The science of apologies with experimental evidence
Ben Ho13 May 2014
Apologies are often hard – that’s the point. An apology is due when trust is broken, and to restore trust the apology must be hard. This column discusses a model of apologies as costly signals with some recent experimental evidence.
Following the recent wave of apologies by politicians,1 celebrities,2 and in particular by firms,3 there have been numerous commentaries about the nature of apology – in particular how it is pointless and overused. Recent research in the social science of apologies can help us understand their logic, and shed light on the purpose of the rituals of repairing social transgression.
Exploring the transmission channels of contagious bank runs
Martin Brown, Stefan Trautmann, Razvan Vlahu10 April 2014
Contagious bank runs are an important source of systemic risk. However, with observational data it is near-impossible to disentangle the contagion of bank runs from other potential causes of correlated deposit withdrawals across banks. This column discusses an experimental investigation of the mechanisms behind contagion. The authors find that panic-based deposit withdrawals can be strongly contagious across banks, but only if depositors know that the banks are economically related.
Financial contagion – the situation in which liquidity or insolvency risk is transmitted from one financial institution to another – is viewed by policymakers and academics as a key source of systemic risk in the banking sector. In particular, the events in the 2007–2009 Global Crisis have turned the attention of policymakers towards the potential contagion of liquidity withdrawals across banks and the resulting implications for financial stability.
Heterogeneous response across genders to tonal variation in messaging: Experimental evidence
Vincenzo Galasso, Tommaso Nannicini22 September 2013
The perceived tone of a product or political advertisement affects public response – even holding constant the content of the message. This column provides evidence that men and women react differently to positive and negative tones in electoral advertisements. Negative advertising increases voter turnout among men but not women; positive advertising tends to win women’s sympathy but alienates men. This should inform gender-specific tailoring of targeted advertisements.
Persuasion is an art which is critical to success in politics, business, and a personal career. ’Persuasive communication‘ – as defined by DellaVigna and Gentzkow (2010) – is used, for example, to convince:
Customers to purchase a new product.
A recruiting committee to award a promotion.
Citizens to vote for a candidate.
Most often this persuasion is exerted by individuals, firms or political parties who send competing messages to potential receivers.
"Happiness economics" in reverse: Does happiness affect productivity?
Daniel Sgroi26 July 2010
Happiness economics typically looks at how macro-level variables such as economic growth affect happiness. This column turns such thinking on its head and asks whether a rise in happiness might change behaviour at the micro-level, looking specifically at productivity. Experiments suggest that happiness raises productivity by increase workers' effort. Economists may need to take the emotional state of economic agents seriously.
One of the biggest growth areas in economics over the last few years has been “happiness economics”. A plethora of intriguing results, starting with Easterlin’s famous paradox breaking the link between well-being and income (Easterlin 1974) through to recent counterintuitive findings showing that “happier countries” produce more suicide cases (Oswald 1997), all show that we still do not have a clear mental grip on how mood links to economic variables such as income or economic growth.
Robert Sugden talks to Romesh Vaitilingam about the new book of which he is a co-author, ‘Experimental Economics: Rethinking the Rules’. They discuss the development of experimental research in economics over the past 30 years, the design of laboratory experiments and the achievements of these methods in increasing understanding of economic behaviour. The interview was recorded in London in March 2010.
Neuroeconomic theory: Using neuroscience to understand the bounds of rationality
Juan D. Carrillo , Isabelle Brocas18 March 2010
Why do people persistently make seemingly irrational decisions? This column introduces neuroeconomic theory, which uses neuroscience and neurobiology to try to shed light on the black box of human decision-making.
People often fail to make “rational” decisions. Economic agents are subject to multiple biases that affect the way they perceive events, act upon them, and learn from experience. Most of these anomalies are remarkably persistent and are widely documented in real world and laboratory environments by behavioural data.
To cite just a few, individuals have systematically biased beliefs about:
So you want to run an experiment, now what? Some simple rules of thumb for optimal experimental design
John List, Sally Sadoff, Mathis Wagner20 February 2010
Experimental economics represents a strong growth industry. In the past several decades the method has expanded beyond intellectual curiosity, meriting consideration alongside the other more traditional empirical approaches used in economics. Accompanying this growth is an influx of new experimenters who are in need of straightforward direction to make their designs more powerful. This column provides several simple rules of thumb that researchers can apply to improve the efficiency of their experimental designs.
Within economics, measurement approaches can be divided into two main categories: estimation of models that make use of naturally-occurring data and approaches wherein the analyst herself governs the data generation process. A handful of popular empirical approaches are typically used when the analyst is dealing with naturally-occurring data, but the literature is replete with criticisms of their identifying assumptions, many times based on restrictiveness or implausibility (see Blundell and Costas-Dias (2002) for a useful review).
29 June - 1 July 2009, St Catherine's College, Oxford University
This 3 day conference at St Catherine's College, Oxford University hosts speakers from Oxford, LSE, UCL, World Bank brings together many of the new and emerging themes in the economics of welfare. Theory tracks focus on social choice and welfare, and other related aspects of welfare economic theory and public economics. Empirical/applied tracks focus on policy areas including health, development, social policy, environment, education, poverty reduction, non-monetary measures of economic progress etc. Papers on applied econometrics or experimental work relevant to welfare economic theory and assumptions about human behaviour also welcome.
The event is being organised from a number of universities led by the Open University.
Experimental results on the inter-generational transmission of economic values
Marco Cipriani, Paola Giuliano, Olivier Jeanne01 August 2007
Through an experimental game in which participants had incentives to reveal their true preferences, we show that, surprisingly, there is no intergenerational transmission of public-mindedness between parents and their children.
The nature of human behaviour assumed in most economic models is based on the ‘Homo Economicus’ assumption – everyone is out for him or her self. This makes economic theory easy, or at least easier, since it minimises the joint-ness of decision making.
Experimental economics opens the door to better policy design. Laboratory experiments should be used to try out proposed policy changes on a small scale before causing upheaval in the large national economy - like wind tunnels are used in car and plane design.
The general public and many politicians tend to be sceptical that unregulated markets are good for people’s wellbeing. Economists have known forever that laissez-faire yields the first best only under fairly unrealistic assumptions. The theory of industrial organization describes when markets work, when they fail and how such failures can be remedied. Unfortunately, these theories are often difficult to relate to and to implement in practice. One reason is that theory is simple and abstract. Reality, however, rarely cooperates with the simplifying assumptions.