Fungibility, Labels, and Consumption

Fungibility of money is a central principle in economics. It implies that any unit of money is substitutable for another and that the composition of income is irrelevant for consumption. We find in a field experiment that even in a simple, incentivized setup many subjects do not treat money as fungible. When a label is attached to a part of their budget, subjects change consumption according to the suggestion of the label. A controlled laboratory experiment confirms this result and further shows that subjects with lower mathematical abilities are more likely to violate fungibility. The findings lend support to behavioral models such as narrow bracketing or mental accounting. One implication of our results is that in-kind benefits distort consumption more than usually assumed.fungibility, In-kind benefits, mental accounting, inframarginal consumers, field experiment, laboratory experiment

Leading Indicators of Euroland Business Cycles

Die Einführung einer gemeinsamen Geldpolitik in elf europäischen Ländern erhöhte die Bedeutung von konjunkturellen Frühindikatoren für dieses Gebiet. Brauchbare Frühindikatoren sollten folgende Eigenschaften besitzen: (1) Die konjunkturellen Bewegungen des Frühindikators sollten denen der Referenzreihe folgen. (2) Die Beziehung zwischen den Reihen sollte stabil und signifikant sein. (3) Die Einbeziehung des Indikators sollte die Out-of-sample-Prognose verbessern. Unsere Untersuchung testet diese Anforderungen für Euroland-Daten. Dazu werden Methoden der Spektralanalyse, verschiedene Granger-Kausalitäts-Tests und Out-of-sample-Prognosen verwendet. Nur wenige Indikatoren bestehen die Tests auf die geforderten Eigenschaften, wobei die nichtmonetären Indikatoren besser abschneiden. The introduction of a common monetary policy in eleven European countries increased the need for leading indicators for that area. A reliable leading indicator should possess the following properties: (1) The movements in the indicator series should resemble those in the business cycle reference series. (2) The relation between the reference series and the indicator should be statistically significant and stable over time. (3) The inclusion of the indicator in out-of-sample forecasting procedures should improve the predictive power. Our analysis deals with tests for these requirements applied to Euroland data. We use frequency domain analysis, Granger-causality tests and out-of sample forecasts. Only a few indicators pass all tests, while the non-monetary indicators perform best.

The Non-Use of Bayes Rule: Representative Evidence on Bounded Rationality

The ability to process new information and to compute conditional probabilities is crucial for making appropriate decisions under uncertainty. In this paper, we investigate the capability of inferring conditional probabilities in a representative sample of the German population. Our results show that only a small fraction of the population responds consistently with Bayes'' rule. Instead, most individuals either neglect the base probability, or the arrival of new information, in their responses. The probability to give normatively correctanswers decreases with the level of education.labour economics ;

The Non-Use of Bayes Rule: Representative Evidence on Bounded Rationality

The ability to process new information and to compute conditional probabilities iscrucial for making appropriate decisions under uncertainty. In this paper, weinvestigate the capability of inferring conditional probabilities in a representativesample of the German population. Our results show that only a small fraction ofthe population responds consistently with Bayes'' rule. Instead, most individualseither neglect the base probability, or the arrival of new information, in theirresponses. The probability to give normatively correct answers decreases with thelevel of education.labour market entry and occupational careers;

Biased Probability Judgment: Representative Evidence for Pervasiveness and Economic Outcomes

Many economic decisions involve a substantial amount of uncertainty, andtherefore crucially depend on how individuals process probabilistic information. Inthis paper, we investigate the capability for probability judgment in a representativesample of the German population. Our results show that almost a third of therespondents exhibits systematically biased perceptions of probability. The findingsalso indicate that the observed biases are related to observed outcomes, whichindicates the policy relevance of our findings.education, training and the labour market;

Biased Probability Judgment: Evidence of Incidence and Relationship to Economic Outcomes from a Representative Sample

