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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

Sunday, April 26, 2015

Let me help you

Competitive Helping in Online Giving

Nichola Raihani & Sarah Smith
Current Biology, forthcoming

Abstract:
Unconditional generosity in humans is a puzzle. One possibility is that individuals benefit from being seen as generous if there is competition for access to partners and if generosity is a costly - and therefore reliable - signal of partner quality. The "competitive helping" hypothesis predicts that people will compete to be the most generous, particularly in the presence of attractive potential partners. However, this key prediction has not been directly tested. Using data from online fundraising pages, we demonstrate competitive helping in the real world. Donations to fundraising pages are public and made sequentially. Donors can therefore respond to the behavior of previous donors, creating a potential generosity tournament. Our test of the competitive helping hypothesis focuses on the response to large, visible donations. We show that male donors show significantly stronger responses (by donating more) when they are donating to an attractive female fundraiser and responding to a large donation made by another male donor. The responses for this condition are around four times greater than when males give to less-attractive female (or male) fundraisers or when they respond to a large donation made by a female donor. Unlike males, females do not compete in donations when giving to attractive male fundraisers. These data suggest that males use competitive helping displays in the presence of attractive females and suggest a role for sexual selection in explaining unconditional generosity.

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The Scrooge effect revisited: Mortality salience increases the satisfaction derived from prosocial behavior

Tomasz Zaleskiewicz, Agata Gasiorowska & Pelin Kesebir
Journal of Experimental Social Psychology, July 2015, Pages 67-76

Abstract:
According to terror management theory, people deal with the potential for anxiety that results from the knowledge of the inevitability of death by holding on to sources of value that exist within their cultural worldview. Acting prosocially is one such source of value, and previous research suggests that reminders of mortality increase the desire for prosociality. In three studies, we tested the hypothesis that mortality reminders would lead to more generous allocation of financial resources and to more satisfaction derived from acting generously. Using the dictator game (Study 1), the ultimatum game (Study 2), and a quasi-naturalistic giving situation (Study 3) we showed that participants reminded of their mortality were not only more generous but also more satisfied the more money they donated. Moreover, Study 3 demonstrated that people reminded of their mortality derived higher satisfaction from prosocial behavior and such behavior was associated with better suppression of death-related thoughts. We conclude that acting prosocially in the face of mortality thoughts effectively soothes death anxiety and in turn produces psychological satisfaction.

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Sex Differences in Psychological Factors Associated with Social Discounting

Elizabeth Olson et al.
Journal of Behavioral Decision Making, forthcoming

Abstract:
The social discounting paradigm is a powerful means of quantifying altruism in humans, who are typically willing to forgo some amount of personal earnings in exchange for increased earnings for another person. The amount of money that people are willing to forgo decreases with increasing social distance. In this study, we examined variables related to sex, intolerance of uncertainty, and empathy, all of which are theorized to affect the social discounting rate. Participants (27 men and 28 women) completed measures of intolerance of uncertainty, empathy, and social discounting. We found sex differences in psychological predictors of social discounting: in women, empathy (but not intolerance of uncertainty) predicts the social discounting rate, while in men, social discounting is associated with intolerance of uncertainty (but not empathy). Possible neurobiological, social, and cognitive explanations for this sex difference are discussed.

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Stated goals and their influence on helping behavior toward ingroups and outgroups

Mitchell Lorenz, Ruth Warner & Molly VanDeursen
Journal of Applied Social Psychology, forthcoming

Abstract:
When seeking to motivate individuals to help, helping behavior may be framed in terms of power-oriented, results focused, goals or value-oriented, ideologically based, goals. In two studies, participants were presented with a call for assistance benefitting an ingroup or an outgroup. The stated goal associated with helping behavior was power-oriented or value-oriented. Participants showed more willingness to help on behalf of an outgroup when they believed the charitable organization had value-oriented goals and more willingness to help on behalf of their ingroup when they believed the charitable organization had power-oriented goals. The results suggest that organizations should consider the relationship between who will benefit and who is providing assistance to maximize the likelihood that assistance will be provided.

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Noblesse oblige emerges (with time): Power enhances intergenerational beneficence

Leigh Plunkett Tost, Kimberly Wade-Benzoni & Hana Huang Johnson
Organizational Behavior and Human Decision Processes, forthcoming

Abstract:
Across four experiments, we examine how the experience of power affects intergenerational decision-making. We argue, and empirically demonstrate, that the experience of power enhances intergenerational beneficence. This effect emerges because the experience of power in intergenerational dilemmas prompts a sense of social responsibility among powerholders. In particular, the experience of power in intergenerational contexts leads people to feel an obligation to look out for the long-term interests of others, which in turn enhances generosity to future others. Thus, the positive effect of power on intergenerational beneficence is mediated by a sense of responsibility to look after others' long-term interests.

