Earn More Tomorrow: Overconfident Income Expectations and Consumer Indebtedness with Antonia Grohmann, Lukas Menkhoff and Christoph Merkle.
Journal of Money, Credit and Banking, forthcoming. (PDF)

Abstract

This paper examines whether biased income expectations due to overconfidence lead to higher levels of debt taking. We show suggestive evidence for a link between overconfidence and borrowing behavior in a representative survey of German households (German Socio-Economic Panel–Innovation Sample [GSOEP-IS]). This motivates a laboratory experiment to study causality behind these effects. In two experiments, participants can purchase goods by borrowing against their future income. We exogenously manipulate overconfidence about income expectations by letting income depend on relative performance in hard and easy quiz tasks. In the main experiment, we successfully generate biased income expectations and show that participants with higher income expectations initially borrow more. Overconfident participants scale back their consumption after income feedback. However, they remain in higher debt at the end of the experiment, which has real financial consequences. In a robustness experiment, we rule out that overborrowing is driven by low prices of goods. Even though the expected income manipulation works less well in this experiment, debt-taking behavior is very similar and correlates with income expectations and overconfidence.

Sin Taxes and Self Control with Sinne Smed.
AEJ: Economic Policy, Vol. 15, No. 3, 2023, pp. 1-34. (Link)

Abstract

According to theory, "sin taxes" are welfare improving if consumers with low self-control respond at least as much to the tax as consumers with high self-control. We investigate empirically if demand response to soft drink and fat tax variations in Denmark depends on consumers' self-control. We use a unique home-scan panel that includes a survey measure of self-control. When taxes increase, consumers with low self-control reduce purchases less strongly than consumers with high self-control. When taxes decrease, both groups increase their purchases similarly. The results show an asymmetry in price elasticities by self-control that is more pronounced when taxes increase.

Presentations

2020
Bridges Seminar, University of Warwick
ZEW Mannheim
MPI for Tax Law and Public Finance, Munich
University of Essex
2019
Risky Health Behaviors Workshop, Hamburg
CEBI at University of Copenhagen
FAIR at NHH, Bergen
Linnaeus University, Växjö
European Economic Association - Annual Congress, Manchester
International Institute of Public Finance (IIPF) - Annual Congress, Glasgow
Institute for Fiscal Studies (IFS), London
Applied Micro Workshop, Hertie School of Governance, Berlin
Retreat of the CRC TRR 190 "Rationality and Competition", Schwanenwerder
2018
Food and Health Economics Workshop, Toulouse
DIW GC Summer Workshop, Potsdam
DIW Cluster Seminar, Berlin
2017
Behavioral Welfare Economics Workshop, Berlin
IFRO Behavioral Economics Seminar, Copenhagen

Protecting the Ego: Motivated Information Selection and Updating with Alessandro Castagnetti,
European Economic Review, Vol. 142, 2022, 104007. (Link, WP)

Abstract

We investigate how individuals search for ego-relevant information and then use this information to update their beliefs. In our lab experiment, subjects can select the information structure that gives them feedback regarding their rank in the IQ distribution (ego-relevant treatment) or regarding a random number (control). Subjects are incentivized to report their beliefs truthfully and receive feedback from information structures that they select into (endogenous treatment) or from information structures they are assigned to (exogenous treatment). We find that individuals in the ego-relevant treatment select information structures, in which negative feedback is less salient. When receiving such negative feedback with lower salience they update their beliefs less, but only when feedback is ego-relevant. Hence, subjects select information structures that allow them to misinterpret negative feedback in an ego-preserving way. Moreover, individuals in the ego-relevant treatment choose less informative feedback.

