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Wednesday, May 6, 2015

Caveat emptor

'Be Careless with That!' Availability of Product Upgrades Increases Cavalier Behavior Toward Possessions

Silvia Bellezza, Joshua Ackerman & Francesca Gino
Harvard Working Paper, April 2015

Abstract:
Consumers are often faced with the opportunity to purchase a new, enhanced product (e.g., a new phone), even though the device they currently own is still fully functional. We propose that consumers act more recklessly with their current products and are less concerned about losing or damaging them when in the presence of appealing product upgrades. Careless behaviors and cognitions toward currently owned products stem from a desire to justify the attainment of upgrades without appearing wasteful. A series of studies with actual owners of a wide array of durable goods and evidence from a real-word dataset of lost Apple iPhones demonstrate how the availability of product upgrades increases cavalier behavior toward possessions. These patterns are moderated by motivation to attain the upgrade, such that consumers who are particularly interested in upgrading will be more careless with owned products relative to individuals who are less interested in upgrading. Moreover, we demonstrate that product neglect in the presence of upgrades can occur without explicit, careless intentions. Finally, theoretical and managerial implications of these findings are discussed.

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The Effect of the Internet on Performance and Quality: Evidence from the Airline Industry

Itai Ater & Eugene Orlov
Review of Economics and Statistics, March 2015, Pages 180-194

Abstract:
We argue that the rise of online travel agencies changed the nature of competition in the airline industry - from competition on elapsed scheduled flight times to price competition. Using flight-level data between 1997 and 2007 and geographical Internet growth patterns, we find a positive relationship between Internet access and flight times. The magnitude of this relationship is larger in competitive markets without low-cost carriers and for flights with shortest scheduled times. We also find that flight delays increased as more passengers gained Internet access. These findings suggest that the Internet may adversely affect firms' performance and incentives to provide high-quality products.

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Should Firms Use Small Financial Benefits to Express Appreciation to Consumers? Understanding and Avoiding Trivialization Effects

Peggy Liu, Cait Lamberton & Kelly Haws
Journal of Marketing, May 2015, Pages 74-90

Abstract:
Firms commonly add small financial benefits to communications designed to acknowledge consumers' loyalty or support. But is it always better to provide some financial benefit as opposed to simply saying "thank you?" Although this question has important implications for customer relationship management, little research provides an answer. This paper demonstrates that, in fact, a financial acknowledgment (defined herein as an acknowledgment with a monetary benefit) can lead to less positive outcomes than offering a verbal acknowledgement (defined herein as an acknowledgment without a monetary benefit), a phenomenon termed the "trivialization effect." Results explain this effect in terms of shifting evaluation standards: whereas a verbal acknowledgement is evaluated relative to verbal gratitude expression norms, a financial acknowledgment is evaluated relative to both verbal norms and customers' monetary expectations. The authors also demonstrate two practical, theory consistent ways in which firms can structure financial acknowledgments to eliminate the trivialization effect. Thus, this research shows both the peril of small financial benefits as a means of expressing customer appreciation and practical, low-cost ways to salvage their potential.

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Music piracy: Bad for record sales but good for the iPod?

Tin Cheuk Leung
Information Economics and Policy, June 2015, Pages 1-12

Abstract:
Music piracy is a double-edged sword for the music industry. On the one hand, it hurts record sales. On the other hand, it increases sales of its complements. To quantify the effect of music piracy, I construct a unique survey data set and use a Bayesian method to estimate the demand for music and iPods, and find three things. First, music piracy decreases music sales by 24% to 42%. Second, music piracy contributes 12% to iPod sales. Finally, counterfactual experiments show that, if music were free, the increase in Apple's profits from iPod can more than compensate the loss of musicians. The last result implies that a Pareto improving iPod tax is possible.

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Consumers, Experts, and Online Product Evaluations: Evidence from the Brewing Industry

Grant Jacobsen
Journal of Public Economics, forthcoming

Abstract:
The growth of the Internet has led to a dramatic increase in the number of consumer or "user" product ratings, which are posted online by individuals who have consumed a good, and are available to other individuals as they make decisions about which products to purchase. These ratings have the potential to substantially improve the match between products and consumers, however the extent to which they do so likely depends on whether the ratings reflect actual consumer experiences. This paper evaluates one potential source of bias in consumer ratings: mimicry of the reviews of experts. Using a rich dataset on consumer product ratings from the brewing industry and a regression discontinuity empirical framework, I show that expert reviews influence consumer ratings. Consumer ratings fall in response to negative expert reviews and increase in response to positive expert reviews. The results are most pronounced for strongly negative or strongly positive expert reviews. This mimicry limits the extent to which information on product quality from actual consumer experiences diffuses to the population. I suggest that "nudges" could be implemented to limit the extent to which mimicry affects ratings.

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The Effect of Competition on eBay

Peter Newberry
International Journal of Industrial Organization, forthcoming

Abstract:
I examine the effect of competition on eBay Motors. I specify a simple model of auction choice and show that the expected transaction price falls with an increase in the number of competitors. I then test for this effect using data from 5,500 auctions for Chevrolet Corvettes. To address potential endogeneity of the level of competition, I introduce an instrument which takes advantage of the unique features of eBay. Results indicate that an additional competitor leads to a 6% reduction in the final transacted price ($960 for the average car). Further, I provide evidence that this effect is due to the thinning of the bidder market rather than dynamic bidding.

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The Effectiveness of Field Price Discretion: Empirical Evidence from Auto Lending

Robert Phillips, Serdar Şimşek & Garrett van Ryzin
Management Science, forthcoming

Abstract:
In many markets, it is common for headquarters to create a price list but grant local salespeople discretion to negotiate prices for individual transactions. How much (if any) pricing discretion headquarters should grant is a topic of debate within many firms. We investigate this issue using a unique data set from an indirect lender with local pricing discretion. We estimate that the local sales force adjusted prices in a way that improved profits by approximately 11% on average. A counterfactual analysis shows that using a centralized, data-driven pricing optimization system could improve profits even further, up to 20% over those actually realized. This suggests that centralized pricing - if appropriately optimized - can be more effective than field price discretion. We discuss the implications of these findings for auto lending and other industries with similar pricing processes.

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The Chief Marketing Officer Matters!

Frank Germann, Peter Ebbes & Rajdeep Grewal
Journal of Marketing, May 2015, Pages 1-22

Abstract:
Marketing academics and practitioners alike remain unconvinced about the Chief Marketing Officer's (CMO's) performance implications. While some propose that firms benefit financially from having a CMO in the C-Suite, others conclude that the CMO has little or no effect on firm performance. Accordingly, strong calls for additional academic research regarding the CMO's performance implications exist. In response to these calls, we employ model specifications with varying identifying assumptions (i.e., rich data models, unobserved effects models, instrumental variable models, and panel internal instruments models) and use data from up to 155 publically traded firms over a 12 year period (i.e., 2000 - 2011) to find that firms can indeed expect to benefit financially from having a CMO at the strategy table. Specifically, our findings suggest that the performance (measured in terms of Tobin's q) of the sample firms that employ a CMO is, on average, about 15% greater than that of the sample firms that do not employ a CMO. This result appears to be quite robust to the type of model specification used. Marketing academics and practitioners should find our results intriguing given the existing uncertainty surrounding the CMO's performance implications. We also contribute to the methodology literature by collating diverse empirical model specifications, which can be used to model causal effects with observational data, into a coherent and comprehensive framework.

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Pay-What-You-Want or Mark-Off-Your-Own-Price - A Framing Effect in Customer-Selected Pricing

Marina Schröder, Annemarie Lüer & Abdolkarim Sadrieh
Journal of Behavioral and Experimental Economics, forthcoming

Abstract:
We conduct a natural field experiment to test for the effect of framing on prices paid in two customer-selected price mechanisms. In two framing conditions, we sell a soft drink and provide customers with a reference price for this drink. In the pay-what-you-want (PWYW) condition, customers are told that they can pay much as they want. In the mark-off-your-own-price (MOYOP) condition, customers are told that they can reduce the price by as much as they want. We find that prices are significantly lower and that more customers choose a price of zero in the MOYOP compared to the PWYW condition. We conjecture that the explicit request to reduce the price in MOYOP is a strong signal for customers to adjust their perception of the appropriate price downwards.

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It's All Good: Corporate Social Responsibility Reduces Negative and Promotes Positive Responses to Service Failures Among Value-Aligned Customers

Jeff Joireman et al.
Journal of Public Policy & Marketing, Spring 2015, Pages 32-49

Abstract:
The present research investigates whether corporate social responsibility (CSR) reduces negative and promotes positive responses to service failures among value-aligned customers. Study 1 shows that customers are less likely to experience anger and spread negative word of mouth following a service failure when a firm engages in high (donating 15% of profits to environmental conservation) but not low (donating 2% of profits) levels of environmental CSR, but only if customers are high in environmental concern. In Study 2, the authors explore the benefits of CSR policies that target a broader range of beneficiaries versus policies that offer customers a choice over the firm's CSR allocations. Compared with a no-CSR policy, CSR with choice has a stronger effect on customers' emotions and intentions by enhancing perceived value alignment, reducing anger and regret over choosing the firm, and increasing guilt over harming the firm. These emotions subsequently reduce negative word of mouth and increase positive word of mouth and repurchase intentions. The results support the benefits of value-aligned and choice-based CSR policies in the wake of service failures.

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The Uncertainty-of-Outcome Hypothesis and the Industrial Organization of Sports Leagues: Evidence From U.S. College Football

Woodrow Eckard
Journal of Sports Economics, forthcoming

Abstract:
The uncertainty-of-outcome hypothesis (UOH) posits that sports fans value competitive contests, implying that competitive imbalance within a league will motivate stronger teams to leave. Testable hypotheses can be formulated utilizing the many college football conference realignments over the last century. The results support the UOH. For example, schools leaving an existing conference to form a new major conference, or join a preexisting one, were on average stronger than their former associates in the years before their departure. Also, the number of seed conference championships won by departing schools generally exceeded their "fair share" under an equal-likelihood assumption.

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A Dollar for Your Thoughts: Feedback-Conditional Rebates on eBay

Luís Cabral & Lingfang (Ivy) Li
Management Science, forthcoming

Abstract:
We run a series of controlled field experiments on eBay where buyers are rewarded for providing feedback. Our results provide little support for the hypothesis of buyers' rational economic behavior: the likelihood of feedback barely increases as we increase feedback rebate values; also, the speed of feedback, bid levels, and the number of bids are all insensitive to rebate values. By contrast, we find evidence consistent with reciprocal buyer behavior. Lower transaction quality leads to a higher probability of negative feedback as well as a speeding up of such negative feedback. However, when transaction quality is low (as measured by slow shipping), offering a rebate significantly decreases the likelihood of negative feedback. All in all, our results are consistent with the hypothesis that buyers reciprocate the sellers' "good deeds" (feedback rebate, high transaction quality) with more frequent and more favorable feedback. As a result, sellers can "buy" feedback, but such feedback is likely to be biased.

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Classical Deviation: Organizational and Individual Status as Antecedents of Conformity

Rodolphe Durand & Pierre-Antoine Kremp
Academy of Management Journal, forthcoming

Abstract:
Beside making organizations look like their peers through the adoption of similar attributes (which we call alignment), this paper highlights the fact that conformity also enables organizations to stand out by exhibiting highly salient attributes key to their field or industry (which we call conventionality). Building on the conformity and status literatures, and using the case of major U.S. symphony orchestras and the changes in their concert programing between 1879 and 1969, we hypothesize and find that middle-status organizations are more aligned, and middle-status individual leaders make more conventional choices than their low- and high-status peers. In addition, the extent to which middle-status leaders adopt conventional programming is moderated by the status of the organization and by its level of alignment. This paper offers a novel theory and operationalization of organizational conformity, and contributes to the literature on status effects, and more broadly to the understanding of the key issues of distinctiveness and conformity.

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The Hidden Cost of Accommodating Crowdfunder Privacy Preferences: A Randomized Field Experiment

Gordon Burtch, Anindya Ghose & Sunil Wattal
Management Science, May 2015, Pages 949-962

Abstract:
Online crowdfunding has received a great deal of attention as a promising avenue to fostering entrepreneurship and innovation. Because online settings bring increased visibility and traceability of transactions, many crowdfunding platforms provide mechanisms that enable a campaign contributor to conceal his or her identity or contribution amount from peers. We study the impact of these information (privacy) control mechanisms on crowdfunder behavior. Employing a randomized experiment at one of the world's largest online crowdfunding platforms, we find evidence of both positive (e.g., comfort) and negative (e.g., privacy priming) causal effects. We find that reducing access to information controls induces a net increase in fund-raising, yet this outcome results from two competing influences - treatment increases willingness to engage with the platform (a 4.9% increase in the probability of contribution) and simultaneously decreases the average contribution (a $5.81 decline). This decline derives from a publicity effect, wherein contributors respond to a lack of privacy by tempering extreme contributions. We unravel the causal mechanisms that drive the results and discuss the implications of our findings for the design of online platforms.

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Consumer Heterogeneity and Paid Search Effectiveness: A Large-Scale Field Experiment

Thomas Blake, Chris Nosko & Steven Tadelis
Econometrica, January 2015, Pages 155-174

Abstract:
Internet advertising has been the fastest growing advertising channel in recent years, with paid search ads comprising the bulk of this revenue. We present results from a series of large-scale field experiments done at eBay that were designed to measure the causal effectiveness of paid search ads. Because search clicks and purchase intent are correlated, we show that returns from paid search are a fraction of non-experimental estimates. As an extreme case, we show that brand keyword ads have no measurable short-term benefits. For non-brand keywords, we find that new and infrequent users are positively influenced by ads but that more frequent users whose purchasing behavior is not influenced by ads account for most of the advertising expenses, resulting in average returns that are negative.

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The Role of Social Media in the Capital Market: Evidence from Consumer Product Recalls

Lian Fen Lee, Amy Hutton & Susan Shu
Journal of Accounting Research, May 2015, Pages 367-404

Abstract:
We examine how corporate social media affects the capital market consequences of firms' disclosure in the context of consumer product recalls. Product recalls constitute a "product crisis" exposing the firm to reputational damage, loss of future sales and legal liability. During such a crisis it is crucial for the firm to quickly and directly communicate its intended message to a wide network of stakeholders, which in turn, renders corporate social media a potentially useful channel of disclosure. While we document that corporate social media, on average, attenuates the negative price reaction to recall announcements, the attenuation benefits of corporate social media vary with the level of control the firm has over its social media content. In particular, with the arrival of Facebook and Twitter, firms relinquished complete control over their social media content, and the attenuation benefits of corporate social media, while still significant, lessened. Detailed Twitter analysis confirms that the moderating effect of social media varies with the level of firm involvement and with the amount of control exerted by other users: the negative price reaction to recall is attenuated by the frequency of tweets by the firm, while exacerbated by the frequency of tweets by other users.

By KEVIN LEWIS | 09:00:00 AM

Tuesday, May 5, 2015

Refined taste

Nutritional advice from George Orwell. Exploring the social mechanisms behind the overconsumption of unhealthy foods by people with low socio-economic status

Morten Larsen
Appetite, August 2015, Pages 150–156

Abstract:
Despite a general consensus and recognition of the importance of the “social gradient” on nutritional standards and ultimately people's health, the body of literature identifying and describing the actual underlying social mechanisms which could explain this association is small, fragmented and not contained within one single discipline of thought – the effects of this conundrum seem easier to describe than to explain. The aim of this article is therefore to explore and identify social mechanisms, which could help explain why people with low socio-economic status consume a disproportionate amount of unhealthy foods and therefore also observe poorer diets. It is therefore in many ways an exploration into the nature of (relative) poverty. The point of departure for this exploration and identification is historical descriptions (in the form of excerpts) from George Orwell's (1937) book “The Road to Wigan Pier” on the living conditions of the British working classes. These descriptions will be aligned with results from contemporary research into nutritional behaviour. Strong similarities are identified between George Orwell's historical descriptions of the working-class's unhealthy diet and the findings from contemporary research into nutritional behaviour of people with a low socio-economic status. The article, on this basis, argues that certain social mechanisms influencing nutritional choices are readily identifiable across disciplines, and even partly reproduced in different historical, social and spatial contexts, with stronger negative (ill health) consequences for people with low socio-economic status especially. Finally the article discusses how social mechanisms affecting our nutritional choices could challenge the underlying rationalities and assumptions of the rational yet “knowledge deficient” individual consumer implicitly present in much nutritional advice – both past and present. The disregard of social mechanisms, and therefore implicitly issues of class, could indicate a general “de-socialization” of nutritional advice also in its dispersal through various health-promotion initiatives and campaigns, which raises serious questions about the usefulness of much nutritional advice, already tentatively questioned by some nutritionists (Burr et al., 2007) as well as “food” sociologists (Smith & Holm, 2010).

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What Drives Nutritional Disparities? Retail Access and Food Purchases Across the Socioeconomic Spectrum

Jessie Handbury, Ilya Rahkovsky & Molly Schnell
NBER Working Paper, April 2015

Abstract:
The poor diets of many consumers are often attributed to limited access to healthy foods. In this paper, we use detailed data describing the healthfulness of household food purchases and the retail landscapes in which these consumers are making these decisions to study the role of access in explaining why some people in the United States eat more nutritious foods than others. We first confirm that households with lower income and education purchase less healthful foods. We then measure the spatial variation in the average nutritional quality of available food products across local markets, revealing that healthy foods are less likely to be available in low-income neighborhoods. Though significant, spatial differences in access are small and explain only a fraction of the variation that we observe in the nutritional content of household purchases. Systematic socioeconomic disparities in household purchases persist after controlling for access: even in the same store, more educated households purchase more healthful foods. Consistent with this result, we further find that the nutritional quality of purchases made by households with low levels of income and education respond very little when new stores enter or when existing stores change their product offerings. Together, our results indicate that policies aimed at improving access to healthy foods in underserved areas will leave most of the socioeconomic disparities in nutritional consumption intact.

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The affective and interpersonal consequences of obesity

Emma Levine & Maurice Schweitzer
Organizational Behavior and Human Decision Processes, March 2015, Pages 66–84

Abstract:
The incidence of obesity in the United States has tripled over the past fifty years, posing significant challenges for organizations. We build on stereotype content research and offer an overarching framework to understand individuals’ affective, cognitive, and behavioral responses to obesity. Across five studies, we demonstrate that individuals associate obesity with perceptions of low competence. Perceptions of low competence predict affective (disgust, sympathy) and behavioral (low help, high harm) responses to obesity. Consistent with the BIAS Map (Cuddy, Fiske, & Glick, 2007), these discriminatory responses are moderated by perceptions of warmth. We demonstrate that, in some cases, shifting perceptions of warmth is just as effective as losing weight for curtailing discrimination towards the obese. Our findings demonstrate that social categorization is labile and we offer prescriptive advice for individuals seeking to change the way others perceive them.

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So Many Brands and Varieties to Choose from: Does This Compromise the Control of Food Intake in Humans?

