A Study of How Economic Attitudes Are Shaped by Environmental Shocks and Life Experiences

Social attitudes, attitudes toward financial risk and attitudes toward deferred gratification are thought to influence many important economic decisions over the life-course. In economic theory, these attitudes are key components in diverse models of behavior, including collective action, saving and investment decisions and occupational choice. The relevance of these attitudes have been confirmed empirically. Yet, the factors that influence them are not well understood. This research evaluates how these attitudes are affected by large disruptive events, namely, a natural disaster and a civil conflict, and also by an individual-specific life event, namely, having children.

By implementing rigorous empirical strategies drawing on rich longitudinal datasets, this research project advances our understanding of how life experiences shape these attitudes. Moreover, compelling evidence is provided that the observed changes in attitudes are likely to reflect changes in preferences given that they are not driven just by changes in financial circumstances. Therefore the findings of this research project also contribute to the discussion of whether preferences are really fixed, a usual assumption in economics.

In the first chapter, I study how altruistic and trusting attitudes are affected by exposure to the 2004 Indian Ocean tsunami as long as ten years after the disaster occurred. Establishing a causal relationship between natural disasters and attitudes presents several challenges as endogenous exposure and sample selection can confound the analysis. I take on these challenges by exploiting plausibly exogenous variation in exposure to the tsunami and by relying on a longitudinal dataset representative of the pre-tsunami population in two districts of Aceh, Indonesia. The sample is drawn from the Study of the Tsunami Aftermath and Recovery (STAR), a survey with data collected both before and after the disaster and especially designed to identify the impact of the tsunami. The altruistic and trusting attitudes of the respondents are measured by their behavior in the dictator and trust games. I find that witnessing closely the damage caused by the tsunami but without suffering severe economic damage oneself increases altruistic and trusting behavior, particularly towards individuals from tsunami affected communities. Having suffered severe economic damage has no impact on altruistic behavior but may have increased trusting behavior. These effects do not seem to be caused by the consequences of the tsunami on people’s financial situation. Instead they are consistent with how experiences of loss and solidarity may have shaped social attitudes by affecting empathy and perceptions of who is deserving of aid and trust.

In the second chapter, co-authored with Ryan Brown, Duncan Thomas and Andrea Velasquez, we investigate how attitudes toward financial risk are affected by elevated levels of insecurity and uncertainty brought on by the Mexican Drug War. To conduct our analysis, we pair the Mexican Family Life Survey (MxFLS), a rich longitudinal dataset ideally suited for our purposes, with a dataset on homicide rates at the month and municipality-level. The homicide rates capture well the overall crime environment created by the drug war. The MxFLS elicits risk attitudes by asking respondents to choose between hypothetical gambles with different payoffs. Our strategy to identify a causal effect has two key components. First, we implement an individual fixed effects strategy which allows us to control for all time-invariant heterogeneity. The remaining time variant heterogeneity is unlikely to be correlated with changes in the local crime environment given the well-documented political origins of the Mexican Drug War. We also show supporting evidence in this regard. The second component of our identification strategy is to use an intent-to-treat approach to shield our estimates from endogenous migration. Our findings indicate that exposure to greater local-area violent crime results in increased risk aversion. This effect is not driven by changes in financial circumstances, but may be explained instead by heightened fear of victimization. Nonetheless, we find that having greater economic resources mitigate the impact. This may be due to individuals with greater economic resources being able to avoid crime by affording better transportation or security at work.

The third chapter, co-authored with Duncan Thomas, evaluates whether attitudes toward deferred gratification change after having children. For this study we also exploit the MxFLS, which elicits attitudes toward deferred gratification (commonly known as time discounting) by asking individuals to choose between hypothetical payments at different points in time. We implement a difference-in-difference estimator to control for all time-invariant heterogeneity and show that our results are robust to the inclusion of time varying characteristics likely correlated with child birth. We find that becoming a mother increases time discounting especially in the first two years after childbirth and in particular for those women without a spouse at home. Having additional children does not have an effect and the effect for men seems to go in the opposite direction. These heterogeneous effects suggest that child rearing may affect time discounting due to generated stress or not fully anticipated spending needs.

The Influence of Household Economic Status and Food Consumption Patterns on Obesity Rates in Peru – Evidence from a Field Study in 11 Communities of Madre de Dios

The globalization contributes to rapid economic developments and great changes of lifestyle in Madre de Dios of Peru, both of which have influenced the health status of local people in direct and indirect ways. The high overweight and obesity rate has become one of the biggest health challenges in this region. This study quantitatively analyzed the impact of household economic status and food consumption patterns on overweight and obesity, and tried to establish their relationship with local economic activities. People living in mining communities are more likely to be overweight or obese. Increased family incomes and lacks of health knowledge are two important reasons. The large consumption of soda and alcohol are positively associated with overweight and obesity. In addition, lack of physical activities is also one of the risk factors of overweight and obesity.