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Feeling Love and Doing More for Distant Others: Specific Positive Emotions Differentially Affect Prosocial Consumption

Lisa Cavanaugh, James Bettman & Mary Frances Luce
Journal of Marketing Research, forthcoming

Abstract:
Marketers often employ a variety of positive emotions to encourage consumption or promote a particular behavior (e.g., to buy, donate, or recycle) benefiting an organization or cause. We show that specific positive emotions do not universally increase prosocial behavior but rather encourage different types of prosocial behavior. Four studies show that whereas positive emotions (i.e., love, hope, pride, compassion) all induce prosocial behavior toward close entities (relative to a neutral emotional state), only love induces prosocial behavior toward distant others and international organizations. Love's effect is driven by a distinct form of broadening, characterized by extending feelings of social connection and the boundary of caring to be more inclusive of others regardless of relatedness. Love - as a trait and a momentary emotion - is unique among positive emotions in fostering connectedness that other positive emotions (hope and pride) do not and broadening behavior in a way that other connected emotions (compassion) do not. This research contributes to the broaden-and-build theory of positive emotion by demonstrating a distinct type of broadening for love and adds an important qualification to the general finding that positive emotions uniformly encourage prosocial behavior.

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The Selfishness of Selfless People: Harnessing the Theory of Self-Concept Maintenance to Increase Charitable Giving

Gordon Kraft-Todd, Michael Norton & David Rand
Yale Working Paper, February 2015

Abstract:
Patterns of charitable giving are inconsistent with either pure selfishness or true altruism: most people give, but only in amounts. The authors explain - and then alter - this pattern of giving by extending the self-concept maintenance model of dishonesty to positive behaviors. The authors suggest that people donate just enough to feel good about themselves, and use this model to develop a new method for increasing charitable donations. If donors' options are limited to giving nothing or giving a large amount, many will choose to give (maintaining the feeling of being a good person), even when that donation amount is substantially larger than what they would have given in a standard unconstrained donation. In a series of experiments, the authors provide evidence of charitable giving patterns consistent with self-concept maintenance, and show that restricting donors' options to a binary all-or-none donation choice raises substantially more money than an unconstrained donation choice.

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Framing Charitable Donations as Exceptional Expenses Increases Giving

Abigail Sussman, Eesha Sharma & Adam Alter
Journal of Experimental Psychology: Applied, forthcoming

Abstract:
Many articles have examined the psychological drivers of charitable giving, but little is known about how people mentally budget for charitable gifts. The present research aims to address this gap by investigating how perceptions of donations as exceptional (uncommon and infrequent) rather than ordinary (common and frequent) expenses might affect budgeting for and giving to charity. We provide the first demonstration that exceptional framing of an identical item can directly influence mental budgeting processes, and yield societal benefits. In 5 lab and field experiments, exceptional framing increased charitable behavior, and diminished the extent to which people considered the effect of the donation on their budgets. The current work extends our understanding of mental accounting and budgeting for charitable gifts, and demonstrates practical techniques that enable fundraisers to enhance the perceived exceptionality of donations.

By KEVIN LEWIS | 09:00:00 AM

Saturday, April 25, 2015

Subliminal

A Sniff of Happiness

Jasper de Groot et al.
Psychological Science, forthcoming

Abstract:
It is well known that feelings of happiness transfer between individuals through mimicry induced by vision and hearing. The evidence is inconclusive, however, as to whether happiness can be communicated through the sense of smell via chemosignals. As chemosignals are a known medium for transferring negative emotions from a sender to a receiver, we examined whether chemosignals are also involved in the transmission of positive emotions. Positive emotions are important for overall well-being and yet relatively neglected in research on chemosignaling, arguably because of the stronger survival benefits linked with negative emotions. We observed that exposure to body odor collected from senders of chemosignals in a happy state induced a facial expression and perceptual-processing style indicative of happiness in the receivers of those signals. Our findings suggest that not only negative affect but also a positive state (happiness) can be transferred by means of odors.

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The Appeal of Challenge in the Perception of Art: How Ambiguity, Solvability of Ambiguity, and the Opportunity for Insight Affect Appreciation

Claudia Muth, Vera Hesslinger & Claus-Christian Carbon
Psychology of Aesthetics, Creativity, and the Arts, forthcoming

Abstract:
We asked whether and how people appreciate ambiguous artworks and examined the possible mechanisms underlying the appeal of perceptual challenge in art. Although experimental research has shown people's particular appreciation for highly familiar and prototypical objects that are fluently processed, there is increasing evidence that in the arts people often prefer ambiguous materials which are processed less fluently. Here, we empirically show that modern and contemporary ambiguous artworks evoking perceptual challenge are indeed appreciated. By applying a multilevel modeling approach together with multidimensional measurement of aesthetic appreciation, we revealed that the higher the subjectively perceived degree of ambiguity within an artwork, the more participants liked it and the more interesting and affecting it was for them. These dimensions of aesthetic appreciation were also positively related to the subjectively reported strength of insights during elaboration of the artworks. The estimated solvability of the experienced ambiguity, in contrast, was not relevant for liking and even negatively linked to interest and affect. Consequently, we propose a critical view of the frequently reported idea that processing (modern) art simply equals a kind of problem-solving task. We suggest the dynamic gain of insights during the elaboration of an ambiguous artwork, rather than the state of having solved a problem, to be a mechanism possibly relevant to the appeal of challenge in the perception of ambiguous art.

