Major League Baseball owners possess different types of functional background experience. I examine the financial and on-field effects of the functional and geographic background of owners in the MLB from 2001-2014. A functional background in entrepreneurship appeared to have an insignificant effect on a team’s payroll expense and on-field performance. However, teams owned by corporations appeared to have significantly lower payrolls than all other teams, a relationship that supports the theory that corporations are not concerned with their team’s on-field performance. The operating income of teams, with owners, who inherited the franchise from a family member or purchased the team using an inherited trust, was significantly higher than other teams. However, the number of team wins was negatively affected by owners, who inherited ownership. A personal tie between the owner and the team’s location was insignificant as a determinant of team payroll expense and team wins.

My research focuses on the integration of behavioral economics into well understood general equilibrium macroeconomic models populated by overlapping generations of heterogeneous agents. Specifically, I analyze the implications of populating model economies with present-biased agents who are finitely lived, subject to idiosyncratic labor income shocks, and heterogeneous in both exponential and present-biased discount factors. My primary goal is characterizing the contribution of behavioral biases towards resolving several issues in the literature pertaining to human capital investment and aggregate wealth inequality. Further, the inclusion of present bias in carefully calibrated model economies allows me to rationalize empirical differences in consumption, wealth, and education that arise between observationally similar households that models of homogeneous, exponential discounters are unable to match.

This dissertation investigates the role of reference-dependent preferences in different areas of application, both from an empirical/experimental and a theoretical perspective. Despite their common focus, all chapters are self-contained and can be read independently. In the first chapter, entitled "Does Loss Aversion Beat Procrastination? A Behavioral Health Intervention at the Gym", I analyze the implications of reference-dependent preferences in the domains of self-control and optimal incentive design. Financial incentives are a common tool to encourage overcoming self-control problems and developing beneficial habits. There are different means by which such incentives can be provided, yet, up to date there is little empirical evidence on the relative effectiveness of different incentive designs. I present the results of a field experiment that explores whether and how incentives that are economically equivalent but framed differently affect the likelihood of exercising at a gym. I find that framing incentives in terms of losses, meaning individuals lose cash incentives by not exercising, encourages more frequent visits to the gym than framing incentives in terms of financial gains. After removing these incentives, I observe habit formation in gym exercise only if incentives were framed as losses rather than gains. The findings are consistent with the concept of reference-dependent preferences and loss aversion and suggest that cost reductions and performance improvements can be achieved if opting to frame incentives in terms of losses. The second chapter, entitled "Salience-adjusted Expectation-based Reference Points: Theory and Experiment", studies the consequences of reference-dependent preferences in the domain of decision making under uncertainty. Recent theories of expectation-based reference-dependent preferences offer a structured approach of the formation of reference points, yet do not incorporate important context-specific characteristics. One implicit assumption is that individuals rationally form their reference point as expectations, by correctly predicting the probabilistic environment they are facing. A second assumption is that in subsequent unanticipated decisionmaking problems, individuals consider previously formed lagged expectations as their reference point. In an experimental setup, I demonstrate that specific contextual factors affect the composition of expectation-based reference points. First, while expectations are formed, outcomes that attract the moment of first focus receive a higher weight. Second, in subsequent unanticipated decision making under uncertainty, the outcomes of the choice set affect to which extent lagged expectations are considered as a reference point, depending on the associated intensity of gains and losses. Finally, apart from providing empirical evidence on the limitations of current theories of expectation-based reference-dependence, I present a theoretical extension that can overcome some of these limitations by allowing reference points to be contingent on salient contextual effects. In the third chapter, entitled "Competitive Persuasive Advertising under Consumer Loss Aversion", I examine the role of reference-dependent preferences in the domain of consumer choice. In particular, I analyze the effects of expectation-based loss aversion in imperfect competition when consumers’ gain-loss utility is susceptible to salience effects. I present a theoretical model in which consumers’ gain-loss utility associated with the expectation to buy the most salient products within their contextual environment is inflated upwards, whereas the gain-loss utility associated with the expectation to buy the least salient products is deflated downwards. Firms can strategically manage consumers’ gain-loss utility by investing in salience-enhancing activities, such as persuasive advertising. If consumers are initially aware of prices but uncertain about their individual match value from the purchase, persuasive advertising has strictly anticompetitive consequences. This is because it allows firms to mitigate consumers’ experienced losses from higher prices, which reduces competitivepressure. / Doctorat en Sciences économiques et de gestion / info:eu-repo/semantics/nonPublished