Charlotte Hardman et al.
PLoS ONE, April 2015

Abstract:
The recent rise in obesity is widely attributed to changes in the dietary environment (e.g., increased availability of energy-dense foods and larger portion sizes). However, a critical feature of our “obesogenic environment” may have been overlooked - the dramatic increase in “dietary variability” (the tendency for specific mass-produced foods to be available in numerous varieties that differ in energy content). In this study we tested the hypothesis that dietary variability compromises the control of food intake in humans. Specifically, we examined the effects of dietary variability in pepperoni pizza on two key outcome variables; i) compensation for calories in pepperoni pizza and ii) expectations about the satiating properties of pepperoni pizza (expected satiation). We reasoned that dietary variability might generate uncertainty about the postingestive effects of a food. An internet-based questionnaire was completed by 199 adults. This revealed substantial variation in exposure to different varieties of pepperoni pizza. In a follow-up study (n= 66; 65% female), high pizza variability was associated with i) poorer compensation for calories in pepperoni pizza and ii) lower expected satiation for pepperoni pizza. Furthermore, the effect of uncertainty on caloric compensation was moderated by individual differences in decision making (loss aversion). For the first time, these findings highlight a process by which dietary variability may compromise food-intake control in humans. This is important because it exposes a new feature of Western diets (processed foods in particular) that might contribute to overeating and obesity.

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Greater perceived ability to form vivid mental images in individuals with high compared to low BMI

Barkha Patel et al.
Appetite, August 2015, Pages 185–189

Abstract:
Obese individuals report more frequent food cravings than their lean counterparts. Since mental imagery plays a role in eliciting and maintaining craving we hypothesized that one's ability to image may be associated with body mass index (BMI) and account, at least in part, for the association between BMI and craving. Twenty-five participants (BMI range: 17.7 kg/m2 – 34.2 kg/m2) completed three measures of perceived mental imagery ability (The Vividness of Visual Imagery Questionnaire, The Vividness of Olfactory Imagery Questionnaire, The Vividness of Food Imagery Questionnaire), and one measure of craving (Food-Craving Inventory). As predicted, correlation analyses revealed positive associations between BMI and perceived ability to image odors and foods, but not visual objects. Olfactory imagery was singled out as the best predictor of BMI in a hierarchical regression analysis. A second experiment with 57 participants (BMI range: 19.1 kg/m2 – 38.7 kg/m2) then confirmed the significant positive association between BMI and perceived ability to image odors. These results raise the possibility that imagery ability may play a role in the heightened food cue reactivity observed in obese individuals.

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Eaten up by boredom: Consuming food to escape awareness of the bored self

Andrew Moynihan et al.
Frontiers in Psychology, April 2015

Abstract:
Research indicates that being bored affectively marks an appraised lack of meaning in the present situation and in life. We propose that state boredom increases eating in an attempt to distract from this experience, especially among people high in objective self-awareness. Three studies were conducted to investigate boredom’s effects on eating, both naturally occurring in a diary study and manipulated in two experiments. In Study 1, a week-long diary study showed that state boredom positively predicted calorie, fat, carbohydrate, and protein consumption. In Study 2, a high (vs. low) boredom task increased the desire to snack as opposed to eating something healthy, especially amongst those participants high in objective self-awareness. In addition, Study 3 demonstrated that among people high in objective self-awareness, high (vs. low) boredom increased the consumption of less healthy foods and the consumption of more exciting, healthy foods. However, this did not extend to unexciting, healthy food. Collectively, these novel findings signify the role of boredom in predicting maladaptive and adaptive eating behaviors as a function of the need to distant from the experience of boredom. Further, our results suggest that more exciting, healthy food serves as alternative to maladaptive consumption following boredom.

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Threatened belonging and preference for comfort food among the securely attached

Jordan Troisi et al.
Appetite, July 2015, Pages 58–64

Abstract:
Research has shown that comfort food triggers relationship-related cognitions and can fulfill belongingness needs for those secure in attachment (i.e., for those with positive relationship cognitions) (Troisi & Gabriel, 2011). Building on these ideas, we examined if securely attached individuals prefer comfort food because of its “social utility” (i.e., its capacity to fulfill belongingness needs) in one experiment and one daily diary study using two samples of university students from the United States. Study 1 utilized a belongingness threat essay among half of the participants, and the results showed that securely attached participants preferred the taste of a comfort food (i.e., potato chips) more after the belongingness threat. Study 2 utilized a 14-day daily diary design and found that securely attached individuals consumed more comfort food in response to naturally occurring feelings of isolation. Implications for the social nature of food preferences are discussed.

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Associations of Family and Neighborhood Socioeconomic Characteristics with Longitudinal Adiposity Patterns in a Biracial Cohort of Adolescent Girls

Catherine Crespi et al.
Biodemography and Social Biology, Spring 2015, Pages 81-97

Abstract:
Although many studies have examined the relationship of adiposity with neighborhood socioeconomic context in adults, few studies have investigated this relationship during adolescence. Using 10-year annual measurements of body mass index, expressed as z-scores (BMIz), obtained from 775 black and white participants of the National Heart, Lung, and Blood Institute Growth and Health Study, a prospective cohort study of girls from pre- to postadolescence, we used multilevel modeling to investigate whether family socioeconomic status (SES) and neighborhood socioeconomic characteristics (measured by census-tract median family income) explain variation in BMIz trajectory parameters. Analyses controlled for pubertal maturation. We found that lower SES was associated with higher overall levels of BMIz for both white and black girls. Additionally, lower-SES black girls had a more sustained increase in BMIz during early adolescence and reached a higher peak compared to higher-SES black girls and to white girls. Neighborhood income was associated with BMIz trajectory for black girls only. Unexpectedly, among black girls, living in higher-income neighborhoods was associated with higher overall levels of BMIz, controlling for SES. Our findings suggest that neighborhood socioeconomic characteristics may affect adolescent BMIz trajectories differently in different racial/ethnic groups.

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Impact of Baltimore Healthy Eating Zones: An Environmental Intervention to Improve Diet Among African American Youth

Ahyoung Shin et al.
Health Education & Behavior, April 2015, Pages 97S-105S

Abstract:
This study assessed the impact of a youth-targeted multilevel nutrition intervention in Baltimore City. The study used a clustered randomized design in which 7 recreation centers and 21 corner stores received interventions and 7 additional recreation centers served as comparison. The 8-month intervention aimed to increase availability and selection of healthful foods through nutrition promotion and education using point-of purchase materials such as posters and flyers in stores and interactive sessions such as taste test and cooking demonstrations. Two hundred forty-two youth–caregiver dyads residing in low-income areas of Baltimore City recruited from recreation centers were surveyed at baseline using detailed instruments that contained questions about food-related psychosocial indicators (behavioral intentions, self-efficacy, outcome expectancies, and knowledge), healthful food purchasing and preparation methods, and anthropometric measures (height and weight). The Baltimore Healthy Eating Zones intervention was associated with reductions in youth body mass index percentile (p = .04). In subgroup analyses among overweight and obese girls, body mass index for age percentile decreased significantly in girls assigned to the intervention group (p = .03) and in girls with high exposure to the intervention (p = .013), as opposed to those in comparison or lower exposure groups. Intervention youth significantly improved food-related outcome expectancies (p = .02) and knowledge (p < .001). The study results suggest that the Baltimore Healthy Eating Zones multilevel intervention had a modest impact in reducing overweight or obesity among already overweight low-income African American youth living in an environment where healthful foods are less available. Additional studies are needed to determine the relative impact of health communications and environmental interventions in this population, both alone and in combination.

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Maternal adiposity negatively influences infant brain white matter development

Xiawei Ou et al.
Obesity, May 2015, Pages 1047–1054

Objective: To study potential effects of maternal body composition on central nervous system (CNS) development of newborn infants.

Methods: Diffusion tensor imaging (DTI) was used to evaluate brain white matter development in 2-week-old, full-term, appropriate for gestational age (AGA) infants from uncomplicated pregnancies of normal-weight (BMI < 25 at conception) or obese ( BMI = 30 at conception) and otherwise healthy mothers. Tract-based spatial statistics (TBSS) analyses were used for voxel-wise group comparison of fractional anisotropy (FA), a sensitive measure of white matter integrity. DNA methylation analyses of umbilical cord tissue focused on genes known to be important in CNS development were also performed.

Results: Newborns from obese women had significantly lower FA values in multiple white matter regions than those born of normal-weight mothers. Global and regional FA values negatively correlated (P < 0.05) with maternal fat mass percentage. Linear regression analysis followed by gene ontology enrichment showed that methylation status of 68 CpG sites representing 57 genes with GO terms related to CNS development was significantly associated with maternal adiposity status.

Conclusions: These results suggest a negative association between maternal adiposity and white matter development in offspring.

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The relationship between acculturation and infant feeding styles in a Latino population

Liz Dancel et al.
Obesity, April 2015, Pages 840–846

Objective: To assess the relationship between parental acculturation and infant feeding style in a sample of Latino parents.

Methods: A post hoc analysis was performed using data from an ongoing four-site randomized controlled trial to promote early childhood obesity prevention. Cross-sectional data of parent–child dyads at the 12-month well-child visit who self-reported their Latino ethnicity were analyzed. The Short Acculturation Scale for Hispanics (SASH) and a subset of the Infant Feeding Style Questionnaire (IFSQ) that assessed four primary feeding styles were administered. SASH level (low vs. high) with each feeding style was compared by analyses.

Results: Complete SASH data were available for 398 of 431 Latino dyads. Median SASH score was 1.8 (IQR 1.4-2.7); 82% of participants had low acculturation (score < 3). Of the nine outcome variables, four were significantly associated with SASH: “Laissez-Faire/attention” (AOR: 2.3; 95% CI: 1.06-5.13; P = 0.004), “Laissez-Faire/diet quality” (AOR: 3.9; 95% CI: 1.7-8.75; P = 0.005), “Pressuring as soothing” (AOR: 3.6; 95% CI:1.63-8.05; P = 0.007), and “Restrictive/diet quality” (AOR: 0.4; 95% CI: 0.19-0.94; P = 0.031).

Conclusions: Latino parents with lower acculturation were more likely than those with higher acculturation to endorse feeding styles that are associated with child obesity. Further research is needed to determine why acculturation and feeding style relate.

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Oxytocin reduces caloric intake in men

Elizabeth Lawson et al.
Obesity, May 2015, Pages 950–956

Objective: Preclinical studies indicate that oxytocin is anorexigenic and has beneficial metabolic effects. Oxytocin effects on nutrition and metabolism in humans are not well defined. It was hypothesized that oxytocin would reduce caloric intake and appetite, and alter levels of appetite-regulating hormones. Metabolic effects of oxytocin were also explored.

Methods: A randomized, placebo-controlled crossover study of single-dose intranasal oxytocin (24 IU) in 25 fasting healthy men was performed. After oxytocin/placebo, subjects selected breakfast from a menu, and were given double portions. Caloric content of food consumed was measured. Visual analog scales were used to assess appetite and blood was drawn for appetite-regulating hormones, insulin, and glucose before and after oxytocin/placebo. Indirect calorimetry assessed resting energy expenditure (REE) and substrate utilization.

Results: Oxytocin reduced caloric intake with a preferential effect on fat intake and increased levels of the anorexigenic hormone cholecystokinin without affecting appetite or other appetite-regulating hormones. There was no effect of oxytocin on REE. Oxytocin resulted in a shift from carbohydrate to fat utilization and improved insulin sensitivity.

Conclusions: Intranasal oxytocin reduces caloric intake and has beneficial metabolic effects in men without concerning side effects. The efficacy and safety of sustained oxytocin administration in the treatment of obesity warrants investigation.

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Efficacy of SmartLoss, a smartphone-based weight loss intervention: Results from a randomized controlled trial

Corby Martin et al.
Obesity, May 2015, Pages 935–942

Objective: Test the efficacy of SmartLoss, a smartphone-based weight loss intervention, in a pilot study.

Design and Methods: A 12-week randomized controlled trial. Adults (25 ≤ BMI ≤ 35 kg/m2) were randomized to SmartLoss (n = 20) or an attention-matched Health Education control group (n = 20). SmartLoss participants were prescribed a 1,200 to 1,400 kcal/d diet and were provided with a smartphone, body weight scale, and accelerometer that wirelessly transmitted body weight and step data to a website. In the SmartLoss Group, mathematical models were used to quantify dietary adherence based on body weight and counselors remotely delivered treatment recommendations based on these objective data. The Health Education group received health tips via smartphone. A mixed model determined if change in weight and other endpoints differed between the groups (baseline was a covariate).

Results: The sample was 82.5% female. Mean ± SD baseline age, weight (kg), and BMI were 44.4 ± 11.8 years, 80.3 ± 11.5 kg, and 29.8 ± 2.9 kg/m2, respectively. One participant was lost to follow-up in each group before week 4. Weight loss was significantly (P < 0.001) larger in the SmartLoss (least squares mean ± SEM: −9.4 ± 0.5%) compared with the Health Education group (−0.6 ± 0.5%).

Conclusions: SmartLoss efficaciously promote clinically meaningful weight loss compared with an attention-matched control group. Smartphone-based interventions might prove useful in intervention dissemination.

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Paying people to eat or not to eat? Carryover effects of monetary incentives on eating behavior

Paul Dolan, Matteo Galizzi & Daniel Navarro-Martinez
Social Science & Medicine, May 2015, Pages 153–158

Abstract:
There is no evidence comparing head-to-head the effects of monetary incentives to act and to abstain from acting on behaviour. We present an experiment, conducted between June and September 2012, that directly compares the effects of those two different monetary incentive schemes on eating behaviour: we evaluate incentives to eat against incentives not to eat. A large number of participants (n = 353) had bowls of sweets next to them while they watched different videos over two experimental sessions that were two days apart. Sweets eating was monitored and monetary incentives to eat or not to eat were introduced during one of the videos for participants randomly allocated to these conditions. Our results show that, while both types of incentives were effective in changing sweets-eating behaviour when they were in place, only incentives not to eat had significant carryover effects after they were removed. Those effects were still significant two days after the monetary incentives had been eliminated. We also present some additional results on personality and health-related variables that shed further light on these effects. Overall, our study shows that incentives not to eat can be more effective in producing carryover effects on behaviour in domains like the one explored here.

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Less Sitting and More Moving in the Office: Using Descriptive Norm Messages to Decrease Sedentary Behavior and Increase Light Physical Activity at Work

Carly Priebe & Kevin Spink
Psychology of Sport and Exercise, July 2015, Pages 76–84

Method: Office workers were randomly assigned to receive one of four email messages containing descriptive norms about co-workers’ behavior. Sedentary behavior and activity were measured before and after message receipt.

Results: A repeated measures MANOVA revealed a main effect for time, p < .001, ηp2 = .316. Those who received descriptive norm messages about co-workers’ lower sedentary behavior and greater stair use and walking decreased their own sitting time while increasing stair use and walking at the office, respectively, p’s < .05. No differences emerged between participants receiving information about groups that varied in reference group characteristics, p’s > .10.

Conclusion: Results provide experimental evidence that descriptive norm messages may serve to decrease sedentary and increase light activity in an office setting.

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Excessive Sugar Consumption May Be a Difficult Habit to Break: A View From the Brain and Body

Matthew Tryon et al.
Journal of Clinical Endocrinology & Metabolism, forthcoming

Context: Sugar overconsumption and chronic stress are growing health concerns because they both may increase the risk for obesity and its related diseases. Rodent studies suggest that sugar consumption may activate a glucocorticoid-metabolic-brain-negative feedback pathway, which may turn off the stress response and thereby reinforce habitual sugar overconsumption.

Intervention: The intervention consisted of sucrose- or aspartame-sweetened beverage consumption three times per day for 2 weeks.

Results: Compared with aspartame, sucrose consumption was associated with significantly higher activity in the left hippocampus (P = .001). Sucrose, but not aspartame, consumption associated with reduced (P = .024) stress-induced cortisol. The sucrose group also had a lower reactivity to naltrexone, significantly (P = .041) lower nausea, and a trend (P = .080) toward lower cortisol.

Conclusion: These experimental findings support a metabolic-brain-negative feedback pathway that is affected by sugar and may make some people under stress more hooked on sugar and possibly more vulnerable to obesity and its related conditions.

By KEVIN LEWIS | 09:00:00 AM

Monday, May 4, 2015

You know something

The Impact of Voluntary Youth Service on Future Outcomes: Evidence from Teach For America

Will Dobbie & Roland Fryer
B.E. Journal of Economic Analysis & Policy, forthcoming

Abstract:
This paper provides causal estimates of the impact of service programs on those who serve, using data from a web-based survey of former Teach For America (TFA) applicants. We estimate the effect of voluntary youth service using a discontinuity in the TFA application process. Participating in TFA increases racial tolerance, makes individuals more optimistic about the life prospects of poor children, and makes them more likely to work in education.

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Mind-Set Interventions Are a Scalable Treatment for Academic Underachievement

David Paunesku et al.
Psychological Science, forthcoming

Abstract:
The efficacy of academic-mind-set interventions has been demonstrated by small-scale, proof-of-concept interventions, generally delivered in person in one school at a time. Whether this approach could be a practical way to raise school achievement on a large scale remains unknown. We therefore delivered brief growth-mind-set and sense-of-purpose interventions through online modules to 1,594 students in 13 geographically diverse high schools. Both interventions were intended to help students persist when they experienced academic difficulty; thus, both were predicted to be most beneficial for poorly performing students. This was the case. Among students at risk of dropping out of high school (one third of the sample), each intervention raised students’ semester grade point averages in core academic courses and increased the rate at which students performed satisfactorily in core courses by 6.4 percentage points. We discuss implications for the pipeline from theory to practice and for education reform.

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Social Interactions and College Enrollment: A Combined School Fixed Effects/Instrumental Variables Approach

Jason Fletcher
Social Science Research, July 2015, Pages 494–507

Abstract:
This paper provides some of the first evidence of peer effects in college enrollment decisions. There are several empirical challenges in assessing the influences of peers in this context, including the endogeneity of high school, shared group-level unobservables, and identifying policy-relevant parameters of social interactions models. This paper addresses these issues by using an instrumental variables/fixed effects approach that compares students in the same school but different grade-levels who are thus exposed to different sets of classmates. In particular, plausibly exogenous variation in peers’ parents’ college expectations are used as an instrument for peers’ college choices. Preferred specifications indicate that increasing a student’s exposure to college-going peers by ten percentage points is predicted to raise the student’s probability of enrolling in college by 4 percentage points. This effect is roughly half the magnitude of growing up in a household with married parents (vs. an unmarried household).

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The Impact of Guaranteed Tuition Policies on Postsecondary Tuition Levels: A Difference-in-Difference Approach

Jennifer Delaney & Tyler Kearney
Economics of Education Review, forthcoming

Abstract:
This study considers the impact of state-level guaranteed tuition programs on postsecondary tuition levels. The analytic framework argues that state-level laws requiring flat tuition rates for four years contain inflationary risk, which encourages institutions to set tuition higher than they otherwise would with annual adjustments. To empirically test this idea, this study uses a national panel dataset and a quasi-experimental difference-in-difference methodological approach, with Illinois’ Truth-in-Tuition law serving as the treatment condition. On average, institutions subject to this law increased annual tuition by approximately 26-30% and aggregate four-year tuition by approximately 6-7% in excess of the amount predicted by the trend for institutions not subject to the law. These findings are robust to multiple alternative specifications and support the idea that state-level guaranteed tuition programs encourage large institutional tuition increases. Implications of these findings for state policymakers, higher education institutional leaders, and college-age students and their families are also discussed.