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The Cognitive Consequences of Formal Clothing

Michael Slepian et al.
Social Psychological and Personality Science, forthcoming

Abstract:
Drawing from literature on construal-level theory and the psychological consequences of clothing, the current work tested whether wearing formal clothing enhances abstract cognitive processing. Five studies provided evidence supporting this hypothesis. Wearing more formal clothing was associated with higher action identification level (Study 1) and greater category inclusiveness (Study 2). Putting on formal clothing induced greater category inclusiveness (Study 3) and enhanced a global processing advantage (Study 4). The association between clothing formality and abstract processing was mediated by felt power (Study 5). The findings demonstrate that the nature of an everyday and ecologically valid experience, the clothing worn, influences cognition broadly, impacting the processing style that changes how objects, people, and events are construed.

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The Liberating Consequences of Creative Work: How a Creative Outlet Lifts the Physical Burden of Secrecy

Jack Goncalo, Lynne Vincent & Verena Krause
Journal of Experimental Social Psychology, July 2015, Pages 32-39

Abstract:
A newly emerging stream of research suggests creativity can be fruitfully explored, not as an outcome variable, but as a contributor to the general cognitive and behavioral responding of the individual. In this paper, we extend this nascent area of research on the consequences of creativity by showing that working on a creative task can contribute to feelings of liberation - feelings that can help people to overcome psychological burdens. We illustrate the liberating effects of creativity by integrating the embodied cognition literature with recent research showing that keeping a secret is experienced as a psychological and physical burden. While secrecy is metaphorically related to physical burden, creativity is metaphorically associated with freedom to "think outside the box" and explore beyond normal constraints. Thus, we predict permission to be creative may actually feel liberating and feelings of liberation may, in turn, lift the physical burden of keeping a big secret. The results of three studies supported our prediction and suggest that the opportunity to be creative may be a way for people to unburden without directly revealing secrets that could cause shame and embarrassment. We discuss the implications of our results for future research on the psychological consequences of performing creative work.

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Is the left hemisphere androcentric? Evidence of the learned categorical perception of gender

Sapphira Thorne, Peter Hegarty & Caroline Catmur
Laterality: Asymmetries of Body, Brain and Cognition, forthcoming

Abstract:
Effects of language learning on categorical perception have been detected in multiple domains. We extended the methods of these studies to gender and pitted the predictions of androcentrism theory and the spatial agency bias against each other. Androcentrism is the tendency to take men as the default gender and is socialized through language learning. The spatial agency bias is a tendency to imagine men before women in the left-right axis in the direction of one's written language. We examined how gender-ambiguous faces were categorized as female or male when presented in the left visual fields (LVFs) and right visual fields (RVFs) to 42 native speakers of English. When stimuli were presented in the RVF rather than the LVF, participants (1) applied a lower threshold to categorize stimuli as male and (2) categorized clearly male faces as male more quickly. Both findings support androcentrism theory suggesting that the left hemisphere, which is specialized for language, processes face stimuli as male-by-default more readily than the right hemisphere. Neither finding evidences an effect of writing direction predicted by the spatial agency bias on the categorization of gender-ambiguous faces.

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Over-the-Counter Relief From Pains and Pleasures Alike: Acetaminophen Blunts Evaluation Sensitivity to Both Negative and Positive Stimuli

Geoffrey Durso, Andrew Luttrell & Baldwin Way
Psychological Science, forthcoming

Abstract:
Acetaminophen, an effective and popular over-the-counter pain reliever (e.g., the active ingredient in Tylenol), has recently been shown to blunt individuals' reactivity to a range of negative stimuli in addition to physical pain. Because accumulating research has shown that individuals' reactivity to both negative and positive stimuli can be influenced by a single factor (an idea known as differential susceptibility), we conducted two experiments testing whether acetaminophen blunted individuals' evaluations of and emotional reactions to both negative and positive images from the International Affective Picture System. Participants who took acetaminophen evaluated unpleasant stimuli less negatively and pleasant stimuli less positively, compared with participants who took a placebo. Participants in the acetaminophen condition also rated both negative and positive stimuli as less emotionally arousing than did participants in the placebo condition (Studies 1 and 2), whereas nonevaluative ratings (extent of color saturation in each image; Study 2) were not affected by drug condition. These findings suggest that acetaminophen has a general blunting effect on individuals' evaluative and emotional processing, irrespective of negative or positive valence.