Consumer impulsivity accounts for a large percentage of purchases yet this aspect of personality is measured with a variety of instruments. Three studies were conducted to examine how measures of consumer impulsiveness relate to each other, other measures of trait level impulsivity, and a variety of decisions and judgments. These studies looked at the relationship between biases resulting from motivated reasoning and the trait of impulsiveness. Motivated reasoning and impulsiveness was considered within the context of consumer and other choice decisions. Consumer impulsivity was found to be related to both general measures of trait level impulsivity as well as containing a lot of content overlap among the three measures considered here. One measure was distinct and formed its own factor in a factor analysis suggesting it may be the most specific measure of consumer impulsivity. The other measures of consumer impulsivity overlapped quite a bit with general impulsivity. The Iowa Gambling Task was used to measure both choice behavior and anticipatory SCR, however no significant results were found. The cups task, a risky decision making task, was also administered and results mirrored classic findings such that participants were more risk averse in the domain of gains than losses. Additionally, both expected value and outcome magnitude influenced results. Individuals who scored higher on the UPPS urgency subscale made more risk advantageous choices when looking at sensitivity to expected value. The third task assessed differences in purchase time for hedonic and utilitarian items. Impulsive consumers reported they would purchase both hedonic and utilitarian items sooner than their less impulsive counterparts.

Thesis advisor: Michael Grubb / Thesis advisor: Lucas Coffman / What You Don’t Know Can’t Pass Through: Consumer Beliefs and Pass-through Rates I model consumer search with imperfect information about firms’ costs and test predictions about consumer beliefs and pass-through in the US residential mortgage market. In the model, when consumers are unaware of an increase in costs, a high price would be surprising and may induce additional search. In equilibrium, sellers do not pass though the entire change in costs, and average pass-though is decreasing in consumer uncertainty about costs. The model provides a unified explanation for a number of patterns in pass-through rates including incomplete pass-through (passthrough rates less than one), pass-through over-shifting (pass-through rates greater than one), and asymmetric pass-through (greater pass-through rates for cost increases than decreases). I test a novel prediction of this model using confidential Home Mortgage Disclosure Act data. I find that different components of the marginal cost of mortgage lending have different average pass-through rates. Widely known costs are passed through nearly completely while more obscure costs have much lower pass-through rates. This pattern is not explained by existing models of pass-through, as the standard determinants of pass-through are identical across all cost components of the same mortgage. People Don’t Demand Commitment Devices That Might Not Work Demand for costly commitment devices is rare. A possible explanation is that individuals are unaware of their present bias and their need for commitment. I run an experiment that successfully corrects subjects’ beliefs about their present bias and find that this increased awareness does not increase demand for commitment. These results, interpreted through the lens of a theoretical model of commitment demand, imply that low demand for commitment is not driven by a perceived lack of present bias, but rather subjects’ accurate belief that they may fail to follow through, even with the offered level of commitment. The Illusion of Competition with Michael Grubb Most existing models of price competition in the presence of search costs ignore the possibility that multiple products in a market are sold by the same firm. We develop a theoretical model of equilibrium price dispersion under costly consumer search over prices in the presence of jointly owned “brands.” We establish conditions on consumers’ search technology that determine consumer welfare implications and suggest antitrust remedies (e.g. post-merger consolidation of brands). / Thesis (PhD) — Boston College, 2023. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

With workplace disasters in developing countries increasingly in the news, a major question is how to encourage consumers to use corporate social responsibility as a criterion in purchasing. Distinct from environmental concerns, social responsibility is defined here with respect to the humanitarian aspects of corporate practice, including fair wages and working conditions, equitable treatment of the disadvantaged, and restriction of child labor. Although the idea of socially responsible consumption (SRC) was first identified over forty years ago, most recent research on changing consumption habits focuses specifically on environmentally responsible consumption (ERC). Combining the psychological concept of social norms with economic emphasis on choice framing, research in behavioral economics has suggested that ERC can be promoted by “nudges,” low-cost initiatives that alter the decision environment to favor specific options. Here, we provide an overview of the existing literature on nudges and consumer choice, including the role of social norms, as well as other factors involved in successful social messaging. Previous research on ERC suggests that social norm nudges may result in higher rates of energy conservation, recycling and reuse, and purchasing of ecologically-friendly products. Applying these findings to the domain of SRC, we propose a set of possible interventions to increase consumer attention to social responsibility, highlighting the distinguishing roles of empathy and targeted demographic appeals in nudging consumers towards social change.