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College Expansion and Curriculum Choice

Michael Kaganovich & Xuejuan Su
Indiana University Working Paper, April 2015

Abstract:
This paper analyzes the impact of college enrollment expansion on student academic achievements and labor market outcomes in the context of competition among colleges. When public policies promote “access” to college education, colleges adjust their curricula: Less selective public colleges adopt a less demanding curriculum in order to accommodate the influx of less able students. As we argue in the paper, this adjustment benefits low-ability college students at the expense of those of medium ability. At the same time, this reduces the competitive pressure faced by elite colleges, as less selective colleges become a less appealing alternative for the medium ability students. The selective, elite colleges therefore adopt a more demanding curriculum to better serve their most able students, again at the expense of medium ability students. The model offers an explanation to two sets of empirical phenomena: (i) the observed U-shaped earnings growth profile among college-educated workers in the U.S. and (ii) the diverging selectivity trends of American colleges.

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Does Small High School Reform Lift Urban Districts? Evidence From New York City

Leanna Stiefel, Amy Ellen Schwartz & Matthew Wiswall
Educational Researcher, April 2015, Pages 161-172

Abstract:
Research finds that small high schools deliver better outcomes than large high schools for urban students. An important outstanding question is whether this better performance is gained at the expense of losses elsewhere: Does small school reform lift the whole district? We explore New York City’s small high school reform in which hundreds of new small high schools were built in less than a decade. We use rich individual student data on four cohorts of New York City high school students and estimate effects of schools on student outcomes. Our results suggest that the introduction of small schools improved outcomes for students in all types of schools: large, small, continuously operating, and new. Small school reform lifted all boats.

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Teachers’ Unions, Compensation, and Tenure

Kristine West
Industrial Relations, April 2015, Pages 294–320

Abstract:
In this paper I show that school districts in which teachers negotiate via collective bargaining have greater returns to experience and grant tenure earlier than districts without collective bargaining. Districts that are unionized, either with or without legal collective bargaining protections, have higher returns to degrees and higher starting salaries than districts without a union. Unionization is not strongly correlated with the existence of output-based pay for performance but is correlated with the use of output-based measures in tenure decisions. Unionization is positively correlated with the number of junior teachers dismissed for poor performance but not strongly correlated with the number of senior teachers dismissed for poor performance.

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Do Student Loan Borrowers Opportunistically Default? Evidence from Bankruptcy Reform

Rajeev Darolia & Dubravka Ritter
Federal Reserve Working Paper, April 2015

Abstract:
Bankruptcy reform in 2005 eliminated debtors’ ability to discharge private student loan debt in bankruptcy. This law aimed to reduce costly defaults by diminishing the perceived incentive of some private student loan borrowers to declare bankruptcy even if they had sufficient income to service their debt. Using a unique, nationally representative sample of anonymized credit bureau files, we examine the bankruptcy filing and delinquency rates of private student loan borrowers in response to the 2005 bankruptcy reform. We do not find evidence that the nondischargeability provision reduced the likelihood of filing bankruptcy among private student loan borrowers as compared with other debtors whose incentives were not directly affected by the policy.

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The Cost of Financing Education: Can Student Debt Hinder Entrepreneurship?

Karthik Krishnan & Pinshuo Wang
Northeastern University Working Paper, March 2015

Abstract:
Student loans can impose a significant cost of undertaking risky endeavors such as starting up businesses. Using data from the Survey of Consumer Finances (SCF), we find evidence supportive of the recent policy decisions to reduce the burden of student debt to promote entrepreneurship. First, we find that a greater amount of student debt is negatively related to the propensity to start a firm. Second, conditional on starting up a firm, individuals having more student debt have less profitable firms. Further, these effects are stronger among younger cohorts and for individuals in high-technology industries. Using the Higher Education Amendments of 1992, which made federal Stafford loans more widely available, as an exogenous shock to student debt, we find that student debt negatively impact entrepreneurship and entrepreneurial success. The negative relation between student debt and entrepreneurship is stronger when the individual has a dependent spouse. Further, we find that student debt reduces the tendency of high-reward and high risk-preferring individuals to take on entrepreneurial ventures. Our evidence indicates that student debt may inhibit entrepreneurship by reducing the expected payoff of these ventures to individuals by exacerbating the effect of negative outcomes on the individual. Given the high value of student loans outstanding (more than $1 trillion) and its potentially significant impact on entrepreneurship, we believe that our results shine some light on an important phenomenon.

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An axiomatization of multiple-choice test scoring

Andriy Zapechelnyuk
Economics Letters, forthcoming

Abstract:
This note axiomatically justifies a simple scoring rule for multiple-choice tests. The rule permits choosing any number, k, of available options and grants 1/k-th of the maximum score if one of the chosen options is correct, and zero otherwise. This rule satisfies a few desirable properties: simplicity of implementation, non-negative scores, discouragement of random guessing, and rewards for partial answers. This is a novel rule that has not been discussed or empirically tested in the literature.

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Curricular Policy as a Collective Effects Problem: A Distributional Approach

Andrew Penner et al.
Social Science Research, forthcoming

Abstract:
Current educational policies in the United States attempt to boost student achievement and promote equality by intensifying the curriculum and exposing students to more advanced coursework. This paper investigates the relationship between one such effort -- California’s push to enroll all 8th grade students in Algebra -- and the distribution of student achievement. We suggest that this effort is an instance of a “collective effects” problem, where the population-level effects of a policy are different from its effects at the individual level. In such contexts, we argue that it is important to consider broader population effects as well as the difference between “treated” and “untreated” individuals. To do so, we present differences in inverse propensity score weighted distributions to investigate how this curricular policy changed the distribution of student achievement more broadly. We find that California’s attempt to intensify the curriculum did not raise test scores at the bottom of the distribution, but did lower scores at the top of the distribution. These results highlight the efficacy of inverse propensity score weighting approaches for estimating collective effects, and provide a cautionary tale for curricular intensification efforts and other policies with collective effects.

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The Underutilized Potential of Teacher-to-Parent Communication: Evidence from a Field Experiment

Matthew Kraft
Economics of Education Review, forthcoming

Abstract:
Parental involvement is correlated with student performance, though the causal relationship is less well established. This experiment examined an intervention that delivered weekly one-sentence individualized messages from teachers to the parents of high school students in a credit recovery program. Messages decreased the percentage of students who failed to earn course credit from 15.8% to 9.3% – a 41% reduction. This reduction resulted primarily from preventing drop-outs, rather than from reducing failure or dismissal rates. The intervention shaped the content of parent-child conversations with messages emphasizing what students could improve, versus what students were doing well, producing the largest effects. We estimate the cost of this intervention per additional student credit earned to be less than one-tenth the typical cost per credit earned for the district. These findings underscore the value of educational policies that encourage and facilitate teacher-to-parent communication to empower parental involvement in their children's education.

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Can Improvements in Schools Spur Neighborhood Revitalization? Evidence from Building Investments

Keren Horn
Regional Science and Urban Economics, May 2015, Pages 108–118

Abstract:
For most households in the U.S. the public school to which they send their children is tied to the geographic location of their home. Economic theory predicts that households take into account the quality of the public school when making residential decisions. A large body of literature has documented that school quality alters the demand for housing in a neighborhood as measured by the capitalization of school quality into house prices. Demand for schools may also affect the quality of the housing stock by creating incentives for property owners to better maintain their buildings and units. Exploration of this potential relationship has been absent from the discussion on how schools influence communities. I attempt to fill this gap through investigating the relationship between school quality and capital investments in the housing stock. To investigate whether a relationship exists between schools and property owner capital investment activity, I rely on detailed building level investment data in New York City as well as measures of school performance. I explore whether consistent measures of school performance are associated with higher levels of investment activity. To identify whether this relationship is causal, that good schools can spur investment activity, I incorporate a boundary discontinuity identification strategy. Further, I test whether households respond to changes in school performance, exploring whether improvements in test scores over a five-year period are associated with higher levels of residential investments. Finally, I control for differences in populations across attendance zone boundaries through incorporating information on the composition of students at each school. My results suggest a significant relationship between performance in math and English Language Arts and property owner capital investment behavior. In my preferred specification, I estimate that a one standard deviation improvement in test scores is associated with a 2.5 percent increase in dollars invested in a building.

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The Relative Costs of New York City's New Small Public High Schools of Choice

Robert Bifulco
Syracuse University Working Paper, October 2014

Abstract:
Building on prior research by two of the present authors, which uses lottery-like features in New York City’s high school admissions process to rigorously demonstrate that new small public high schools in the district are markedly improving graduation prospects for disadvantaged students, the present paper demonstrates that these graduation benefits do not come at the cost of higher expenditures per graduate. The basis for these findings are two cost comparisons: (1) a "descriptive" comparison of per-pupil operating costs for the new small high schools with those for all other district high schools, and (2) an "experimental" comparison of per-pupil operating costs for the new small high schools with those attended by their control group counterparts. The descriptive comparison demonstrates that the new small schools spend a little more per pupil than the average district high school and a lot more than the largest of these other schools. By contrast, results of the experimental comparisons together with previous findings of two of the present authors about the substantial positive effects of the new small schools on high school graduation rates indicate that the cost per high school graduate is substantially lower for the small-school enrollees than for their control group counterparts. This seemingly counterintuitive result occurs because control group counterparts (1) attend high schools with annual per-pupil costs that are about the same as those for the new small schools, (2) are more likely to attend a fifth year of high school because they do not graduate in four years, and (3) are less likely to graduate from high school at all.

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Need-Based Aid and College Persistence: The Effects of the Ohio College Opportunity Grant

Eric Bettinger
Educational Evaluation and Policy Analysis, May 2015, Pages 102S-119S

Abstract:
This article exploits a natural experiment to estimate the effects of need-based aid policies on first-year college persistence rates. In fall 2006, Ohio abruptly adopted a new state financial aid policy that was significantly more generous than the previous plan. Using student-level data and very narrowly defined sets of students, I estimate a difference-in-differences model to identify the program effects. Students who benefited from the program received awards about US$800 higher than they would have received under the prior program. These students’ drop-out rates fell by 2% as a result of the program. The new program also increased the likelihood that students attend 4-year campuses and increased their first-year grade point averages. The program may not have been cost-effective given the combination of its generosity and inability to target the marginal students who would be most sensitive to financial aid.

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Quantifying Variation in Head Start Effects on Young Children's Cognitive and Socio-Emotional Skills Using Data from the National Head Start Impact Study

Howard Bloom & Christina Weiland
MDRC Working Paper, March 2015

Abstract:
This paper uses data from the Head Start Impact Study (HSIS), a nationally representative multisite randomized trial, to quantify variation in effects of Head Start during 2002-2003 on children’s cognitive and socio-emotional outcomes relative to the effects of other local alternatives, including parent care. We find that (1) treatment and control group differences in child care and educational settings varied substantially across Head Start centers (program sites); (2) Head Start exhibited a compensatory pattern of program effects that reduced disparities in cognitive outcomes among program-eligible children; (3) Head Start produced a striking pattern of subgroup effects that indicates it substantially compensated dual language learners and Spanish-speaking children with low pretest scores (two highly overlapping groups) for their limited prior exposure to English; and (4) Head Start centers ranged from much more effective to much less effective than their local alternatives, including parent care.

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Disruption, learning, and the heterogeneous benefits of smaller classes

Graham McKee, Katharine Sims & Steven Rivkin
Empirical Economics, May 2015, Pages 1267-1286

Abstract:
Prior research suggests that the benefits from smaller classes may vary along multiple dimensions. In this paper we develop a flexible model of education production that incorporates the classroom-level time lost to disruption and the rate of learning during productive time as a function of teacher quality and individual propensity to acquire knowledge. We then investigate heterogeneity in class size effects by school poverty share, family income, teacher experience, and achievement percentile using data from Project STAR. We find that the benefits of small classes are consistently higher in schools with a larger low-income enrollment share. Conditional on school poverty share, we find little or no evidence that lower-income or lower-achieving students tend to realize larger benefits of smaller classes. Instead, we find that the return to smaller classes tends to increase with achievement regardless of school poverty share. Given the generally higher levels of disruption reported in higher poverty schools, this set of findings is consistent with, though not direct evidence of, the notion that reduced time lost to disruption is a primary mechanism through which smaller classes raise achievement and a compelling explanation for the empirical finding that class-size effects tend to be larger for lower-income children.

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The Effect of Primary School Size on Academic Achievement

Seth Gershenson & Laura Langbein
Educational Evaluation and Policy Analysis, May 2015, Pages 135S-155S

Abstract:
Evidence on optimal school size is mixed. We estimate the effect of transitory changes in school size on the academic achievement of fourth- and fifth-grade students in North Carolina using student-level longitudinal administrative data. Estimates of value-added models that condition on school-specific linear time trends and a variety of teacher-by-school, student, and school-by-year fixed effects suggest that, on average, there is no causal relationship between school size and academic performance. However, two subgroups of interest are significantly harmed by school size: socioeconomically disadvantaged students and students with learning disabilities. The largest effects are observed among students with learning disabilities: A 10-student increase in grade size is found to decrease their math and reading achievement by about 0.015 test-score standard deviations.

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The disjuncture between raw scores and pass rates in New York State public schools: Turning success into failure

William Mangino, Marc Silver & Jonathan Cavalieri
Studies in Educational Evaluation, June 2015, Pages 46–54

Abstract:
This paper demonstrates that ‘failure’ is not a direct reflection of student knowledge. Using five years of New York State school-level data, we compare passing rates to raw-scores. We find, first, that when ‘cut scores’ are raised, more students fail even if raw scores are increasing. Second, increasing cut scores disproportionately fails more poor students than non-poor students, despite that poor students have the fastest rates of raw score improvement. Third, raised cut scores transform the smallest raw score gaps between high- and low-poverty schools into the largest passing gaps. Thus, while students in poor schools know more than they did previously, and although they have learned at superior rates, they are recast as the biggest ‘failures’ they have ever been.

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Spatial Variation in Higher Education Financing and the Supply of College Graduates

John Kennan
NBER Working Paper, April 2015

Abstract:
In the U.S. there are large differences across States in the extent to which college education is subsidized, and there are also large differences across States in the proportion of college graduates in the labor force. State subsidies are apparently motivated in part by the perceived benefits of having a more educated workforce. The paper extends the migration model of Kennan and Walker (2011) to analyze how geographical variation in college education subsidies affects the migration decisions of college graduates. The model is estimated using NLSY data, and used to quantify the sensitivity of migration and college enrollment decisions to differences in expected net lifetime income, focusing on how cross-State differences in public college financing affect the educational composition of the labor force. The main finding is that these differences have substantial effects on college enrollment, with no evidence that these effects are dissipated through migration.

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The Uneven Performance of Arizona’s Charter Schools

Matthew Chingos & Martin West
Educational Evaluation and Policy Analysis, May 2015, Pages 120S-134S

Abstract:
Arizona enrolls a larger share of its students in charter schools than any other state in the country, but no comprehensive examination exists of the impact of those schools on student achievement. Using student-level data covering all Arizona students from 2006 to 2012, we find that the performance of charter schools in Arizona in improving student achievement varies widely, and more so than that of traditional public schools (TPS). On average, charter schools at every grade level have been modestly less effective than TPS in raising student achievement in some subjects. But charter schools that closed during this period have been lower performing than schools that remained open, a pattern that is not evident in the traditional public sector.

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The Growing Segmentation of the Charter School Sector in North Carolina

Helen Ladd, Charles Clotfelter & John Holbein
NBER Working Paper, April 2015

Abstract:
A defining characteristic of charter schools is that they introduce a strong market element into public education. In this paper, we examine the evolution of the charter school sector in North Carolina between 1999 and 2012 through the lens of a market model. We examine trends in the mix of students enrolled in charter schools, the racial imbalance of charter schools, the quality of the match between parental preferences in charter schools relative to the quality of match in traditional public schools, and the distribution of test score performance across charter schools relative those in traditional public schools serving similar students over time. Taken together, our findings imply that the charter schools in North Carolina are increasingly serving the interests of relatively able white students in racially imbalanced schools.

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Independent Schools and Long-run Educational Outcomes: Evidence from Sweden's Large-scale Voucher Reform

Anders Böhlmark & Mikael Lindahl
Economica, forthcoming

Abstract:
We estimate effects on educational outcomes from the expansion of the independent school sector in Sweden, which followed as a consequence of the radical 1992 voucher reform. Using variation in this expansion across municipalities, we find that an increase in the share of independent school students improves average short- and long-run outcomes, explained primarily by external effects (e.g. school competition). For most outcomes, we observe significant effects first a decade after the reform. By using regional level TIMSS data, we can reconcile our results with the negative national trend for Swedish students in international achievement tests.

By KEVIN LEWIS | 09:00:00 AM

Sunday, May 3, 2015

Company

Romance and Reproduction Are Socially Costly

Maxwell Burton-Chellew & Robin Dunbar
Evolutionary Behavioral Sciences, forthcoming

Abstract:
Close social relationships provide the primary source of many important, beneficial forms of social support. However, such relationships can deteriorate without regular contact and communication and therefore entail maintenance costs. Consequently, the number of close network members that an individual can afford to maintain is likely to be constrained by factors such as the time they have to devote to servicing such relationships. New romantic relationships, despite providing large evolutionary benefits in the form of increased reproduction, may be unusually costly in this respect because the individual’s attention is intensely focused on the partner, and, ultimately, their offspring. This change of focus may impact on other relationships, reducing the availability of help from kin and friends. We used an Internet sample of 540 respondents to test and show that the average size of support networks is reduced for individuals in a romantic relationship. We also found approximately 9% of our sample reported having an “extra” romantic partner they could call on for help, however these respondents did not have an even smaller network than those in just 1 relationship. The support network is also further reduced for those who have offspring, however these effects are contingent on age, primarily affecting those under the age of 36 years. Taking into account the acquisition of a new member to the network when entering a relationship, the cost of romance is the loss of nearly 2 members. On average, these social costs are spread equally among related and nonrelated members of the network.

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Narcissism and the Use of Personal Pronouns Revisited

Angela Carey et al.
Journal of Personality and Social Psychology, forthcoming

Abstract:
Among both laypersons and researchers, extensive use of first-person singular pronouns (i.e., I-talk) is considered a face-valid linguistic marker of narcissism. However, the assumed relation between narcissism and I-talk has yet to be subjected to a strong empirical test. Accordingly, we conducted a large-scale (N = 4,811), multisite (5 labs), multimeasure (5 narcissism measures) and dual-language (English and German) investigation to quantify how strongly narcissism is related to using more first-person singular pronouns across different theoretically relevant communication contexts (identity-related, personal, impersonal, private, public, and stream-of-consciousness tasks). Overall (r = .02, 95% CI [−.02, .04]) and within the sampled contexts, narcissism was unrelated to use of first-person singular pronouns (total, subjective, objective, and possessive). This consistent near-zero effect has important implications for making inferences about narcissism from pronoun use and prompts questions about why I-talk tends to be strongly perceived as an indicator of narcissism in the absence of an underlying actual association between the 2 variables.

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Having a Thicker Skin: Social Power Buffers the Negative Effects of Social Rejection

Maya Kuehn, Serena Chen & Amie Gordon
Social Psychological and Personality Science, forthcoming

Abstract:
Social power elicits an array of psychological tendencies that likely impact processes related to the fundamental need for belonging — including how people respond to social rejection. Across three studies, using multiple methods and instantiations of power and rejection, we hypothesized that power buffers people from the typically adverse emotional and self-esteem consequences of rejection. Supporting this, power buffered participants from increases in negative emotion and/or decreases in self-esteem in response to rejection from a romantic partner (Study 1), an anticipated interaction partner (Study 2), and a hypothetical coworker (Study 3). These findings document a direct link between power and emotional and self-esteem reactions to rejection.