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Something smells fishy: Olfactory suspicion cues improve performance on the Moses illusion and Wason rule discovery task

David Lee, Eunjung Kim & Norbert Schwarz
Journal of Experimental Social Psychology, July 2015, Pages 47-50

Abstract:
Feelings of suspicion alert people not to take information at face value. In many languages, suspicion is metaphorically associated with smell; in English, this smell is "fishy". We tested whether incidental exposure to fishy smells influences information processing. In Study 1, participants exposed to incidental fishy smells (vs. no odor) while answering questions were more likely to detect a semantic distortion (the "Moses illusion"), but not more likely to falsely identify an undistorted question as misleading. In Study 2, participants exposed to fishy smells (vs. no odor) were more likely to engage in negative hypothesis testing (falsifying their own initial hunch), resulting in better performance on the Wason rule discovery task. These findings show that incidental olfactory suspicion cues can affect performance on social as well as nonsocial reasoning tasks.

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The 'warm' side of coldness: Cold promotes interpersonal warmth in negative contexts

Wenqi Wei, Jingjing Ma & Lei Wang
British Journal of Social Psychology, forthcoming

Abstract:
The concrete experience of physical warmth has been demonstrated to promote interpersonal warmth. This well-documented link, however, tells only half of the story. In the current study, we thus examined whether physical coldness can also increase interpersonal warmth under certain circumstances. We conducted three experiments to demonstrate that the relationship between the experience of physical temperature and interpersonal outcomes is context dependent. Experiment 1 showed that participants touching cold (vs. warm) objects were more willing to forgive a peer's dishonest behaviour. Experiment 2 demonstrated the fully interactive effect of temperature and context on interpersonal warmth: Participants touching cold (vs. warm) objects were less likely to assist an individual who had provided them with good service (positive social context), but more likely to assist an individual who had provided them with poor service (negative social context). Experiment 3 replicated the results of Experiment 2 using the likelihood to complain, a hostility-related indicator, as the dependent variable: In a pleasant queue (positive social context), participants touching cold objects were more likely to complain and those touching warm objects were less likely to complain compared with the control group. This pattern was reversed in an annoying queue (negative social context).

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Do observers like curvature or do they dislike angularity?

Marco Bertamini et al.
British Journal of Psychology, forthcoming

Abstract:
Humans have a preference for curved over angular shapes, an effect noted by artists as well as scientists. It may be that people like smooth curves or that people dislike angles, or both. We investigated this phenomenon in four experiments. Using abstract shapes differing in type of contour (angular vs. curved) and complexity, Experiment 1 confirmed a preference for curvature not linked to perceived complexity. Experiment 2 tested whether the effect was modulated by distance. If angular shapes are associated with a threat, the effect may be stronger when they are presented within peripersonal space. This hypothesis was not supported. Experiment 3 tested whether preference for curves occurs when curved lines are compared to straight lines without angles. Sets of coloured lines (angular vs. curved vs. straight) were seen through a circular or square aperture. Curved lines were liked more than either angular or straight lines. Therefore, angles are not necessary to generate a preference for curved shapes. Finally, Experiment 4 used an implicit measure of preference, the manikin task, to measure approach/avoidance behaviour. Results did not confirm a pattern of avoidance for angularity but only a pattern of approach for curvature. Our experiments suggest that the threat association hypothesis cannot fully explain the curvature effect and that curved shapes are, per se, visually pleasant.

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Influence on Chopstick Size on Taste Evaluations

Hung-Ming Lin, Chien-Huang Lin & Hui-Hsi Hung
Psychological Reports, April 2015, Pages 381-387

Abstract:
This study explored the influence of the length of chopsticks on taste evaluations. Participants (N = 78; M age = 21.1 yr., SD = 3.8) reported a greater liking for their food and higher purchase intentions when using long rather than short chopsticks. Findings also indicated that the long (vs short) chopsticks caused people to slow down when eating, resulting in greater eating duration and a higher number of mouthfuls. The findings of this study provide insights on research into the role of tableware in food intake.

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Spiders at the cocktail party: An ancestral threat that surmounts inattentional blindness

Joshua New & Tamsin German
Evolution and Human Behavior, May 2015, Pages 165-173

Abstract:
The human visual system may retain ancestral mechanisms uniquely dedicated to the rapid detection of immediate and specific threats (e.g. spiders and snakes) that persistently recurred throughout evolutionary time. We hypothesized that one such ancestral hazard, spiders, should be inherently prioritized for visual attention and awareness irrespective of their visual or personal salience. This hypothesis was tested using the inattentional blindness paradigm in which an unexpected and peripheral stimulus is presented coincidentally with a central task-relevant display. Despite their highly marginalized presentation, iconic spiders were nonetheless detected, localized, and identified by a very large proportion of observers. Observers were considerably less likely to perceive 1) different configurations of the same visual features which diverged from a spider prototype, or "template", 2) a modern threatening stimulus (hypodermic needle) comparable in emotional salience, or 3) a different fear-irrelevant animal (housefly). Spiders may be one of a very few evolutionarily-persistent threats that are inherently specified for visual detection and uniquely "prepared" to capture attention and awareness irrespective of any foreknowledge, personal importance, or task-relevance.

