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Essays in Behavioral and Experimental Economics
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Taubinsky, Dmitry. 2014. Essays in Behavioral and Experimental Economics. Doctoral
dissertation, Harvard University.
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Essays in Behavioral and Experimental Economics
A dissertation presented
by
Dmitry Taubinsky
to
The Department of Business Economics
in partial fulfillment of the requirements
for the degree of
Doctor of Philosophy
in the subject of
Business Economics
Harvard University
Cambridge, Massachusetts
April 2014
(cid:13)c 2014 Dmitry Taubinsky
All rights reserved.
Dissertation Advisor: Author:
David Laibson Dmitry Taubinsky
Essays in Behavioral and Experimental Economics
Abstract
This dissertation consists of three essays examining the implications of human psychology
for economic behavior and market outcomes.
The first chapter formalizes a model of people’s inattention to choices and actions in
dynamic decision environments. The model provides a new foundation for habit-forming
behaviors, and also generates surprising implications for how deadline length can affect
task completion rates. I report results from two “extra-lab” experiments that jointly vary
reminder cues and payoff parameters to test and confirm the predictions of the model. I
also embed this model of consumer behavior in various market settings and study how
firms structure reminder advertising campaigns, consumer rebates, and free-trial offers.
The second chapter, coauthored with Hunt Allcott, examines the frequently made
hypothesis that consumers are imperfectly informed about or inattentive to the energy costs
associated with energy-using appliances. We study two field experiments that provide
information on energy costs and product lifetimes for compact fluorescent lightbulbs vs.
traditionalincandescentbulbs. Wethenproposeageneralmodelofconsumerbiasinchoices
between energy-using durables, derive formulas for quantifying the welfare implications of
such bias, and evaluate the implications of existing policies. Results suggest that moderate
CFLsubsidiesmaybeoptimal,butthatimperfectinformationandinattentiondonotappear
to justify a ban on traditional incandescent lightbulbs in the absence of other inefficiencies.
The third chapter, coauthored with Holger Herz, has its starting point in the now
well-established fact that people’s desire for fair transactions can play an important role in
negotiations, organizations, and markets. In this chapter, we show that markets can also
iii
shape what people consider to be a fair transaction. We propose a simple and generally-
applicable model of path-dependent fairness preferences, in which past experiences shape
preferences, and we experimentally test the model’s predictions. We find that previous
exposure to competitive pressure substantially and persistently reduces subjects’ fairness
concerns, making them more likely to accept transactions in which they receive a low share
of the surplus. But consistent with our theory, we also find that past experience has little
effect on subjects’ inclinations to treat others unfairly.
iv
Contents
Abstract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii
1 From Intentions to Actions: A Model and Experimental Evidence of Inattentive
Choice 1
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Model and Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.2.1 The Decision Environment . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.2.2 Attention Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.2.3 Strategies and Beliefs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.2.4 Psychological foundations: Evidence and examples . . . . . . . . . . . 13
1.2.5 Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.2.6 Relation to economics work on limited attention. . . . . . . . . . . . . 17
1.3 Repeated actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.3.1 Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.3.2 Experimental Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
1.4 Tasks With Deadlines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
1.4.1 Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
1.4.2 Experimental Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
1.5 Inattention in the Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
1.5.1 Rebates and Related Applications . . . . . . . . . . . . . . . . . . . . . 50
1.5.2 Optimal Cue Provision by an Interested Party . . . . . . . . . . . . . . 57
1.6 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
1.6.1 Recap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
1.6.2 Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
2 The Lightbulb Paradox: Evidence from Randomized Experiments 67
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
2.2 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
2.2.1 "The Lightbulb Paradox" . . . . . . . . . . . . . . . . . . . . . . . . . . 74
2.2.2 Economic Reasons for Standards and Subsidies . . . . . . . . . . . . . 75
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2.3 TESS Experiment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
2.3.1 Survey Platform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
2.3.2 Experimental Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
2.3.3 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
2.3.4 Empirical Strategy and Results . . . . . . . . . . . . . . . . . . . . . . . 86
2.4 In-Store Experiment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
2.4.1 Experimental Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
2.4.2 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
2.4.3 Empirical Strategy and Results . . . . . . . . . . . . . . . . . . . . . . . 98
2.5 A Framework for Policy Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 100
2.5.1 Consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
2.5.2 The Policymaker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
2.5.3 First-Order Approximation to Optimal Subsidy . . . . . . . . . . . . . 107
2.6 Policy Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
2.6.1 Inferring Bias from Treatment Effects . . . . . . . . . . . . . . . . . . . 108
2.6.2 "Structural" Models of Bias . . . . . . . . . . . . . . . . . . . . . . . . . 109
2.6.3 Using the TESS Experiment Results . . . . . . . . . . . . . . . . . . . . 111
2.6.4 Using the In-Store Experiment Results . . . . . . . . . . . . . . . . . . 116
2.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
