Person:

Zeckhauser, Richard

We test whether and how membership in the upper class affects ethical behavior in a large representative population sample. Using objective measures of socioeconomic status to define class, we find no evidence of a general tendency for upper class to be less ethical, although we do replicate previous findings that higher status leads to less condemnation of infidelity. We also find evidence that higher class status leads to more self-focus and disengagement, as previously shown in laboratory studies with convenience samples.

We study the predictive power of approximately 2.5 million stock picks submitted by individual users to the “CAPS” website run by the Motley Fool company (www.caps.fool.com). These picks prove to be surprisingly informative about future stock prices. Indeed, a strategy of shorting stocks with a disproportionate number of negative picks on the site and buying stocks with a disproportionate number of positive picks produces a return of over nine percent per annum over the sample period. These results are mostly driven by the fact that negative picks on the site strongly predict future stock price declines; positive picks on the site produce returns that are statistically indistinguishable from the market. A Fama French decomposition suggests that these results are largely due to stock-picking rather than style factors or market timing.

Movements in asset prices are a major risk confronting individuals. This paper establishes new asset pricing results when agents differ in risk preference, time preference and/or expectations. It shows that risk tolerance is a critical concept driving savings decisions, consumption allocations, prices and return volatilities. Surprisingly, due to the equilibrium risk sharing, the precautionary savings motive in the aggregate can vastly exceed that of even the most prudent actual agent in the economy. Consequently, a low real interest rate, resulting from large aggregate savings, can prevail with reasonable risk aversions for all agents. One downside of a large aggregate savings motive is that savings rates become extremely sensitive to output fluctuation. Thus, the same mechanism that produces realistically low interest rates tends to make them unrealistically volatile. A powerful isomorphism allows differences in time preference and expectations to be swept away in the analysis, yielding an equivalent economy whose agents differ merely in risk aversion. These results hold great potential to simplify the analysis of heterogeneous-agent economies, as we demonstrate in quantifying how asset prices move and bounding their volatilities. All results are obtained in closed form for any number of agents possessing additively separable preferences in an endowment economy.

Policy analyses frequently clash. Their disagreements stem from many sources, such as models, empirical estimates, values, who should have standing, and weighting of different criteria. We provide a simple taxonomy of disagreement, identifying distinct categories within both the positive and value domains. Using disagreements in climate policy to illustrate, we demonstrate how illuminating the structure of disagreement can help to clarify the way forward. We conclude by suggesting a structure for new policy analysis that can facilitate assessment, comparison, and debate by making clear the likely sources of disagreement.

Online labor markets have great potential as platforms for conducting experiments, as they provide immediate access to a large and diverse subject pool and allow researchers to conduct randomized controlled trials. We argue that online experiments can be just as valid – both internally and externally – as laboratory and field experiments, while requiring far less money and time to design and to conduct. In this paper, we first describe the benefits of conducting experiments in online labor markets; we then use one such market to replicate three classic experiments and confirm their results. We confirm that subjects (1) reverse decisions in response to how a decision-problem is framed, (2) have pro-social preferences (value payoffs to others positively), and (3) respond to priming by altering their choices. We also conduct a labor supply field experiment in which we confirm that workers have upward sloping labor supply curves. In addition to reporting these results, we discuss the unique threats to validity in an online setting and propose methods for coping with these threats. We also discuss the external validity of results from online domains and explain why online results can have external validity equal to or even better than that of traditional methods, depending on the research question. We conclude with our views on the potential role that online experiments can play within the social sciences, and then recommend software development priorities and best practices.

Policy analyses frequently clash. Their disagreements stem from many sources, including models, empirical estimates, and values such as who should have standing and how different criteria should be weighted. We provide a simple taxonomy of disagreement, identifying distinct categories within both the positive and values domains of normative policy analysis. Using disagreements in climate policy to illustrate, we demonstrate how illuminating the structure of disagreement helps to clarify the way forward. We conclude by suggesting a structure for policy analysis that can facilitate assessment, comparison, and debate by laying bare the most likely sources of disagreement.

Individuals differ significantly in their willingness to take risks, partly due to genetic differences. We explore how risk taking behavior correlates with different versions of the dopamine receptor D4 gene (DRD4). We focus on risk taking in the card game contract bridge, and economic risk taking as proxied by a financial gamble. We also explore self-reported general risk taking, and self-reported behavior in risk-related activities. Our participants are serious tournament bridge players, which gives them substantial experience in risk taking. We find some evidence that men with a 7-repeat allele (7R+) of DRD4 take more overall risk in bridge than individuals without this allele (7R-), and strong evidence that 7R+ men take more economic risk in an investment game. Interestingly, these relationships are not found in the women in our study. Although the number of 7R+ women in our sample is low, our results may reflect a gender difference in how the 7R+ genotype affects behavior. Bridge masterpoints measure past success, thus reflecting playing skill and experience. We show that masterpoint level modulates the effect of the DRD4 gene in men in a highly important manner. We find that higher ranked 7R+ men take significantly more good risks and significantly fewer bad risks than other men, whereas the opposite is found for less-expert 7R+ men. This is the first study to distinguish between advantageous and disadvantageous risk taking. We identify a strong interaction among desirable risk taking behavior, measured success, and genetic variation. Considering other risk measures, we find no difference between 7R+ and 7R- individuals in general risk taking or in any of a number of other risk-related activities. Our results indicate that the dopamine system plays an important role in explaining individual differences in risk taking in bridge and economic risk taking among men. Little relationship is found in other activities involving risk or among women.

In a world of imperfect information, reputations often guide the sequential decisions to trust and to reward trust. We consider two-player situations, where one player – the truster – decides whether to trust, and the other player – the temptee – has a temptation to betray when trusted. The strength of the temptation to betray varies from encounter to encounter. We refer to a recorded betrayal as a black mark and focus on mechanisms that only reveal the number of black marks of a temptee. We show that the greater the number of black marks, the less likely the temptee is to betray. We then study the different equilibria that emerge, depending on which side of the market has the ability to specify the equilibrium. In closing, we generalize to cases where the number of encounters is also recorded.

Humans naturally dispose of objects that disgust them. Is this phenomenon so deeply embedded that even incidental disgust – i.e., where the source of disgust is unrelated to a possessed object – triggers disposal? Two experiments were designed to answer this question. Two film clips served as disgust and neutral primes; the objects were routine commodities (boxes of office supplies). Results revealed that the incidental disgust condition powerfully increased the frequency with which decision makers traded away a commodity they owned for a new commodity (more than doubling the probability in each condition), thereby countering otherwise robust status quo bias (Samuelson & Zeckhauser, 1988). Decision makers were unaware of disgust’s impact. Even when warned to correct for it, they failed to do so. These studies presented real choices with tangible rewards. Their findings thus have implications not only for theories of affect and choice, but also for practical improvements in everyday decisions.

To trust is to risk. When we lend someone money, we make ourselves vulnerable, hoping or expecting that the borrower will reward our trust and return the money at a later stage, possibly with interest or a reciprocal favor added. This paper examines whether willingness to trust follows the same logic, that is, whether it responds to changes in the expected value of trusting, much like willingness to take risk responds to changes in the expected value of risk taking in various countries of the Arab Middle East, namely, Jordan, Saudi Arabia and the United Arab Emirates and in the United States.