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Children's looking preference for biological motion may be related to an affinity for mathematical chaos

Joshua Haworth et al.
Frontiers in Psychology, March 2015

Abstract:
Recognition of biological motion is pervasive in early child development. Further, viewing the movement behavior of others is a primary component of a child's acquisition of complex, robust movement repertoires, through imitation and real-time coordinated action. We theorize that inherent to biological movements are particular qualities of mathematical chaos and complexity. We further posit that this character affords the rich and complex inter-dynamics throughout early motor development. Specifically, we explored whether children's preference for biological motion may be related to an affinity for mathematical chaos. Cross recurrence quantification analysis (cRQA) was used to investigate the coordination of gaze and posture with various temporal structures (periodic, chaotic, and aperiodic) of the motion of an oscillating visual stimulus. Children appear to competently perceive and respond to chaotic motion, both in rate (cRQA-percent determinism) and duration (cRQA-maxline) of coordination. We interpret this to indicate that children not only recognize chaotic motion structures, but also have a preference for coordination with them. Further, stratification of our sample (by age) uncovers the suggestion that this preference may become refined with age.

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Sick man walking: Perception of health status from body motion

Tina Sundelin et al.
Brain, Behavior, and Immunity, forthcoming

Abstract:
An ability to detect subtle signs of sickness in others would be highly beneficial, as it would allow for behaviors that help us avoid contagious pathogens. Recent findings suggest that both animals and humans are able to detect distinctive odor signals of individuals with activated innate immune responses. This study tested whether an innate immune response affects a person's walking speed and whether other people experience that person as less healthy. 43 subjects watched films of persons who were experiencing experimental immune activation, and rated the walking individuals in the films with respect to health, tiredness, and sadness. Furthermore, the walking speed in the films was analyzed. After LPS injections, participants walked more slowly and were perceived as less healthy and more tired as compared to when injected with placebo. There was also a trend for the subjects to look sadder after LPS injection than after placebo. Furthermore, there were strong associations between walking speed and the appearance of health, tiredness, and sadness. These findings support the notion that walking speed is affected by an activated immune response, and that humans may be able to detect very early signs of sickness in others by merely observing their gait. This ability is likely to aid both a "behavioral immune system", by providing more opportunities for adaptive behaviors such as avoidance, and the anticipatory priming of biochemical immune responses.

By KEVIN LEWIS | 09:00:00 AM

Friday, April 24, 2015

What you got

Income Inequality and Status Seeking: Searching for Positional Goods in Unequal U.S. States

Lukasz Walasek & Gordon Brown
Psychological Science, April 2015, Pages 527-533

Abstract:
It is well established that income inequality is associated with lower societal well-being, but the psychosocial causes of this relationship are poorly understood. A social-rank hypothesis predicts that members of unequal societies are likely to devote more of their resources to status-seeking behaviors such as acquiring positional goods. We used Google Correlate to find search terms that correlated with our measure of income inequality, and we controlled for income and other socioeconomic factors. We found that of the 40 search terms used more frequently in states with greater income inequality, more than 70% were classified as referring to status goods (e.g., designer brands, expensive jewelry, and luxury clothing). In contrast, 0% of the 40 search terms used more frequently in states with less income inequality were classified as referring to status goods. Finally, we showed how residual-based analysis offers a new methodology for using Google Correlate to provide insights into societal attitudes and motivations while avoiding confounds and high risks of spurious correlations.

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Does the American Dream Matter for Members of Congress? Social-Class Backgrounds and Roll-Call Votes

Jacob Grumbach
Political Research Quarterly, forthcoming

Abstract:
Do legislators from upper-class backgrounds behave differently from those from humble beginnings? Scholars of representation have made progress understanding the effects of a legislator’s social class on roll-call votes, but ideology is also understood to be shaped during adolescence. Using data from Nicholas Carnes’ White-Collar Government, I find that upper-class members of Congress with working-class parents are significantly more liberal than upper-class members with upper-class parents. This trend is particular to the Democrats; Republican voting records do not significantly differ with respect to parental class. Findings are robust to potential confounders, including race, gender, and district characteristics.

