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.

Essays on the Economics of Higher Education

At least since the seminal works of Jacob Mincer, labor economists have sought to understand how students make higher education investment decisions. Mincer’s original work seeks to understand how students decide how much education to accrue; subsequent work by various authors seeks to understand how students choose where to attend college, what field to major in, and whether to drop out of college.

Broadly speaking, this rich sub-field of literature contributes to society in two ways: First, it provides a better understanding of important social behaviors. Second, it helps policymakers anticipate the responses of students when evaluating various policy reforms.

While research on the higher education investment decisions of students has had an enormous impact on our understanding of society and has shaped countless education policies, students are only one interested party in the higher education landscape. In the jargon of economists, students represent only the `demand side’ of higher education---customers who are choosing options from a set of available alternatives. Opposite students are instructors and administrators who represent the `supply side’ of higher education---those who decide which options are available to students.

For similar reasons, it is also important to understand how individuals on the supply side of education make decisions: First, this provides a deeper understanding of the behaviors of important social institutions. Second, it helps policymakers anticipate the responses of instructors and administrators when evaluating various reforms. However, while there is substantial literature understanding decisions made on the demand side of education, there is far less attention paid to decisions on the supply side of education.

This dissertation uses empirical evidence to better understand how instructors and administrators make decisions and the implications of these decisions for students.

In the first chapter, I use data from Duke University and a Bayesian model of correlated learning to measure the signal quality of grades across academic fields. The correlated feature of the model allows grades in one academic field to signal ability in all other fields allowing me to measure both ‘own category' signal quality and ‘spillover' signal quality. Estimates reveal a clear division between information rich Science, Engineering, and Economics grades and less informative Humanities and Social Science grades. In many specifications, information spillovers are so powerful that precise Science, Engineering, and Economics grades are more informative about Humanities and Social Science abilities than Humanities and Social Science grades. This suggests students who take engineering courses during their Freshman year make more informed specialization decisions later in college.

In the second chapter, I use data from the University of Central Arkansas to understand how universities decide which courses to offer and how much to spend on instructors for these courses. Course offerings and instructor characteristics directly affect the courses students choose and the value they receive from these choices. This chapter reveals the university preferences over these student outcomes which best explain observed course offerings and instructors. This allows me to assess whether university incentives are aligned with students, to determine what alternative university choices would be preferred by students, and to illustrate how a revenue neutral tax/subsidy policy can induce a university to make these student-best decisions.

In the third chapter, co-authored with Thomas Ahn, Peter Arcidiacono, and Amy Hopson, we use data from the University of Kentucky to understand how instructors choose grading policies. In this chapter, we estimate an equilibrium model in which instructors choose grading policies and students choose courses and study effort given grading policies. In this model, instructors set both a grading intercept and a return on ability and effort. This builds a rich link between the grading policy decisions of instructors and the course choices of students. We use estimates of this model to infer what preference parameters best explain why instructors chose estimated grading policies. To illustrate the importance of these supply side decisions, we show changing grading policies can substantially reduce the gender gap in STEM enrollment.

Essays on the Dynamic Decisions of Homeowners and Retailers

Urban problems have several features that make them inherently dynamic. Large transaction costs all but guarantee that homeowners will do their best to consider how a neighborhood might change before buying a house. Similarly, stores face large sunk costs when opening, and want to be sure that their investment will pay off in the long run. In line with those concerns, different areas of Economics have made recent advances in modeling those questions within a dynamic framework. This dissertation contributes to those efforts.

Chapter 2 discusses how to model an agent’s location decision when the agent must learn about an exogenous amenity that may be changing over time. The model is applied to estimating the marginal willingness to pay to avoid crime, in which agents are learning about the crime rate in a neighborhood, and the crime rate can change in predictable (Markovian) ways.

Chapters 3 and 4 concentrate on location decision problems when there are externalities between decision makers. Chapter 3 focuses on the decision of business owners to open a store, when its demand is a function of other nearby stores, either through competition, or through spillovers on foot traffic. It uses a dynamic model in continuous time to model agents’ decisions. A particular challenge is isolating the contribution of spillovers from the contribution of other unobserved neighborhood attributes that could also lead to agglomeration. A key contribution of this chapter is showing how we can use information on storefront ownership to help separately identify spillovers.

Finally, chapter 4 focuses on a class of models in which families prefer to live

close to similar neighbors. This chapter provides the first simulation of such a model in which agents are forward looking, and shows that this leads to more segregation than it would have been observed with myopic agents, which is the standard in this literature. The chapter also discusses several extensions of the model that can be used to investigate relevant questions such as the arrival of a large contingent high skilled tech workers in San Francisco, the immigration of hispanic families to several southern American cities, large changes in local amenities, such as the construction of magnet schools or metro stations, and the flight of wealthy residents from cities in the Rust belt, such as Detroit.