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Jealousy Increased by Induced Relative Left Frontal Cortical Activity

Nicholas Kelley et al.
Emotion, forthcoming

Abstract:
Asymmetric frontal cortical activity may be one key to the process linking social exclusion to jealous feelings. The current research examined the causal role of asymmetric frontal brain activity in modulating jealousy in response to social exclusion. Transcranial direct-current stimulation (tDCS) over the frontal cortex to manipulate asymmetric frontal cortical activity was combined with a modified version of the Cyberball paradigm designed to induce jealousy. After receiving 15 min of tDCS, participants were excluded by a desired partner and reported how jealous they felt. Among individuals who were excluded, tDCS to increase relative left frontal cortical activity caused greater levels of self-reported jealousy compared to tDCS to increase relative right frontal cortical activity or sham stimulation. Limitations concerning the specificity of this effect and implications for the role of the asymmetric prefrontal cortical activity in motivated behaviors are discussed.

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I only like the idea of you: Narcissists tolerate others’ narcissistic traits but not their corresponding behaviors

John Milton Adams, Will Hart & Alex Burton
Personality and Individual Differences, August 2015, Pages 232–236

Abstract:
Do narcissists really like other narcissists? Although some research suggests that the answer is ‘yes,’ the current study demonstrates that the answer to this question is not so simple. In this study, participants (N = 370) completed a survey in which they responded on a measure of trait narcissism and then were randomly assigned to rate the likability of people who were described by either 13 narcissistic traits (abstract-trait description condition) or 13 behavioral manifestations of these traits (concrete-behavior description condition). Results showed that narcissists (vs. non-narcissists) rated narcissistic others significantly more positively in the abstract-trait description condition, whereas this effect was non-significant (and slightly reversed) in the concrete-behavior description condition. Interestingly, this interaction effect was not modified by the contextual salience of one’s own (non)narcissistic identity. In sum, the present research presents a case of ‘narcissistic hypocrisy’ – narcissists claim to be more forgiving of narcissistic traits but do not follow through with this claim when led to confront manifestations of these traits. This finding adds to a growing body of work examining narcissists’ attitudes toward narcissism.

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Do Mean Guys Always Finish First or Just Say That They Do? Narcissists’ Awareness of Their Social Status and Popularity Over Time

Erika Carlson & Nicole Lawless DesJardins
Personality and Social Psychology Bulletin, forthcoming

Abstract:
Narcissists crave respect and admiration. Do they attain the status and popularity they crave, or do they just think that they do? In two studies (Ns = 133 and 94), participants completed the Narcissistic Personality Inventory, described themselves on core personality traits (e.g., extraversion), and were described by an informant on those traits. Participants also provided self- and peer ratings of status and liking in small groups after an initial meeting and over the course of 4 months (Study 2). Relative to people lower, people higher in narcissism initially attained, but eventually lost status; yet, they were aware that they tended to lose status. Narcissists were not especially popular, although they tended to think they were more popular. These patterns differed among narcissism facets, providing further support for the idea that the mixed adaptiveness of narcissism may be due to the heterogeneity of the construct.

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Inhibited from Bowling Alone

Rebecca Ratner & Rebecca Hamilton
Journal of Consumer Research, forthcoming

Abstract:
The present research demonstrates that consumers often feel inhibited from engaging in hedonic activities alone, especially when these activities are observable by others. When considering whether to engage in a hedonic and public activity such as going to a movie alone, individuals anticipate negative inferences from others about their social connectedness, which reduce their interest in engaging in the activity. Notably, consumers seem to overestimate how much their enjoyment of these activities depends on whether they are accompanied by a companion. Cues that attenuate consumers’ anticipation of negative inferences by making an activity seem more utilitarian or by reducing the anticipated number of observers systematically increase interest in engaging in unaccompanied public activities.

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Animals may act as social buffers: Skin conductance arousal in children with autism spectrum disorder in a social context

Marguerite O'Haire et al.
Developmental Psychobiology, forthcoming

Abstract:
Children with autism spectrum disorder (ASD) experience high rates of social stress and anxious arousal. Preliminary evidence suggests that companion animals can act as buffers against the adverse effects of social stress in adults. We measured continuous physiological arousal in children with ASD and typically developing (TD) children in a social context during four conditions: (a) a baseline of reading silently, (b) a scripted classroom activity involving reading aloud, (c) free play with peers and toys, and (d) free play with peers and animals (guinea pigs). Our results confirmed heightened arousal among children with ASD compared to TD children in all conditions, except when the animals were present. Children with ASD showed a 43% decrease in skin conductance responses during free play with peers in the presence of animals, compared to toys. Thus, animals may act as social buffers for children with ASD, conferring unique anxiolytic effects.

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Introversion and human-contaminant disgust sensitivity predict personal space

Justin Park
Personality and Individual Differences, August 2015, Pages 185–187

Abstract:
How far do people prefer to stand from others during interpersonal interactions? Individuals vary in what has been termed personal space, and this variation appears to be systematic. For instance, personal space tends to be larger among more introverted individuals. The present study investigated whether personality variables relevant to threat perceptions may predict personal space. One type of threat that may be neutralized via physical distancing is infectious disease. This study examined whether individual differences in pathogen-relevant disgust sensitivity (particularly with respect to other humans) may predict personal space. In a study employing a behavioral measure of personal space (N = 134), human-contaminant disgust sensitivity (but not nonhuman-contaminant disgust sensitivity) was found to predict personal space while controlling for trait anxiety and introversion. Introversion was found to exert an independent predictive effect.

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Social Anxiety and Narrowed Attentional Breadth Toward Faces

Lira Yoon et al.
Emotion, forthcoming

Abstract:
The amount of information that can be perceived and processed will be partly determined by attentional breadth (i.e., the scope of attention), which might be narrowed in social anxiety due to a negative attentional bias. The current study examined the effects of stimulus valence on socially anxious individuals’ attentional breadth. Seventy-three undergraduate students completed a computerized dual-task experiment during which they were simultaneously presented with a facial picture at the center of the screen and a black circle (i.e., a target) at the periphery. Participants’ task was to indicate the gender of the model in the picture and the location of the peripheral target. The peripheral target was presented either close to or far from the central picture. Higher levels of social anxiety were significantly associated with greater difficulties detecting the target presented far from the central facial pictures, suggesting that social anxiety is associated with narrowed attentional breadth around social cues. Narrowing of attentional breadth among socially anxious individuals might hamper their ability to process all available social cues, thereby perpetuating social anxiety.

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Delinquent Peer Influence on Offending Versatility: Can Peers Promote Specialized Delinquency?

Kyle Thomas
Criminology, forthcoming

Abstract:
The consistent and robust relationship between peers and frequency of offending is often cited as evidence that friends play an important role in adolescent behavioral tendencies. But Warr (2002) has argued that the empirical support for peer perspectives remains equivocal in part because research has not demonstrated that individuals and their peers display similarities in the qualitative form of their delinquent behavior (i.e., the tendency to specialize in delinquent acts). By using data from the Gang Resistance Education and Training (G.R.E.A.T.) evaluation (N = 1,390) and the National Longitudinal Survey of Adolescent Health (AddHealth) (N = 1,848), this study seeks to fill this void in the literature by examining whether having friends who display specialization in specific delinquent acts relative to other offense types predicts an individual's own tendency to display specializing in those same crime types. Consistent with peer influence perspectives, the results of multilevel latent-trait models (Osgood and Schreck, 2007) suggest that individuals who associate with friends who demonstrate specialization in violence, theft, and substance use are more likely to display greater levels of specialization in those offense types themselves.

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Loneliness and the social monitoring system: Emotion recognition and eye gaze in a real-life conversation

Gerine Lodder et al.
British Journal of Psychology, forthcoming

Abstract:
Based on the belongingness regulation theory (Gardner et al., 2005, Pers. Soc. Psychol. Bull., 31, 1549), this study focuses on the relationship between loneliness and social monitoring. Specifically, we examined whether loneliness relates to performance on three emotion recognition tasks and whether lonely individuals show increased gazing towards their conversation partner's faces in a real-life conversation. Study 1 examined 170 college students (Mage = 19.26; SD = 1.21) who completed an emotion recognition task with dynamic stimuli (morph task) and a micro(-emotion) expression recognition task. Study 2 examined 130 college students (Mage = 19.33; SD = 2.00) who completed the Reading the Mind in the Eyes Test and who had a conversation with an unfamiliar peer while their gaze direction was videotaped. In both studies, loneliness was measured using the UCLA Loneliness Scale version 3 (Russell, 1996, J. Pers. Assess., 66, 20). The results showed that loneliness was unrelated to emotion recognition on all emotion recognition tasks, but that it was related to increased gaze towards their conversation partner's faces. Implications for the belongingness regulation system of lonely individuals are discussed.

By KEVIN LEWIS | 09:00:00 AM

Saturday, May 2, 2015

Thuggish

Poor Sleep and Reactive Aggression: Results from a National Sample of African American Adults

Michael Vaughn et al.
Journal of Psychiatric Research, forthcoming

Background: We know that poor sleep can have important implications for a variety of health outcomes and some evidence suggests a link between sleep and aggressive behavior. However, few studies have looked at this relationship among African-Americans in the United States.

Methods: Data from the National Survey of American Life (NSAL) and the NSAL Adult Re-Interview were used to examine associations between sleep duration and self-reported quality of sleep on reactive aggression among African American and Caribbean Black respondents between the ages of 18 and 65 (n = 2,499).

Results: Controlling for an array of sociodemographic and psychiatric factors, sleep was found to be significantly associated with reactive aggression. Specifically, individuals who reported sleeping on average less than five hours per night were nearly three times more likely to report losing their temper and engaging in a physical fight (AOR = 3.13, 95% CI = 1.22-8.02). Moreover, individuals who reported being "very dissatisfied" with their sleep were more than two times more likely to report losing their temper and engaging in physical fights (AOR = 3.32, 95% CI = 1.50-7.33). Persons reporting everyday discrimination and problems managing stress were more likely to sleep poorly.

Conclusions: The present study is among the first to document an association between poor sleep and reactive violence among African-Americans. Findings suggest that reducing discrimination may lead to improved sleep and subsequently reduce forms of reactive violence.

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Picking teams: When dominant facial structure is preferred

Eric Hehman et al.
Journal of Experimental Social Psychology, July 2015, Pages 51–59

Abstract:
Research has demonstrated that individuals with higher facial width-to-height ratios (fWHR) are consistently perceived negatively on numerous important interpersonal dimensions. In contrast, the current research posited that high fWHR individuals might be perceived as providing group advantages, and thus preferred in certain contexts. We examined how fWHR influences group membership selection decisions during competitive intergroup contexts. Faces with a high or low fWHR were presented in arrays, and participants were tasked with selecting group members across a variety of contexts. In Study 1, participants were more likely to select high fWHR individuals for group membership during intergroup competition. Results from the following four studies lead to the conclusion that preferences for higher fWHR individuals in competitive intergroup contexts are driven by inferences of physical strength and aggression. Thus, fWHR is perceived as a cue to attributes considered advantageous during times of intergroup conflict.

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When Bad Emotions Seem Better: Experience Changes the Automatic Evaluation of Anger

Liat Netzer et al.
Social Psychological and Personality Science, forthcoming

Abstract:
Evaluations of objects change as a function of our experience with them. We suggest that this also applies to the evaluation of emotions. In three studies, we show that the evaluation of anger changes as a function of direct experience with anger. We found that the experience of anger in a context in which it could be beneficial (i.e., an aggressive computer game) led people to perceive anger as more useful (Study 1). Moreover, people came to evaluate anger less negatively after experiencing anger in a context in which it could be beneficial. These changes did not result from the mere experience of anger or from exposure to an aggressive context (Study 2). Rather, the more anger improved their performance, the less negatively participants came to evaluate anger (Study 3). These findings suggest that how bad anger seems may depend on our direct experience with it.

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Examining the Impact of Peer Group Selection on Self-Reported Delinquency: A Consideration of Active Gene–Environment Correlation

Michael TenEyck & J.C. Barnes
Criminal Justice and Behavior, forthcoming

Abstract:
Research has yet to discount all sources of confounding in the relationship between an individual’s delinquent behavior and that of his or her peers. One approach is to control for an active gene–environment correlation (rGE). Active rGE occurs when one selects into an environment based on genetic propensities. The current study utilizes twin data from the National Longitudinal Study of Adolescent Health to examine the impact of a direct measure of peer delinquency on self-reported delinquency while controlling for active rGE. The final analytic sample ranged between 456 and 524 dizygotic and 286 and 350 monozygotic twins, depending on the measures being analyzed. Using an augmented version of the DeFries–Fulker model, results revealed the peer effect was no longer statistically significant once genetic confounding (active rGE) was controlled. These findings support selection arguments and run counter to learning theory explanations.

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Developmental mediation of genetic variation in response to the Fast Track prevention program

Dustin Albert et al.
Development and Psychopathology, February 2015, Pages 81-95

Abstract:
We conducted a developmental analysis of genetic moderation of the effect of the Fast Track intervention on adult externalizing psychopathology. The Fast Track intervention enrolled 891 children at high risk to develop externalizing behavior problems when they were in kindergarten. Half of the enrolled children were randomly assigned to receive 10 years of treatment, with a range of services and resources provided to the children and their families, and the other half to usual care (controls). We previously showed that the effect of the Fast Track intervention on participants' risk of externalizing psychopathology at age 25 years was moderated by a variant in the glucocorticoid receptor gene. Children who carried copies of the A allele of the single nucleotide polymorphism rs10482672 had the highest risk of externalizing psychopathology if they were in the control arm of the trial and the lowest risk of externalizing psychopathology if they were in the treatment arm. In this study, we test a developmental hypothesis about the origins of this for better and for worse Gene × Intervention interaction (G × I): that the observed G × I effect on adult psychopathology is mediated by the proximal impact of intervention on childhood externalizing problems and adolescent substance use and delinquency. We analyzed longitudinal data tracking the 270 European American children in the Fast Track randomized control trial with available genetic information (129 intervention children, 141 control group peers, 69% male) from kindergarten through age 25 years. Results show that the same pattern of for better and for worse susceptibility to intervention observed at the age 25 follow-up was evident already during childhood. At the elementary school follow-ups and at the middle/high school follow-ups, rs10482672 predicted better adjustment among children receiving the Fast Track intervention and worse adjustment among children in the control condition. In turn, these proximal G × I effects early in development mediated the ultimate G × I effect on externalizing psychopathology at age 25 years. We discuss the contribution of these findings to the growing literature on genetic susceptibility to environmental intervention.

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Sore losers? A reexamination of the frustration–aggression hypothesis for colocated video game play

Johannes Breuer, Michael Scharkow & Thorsten Quandt
Psychology of Popular Media Culture, April 2015, Pages 126-137

Abstract:
The impact of video game play on player aggression continues to be debated within the academic literature. Most of the studies in this area have focused on game content as the independent variable, whereas the social context of gaming is largely neglected. This article presents an experimental study (N = 76) on the effects of game outcome and trash-talking in a competitive colocated multiplayer sports video game on aggressive behavior. The results indicate that an unfavorable outcome (i.e., losing) can increase postgame aggression, whereas trash-talking by the opponent had no such effect. We also tested the frustration–aggression hypothesis for video games and found that the effect of losing on aggressive behavior is mediated by negative affect. The results suggest that the frustration–aggression hypothesis can be applied to the use of digital games and that game characteristics alone are not sufficient to explain effects on aggression.

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The face of female dominance: Women with dominant faces have lower cortisol

Isaac Gonzalez-Santoyo et al.
Hormones and Behavior, May 2015, Pages 16–21

Abstract:
The human face displays a wealth of information, including information about dominance and fecundity. Dominance and fecundity are also associated with lower concentrations of the stress hormone cortisol, suggesting that cortisol may negatively predict facial dominance and attractiveness. We digitally photographed 61 women's faces, had these images rated by men and women for dominance, attractiveness, and femininity, and explored relationships between these perceptions and women's salivary cortisol concentrations. In a first study, we found that women with more dominant-appearing, but not more attractive, faces had lower cortisol levels. These associations were not due to age, ethnicity, time since waking, testosterone, or its interaction with cortisol. In a second study, composite images of women with low cortisol were perceived as more dominant than those of women with high cortisol significantly more often than chance by two samples of viewers, with a similar but non-significant trend in a third sample. However, data on perceptions of attractiveness were mixed; low-cortisol images were viewed as more attractive by two samples of US viewers and as less attractive by a sample of Mexican viewers. Our results suggest that having a more dominant-appearing face may be associated with lower stress and hence lower cortisol in women, and provide further evidence regarding the information content of the human face.

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Digit ratio (2D:4D), aggression, and dominance in the Hadza and the Datoga of Tanzania

Marina Butovskaya et al.
American Journal of Human Biology, forthcoming

Objectives: Digit ratio (2D:4D) — a putative marker of prenatal androgen activity — has been shown to correlate with self-reported physical aggression and dominance behavior, especially in male children and adolescents. This evidence is derived primarily from the study of Western samples.

Methods: Digit ratios, self-reported aggression, and dominance behavior were collected from men and women in two traditional, small-scale societies, i.e., the Hadza and the Datoga of Tanzania.

Results: We found significant differences in physical and verbal aggression, anger, and hostility between the two societies with the Datoga reporting higher scores on all four measures. Moreover, self-reported dominance in the Datoga was higher than in the Hadza. The Datoga showed lower left and right hand 2D:4D ratios than the Hadza. Men reported higher physical and verbal aggression and dominance, and had lower 2D:4D ratios than women. A significant negative association between 2D:4D and dominance was found in Hadza women.

Conclusions: We discuss our findings with reference to differences in mating systems between the two small-scale societies and previous findings of Western and other small-scale societies.

By KEVIN LEWIS | 09:00:00 AM

Friday, May 1, 2015

Board games

Persona Non Grata? Determinants and Consequences of Social Distancing from Journalists Who Engage in Negative Coverage of Firm Leadership

Guy Shani & James Westphal
Academy of Management Journal, forthcoming

Abstract:
We consider how social and psychological connections among CEOs explain the propensity for corporate leaders to distance themselves socially from journalists who engage in negative reporting about firm leadership at other companies, and we examine the consequences for the valence of journalists' subsequent coverage. Our theoretical framework suggests that journalists who have engaged in negative coverage of a firm's leadership and strategy are especially likely to experience distancing from other leaders who (i) have friendship ties to the firm's CEO, (ii) are demographically similar to the CEO on salient dimensions, or (iii) are socially identified with the CEO as a fellow member of the corporate elite. Our theory and findings ultimately suggest that, due to the multiple sources of social identification between CEOs, journalists who engage in negative coverage of firm leadership tend to experience social distancing from multiple CEOs, and such distancing has a powerful influence on the valence of journalists' subsequent reporting about firm leadership and strategy across all the firms that they cover. We also extend our theoretical framework to suggest how the effect of social distancing on the valence of journalists' coverage is moderated by the early and late stages of a journalist's career.

