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Working Papers

Better than perceived? Correcting misperceptions about central  bank inflation forecasts

How do households perceive the forecasting performance of the central bank? Using two novel experiments embedded in the Bundesbank's Survey on Consumer Expectations (total N=9500), this article shows that the majority of German households underestimate the ECB's inflation forecasting accuracy. In particular, they believe that the ECB is overly optimistic. Communication that challenges these perceptions improves the anchoring of inflation expectations, reduces inflation uncertainty and discourages consumption of durable goods. Treated households also report higher trust in the ECB, perceive the ECB's inflation target as more credible, the ECB's communication as more honest, and the ECB's policy as more beneficial to them. Finally, an analysis of causal mechanisms shows that changes in trust in the ECB are responsible for changes in inflation expectations.


Measuring strategic uncertainty attitudes

with Lisa Bruttel, Camille Cornand, Frank Heinemann, Adam Zylbersztejn.

Experimental Economics, 2023, 26, pp. 522-549.

Strategic uncertainty is the uncertainty that players face with respect to the purposeful behavior of other players in an interactive decision situation. Our paper develops a new method for measuring strategic-uncertainty attitudes and distinguishing them from risk and ambiguity attitudes. We vary the source of uncertainty (whether strategic or not) across conditions in a ceteris paribus manner. We elicit certainty equivalents of participating in two strategic 2x2 games (a stag-hunt and a market-entry game) as well as certainty equivalents of related lotteries that yield the same possible payoffs with exogenously given probabilities (risk) and lotteries with unknown probabilities (ambiguity). We provide a structural model of uncertainty attitudes that allows us to measure a preference for or an aversion against the source of uncertainty, as well as optimism or pessimism regarding the desired outcome. We document systematic attitudes towards strategic uncertainty that vary across contexts. Under strategic complementarity [substitutability], the majority of participants tend to be pessimistic [optimistic] regarding the desired outcome. However, preferences for the source of uncertainty are distributed around zero.

Competition and moral behavior: A meta-analysis of forty-five crowd-sourced experimental designs

with Huber C., Dreber, A., Huber, J., +91 others, and Holzmeister F.

PNAS, 2023, 120(23).

Does competition affect moral behavior? This fundamental question has been debated among leading scholars for centuries, and more recently, it has been tested in experimental studies yielding a body of rather inconclusive empirical evidence. A potential source of ambivalent empirical results on the same hypothesis is design heterogeneity—variation in true effect sizes across various reasonable experimental research protocols. To provide further evidence on whether competition affects moral behavior and to examine whether the generalizability of a single experimental study is jeopardized by design heterogeneity, we invited independent research teams to contribute experimental designs to a crowd-sourced project. In a large-scale online data collection, 18,123 experimental participants were randomly allocated to 45 randomly selected experimental designs out of 95 submitted designs. We find a small adverse effect of competition on moral behavior in a meta-analysis of the pooled data. The crowd-sourced design of our study allows for a clean identification and estimation of the variation in effect sizes above and beyond what could be expected due to sampling variance. We find substantial design heterogeneity—estimated to be about 1.6 times as large as the average standard error of effect size estimates of the 45 research designs—indicating that the informativeness and generalizability of results based on a single experimental design are limited. Drawing strong conclusions about the underlying hypotheses in the presence of substantive design heterogeneity requires moving toward much larger data collections on various experimental designs testing the same hypothesis.

Learning to deal with repeated shocks under strategic complementarity: An experiment

with Camille Cornand, Adam Zylbersztejn.

Journal of Economic Behavior & Organization, 2022, 200, pp. 1318-1343.

Experimental evidence shows that the rational expectations hypothesis fails to characterize the path to equilibrium after an exogenous shock when actions are strategic complements. Under identical shocks, however, repetition allows adaptive learning, so that inertia in adjustment should fade away with experience. If this finding proves to be robust, inertia in adjustment may be irrelevant among experienced agents. The conjecture in the literature is that inertia would still persist, perhaps indefinitely, in the presence of real-world complications such as nonidentical shocks. Herein, we empirically test the conjecture that the inertia in adjustment is more persistent if the shocks are nonidentical. For both identical and nonidentical shocks, we find persistent inertia and similar patterns of adjustment that can be explained by backward-looking expectation rules. Notably, refining these rules with similarity-based learning approach improves their predictive power.

Imperfect tacit collusion and asymmetric price transmission

with David Hales, Patrick Julius, Weiwei Tasch.

Journal of Economic Behavior & Organization, 2021, 192, pp. 584-599.

We investigate asymmetric price transmission (APT) in laboratory experiments and find that imperfect tacit collusion is likely the cause in our otherwise frictionless markets. We vary the number of sellers across markets to evaluate the role competition plays in APT. We report similar magnitudes of asymmetry in markets with 3, 4, 6, and 10 sellers, but not in duopolies. Furthermore, sellers consistently set their prices above the best-response levels implied by their forecasts, particularly in periods following negative shocks. We interpret these pricing deviations as sellers’ intentions to collude, and note that they mechanically drive the pricing asymmetries we observe.


Irrational Inattention

with Ciril Bosch-Rosa, Bernhard Kassner.

Data analysis stage.

Rational inattention and overconfidence influence the way information is processed, leading individuals to underreact to new information. Yet, even if their effects go in the same direction, they are fundamentally different. While rational inattention characterizes an optimal behavior, overprecision is a bias. In this paper, we develop a belief formation model where overprecise agents optimally decide how much attention to pay to information. This allows us to disentangle the effect of overprecision from rational inattention when the costs to process information change. The results show that overprecision distorts the optimization problem of rationally inattentive agents, making them more sensitive to changes in the marginal cost of information and less likely to update in response to new information. Such an effect adds a new layer of heterogeneity in the way that individuals react to changes in information processing costs. We support the predictions of our model using a randomized information provision experiment on a representative sample of the German population and show that overprecise.

WP upon request

What does it mean to trust a central bank?

Data analysis stage.

Trust in central banks is typically measured with Likert scale questions of the form "How much do you trust your central bank". What do these questions capture in household surveys? I address this question using a novel questionnaire embedded in the Bundesbank's Survey on Consumer Expectations. I investigate which perceived characteristic of the European Central Bank best explains the variation in overall trust among German households.

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