3 Market Experience is a Reference Point in Judgments of Fairness 120
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
3.2 Experimental Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
3.2.1 Phase 1: Market Games . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
3.2.2 Phase 2: Ultimatum Game . . . . . . . . . . . . . . . . . . . . . . . . . 127
3.2.3 Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
3.3 Theory and Hypothesis Development . . . . . . . . . . . . . . . . . . . . . . . 130
3.3.1 Set-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
3.3.2 Equilibrium in the PC Market in Phase 1 . . . . . . . . . . . . . . . . . 132
3.3.3 Equilibrium in the RC Market in Phase 1 . . . . . . . . . . . . . . . . . 133
3.3.4 Phase 2 Behavior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
3.3.5 Convergence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
3.3.6 Discussion of Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . 138
3.3.7 Testable Hypotheses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
3.4 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
3.4.1 Phase 1: The Effect of Competition on Offers and Acceptance Decisions140
3.4.2 Phase 2: The Effect of Experience on Responder Behavior . . . . . . . 141
3.4.3 The Effect of Experience on Proposer Behavior. . . . . . . . . . . . . . 144
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3.4.4 Convergence of Fairness Preferences . . . . . . . . . . . . . . . . . . . 147
3.4.5 Discussion of Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
3.5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
References 154
Appendix A Appendix to Chapter 1 170
A.1 Extensions and Additional Examples . . . . . . . . . . . . . . . . . . . . . . . 170
A.1.1 Infinite Horizon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
A.1.2 Endogenous Cue Generation . . . . . . . . . . . . . . . . . . . . . . . . 171
A.1.3 Modeling Partial Naivete . . . . . . . . . . . . . . . . . . . . . . . . . . 174
A.1.4 Response elasticities for section 1.3.1 . . . . . . . . . . . . . . . . . . . 175
A.1.5 Microfoundations for the price floor assumption . . . . . . . . . . . . 175
A.2 Daily Action Experiment: Supplementary Material . . . . . . . . . . . . . . . 176
A.2.1 Theoretical Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
A.2.2 Additional Experimental Details . . . . . . . . . . . . . . . . . . . . . . 177
A.2.3 Robustness to Demographic Controls . . . . . . . . . . . . . . . . . . . 178
A.2.4 Robustness to calendar date random effects . . . . . . . . . . . . . . . 179
A.2.5 Analysis of Post-Experimental Survey Results . . . . . . . . . . . . . . 179
A.3 Task Completion Experiment: Supplementary Material . . . . . . . . . . . . . 181
A.3.1 Reminders Text . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181
A.3.2 Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
A.3.3 Day of week effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
A.3.4 Robustness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
A.3.5 Reminder Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
A.4 Proofs of Mathematical Results . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
A.4.1 Proofs for repeated action results . . . . . . . . . . . . . . . . . . . . . 185
A.4.2 Proofs for one time actions results . . . . . . . . . . . . . . . . . . . . . 193
A.4.3 Proofs for rebate market results . . . . . . . . . . . . . . . . . . . . . . 203
A.4.4 Proofs for reminder advertising results . . . . . . . . . . . . . . . . . . 205
Appendix B Appendix to Chapter 2 209
B.1 Details of TESS Experiment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
B.2 Additional TESS Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
B.3 iPad Total Cost Comparison Screen . . . . . . . . . . . . . . . . . . . . . . . . 226
B.4 Appendix to Theoretical Framework . . . . . . . . . . . . . . . . . . . . . . . . 227
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Appendix C Appendix to Chapter 3 229
C.1 Additional tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
C.2 Proposer optimization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
C.3 Proofs of Propositions (online publication only) . . . . . . . . . . . . . . . . . 232
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List of Tables
1.1 Probability of Completing a Survey on any Given Day in Week 3 . . . . . . . 32
1.2 Fraction of Subjects Completing Task, by Experimental Condition . . . . . . . 47
1.3 Probability of Completing Task, by Experimental Condition . . . . . . . . . . 47
2.1 Descriptive Statistics and Balance for TESS Experiment . . . . . . . . . . . . . 85
2.2 Effects of TESS Informational Interventions . . . . . . . . . . . . . . . . . . . . 89
2.3 Perceived Intent of TESS Study . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
2.4 Effects on Beliefs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
2.5 Effects on Important Factors in Purchase Decision . . . . . . . . . . . . . . . . 94
2.6 Descriptive Statistics and Balance for In-Store Experiment . . . . . . . . . . . 97
2.7 Effects of In-Store Informational Intervention . . . . . . . . . . . . . . . . . . . 99
2.8 Welfare Analysis Using TESS Results . . . . . . . . . . . . . . . . . . . . . . . 114
3.1 Overview of Matching Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
3.2 Regression analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
3.3 Proposer Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
3.4 Proposers’ beliefs about acceptance . . . . . . . . . . . . . . . . . . . . . . . . 147
3.5 Time trends in minimum acceptance thresholds . . . . . . . . . . . . . . . . . 148
A.1 Demographics by Experimental Condition . . . . . . . . . . . . . . . . . . . . 177
A.2 Replication of Table 1.1 with Demographic Controls. . . . . . . . . . . . . . . 178
A.3 Replication of Table 1.1 With Clustering at the Calendar Date Level. . . . . . 179
A.4 Effect of Using Own Reminder Technology, by Experimental Condition. . . . 180
A.5 Demographics by Experimental Condition . . . . . . . . . . . . . . . . . . . . 182
A.6 Day of Week Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
A.7 Robustness to Day of Week and Demographics . . . . . . . . . . . . . . . . . . 184
A.8 Different Types of Reminders Don’t Have Differential Effects . . . . . . . . . 185
B.1 Association Between Individual Characteristics and CFL Demand . . . . . . 221
B.2 Correlation of Treatment Effects with Self-Monitoring Scale . . . . . . . . . . 222
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