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Political Values, Culture, and Corporate Litigation

Irena Hutton, Danling Jiang & Alok Kumar
Management Science, forthcoming

Abstract:
Using one of the largest samples of litigation data available to date, we examine whether the political culture of a firm determines its propensity for corporate misconduct. We measure political culture using the political contributions of top managers, firm political action committees, and local residents. We show that firms with a Republican culture are more likely to be the subject of civil rights, labor, and environmental litigation than are Democratic firms, consistent with the Democratic ideology that emphasizes equal rights, labor rights, and environmental protection. However, firms with a Democratic culture are more likely to be the subject of litigation related to securities fraud and intellectual property rights violations than are Republican firms, whose party ideology stresses self-reliance, property rights, market discipline, and limited government regulation. Upon litigation filing, both types of firms experience similar announcement reaction, which suggests that the observed relationship between political culture and corporate misconduct is unlikely to reflect differences in expected litigation costs.

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Has the “CEO effect” increased in recent decades? A new explanation for the great rise in America's attention to corporate leaders

Timothy Quigley & Donald Hambrick
Strategic Management Journal, June 2015, Pages 821–830

Abstract:
We introduce a new explanation for one of the most pronounced phenomena on the American business landscape in recent decades: a dramatic increase in attributions of CEO significance. Specifically, we test the possibility that America's CEOs became seen as increasingly significant because they were, in fact, increasingly significant. Employing variance partitioning methodologies on data spanning 60 years and more than 18,000 firm-years, we find that the proportion of variance in performance explained by individual CEOs, or “the CEO effect,” increased substantially over the decades of study. We discuss the theoretical and practical implications of this finding.

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Signaling through Corporate Accountability Reporting

Thomas Lys, James Naughton & Clare Wang
Journal of Accounting and Economics, August 2015, Pages 56–72

Abstract:
We document that corporate social responsibility (“CSR”) expenditures are not a form of corporate charity nor do they improve future financial performance. Rather, firms undertake CSR expenditures in the current period when they anticipate stronger future financial performance. We show that the causality of the positive association between CSR expenditures and future firm performance differs from what is claimed in the vast majority of the literature and that corporate accountability reporting is another channel through which outsiders may infer insiders’ private information about firms’ future financial prospects.

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Do Better-Connected CEOs Innovate More?

Olubunmi Faleye, Tunde Kovacs & Anand Venkateswaran
Journal of Financial and Quantitative Analysis, December 2014, Pages 1201-1225

Abstract:
We present evidence suggesting that chief executive officer (CEO) connections facilitate investments in corporate innovation. We find that firms with better-connected CEOs invest more in research and development and receive more and higher quality patents. Further tests suggest that this effect stems from two characteristics of personal networks that alleviate CEO risk aversion in investment decisions. First, personal connections increase the CEO’s access to relevant network information, which encourages innovation by helping to identify, evaluate, and exploit innovative ideas. Second, personal connections provide the CEO with labor market insurance that facilitates investments in risky innovation by mitigating the career concerns inherent in such investments.

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CEO Visibility: Are Media Stars Born or Made?

Elizabeth Blankespoor & Ed DeHaan
Stanford Working Paper, March 2015

Abstract:
Recent literature finds that a CEO’s media visibility leads to improved career outcomes. However, the literature has been quiet about whether media coverage is naturally bestowed on CEOs for operating performance, or whether firms and/or CEOs are able to influence media coverage through strategic disclosure. That is, are CEO media stars "born" from their performance or "made" by managing the press? We develop a measure of “CEO promotion” in firm disclosures that captures the extent to which the CEO is individually represented in press releases. Specifically, our measure is based on whether the CEO is named or quoted in firm-initiated press releases, as well as the clarity and vividness of the CEO’s quotes. We find that CEO promotion is associated with a more than three-fold increase in media coverage of the CEO, and that the flow of specific CEO-related content from press releases into subsequent media articles is increasing with CEO promotion. We also find that abnormally high CEO promotion is associated with CEO entrenchment and declining future performance. Our evidence that firms and CEOs can influence CEO media coverage not only broadens our understanding of the causes and effects of CEO media visibility, but also indicates that firms can likely influence the content and context of firm-related media articles more generally.

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CEO Incentives and Product Development Innovation: Insights from Trademarks

Lucile Faurel et al.
University of California Working Paper, March 2015

Abstract:
We introduce trademarks as a new measure of product development innovation, and study the relation between CEO risk-taking incentives and trademarks in a broad set of industries. Our novel dataset contains 123,545 USPTO trademark registrations by S&P 1500 firms from 1993 to 2011. We find that the number of trademarks increases with the fraction of CEO pay in the form of stock options, the convexity of CEO incentives, and the amount of unvested CEO stock options. These relations hold within low-tech, mid-tech, and high-tech industries, whereas patents are related to CEO incentives mainly in high-tech industries. We also find that changes in stock option compensation around the implementation of SFAS 123(R), an exogenous shock, are positively related to trademark creation. Overall, the evidence suggests that CEO risk-taking incentives are important drivers of product development innovation.

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The bonding hypothesis of takeover defenses: Evidence from IPO firms

William Johnson, Jonathan Karpoff & Sangho Yi
Journal of Financial Economics, forthcoming

Abstract:
We propose and test an efficiency explanation for why firms deploy takeover defenses using initial public offering (IPO) firm data. We hypothesize that takeover defenses bond the firm's commitments by reducing the likelihood that an outside takeover will change the firm's operating strategy and impose costs on its business partners. Consistent with this hypothesis, we find that IPO firms deploy more takeover defenses when they have important business relationships to protect. An IPO firm's use of takeover defenses is positively related to the longevity of its business relationships. IPO firms’ use of takeover defenses create positive spillovers for their large customers. And IPO firms’ valuation and subsequent operating performance are positively related to their use of takeover defenses when they have important business relationships.

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CEO opportunism?: Option Grants and Stock Trades around Stock Splits

Erik Devos, William Elliott & Richard Warr
Journal of Accounting and Economics, August 2015, Pages 18–35

Abstract:
Decades of research confirm that, on average, stock split announcements generate positive abnormal returns. In our sample, 80% of CEO stock option grants are timed to occur on or before the split announcement date. With the average market-adjusted announcement return of 3.1%, awarding the grant before the split announcement results in an average gain per CEO-grant of $451,748. We find additional evidence consistent with timing of CEO stock trading around the split announcement. In the case of CEO stock sales, about two-thirds occur after the split announcement, resulting in an average gain of $345,613.

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Delaware Law as Lingua Franca: Theory and Evidence

Brian Broughman, Jesse Fried & Darian Ibrahim
Journal of Law and Economics, November 2014, Pages 865-895

Abstract:
Why would a firm incorporate in Delaware rather than in its home state? Prior explanations have focused on the inherent features of Delaware corporate law and on the positive network externalities created by so many other firms domiciling in Delaware. We offer an additional explanation: a firm may choose Delaware simply because its law is nationally known and thus can serve as a lingua franca for in-state and out-of-state investors. Analyzing the incorporation decisions of 1,850 venture-capitalist-backed start-ups, we find evidence consistent with this lingua franca explanation. Indeed, the lingua franca effect appears to be more important than other factors that have been shown to influence corporate domicile, such as corporate law flexibility and the quality of a state’s judiciary. Our study contributes to the literature on the market for corporate charters by providing evidence that Delaware’s continued dominance is in part due to investors’ familiarity with its corporate law.

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Costs and benefits of friendly boards during mergers and acquisitions

Breno Schmidt
Journal of Financial Economics, forthcoming

Abstract:
Finance theory predicts that board independence is not always in the shareholders' interest. In situations in which board advice is more important than monitoring, independence can decrease firm value. I test this prediction by examining the connection between takeover returns and board friendliness, using social ties between the CEO and board members as a proxy for less independent boards. I find that social ties are associated with higher bidder announcement returns when the potential value of board advice is high, but with lower returns when monitoring needs are high. The evidence suggests that friendly boards can have both costs and benefits, depending on the company's specific needs.

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Firms’ Earnings Smoothing, Corporate Social Responsibility, and Valuation

Lei Gao & Joseph Zhang
Journal of Corporate Finance, forthcoming

Abstract:
Earnings smoothing via accounting discretion could improve or garble actual earnings information. Although managers prefer a less volatile earnings path and perceive lower risk for earnings smoothness, prior studies show that there is no discernible relation between smoothness and firm valuation. Recent literature documents that socially responsible firms behave differently from other firms in their earnings management and financial reporting. We conjecture that the reported earnings of smoothers that are socially responsible deviate less from their permanent earnings, thus their reported earnings are more value relevant. Our empirical tests show income-smoothing firms with higher corporate social responsibility (CSR) experience higher contemporaneous earnings-return relationship, greater Tobin’s Q, and stronger current return-future earnings relationship. The results show that CSR is proved desirable as it adds a unique “quality dimension” to earnings attributes and is useful for firm valuation.

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Arm’s Length Financing and Innovation: Evidence from Publicly Traded Firms

Julian Atanassov
Management Science, forthcoming

Abstract:
Using a large panel of U.S. companies, I document that firms that rely more on arm’s length financing, such as public debt and equity, innovate more and have higher-quality innovations than firms that use other sources, such as relationship-based bank financing. I hypothesize that one possible reason for this finding is the greater flexibility and tolerance to experimentation associated with arm’s length financing. I find support for this hypothesis by showing that firms with more arm’s length financing have greater volatility of innovative output, and are more likely to innovate in new technological areas. Furthermore, focusing only on bank financing, I demonstrate that firms have more novel innovations if they borrow from multiple banks, use predominantly credit lines, and have less intense covenants. I address potential endogeneity concerns by using instrumental variable analysis, and by showing that innovation increases significantly after new public debt offerings and seasoned equity offerings, but does not change after new bank loans.

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Extraordinary acquirers

Andrey Golubov, Alfred Yawson & Huizhong Zhang
Journal of Financial Economics, forthcoming

Abstract:
Firm fixed effects alone explain as much of the variation in acquirer returns as all the firm- and deal-specific characteristics combined. An interquartile range of acquirer fixed effects is over 6%, comparable to the interquartile range of acquirer returns. Acquirer returns persist over time, but mainly at the top end of the distribution. Persistence continues under different chief executive officers (CEOs), and attributes of the broader management team do not explain the fixed effect. Firm-specific heterogeneity in acquirer returns suggests that some organizations are extraordinary acquirers irrespective of the leadership at the top and the deal structures they choose. Implications for the M&A research are discussed.

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Do shareholder rights influence managerial propensity to engage in earnings management?

Kenneth Small, Seung Woog Kwag & Joanne Li
Journal of Economics and Finance, April 2015, Pages 308-326

Abstract:
We examine the relationship between shareholder rights and managerial propensity to engage in earnings smoothing. Using a measure of shareholder rights, and after controlling for factors that influence management’s decision to manage earnings, we conclude that increases in shareholder rights significantly increase management’s willingness to engage in earnings management. We find that firms with more democratic governance systems tend to have higher levels of current discretionary accruals and firms with less democratic governance structures tend to have lower levels of current discretionary accruals.

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Stealth Trading and Trade Reporting by Corporate Insiders

André Betzer et al.
Review of Finance, March 2015, Pages 865-905

Abstract:
Regulations in the pre-Sarbanes–Oxley era allowed corporate insiders considerable flexibility in timing their trades and engaging in stealth trading, for example, by executing several trades and reporting them jointly after the last trade. We document that even these lax reporting requirements were frequently violated and stealth trading was common. Event study abnormal returns are larger after reports of stealth trades than after reports of otherwise similar non-stealth trades. Our results imply that delayed reporting impedes the adjustment of prices to the information revealed by insider trades. They lend strong support to the more stringent reporting requirements established by the Sarbanes–Oxley Act.

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Ownership, Visibility and Effort: Golf Handicaps as Proxies for Managers' Extra Effort

Constantin Schön, Thomas Ehrmann & Katja Rost
Kyklos, May 2015, Pages 255–274

Abstract:
Economics suggests that owners, CEOs and chairmen have different claims in a company's output, and thus that these groups exert different efforts. However, the effort an agent invests in his/her firm is difficult to measure. Golf handicaps enable us to look into the relationship between different degrees of ownership and their implications for the effort that agents exert. Handicaps have the advantage that they can be directly observed and can be viewed as a mirror image of a manager's effort. We expect that times of crisis and changes in management positions influence golf handicaps, mostly for owners and, to a lesser extent, for CEOs and chairmen. Data of 440 Swiss top managers and their handicaps during eight years, from 2003 to 2010, strongly support this assumption.

By KEVIN LEWIS | 09:00:00 AM

Thursday, April 30, 2015

Here's what I know

Would you Pay for Transparently Useless Advice? A Test of Boundaries of Beliefs in The Folly of Predictions

Nattavudh Powdthavee & Yohanes Riyanto
Review of Economics and Statistics, May 2015, Pages 257-272

Abstract:
Standard economic models assume that the demand for expert predictions arises only under the conditions in which individuals are uncertain about the underlying process generating the data and there is a strong belief that past performances predict future performances. We set up the strongest possible test of these assumptions. In contrast to the theoretical suggestions made in the literature, people are willing to pay for predictions of truly random outcomes after witnessing only a short streak of accurate predictions live in the lab. We discuss potential explanations and implications of such irrational learning in the contexts of economics and finance.

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Searching for Explanations: How the Internet Inflates Estimates of Internal Knowledge

Matthew Fisher, Mariel Goddu & Frank Keil
Journal of Experimental Psychology: General, forthcoming

Abstract:
As the Internet has become a nearly ubiquitous resource for acquiring knowledge about the world, questions have arisen about its potential effects on cognition. Here we show that searching the Internet for explanatory knowledge creates an illusion whereby people mistake access to information for their own personal understanding of the information. Evidence from 9 experiments shows that searching for information online leads to an increase in self-assessed knowledge as people mistakenly think they have more knowledge "in the head," even seeing their own brains as more active as depicted by functional MRI (fMRI) images.

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What Goes Up Apparently Needn't Come Down: Asymmetric Predictions of Ascent and Descent in Rankings

Shai Davidai & Thomas Gilovich
Journal of Behavioral Decision Making, forthcoming

Abstract:
In eight studies, we document an upward mobility bias, or a tendency to predict that a rise in rankings is more likely than a decline. This asymmetry was observed in predictions of classroom performance, NBA and NFL standings, business school rankings, and employee performance rankings. The bias was found for entities people care about and want to see improve their standing, as well as entities in which people are not invested. It appears to result from people's tendency to give considerable weight to a focal agent's intentions and motivation, but to give less weight to the intentions of competitors and other factors that would thwart the focal agent's improvement. We show that this bias is most pronounced for implicit incremental theorists, who believe that performance is malleable (and hence assign more weight to intentions and effort). We discuss implications of this asymmetry for decision making and for an understanding of the underdog bias.

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News as (hazardous) entertainment: Exaggerated reporting leads to more memory distortion for news stories

Victoria Lawson & Deryn Strange
Psychology of Popular Media Culture, April 2015, Pages 188-198

Abstract:
The media is influential in shaping people's knowledge and beliefs about the world; however, reporters may take liberties with the facts to support a particular view or to create an entertaining story, resulting in biased or even falsified reports. We examined whether news reports with exaggerated details from newspapers and/or television are more likely to lead to memory distortion and whether a warning regarding the media's potential for exaggeration can reduce memory distortion and increase skepticism for the information contained in the reports. We found that despite being trusted less, more extreme reports were more likely to lead to memory distortion. Further, a warning had no impact on the degree to which memory was distorted or on perceptions of trustworthiness; thus, it is not clear how best to protect news consumers against the negative effects of exaggerated reporting on memory for current events.

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Who you are is where you are: Antecedents and consequences of locating the self in the brain or the heart

Hajo Adam, Otilia Obodaru & Adam Galinsky
Organizational Behavior and Human Decision Processes, forthcoming

Abstract:
Eight studies explored the antecedents and consequences of whether people locate their sense of self in the brain or the heart. In Studies 1a-f, participants' self-construals consistently influenced the location of the self: The general preference for locating the self in the brain rather than the heart was enhanced among men, Americans, and participants primed with an independent self-construal, but diminished among women, Indians, and participants primed with an interdependent self-construal. In Study 2, participants' perceived location of the self influenced their judgments of controversial medical issues. In Study 3, we primed participants to locate the self in the brain or the heart, which influenced how much effort they put into writing a support letter for and how much money they donated to a charity for a brain disease (Alzheimer's disease) or a heart disease (coronary artery disease). Implications for research on the self-concept, judgment, and decision-making are discussed.

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Persuasion, interrupted: The effect of momentary interruptions on message processing and persuasion

Daniella Kupor & Zakary Tormala
Journal of Consumer Research, forthcoming

Abstract:
Marketers often seek to minimize or eliminate interruptions when they deliver persuasive messages in an attempt to increase consumers' attention and processing of those messages. However, in five studies conducted across different experimental contexts and different content domains, the current research reveals that interruptions that temporarily disrupt a persuasive message can increase consumers' processing of that message. As a result, consumers can be more persuaded by interrupted messages than they would be by the exact same messages delivered uninterrupted. In documenting this effect, the current research departs from past research illuminating the negative effects of interruptions, and delineates the mechanism through which and conditions under which momentary interruptions can promote persuasion.

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(In)Competence Is Everywhere: Self-Doubt and the Accessibility of Competence

Tiffany Hardy et al.
Self and Identity, July/August 2015, Pages 464-481

Abstract:
This research investigated the hypothesis that intellectual competence is chronically accessible to individuals who question their own intellectual competence, despite their own uncertainty on this dimension, and that they rely on intellectual competence in forming impressions of and thinking about others. In two studies, we show that doubtful individuals are more likely to use traits related to intellectual competence to describe others and these traits more strongly affect their overall impressions of others. These findings support recent approaches to accessibility by showing that a self-relevant trait may be chronically accessible to an individual even in the face of uncertainty regarding one's standing on the trait. The findings also contribute to the understanding of the phenomenology of self-doubt.

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My Recency, Our Primacy: How Social Connection Influences Evaluations of Sequences

Rajesh Bhargave & Nicole Votolato Montgomery
Journal of Behavioral Decision Making, forthcoming

Abstract:
Individuals have many life experiences (e.g., work and vacations) that consist of a series of interconnected episodes (i.e., temporal sequences). Assessments of such experiences are integral to daily life in that they facilitate future planning and behaviors for individuals. Therefore, these experiences often culminate in evaluations of their global affect. Past work has shown that retrospective, affective evaluations of these sequences generally exhibit an "end effect," whereby a sequence's end intensity - but not its start intensity - is disproportionately weighted. Yet, researchers have largely investigated experiences that occur alone. In contrast, many real-world experiences vary in their extent of social connection to others (e.g., working in an office with others versus alone in a cubicle). The present work fills this gap by showing the moderating role of social connection on how episodes are weighted in global affective ratings. Five studies involving two autobiographical experiences spanning several days each (workweek and spring break) and two brief simulated experiences show that high social connection leads to greater (lesser) weighting of the first (last) episode. To our knowledge, we are the first to demonstrate that these effects persist across different forms of social connection (i.e., interpersonal interaction versus semantic priming tasks) and are supported regardless of whether social connection occurs at encoding or retrieval of an experience.

