Working Papers
Identifying Confirmatory Bias in the Field: Evidence from a Poll of Experts
(with Rodney J. Andrews and Michael J. Sinkey)
NBER Working Paper No. 18064
Abstract: Laboratory experiments have established the existence of cognitive biases, but their explanatory power in real-world economic settings has been difficult to measure. We estimate the extent of a cognitive bias, confirmatory bias, among experts in a real-world environment. In the Associated Press Top 25 College Football Poll expert pollsters are tasked with assessing team quality, and their beliefs are treated week-to-week with game results that serve as signals about an individual team's quality. We exploit the variation provided by actual game results relative to market expectations to develop a novel regression-discontinuity approach to identify confirmatory bias in this real-world setting. We construct a unique personally-assembled dataset that matches more than twenty years of individual game characteristics to poll results and betting market information, and show that teams that slightly exceed and barely miss market expectations are exchangeable. The likelihood of winning the game, the average number of points scored by teams and their opponents, and even the average week of the season are no different between teams that slightly exceed and barely miss market expectations. Pollsters, however, significantly upgrade their beliefs about a team's quality when a team slightly exceeds market expectations. The effects are sizeable-- nearly half of the voters in the poll rank a team one slot higher when they slightly exceed market expectations; one-fifth of the standard deviation in poll points in a given week can be attributed to confirmatory bias. This type of updating suggests that even when informed agents make repeated decisions they may act in a manner which is consistent with confirmatory bias.
Moveable Feasts: A New Approach to Endogenizing Tastes
(with Paul Rhode)
Abstract: We provide a new empirical approach to endogenizing tastes in consumer demand. We argue that tastes can be understood as the result of utility maximizing behavior in the past, whose properties can be used to partially endogenize tastes. As the old maximization problem depends critically on relative prices, we use old relative prices to endogenize tastes, overcoming many of the empirical criticisms of the taste formation literature while at the same time being consistent with a broad class of existing theoretical approaches to taste and preference formation. To test the empirical implications of our approach, we estimate the demand for food using unique household consumption and price data from the nineteenth century. We use contemporaneous relative prices and old relative prices from the home countries of immigrants measured fifteen years prior to our consumption survey. We first establish that the old relative prices are uncorrelated with the contemporaneous relative prices. We then find that older relative prices have a large and significant effect on the demand for food. On average, a one standard deviation in the old relative price changes the current food budgetshare by .2 standard deviations. We also provide suggestive evidence of persistence—the effect of old relative prices on demand persists more than 40 years later. We conclude by noting how our empirical strategy can be used to parameterize changes in tastes in both microeconomic and macroeconomic contexts.
Does the Hot Hand Drive the Market? Evidence from Betting Markets
(with Michael J. Sinkey)
Abstract: This paper investigates how market makers respond to behavioral strategies and the implications of these responses for market efficiency. In particular, we ask whether market makers rationally price out certain strategies at the expense of leaving other strategies profitable, resulting in potential market inefficiency. We answer this question by testing for betting market efficiency in an amateur sport, American college football, using data from over 11,000 games from 1985 to 2003. We find that the market is inefficient; favorites are statistically overpriced while home teams are statistically underpriced. We show that the magnitude of this bias is large enough to generate both economic and statistical inefficiency in this betting market. Furthermore, we provide suggestive evidence for the cause of this inefficiency: betting houses deliberately inflate the betting lines in order to counteract bettors' ``hot hand'' beliefs. While eliminating the ``hot hand'' bias is efficient for a betting house, tempering the ``hot hand'' results in consistently profitable simple betting strategies.
On the Heterogeneity of Dowry Motives
(with Raj Arunachalam)
Revised Version of NBER Working Paper No. 12630
Abstract: Dowries have been modeled as pre-mortem bequests to daughters or as groom-prices paid to inlaws. These two classes of models yield mutually exclusive predictions, but empirical tests of these predictions have been mixed. We argue that the heterogeneity of findings can be explained by a heterogeneous world—some households use dowries as a bequest and others use dowries as a price. We estimate a model with heterogeneous dowry motives and use the predictions from the competing theories in an exogenous switching regression to place households in the price or bequest regime. Our empirical strategy generates multiple, independent checks on the validity of regime assignment. Using retrospective marriage data from rural Bangladesh, we find robust evidence of heterogeneity in dowry motives in the population; that bequest dowries have declined in prevalence and amount over time; and that bequest households are better off compared to price households on a variety of welfare measures.
Is there Dowry Inflation in South Asia?
(with Raj Arunachalam)
NBER Working Paper No. 13905
Abstract: This paper is the first systematic attempt to measure the existence and degree of dowry inflation in South Asia. The popular press and scholarly literature have assumed dowry inflation in South Asia for some time, and there are now a number of theoretical papers that have attempted to explain the rise of dowries in South Asia. Despite these advances, there has been no systematic study of dowry inflation. Using large-sample retrospective survey data from India, Bangladesh, Pakistan, and Nepal, we assess the empirical evidence for dowry infllation. We find no evidence that real dowry amounts have systematically increased over time in South Asia.
On Family Allocation Strategy in the Late Nineteenth Century
Abstract: I analyze the intrahousehold allocation of resources among nineteenth century industrial families. The narrative record and economic theory suggest that we should find allocation differences by gender. Using a large survey of industrial households in the late nineteenth century, I find no evidence of gender bias in household allocations to children, nor can I reject the hypothesis that allocations were efficient. These findings cannot be explained by parental egalitarianism. I find that parents were strategic out of necessity—the future cooperation of children was unknown and highly uncertain, tempering any desire for gender bias in household allocations. Narrative and quantitative evidence supports this conclusion.