Agglomeration effects in foreign direct investment and the pollution haven hypothesis

Does environmental regulation impair international competitiveness of pollution-intensive industries to the extent that they relocate to countries with less stringent regulation, turning those countries into "pollution havens"? We test this hypothesis using panel data on outward foreign direct investment (FDI) flows of various industries in the German manufacturing sector and account for several econometric issues that have been ignored in previous studies. Most importantly, we demonstrate that externalities associated with FDI agglomeration can bias estimates away from finding a pollution haven effect if omitted from the analysis. We include the stock of inward FDI as a proxy for agglomeration and employ a GMM estimator to control for endogenous time-varying determinants of FDI flows. Furthermore, we propose a difference estimator based on the least polluting industry to break the possible correlation between environmental regulatory stringency and unobservable attributes of FDI recipients in the cross-section. When accounting for these issues we find robust evidence of a pollution haven effect for the chemical industry. © 2008 Springer Science+Business Media B.V.

Reference groups and product line decisions: An experimental investigation of limited editions and product proliferation

Some luxury goods manufacturers offer limited editions of their products, whereas some others market multiple product lines. Researchers have found that reference groups shape consumer evaluations of these product categories. Yet little empirical research has examined how reference groups affect the product line decisions of firms. Indeed, in a field setting it is quite a challenge to isolate reference group effects from contextual effects and correlated effects. In this paper, we propose a parsimonious model that allows us to study how reference groups influence firm behavior and that lends itself to experimental analysis. With the aid of the model we investigate the behavior of consumers in a laboratory setting where we can focus on the reference group effects after controlling for the contextual and correlated effects. The experimental results show that in the presence of strong reference group effects, limited editions and multiple products can help improve firms' profits. Furthermore, the trends in the purchase decisions of our participants point to the possibility that they are capable of introspecting close to two steps of thinking at the outset of the game and then learning through reinforcement mechanisms. © 2010 INFORMS.

Information programs for technology adoption: The case of energy-efficiency audits

We analyze technology adoption decisions of manufacturing plants in response to government-sponsored energy audits. Overall, plants adopt about half of the recommended energy-efficiency projects. Using fixed effects logit estimation, we find that adoption rates are higher for projects with shorter paybacks, lower costs, greater annual savings, higher energy prices, and greater energy conservation. Plants are 40% more responsive to initial costs than annual savings, suggesting that subsidies may be more effective at promoting energy-efficient technologies than energy price increases. Adoption decisions imply hurdle rates of 50-100%, which is consistent with the investment criteria small and medium-size firms state they use. © 2003 Elsevier B.V. All rights reserved.

Development of a decision aid to inform patients' and families' renal replacement therapy selection decisions.

BACKGROUND: Few educational resources have been developed to inform patients' renal replacement therapy (RRT) selection decisions. Patients progressing toward end stage renal disease (ESRD) must decide among multiple treatment options with varying characteristics. Complex information about treatments must be adequately conveyed to patients with different educational backgrounds and informational needs. Decisions about treatment options also require family input, as families often participate in patients' treatment and support patients' decisions. We describe the development, design, and preliminary evaluation of an informational, evidence-based, and patient-and family-centered decision aid for patients with ESRD and varying levels of health literacy, health numeracy, and cognitive function. METHODS: We designed a decision aid comprising a complementary video and informational handbook. We based our development process on data previously obtained from qualitative focus groups and systematic literature reviews. We simultaneously developed the video and handbook in "stages." For the video, stages included (1) directed interviews with culturally appropriate patients and families and preliminary script development, (2) video production, and (3) screening the video with patients and their families. For the handbook, stages comprised (1) preliminary content design, (2) a mixed-methods pilot study among diverse patients to assess comprehension of handbook material, and (3) screening the handbook with patients and their families. RESULTS: The video and handbook both addressed potential benefits and trade-offs of treatment selections. The 50-minute video consisted of demographically diverse patients and their families describing their positive and negative experiences with selecting a treatment option. The video also incorporated health professionals' testimonials regarding various considerations that might influence patients' and families' treatment selections. The handbook was comprised of written words, pictures of patients and health care providers, and diagrams describing the findings and quality of scientific studies comparing treatments. The handbook text was written at a 4th to 6th grade reading level. Pilot study results demonstrated that a majority of patients could understand information presented in the handbook. Patient and families screening the nearly completed video and handbook reviewed the materials favorably. CONCLUSIONS: This rigorously designed decision aid may help patients and families make informed decisions about their treatment options for RRT that are well aligned with their values.

Effect of primary care physicians' use of estimated glomerular filtration rate on the timing of their subspecialty referral decisions.

