Determinants and Effects of Reserve Prices in Auctions

We use a unique hand collected data set of 6,258 auctions from the online football manager game Hattrick to study determinants and effects of reserve prices. We find that chosen reserve prices exhibit both very sophisticated and suboptimal behavior by the sellers. On the one hand, reserve prices are adjusted remarkably nuanced to the resulting sales price pattern. However, reserve prices are too clustered at zero and at multiples of EUR 50,000 as to be consistent with fully rational behavior. We recover the value distribution and simulate the loss in expected revenue from suboptimal reserve prices. Finally, we find evidence for the sunk cost fallacy as there is a substantial positive effect on the reserve price when the player has been acquired previously

Electoral cycles in savings bank lending

We provide causal evidence that German savings banks – where local politicians are by law involved in their management – systematically adjust lending policies in response to local electoral cycles. The different timing of county elections across states and the existence of a control group of cooperative banks – that are very similar to savings banks but lack their political connectedness – allow for clean identification of causal effects of county elections on savings banks’ lending. These effects are economically meaningful and robust to various specifications. Moreover, politically induced lending increases in incumbent party entrenchment and in the contestedness of upcoming elections

Price Discontinuities in an online used Car Market

We examine empirically whether individuals evaluating used cars efficiently aggregate all relevant information on its constituent characteristics. Based on detailed field data on more than 80,000 used car offers in a large online marketplace, we provide evidence for biased information processing. While the precise date of first registration, i.e., its "age", is publicly and prominently stated for each car, we identify an amplified value adjustment for otherwise identical cars at year-count changes. These discontinuities indicate that individuals over-react to the figure displayed in the latter, while underrating the finer information on a car's age as conveyed through the month of first registration. Moreover, we are able to replicate the findings from Lacetera et al (2009) and find discontinuous drops in prices at 10,000km odometer thresholds. While the latter finding, as suggested by Lacetera et al (2009), is consistent with a left-digit bias in the processing of numerical information, the first finding cannot be explained by this. Our findings underline that information-processing heuristics matter also in markets with large stakes and easily observed informatio

Price discontinuities in an online market for used cars

We study the price-setting behavior in a competitive market for used cars and provide empirical evidence for coarse information processing. Based on detailed field data from one of Europe’s largest online marketplaces for automotive vehicles, we document systematic and sizable price discontinuities at salient car-age and mileage thresholds. The price difference between two otherwise identical cars across registration years (where one was first registered in January and the other in December of the previous year) is up to five times larger than that between two cars first registered in any two subsequent months within a registration year. A similar pattern can be observed in the mileage dimension at 10,000-km odometer marks, which is in line with earlier findings in the literature. Being able to study discontinuities along two dimensions of the same good allows us to further our understanding toward a more general notion of inattentive behavior. While our results are compatible with a behavioral model of limited attention, we also provide evidence for a more traditional explanation based on search frictions

Price discontinuities in an online market for used cars

We use more than 63,000 datapoints from a German used car market website to document systematic and substantial price drops at vintage (= year of first registration) thresholds and 10,000 km odometer marks. The latter finding replicates the findings in Lacetera et al. (2012), whereas the first dimension cannot be analyzed with their US data because only German cars have such legally mandated and regulated “birthdates”. Hence we have the unique opportunity to study the presence of coarse information processing within the same dataset and decision problem but across two separate domains. We document that discontinuities in these two domains are of comparable size. While Lacetera et al. (2012) explain their result with a left-digit bias in the processing of numerical information, vintage discontinuities cannot be explained by this. We propose a slightly more general model of information prominence and availability bias to accommodate our findings

Power Politics: Electoral Cycles in German Electricity Prices

We provide evidence that German public energy providers, over which municipality-level politicians hold substantial sway, systematically adjust the pricing of electric energy in response to local electoral cycles. The documented pattern is in line with both, an artificial reduction in prices before an election that needs to be countermanded by future price increases, and an artificial postponement of market-driven price increases until after the election is over

"Healthy, wealthy, and wise?" revisited: An analysis of the causal pathways from socio-economic status to health

Much has been said about the stylized fact that the economically successful are not only wealthier but also healthier than the less affluent. There is little doubt about the existence of this socio-economic gradient in health, but there remains a vivid debate about its source. In this paper, we review the methodological challenges involved in testing the causal relationships between socio-economic status and health. We describe the approach of testing for the absence of causal channels developed by Adams et al. (2003) that seeks identification without the need to isolate exogenous variation in economic variables, and we repeat their analysis using the full range of data that have become available in the Health and Retirement Study since, both in terms of observations years and age ranges covered. This analysis shows that causal inference critically depends on which time periods are used for estimation. Using the information of longer panels has the greatest effect on results. We find that SES causality cannot be ruled out for a larger number of health conditions than in the original study. An approach based on a reduced-form interpretation of causality thus is not very informative, at least as long as the confounding influence of hidden common factors is not fully controlled

Understanding the SES gradient in health among the elderly: The role of childhood circumstances

Individuals’ socioeconomic status (SES) is positively correlated with their health status. While the existence of this gradient may be uncontroversial, the same cannot be said about its explanation. In this paper, we extend the approach of testing for the absence of causal channels developed by Adams et al. (2003), which in a Granger causality sense promises insights on the causal structure of the health-SES nexus. We introduce some methodological refinements and integrate retrospective survey data on early childhood circumstances into this framework. We confirm that childhood health has lasting predictive power for adult health. We also uncover strong gender differences in the intertemporal transmission of SES and health: While the link between SES and functional as well as mental health among men appears to be established rather late in life, the gradient among women seems to originate from childhood circumstances

"Healthy, Wealthy and Wise?" Revisited: An Analysis of the Causal Pathways from Socio-economic Status to Health

Much has been said about the stylized fact that the economically successful are not only wealthier but also healthier than the less affluent. There is little doubt about the existence of this socio-economic gradient in health, but there remains a vivid debate about its source. In this paper, we review the methodological challenges involved in testing the causal relationships between socio-economic status and health. We describe the approach of testing for the absence of causal channels developed by Adams et al. (2003) that seeks identification without the need to isolate exogenous variation in economic variables, and we repeat their analysis using the full range of data that have become available in the Health and Retirement Study since, both in terms of observations years and age ranges covered. This analysis shows that causal inference critically depends on which time periods are used for estimation. Using the information of longer panels has the greatest effect on results. We find that SES causality cannot be ruled out for a larger number of health conditions than in the original study. An approach based on a reduced-form interpretation of causality thus is not very informative, at least as long as the confounding influence of hidden common factors is not fully controlled.