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Discussion Paper
Deciding to distrust
We employ experiments to illustrate one factor contributing to the lack of distrust in the recent corporate scandals: Trust rather than no trust was the default. People are more trusting when the default is full trust than when it is no trust. We introduce a new game, the distrust game (DTG), where the default is full trust and find that in it, trust levels are higher than in the Berg, Dickhaut, and McCabe (1995) trust game (TG), where the default is no trust. At the same time, trustworthiness levels are lower in the DTG than in the TG. Agents (second movers) punish distrust more in the DTG ...
Working Paper
Financial literacy and subprime mortgage delinquency: evidence from a survey matched to administrative data
The exact cause of the massive defaults and foreclosures in the U.S. subprime mortgage market is still unclear. This paper investigates whether a particular aspect of borrowers' financial literacy?their numerical ability?may have played a role. We measure several aspects of financial literacy and cognitive ability in a survey of subprime mortgage borrowers who took out mortgages in 2006 or 2007 and match these measures to objective data on mortgage characteristics and repayment performance. We find a large and statistically significant negative correlation between numerical ability and ...
Working Paper
Do subsidies increase charitable giving in the long run?: matching donations in a field experiment
Subsidizing charitable giving, for example, for victims of natural disasters, is very popular, not only with governments but also with private organizations. Many companies, for example, match their employees? charitable contributions, hoping that this will foster the willingness to contribute. However, systematic analyses of the effect of such a matching mechanism are still lacking. ; This paper tests the effect of matching charitable giving in a randomized field experiment in the short and the long run. The donations of a randomly selected group were matched by contributions from an ...
Working Paper
Impatience and credit behavior: evidence from a field experiment
This paper tests whether heterogeneity of time preferences can explain individual credit behavior. In a field experiment targeting individuals from low-to-moderate income households, we measure individual time preferences through choice experiments, and then match these time preference measures to individual credit reports and annual tax returns. ; We find that, controlling for disposable income and other individual characteristics, individuals who are less patient have lower credit scores and higher default rates. Moreover, people with dynamically inconsistent (quasi-hyperbolic) preferences ...
Discussion Paper
Overborrowing and undersaving: lessons and policy implications from research in behavioral economics
The U.S. household carries over $7,500 in uncollateralized debt and likely saves at a negative rate. There is a growing body of evidence that this borrowing and saving behavior may not, as assumed by standard economics, be the product of rational financial planning. This paper discusses insights from behavioral economics on how self-control problems could play a crucial role in determining such financial outcomes. It is important to note that self-control problems, as defined in this paper, are thought of as an issue affecting all people, not just those involved in our specific research. ; ...
Working Paper
Another hidden cost of incentives: the detrimental effect on norm enforcement
Monetary incentives are often considered as a way to foster contributions to public goods in society and firms. This paper investigates experimentally the effect of monetary incentives in the presence of a norm enforcement mechanism. Norm enforcement through peer punishment has been shown to be effective in raising contributions by itself. We test whether and how monetary incentives interact with punishment and how this in turn affects contributions. Our main findings are that free riders are punished less harshly in the treatment with incentives, and as a consequence, average contributions ...
Working Paper
Nudging credit scores in the field: the effect of text reminders on creditworthiness in the United States
Given the fundamental role that credit scores play in day-to-day life in the United States, it is very important to understand what can be done to help individuals improve their credit scores. This question is important in general, and especially important for the low-to-moderate-income (LMI) individuals who likely have a greater need for access to liquidity than higher-income individuals. In this paper the authors report results from a field experiment conducted between early 2013 and early 2014 in Boston, Massachusetts, with LMI taxpayers who were offered credit advising services. Taxpayers ...
Discussion Paper
Selection into financial literacy programs: evidence from a field study
As financial literacy has been shown to correlate with good financial decisions, policymakers promote educational programs to improve individuals? financial decisions. But who selects into educational programs and who acquires information about personal finance? This paper, in a field study with more than 870 individuals, offers individuals free information about their credit reports (and credit scores). About 55 percent choose to participate in this small counseling program. To test whether those who self-select to acquire information about personal finance differ from those who do not on ...
Working Paper
The impact of group membership on cooperation and norm enforcement: evidence using random assignment to real social groups
Due to incomplete contracts, efficiency of an organization depends on willingness of individuals to take non-selfish actions, such as cooperating when there is no incentive to do so or punishing inefficient actions by others. Organizations also constitute a social boundary, or group. We investigate whether this social aspect of organizations has an important benefit? fostering unselfish cooperation and norm enforcement within the group?but also whether there is a dark side, in the form of hostility between groups. Our experiment provides the first evidence free from the confounding effect of ...
Journal Article
When donors feel generous: economic research on prosocial behavior
New research shows that people donate time and money at the level of peers to groups with which they identify?and that they want to see the impact of their giving. Nonprofits seeking volunteers and funds will find the insights useful.