Armin Falk

Armin Falk

Professor of Economics

about

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Armin Falk is Professor of Economics at the University of Bonn and Chief Executive Officer of briq. His main fields are behavioral, experimental and labor economics. Falk’s research focuses on determinants and consequences of time, risk and social preferences, sources of inequality, early childhood development, and the malleability of moral behavior. He has received two ERC grants and was awarded the Gossen Prize in 2008, the Leibniz Prize in 2009, as well as the Yrjö Jahnsson Award in 2011. As organizer or keynote speaker, he has been involved in numerous conferences and summer schools. He is Fellow of the European Economic Association, Director of the Bonn Laboratory for Experimental Economics, Associate Editor of the Quarterly Journal of Economics, and affiliated with Hausdorff Center for Mathematics, Institute for New Economic Thinking, Institute of Labor Economics (IZA), German Institute for Economic Research (DIW), Centre for Economic Policy (CEPR), CESifo, and the Max Planck Institute for Research on Collective Goods.

working papers

Dohmen, T., Falk, A., Huffman, D., & Sunde, U. The robustness and pervasiveness of sub-additivity in intertemporal choice.

A large literature has used choice experiments involving time-dated monetary rewards, to test whether time discounting is exponential or hyperbolic, with mixed results. One explanation, proposed by the psychologist Daniel Read (2001), is that the observed choice patterns reflect a type of framing effect, known as sub-additivity, rather than hyperbolic or exponential discounting. An alternative explanation, however, has emerged from a recent literature in economics, which points out various confounds that might affect the traditional intertemporal choice experiment, as well as challenges of inference from typically small or idiosyncratic samples. This paper makes two main contributions: (1) It re-visits the sub-additivity hypothesis, but using a design that addresses the key methodological confounds; (2) it uses large representative samples, to assess the pervasiveness and importance of anomalous choice patterns like sub-additivity. The analysis finds intertemporal choices that are consistent with sub-additivity, and rules out explanations based on confounds. Furthermore, subadditivity is pervasive, being observed across all sub-populations studied in the analysis, and constituting the majority choice pattern at the individual level. The results underline that sub-additivity is an important feature of intertemporal choice, they raise caveats about how intertemporal choice experimens have often been interpreted, and they suggest some directions for methodological improvements.

Falk, A. Status inequality, moral disengagement and violence.

This paper studies the causal effect of status differences on moral disengagement and violence. To measure violent behavior, in the experiment, a subject can inflict a painful electric shock on another subject in return for money. We exogenously vary relative status in the realm of sexual attractiveness. In three between-subject conditions, the assigned other subject is either of higher, lower or equal status. The incidence of electric shocks is substantially higher among subjects matched with higher- and lower-status others, relative to subjects matched with equal-status others. This causal evidence on the role of status inequality on violence suggests an important societal cost of economic and social inequalities.

Falk, A. Facing yourself – A note on self-image.

Numerous signaling models in economics assume image concerns. These take two forms, as relating either to social image or self-image. While empirical work has identified the behavioral importance of the former, little is known about the role of self-image concerns. We exogenously vary self-image concerns in manipulating self-directed attention and study the impact on moral behavior. The choice context in the experiment is whether subjects inflict a painful electric shock on another subject to receive a monetary payment. Three between-subjects conditions are studied. In the main treatment, subjects see their own face on the decision screen in a real-time video feed. In the two control conditions, subjects see either no video at all or a neutral video. We find that the exogenous increase in self-image concerns significantly reduces the fraction of subjects inflicting pain.

Falk, A., & Kosse, F. Early childhood environment, breastfeeding and the formation of preferences.

This study provides insights on the role of early childhood family environment within the process of preference formation. We start by presenting evidence showing that breastfeeding duration is a valid measure of the quality of early childhood environment. In the main analysis, we then investigate how early childhood environment affects the formation of fundamental economic preferences such as time, risk, and social preferences. In a sample of preschool children we find that longer breastfeeding duration is associated with higher levels of patience and altruism as well as lower willingness to take risk. Repeating the analysis on a sample of young adults indicates that the observed pattern is replicable and persists into adulthood. Importantly, in both data sets our findings are robust, when controlling for cognitive ability and parental socio-economic status. We can further rule out that the results are purely driven by nutritional effects of breastfeeding. Altogether, our findings strongly suggest that early childhood environment as measured by breatsfeeding duration systematically and persistently affects preference formation.