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The politics of luck: Political ideology and the perceived relationship between luck and success

Dena Gromet, Kimberly Hartson & David Sherman
Journal of Experimental Social Psychology, July 2015, Pages 40–46

Abstract:
Three studies examined how individuals’ beliefs about the relation between luck and success varies with political ideology. Conservative participants endorsed luck as influential to success considerably less than liberal participants (Studies 1 and 2). The ideologically polarizing effect of luck was shown to be related to its emphasis on random chance: Polarization was not found in response to an external attribution for success that was unrelated to chance (Study 2), and was specific to the challenge that random chance poses to deservingness (Study 3). Moreover, conservatives’ support for the notion that luck contributes to success was related to their belief that luck is a quality of the person (which does not rely on random chance), whereas liberals’ support was not (Study 3). These findings demonstrate that there is ideological disagreement over how success in achieved, which may be at the heart of the ideological divide over wealth redistribution.

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Not All Inequality Is Created Equal: Effects of Status Versus Power Hierarchies on Competition for Upward Mobility

Nicholas Hays & Corinne Bendersky
Journal of Personality and Social Psychology, forthcoming

Abstract:
Although hierarchies are thought to be beneficial for groups, empirical evidence is mixed. We argue and find in 7 studies spanning methodologies and samples that different bases of hierarchical differentiation have distinct effects on lower ranking group members’ disruptive competitive behavior because status hierarchies are seen as more mutable than are power hierarchies. Greater mutability means that more opportunity exists for upward mobility, which motivates individuals to compete in hopes of advancing their placement in the hierarchy. This research provides further evidence that different bases of hierarchy can have different effects on individuals and the groups of which they are a part and explicates a mechanism for those effects.

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Fiscal Policy and Economic Inequality in the U.S. States: Taxing and Spending from 1976 to 2006

Thomas Hayes & Xavier Medina Vidal
Political Research Quarterly, forthcoming

Abstract:
To what extent can state governments influence economic inequality? How do state fiscal policies of redistribution affect families in different economic situations? Using a large database of state fiscal policymaking tools (taxing and spending) between 1976 and 2006, we examine the effect of these tools on state-level inequality as well as the average incomes of families in different economic groups. We find that state taxing and spending efforts can influence these indicators of economic inequality, though these fiscal policy tools can have differential effects. Spending on unemployment compensation and cash assistance as well as revenue from taxes on corporations is found to reduce state-level inequality. We also find unemployment compensation to positively benefit the bottom 10th percentile of income earners, whereas the inheritance tax helps all income groups. Corporate tax revenue is associated with higher middle-class incomes, whereas income tax revenue benefits both middle and upper incomes. Sales tax revenue positively benefits wealthy earners. Higher property tax revenue is associated with decreased income for all groups. These results suggest that state governments can affect redistribution through fiscal policies by affecting state-level inequality as well as the economic fortunes of different income groups.

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Income Inequality, Tax Policy, and Economic Growth

Siddhartha Biswas, Indraneel Chakraborty & Rong Hai
University of Chicago Working Paper, April 2015

Abstract:
This paper investigates the impact of reduction of income inequality through tax policy on economic growth. Taxation along different points of the income distribution has a heterogeneous impact on households' incentives to invest, work, and consume, which may result in a heterogeneous impact on economic growth. The empirical analysis uses U.S. state-level data and micro-level household tax returns over the last three decades. To address potential selection biases in our regression analysis, we utilize both state fixed effects and instrumental variables approaches. We find that, ceteris paribus, reduction of income inequality between low income households and median income households improves economic growth. However, reduction of income inequality through taxation between median income households and high income households reduces economic growth. Further investigation shows that these economic growth effects are attributable both to supply-side factors (changes in small business activity and labor supply) and to consumption demand.

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Power, Markets, and Top Income Shares

Evelyne Huber & John Stephens
University of North Carolina Working Paper, March 2015

Abstract:
The rise of the super-rich has attracted much political and academic attention in recent years. However, to date there have been few attempts to explain the cross-national variation in the recent rise of very top incomes. Drawing on the World Top Incomes Database, we study the income share of the top 1% in almost all current postindustrial democracies from 1975 to 2012. We find that extreme income concentration at the very top is a predominantly political phenomenon, not the outcome of economic changes. Top income shares are largely unrelated to economic growth, increased knowledge-intensive production, export competitiveness, market size, financialization, and wealth accumulation. Instead, they are driven by various political and policy changes that reflect a decline in the relative power and resources of labor, such as union density and centralization, secular-right governments, and cuts in top marginal income tax rates as well as in public spending on education.