BACKGROUND: Primary care providers' suboptimal recognition of the severity of chronic kidney disease (CKD) may contribute to untimely referrals of patients with CKD to subspecialty care. It is unknown whether U.S. primary care physicians' use of estimated glomerular filtration rate (eGFR) rather than serum creatinine to estimate CKD severity could improve the timeliness of their subspecialty referral decisions. METHODS: We conducted a cross-sectional study of 154 United States primary care physicians to assess the effect of use of eGFR (versus creatinine) on the timing of their subspecialty referrals. Primary care physicians completed a questionnaire featuring questions regarding a hypothetical White or African American patient with progressing CKD. We asked primary care physicians to identify the serum creatinine and eGFR levels at which they would recommend patients like the hypothetical patient be referred for subspecialty evaluation. We assessed significant improvement in the timing [from eGFR < 30 to ≥ 30 mL/min/1.73m(2)) of their recommended referrals based on their use of creatinine versus eGFR. RESULTS: Primary care physicians recommended subspecialty referrals later (CKD more advanced) when using creatinine versus eGFR to assess kidney function [median eGFR 32 versus 55 mL/min/1.73m(2), p < 0.001]. Forty percent of primary care physicians significantly improved the timing of their referrals when basing their recommendations on eGFR. Improved timing occurred more frequently among primary care physicians practicing in academic (versus non-academic) practices or presented with White (versus African American) hypothetical patients [adjusted percentage(95% CI): 70% (45-87) versus 37% (reference) and 57% (39-73) versus 25% (reference), respectively, both p ≤ 0.01). CONCLUSIONS: Primary care physicians recommended subspecialty referrals earlier when using eGFR (versus creatinine) to assess kidney function. Enhanced use of eGFR by primary care physicians' could lead to more timely subspecialty care and improved clinical outcomes for patients with CKD.

The providing resources to enhance African American patients' readiness to make decisions about kidney disease (PREPARED) study: protocol of a randomized controlled trial.

BACKGROUND: Living related kidney transplantation (LRT) is underutilized, particularly among African Americans. The effectiveness of informational and financial interventions to enhance informed decision-making among African Americans with end stage renal disease (ESRD) and improve rates of LRT is unknown. METHODS/DESIGN: We report the protocol of the Providing Resources to Enhance African American Patients' Readiness to Make Decisions about Kidney Disease (PREPARED) Study, a two-phase study utilizing qualitative and quantitative research methods to design and test the effectiveness of informational (focused on shared decision-making) and financial interventions to overcome barriers to pursuit of LRT among African American patients and their families. Study Phase I involved the evidence-based development of informational materials as well as a financial intervention to enhance African American patients' and families' proficiency in shared decision-making regarding LRT. In Study Phase 2, we are currently conducting a randomized controlled trial in which patients with new-onset ESRD receive 1) usual dialysis care by their nephrologists, 2) the informational intervention (educational video and handbook), or 3) the informational intervention in addition to the option of participating in a live kidney donor financial assistance program. The primary outcome of the randomized controlled trial will include patients' self-reported rates of consideration of LRT (including family discussions of LRT, patient-physician discussions of LRT, and identification of a LRT donor). DISCUSSION: Results from the PREPARED study will provide needed evidence on ways to enhance the decision to pursue LRT among African American patients with ESRD.

Mental hoop diaries: emotional memories of a college basketball game in rival fans.

The rivalry between the men's basketball teams of Duke University and the University of North Carolina-Chapel Hill (UNC) is one of the most storied traditions in college sports. A subculture of students at each university form social bonds with fellow fans, develop expertise in college basketball rules, team statistics, and individual players, and self-identify as a member of a fan group. The present study capitalized on the high personal investment of these fans and the strong affective tenor of a Duke-UNC basketball game to examine the neural correlates of emotional memory retrieval for a complex sporting event. Male fans watched a competitive, archived game in a social setting. During a subsequent functional magnetic resonance imaging session, participants viewed video clips depicting individual plays of the game that ended with the ball being released toward the basket. For each play, participants recalled whether or not the shot went into the basket. Hemodynamic signal changes time locked to correct memory decisions were analyzed as a function of emotional intensity and valence, according to the fan's perspective. Results showed intensity-modulated retrieval activity in midline cortical structures, sensorimotor cortex, the striatum, and the medial temporal lobe, including the amygdala. Positively valent memories specifically recruited processing in dorsal frontoparietal regions, and additional activity in the insula and medial temporal lobe for positively valent shots recalled with high confidence. This novel paradigm reveals how brain regions implicated in emotion, memory retrieval, visuomotor imagery, and social cognition contribute to the recollection of specific plays in the mind of a sports fan.

Encouraging clean energy investment in developing countries: what role for aid?

A large portion of foreign assistance for climate change mitigation in developing countries is directed to clean energy facilities. To support international mitigation goals, however, donors must make investments that have effects beyond individual facilities. They must reduce barriers to private-sector investment by generating information for developers, improving relevant infrastructure, or changing policies. We examine whether donor agencies target financing for commercial-scale wind and solar facilities to countries where private investment in clean energy is limited and whether donor investments lead to more private investments. On average, we find no positive evidence for these patterns of targeting and impact. Coupled with model results that show feed-in tariffs increase private investment, we argue that donor agencies should reallocate resources to improve policies that promote private investment in developing countries, rather than finance individual clean energy facilities.

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.