Matthew Olckers


My favorite papers at the ASSA Meeting 2017

  • picks

My studies started in South Africa and now continue in France. Until now, I was unaware of the supersize scale of the ASSA Annual Meeting held every January in the United States. There are seminars on every topic in economics imaginable. The focus of this post is to cut down the hundreds of papers to my three favorite.

“Diffusion Games” by Evan Sadler presented at the session titled Information and Diffusion in Networks.

I study how the structure of a social network affects the diffusion of a new product or technology. The model deals explicitly with the network’s discrete structure, in contrast with most extant work that uses a mean-field approximation. My findings highlight important qualitative differences in predicted diffusion patterns: long-run outcomes are stochastic, individuals can remain isolated and the likelihood of a large cascade is sensitive to early adoption patterns. The analysis requires technical advances that leverage recent mathematical work on random graphs. A key contribution is a set of structural results for a large class of random graph models that can exhibit observed features of real networks—features like homophily and clustering. These results allow us to characterize the extent and rate of diffusion as a function of network structure.

“The Lesser of Two Evils: The Roles of Social Pressure and Impatience in Consumption Decisions” by Jessica Goldberg presented at the session titled Altruism and Risk Sharing In Development Contexts.

Individuals in poor agrarian economies sometimes exhibit high marginal propensities to consume that are suggestive of high discount rates. I test whether social norms about sharing income can explain the tendency to spend income rapidly. The mechanism through which informal insurance networks and social pressure may affect consumption and savings is through public information about individuals’ assets. To test the extent to which informal insurance networks or the social norms that support them affect the timing of consumption and level of savings, I employ a field experiment to distinguish between the use of windfall money when receipt of the money is known to others in the community versus when it is private information. I run two lotteries in each of 158 agriculture clubs in central Malawi. In each club, one lottery and its winner are publicly announced to the whole group. The other lottery is private and only its winner knows that a second lottery was held. I measure differences in expected use of the windfall income between public and private lottery winners. I find that public winners spend 35 percent more than private winners in the period immediately following the lotteries. This spending pattern is consistent with a seven percent tax on surplus income in a simple model where a fraction of money that is not spent immediately must be shared with others in the social network.

“Peer Effects in Financial Decision Making — A Case of the Blind Leading the Blind?” by Sandro Ambuehl, Douglas Bernheim, Fulya Ersoy and Donna Harris presented at the session titled Behavioral Economics of Investor Decision-Making.

Often, people consult with others for advice before they make household financial decisions. What are the effects of such communication? In our laboratory experiment, student subjects make private decisions about investments involving compound interest both before and after they communicate with a randomly assigned partner. Previous research has argued that communication about financial decisions is often a case of the blind leading the blind in which people merely copy each others’ mistakes. By contrast, we find that communication leads to better decision making, even if two financially fairly unsophisticated subjects are paired. Communication helps subjects educate others and themselves. To better understand the mechanisms through which communication affects decisions, we distinguish and empirically identify the magnitude of three channels. First, communication may help subjects gain a genuine understanding of financial concepts and thus improve their ability to make decisions that further their own objectives. Second, subjects may simply mimic others without fully understanding the implications of their decisions. Third, communication may lead people to reevaluate their own preferences. While communication predominantly leads to an increase in conceptual understanding and the extent of mere mimicking is negligible, it does cause subjects to reevaluate their preferences. On average, subjects’ rate of time preference moves 12% of the distance towards their communication partners’ rate. This is the case even though the choices that reveal these preferences are not observed by the partner and therefore cannot be driven by social signaling motives. Finally, we identify how the effect of communication varies with individual characteristics. Most notably, men are more influential on others’ decisions than women, whereas women are more easily influenced by others than men. Generally, these findings may help increase the effectiveness of interventions aimed at improving financial decision making.

I also would love to attend Richard T. Ely lecture by Esther Duflo titled “The Economist as Plumber: Large Scale Experiments to Inform the Details of Policy Making” and the AFA Lecture about machine learning presented by Sendhil Mullainathan.