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Urbanicity Moderates Associations between Family Income and Adolescent Academic Achievement

Portia Miller & Elizabeth Votruba-Drzal
Rural Sociology, forthcoming

Abstract:
Research has shown that family income's relations to early childhood achievement is stronger in large inner cities and weaker in less urbanized areas. Research has not yet considered whether links between family income and achievement in adolescence differ across the urban to rural landscape. Using nationally representative data from the Early Childhood Longitudinal Study, Kindergarten Class of 1998–1999 (N ≈ 9,350), this study examines differences in family income's links with eighth-grade achievement across large urban, small urban, suburban, and rural communities. The point at which income-achievement links plateau occurs later in the income distribution in less urbanized areas. The magnitude of the association between family income and reading and science skills also differs across the urban-rural continuum, such that family income has stronger relations to reading and science achievement in urban cities and weaker links in suburban and rural communities.

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Economic Growth Evens Out Happiness: Evidence from Six Surveys

Andrew Clark, Sarah Flèche & Claudia Senik
Review of Income and Wealth, forthcoming

Abstract:
In spite of the great U-turn that saw income inequality rise in Western countries in the 1980s, happiness inequality has fallen in countries that have experienced income growth (but not in those that did not). Modern growth has reduced the share of both the “very unhappy” and the “perfectly happy.” Lower happiness inequality is found both between and within countries, and between and within individuals. Our cross-country regression results suggest that the extension of various public goods helps to explain this greater happiness homogeneity. This new stylized fact arguably comes as a bonus to the Easterlin paradox, offering a somewhat brighter perspective for developing countries.

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Socioeconomic status (SES) affects means–end behavior across the first year

Melissa Clearfield, Sarah Stanger & Helen Jenne
Journal of Applied Developmental Psychology, May–June 2015, Pages 22–28

Abstract:
This study assessed the impact of SES on early means–end behavior. Sixty-one 6- to 8- and 10- to 12-month-old infants from high and low SES families were presented with two tasks requiring a two-step process to retrieve a toy. On the cloth task, overall performance improved with age, but low SES infants showed delays. Performance by the 10- to 12-month-old low SES infants was identical to that of the 6- to 8-month-old high SES infants. On the hook task, again overall performance improved with age, but significant SES differences emerged at 10 to 12 months, with only 20% of low SES infants succeeding at the task, compared to 73% of high SES infants. The results suggest a divergence in means–end behavior between high and low SES infants by 6 months of age, adding to the well-known documentation of gaps in cognitive skills evident between high and low SES infants.

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Family income, parental education and brain structure in children and adolescents

Kimberly Noble et al.
Nature Neuroscience, forthcoming

Abstract:
Socioeconomic disparities are associated with differences in cognitive development. The extent to which this translates to disparities in brain structure is unclear. We investigated relationships between socioeconomic factors and brain morphometry, independently of genetic ancestry, among a cohort of 1,099 typically developing individuals between 3 and 20 years of age. Income was logarithmically associated with brain surface area. Among children from lower income families, small differences in income were associated with relatively large differences in surface area, whereas, among children from higher income families, similar income increments were associated with smaller differences in surface area. These relationships were most prominent in regions supporting language, reading, executive functions and spatial skills; surface area mediated socioeconomic differences in certain neurocognitive abilities. These data imply that income relates most strongly to brain structure among the most disadvantaged children.

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Neuroanatomical Correlates of the Income-Achievement Gap

Allyson Mackey et al.
Psychological Science, forthcoming

Abstract:
In the United States, the difference in academic achievement between higher- and lower-income students (i.e., the income-achievement gap) is substantial and growing. In the research reported here, we investigated neuroanatomical correlates of this gap in adolescents (N = 58) in whom academic achievement was measured by statewide standardized testing. Cortical gray-matter volume was significantly greater in students from higher-income backgrounds (n = 35) than in students from lower-income backgrounds (n = 23), but cortical white-matter volume and total cortical surface area did not differ significantly between groups. Cortical thickness in all lobes of the brain was greater in students from higher-income than lower-income backgrounds. Greater cortical thickness, particularly in temporal and occipital lobes, was associated with better test performance. These results represent the first evidence that cortical thickness in higher- and lower-income students differs across broad swaths of the brain and that cortical thickness is related to scores on academic-achievement tests.

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Wealth Inequality, Family Background, and Estate Taxation

Mariacristina De Nardi & Fang Yang
NBER Working Paper, March 2015

Abstract:
This paper provides two main contributions. First, it provides a new theory of wealth inequality that merges two forces generating inequality: bequest motives and inheritance of ability across generations; and an earnings process that allows for more earnings risk for the richest. Second, it uses a calibrated framework to study the effects of changing estate taxation on inequality, aggregate capital accumulation and output, the economic advantage of being born to a given parental background, and welfare. Our calibrated model generates realistically skewed distributions for wealth, earnings, and bequests and implies that parental background is a crucial determinant of one’s expected lifetime utility. We find that increasing the estate tax rate would significantly reduce wealth concentration in the hands of the richest few and would reduce the economic advantage of being born to a super-rich family, but also would lower aggregate capital and output. Lastly, it would also generate a significant welfare gain from the ex-ante standpoint of a newborn under the veil of ignorance.

