Title: The Experience Formation Mechanism
(Christian Conrad, Zeno Enders, Alexander Glas)

Abstract: We show that inflation expectations of households do not depend on experienced inflation directly; they are rather influenced by remembered inflation. This makes a difference as remembered and actually experienced inflation generally differ. We therefore investigate how inflation experiences are formed and what they depend on. Our main findings are: (i) On average, households overestimate lifetime inflation. (ii) While higher remembered lifetime inflation leads to higher expectations of future inflation rates, there is no such effect for actually experienced inflation. (iii) Negative emotions associated with inflation increase the upward bias of inflation memories, while higher actual inflation rates reduce it. We derive a theoretical model that accounts for the empirical evidence.

Title: An economic model of utility privatisation
(Maris Goldmanis, Will Matcham, Philip R. Neary, Fran O’Toole, Alexander Vickery)

Abstract: We propose a model of privatisation, the transfer of a state-financed and state-run utility “to the market”. Multiple private firms compete for the right to monopolise the utility market via one of two systems of tender: commitment-to-price and lump-sum transfer. The most efficient firm always wins the monopoly contract but the resulting equilibrium outcome depends both on the specifics of the tender mechanism and the structure of the market (the costs of the privately held firms, the elasticity of demand, etc.). Interpreting state-run provision as the status quo we benchmark both privatised outcomes against this when the goal is to maximise total surplus and when the goal is to maximise consumer surplus. We characterise when privatisation increases (appropriately defined) surplus and we show that no one policy is uniformly optimal.

Title: The Puzzle of a Missing Wage-Price Spiral: Experimental Evidence on Inflation Expectations and Labor Supply
(Vitaliia Yaremko, ChaeWon Baek)

Abstract: We study how workers form their price and wage inflation expectations and incorporate them into their labor supply decisions based on experimental evidence from the U.S. online labor market.  Exploiting exogenous variation in expectations generated by randomized information treatments, we find that workers do not increase their reservation wages in response to higher price inflation expectations. Instead, workers reduce their reservation wages for multi-period employment contracts when price inflation expectations rise, after controlling for wage growth and unemployment expectations.  This behavior indicates that individuals perceive higher inflation as a negative signal about the economy and lower their reservation wages accordingly, effectively increasing labor supply as a form of precautionary behavior. These findings suggest that the risk of wage-price spirals in the U.S. was limited in 2022, despite high price inflation rates.

Title: Shame, Guilt, and Motivated Self-Confidence

Abstract:  The available evidence from anthropology, economics, and psychology suggests that sensitivities to the emotions of shame and guilt vary across cultures. So does (over)confidence in ability and skills. Is there a connection between these observations? We address this question theoretically and empirically. Theoretically, we explore the socially optimal combination of psychological incentives and the emergence of different cultural equilibria. Empirically, we find significant evidence of a negative relationship between individual confidence and the cultural importance of shame versus guilt. The relationship holds across countries, and for U.S. immigrants relative to their culture of origin, suggesting a causal effect still significant after more than 8 years.

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Title: Dynamic investment in teamwork skill: Theory and experimental evidence
(David Gill, Victoria Prowse, J. Lucas Reddinger)

Abstract: Teamwork and collaboration are increasingly important. To help understand the dynamics of teamwork skill formation, we provide the first systematic analysis of dynamic investment in teamwork skill. First, adopting a dynamic game approach, we construct a theoretical framework where investment in team skill creates persistent benefits and externalities for teammates, but where investment is risky because the benefits depend on successful team coordination. Second, we take this framework to the laboratory to gain insight into factors that influence dynamic investment in team skill. We find under-investment compared to the efficient benchmark. However, investment in team skill responds strongly to incentives, in line with specific patterns predicted by our theory. We also find that people’s theory of mind and propensity to coordinate predict how much they invest in team skill. We conclude that careful design of team incentives and selection of team members can facilitate the dynamic development of teamwork skills.

Title: Global Banks’ Macroeconomic Expectations and Credit Supply
( Xiang Li, Steven Ongena)

Abstract: We investigate how global banks’ macroeconomic expectations for borrower countries influence their credit supply. Utilizing granular data on varying expectations among banks lending to the same firm at the same time, combined with an instrumental variable approach, we find that more optimistic GDP growth expectations for a borrower country are strongly linked to increased credit supply. Specifically, a one standard deviation increase in a lender’s GDP growth expectation for the borrower’s country corresponds to an increase of 8.46 percentage points in the loan share, equivalent to approximately 0.75 standard deviations of the loan share and $75.35 million in loan amount. In contrast, global banks’ short-term inflation expectations do not show a significant impact on their credit supply.

Title: Leveraging Probability Distortion to Target Prevention: A Cardiovascular Screening Experiment in the Philippines
(Joseph Capuno, Aleli Kraft, Jenny Kudymowa, Owen O’Donnell)

Abstract: We test whether a conditional cash lottery (CCL) targets prevention on inverse S probability distortion types who underestimate prevention gains and overestimate lottery chances. In the Philippines, we randomly offer a CCL requiring screening for cardiovascular risk and elicit probability distortion and cardiovascular risk perceptions. Consistent with theory, inverse S types perceiving intermediate risk are 3 percentage points (60%) less likely to go for a check-up at baseline. The CCL offer increases the probability by 47 points, on average. Compliance is not significantly higher for inverse S types, but the estimate is higher for those also perceiving intermediate risk.

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