Working papers results

The hot hand fallacy has long been considered a massive and widespread cognitive illusion with important economic consequences. While the canonical domain of the fallacy is basketball, which continues to provide its strongest and most readily generalizable supporting evidence, the fallacy has been considered as a candidate explanation for various economic and financial anomalies. We find, in its canonical domain, that the belief in the hot hand is not a fallacy, and that, surprisingly, the original evidence supports this conclusion. Our approach is to design a controlled shooting field experiment and develop statistical measures that together have superior identifying power over previous studies. We find substantial evidence of the hot hand, both in our study and in all extant controlled shooting studies, including the seminal study (which found the opposite result, and coined the term ''the hot hand fallacy''). Also, we observe the hot hand effect to be heterogeneous across shooters, which suggests that decision makers (e.g. players and coaches) may have incentive to identify which shooters have a greater tendency to become hot. Accordingly, we find evidence that expert players (teammates) can do so. In light of these results, we reconsider the economic relevance of the hot hand fallacy more generally.

Does democracy make politicians accountable? The UK expenses scandal of May 2009 constitutes an ideal setting to answer this question, since it allows credible ceteris paribus comparisons. We show that scandal-related press coverage significantly increased the probability of an MP to retire, reduced vote shares of standing MPs, but did not decrease their re-election probability. We also show that punishment was directed to individual MPs involved in the scandal rather than their parties. An objective monetary measure of malfeasance from an official report explains press coverage but has no independent effect on MPs' retirement or vote shares. We show that voters perceive co-partisan MPs to be less involved than other MPs. Finally we analyse coverage of the scandal by seven national newspapers and conclude that the press worked as a watchdog by focussing on the government and on frontbenchers of the main opposition party, with little role for ideological leanings. Our study also uncovers a substantial gender bias: ceteris paribus, female MPs received more media attention and, for the same level of media attention, were more likely to stand down.

A decision maker can experiment on up to two alternatives simultaneously over time. One and only one of these alternatives can produce successes, according to a Poisson process with known arrival rate; but there is uncertainty as to which alternative is the profitable one. The decision maker only observes the outcomes of the alternatives chosen, and choosing each alternative entails a cost. Simultaneous experimentation involves higher costs but can produce more data. At the same time, since the alternatives are negatively correlated, the outcomes of either one are informative about the other. If the costs are high and she is sufficiently impatient, the decision maker never experiments on both alternatives at once. Otherwise, if she starts with a single alternative that produces no successes, she becomes gradually pessimistic and eventually takes on the other alternative while keeping the first one - despite the higher costs and the negative correlation.

A model of 'harassment bribes,' paid for services one is entitled to, is developed to analyze
the proposal to legalize paying these bribes while increasing fines on accepting them.
We explore performance as regards corruption deterrence and public service provision. Costs of verifying reports make the scheme more effective against larger bribes and where institutions' quality is higher. A modified scheme, where immunity is conditional on reporting, addresses some key objections. The mechanism works better against more distortionary forms of corruption than harassment bribes, provided monetary rewards can compensate bribers for losing the object of the corrupt exchange. Results highlight strong complementarities with policies aimed at improving independence and accountability of law enforcers.

A decision maker faces an unobserved state of nature. She updates her prior on the state based on the realizations of a signal. In this note, we show that the expected posterior on any given state, taking expectation under the conditional distribution of the signal on this same state, is never lower than the prior on said state. In other words, the expected posterior probability on the true state is never lower than the prior on this state, regardless of what the true state is.

This paper is the first attempt, to the best of our knowledge, to study the impact of a carbon tax by means of a heterogeneous agents model. The objectives of the paper are two: i) To assess how the results of a representative agent model compare to those coming from a model accounting for heterogeneity across agents when evaluating aggregate economic and environmental impacts of a carbon tax; ii) To assess the distributional implications of a carbon tax and how they can be mitigated through different recycling schemes. We find that heterogeneous agents models may deliver different results from those derived using a representative agent model, the main tool used to guide policy making so far. In particular, we find evidence of a double dividend for several recycling schemes and carbon taxes as high as 20% of the energy price. In addition, we find the potential for redistributive channels related to carbon policies that can only be appreciated applying this type of modeling.

What are the political consequences of introducing de jure political equality? Does it change
patterns of political representation and the identity of elected legislators? This paper uses an important electoral reform passed in 1912 in Italy to provide evidence on these questions. The reform trebled the electorate (from slightly less than three million to 8.650.000) leaving electoral rules and district boundaries unchanged. By exploiting differences in enfranchisement rates across electoral districts we identify the effect of franchise extension on various political outcomes. Enfranchisement increased the vote share of left-wing social reformers but had no impact on their parliamentary representation, no impact on parliamentary representation of aristocracy and traditional elites and no effect on political competition. We show that left-wing parties decreased their vote shares and were systematically defeated in key swing districts. We document elite's effort to minimize the political impact of the reform and, in particular, we show that the Vatican's secret involvement in the post-reform electoral campaign had a substantial impact on voting results, although formerly and newly enfranchised voters were equally affected. We relate our results to economic theories of democratization, which appear to be only partially compatible with our evidence.

We provide evidence on whether providing university students with feedback on their past
exam performance affects their future exam performance. Our identification strategy exploits a natural experiment in a leading UK university where different departments have historically
different rules on the provision of feedback to their students. We find the provision of feedback has a positive effect on students' subsequent test scores: the mean impact corresponds to 13% of a standard deviation in test scores. The impact of feedback is stronger for more able students and for students who have less information to start with about the academic environment, while no subset of individuals is found to be discouraged by feedback. Our findings suggest that students have imperfect information on how their effort translates into test scores and that the provision of feedback might be a cost effective means to increase students' exam performance.

We analyze the value of information in the market for corporate control. The raider and the shareholders are privately and imperfectly informed about the post-takeover value of the firm. We show that public information provision reduces the dispersion of the shareholders' beliefs resulting in a transfer of surplus from the raider to the shareholders. What is more, if the raider is privately informed all his private information is revealed through the price offer, hence he prefers not to acquire private information, provided that the shareholders do not engage in information acquisition. The target shareholders, on the other hand, have incentives to acquire information-solicit a fairness opinion-after the raider makes a price offer. However, when both parties have access to an information market, they both have incentives to acquire information.

We view economic time series as the result of a cascade of shocks occurring at different times and different frequencies (scales). We suggest that economic relations that are found to be elusive when using raw data may hold true for different layers (details) in the cascade of economic shocks. This observation leads to a notion of a scale-specific predictability. Using direct extraction of the details and two-way aggregation, we provide strong evidence of risk compensations in market returns, as well as of an unusually clear link between macroeconomic uncertainty and uncertainty in financial markets, at frequencies lower than the business cycle.