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.
Falk, A., & Hermle, J. (2018). Relationship of gender differences in preferences to economic development and gender equality. Science, 362(6412).
Preferences concerning time, risk, and social interactions systematically shape human behavior and contribute to differential economic and social outcomes between women and men. We present a global investigation of gender differences in six fundamental preferences. Our data consist of measures of willingness to take risks, patience, altruism, positive and negative reciprocity, and trust for 80,000 individuals in 76 representative country samples. Gender differences in preferences were positively related to economic development and gender equality. This finding suggests that greater availability of and gender-equal access to material and social resources favor the manifestation of gender-differentiated preferences across countries.
Kosse, F., Deckers, T., Pinger, P., Schildberg-Hörisch, H., & Falk, A. (2018). The formation of prosociality: Causal evidence on the role of the social environment. Journal of Political Economy (forthcoming).
This study presents descriptive and causal evidence on the role of social environment for the formation of prosociality. In a frst 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 prosocialty. 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 gap in prosociality between low and high SES children. A mediation analysis of the observed treatment effect suggests that prosociality develops in response to stimuli in the form of prosocial role models and intense social interactions.
Falk, A., & Zimmermann, F. (2018). Information processing and commitment. The Economic Journal, 128(613), 1983-2002.
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.
Altmann, S., Falk, A., Jäger, S., & Zimmermann, F. (2018). Learning about job search: A field experiment with job seekers in Germany. Journal of Public Economics (forthcoming).
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.
Altmann, S., Falk, A., Heidhues, P., Jayaraman, R., & Teirlinck, M. (2018). Defaults and donations: Evidence from a field experiment. The Review of Economics and Statistics (forthcoming).
We study how defaults affect charitable donations. In a field experiment that was conducted on a large online platform for charitable giving, we exogenously vary the default options in the donation form 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 a “codonation” 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 significant effects on average donation levels. This is because defaults in the donation domain induce some people to donate more and others to donate less. In contrast, higher defaults in the secondary choice dimension unambiguously induce higher average contributions to the online platform. We complement our experimental results by setting up and estimating a structural model that explores whether personalizing defaults based on individuals’ donation histories can help the online platform to increase donation revenues.
Dohmen, T., Falk, A., Huffman, D., & Sunde, U. (2018). On the relationship between cognitive ability and risk preference. Journal of Economic Perspectives, 32(2), 115-134.
Many decisions of individuals are a combination of internal preferences and mental processes related to cognitive ability. As Frederick (2005) argued in this journal, “there is no good reason for ignoring the possibility that general intelligence or various more specific cognitive abilities are important causal determinants of decision making.” Since then, a number of empirical studies have focused on the relationship between cognitive ability and decision making in different contexts. This paper will focus on the relationship between cognitive ability and decision making under risk and uncertainty. Taken as a whole, this research indicates that cognitive ability is associated with risktaking behavior in various contexts and life domains, including incentivized choices between lotteries in controlled environments, behavior in non‐experimental settings, and self‐reported tendency to take risks.
Falk, A., Kosse, F., Menrath, I., Verde, P. E., & Siegrist, J. (2018). Unfair pay and health. Management Science, 64(4), 1477-1973.
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.
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.
Kuss, K., Falk, A., Trautner, P., Montag, C., Weber, B., & Fliessbach, K. (2015). Neuronal correlates of social decision making are influenced by social value orientation—an fMRI study. Frontiers in Behavioral Neuroscience, 9.
