Dodging High Impact Behavior with Motivated Beliefs?
Although other-regarding behavior is widespread, behaviors with high impact are rarely adopted. This leaves a large potential for social benefit untapped. Using an online experiment, I test the explanatory role of impact beliefs focusing on two potential cognitive mechanisms. First, motivated impact beliefs may lead to an overestimation of impact for low cost behaviors, and an underestimation of impact for high cost behaviors. Alternatively, people may only vaguely think about impact, and rather rationalize their choices ex post. I document that subjects on average overestimate low impacts slightly and underestimate high impacts. Yet, neither higher incentives for accuracy, nor changes in the costs of impactful behavior affect beliefs, implying a limited role of motivated beliefs. Reducing scope for ex post rationalization by eliciting beliefs before donations does not affect beliefs either. It does, however, increase the likelihood that subjects maximize impact. Thus, rather than motivated beliefs, the difficulty of integrating impact and cost information across different behaviors seems to play a role in the low adoption of high impact behaviors.
Hotelling Revisited - The Price-then-Location Model
In several markets, such as the magazine or restaurant market, firms choose prices for a longer time horizon than product content, which can be varied more flexibly. In this paper, we analyze the pricing and content choices of competitive firms in such a setting. We consider a two-stage game in which two firms first choose prices and then locations on the Hotelling line, allowing for differences in firms' costs. We derive the complete solution for moderate differences in cost. At equilibrium, firms choose pure strategies at the price stage and mix in terms of location, with the more efficient firm locating closer to the middle. For sufficiently symmetric production cost, any subgame perfect equilibrium involves mixing at both stages.
Making Up for Harming Others - An Experiment on Voluntary Compensation Behavior
Revise & Resubmit at the Journal of Economic Behavior and Organization
We investigate in a controlled laboratory setting if and to what extent buyers are willing to offset
negative real-world externalities that their purchasing decisions create. In one set of treatments,
the externality associated with a purchase is irreversible, whereas in another set of treatments,
buyers are offered the possibility to voluntarily compensate for the externality. The other set
of treatment variations refers to the matching of buyers and third parties, inducing diffusion of
harm among third parties or diffusion of responsibility among buyers.
We find that subjects are on average willing to compensate for the externalities they create, and that compensation decisions are sensitive to the surplus from buying. Yet, experimental buyers are highly heterogeneous, and some of them never compensate. Overall, while the introduction of voluntary compensation significantly reduces the harm created by consumption, the net externality still remains high across all treatments. In particular, diffused responsibility among buyers reduces the amounts paid for compensation and leads to larger overall net externalities compared to the case without diffusion. At the same time, diffusion of the harm among third parties does not significantly change compensation choices and externalities.