Working Papers

An Experimental Study of Bond Market Pricing Link to original WP-version (new version available on request)
Matthias Weber, John Duffy, and Arthur Schram. Conditionally accepted at the Journal of Finance.

An important feature of bond markets is the relationship between the IPO price and the probability that the issuer defaults. On the one hand, the default probability affects the IPO price. On the other hand, IPO prices affect the default probability. It is a priori unclear whether agents can competitively price such assets and our paper is the first one to explore this question. We do so using laboratory experiments. We develop two flexible bond market models that are easily implemented in the laboratory. We find that subjects learn to price the bonds well after only a few repetitions.

Monetary Policy under Behavioral Expectations: Theory and Experiment Link to PDF
Cars Hommes, Domenico Massaro, and Matthias Weber

Expectations play a crucial role in modern macroeconomic models. We replace the common assumption of rational expectations in a New Keynesian framework by the assumption that expectations are formed according to a heuristics switching model that has performed well in earlier work. We show how the economy behaves under these assumptions with a special focus on inflation volatility. Contrary to comparable models based on full rationality, the behavioral model predicts that inflation volatility can be lowered if the central bank reacts to the output gap in addition to inflation. We test the opposing theoretical predictions with a learning to forecast experiment. The experimental results support the behavioral model and the claim that reacting to the output gap in addition to inflation can indeed lower inflation volatility.

The Effects of Listing Authors in Alphabetical Order: A Survey of the Empirical Evidence Link to PDF
Matthias Weber

Each time researchers jointly write an article, a decision must be made about the order in which the authors are listed. There are two main norms for doing so. The vast majority of scientific disciplines use a contribution-based norm according to which authors who contributed the most are listed first. Very few disciplines (most notably economics) instead resort primarily to a norm of listing authors in alphabetical order. It has been argued that (i) this alphabetical norm gives an unfair advantage to researchers with last names starting with a letter early in the alphabet and that (ii) researchers are aware of this ‘alphabetical discrimination’ and react strategically to it, for example through avoiding collaborations with multiple others. This article surveys the empirical literature on these two related topics. Overall, there is convincing evidence that alphabetical discrimination exists and that researchers react to it.

Regularized Regression Incorporating Network Information: Simultaneous Estimation of Covariate Coefficients and Connection Signs Link to PDF
Matthias Weber, Martin Schumacher, and Harald Binder

We develop an algorithm that incorporates network information into regression settings. It simultaneously estimates the covariate coefficients and the signs of the network connections (i.e. whether the connections are of an activating or of a repressing type). For the coefficient estimation steps an additional penalty is set on top of the lasso penalty, similarly to Li and Li (2008). We develop a fast implementation for the new method based on coordinate descent. Furthermore, we show how the new methods can be applied to time-to-event data. The new method yields good results in simulation studies concerning sensitivity and specificity of non-zero covariate coefficients, estimation of network connection signs, and prediction performance. We also apply the new method to two microarray time-to-event data sets from patients with ovarian cancer and diffuse large B-cell lymphoma. The new method performs very well in both cases. The main application of this new method is of biomedical nature, but it may also be useful in other fields where network data is available.

The Behavioral Economics of Currency Unions: Monetary Policy and Economic Integration (PDF available on request)
Akvile Bertasiute, Domenico Massaro, and Matthias Weber

Currency unions are often modeled as homogeneous economies. However, currency unions differ in fundamental ways from homogeneous economies. The expectations that impact macroeconomic behavior in any given country are not the expectations of variables at the currency-union level but at the country level. We model these expectations with a behavioral heuristic switching model. We demonstrate that economic behavior in a currency union can be much less stable than economic behavior in a homogeneous economy. Economic integration is of particular importance in determining the stability of economic behavior. Monetary policy alone is insufficient to guarantee stable economic behavior, as the central bank cannot conduct different monetary policies in different countries.


Choosing the Rules: Preferences over Voting Systems in Assemblies of Representatives Link to article Link to WP-version
Matthias Weber. Forthcoming in the Journal of Economic Behavior and Organization.

There are many situations in which different groups make collective decisions by voting in an assembly or committee where each group is represented by a single person. There is a lot of theoretical, normative literature on the question of what voting system such an assembly should use, but so far there has been no consensus. Instead of studying the choice of voting systems based on theoretical concepts, I ask which voting systems individuals actually prefer. This is important for the legitimacy and acceptance of voting institutions. To answer this question, I design a laboratory experiment in which participants choose voting systems when they do not know which group they will be in (and as a control when they do know it). Behind the veil of ignorance, participants predominantly choose voting systems that allocate more voting power to larger groups than the most prominent theoretical concept suggests.

The Non-Equivalence of Labor Market Taxes: A Real-Effort Experiment Link to article Link to WP-version Media briefing Slides
Matthias Weber and Arthur Schram (2017). Economic Journal, 127(604):2187–2215.

Under full rationality, a labour market tax levied on employers and a corresponding income tax levied on employees are equivalent. With boundedly rational agents, this equivalence is no longer obvious. In a real-effort experiment, we study the effects of these taxes on preferences concerning the size of the public sector, subjective well-being, labour supply and on-the-job performance. Our findings suggest that employer-side taxes induce preferences for a larger public sector. Subjective well-being is higher under employer-side taxes while labour supply is lower, at least at the extensive margin. We discuss three mechanisms that may underlie these results.

Two-Tier Voting: Measuring Inequality and Specifying the Inverse Power Problem Link to article Link to WP-version
Matthias Weber (2016). Mathematical Social Sciences, 79:40–45.

There are many situations in which different groups make collective decisions by committee voting, with each group represented by a single person. This paper is about two closely related problems. The first is that of how to measure the inequality of a voting system in such a setting. The second is the inverse power problem: the problem of finding voting systems that approximate equal indirect voting power as well as possible. I argue that the coefficient of variation is appropriate to measure the inequality of a voting system and to specify the inverse problem. I then show how specifying the inverse problem with the coefficient of variation compares to using existing objective functions.

Mostly Sunny: A Forecast of Tomorrow’s Power Index Research Link to article (open access)
Sascha Kurz, Nicola Maaser, Stefan Napel, and Matthias Weber (2015). Homo Oeconomicus, 32(1):133–146.

Power index research has been a very active field in the last decades. Will this continue or are all the important questions solved? We argue that there are still many opportunities to conduct useful research with and on power indices. Positive and normative questions keep calling for theoretical and empirical attention. Technical and technological improvements are likely to boost applicability.