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Does slow growth lead to rising inequality? Some theoretical reflections and numerical simulations

Tim Jackson & Peter Victor
Ecological Economics, forthcoming

Abstract:
This paper explores the hypothesis (most notably made by French economist Thomas Piketty) that slow growth rates lead to rising inequality. If true, this hypothesis would pose serious challenges to achieving ‘prosperity without growth’ or meeting the ambitions of those who call for an intentional slowing down of growth on ecological grounds. It would also create problems of social justice in the context of a ‘secular stagnation’. The paper describes a closed, demand-driven, stock-flow consistent model of Savings, Inequality and Growth in a Macroeconomic framework (SIGMA) with exogenous growth and savings rates. SIGMA is used to examine the evolution of inequality in the context of declining economic growth. Contrary to the general hypothesis, we find that inequality does not necessarily increase as growth slows down. In fact, there are certain conditions under which inequality can be reduced significantly, or even eliminated entirely, as growth declines. The paper discusses the implications of this finding for questions of employment, government fiscal policy and the politics of de-growth.

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Growth in Within Graduate Wage Inequality: The Role of Subjects, Cognitive Skill Dispersion and Occupational Concentration

Joanne Lindley & Steven McIntosh
Labour Economics, forthcoming

Abstract:
Increasing participation in Higher Education, and the rising number of graduates in the labour markets of most developed countries, are likely to alter graduate wage distributions. Increasing wage inequality amongst graduates has been observed in a number of countries. This paper takes as an example the UK, where the increase in inequality has been amongst the highest, to investigate any potential link between these two phenomena of participation and inequality. Dividing graduates by subject of degree to provide more variation, we show that most of the increase in graduate wage inequality has occurred within subjects. We investigate two potential explanations, specifically the increase in the variance of childhood cognitive test scores amongst graduates in the same subject, and the widening variety of jobs performed by graduates with degrees in the same subject. The paper shows that both of these factors have played a role in explaining growing graduate wage inequality within subjects, though the largest is by far from the increased variance of test scores. The results also show that mean test scores are falling over time within every subject to a greater or lesser extent, suggesting that the widening variance of test scores is due to universities accepting individuals from lower in the ability distribution, as Higher Education participation has expanded.

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Income Inequality, Equal Opportunity, and Attitudes About Redistribution

Liza Steele
Social Science Quarterly, forthcoming

Objective: This article explores how income inequality and social mobility affect attitudes about redistribution in global perspective.

Methods: Individual-level data on over 50,000 individuals from 38 countries in the International Social Survey Programme are combined with country-level data from the World Bank, Standardized Income Inequality Database, and the Economic Freedom of the World data. OLS regression models with robust, clustered standard errors are estimated to account for the presence of unobserved, country-level effects in the error terms.

Results: Social mobility is found to be a more important predictor of preferences for redistribution than income inequality. Specifically, those who live in countries with greater social mobility are more supportive of redistribution while individuals who have experienced upward mobility themselves are less supportive, although an upwardly mobile individual in a more mobile society is more supportive of redistribution than an upwardly mobile individual in a less mobile society.

Conclusions: The central finding of this study is that the tangibility of redistributive social policies may bolster support for social spending. The structures and institutions that facilitate upward mobility — and potentially attenuate some of the detrimental effects of income inequality — are generally the products of more comprehensive redistribution policies, and public opinion may reflect this.

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Globalization, risk-taking and violence: Too much too soon in the late Roman Republic and pre-Renaissance Italian cities

Brenda Lutz & James Lutz
Cambridge Review of International Affairs, forthcoming

Abstract:
Past research has found that globalization and political violence have been linked in both modern and less modern times. Normally, groups that have been disadvantaged or displaced by globalization are seen as responsible for these outbreaks of violence. In the case of the Late Republic of Rome and medieval Italy before the Renaissance, violence was actually prompted by major increases in wealth among those who benefited when control of the political system became much more valuable. The increased value raised the stakes of political control and underlay the resulting higher levels of violence.

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Biases in choices about fairness: Psychology and economic inequality

Zachary Michaelson
Judgment and Decision Making, March 2015, Pages 198–203

Abstract:
This paper investigates choices about “distributional fairness” (sometimes called “distributive justice”), i.e., selection of the proper way for resources to be distributed in group. The study finds evidence that several of the same biases of risky decision making also apply to choices about distributional fairness, in particular focusing on the key biases that lead to prospect theory. This finding is achieved by introducing a novel thought experiment regarding the fairness of resource distributions, then manipulating the percentage of individuals who gain or lose in these distributions, and changing the sizes of gains and losses. Shared biases may mean similar heuristics are being employed. The mechanism behind this result leaves room for future exploration, as do the implications of the finding for related applications in inequality research.

By KEVIN LEWIS | 09:00:00 AM


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