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Is Dissonance Reduction a Special Case of Fluid Compensation? Evidence That Dissonant Cognitions Cause Compensatory Affirmation and Abstraction

Daniel Randles et al.
Journal of Personality and Social Psychology, May 2015, Pages 697-710

Abstract:
Cognitive dissonance theory shares much in common with other perspectives that address anomalies, uncertainty, and general expectancy violations. This has led some theorists to argue that these theories represent overlapping psychological processes. If responding to dissonance and uncertainty occurs through a common psychological process, one should expect that the behavioral outcomes of feeling uncertain would also apply to feelings of dissonance, and vice versa. One specific prediction from the meaning maintenance model would be that cognitive dissonance, like other expectancy violations, should lead to the affirmation of unrelated beliefs, or the abstraction of unrelated schemas when the dissonant event cannot be easily accommodated. This article presents 4 studies (N = 1124) demonstrating that the classic induced-compliance dissonance paradigm can lead not only to a change of attitudes (dissonance reduction), but also to (a) an increased reported belief in God (Study 2), (b) a desire to punish norm-violators (Study 1 and 3), (c) a motivation to detect patterns amid noise (Study 3), and (d) polarizing support of public policies among those already biased toward a particular side (Study 4). These results are congruent with theories that propose content-general fluid compensation following the experience of anomaly, a finding not predicted by dissonance theory. The results suggest that dissonance reduction behaviors may share psychological processes described by other theories addressing violations of expectations.

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Leave Her out of It: Person-Presentation of Strategies Is Harmful for Transfer

Anne Riggs, Martha Alibali & Charles Kalish
Cognitive Science, forthcoming

Abstract:
A common practice in textbooks is to introduce concepts or strategies in association with specific people. This practice aligns with research suggesting that using "real-world" contexts in textbooks increases students' motivation and engagement. However, other research suggests this practice may interfere with transfer by distracting students or leading them to tie new knowledge too closely to the original learning context. The current study investigates the effects on learning and transfer of connecting mathematics strategies to specific people. A total of 180 college students were presented with an example of a problem-solving strategy that was either linked with a specific person (e.g., "Juan's strategy") or presented without a person. Students who saw the example without a person were more likely to correctly transfer the novel strategy to new problems than students who saw the example presented with a person. These findings are the first evidence that using people to present new strategies is harmful for learning and transfer.

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Did Shakespeare Write Double Falsehood? Identifying Individuals by Creating Psychological Signatures With Text Analysis

Ryan Boyd & James Pennebaker
Psychological Science, forthcoming

Abstract:
More than 100 years after Shakespeare's death, Lewis Theobald published Double Falsehood, a play supposedly sourced from a lost play by Shakespeare and John Fletcher. Since its release, scholars have attempted to determine its true authorship. Using new approaches to language and psychological analysis, we examined Double Falsehood and the works of Theobald, Shakespeare, and Fletcher. Specifically, we created a psychological signature from each author's language and statistically compared the features of each signature with those of Double Falsehood's signature. Multiple analytic approaches converged in suggesting that Double Falsehood's psychological style and content architecture predominantly resemble those of Shakespeare, showing some similarity with Fletcher's signature and only traces of Theobald's. Closer inspection revealed that Shakespeare's influence is most apparent early in the play, whereas Fletcher's is most apparent in later acts. Double Falsehood has a psychological signature consistent with that expected to be present in the long-lost play The History of Cardenio, cowritten by Shakespeare and Fletcher.

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Cognitive Ability and the Stock Reallocations of Retirees during the Great Recession

Chris Browning & Michael Finke
Journal of Consumer Affairs, forthcoming

Abstract:
Retirees are increasingly responsible for managing their retirement savings. The ability to manage these assets efficiently can have an important impact on retirement well-being. Lower levels of cognitive ability in old age can reduce an investor's ability to control emotional responses to a loss. Greater sensitivity to loss may increase preferences for safety following a market decline, resulting in allocations away from stocks that are associated with long-term underperformance. We investigate whether cognitive ability is related to stock reallocations among retirees during the Great Recession. Using the Health and Retirement Study, we find that cognitive ability is negatively related to allocations away from stock. Compared to those with the lowest levels of cognitive ability, respondents with higher cognitive ability are 40% less likely to reduce their stock allocation by 50% or more. These results suggest that the quality of investment decisions in old age may be compromised by cognitive decline.

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Golden rule of forecasting rearticulated: Forecast unto others as you would have them forecast unto you

Kesten Green, Scott Armstrong & Andreas Graefe
Journal of Business Research, forthcoming

Abstract:
The Golden Rule of Forecasting is a general rule that applies to all forecasting problems. The Rule was developed using logic and was tested against evidence from previously published comparison studies. The evidence suggests that a single violation of the Golden Rule is likely to increase forecast error by 44%. Some commentators argue that the Rule is not generally applicable, but do not challenge the logic or evidence provided. While further research might provide useful findings, available evidence justifies adopting the Rule now. People with no prior training in forecasting can obtain the substantial benefits of following the Golden Rule by using the Checklist to identify biased and unscientific forecasts at little cost.

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Distraction from emotional information reduces biased judgements

Heather Lench, Shane Bench & Elizabeth Davis
Cognition & Emotion, forthcoming

Abstract:
Biases arising from emotional processes are some of the most robust behavioural effects in the social sciences. The goal of this investigation was to examine the extent to which the emotion regulation strategy of distraction could reduce biases in judgement known to result from emotional information. Study 1 explored lay views regarding whether distraction is an effective strategy to improve decision-making and revealed that participants did not endorse this strategy. Studies 2-5 focused on several established, robust biases that result from emotional information: loss aversion, desirability bias, risk aversion and optimistic bias. Participants were prompted to divert attention away from their feelings while making judgements, and in each study this distraction strategy resulted in reduced bias in judgement relative to control conditions. The findings provide evidence that distraction can improve choice across several situations that typically elicit robustly biased responses, even though participants are not aware of the effectiveness of this strategy.

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Are Longshots Only for Losers? A New Look at the Last Race Effect

Craig McKenzie et al.
Journal of Behavioral Decision Making, forthcoming

Abstract:
There is evidence that betting on longshots increases in the last race of a day of horse racing. Previous accounts have assumed that the phenomenon is driven by bettors who have lost money and are trying to recoup their losses. To test this assumption of "reference dependence," three laboratory experiments simulated a day at the races: In each of several rounds, participants chose either (i) a gamble with a small probability of a large gain and a large probability of a small loss (the "longshot") or (ii) a gamble with a moderate chance of a small gain or a small loss (the "favorite"). The first two experiments employed a game played for points, while a third experiment included monetary incentives and stimuli drawn from a real day of racing. These experiments provide a clear demonstration of the last race effect in a laboratory setting. However, the results indicate that the effect is largely reference independent: Participants were more likely to choose the longshot in the last round regardless of whether, and how much, they had won or lost in previous rounds. Winning or losing, bettors prefer to "go out with a bang" at the end of a series of gambles.

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How Do Experts Update Beliefs? Lessons from a Non-Market Environment

Michael Sinkey
Journal of Behavioral and Experimental Economics, forthcoming

Abstract:
Experts are regularly relied upon to provide their professional assessments in a wide array of markets (e.g., asset pricing, stock and bond ratings, expert witnesses, forecasting), which frequently have characteristics that may generate incentives for experts to provide biased analyses. I ask how experts update beliefs in a relatively simple environment with minimal market incentives. Using data from the Associated Press (AP) Top 25 Poll for college football I find that many standard sets of Bayesian beliefs are rejected by the data, and that experts, while using Bayes' rule, may still be subject to similar biases as non-experts, including confirmatory bias and lagged signal response, which may be symptomatic of inattention, voter heterogeneity, and signal reassessment. In more complex environments, experts may have strong incentives to substantially deviate from Bayes' rule, biasing expert predictions in unknown directions.

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Money Earlier or Later? Simple Heuristics Explain Intertemporal Choices Better Than Delay Discounting Does

Keith Marzilli Ericson et al.
Psychological Science, forthcoming

Abstract:
Heuristic models have been proposed for many domains involving choice. We conducted an out-of-sample, cross-validated comparison of heuristic models of intertemporal choice (which can account for many of the known intertemporal choice anomalies) and discounting models. Heuristic models outperformed traditional utility-discounting models, including models of exponential and hyperbolic discounting. The best-performing models predicted choices by using a weighted average of absolute differences and relative percentage differences of the attributes of the goods in a choice set. We concluded that heuristic models explain time-money trade-off choices in experiments better than do utility-discounting models.

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Predicting what we will like: Asking a stranger can be as good as asking a friend

Casey Eggleston et al.
Organizational Behavior and Human Decision Processes, May 2015, Pages 1-10

Abstract:
When predicting how much they will like something they have not encountered before, people use three commonsense theories: It is better to have a description of the attitude object than to know how someone else felt about it ("I know better than others"), better to know how a friend felt about it than how a stranger felt ("birds of a feather"), and better to get advice from friends - how much they think we will like it - than to know how they felt about it ("my friends know me"). We present evidence that people endorse these lay theories but also that they overuse them. Sometimes people make better predictions by knowing how a stranger felt than by getting a description of the object, sometimes a stranger is as good as a friend, and sometimes advice is not any better than knowing how someone else felt.

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Making Sense of Dynamic Systems: How Our Understanding of Stocks and Flows Depends on a Global Perspective

Helen Fischer & Cleotilde Gonzalez
Cognitive Science, forthcoming

Abstract:
Stocks and flows (SF) are building blocks of dynamic systems: Stocks change through inflows and outflows, such as our bank balance changing with withdrawals and deposits, or atmospheric CO2 with absorptions and emissions. However, people make systematic errors when trying to infer the behavior of dynamic systems, termed SF failure, whose cognitive explanations are yet unknown. We argue that SF failure appears when people focus on specific system elements (local processing), rather than on the system structure and gestalt (global processing). Using a standard SF task (n = 148), SF failure decreased by (a) a global as opposed to local task format; (b) individual global as opposed to local processing styles; and (c) global as opposed to local perceptual priming. These results converge toward local processing as an explanation for SF failure. We discuss theoretical and practical implications on the connections between the scope of attention and understanding of dynamic systems.

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Extremism reduces conflict arousal and increases values affirmation in response to meaning violations

Willem Sleegers, Travis Proulx & Ilja van Beest
Biological Psychology, May 2015, Pages 126-131

Abstract:
In the social psychological threat-compensation literature, there is an apparent contradiction whereby relatively extreme beliefs both decrease markers of physiological arousal following meaning violations, and increase the values affirmation behaviors understood as a palliative responses to this arousal. We hypothesize that this is due to the differential impact of measuring extremism on behavioral inhibition and approach systems following meaning violations, whereby extremism both reduces markers of conflict arousal (BIS) and increases values affirmation (BAS) unrelated to this initial arousal. Using pupil dilation as a proxy for immediate conflict arousal, we found that the same meaning violation (anomalous playing cards) evoked greater pupil dilation, and that this pupillary reaction was diminished in participants who earlier reported extreme beliefs. We also found that reporting extreme beliefs was associated with greater affirmation of an unrelated meaning framework, where this affirmation was unrelated to physiological markers of conflict arousal.

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Is Belief in Conspiracy Theories Pathological? A Survey Experiment on the Cognitive Roots of Extreme Suspicion

Scott Radnitz & Patrick Underwood
British Journal of Political Science, forthcoming

Abstract:
What are the origins of belief in conspiracy theories? The dominant approach to studying conspiracy theories links belief to social stresses or personality type, and does not take into account the situational and fluctuating nature of attitudes. In this study, a survey experiment, subjects are presented with a mock news article designed to induce conspiracy belief. Subjects are randomly assigned three manipulations hypothesized to heighten conspiracy perceptions: a prime to induce anxiety; information about the putative conspirator; and the number and identifiability of the victim(s). The results indicate that conspiratorial perceptions can emerge from both situational triggers and subtle contextual variables. Conspiracy beliefs emerge as ordinary people make judgments about the social and political world.

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Negative Affect as a Mechanism of Exemplification Effects: An Experiment on Two-Sided Risk Argument Recall and Risk Perception

Graham Dixon
Communication Research, forthcoming

Abstract:
This study explores the effect of negative exemplars on two-sided message recall and risk perception, as mediated by negative affect. In an experiment, participants were randomly assigned to an article presenting conflicting risk arguments about vaccination that included a photograph exemplifying one argument side (receiving a vaccine is risky), a photograph exemplifying the other argument side (not receiving a vaccine is risky), or no photograph (control condition). Exemplifying the risks associated with vaccination influenced uneven recall and risk perception. Negative affect, rather than perceived argument strength, mediated these effects and was a stronger predictor of risk perception than risk argument recall, lending support to the affect heuristic. However, exemplifying the risk of not vaccinating produced null effects on affect, risk perception, and recall, despite using the same photograph. A follow-up study suggests that motivated reasoning played a role in this null finding, providing direction for future research.

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Can We Undo Our First Impressions? The Role of Reinterpretation in Reversing Implicit Evaluations

Thomas Mann & Melissa Ferguson
Journal of Personality and Social Psychology, forthcoming

Abstract:
Little work has examined whether implicit evaluations can be effectively "undone" after learning new revelations. Across 7 experiments, participants fully reversed their implicit evaluation of a novel target person after reinterpreting earlier information. Revision occurred across multiple implicit evaluation measures (Experiments 1a and 1b), and only when the new information prompted a reinterpretation of prior learning versus did not (Experiment 2). The updating required active consideration of the information, as it emerged only with at least moderate cognitive resources (Experiment 3). Self-reported reinterpretation predicted (Experiment 4) and mediated (Experiment 5) revised implicit evaluations beyond the separate influence of how thoughtfully participants considered the new information in general. Finally, the revised evaluations were durable 3 days later (Experiment 6). We discuss how these results inform existing theoretical models, and consider implications for future research.

By KEVIN LEWIS | 09:00:00 AM

Wednesday, April 29, 2015

Give me credit

Easy Credit as Social Safety Net? How Interest Rate Changes Affect US Social Policies

Andreas Wiedemann
MIT Working Paper, April 2015

Abstract:
Access to credit not only enables people to consume beyond their current income, but also increasingly determines life chances and access to basic social services. This paper argues that there is a trade-off between private credit and the welfare state and proposes a causal model of social policy-making where policymakers incorporate the availability of credit in their considerations of how to distribute welfare resources. Drawing on time-series cross-sectional data from US states, I first show that a decline in the share of denied mortgages is associated with lower health care and unemployment expenditures and a modest decline in unemployment insurance generosity. Secondly, I exploit exogenous variation in state-level mortgage interest rates induced by differential timing in bank branch deregulation to demonstrate that improved access to mortgage credit similarly decreases state-level health care and unemployment expenditures and unemployment insurance generosity. The findings of this paper provide causal evidence that easier access to credit lowers state-level public health and unemployment expenditures. These credit flows to families enabled policymakers to shift the burden of social policies from the domain of the publicly financed welfare state into the domain of privately-funded market-driven welfare state. The transition toward a credit-based welfare state has broad socioeconomic consequences. Credit can serve as an alternative form of or substitute for social redistribution and social insurance, but it cannot replace it because the distributional and stratifying implications are not the same as in the case of publicly provided social policies.

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Asset Quality Misrepresentation by Financial Intermediaries: Evidence from the RMBS Market

Tomasz Piskorski, Amit Seru & James Witkin
Journal of Finance, forthcoming

Abstract:
We document that contractual disclosures by intermediaries during the sale of mortgages contained false information about the borrower's housing equity in 7–14% of loans. The rate of misrepresented loan default was 70% higher than for similar loans. These misrepresentations likely occurred late in the intermediation and exist among securities sold by all reputable intermediaries. Investors – including large institutions – holding securities with misrepresented collateral suffered severe losses due to loan defaults, price declines, and ratings downgrades. Pools with misrepresentations were not issued at a discount. Misrepresentation on another easy-to-quantify dimension shows that these effects are a conservative lower bound.

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Regional Redistribution Through the U.S. Mortgage Market

Erik Hurst et al.
NBER Working Paper, March 2015

Abstract:
An integrated tax and transfer system together with factor mobility can help mitigate local shocks within monetary and fiscal unions. In this paper we explore the role of a new mechanism that may also be central to determining the welfare effects of regional shocks. The degree to which households can use borrowing to smooth location-specific risks depends crucially on the interest rate and how it varies with local economic conditions. In the U.S., the bulk of borrowing occurs through the mortgage market and is heavily influenced by the presence of government-sponsored enterprises (GSEs). We empirically establish that despite large spatial variation in predictable default risk, there is essentially no spatial variation in GSE mortgage rates, conditional on borrower observables. In contrast, we show that the private market does set interest rates based in part on regional risk factors and postulate that the lack of regional variation in GSE mortgage rates is likely driven by political pressure. We quantify the economic impact of the national interest rate policy on regional risk by building a structural spatial model of collateralized borrowing to match various features from our empirical analysis. The model suggests that the national interest rate policy has significant ex-post redistributional consequences across regions.

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Insolvency after the 2005 Bankruptcy Reform

Stefania Albanesi & Jaromir Nosal
Federal Reserve Working Paper, April 2015

Abstract:
Using a comprehensive panel data set on U.S. households, we study the effects of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), the most substantive reform of personal bankruptcy in the United States since the Bankruptcy Reform Act of 1978. The 2005 legislation introduced a means test based on income to establish eligibility for Chapter 7 bankruptcy and increased the administrative requirements to file, leading to a rise in the opportunity cost and, especially, the financial cost of filing for bankruptcy. We study the effects of the reform on bankruptcy, insolvency, and foreclosure. We find that the reform caused a permanent drop in the Chapter 7 bankruptcy rate relative to pre-reform levels, due to the rise in filing costs associated with the reform, which can be interpreted as resulting from liquidity constraints. We find that the decline in bankruptcy filings resulted in a rise in the rate and persistence of insolvency as well as an increase in the rate of foreclosure. We find no evidence of a link between the decline in bankruptcy and a rise in the number of individuals who are current on their debt. We document that these effects are concentrated at the bottom of the income distribution, suggesting that the income means tests introduced by BAPCPA did not serve as an effective screening device. We show that insolvency is associated with worse financial outcomes than bankruptcy, as insolvent individuals have less access to new lines of credit and display lower credit scores than individuals who file for bankruptcy. Since bankruptcy filings declined much more for low income individuals, our findings suggest that BAPCPA may have removed an important form of relief from financial distress for this group.

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Duration of bankruptcy proceedings and monetary policy effectiveness

Uluc Aysun
Journal of Macroeconomics, June 2015, Pages 295–302

Abstract:
A common assumption in well-known costly-state-verification frameworks is that when a borrower defaults, creditors receive a payoff immediately (after incurring bankruptcy costs). While this assumption enhances tractability, it is unrealistic given the considerable delays in the actual practice of bankruptcy. In this paper, I identify the duration of bankruptcy proceedings as an additional source of friction in financial markets and investigate the relationship between this friction and the effectiveness of monetary policy by using U.S. state-level data. Consistent with the commonly-observed positive relationship between the degree of standard financial frictions and the amplitude of macroeconomic responses, I find that U.S. monetary policy is most effective in states with longer bankruptcy proceedings.

