and failure shape how individuals interpret the outcomes of others. We study this question in a setting in which participants' success or failure is determined by a combination of luck and ability. Our experimental design allows us to assign participants with the same level of ability to experience either success or failure. We study how this random assignment to failure or success influences beliefs about the self and other participants, and whether it induces systematic biases in how individuals interpret the outcomes of others. In particular, we test whether the winners' tendency to attribute success to their own doing translates into a tendency to attribute the outcomes of others to their ability; and whether the losers' tendency to interpret their failure as stemming from external factors leads to a tendency to attribute the outcomes of others to external factors.