Our decisions often have consequences for other people. Hence, self-interest and other-regarding motives are traded off in many daily-life situations. Interindividually, people differ in their tendency to behave prosocial. These differences are captured by the concept of social value orientation (SVO), which assumes stable, trait-like tendencies to act selfish or prosocial. This study investigates group differences in prosocial decision making and addresses the question of whether prosocial individuals act intuitively and selfish individuals instead need to control egoistic impulses to behave prosocially. We address this question via the interpretation of neuronal and behavioral indicators. In the present fMRI-study participants were grouped into prosocial- and selfish participants. They made decisions in multiple modified Dictator-Games (DG) that addressed self- and other-regarding motives to a varying extent (self gain, non-costly social gain, mutual gain, costly social gain). Selfish participants reacted faster than prosocial participants in all conditions, except for decisions in the non-costly social condition, in which selfish participants displayed the longest decision times. In the total sample we found enhanced neural activity in the ventromedial prefrontal cortex (vmPFC) and dorsomedial prefrontal cortex (dmPFC/BA 9) during decisions that resulted in non-costly social benefits. These areas have been implicated in cognitive control processes and deliberative value integration. Decisively, these effects were stronger in the group of selfish individuals. We believe that selfish individuals require more explicit and deliberative processing during prosocial decisions. Our results are compatible with the assumption that prosocial decisions in prosocials are more intuitive, whereas they demand more active reflection in selfish individuals.
Albrecht, K., Abeler, J., Weber, B., & Falk, A. (2014). The brain correlates of the effects of monetary and verbal rewards on intrinsic motivation. Frontiers in Decision Neuroscience, 8.
Apart from everyday duties, such as doing the laundry or cleaning the house, there are tasks we do for pleasure and enjoyment. We do such tasks, like solving crossword puzzles or reading novels, without any external pressure or force; instead, we are intrinsically motivated: we do the tasks because we enjoy doing them. Previous studies suggest that external rewards, i.e., rewards from the outside, affect the intrinsic motivation to engage in a task: while performance-based monetary rewards are perceived as controlling and induce a business-contract framing, verbal rewards praising one's competence can enhance the perceived self-determination. Accordingly, the former have been shown to decrease intrinsic motivation, whereas the latter have been shown to increase intrinsic motivation. The present study investigated the neural processes underlying the effects of monetary and verbal rewards on intrinsic motivation in a group of 64 subjects applying functional magnetic resonance imaging (fMRI). We found that, when participants received positive performance feedback, activation in the anterior striatum and midbrain was affected by the nature of the reward; compared to a non-rewarded control group, activation was higher while monetary rewards were administered. However, we did not find a decrease in activation after reward withdrawal. In contrast, we found an increase in activation for verbal rewards: after verbal rewards had been withdrawn, participants showed a higher activation in the aforementioned brain areas when they received success compared to failure feedback. We further found that, while participants worked on the task, activation in the lateral prefrontal cortex was enhanced after the verbal rewards were administered and withdrawn.
Strang, S., Utikal, V., Fischbacher, U., Weber, B., & Falk, A. (2014). Neural correlates of receiving an apology and active forgiveness: An fMRI study. PLoS One, 9(2).
Interpersonal conflicts are a common element of many social relationships. One possible process in rebuilding social relationships is the act of apologizing. Behavioral studies have shown that apologies promote forgiveness. However, the neural bases of receiving an apology and forgiveness are still unknown. Hence, the aim of the present fMRI study was to investigate brain processes involved in receiving an apology and active forgiveness of an ambiguous offense. We asked one group of participants (player A) to make decisions, which were either positive or negative for another group of participants (player B). The intention of player A was ambiguous to player B. In case of a negative impact, participants in the role of player A could send an apology message to participants in the role of player B. Subsequently players B were asked whether they wanted to forgive player A for making a decision with negative consequences. We found that receiving an apology yielded activation in the left inferior frontal gyrus, the left middle temporal gyrus, and left angular gyrus. In line with previous research we found that forgiving judgments activated the right angular gyrus.
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.
Wibral, M., Dohmen, T., Klingmüller, D., Weber, B., & Falk, A. (2012). Testosterone administration reduces lying in men. PLoS One, 7(10).
Lying is a pervasive phenomenon with important social and economic implications. However, despite substantial interest in the prevalence and determinants of lying, little is known about its biological foundations. Here we study a potential hormonal influence, focusing on the steroid hormone testosterone, which has been shown to play an important role in social behavior. In a double-blind placebo-controlled study, 91 healthy men (24.32±2.73 years) received a transdermal administration of 50 mg of testosterone (n = 46) or a placebo (n = 45). Subsequently, subjects participated in a simple task, in which their payoff depended on the self-reported outcome of a die-roll. Subjects could increase their payoff by lying without fear of being caught. Our results show that testosterone administration substantially decreases lying in men. Self-serving lying occurred in both groups, however, reported payoffs were significantly lower in the testosterone group (p<0.01). Our results contribute to the recent debate on the effect of testosterone on prosocial behavior and its underlying channels.