Presentations

2021
Beliefs, Memory and Narratives Workshop, Riederau
2020
EEA Annual Congress 2020*
University of Vienna
Bogota Experimental Economics Conference*
2019
Nordic Conference on Behavioral and Experimental Economics, Kiel*
Economic Science Association - European Meeting, Dijon*
Dr@w Forum, Warwick University*
Warwick PhD Conference*
DIW Micro Reading Group, Berlin
(* presented by coauthor)

Do prices and purchases respond similarly to soft drink tax increases and cuts? with Sinne Smed,
Economics and Human Biology, Vol. 37, 2020, 100864. (Link)

Abstract

While in January 2012, Denmark increased the long-standing tax on sugary soft drinks, the tax was cut by half in July 2013 and then completely repealed in January 2014. In this study, we examine whether increases and cuts of the soft drink tax lead to symmetric over- or under-shifting to prices and to symmetric demand responses. We use longitudinal scanner data of 1,282 Danish households to estimate within-product changes in prices and within-household changes in purchase quantity. The tax hike was overshifted by a factor of 2.2 while the tax repeal was passed through with a factor of 1.2. On average, consumption was 13.4 percent lower the year after the tax increase compared to the year before. The repeal of the tax was associated with an increase in purchase quantity of 31.0 percent. This is equivalent to price elasticities of 1.1 and 1.3 respectively. The results suggest that consumers react stronger to tax cuts than to tax increases. Furthermore, the increase in consumption following a tax cut has no limiting effect on the consumption of other beverages suggesting an increase in the intake of calories. This might have implications for health in countries that consider repealing current taxes on soft drinks.

Social Image Concerns and Welfare Take-Up with Jana Friedrichsen and Tobias König,
Journal of Public Economics, Vol. 168, 2018, pp. 174-192. (Link, WP)

Abstract

Using a laboratory experiment, we present first evidence that social image concerns causally reduce the take-up of an individually beneficial transfer. Our design manipulates the informativeness of the take-up decision by varying whether transfer eligibility is based on ability or luck, and how the transfer is financed. We find that subjects avoid the inference both of being low-skilled (ability stigma) and of being willing to live off others (free-rider stigma). Using a placebo treatment, we exclude other explanations for the observed stigma effects. Although stigma reduces take-up, elicitation of political preferences reveals that only a minority of “taxpayers” vote for the public transfer.

Presentations

2017
Nordic Conference on Behavioral and Experimental Economics, Gothenburg*
VfS Annual Congress, Vienna*
Lindau Meeting Of The Laureates Of The Sveriges Riksbank, Lindau*
European Economic Association - Annual Congress, Lisbon
Maastricht Behavioral and Experimental Economics Symposium, Maastricht*
ZEW Public Finance Conference, Mannheim*
International Meeting on Experimental and Behavioral Social Sciences (IMEBESS), Barcelona
"Arne Ryde Workshop on Identity, Image and Economic Behavior, Image", Lund*
2016
Economic Science Association - European Meeting, Bergen
Micro Reading Group, Berlin
(* presented by coauthor)

Confidence and College Applications: Evidence from a Randomized Intervention with Rustamdjan Hakimov and Camille Terrier, August 2023.
Presented at EC'23. Submitted
QMUL Working Paper No. 962, August 2023. (PDF)

Abstract

This paper investigates the role played by self-confidence in college applications. Using incentivized experiments, we measure the self-confidence of more than 2,000 students applying to colleges in France. The best female students and students from low socioeconomic status (low-SES) significantly underestimate their rank in the grade distribution compared to male and high-SES students. By matching our survey data with administrative data on real college applications and admissions, we show that miscalibrated confidence affects college choice controlling for grades. We then estimate the impact of a randomized intervention that corrects students' under- and overconfidence by informing them of their real rank in the grade distribution. The intervention fully offsets the impact of under- and overconfidence for college applications. Providing feedback also makes the best students, who were initially underconfident, apply to more ambitious programs with stronger effects for female and low-SES students. Among top students, our intervention closes 72% of the gender gap in admissions to elite programs, and 95% of the social gap. We conclude that confidence is an important behavioral consideration for the design of college admission markets.