Previous literature has produced mixed findings of a tendency of investors, coined the “ostrich effect” to display a preference for avoiding potentially painful information regarding their portfolios. This paper investigates the presence of the ostrich effect during the 2008/2009 financial crisis via a survey of investors who held portfolios before and through that period. The results demonstrate that most investors do not report any ostrich effect. However, approximately one fourth of investors demonstrated a preference for delaying learning about potentially negative portfolio information, but ultimately chose to learn the information. These findings provide a more nuanced understanding of investors’ behaviors during financial crises and supports a more specific definition of the ostrich effect. Specifically, that some investors prefer a delay in painful information acquisition but do no indefinitely “keep their heads in the sand.”

The productivity of individuals can be altered by cognitive environmental factors such as those that induce psychological pressure. The goal of this analysis is to determine the extent to which a selection of variables influences an individual’s perception of pressure and its subsequent effect on productivity. To do so, the performance of golfers under pressure on the PGA TOUR was proxied using the scrambling percentage statistic. Two regressions, one using data from players who were cut at the end of the second round and the other using data from players who were not cut at the end of the second round, were used to study how golfers’ scrambling percentage for a given round was influenced by changes in experience, time, rank, tournament prestige, and their expected future performance. An increase in variables representing tournament prestige, tournament round number, and player position on the leader board lead to an increase in pressure which in turn leads to poorer subsequent performance. On the other hand, an increase in player experience and the knowledge that a player would be cut at the end of the second round tend to decrease pressure and increase player performance.

In this thesis, I will explore the idea that choices between present, smaller value options and future, larger value options depend on how much individuals trust the future to deliver the reward. Due to this aspect of trust, the individual must build their estimate of trust based on information for their present environment and their future expectations. This estimate of future trust can change across different time points in the same environment (i.e., before and after a national election) and between environments in the same time point (i.e., between two countries experiencing different economic rates of change). In this set of presented experiments, I will explore the link between decision environment and delay discounting, as well as the relationship between the contents of future perception and delay discounting. These two experiments will test differences in delay discounting (a) across two economic systems (China and the U.S.), as well as (b) before and after a national election (2018 U.S. Midterms). The results of the different decision environments study show that the delay discounting rates are significantly different across the two countries, specifically within the framing of present and future. These differences are not explained by differences in culture effects or individual differences in personality traits, suggesting that difference in environment is driving the effect. The results from the Midterm election experiments show evidence for differences in delay discounting between political identities and income groups. There are also differences in how these two groups perceive the contents of their future before and after the election. Specifically with evidence that negative future projection corresponds with increased delay discounting. Overall, these experiments show that delay discounting can be affected by the way information is framed within an environment and how we expect our environments to change over time.

<p>In recent years, considerable effort has been directed toward establishing the nature of the investment behaviour of life insurance companies. In this dissertation an extended portfolio analysis model was developed for the simultaneous determination of the efficient composition of insurance and investment activities of a life insurance company. This was done within a model that takes advantage of the existing finance foundations and the concepts and techniques of modern demand system analysis.</p> <p>Unlike current models which used quadratic programming techniques and are interested in the construction of efficient sets, we have used a utility maximization approach. A two parameter portfolio model was constructed utilizing elements of utility theory and of the theory of insurance. The model provided us with the proportion of assets held in the balance sheet as well as which liabilities are used to raise the necessary capital.</p> <p>The model developed has sufficient empirical content to yield hypotheses' about life insurance portfolio behaviour and thus was tested using appropriate econometric techniques. A comparative static analysis yielded elasticities of substitution between financial assets and liabilities. The estimation of these elasticities in the context of a flexible functional form model, forms a central part of this dissertation. More specifically, by utilizing a mean-variance portfolio framework and a general Box-Cox utility function we were able to model the demand for assets and liabilities by an insurance company. On empirical grounds we found that, in general, the square root quadratic utility function best fits the data. We also tried to evaluate the square root quadratic approximation by showing that, broadly speaking, it yields signs for elasticities of substitution which are consistent with the theory.</p> <p>A by-product of the model developed is the ability to compare stock and mutual life insurance companies. The common belief that mutual companies follow a riskier path in the way they conduct their business was supported by the results in this study.</p> <p>The results obtained from the study are of significant importance since life insurance companies have substantial obligations to millions of households in the economy. Furthermore, despite the extraordinary decline in the importance of the life insurance industry in the bond and mortgage markets during the sixties and the seventies, the industry is still a major supplier of funds to those markets.</p> / Doctor of Philosophy (PhD)