Working Papers

[1] Consumer Loss Aversion and Scale-Dependent Psychological Switching Cost, joint with Heiko Karle and Rune Vølund [pdf]

We consider the Salop (1979) model of product differentiation and assume that consumers are uncertain about the qualities and prices of firms’ products. They can inspect all products at zero cost. A share of consumers is expectation-based loss averse. For these consumers, a purchase plan, which involves buying products of varying quality and price with positive probability, creates disutility from gain-loss sensations. Even at modest degrees of loss aversion they may refrain from inspecting all products and choose an individual default that is strictly dominated in terms of surplus. Firms’ strategic behavior exacerbates the scope for this effect. The model generates “scale-dependent psychological switching costs” that increase in the value of the transaction. We find empirical evidence for the predicted association between switching behavior and loss aversion in new survey data.

[2] Reservation Wages and Labor Supply, joint with Iris Kesternich, Bettina Siflinger and Franziska Valder [pdf]

Survey measures of the reservation wage may reflect both the consumption-leisure trade-off and job market prospects (the arrival rate of job offers and the wage distribution). We examine what a survey measure of the reservation wage reveals about an individual’s willingness to trade leisure for consumption. To this end, we combine the reservation wage measure from a large labor market survey with the reservation wage for a one-hour job that we elicit in an online experiment. The two measures show a strong positive association. For unemployed individuals, the experimental reservation wage increases on average by around one Euro for every Euro increase in the survey measure. For employed individuals, the association between the two measures is weaker and depends on their occupation-specific risk of unemployment. We show that these results are robust to selection into the experiment, and that demographic variables have a similar influence on both reservation wage measures.

[3] Social Preferences of Young Professionals and the Financial Industry, joint with Andrej Gill, Matthias Heinz and Matthias Sutter [pdf] [Online Appendix]

Trust is an important element of many financial transactions. Yet, the financial industry has been struggling with public mistrust. One explanation for this could be the selection of individuals who wish to work in and get job offers from the financial industry. In this paper, we examine the selection into the financial industry based on social preferences. We identify the social preferences of business and economics students, and, for more than six years, follow up on their early career choices as well as on their job placement after graduation. Students eager to work in the financial industry behave in a substantially less trustworthy manner and show less willingness to cooperate than those with other career plans. The job market does not alleviate this selection. Those subjects who find their first permanent job in finance behave in significantly less trustworthy manner than those working in other industries.

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