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Appraisal inflation: Evidence from 2009 GSE HVCC intervention

Lan Shi & Yan Zhang
Journal of Housing Economics, forthcoming

Abstract:
Appraisal inflation is a prominent aspect of lax underwriting practice. The GSE May 2009 Home Valuation Code of Conduct (HVCC) aims to prohibit lenders from influencing appraisers. Refinance loans, without a transaction price, are potentially more susceptible to appraisal inflation than purchase loans. We use GSE refinance loans as our treatment group and non-GSE refinance loans as the control group, and find that GSE refinance loans originated after May 2009 have lower default rates than non-GSE refinance loans. We further measure the appraisal inflation (bias) as the difference between the appraisal value in a 2009 refinance transaction and the actual transaction price in an earlier purchase transaction for the same property adjusted for local housing value changes. We find that the reduction in appraisal bias was larger for GSE refinance loans than for non-GSE refinance loans. This paper quantifies the “contribution” of appraisal inflation in poor loan underwriting standards and highlights the importance of unbiased and independent appraisal.

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Bankruptcy Rates among NFL Players with Short-Lived Income Spikes

Kyle Carlson et al.
NBER Working Paper, April 2015

Abstract:
One of the central predictions of the life cycle hypothesis is that individuals smooth consumption over their economic life cycle; thus, they save when income is high, in order to provide for when income is likely to be low, such as after retirement. We test this prediction in a group of people — players in the National Football League (NFL) — whose income profile does not just gradually rise then fall, as it does for most workers, but rather has a very large spike lasting only a few years. We collected data on all players drafted by NFL teams from 1996 to 2003. Given the difficulty of directly measuring consumption of NFL players, we test whether they have adequate savings by counting how many retired NFL players file for bankruptcy. Contrary to the life-cycle model predictions, we find that initial bankruptcy filings begin very soon after retirement and continue at a substantial rate through at least the first 12 years of retirement. Moreover, bankruptcy rates are not affected by a player’s total earnings or career length. Having played for a long time and been well-paid does not provide much protection against the risk of going bankrupt.

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Crowding Out Effects of Refinancing on New Purchase Mortgages

Steven Sharpe & Shane Sherlund
Federal Reserve Working Paper, March 2015

Abstract:
We present evidence that binding mortgage processing capacity constraints reduce mortgage originations to borrowers of low to modest credit quality. Mortgage processing capacity constraints typically bind when the demand for mortgage refinancing shifts outward, usually because of lower mortgage rates. As a result, high capacity utilization leads mortgage lenders to ration mortgage credit, completing mortgages that require less underwriting resources, and are thus less costly, to produce. This is hypothesized to have a particularly adverse impact on the ability of low- to modest-credit-quality borrowers to obtain mortgages. What is more, we show that, by lowering capacity utilization, a rise in interest rates can, under certain circumstances, induce an increase in mortgage originations to borrowers of low to modest credit quality. In particular, we find fairly large effects for purchasing borrowers of modest credit quality, in which we find that a decrease in capacity utilization of 4 applications per mortgage employee (similar to that observed from 2012 to 2013) could result in increased purchase mortgage originations, as the relaxed capacity constraint at least partially offsets the higher cost of mortgage credit.

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Consumer Bankruptcy and Financial Health

Will Dobbie, Paul Goldsmith-Pinkham & Crystal Yang
NBER Working Paper, March 2015

Abstract:
This paper estimates the effect of Chapter 13 bankruptcy protection on post-filing financial outcomes using a new dataset linking bankruptcy filings to credit bureau records. Our empirical strategy uses the leniency of randomly-assigned judges as an instrument for Chapter 13 protection. Over the first five post-filing years, we find that Chapter 13 protection decreases an index measuring adverse financial events such as civil judgments and repossessions by 0.316 standard deviations, increases the probability of being a homeowner by 13.2 percentage points, and increases credit scores by 14.9 points. Chapter 13 protection has little impact on open unsecured debt, but decreases the amount of debt in collections by $1,315.

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Estimating Loan-to-Value Distributions

Arthur Korteweg & Morten Sorensen
Real Estate Economics, forthcoming

Abstract:
We estimate a model of house prices, combined loan-to-value ratios (CLTVs) and trade and foreclosure behavior. House prices are only observed for traded properties and trades are endogenous, creating sample-selection problems for existing approaches to estimating CLTVs. We use a Bayesian filtering procedure to recover the price path for individual properties and produce selection-corrected estimates of historical CLTV distributions. Estimating our model with transactions of residential properties in Alameda, California, we find that 35% of single-family homes are underwater, compared to 19% estimated by existing approaches. Our results reduce the index revision problem and have applications for pricing mortgage-backed securities.

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House Price Impacts of Racial, Income, Education, and Age Neighborhood Segregation

David Brasington, Diane Hite & Andres Jauregui
Journal of Regional Science, forthcoming

Abstract:
We study housing prices and neighborhood segregation. We advance the literature by (1) studying not just racial segregation like previous studies, but also segregation by age, income, and education level, (2) using a finer unit of geography to construct segregation measures, (3) incorporating spatial statistics, and (4) separating segregation effects from underlying population level effects. We find race segregation is positively related to house prices, with an elasticity of 0.19. In contrast, income and educational segregation reduce housing values, with elasticities of −0.23 and −0.21. By comparison, house age has an elasticity of −0.15. Age segregation is not generally capitalized.

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Information Losses in Home Purchase Appraisals

Paul Calem, Lauren Lambie-Hanson & Leonard Nakamura
Federal Reserve Working Paper, March 2015

Abstract:
Home appraisals are produced for millions of residential mortgage transactions each year, but appraisals are rarely below the transaction price. We exploit a unique data set to show that the mortgage application process creates an incentive to substitute the transaction price for the true appraised value when the latter is lower. We relate the frequency of information loss (appraisals set equal to transaction price) to market conditions and other factors that plausibly determine the degree of distortion. Information loss in appraisals may increase the procyclicality of housing booms and busts.

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Learning from Performance: Banks, Collateralized Debt Obligations, and the Credit Crisis

Kim Pernell-Gallagher
Social Forces, forthcoming

Abstract:
This article investigates how firms in competitive markets use external examples to assess the value of novel practices, focusing on the substantively important case of collateralized debt obligation (CDO) underwriting among US investment and commercial banks, 1996–2007. Diffusion researchers have struggled to adjudicate between competing mechanisms of social contagion, including imitation and learning. I use event-history methods to examine how banks responded to the activities and results of other CDO underwriters. I show that banks learned superstitiously from the share price performance of other CDO underwriters; as the popularity of CDO underwriting increased, banks became even more attentive to confirmatory evidence on this dimension. These findings suggest important refinements to theories of social contagion, especially neoinstitutional theory. By focusing on ordinary organizational processes in an extraordinary context, I uncover an alternative explanation for the rise of complex securitization, with implications for current understandings of the credit crisis.

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The Paradox of Judicial Foreclosure: Collateral Value Uncertainty and Mortgage Rates

David Harrison & Michael Seiler
Journal of Real Estate Finance and Economics, April 2015, Pages 377-411

Abstract:
Using a sample of 26,892 rate quotes on home purchase loan applications, the current paper investigates interstate variation in residential mortgage interest rates. More specifically, we find posted rate quotes by lenders are directly related to measures of foreclosure process risk including the length of time required to complete foreclosure proceedings within a jurisdiction and the presence (and length) of statutory redemption periods. Mortgage rates are also found to be contingent upon differential underwriting fees and conditions, housing appreciation and volatility measures, and the competitive nature of the economic marketplace in which each lender operates. In contrast to the previous literature, we find the judicial foreclosure process requirements exert little to no impact on observable mortgage interest rate quotes after controlling for these additional dimensions of risk.

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Wealth and Volatility

Jonathan Heathcote & Fabrizio Perri
NBER Working Paper, February 2015

Abstract:
Periods of low household wealth in United States macroeconomic history have also been periods of high business cycle volatility. This paper develops a simple model that can exhibit self-fulfilling fluctuations in the expected path for unemployment. The novel feature is that the scope for sunspot-driven volatility depends on the level of household wealth. When wealth is high, consumer demand is largely insensitive to unemployment expectations and the economy is robust to confidence crises. When wealth is low, a stronger precautionary motive makes demand more sensitive to unemployment expectations, and the economy becomes vulnerable to confidence-driven fluctuations. In this case, there is a potential role for public policies to stabilize demand. Microeconomic evidence is consistent with the key model mechanism: during the Great Recession, households with relatively low wealth, ceteris paribus, cut expenditures more sharply.

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A quantitative analysis of the U.S. housing and mortgage markets and the foreclosure crisis

Satyajit Chatterjee & Burcu Eyigungor
Review of Economic Dynamics, forthcoming

Abstract:
We present a model of long-duration collateralized debt with risk of default. Applied to the housing market, it can match the homeownership rate, the average foreclosure rate, and the lower tail of the distribution of home-equity ratios across homeowners prior to the recent crisis. We stress the role of favorable tax treatment of housing in matching these facts. We then use the model to account for the foreclosure crisis in terms of three shocks: overbuilding, financial frictions and foreclosure delays. The financial friction shock accounts for much of the house price decline while the foreclosure delays account for bulk of the rise in foreclosures. The scale of the foreclosure crisis might have been smaller if mortgage interest payments were not tax deductible. Temporarily higher inflation might have lowered the foreclosure rate as well.

By KEVIN LEWIS | 09:00:00 AM

Tuesday, April 28, 2015

Shadow of the past

Helping Hands: Race, Neighborhood Context, and Reluctance in Providing Job-Finding Assistance

Lindsay Hamm & Steve McDonald
Sociological Quarterly, forthcoming

Abstract:
In order to explain persistent racial inequality, researchers have posited that black Americans receive fewer job benefits from their social networks because of their reluctance to provide assistance to others who are looking for work. We test this idea on a national scale using geo-coded data from the General Social Survey. Our results show that, on average, blacks offer more frequent job-finding assistance to their friends than do whites. However, additional analyses reveal that race-based job-finding assistance is context dependent, as blacks living in areas characterized by concentrated black poverty have lower odds of helping others search for jobs than members of other races and in other community contexts.

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Black Lives Matter: Differential Mortality and the Racial Composition of the U.S. Electorate, 1970-2004

Javier Rodriguez et al.
Social Science & Medicine, forthcoming

Abstract:
Excess mortality in marginalized populations could be both a cause and an effect of political processes. We estimate the impact of mortality differentials between blacks and whites from 1970 to 2004 on the racial composition of the electorate in the US general election of 2004 and in close statewide elections during the study period. We analyze 73 million US deaths from the Multiple Cause of Death files to calculate: (1) Total excess deaths among blacks between 1970 and 2004, (2) total hypothetical survivors to 2004, (3) the probability that survivors would have turned out to vote in 2004, (4) total black votes lost in 2004, and (5) total black votes lost by each presidential candidate. We estimate 2.7 million excess black deaths between 1970 and 2004. Of those, 1.9 million would have survived until 2004, of which over 1.7 million would have been of voting-age. We estimate that 1 million black votes were lost in 2004; of these, 900,000 votes were lost by the defeated Democratic presidential nominee. We find that many close state-level elections over the study period would likely have had different outcomes if voting age blacks had the mortality profiles of whites. US black voting rights are also eroded through felony disenfranchisement laws and other measures that dampen the voice of the US black electorate. Systematic disenfranchisement by population group yields an electorate that is unrepresentative of the full interests of the citizenry and affects the chance that elected officials have mandates to eliminate health inequality.

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Association between an Internet-Based Measure of Area Racism and Black Mortality

David Chae et al.
PLoS ONE, April 2015

Abstract:
Racial disparities in health are well-documented and represent a significant public health concern in the US. Racism-related factors contribute to poorer health and higher mortality rates among Blacks compared to other racial groups. However, methods to measure racism and monitor its associations with health at the population-level have remained elusive. In this study, we investigated the utility of a previously developed Internet search-based proxy of area racism as a predictor of Black mortality rates. Area racism was the proportion of Google searches containing the "N-word" in 196 designated market areas (DMAs). Negative binomial regression models were specified taking into account individual age, sex, year of death, and Census region and adjusted to the 2000 US standard population to examine the association between area racism and Black mortality rates, which were derived from death certificates and mid-year population counts collated by the National Center for Health Statistics (2004-2009). DMAs characterized by a one standard deviation greater level of area racism were associated with an 8.2% increase in the all-cause Black mortality rate, equivalent to over 30,000 deaths annually. The magnitude of this effect was attenuated to 5.7% after adjustment for DMA-level demographic and Black socioeconomic covariates. A model controlling for the White mortality rate was used to further adjust for unmeasured confounders that influence mortality overall in a geographic area, and to examine Black-White disparities in the mortality rate. Area racism remained significantly associated with the all-cause Black mortality rate (mortality rate ratio = 1.036; 95% confidence interval = 1.015, 1.057; p = 0.001). Models further examining cause-specific Black mortality rates revealed significant associations with heart disease, cancer, and stroke. These findings are congruent with studies documenting the deleterious impact of racism on health among Blacks. Our study contributes to evidence that racism shapes patterns in mortality and generates racial disparities in health.

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Bad Credit and Intergroup Differences in Loan Denial Rates

Sheila Ards et al.
Review of Black Political Economy, June 2015, Pages 19-34

Abstract:
Research has found wide disparities in loan denial rates among different racial/ethnic groups. Two competing explanations for these gaps arise. One argument is that these disparities result from underlying racial disparities in credit worthiness. A competing view is that the disparities arise from a pattern of racial discrimination among mortgage lenders. This paper adopts a stratification economics approach to evaluate these competing claims. Using Freddie Mac's Consumer Credit Survey dataset, we test the hypothesis that measures of discrimination disappear when one accounts for racial differences in credit scores. A novel contribution of the paper, built upon the premise that inter-group inequalities sustain themselves through self-fulfilling mechanisms, is to test the hypothesis that loan denials explain misperceptions of credit worthiness. We demonstrate that one cause of the appearance of poor credit risk among black applicants is that blacks with good credit risk underestimate their credit worthiness and apply for loans in lower numbers. Our findings suggest that even nondiscriminatory lending behavior has the unintended effect of screening out low-risk blacks and thereby yields higher denial rates among blacks. This in turn confirms prior beliefs about the poor credit of average black applicants. Much, but not all, of the racial disparity in loan outcomes can be explained by racial differences in credit scores and the resulting racial disparity in loan outcomes explains much of the racial difference in false perceptions about bad credit. Thus, a possible self-fulfilling mechanism remains within the credit market that perpetuates views about black bad credit.

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The Primacy of Race in the Geography of Income-Based Voting: New Evidence from Public Voting Records

Eitan Hersh & Clayton Nall
American Journal of Political Science, forthcoming

Abstract:
Why does the relationship between income and partisanship vary across U.S. regions? Some answers to this question have focused on economic context (in poorer environments, economics is more salient), whereas others have focused on racial context (in racially diverse areas, richer voters oppose the party favoring redistribution). Using 73 million geocoded registration records and 185,000 geocoded precinct returns, we examine income-based voting across local areas. We show that the political geography of income-based voting is inextricably tied to racial context, and only marginally explained by economic context. Within homogeneously nonblack localities, contextual income has minimal bearing on the income-party relationship. The correlation between income and partisanship is strong in heavily black areas of the Old South and other areas with a history of racialized poverty, but weaker elsewhere, including in urbanized areas of the South. The results demonstrate that the geography of income-based voting is inseparable from racial context.

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A Tale of "Two Souths": White Voting Behavior in Contemporary Southern Elections

Seth McKee & Melanie Springer
Social Science Quarterly, forthcoming

Objective: We empirically demonstrate that the long-held political distinction between the Deep South and the Peripheral South persists to this day.

Methods: Data from the Cooperative Congressional Election Study (CCES) are employed in logistic regression models to assess differences in the likelihood of voting Republican among Deep and Peripheral South whites in gubernatorial, senatorial, and presidential contests. Additionally, recent data on the partisan and racial composition of various elective offices document the sharp decline in Democratic officeholders.

Results: In contemporary Southern elections, Deep South whites, after controlling for several factors such as partisanship, ideology, religion, and income, are consistently and significantly more likely to vote Republican than their Peripheral South peers.

Conclusions: Race remains the most salient issue in Southern politics and it structures the alignment of whites and blacks into opposing parties. Because of this, whites are more Republican in their voting behavior in the more culturally conservative subregion where the proportion of African Americans is higher: the Deep South. Dixie is now dominated by the GOP, and especially in the Deep South, with grim representational implications for African Americans because they are no longer part of coalitional majorities at virtually every level of governance.

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The Dynamics of Opportunity and Insurgent Practice: How Black Anti-colonialists Compelled Truman to Advocate Civil Rights

Joshua Bloom
American Sociological Review, April 2015, Pages 391-415

Abstract:
Political opportunity theory has proven extremely generative, highlighting the importance of macro-structural shifts in making established authorities vulnerable to insurgent challenge. But as critics point out, political opportunity theory flattens both culture and agency, and has fared poorly in explaining the timing of insurgency. Re-theorizing opportunity as leveraged by particular practices, rather than independently conferring to groups, redresses these limits, revealing the proximate causes of mobilization and influence. For a strategic test, this article revisits the forging ground of opportunity theory. Why did President Harry S. Truman, initially an apologist for the slow pace of racial reform in 1945-46, suddenly become an avid advocate of civil rights? Opportunity scholars argue that macro-structural forces caused Truman to advocate civil rights, generating the opportunity for insurgency by blacks as a group. But event structure analysis reveals how Black Anti-colonialist practices leveraged opportunities afforded by the earlier Progressive Challenge to compel Truman to adopt civil rights advocacy. Civil rights advocacy, in turn, allowed Truman to repress Black Anti-colonialist practices, even while setting the stage for the Civil Rights Movement to come. Different forms of insurgent practice leveraged opportunities created by different institutional cleavages; the same opportunities did not advantage all insurgency by a social group.

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Property Law as Labor Control in the Postbellum South

Brian Sawers
Law and History Review, forthcoming

Abstract:
In 1860, unfenced land across the South was open to the public. No state criminalized trespass, and the range was closed in only part of one county. Elsewhere, some states had closed the range, but most unfenced land in the United States was open to the wanderer. In the former Confederacy, fresh elections were held in 1865, and legislatures moved quickly to criminalize trespass, restrict hunting and fishing, and close the range.

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The Use of Incarceration in Canada: A Test of Political and Social Threat Explanations on the Variation in Prison Admissions across Canadian Provinces, 2001-2010

Roland Neil & Jason Carmichael
Sociological Inquiry, May 2015, Pages 309-332

Abstract:
Recent scholarship has indicated that political and ethnic threat theories - which maintain that the use of prison is not only determined by the extent of crime in society but also by various features related to power, ideology, and access to resources - provide powerful accounts as to why the use of punishment varies within and between societies. However, no study to date has tested these theories within Canada, a country in which such theories are quite plausible. This study begins to fill this void by assessing these theoretical claims using a pooled time series analysis of the variation in imprisonment rates across Canadian provinces from the years 2001 to 2010. After accounting for several measures including charge rates, the results show that Canadian incarceration rates are largely driven by ethnic threat. The size of the Aboriginal and visible minority populations across each province are the most significant determinants of the variation in punishment. Furthermore, we find a nonlinear relationship consistent with a political version of the threat hypothesis. Results, however, do not support political accounts which stress the power of right-wing parties or a conservative public.

