Knowledge that Transforms

Many subjects in lab experiments exhibit small-stakes risk aversion, consistent with loss aversion. Those with greater math skills are less likely to show small-stakes risk aversion. We argue that departures from expected utility maximization may help explain why many firms in developing countries leave high expected return investments unexploited. We show that among a sample of Kenyan shopkeepers, inventories are negatively associated with small-stakes risk aversion and positively associated with math skills.

We investigate the relationship between HIV, marriage and nonmarital sexual activity, with a focus on adolescent behaviors. We use data from 45 Demographic and Health Surveys to examine how adolescent behavior among women born from 1958 to 1965 are related to the subsequent spread of HIV over time. These women were adolescents during the early 1980s, a time when HIV had started to spread but the cause was still unknown. We find that areas with currently high HIV rates had greater female education and more premarital sexual activity in the cohorts that came of age before HIV was understood.

More than half of the HIV/AIDS-infected population today are women. We study a dynamic model of (in)fidelity, which explains the HIV/AIDS gender gap by the configuration of sexual networks. Each individual desires sexual relationships with opposite sex individuals. Two Markov matching processes are defined, each corresponding to a different culture of gender relations. The first process leads to egalitarian pairwise stable networks in the long run, and HIV/AIDS is equally prevalent among men and women. The second process leads to anti-egalitarian pairwise stable networks reflecting male domination, and women bear a greater burden. The results are consistent with empirical observations.

This paper considers the mechanisms behind a positive correlation between inheritances and health. First, there may merely be a correlation: those from families with enough wealth to provide an inheritance tend to have better health. Second, financial resources could be used to purchase inputs to health. Third, bequests may signal a stronger interest in one's child. This reminder to the child could improve their emotional well-being. On average, the positive correlation suggests merely correlation. However, among subsets of the population, particularly men and those expecting to receive an inheritance, there is a causal relationship likely driven by the third mechanism.

I report on measures of life satisfaction and emotional well-being across groups of college-educated women, based on whether they have a career, a family, both, or neither. The biggest premium to life satisfaction is associated with having a family. While there is also a life satisfaction premium associated with having a career, women do not seem able to “double up” on these premiums. A qualitatively similar picture emerges from the emotional well-being data. Among college-educated women with family, those with a career spend a larger share of their day unhappy, sad, stressed and tired.

Previous evaluations of Job Corps document disparate effects on the earnings of adolescents (aged 16-19) and young adults (aged 20-24). These are conjectured to be due to differential human capital accumulation within the program between these groups. If correct, the effect of the program on wages should be larger than that on earnings, since wages more accurately reflect human capital. We estimate bounds on average and quantile treatment effects of Job Corps on wages and find that the relative effects on both outcomes are similar, casting some doubt on the conjecture that human capital is driving the disparate effects.

Economies at early stages of development are frequently shaken by large changes in growth rates, whereas advanced economies tend to experience relatively stable growth rates. To explain this pattern, we propose a model of technological diversification. Production makes use of input-varieties that are subject to imperfectly correlated shocks. Endogenous variety adoption by firms raises average productivity and provides diversification benefits against variety-specific shocks. Firm-level and aggregate volatility thus decline as a by-product of the development process. We quantitatively assess the model's predictions and find that it can generate patterns of volatility and development consistent with the data.

Choices involving risk significantly affect the distribution of income and wealth in society. This paper reports the results of the first experiment, to our knowledge, to study fairness views about risk-taking, specifically whether such views are based chiefly on ex ante opportunities or on ex post outcomes. We find that, even though many participants focus exclusively on ex ante opportunities, most favor some redistribution ex post. Many participants also make a distinction between ex post inequalities that reflect differences in luck and ex post inequalities that reflect differences in choices. These findings apply to both stakeholders and impartial spectators.

This article proposes an approach to improving the psychological realism of economics while maintaining its conventional techniques and goals--formal theoretical and empirical analysis using tractable models, with a focus on prediction and estimation. Besides tolerating the imperfections that come with precision, models should aim for two crucial criteria: power and scope. The approach advocated is to develop portable extensions of existing models that embed preexisting theories as parameter values, while introducing the new psychological assumptions as alternative parameter values, and make the model portable by defining it in all cases where existing models make predictions.

This essay assesses whether network linkages within the banking system amplified the real effects of bank failures during the Great Contraction. In 1929, nearly all interbank deposits held by Federal Reserve member banks belonged to “shadowy” nonmember banks which were outside the regulatory reach of federal regulators. Regional banking panics in the early 1930s drained these interbank deposits from central reserve city banks. Money-center banks in Chicago and New York responded to volatile and declining interbank deposits by changing their asset composition. They reduced their lending to businesses and individuals, and increased their holdings of cash and government bonds.