Most information structures have multiple unobserved causes.
Learning about a specific cause requires taking into account other causes in the signal structure.
For example, a principal who infers an agent’s effort from his performance needs to factor in other inputs such as luck.
A failure to consider alternatives generates misattribution to the cause of interest.
Using a series of laboratory and online experiments, this paper demonstrates that people are inattentive to alternative causes, leading to excessively sensitive and overprecise beliefs.
This neglect is driven by people’s unawareness about the need to take into account other sources of randomness in a signal structure.
Higher effort is typically insufficient to overcome this unawareness, but contextual cues that shift attention to the neglected part of the problem reduce the bias.
The evidence from more than twenty treatments is consistent with a model in which automatic, simplified representations of an updating problem form the basis for how new information is processed.
Heterogeneity of Gain-Loss Attitudes and Expectations-Based Reference Points with Lorenz Goette, Alex Kellogg and Charles Sprenger
This project examines the role of heterogeneity in gain-loss attitudes for identifying models of expectations-based reference dependence (Kőszegi and Rabin, 2006, 2007) (KR). Different gain-loss attitudes lead to different signs for KR comparative statics. Failure to account for the known heterogeneity in gain-loss attitudes is a central confounding factor challenging prior tests of the KR model conducted under the assumption of universal loss aversion. We document heterogeneous treatment effects over gain-loss types in both an initial experiment and an exact replication. Recognizing heterogeneity over types allows us to both recover the KR model’s central predictions, and account for inconsistency across prior empirical tests.
Breaking Trust: On the Persistent Effect of Banking Crisis Experience with Tom Zimmermann
A popular narrative associates negative shocks to the banking sector with “crises of trust”. Exploiting cohort-variation within and across countries, we investigate this link systematically. We find a robust and sizeable effect of banking crises experience on interpersonal trust: Our benchmark estimate implies that experiencing a banking crisis 20 years ago decreases current trust by one-third as much as a recent personal traumatic experience. We provide evidence that the effect is not driven by income losses during crises but it is consistent with a breach of trust channel, relating our findings to a well-established phenomenon in the social sciences.
Intertemporal Altruism with Armin Falk and Philipp Eisenhauer