| dc.description.abstract | From an individual perspective, one important way through which economics affects our daily lives is the framing of choices we make about our jobs, school, and what we have for dinner. People make thousands of decisions everyday, and economics deals with the optimization of those decisions in terms of individuals and society as a whole. Classical economic theory deals with the optimization of individuals’ utility based on the rationality assumption. This dissertation studies individuals’ decision-making from the perspective of behavioral economics which is primarily concerned with bounded rationality. I specifically focus on three different types of decision-making: insurance-purchasing, competition entry and employees’ labor effort choice.
In chapter 1, I compare agricultural insurance purchasing decisions under three different insurance schemes: purely voluntary, purely compulsory and mixed insurance (i.e. insurance with a compulsory and a voluntary part). The question of what type of agricultural insurance has the highest social welfare has received a great deal of attention in theoretical studies. However, a general consensus is far from being reached. In addition, there is no empirical study comparing all three insurance schemes in previous literature. It is very difficult to find a natural experiment or use empirical data to compare all three insurance types simultaneously. In order to investigate this question, adverse selection and moral hazard are two main issues that need to be jointly addressed. In this chapter, I use the Balloon Analogue Risk Task (BART) as the assessment of risk-taking and insurance context to conduct an online experiment. I find adverse selection in purely voluntary insurance, but advantageous selection in mixed insurance. Moral hazard exists in all three types of insurance, but it is smaller in mixed insurance. The ancillary results suggest that under the combined effects of significant moral hazard and “no adverse selection" in purely compulsory insurance make it the insurance type with the lowest social earnings. Overall there is no crowding-out effect of the compulsory part on residual voluntary purchases in mixed insurance.
In chapter 2, I study the effects of social roles on willingness to compete, especially for women. It has been well documented that women often respond less favorably to competition than men even when they have similar abilities. Economists are increasingly interested in investigating whether such gender differences in competitiveness may be useful for explaining persistent labor market differences. Competition aversion may explain why women are less likely to seek job promotions or to choose more lucrative and competitive fields [1]. Selecting out of certain labor markets is costly for society, especially when competent women are reluctant to compete for positions for which they are the best suited candidate. In this chapter, I ask whether social roles play an important role in individuals’ willingness to compete by running a laboratory experiment. Subjects compete in two-person teams. In the treatment, one team member is randomly assigned the role of “breadwinner", and the other person is randomly assigned as the “supporter". There are no differences between the roles in terms of payment, power, or effort. The only difference is the framing of the gender roles reminiscent of western society. In the baseline, subjects compete without any role assignment. We find women’s WTC increases by 36.5% when they are assigned as breadwinners compared to women in the baseline. The increase in WTC is mainly driven by high-ability women, and their expected earnings are 44.2% higher compared to high-ability women in the baseline. In the treatment, breadwinner’s WTC is significantly higher than the supporter’s WTC for both men and women, and the overall gender gap in WTC is not significant. We examine confidence, risk preferences, responsibility and social norms for competitiveness as potential mechanisms through which social roles affect WTC. We further test and replicate our laboratory results in an online experiment using roles prevalent in the workplace: “manager" and “assistant".
In chapter 3, I focus on the effects of promises on employees’ effort choices. A strong employment relationship benefits the satisfaction, productivity and welfare of employees, and it is the key to the success of an organization. We experimentally examine the effects of using non-binding promises along with a claimed wage from the employee to boost the wage and effort level in a one-shot gift-exchange game. The “claim and promise" setup allowed us to test reciprocity in the “gift exchange" between employers and employees and the guilt-aversion theory in promise-keeping. We find that when the employer trusts the employee and provides at least the claimed wage, the employee reciprocates by keeping his promise or exerting an even higher level of effort. However, when the employer offers a wage lower than the claimed wage, the employee retaliates by breaking the promise. The main results hold when employees must perform a real-effort task. In the real-effort paradigm, employers are less trusting, and there is less retaliation from employees due to the extra information about ability. In both stated and real effort paradigms, the wage, effort level, and final social payoffs are higher in the trust scenario of the “claim and promise" treatment compared to the baseline. We used pupil dilation and eye-tracking lookup patterns to help assess guilt and reciprocity dynamically and test the psychological game theory model. | en |