Kosse, F., Deckers, T., Schildberg-Hörisch, H., & Falk, A. The formation of prosociality: Causal evidence on the role of social environment.

This study presents descriptive and causal evidence on the role of social environment for the formation of prosociality. In a first step, we show that socio-economic status (SES) as well as the intensity of mother-child interaction and mothers' prosocial attitudes are systematically related to elementary school children's prosociality. In a second step, we present evidence on a randomly assigned variation of the social environment, providing children with a mentor for the duration of one year. Our data include a two-year follow-up and reveal a significant and persistent increase in prosociality in the treatment relative to the control group. Moreover, enriching the social environment bears the potential to close the observed developmental gap in prosociality between low and high SES children. Our findings suggest that the program serves as a substitute for prosocial stimuli in the family environment.

Becker, A., Dohmen, T. J., Enke, B., Falk, A., Huffman, D., & Sunde, U. Global Evidence on Economic Preferences.

This paper presents the Global Preference Survey (GPS), the first global survey focused on measuring time preference, risk preference, positive and negative reciprocity, altruism, and trust. The sample includes 80,000 individuals, drawn as representative samples from 76 countries that represent 90 percent of world population and income. The data reveal that preferences differ substantially across countries, but heterogeneity within countries is even more pronounced. The preferences vary with plausibly exogenous individual characteristics – gender, cognitive ability, and age – but relationships are in some cases culturally specific. Preferences also vary with cultural differences as captured by language structure, and with country-level characteristics like geography. Individual level economic outcomes, including savings decisions, labor market choices, and prosocial behaviors, are correlated with the preferences, and these relationships are similar across countries. Important aggregate outcomes, ranging from economic development to the frequency of armed conflicts, also vary with country-level averages of preferences.

Falk, A., & Zimmermann, F. Beliefs and utility: Experimental evidence on preferences for information.

Beliefs are a central determinant of behavior. Recent models assume that beliefs about or the anticipation of future consumption have direct utility-consequences. This gives rise to informational preferences, i.e., preferences over the timing and structure of information. Using a novel and purposefully simple set-up, we experimentally analyze preferences for information along four dimensions. We find evidence that the majority of subjects prefers receiving information sooner. This preference, however, is not uniform but depends on context. When the environment allows subjects to not focus attention on (negative) consumption events, later information becomes more attractive. We also identify an aversion towards piecemeal information. Variations in prior distributions do not seem to affect information preferences.

Falk, A., & Szech, N. Diffusion of being pivotal and immoral outcomes.

We study how diffusing being pivotal affects the willingness to support immoral outcomes. Subjects decide about agreeing to kill mice and receiving money versus objecting to kill mice and foregoing the monetary amount. We investigate an exogenous diffusion of being pivotal imposed by organizational design as well as self-imposed, endogenous diffusion of being pivotal. Regarding exogenous diffusion, we compare two treatments. We keep overall financial incentives and overall payoff consequences identical, yet vary the decision rule: In Baseline subjects decide individually about the life of one mouse. In the Exogenous Diffusion treatment, subjects are organized into groups of eight. Eight mice are killed if at least one subject supports the killing. The fraction of subjects agreeing to kill is significantly higher in Exogenous Diffusion than in Baseline. Moreover, in Exogenous Diffusion, the likelihood to agree to the killing decreases in subjective perceptions of being pivotal. We then show that many subjects actually have a preference to actively create a situation where being pivotal is diffused. In the Endogenous Diffusion treatment, each subject chooses the probability of killing a mouse. The monetary amount a subject receives is proportional to the killing probability. More than 30 percent of subjects opt for intermediate killing probabilities, thereby actively diffusing being pivotal at a proportional reduction of money. Response times and feelings of remorse and bad conscience suggest that it is in particular subjects experiencing moral conflict who prefer diffusing being pivotal. Presumably, this serves as a means to keep a positive self-image while behaving selfishly.

Deckers, T., Falk, A., Kosse, F., & Schildberg-Hörisch, H. How does socio-economic status shape a child's personality?

