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.
By downplaying externalities, magnifying the cost of moral behavior, or suggesting not being pivotal, exculpatory narratives can allow individuals to maintain a positive image when in fact acting in a morally questionable way. Conversely, responsibilizing narratives can help sustain better social norms. We investigate when narratives emerge from a principal or the actor himself, how they are interpreted and transmitted by others, and when they spread virally. We then turn to how narratives compete with imperatives (general moral rules or precepts) as alternative modes of communication to persuade agents to behave in desirable ways.
We investigate how much of a person's deep moral preferences can be retrieved from observing their choices, for instance via experiments, and in particular how one should interpret behaviors that appear deontologically rather than consequentially motivated. Comparing the performance of the direct elicitation (DE) and multiple-price list or Becker-DeGroot-Marschak (BDM) mechanisms, we characterize in each case how (social or self) image motives inflate the extent to which agents behave prosocially e.g., refuse bribes for causing harm. More surprisingly, the signaling bias is shown to depend on the elicitation method, both per se and interacted with the level of visibility: it is greater under DE for low enough reputation concerns, and greater under BDM when they become high enough. We also provide conditions ensuring a single crossing. We further show that, even when all agents are consequentialists, certain Kantian behaviors and postures easily emerge under BDM (but not DE) when reputation becomes important enough, with both high and low-morality agents turning down all prices within the offered range.
Deckers, T., Falk, A., Kosse, F., Pinger, P. & Schildberg-Hörisch, H. Socio-economic status and inequalities in children’s IQ and economic preferences
This paper explores inequalities in IQ and economic preferences between children from high and low socio-economic status (SES) families. We document that children from high SES families are more intelligent, patient and altruistic, as well as less risk-seeking. To understand the underlying causes and mechanisms, we propose a framework of how parental investments as well as maternal IQ and economic preferences influence a child’s IQ and preferences. Within this framework, we allow SES to influence both the level of parental time and parenting style investments, as well as the productivity of the investment process. Our results indicate that disparities in the level of parental investments hold substantial importance for SES gaps in economic preferences and, to a lesser extent, IQ. In light of the importance of IQ and preferences for behaviors and outcomes, our findings offer an explanation for social immobility.
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.
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.
The concern for a positive self-image is a central assumption in a large class of signaling models. In this paper, we exogenously vary self-image concerns by 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 reward. In the main treatment, subjects see their own face on the decision screen in a real-time video feed. In three control conditions, subjects see either no video at all or a neutral video, or they see themselves in a mirror. We find that the exogenous increase in self-image
concerns significantly reduces the fraction of subjects inflicting pain. The finding emphasizes the importance of self-awareness for moral decision making with implications for theory as well as practical applications to promote socially desirable outcomes.
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.
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.
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.
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.
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.
This paper studies the role of heterogeneity in time preference for comparative development. The empirical analysis is based on a simple OLG model in which patience drives the accumulation of physical capital, human capital, productivity improvements, and hence income. Based on a globally representative dataset on patience in 76 countries,we study the implications of themodel through a combination of reduced-form estimations and simulations. In the data, patience is strongly correlated with income levels, income growth, and the accumulation of physical capital, human capital, and productivity. These relationships hold across countries, subnational regions, and individuals. In the reduced-form analyses, the quantitative magnitude of the relationship between patience and income strongly increases in the level of aggregation. A simple parameterized version of the model generates comparable aggregation effects as a result of production complementarities and equilibrium effects, and illustrates that variation in preference endowments can account for a considerable part of the observed variation in per capita income.
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.
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.
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.
Albrecht, K., von Essen, E., Fliessbach, K., & Falk, A. (2013). The influence of status on satisfaction with relative rewards. Frontiers in Decision Neuroscience, 4, 804.
This study investigates how induced relative status affects satisfaction with different relative payoffs. We find that participants with lower status are more satisfied with disadvantageous payoff inequalities than equal or higher status participants. In contrast, when receiving an advantageous payoff, status does not affect satisfaction. Our findings suggest that relative social status has important implications for the acceptance of income inequalities.
Ortner, G. R., Wibral, M., Becker, A., Dohmen, T., Klingmüller, D., Falk, A., & Weber, B. (2013). No evidence for an effect of testosterone administration on delay discounting in male university students. Psychoneuroendocrinology, 38(9), 1814-1818.
Intertemporal choices between a smaller sooner and a larger delayed reward are one of the most important types of decisions humans face in their everyday life. The degree to which individuals discount delayed rewards correlates with impulsiveness. Steep delay discounting has been associated with negative outcomes over a wide range of behaviors such as addiction. However, little is known about the biological foundations of delay discounting. Here, we examine a potential causal link between delay discounting and testosterone, a hormone which has been associated with other types of impulsive behavior. In our double-blind placebo-controlled study 91 healthy young men either received a topical gel containing 50 mg of testosterone (N = 46) or a placebo (N = 45) before participating in a delay discounting task with real incentives. Our main finding is that a single dose administration of testosterone did not lead to significant differences in discount rates between the placebo and the testosterone group. Within groups and in the pooled sample, no significant relationship between testosterone and discount rates was observed. At the same time, we do replicate standard findings from the delay discounting literature such as a magnitude-of-rewards effect on discount rates. In sum, our findings suggest that circulating testosterone does not have a significant effect on delay discounting in young men.
Behavioral Labor Economics
Empirical Measurement of Preferences
Theory of the Firm and the Labor Market
Microeconomics and Game Theory
Management and Economics