Presentations

2023
Matching in Practice Workshop Lausanne
MPI Bonn
University of Innsbruck
DIW Berlin
ES Winter Meeting Berlin
2022
ESA Job Market Seminar (online)
KRTK KTI Seminar, Budapest
BSE Workshop on Gender Economics, Berlin
ASFEE, Lyon
ESA World Meeting, Boston

Preferences for Sin Taxes with Tobias König.
Submitted
CESifo Working Paper No. 10046, October 2022. (PDF)

Abstract

Sin taxes have become a widely suggested policy instrument to discourage the consumption of goods deemed harmful to individuals and society. Using surveys and experiments on a representative sample of the US population, we provide evidence on how individuals think and reason about such corrective policies. We reveal that preferences for taxes on sugar-sweetened beverages (SSBs) are driven by normative considerations, including efficiency-related ideas and distributional concerns. In contrast, self-interested motives play only a minor role. Among the efficiency arguments, people place relatively large weight on externality correction, and motives to correct health cost misperceptions matter more than motives to correct a lack of self-control. However, anti-paternalistic attitudes and regressivity concerns are also prevalent, which helps to explain why the majority of respondents oppose SSB taxes, even though they agree that behavioral biases and externalities are relevant. Preferences for SSB taxes turn out to be malleable. Explaining to individuals the idea behind corrective taxation yields significant increases in the support for SSB taxes and the general openness to paternalistic intervention.

Presentations

2022
VfS Annual Congress, Basel
EEA Annual Congress, Milan
IIPF, Linz

Fairness in Matching Markets: Experimental Evidence with Tobias König, Dorothea Kübler and Lydia Mechtenberg.
Submitted
WZB Discussion Paper SP II 2023–204, July 2023. (PDF)

Abstract

We investigate fairness preferences in matching mechanisms using a spectator design. Participants choose between the Boston mechanism or the serial dictatorship mechanism (SD) played by others. In our setup, the Boston mechanism generates justified envy, while the strategy-proof SD ensures envy-freeness. When priorities are merit-based, many spectators prefer the Boston mechanism, and this preference increases when priorities are determined by luck. At the same time, there is support for SD, but mainly when priorities are merit-based. Stated voting motives indicate that choosing SD is driven by concerns for envy-freeness rather than strategy-proofness, while support for the Boston mechanism stems from the belief that strategic choices create entitlements.

Soft Drink Taxation and Habit Formation
Working Paper, May 2020. (PDF)

Abstract

Despite its popularity among policymakers, the effectiveness of taxation in reducing soft drink consumption is still under dispute. To date, most studies using discrete choice demand models and scanner data do not consider the role of habit formation. This paper uses a structural demand model to analyze the impact of soft drink taxes in the presence of habit formation and stockpiling. The model is estimated using nested logit and incorporates unobserved heterogeneity in tastes. The estimated model is used to simulate short-run and long-run price elasticities, as well as the simulated impact of different soft drink taxes. The results show that long-run price elasticities are approximately 20 percent larger than short-run elasticities due to habit formation. Moreover, excise taxes on sugary soft drinks are more effective in reducing sugar consumption than ad valorem taxes and excise taxes that do not distinguish between sugary and diet beverages.

Zuckersteuer: Reaktion der Konsument*innen hängt stark von deren Selbstkontrolle ab, DIW Wochenbericht, Juni 2024. (Link)

Confiance en soi et choix d’orientation sur Parcoursup : Enseignements d’une intervention randomisée, Note IPP No 93, July 2023. (Link)

Zuckersteuern können zu einer gesünderen Ernährung beitragen: Kommentar, DIW Wochenbericht 12/2020, March 2020. (Link)

Wie sinnvoll ist eine Zuckersteuer? Gastbeitrag, Redaktionsnetzwerk Deutschland, 14.03.2020. (Link)

Fear of Stigmatization Prevents Individuals from Claiming Benefits (with Jana Friedrichsen), DIW Weekly Report 26-27/2019, June 2019. (Link, In German: Link)

Softdrinksteuer: Proportionale Steuer ist der vielversprechendste Ansatz, DIW Aktuell 10, May 2018. (Link)

Eine Softdrinksteuer zur fiskalischen Konsumsteuerung, DIW Roundup 103, November 2016. (Link)