We show that socio-economic status (SES) is a powerful predictor of many facets of a child's personality. The facets of personality we investigate encompass time preferences, risk preferences, and altruism, as well as crystallized and fluid IQ. We measure a family's SES by the mother's and father's average years of education and household income. Our results show that children from families with higher SES are more patient, tend to be more altruistic and less likely to be risk seeking, and score higher on IQ tests. We also discuss potential pathways through which SES could affect the formation of a child's personality by documenting that many dimensions of a child's environment differ systematically by SES: parenting style, quantity and quality of time parents spend with their children, the mother's IQ and economic preferences, a child's initial conditions at birth, and family structure. Finally, we use panel data to show that the relationship between SES and personality is fairly stable over time at age 7 to 10. Personality profiles that vary systematically with SES might offer an explanation for social immobility.

Altmann, S., Falk, A., & Grunewald, A. Incentives and information as driving forces of default effects.

The behavioral relevance of non-binding defaults is well established. While most research has focused on decision makers’ responses to a given default, we argue that this individual decision making perspective is incomplete. Instead, a comprehensive understanding of default effects requires to take account of the strategic interaction between default setters and decision makers. We analyze theoretically and empirically which defaults emerge in such interactions, and under which conditions defaults are behaviorally most relevant. Our analysis demonstrates that the alignment of interests between default setters and decision makers, as well as their relative level of information are key drivers of default effects. In particular, default effects are more pronounced if the interests of the default setter and decision makers are more closely aligned. Moreover, decision makers are more likely to follow default options the less they are privately informed about the relevant decision environment.

Altmann, S., Falk, A., Heidhues, P., & Jayaraman, R. Defaults and donations: Evidence from a field experiment.

We study how website defaults affect consumer behavior in the domain of charitable giving. In a field experiment that was conducted on a large platform for making charitable donations over the web, we exogenously vary the default options in two distinct choice dimensions. The first pertains to the primary donation decision, namely, how much to contribute to the charitable cause. The second relates to an “add-on" decision of how much to contribute to supporting the online platform itself. We find a strong impact of defaults on individual behavior: in each of our treatments, the modal positive contributions in both choice dimensions invariably correspond to the specified default amounts. Defaults, nevertheless, have no impact on aggregate donations. This is because defaults in the donation domain induce some people to donate more and others to donate less than they otherwise would have. In contrast, higher defaults in the secondary choice dimension unambiguously induce higher contributions to the online platform.

Falk, A., & Zimmermann, F. Information processing and commitment.

Beliefs are often found to be sticky and rather immune to new information. In this paper we highlight a specific mechanism that raises resistance to incorporate new information. We provide results from a lab study in the context of an estimation task where subjects need to provide an estimate about an objective state of the world. In this context we provide causal evidence that commitment to a first opinion leads to a neglect of new and challenging information. Investigating the sources of this effect, we show that our findings are well explained by an internal desire to act consistently. We also present a simple model that formalizes how a desire for consistency can produce our pattern of findings.

Falk, A., Becker, A., Dohmen, T. J., Huffman, D., & Sunde, U. The preference survey module: A validated instrument for measuring risk, time, and social preferences.

This paper presents an experimentally validated survey module to measure six key economic preferences – risk aversion, discounting, trust, altruism, positive and negative reciprocity – in a reliable, parsimonious and cost-effective way. The survey instruments included in the module were the best predictors of preferences revealed in incentivized choice experiments. We also offer a streamlined version of the module that has been optimized and piloted for applications where time efficiency and simplicity are paramount, such as international telephone surveys.

Dohmen, T., Enke, B., Falk, A., Huffman, D., & Sunde, U. Patience and the wealth of nations.

According to standard dynamic choice theories, patience is a key driving factor behind the accumulation of the proximate determinants of economic development. Using a novel representative data set on time preferences from 80,000 individuals in 76 countries, we investigate the empirical relevance of this hypothesis in the context of a development accounting framework. We find a significant reduced-form relationship between patience and development in terms of contemporary income as well as medium- and long-run growth rates, with patience explaining a substantial fraction of development differences across countries. Consistent with the idea that patience affects national income through accumulation processes, patience also strongly correlates with human and physical capital accumulation, investments into productivity, and institutional quality. Additional results show that the relationship between patience, human capital, and income extends to analyses across regions within countries, and across individuals within regions.

Falk, A., Enke, B., & Becker, A. Ancient origins of the global variation in economic preferences.

