PhDs.io

Andreoni, J., & Bernheim, B. D. (2009). Social Image and the 50–50 Norm: A Theoretical and Experimental Analysis of Audience Effects. Econometrica, 77, 1607–1636.

FT50 A*

A norm of 50?50 division appears to have considerable force in a wide range of economic environments, both in the real world and in the laboratory. Even in settings where one party unilaterally determines the allocation of a prize (the dictator game), many subjects voluntarily cede exactly half to another individual. The hypothesis that people care about fairness does not by itself account for key experimental patterns. We consider an alternative explanation, which adds the hypothesis that people like to be perceived as fair. The properties of equilibria for the resulting signaling game correspond closely to laboratory observations. The theory has additional testable implications, the validity of which we confirm through new experiments.

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Bernheim, B. D., & Sprenger, C. (2020). On the Empirical Validity of Cumulative Prospect Theory: Experimental Evidence of Rank-Independent Probability Weighting. Econometrica, 88, 1363–1409.

FT50 A*

Cumulative Prospect Theory (CPT), the leading behavioral account of decisionmaking under uncertainty, avoids the dominance violations implicit in Prospect Theory (PT) by assuming that the probability weight applied to a given outcome depends on its ranking. We devise a simple and direct nonparametric method for measuring the change in relative probability weights resulting from a change in payoff ranks. We find no evidence that these weights are even modestly sensitive to ranks. Conventional calibrations of CPT preferences imply that the percentage change in probability weights should be an order of magnitude larger than we observe. It follows either that probability weighting is not rank-dependent, or that the weighting function is nearly linear. Nonparametric measurement of the change in relative probability weights resulting from changes in probabilities rules out the second possibility. Additional tests nevertheless indicate that the dominance patterns predicted by PT do not arise. We reconcile these findings by positing a form of complexity aversion that generalizes the well-known certainty effect.

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Bernheim, B. D., Rangel, A., & Rayo, L. (2006). The Power of the Last Word in Legislative Policy Making. Econometrica, 74, 1161–1190.

FT50 A*

We examine legislative policy making in institutions with two empirically relevant features: agenda setting occurs in real time and the default policy evolves. We demonstrate that these institutions select Condorcet winners when they exist, provided a sufficient number of individuals have opportunities to make proposals. In policy spaces with either pork barrel or pure redistributional politics (where a Condorcet winner does not exist), the last proposer is effectively a dictator or near-dictator under relatively weak conditions.

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Ambuehl, S., Bernheim, B. D., & Lusardi, A. (2022). Evaluating Deliberative Competence: A Simple Method with an Application to Financial Choice. The American Economic Review, 112, 3584–3626.

FT50 A*

We examine methods for evaluating interventions designed to improve decision-making quality when people misunderstand the consequences of their choices. In an experiment involving financial education, conventional outcome metrics (financial literacy and directional behavioral responses) imply that two interventions are equally beneficial even though only one reduces the average severity of errors. We trace these failures to violations of the assumptions embedded in the conventional metrics. We propose a simple, intuitive, and broadly applicable outcome metric that properly differentiates between the interventions, and is robustly interpretable as a measure of welfare loss from misunderstanding consequences even when additional biases distort choices.

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Ambuehl, S., Bernheim, B. D., & Ockenfels, A. (2021). What Motivates Paternalism? An Experimental Study. The American Economic Review, 111, 787–830.

FT50 A*

We study experimentally when, why, and how people intervene in others' choices. Choice Architects (CAs) construct opportunity sets containing bundles of time-indexed payments for Choosers. CAs frequently prevent impatient choices despite opportunities to provide advice, believing Choosers benefit. They violate common behavioral welfare criteria by removing impatient options even when all pay-offs are delayed. CAs intervene not by removing options they wish they could resist when choosing for themselves (mistakes-projective paternalism), but rather as if they seek to align others' choices with their own aspirations (ideals-projective paternalism). Laboratory choices predict subjects' support for actual paternalistic policies.

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Bernheim, B. D., Ray, D., & Yeltekin, Ş. (2015). Poverty and Self-Control. Econometrica, 83, 1877–1911.

FT50 A*

We argue that poverty can perpetuate itself by undermining the capacity for self-control. In line with a distinguished psychological literature, we consider modes of self-control that involve the self-imposed use of contingent punishments and rewards. We study settings in which consumers with quasi-hyperbolic preferences confront an otherwise standard intertemporal allocation problem with credit constraints. Our main result demonstrates that low initial assets can limit self-control, trapping people in poverty, while individuals with high initial assets can accumulate indefinitely. Thus, even temporary policies that initiate accumulation among the poor may be effective. We examine implications concerning the effect of access to credit on saving, the demand for commitment devices, the design of financial accounts to promote accumulation, and the variation of the marginal propensity to consume across income from different sources. We also explore the nature of optimal self-control, demonstrating that it has a simple and behaviorally plausible structure that is immune to self-renegotiation.

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Bernheim, B. D., Braghieri, L., Martínez-Marquina, A., & Zuckerman, D. (2021). A Theory of Chosen Preferences. The American Economic Review, 111, 720–754.

FT50 A*

We propose and develop a dynamic theory of endogenous preference formation in which people adopt worldviews that shape their judgments about their experiences. The framework highlights the role of mindset flexibility, a trait that determines the relative weights the decision-maker places on her current and anticipated worldviews when evaluating future outcomes. The theory generates rich behavioral dynamics, thereby illuminating a wide range of applications and providing potential explanations for a variety of observed phenomena.

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