Work in progress
Incentives in Risk Aversion and Discounting Tasks: Experimental Evidence (with Emmanouil Mentzakis)
Abstract: The wide use of hypothetical experiments in environmental economics necessitates the appreciation of the impact of real payoffs on the choices made by subjects in experiments. While evidence of the presence of hypothetical bias and the impact of incentives is growing, the understanding of what the underlying drivers of these effects are is still unsettled. We use a controlled lab experiment to directly test the impact of payoffs on monetary and environmental risk aversion and discounting tasks. We find no evidence of any effect on the mean risk and discounting preferences. We, however, find evidence that payoffs matter to specific subgroups of subjects, specifically those with low cognitive ability, those with low financial security and those with low pro-environmental attitudes. We also find that real incentives impact the variance of discounting choices, but not the risk choices of subjects. Together with findings from past research, these findings support the idea that it is cognitive difficulty and the ability to strategically influence the outcome that are the main drivers of observed hypothetical bias and payoff effects. Recommendations are made for future research to investigate the interaction of these two dimensions.
Time Preference and Risk Aversion: Tests on Domain Differences (with Christos Ioannou)
Journal of Risk and Uncertainty 2016, 53, (1): 29-54
Abstract: Understanding how individuals discount and evaluate the risks of environmental outcomes is a prime component in designing effective environmental policy. We use an incentivized experimental design to investigate whether subjects’ time preferences and risk aversion across the monetary and the environmental domain differ. We find that subjects’ time preferences are not significantly different across the two domains. In contrast, subjects exhibit a higher degree of risk aversion in the environmental domain. Finally, we corroborate earlier results, documenting that women are more risk averse than men in the monetary domain, and show this finding to also hold in the environmental domain.
Why Give Away Your Wealth? An Analysis of the Billionaires’ View (with Mirco Tonin and Michael Vlassopoulos)
Chapter in: “Social Economics”, edited by J. Costa-Font and M. Macis, MIT press, 2015
Abstract: We explore what motivates the philanthropic activity of extremely wealthy individuals and families. We focus on a recent large-scale philanthropic initiative by billionaires, the Giving Pledge, a commitment to donating half or more of one’s wealth. We perform two pieces of analysis: first, we investigate what personal characteristics of billionaires are associated with becoming a pledger. Second, we undertake a textual analysis of the pledgers’ letters describing their philanthropic outlook and classify their motivation into ten categories. We then correlate these motivational categories with various personal characteristics of the pledgers. The main insights obtained from our analysis are that pledgers are more likely to be self-made billionaires, and that their philanthropy is impact-driven.
Heterogeneities in Time Discounting Preferences of Environmental Projects: Some Experimental Results
Bank of Valletta Review
Abstract: The issue of discounting environmental projects is a contentious one, with individuals from different fields holding very strong, and often opposing opinions about the matter. Even within the field of economics there is a lack of consensus on what is an appropriate discount rate, with a number of prominent economists believing that environmental projects should not be treated any different from private investment projects when it comes to discounting. Using an innovative experimental methodology developed by the author, this study pilots an approach which shows that the intertemporal preferences of individuals vary not only between private and environmental projects but, equally importantly, between different groups of people. These findings reinforce the need to use a specific discount rate for assessing environmental projects which is properly representative of heterogeneities in social preferences in this regard.