An Experimental Study of Bond Market Pricing Link to article (read-only for non-subscribers)
Matthias Weber, John Duffy, and Arthur Schram (2018). Journal of Finance, 73(4):1857–1892.
In the media: LSE Business Review.
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 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.
Choosing the Rules: Preferences over Voting Systems for 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.
Note: An earlier version of this paper was called “Choosing Voting Systems behind the Veil of Ignorance: A Two-Tier Voting Experiment”.
The Effects of Listing Authors in Alphabetical Order: A Review of the Empirical Evidence Link to article (free access)
Matthias Weber (2018). Research Evaluation, 27(3):238–245.
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 the norm of listing authors in alphabetical order. It has been argued that (1) this alphabetical norm gives an unfair advantage to researchers with last name initials early in the alphabet and that (2) researchers are aware of this ‘alphabetical discrimination’ and react strategically to it, for example by avoiding collaborations with multiple authors. This article reviews the empirical literature and finds convincing evidence that alphabetical discrimination exists and that researchers react to it.
The Non-Equivalence of Labor Market Taxes: A Real-Effort Experiment Link to article (read-only for non-subscribers) Slides (PDF)
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.
Comment on “Does your surname affect the citability of your publications” Link to article Link to WP-version
Matthias Weber (2017). Journal of Informetrics, 11(3):835–837. [Correspondence]
The question whether the position of a researcher’s last name in the alphabet matters for his or her scientific career is important. This comment reflects on the methodology used in Abramo and D’Angelo (2017, Journal of Informetrics 11(1):121-127) and shows the weaknesses of the chosen approach.
Two-Tier Voting: Measuring Inequality and Specifying the Inverse Power Problem Article (PDF)
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 Article (PDF)
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.
Monetary Policy under Behavioral Expectations: Theory and Experiment Link to paper Slides (PDF)
Cars Hommes, Domenico Massaro, and Matthias Weber. R&R at the European Economic Review.
In the media: Bloomberg.
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.
Network-Constrained Covariate Coefficient and Connection Sign Estimation Link to paper
Matthias Weber, Jonas Striaukas, Martin Schumacher, and Harald Binder. R&R at the International Journal of Forecasting.
Often, variables are linked to each other via a network. When such a network structure is known, this knowledge can be incorporated into regularized regression settings. In particular, an additional network penalty can be added on top of another penalty term, such as a Lasso penalty. However, when the type of interaction via the network is unknown (that is, whether connections are of an activating or a repressing type), the connection signs have to be estimated simultaneously with the covariate coefficients. This can be done with an algorithm iterating a connection sign estimation step and a covariate coefficient estimation step. We show detailed simulation results of such an algorithm. The algorithm performs well in a variety of settings. We also briefly describe the R-package that we developed for this purpose, which is publicly available.
Experience Does not Eliminate Bubbles: Experimental Evidence Paper (PDF)
Anita Kopányi-Peuker and Matthias Weber
In the media: Investors Chronicle.
We study the role of experience in the formation of asset price bubbles. Therefore, we conduct two related experiments. One is a call market experiment in which participants trade assets with each other. The other is a learning-to-forecast experiment in which participants only forecast future prices, while the trade, which is based on these forecasts, is computerized. Each experiment comprises three treatments that vary the amount of information about the fundamental value that participants receive. Each market is repeated three times. In both experiments and in all treatments, we observe sizable bubbles. These bubbles do not disappear with experience. Our findings in the call market experiment stand in contrast to the literature. Our findings in the learning-to- forecast experiment are novel. Interestingly, the shape of the bubbles is different between the two experiments. We observe flat bubbles in the call market experiment and boom-and-bust cycles in the learning-to-forecast experiment.
The Behavioral Economics of Currency Unions: Economic Integration and Monetary Policy Link to paper
Akvile Bertasiute, Domenico Massaro, and Matthias Weber
Currency unions are often modeled as homogeneous economies, although they are fundamentally different. 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 reinforcement learning model. In our model, economic integration is of particular importance in determining whether economic behavior in a currency union is stable. Monetary policy alone is insufficient to guarantee stable economic behavior, as the central bank cannot conduct different monetary policies in different countries. These results are easily overlooked when modeling expectations as rational.
Behavioral Optimal Taxation: The Case of Aspirations Link to paper
I provide a simple two-period model comparing lump-sum taxes with proportional labor taxes. The difference to the classical optimal taxation literature is that I introduce a behavioral twist according to which people’s aspirations change from one period to another as suggested by empirical evidence. It turns out that the policy implication from this model can differ significantly from the one assuming full rationality. In the behavioral model, a lump-sum tax is much less attractive. This paper does not aim at providing a full-fledged quantitative model, it should rather be seen as a cautionary tale about the robustness of classical optimal taxation results when deviating from full rationality.