Fliessbach, K., Phillipps, C. B., Trautner, P., Schnabel, M., Elger, C. E., Falk, A., & Weber, B. (2012). Neural responses to advantageous and disadvantageous inequity. Frontiers in Human Neuroscience, 6.
In this paper we study neural responses to inequitable distributions of rewards despite equal performance. We specifically focus on differences between advantageous inequity (AI) and disadvantageous inequity (DI). AI and DI were realized in a hyperscanning functional magnetic resonance imaging (fMRI) experiment with pairs of subjects simultaneously performing a task in adjacent scanners and observing both subjects' rewards. Results showed (1) hypoactivation of the ventral striatum (VS) under DI but not under AI; (2) inequity induced activation of the right dorsolateral prefrontal cortex (DLPFC) that was stronger under DI than under AI; (3) correlations between subjective evaluations of AI evaluation and bilateral ventrolateral prefrontal and left insular activity. Our study provides neurophysiological evidence for different cognitive processes that occur when exposed to DI and AI, respectively. One possible interpretation is that any form of inequity represents a norm violation, but that important differences between AI and DI emerge from an asymmetric involvement of status concerns.
Abeler, J., Falk, A., Goette, L., & Huffman, D. (2011). Reference points and effort provision. American Economic Review, 101(2), 470-492.
A key open question for theories of reference-dependent preferences is: what determines the reference point? One candidate is expectations: what people expect could affect how they feel about what actually occurs. In a real-effort experiment, we manipulate the rational expectations of subjects and check whether this manipulation influences their effort provision. We find that effort provision is significantly different between treatments in the way predicted by models of expectation-based, reference-dependent preferences: if expectations are high, subjects work longer and earn more money than if expectations are low.
Dohmen, T., & Falk, A. (2011). Performance pay and multidimensional sorting: Productivity, preferences, and gender. American Economic Review, 101(2), 556-590.
This paper studies the impact of incentives on worker self-selection in a controlled laboratory experiment. Subjects face the choice between a fixed and a variable payment scheme. Depending on the treatment, the variable payment is a piece rate, a tournament, or a revenue-sharing scheme. We find that output is higher in the variable-payment schemes compared to the fixed-payment scheme. This difference is largely driven by productivity sorting. In addition, different incentive schemes systematically attract individuals with different attitudes, such as willingness to take risks and relative self-assessment as well as gender, which underlines the importance of multidimensional sorting.
Caliendo, M., Falk, A., Kaiser, L. C., Schneider, H., Uhlendorff, A., van den Berg, G., & Zimmermann, K. F. (2011). The IZA Evaluation Dataset: towards evidence-based labor policy making. International Journal of Manpower, 32(7), 731-752.
Purpose – This paper aims to present the IZA Evaluation Dataset, a newly created data source allowing for the evaluation of active labor market policies in Germany.
Design/methodology/approach – The paper’s approach is a description of the sampling and contents of the IZA Evaluation Dataset and an outline of its research potential.
Findings – The evaluation of active labor market policies is often confronted with a lack of adequate empirical data. The IZA Evaluation Dataset may serve as a role model for the provision of such data.
Research limitations/implications – The scope of active labor market policy instruments that can be analyzed with the IZA Evaluation Dataset is mainly restricted to measures for unemployed individuals.
Originality/value – In recent years, many countries have opened their administrative databases for evaluation studies. However, information that might be relevant for economic modeling is often absent. The IZA Evaluation Dataset aims to overcome such limitations for Germany by complementing administrative data from the Federal Employment Agency with innovative survey data.
Dohmen, T., Falk, A., Huffman, D., & Sunde, U. (2010). Are risk aversion and impatience related to cognitive ability?. American Economic Review, 100(3), 1238-1260.