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Decomposing the Effect of Crime on Population Changes

Andrew Foote
Demography, April 2015, Pages 705-728

Abstract:
This article estimates the effect of crime on migration rates for counties in U.S. metropolitan areas and makes three contributions to the literature. First, I use administrative data on migration flows between counties, which gives me more precise estimates of population changes than data used in previous studies. Second, I am able to decompose net population changes into gross migration flows in order to identify how individuals respond to crime rate changes. Finally, I include county-level trends so that my identification comes from shocks away from the trend. I find effects that are one-fiftieth the size of the most prominent estimate in the literature; and although the long-run effects are somewhat larger, they are still only approximately one-twentieth as large. I also find that responses to crime rates differ by subgroups, and that increases in crime cause white households to leave the county, with effects almost 10 times as large as for black households.

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Neighborhood Foreclosures, Racial/Ethnic Transitions, and Residential Segregation

Matthew Hall, Kyle Crowder & Amy Spring
American Sociological Review, forthcoming

Abstract:
In this article, we use data on virtually all foreclosure events between 2005 and 2009 to calculate neighborhood foreclosure rates for nearly all block groups in the United States to assess the impact of housing foreclosures on neighborhood racial/ethnic change and on broader patterns of racial residential segregation. We find that the foreclosure crisis was patterned strongly along racial lines: black, Latino, and racially integrated neighborhoods had exceptionally high foreclosure rates. Multilevel models of racial/ethnic change reveal that foreclosure concentrations were linked to declining shares of whites and expanding shares of black and Latino residents. Results further suggest that these compositional shifts were driven by both white population loss and minority growth, especially from racially mixed settings with high foreclosure rates. To explore the impact of these racially selective migration streams on patterns of residential segregation, we simulate racial segregation assuming that foreclosure rates remained at their 2005 levels throughout the crisis period. Our simulations suggest that the foreclosure crisis increased racial segregation between blacks and whites by 1.1 dissimilarity points, and between Latinos and whites by 2.2 dissimilarity points.

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Is Timing Everything? Race, Homeownership, and Net Worth in the Tumultuous 2000s

Sandra Newman
Real Estate Economics, forthcoming

Abstract:
We use the Panel Study of Income Dynamics to estimate how net worth was affected among low- and moderate-income households who became first-time homebuyers at different points during the volatile 2000s. We address selection using propensity score matching and estimating difference-in-difference models, and use quantile regressions to account for the skew in net worth outcomes. Results highlight the significance of race in the relationship between first-time homebuying and net worth during the decade. Although timing was critical to the short-term trajectory of net worth for whites, total net worth declines for black first-time homebuyers regardless of economic climate. The most dramatic differences between black and white new homebuyers is their neighborhood locations, with blacks purchasing in predominantly black neighborhoods with lower housing prices and price appreciation, and lower and declining rates of homeownership.

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Race, Trust, and Return Migration: The Political Drivers of Post-disaster Resettlement

Gina Yannitell Reinhardt
Political Research Quarterly, forthcoming

Abstract:
After several disasters in the United States, the return-migration rate of blacks to post-disaster areas has been lower than that of other races. Does this pattern have a political explanation? I investigate political trust as the causal mechanism through which race affects people's decisions of where to live after forced evacuation. After accounting for economic, demographic, and sociological influences on return migration, I use mediation analysis to find that political trust acts as a mediator between race and return migration. I am thus able to explain the salience of race to the return-migration decision: race does not have a direct effect on return migration but rather works through the causal mechanism of political trust to determine return-migration decisions. As blacks are more likely to have low levels of political trust, and those with lower political trust are less likely to return, blacks are less likely to return to post-disaster areas.

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Protest Campaigns and Movement Success: Desegregating the U.S. South in the Early 1960s

Michael Biggs & Kenneth Andrews
American Sociological Review, April 2015, Pages 416-443

Abstract:
Can protest bring about social change? Although scholarship on the consequences of social movements has grown dramatically, our understanding of protest influence is limited; several recent studies have failed to detect any positive effect. We investigate sit-in protest by black college students in the U.S. South in 1960, which targeted segregated lunch counters. An original dataset of 334 cities enables us to assess the effect of protest while considering the factors that generate protest itself - including local movement infrastructure, supportive political environments, and favorable economic conditions. We find that sit-in protest greatly increased the probability of desegregation, as did protest in nearby cities. Over time, desegregation in one city raised the probability of desegregation nearby. In addition, desegregation tended to occur where opposition was weak, political conditions were favorable, and the movement's constituency had economic leverage.

By KEVIN LEWIS | 09:00:00 AM

Monday, April 27, 2015

Buried treasury

Politics at the Precipice: Fixing Social Security in 2033

Douglas Arnold
The Forum, April 2015, Pages 3–18

Abstract:
Social Security will be insolvent in 2033. If nothing is done, retirees will face an immediate 23% cut in their monthly benefits. The solvency cliff and its approximate date have been known for more than two decades. This paper examines why Congress has avoided fixing Social Security when the solutions were relatively affordable and when the baby-boom generation could have helped pay its share of the costs. It also examines what solutions will become politically feasible once the solvency cliff arrives. The surprise is that raising the wage base – in short, taxing the affluent – becomes the most politically appealing fix when insolvency arrives, despite the fact that this solution has no political appeal absent a crisis. Politics at the precipice is very different from ordinary politics.

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The In-State Equity Bias of State Pension Plans

Jeffrey Brown, Joshua Matthew Pollet & Scott Weisbenner
NBER Working Paper, March 2015

Abstract:
This paper provides evidence on the investment behavior of 27 state pension plans that manage their own equity portfolios. Even though these state plans typically hold broadly diversified portfolios, they substantially over-weight the equity of companies that are headquartered in-state. The over-weighting of within-state stocks by these plans is three times larger than that of other institutional investors. We explore three possible reasons for this in-state bias: familiarity bias, information-based investing, and political considerations. While there is a substantial preference for in-state stocks, there is no similar tilt toward holding stocks from neighboring states or out-of-state stocks in the state’s primary industry. States generate excess returns through their in-state investment activities, particularly among smaller stocks in the state’s primary industry. We also find that state pension plans are more likely to hold a within-state stock if the headquarters of the firm is located in a county that gave a high fraction of its campaign contributions to the current governor. These politically-motivated holdings yield excess returns for the pension fund.

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Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut

Danny Yagan
NBER Working Paper, March 2015

Abstract:
Policymakers frequently propose to use capital tax reform to stimulate investment and increase labor earnings. This paper tests for such real impacts of the 2003 dividend tax cut — one of the largest reforms ever to a U.S. capital tax rate — using a quasi-experimental design and a large sample of U.S. corporate tax returns from years 1996-2008. I estimate that the tax cut caused zero change in corporate investment, with an upper bound elasticity with respect to one minus the top statutory tax rate of .08 and an upper bound effect size of .03 standard deviations. This null result is robust across specifications, samples, and investment measures. I similarly find no impact on employee compensation. The lack of detectable real effects contrasts with an immediate impact on financial payouts to shareholders. Economically, the findings challenge leading estimates of the cost-of-capital elasticity of investment, or undermine models in which dividend tax reforms affect the cost of capital. Either way, it may be difficult for policymakers to implement an alternative dividend tax cut that has substantially larger near-term effects.

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Tax Cuts For Whom? Heterogeneous Effects of Income Tax Changes on Growth and Employment

Owen Zidar
NBER Working Paper, March 2015

Abstract:
This paper investigates how tax changes for different income groups affect aggregate economic activity. I construct a measure of who received (or paid for) tax changes in the postwar period using tax return data from NBER's TAXSIM. I aggregate each tax change by income group and state. Variation in the income distribution across U.S. states and federal tax changes generate variation in regional tax shocks that I exploit to test for heterogeneous effects. I find that the positive relationship between tax cuts and employment growth is largely driven by tax cuts for lower-income groups and that the effect of tax cuts for the top 10% on employment growth is small.

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Taxes and Financial Constraints: Evidence from Linguistic Cues

Kelvin Law & Lillian Mills
Journal of Accounting Research, forthcoming

Abstract:
Using a new measure of financial constraints based on firms’ qualitative disclosures, we find that financially constrained firms — firms that use more negative words in their annual reports — pursue more aggressive tax planning strategies as evidenced by: (1) higher current and future unrecognized tax benefits, (2) lower short- and long-run current and future effective tax rates, (3) increase in tax haven usage for their material operations, and (4) higher proposed audit adjustments from the Internal Revenue Service. We exploit the unexpected closures of local banks as exogenous liquidity shocks to show that firms’ external financial constraints affect their tax avoidance strategies. Overall, the linguistic cues in firms’ qualitative disclosures provide incremental information beyond traditional accounting variables or commonly used effective tax rates to reveal and predict tax aggressiveness, both contemporaneously and in the future.

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Corporate Tax Havens and Shareholder Value

Morten Bennedsen & Stefan Zeume
University of Michigan Working Paper, March 2015

Abstract:
Using a novel hand-collected dataset of 17,331 publicly listed firms from 52 countries and their international subsidiaries, we investigate the motives for establishing subsidiaries in tax havens. We document five sets of results. First, a 1 percentage point reduction in firms’ home-country corporate tax rate is associated with a 1.2 percent increase in value of firms without tax haven subsidiary while firms with tax haven subsidiary are unaffected. Second, the signing of Tax Information Exchange Agreements (TIEAs) increases average shareholder value by 2.5 percent. Third, the positive effect is stronger for firms with more complex firm structure within the tax haven. Fourth, firms respond to TIEAs by engaging in haven hopping, i.e. moving their subsidiaries from tax havens that entered TIEAs to tax havens that did not. Fifth, TIEAs do not increase average shareholder value of firms that engage in haven hopping. These results suggest that tax haven subsidiaries are used for entrenchment activities beyond pure tax saving.

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Self-serving bias and tax morale

Kay Blaufus et al.
Economics Letters, forthcoming

Abstract:
In a real-effort laboratory experiment, we find that moral evaluation of tax evasion is subject to a self-serving bias. Subjects with the opportunity to evade taxes judge tax evasion as less unethical as opposed to those who cannot evade.

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A Quantitative Analysis of Subsidy Competition in the U.S.

Ralph Ossa
NBER Working Paper, February 2015

Abstract:
What motivates regional governments to subsidize firm relocations and what are the implications of the subsidy competition among them? In this paper, I address these questions using a quantitative economic geography model which I calibrate to U.S. states. I show that states have strong incentives to subsidize firm relocations in order to gain at the expense of other states. I also show that subsidy competition creates large distortions so that there is much to gain from a cooperative approach. Overall, I find that manufacturing real income can be up to 3.9 percent higher if states stop competing over firms.

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Effects of Fiscal Shocks in a Globalized World

Alan Auerbach & Yuriy Gorodnichenko
NBER Working Paper, April 2015

Abstract:
While theoretical models consistently predict that government spending shocks should lead to appreciation of the domestic currency, empirical studies have been stubbornly finding depreciation. Using daily data on U.S. defense spending (announced and actual payments), we document that the dollar immediately and strongly appreciates after announcements about future government spending. In contrast, actual payments lead to no discernible effect on the exchange rate. We examine responses of other variables at the daily frequency and explore how the response of the exchange rate to fiscal shocks varies over the business cycle as well as at the zero lower bound and in normal times.

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Government Policy and Labor Supply with Myopic or Targeted Savings Decisions

Louis Kaplow
NBER Working Paper, April 2015

Abstract:
A central justification for social insurance and for other policies aimed at retirement savings is that individuals may fail to make adequate provision during their working years. Much research has focused on myopia and other behavioral limitations. Yet little attention has been devoted to how these infirmities, and government policies to rectify them, influence labor supply. This linkage could be extremely important in light of the large pre-existing distortion due to income and consumption taxation and income-based transfer programs. For example, might myopic individuals, as a first approximation, view payroll taxes and other withholding to fund retirement savings as akin to an income tax, while largely ignoring the distant future retirement benefits that they fund? If so, the distortion of labor supply may be many times higher than otherwise, making savings-promotion policies much more costly than appreciated. Or consider what may be the labor supply implications for an individual who is defaulted into higher savings and, as a consequence, sees concomitantly lower take-home pay. This essay offers a preliminary, conceptual exploration of these questions. In most of the cases considered, savings policies do not act purely like a tax despite individuals’ non-optimizing savings behavior, and in some cases labor supply actually is raised, not lowered, in which event policies that boost savings may be significantly more welfare-enhancing than recognized. Accordingly, there is a compelling need for empirical exploration of the interaction between nonoptimal savings behavior and labor supply.

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General Revenue Sharing and Public Sector Unions

Laura Feiveson
Journal of Public Economics, forthcoming

Abstract:
In this paper, I find that in the context of a large intergovernmental general revenue sharing program implemented from 1972 to 1986, cities increased expenditures one-for-one with federal grants, which is suggestive of a large flypaper effect. Furthermore, I find that cities in states with pro-union collective bargaining laws spent more than half of the transfers on increased wages, while cities in states without such laws spent a greater fraction on increased government services. These latter findings suggest that public sector unions play an important role in determining the usage and impact of intergovernmental grants.

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The Effect of Walmart and Target on the Tax Base: Evidence from New Jersey

Donald Vandegrift & John Loyer
Journal of Regional Science, March 2015, Pages 159–187

Abstract:
We find that a new Walmart has no significant effect on the growth in the tax base in either the host or the adjacent municipality. By contrast, a new Target has a significant positive effect on the growth in the tax base per acre in the host municipality and in the adjacent municipality. The new Target raises the real tax base per acre in the host municipality by about 2.82 percent and in the adjacent municipality by about 5.87 percent. Seventy percent of the host municipality effect follows from changes in the nonresidential tax base.

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How Individuals Smooth Spending: Evidence from the 2013 Government Shutdown Using Account Data

Michael Gelman et al.
NBER Working Paper, March 2015

Abstract:
Using comprehensive account records, this paper examines how individuals respond to a temporary drop in income following the 2013 U.S. Federal Government shutdown. Affected employees saw their income decline by 40% on average, which was recovered within two weeks. Despite having no effect on lifetime earnings, spending dropped sharply, implying a naïve estimate of the marginal propensity to spend of 0.57. This estimate overstates how consumption responded. To smooth consumption, individuals adjusted by delaying recurring payments such as mortgages and credit card balances. Those with the least liquidity struggled most to smooth spending and were left holding more debt months after the shutdown.

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War and the Sectoral Distribution of Wealth: Evidence from United States Firms

Isa Camyar & Bahar Ulupinar
International Studies Quarterly, forthcoming

Abstract:
In this research, we examine the sector-specific distributive effect of war in the United States economy. We argue that war generates sector-specific distributive effects via demand-side and supply-side mechanisms. We also claim that war’s distributive effects materialize over time. Our empirical analysis utilizes a panel dataset with 22,354 U.S. firms for the period from 1960 to 2007. It probes the impact of the U.S. Government’s war making on firm performance in the U.S. arms and non-arms (hybrid and civilian) sectors in both the short and long runs. Our analysis shows that war does not always affect U.S. non-arms sectors adversely. Indeed, war exercises a positive total long-run effect for these sectors. It also finds that the supposedly positive distributive effect of war for U.S. arms sectors proves weaker than analysts generally assume. Finally, it demonstrates that war-induced demand and supply shocks can explain these results. Overall, our research sheds light on a relatively understudied aspect of war and advances the general understanding of the political micro-economy of war making.

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Tax Incentives and Business Climate: Executive Perceptions From Incented and Nonincented Firms

Jason Jolley, Mandee Foushee Lancaster & Jiang Gao
Economic Development Quarterly, May 2015, Pages 180-186

Abstract:
Executive surveys ranking business climate factors have become commonplace in site selection publications. However, these rankings rarely examine if the surveyed firms are receiving economic development incentives and whether or not these incentives influence business climate perceptions. This research note examines the differences in business climate perceptions in North Carolina between executives in companies receiving tax credits for business investment and job creation activities and executives in companies not receiving tax credits. Both groups rank the availability of skilled labor as the primary factor influencing business climate. In addition, executives in both groups prefer overall tax reductions rather than select tax incentives to improve the state’s economy. Contrary to the belief among many economic development practitioners that tax credits are a motivating factor for firms to engage in economic development, only 30% of executives in incented companies were aware that their company had received a state economic development tax credit.

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Are PILOTs Property Taxes for Nonprofits?

Fan Fei, James Hines & Jill Horwitz
NBER Working Paper, April 2015

Abstract:
Nonprofit charitable organizations are exempt from most taxes, including local property taxes, but U.S. cities and towns increasingly request that nonprofits make payments in lieu of taxes (known as PILOTs). Strictly speaking, PILOTs are voluntary, though nonprofits may feel pressure to make them, particularly in high-tax communities. Evidence from Massachusetts indicates that PILOT rates, measured as ratios of PILOTs to the value of local tax-exempt property, are higher in towns with higher property tax rates: a one percent higher property tax rate is associated with a 0.2 percent higher PILOT rate. PILOTs appear to discourage nonprofit activity: a one percent higher PILOT rate is associated with 0.8 percent reduced real property ownership by local nonprofits, 0.2 percent reduced total assets, and 0.2 percent lower revenues of local nonprofits. These patterns are consistent with voluntary PILOTs acting in a manner similar to low-rate, compulsory real estate taxes.

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Input Distortions in The Low-Income Housing Tax Credit: Evidence from Building Size

Bree Lang
Regional Science and Urban Economics, May 2015, Pages 119–128

Abstract:
The Low-Income Housing Tax Credit subsidizes the non-land construction costs of low-income housing units. Because land costs are not subsidized, it may incentivize developers to produce buildings with too much capital from the viewpoint of optimal production. Using data on construction in Los Angeles County between 1993 and 2007, this paper estimates how the Low-Income Housing Tax Credit subsidy affects the size of newly constructed apartment buildings. Holding land area constant, I find the average subsidized building includes 25 to 29 percent more square footage than unsubsidized buildings constructed in the same year and zip code. The effect is primarily driven by subsidized buildings including more, instead of larger, housing units. Consistent with theoretical predictions, the effects are strongest in locations with low market rent. This input distortion is one reason that housing subsidies that fund the construction of low-income housing may be less cost-effective than subsidies given directly to tenants.

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Assist or desist? Conditional bailouts and fiscal discipline in local governments

Jens Dietrichson & Lina Maria Ellegård
European Journal of Political Economy, June 2015, Pages 153–168

Abstract:
Central government bailouts of local governments are commonly viewed as a recipe for local fiscal indiscipline, as local governments learn that the center will come to the rescue in times of trouble. However, little is known about the consequences of bailouts granted conditional on local governments first making efforts to improve the situation. We examine a case in which the Swedish central government provided conditional grants to 36 financially troubled municipalities. We use the synthetic control method to identify suitable comparison units for each of the 36 municipalities. To compare the development of costs and the fiscal surplus of admitted municipalities to that of their most similar counterparts during the decade after the program, we then estimate fixed effects regressions on the resulting sample. The analysis suggests that conditional bailouts did not erode, and may even had induced greater fiscal discipline.

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The Multiplier for Federal Spending in the States During the Great Depression

Price Fishback & Valentina Kachanovskaya
Journal of Economic History, March 2015, Pages 125-162

Abstract:
To estimate the impact of federal spending on state incomes, we develop an annual panel data set between 1930 and 1940. Using panel methods we estimate that an added dollar of federal spending in the state increased state per capita income by between 40 and 96 cents. The point estimates for nonfarm grants are higher and for AAA farm grants are much smaller and negative in some cases. The spending led to increase in durable good spending on automobiles but had no positive effects on private employment.

By KEVIN LEWIS | 09:00:00 AM


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