Using novel globally representative preference data, this paper shows that the structure and timing of the migratory movements of our very early ancestors have left a footprint in the contemporary cross-country distributions of risk, time, and social preferences. Across a wide range of regression specifications, differences in preferences between populations are significantly increasing in the length of time elapsed since the respective groups shared common ancestors, as proxied by genetic, linguistic, and predicted migratory distance data. The results are strongest for risk aversion and the prosocial traits altruism, positive reciprocity, and trust; similar, but weaker, findings hold for patience and negative reciprocity. These patterns point to the very long-run roots of the global variation in preferences and associated economic behaviors.

Falk, A., Huffman, D., & Sunde, U. Do I have what it takes? Equilibrium search with type uncertainty and non-participation.

This paper presents a model of the labor market in which unemployed workers are uncertain about their relative ability to find a job. Unsuccessful search induces individuals to revise their beliefs downwards. Once self-confidence is sufficiently low, workers become discouraged and give up on search. This non-stationarity gives rise to structural flows from unemployment to non-participation in equilibrium. In contrast, existing models typically maintain stationarity and appeal to exogenous stochastic shocks to generate transitions from unemployment to non-participation. Our model is based on relaxing a single assumption in a standard matching framework – workers are uncertain about their job finding probability – and yet the model generates a variety of important implications. Our alternative assumption is supported by experimental evidence. The first implication of the model is a declining hazard from unemployment to employment, arising due to erosion of self-confidence in search. Second, because search outcomes are only a noisy signal about ability, some individuals can become overly discouraged and stop search too early due to wrong beliefs. Finally, workers with greater unemployment duration are less confident, and thus have a worse threat point in wage bargaining. Consequentially, they earn lower starting wages even if they are identical in terms of objective productivity. We discuss how the model provides a new, unifying explanation for a variety of import ant facts from field evidence.

Dohmen, T. J., Falk, A., Huffman, D., & Sunde, U. Seemingly irrelevant events affect economic perceptions and expectations: the FIFA World Cup 2006 as a natural experiment.

Prominent economic theories have emphasized the role of commonly held perceptions and expectations for determining macroeconomic outcomes. A key empirical question is how such collectively held beliefs are formed. We use the FIFA World Cup 2006 as a natural experiment. We provide direct evidence that seemingly irrelevant events (the outcomes of soccer matches) can systematically affect individual perceptions about economic prospects, both on a personal and economy-wide level.

Falk, A., Huffman, D., & Sunde, U. Self-confidence and search.

Standard search theory assumes that individuals know, with certainty, how they compare to competing searchers in terms of ability. In contrast, we hypothesize that searchers are uncertain about relative ability, with important implications for search behavior. We test our hypotheses in a laboratory experiment. The first main finding is that people are substantially uncertain about whether they are a type with a high or low probability of success, determined by being above or below the median in terms of ability. Self-confidence, defined as an individual’s self-assessed probability of being a high type, is too high (above zero) for many low types, and too low (below 1) for many high types. Second, people update beliefs based on search outcomes. Self-confidence increases or decreases in the right direction, but is less sensitive to new information than predicted by Bayes’ rule. Third, updating affects future search decisions: people are less likely to search as confidence about being a high type falls. Fourth, some search too little, and others search too much, due to wrong beliefs. Fifth, at the end of the experiment a substantial fraction turn down the chance to learn their exact rank. These are overwhelmingly those with low ability, suggesting an aversion to learning that one is one of the worst performers. Given that people are uncertain even in the simple setting of our experiment, our evidence strongly suggests that uncertainty about ability is relevant in more complex, real-world search settings, including search for a job or search for a mate. Focusing on the case of job search, we discuss how our findings can provide a new explanation for various important stylized facts from field evidence.

Falk, A., Fehr, E., & Huffman, D. The power and limits of tournament incentives.

Tournaments provide incentives through the prize spread. Agents are predicted to work harder for higher prize spreads, and thus principals are predicted to maximize the spread. This paper shows experimentally how changing institutional environments affect the way that principals structure tournament incentives, and the degree of wage compression. While in some settings tournaments provide powerful incentives, and principals maximize the prize spread, two specific factors – sabotage opportunities, and loss aversion among agents – are shown to undermine the power of tournaments and cause principals to choose wage compression.

Dohmen, T., Falk, A., Huffman, D., Marklein, F., & Sunde, U. The non-use of Bayes rule: representative evidence on bounded rationality.