Economic return of clinical trials performed under the pediatric exclusivity program.

CONTEXT: In 1997, Congress authorized the US Food and Drug Administration (FDA) to grant 6-month extensions of marketing rights through the Pediatric Exclusivity Program if industry sponsors complete FDA-requested pediatric trials. The program has been praised for creating incentives for studies in children and has been criticized as a "windfall" to the innovator drug industry. This critique has been a substantial part of congressional debate on the program, which is due to expire in 2007. OBJECTIVE: To quantify the economic return to industry for completing pediatric exclusivity trials. DESIGN AND SETTING: A cohort study of programs conducted for pediatric exclusivity. Nine drugs that were granted pediatric exclusivity were selected. From the final study reports submitted to the FDA (2002-2004), key elements of the clinical trial design and study operations were obtained, and the cost of performing each study was estimated and converted into estimates of after-tax cash outflows. Three-year market sales were obtained and converted into estimates of after-tax cash inflows based on 6 months of additional market protection. Net economic return (cash inflows minus outflows) and net return-to-costs ratio (net economic return divided by cash outflows) for each product were then calculated. MAIN OUTCOME MEASURES: Net economic return and net return-to-cost ratio. RESULTS: The indications studied reflect a broad representation of the program: asthma, tumors, attention-deficit/hyperactivity disorder, hypertension, depression/generalized anxiety disorder, diabetes mellitus, gastroesophageal reflux, bacterial infection, and bone mineralization. The distribution of net economic return for 6 months of exclusivity varied substantially among products (net economic return ranged from -$8.9 million to $507.9 million and net return-to-cost ratio ranged from -0.68 to 73.63). CONCLUSIONS: The economic return for pediatric exclusivity is variable. As an incentive to complete much-needed clinical trials in children, pediatric exclusivity can generate lucrative returns or produce more modest returns on investment.

Using Behavioral Insights For a Better Understanding of Economic Decisions (Regarding Savings, Inequality and Dishonesty)

This dissertation consists of three essays on behavioral economics, with a general aim of enriching our understanding of economic decisions using behavioral insights and experimental methodology. Each essay takes on one particular topic with this general aim.

The first chapter studies savings behavior of the poor. In this project, partnering with a savings product provider in Kenya, we tested the extent to which behavioral interventions and financial incentives can increase the saving rate of individuals with low and irregular income. Our experiment lasted for six months and included a total of twelve conditions. The control condition received weekly reminders and balance reporting via text messages. The treatment conditions received in addition one of the following interventions: (1) reminder text messages framed as if they came from the participant’s kid (2) a golden colored coin with numbers for each week of the trial, on which participants were asked to keep track of their weekly deposits (3) a match of weekly savings: The match was either 10% or 20% up to a certain amount per week. The match was either deposited at the end of each week or the highest possible match was deposited at the start of each week and was adjusted at the end. Among these interventions, by far the most effective was the coin: Those in the coin condition saved on average the highest amount and more than twice as those in the control condition. We hypothesize that being a tangible track-keeping object; the coin made subjects remember to save more often. Our results support the line of literature suggesting that saving decisions involve psychological aspects and that policy makers and product designers should take these influences into account.

The second chapter is related to views towards inequality. In this project, we investigate how the perceived fairness of income distributions depends on the beliefs about the process that generated the inequality. Specifically, we examine how two crucial features of this process affect fairness views: (1) Procedural justice - equal treatment of all, (2) Agency - one's ability to determine his/her income. We do this in a lab experiment by varying the equality of opportunity (procedural justice), and one's ability to make choices, which consequently influence subjects’ ability to influence their income (agency). We then elicit ex-post redistribution decisions of the earnings as a function of these two elements. Our results suggest both agency and procedural justice matter for fairness. Our main findings can be summarized as follows: (1) Highlighting the importance of agency, we find that inequality resulting from risk is considered to be fair only when risk is chosen freely; (2) Highlighting the importance of procedural justice, we find that introducing inequality of opportunity significantly increases redistribution, however the share of subjects redistributing none remain close to the share of subjects redistributing fully revealing an underlying heterogeneity in the population about how fairness views should account for inequality of opportunity.

The third chapter is on morality. In this project, we study whether religious rituals act as an internal reminder for basic moral principles and thus affect moral judgments. To this end, we conducted two survey experiments in Turkey and Israel to specifically test the effect of Ramadan and Yom Kippur. The results from the Turkish sample how that Ramadan has a significant effect on moral judgments to some extent for those who report to believe in God. Those who believe in God judged the moral acceptability of ten out of sixty one actions significantly differently in Ramadan, whereas those who reported not to believe in God significantly changed their judgments only for one action in Ramadan. Our results extends the hypothesis established by lab experiments that religious reminders have a significant effect on morality, by testing it in the field in the natural environment of religious rituals.

This thesis is part of a broader collaborative research agenda with both colleagues and advisors. The programming, analyses, and writing, as well as any errors in this work, are my own.