This paper investigates whether there is a link between cognitive ability, risk aversion, and impatience, using a representative sample of roughly 1,000 German adults. Subjects participate in choice experiments with monetary incentives measuring risk aversion, and impatience over an annual horizon, and conduct two different, widely used, tests of cognitive ability. We find that lower cognitive ability is associated with greater risk aversion, and more pronounced impatience. These relationships are significant, and robust to controlling for personal characteristics, education, income, and measures of credit constraints. We perform a series of additional robustness checks, which help rule out other possible confounds.
Schonlau, M., Reuter, M., Schupp, J., Montag, C., Weber, B., Dohmen, T., Siegel, N. A., Sunde, U., Wagner, G. G., & Falk, A. (2010). Collecting genetic samples in population wide (panel) surveys: Feasibility, nonresponse and selectivity. Survey Research Methods, 4(2), 121-126.
Collecting biomarkers as part of general purpose surveys offers scientists – and social scientists in particular – the ability to study biosocial phenomena, e.g. the relation between genes and human behavior. We explore the feasibility of collecting buccal cells for genetic analyses with normal interviewers as part of a pretest for the German Socio-economic Panel Study (SOEP) using a probability sample. We introduce a new non-invasive technique for collecting cell material for genetic analyses and test its quality. We found no technical diculties in collecting the genetic material and almost all samples collected could be analyzed. However, one third of interviewers reported it was hard to convince panel members to participate. The “biomarker wave” showed no reduction in response rate compared to the previous wave that included no biomarkers and the sample exhibited very little selectivity. We conclude that collecting cell material for genetic analyses with normal interviewers is feasible with no apparent same-wave attrition, though so far we cannot rule out attrition in subsequent waves.
Weber, B., Rangel, A., Wibral, M., & Falk, A. (2009). The medial prefrontal cortex exhibits money illusion. Proceedings of the National Academy of Sciences, 106(13), 5025-5028.
Behavioral economists have proposed that money illusion, which is a deviation from rationality in which individuals engage in nominal evaluation, can explain a wide range of important economic and social phenomena. This proposition stands in sharp contrast to the standard economic assumption of rationality that requires individuals to judge the value of money only on the basis of the bundle of goods that it can buy—its real value—and not on the basis of the actual amount of currency—its nominal value. We used fMRI to investigate whether the brain's reward circuitry exhibits money illusion. Subjects received prizes in 2 different experimental conditions that were identical in real economic terms, but differed in nominal terms. Thus, in the absence of money illusion there should be no differences in activation in reward-related brain areas. In contrast, we found that areas of the ventromedial prefrontal cortex (vmPFC), which have been previously associated with the processing of anticipatory and experienced rewards, and the valuation of goods, exhibited money illusion. We also found that the amount of money illusion exhibited by the vmPFC was correlated with the amount of money illusion exhibited in the evaluation of economic transactions.
Falk, A., Kramarz, F., Angrist, J. D., Blau, D. M., Robin, J., & Taber, C. R. (2006). How to do empirical economics. Investigaciones Económicas, XXX(2), 179-206.
This article presents a discussion among leading economists on how to do empirical research in economics. The participants discuss their reasons for starting research projects, data base construction, the methods they use, the role of theory, and their views on the main alternative empirical approaches. The article ends with a discussion of a set of articles which exemplify best practice in empirical work.
Falk, A., & Fischbacher, U. (2006). A theory of reciprocity. Games and Economic Behavior, 54(2), 293-315.
Falk, A., & Kosfeld, M. (2006). The hidden costs of control. American Economic Review, 96(5), 1611-1630.
We analyze the consequences of control on motivation in an experimental principalagent game, where the principal can control the agent by implementing a minimum performance requirement before the agent chooses a productive activity. Our results show that control entails hidden costs since most agents reduce their performance as a response to the principals controlling decision. Overall, the effect of control on the principals payoff is nonmonotonic. When asked for their emotional perception of control, most agents who react negatively say that they perceive the controlling decision as a signal of distrust and a limitation of their choice autonomy.
Behavioral Labor Economics
Empirical Measurement of Preferences
Theory of the Firm and the Labor Market
Microeconomics and Game Theory
Management and Economics