The ability to process new information and to compute conditional probabilities is crucial for making appropriate decisions under uncertainty. In this paper, we investigate the capability of inferring conditional probabilities in a representative sample of the German population. Our results show that only a small fraction of the population responds consistently with Bayes' rule. Instead, most individuals either neglect the base probability, or the arrival of new information, in their responses. The probability to give normatively correct answers decreases with the level of education.

Falk, A., & Fehr, E. Fairness and unemployment.

publications

Title

Altmann, S., Falk, A., Jäger, S., & Zimmermann, F. (2017). Learning about job search: A field experiment with job seekers in Germany. Journal of Public Economics (accepted).

We conduct a large-scale field experiment in the German labor market to investigate how information provision affects job seekers’ employment prospects and labor market outcomes. Individuals assigned to the treatment group of our experiment received a brochure that informed them about job search strategies and the consequences of unemployment, and motivated them to actively look for new employment. We study the causal impact of the brochure by comparing labor market outcomes of treated and untreated job seekers in administrative data containing comprehensive information on individuals’ employment status and earnings. While our treatment yields overall positive effects, these tend to be concentrated among job seekers who are at risk of being unemployed for an extended period of time. Specifically, the treatment effects in our overall sample are moderately positive but mostly insignificant. At the same time, we do observe pronounced and statistically significant effects for individuals who exhibit an increased risk of long-term unemployment. For this group, the brochure increases employment and earnings in the year after the intervention by roughly 4%. Given the low cost of the intervention, our findings indicate that targeted information provision can be a highly effective policy tool in the labor market.

Falk, A., & Zimmermann, F. (2017). Information processing and commitment. The Economic Journal (forthcoming).

Beliefs are often found to be sticky and rather immune to new information. In this paper we highlight a specific mechanism that raises resistance to incorporate new information. We provide results from a lab study in the context of an estimation task where subjects need to provide an estimate about an objective state of the world. In this context we provide causal evidence that commitment to a first opinion leads to a neglect of new and challenging information. Investigating the sources of this effect, we show that our findings are well explained by an internal desire to act consistently. We also present a simple model that formalizes how a desire for consistency can produce our pattern of findings.

Falk, A., & Zimmermann, F. (2017). Consistency as a signal of skills. Management Science, 63(7), 2197-2210.

In this paper we examine individuals’ attitudes toward the timing of information. We test a theoretical prediction that people prefer to get information “clumped together” rather than piecewise. We conduct a controlled lab experiment where subjects participate in a lottery and can choose between different resolutions of uncertainty (clumped or piecewise) and analyze which kind of resolution is preferred. Two additional treatments allow us to get a quantitative measure of subjects’ preferences over different information structures. Our data provide little support for a systematic aversion to piecewise information on the aggregate level. In additional treatment conditions, we demonstrate the robustness of our findings and explore potential explanations.

Dohmen, T. J., Falk, A., Goldsteyn, B., Huffman, D., & Sunde, U. (n.d.). Risk attitudes across the life course The Economic Journal (forthcoming).

This paper investigates how risk attitudes change over the life course. We study the age trajectory of risk attitudes all the way from early adulthood until old age, in large representative panel data sets from the Netherlands and Germany. Age patterns are generally difficult to identify separately from cohort or calendar period effects. We achieve identification by replacing calendar period indicators with controls for the specific underlying factors that may change risk attitudes across periods. The main result is that willingness totake risks decreases over the life course, linearly until approximately age 65 after which the slope becomes flatter.

Falk, A., Kosse, F., Menrath, I., Verde, P. E., & Siegrist, J. (2017). Unfair pay and health. Management Science.

This paper investigates physiological responses to perceptions of unfair pay.We use an integrated approach that exploits complementarities between controlled laboratory and representative panel data. In a simple principal–agent experiment, agents produce revenue by working on a tedious task. Principals decide how this revenue is allocated between themselves and their agents. Throughout the experiment we record agents’ heart rate variability, which is an indicator of stress-related impaired cardiac autonomic control and which has been shown to predict coronary heart disease in the long run. Our findings establish a link between unfair payment and heart rate variability. Building on these findings, we further test for potential adverse health effects of unfair pay using observational data from a large representative panel data set. Complementary to our experimental findings we show a strong and significant negative association between unfair pay and health outcomes, in particular cardiovascular health.

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teaching

Experimental Economics

Behavioral Labor Economics

Neuroeconomics

Empirical Measurement of Preferences

Theory of the Firm and the Labor Market

Microeconomics and Game Theory

Management and Economics