Research

Working Papers 

Fairness in times of crisis: Negative shocks, relative income, and preferences for redistribution. CeDEx Working Paper Series. 

This paper investigates how preferences for redistribution change in the face of negative income shocks. Across two experimental studies, I show that individuals distribute more to themselves after suffering a shock. Similarly, they allocate more to others if these are affected. This is driven by two mechanisms. First, shocks make individuals poorer, thereby changing utility-based incentives for redistribution. Second, the mere experience of a shock matters. If two individuals have the same current income, but only one suffered a shock, participants allocate more to the latter. This is in line with a theoretical framework where past earnings serve as fairness reference points, highlighting the importance of different earning histories. Finally, the results show that to understand preferences for redistribution on a societal level, it matters who is affected. The rich are more more likely to oppose redistribution after own shocks and to support it after shocks to the poor. Income shocks can thus have important implications for the demand and support of social policies.

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Does Inequality threaten Stability? Evidence from the Lab (with Abigail Barr & Silvia Sonderegger).  CeDEx Working Paper Series.

We investigate the impact of rising inequality on social instability through a novel laboratory experiment where two groups interact repeatedly and have an incentive to coordinate. We then vary the extent of the inequality implied by coordination. Our results show that increasing inequality causes destabilisation. This effect is initiated by the disadvantaged and is observed even when the absolute situation of the disadvantaged is unchanging. These findings are consistent with a simple model incorporating disadvantageous inequality aversion and myopic best response. Finally, we show that history matters; responses to current inequality depend on past experiences of inequality and stability.

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Too Good to be True - Individual and Collective Decision-Making with Misleading Signals (with Sebastian Fehrler & Moritz Janas) R&R at Management Science.

This study is motivated by a peculiar ancient rule which highlights the need for thorough examination and dissent in decision-making processes. It is stated in the Babylonian Talmud and demands that if a defendant is unanimously convicted by all judges, they should be acquitted. In today’s world, too, there are many cases, where overwhelming evidence, such as fabricated customer reviews, can result in deceptive conclusions. We experimentally investigate individual and collective decision-making within information structures with correlated signals in one state of the world, where too much evidence has the potential to mislead, necessitating a level of sophistication for rational decision-making. Overall, participants’ performance is poor with only small differences in collective and individual decision-making accuracy. Interestingly, the more complex environment tends to encourage greater honesty within heterogeneous groups, as compared to the benchmark setting with independent signals, thus validating a rather subtle game-theoretic prediction.

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To hide or not to hide? How fear and futility affect the decision to report a mistake (with Malte Baader, Sarah Bowen & Richard Mills)

Even though reporting mistakes could substantially improve work processes and productivity within organisations, employees often hesitate to do so. This paper studies the role of  fear (of being fired) and futility (i.e. reports being inconsequential) in explaining such employee silence. Drawing on a principal-agent framework with career concerns, we formalise mistakes as noisy signals of both agent quality and the work environment and show that optimal reporting decisions are affected by fear and futility considerations. We then use a novel experiment to exogenously manipulate the degree of fear and futility and test our theoretical predictions. In a 2x2 between-subject design, we vary the anonymity of reporting and the likelihood of organisational response. Results show that reducing fear and futility are complementary actions. Tackling both significantly increases reporting by about 20pp. This improvement in communication is accompanied by better organisational income, highlighting the value of improved reporting structures for firms and employees.

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