Many economic decisions involve a substantial amount of uncertainty, and therefore crucially depend on how individuals process probabilistic information. In this paper, we investigate the capability for probability judgment in a representative sample of the German population. Our results show that almost a third of the respondents exhibits systematically biased perceptions of probability. The findings also indicate that the observed biases are related to individual economic outcomes, which suggests potential policy relevance of our findings.financial decision making, bounded rationality, probability judgment, gambler's fallacy, hot hand fallacy, representative design, long-term unemployment

Eingeschränkt rationales Verhalten: Evidenz und wirtschaftspolitische Implikationen

Die Präzision ökonomischer Prognosen und die Qualität politischer Handlungsempfehlungen hängen in entscheidendem Ausmaß von der Qualität des zugrunde liegenden Verhaltensmodells ab. Nur ein empirisch gut fundiertes Modell ökonomischen Handelns erlaubt es, die Konsequenzen politischer Maßnahmen präzise abzuschätzen. In der wirtschaftswissenschaftlichen Analyse ist das Konzept des Homo Oeconomicus als Entscheidungs- und Verhaltensmodell weit verbreitet. Empirische Ergebnisse aus der Verhaltensökonomik legen jedoch zwei grundsätzliche Abweichungen vom traditionellen Modell des Homo Oeconomicus nahe: Abweichungen vom Prinzip der uneingeschränkten Rationalität einerseits und die Infragestellung einer universellen Eigennutzorientierung andererseits. Die vorliegende Arbeit gibt einen Überblick über ausgewählte, wirtschaftspolitisch bedeutsame Abweichungen vom Rationalitätspostulat. Anschließend diskutieren wir am Beispiel so genannter "nicht bindender Defaultoptionen", weshalb für eingeschränkt rationale Akteure politische Maßnahmen oder rechtliche Regelungen auch dann Verhaltenskonsequenzen haben können, wenn diese aus rationaler Sichtweise nicht zu erwarten wären und möglicherweise durch den Gesetzgeber auch nicht beabsichtigt sind. Abschließend stellen wir dar, wie nicht bindende Defaults selbst als Politikinstrument eingesetzt werden können: klug gewählt können sie dabei helfen, Entscheidungen zu verbessern ohne dabei individuelle Wahlfreiheit einzuschränken.Verhaltensökonomik, Paternalismus, Wirkung von Politikmaßnahmen, nicht-bindende Regeln, Wahrscheinlichkeitsverzerrungen, eingeschränkte Rationalität

Biased probability judgment: evidence of incidence and relationship to economic outcomes from a representative sample

Many economic decisions involve a substantial amount of uncertainty, and therefore crucially depend on how individuals process probabilistic information. In this paper, we investigate the capability for probability judgment in a representative sample of the German population. Our results show that almost a third of the respondents exhibits systematically biased perceptions of probability. The findings also indicate that the observed biases are related to individual economic outcomes, which suggests potential policy relevance of our findings

Biased probability judgment: Evidence of incidence and relationship to economic outcomes from a representative sample

International audienceMany economic decisions involve a substantial amount of uncertainty, and therefore crucially depend on how individuals process probabilistic information. In this paper, we investigate the capability for probability judgment in a representative sample of the German population. Our results show that almost a third of the respondents exhibits systematically biased perceptions of probability. The findings also indicate that the observed biases are related to individual economic outcomes, which suggests potential policy relevance of our findings

Fungibility, Labels, and Consumption †

The focus for the Centre is research into individual and strategic decision‐making using a combination of theoretical and experimental methods. On the theory side, members of the Centre investigate individual choice under uncertainty, cooperative and non‐cooperative game theory, as well as theories of psychology, bounded rationality and evolutionary game theory. Members of the Centre have applied experimental methods in the fields of public economics, individual choice under risk and uncertainty, strategic interaction, and the performance of auctions, markets and other economic institutions. Much of the Centre's research involves collaborative projects with researchers from other departments in the UK and overseas