Essays in Behavioral Economics

Abstract

This thesis consists of three self-contained chapters in behavioral economics. Employing methods from microeconometrics and experimental economics, I test causal hypotheses with a focus on two applications: the role of political experiences as a driver of voter apathy and the consequences of negative emotional responses to an epidemic for cognitive function and labor productivity. <br /> Chapter 1 addresses the determinants of observed variation in individuals' propensity to vote in elections. Using a large repeated cross-sectional survey, I test the hypothesis that the degree of political competition individuals experience during early adulthood affects their propensity to vote later in life. My identification strategy relies on cross-sectional and time-series variation in political competition in US presidential elections, using a fixed effects approach to account for unobservable confounding factors related to the current electoral context, birth cohorts, age, and the state individuals grew up in. I find that, on average, individuals who grew up during periods of low political competition in their state are 1.4 percentage points less likely to vote later in life. This effect is driven by individuals with lower socioeconomic status and diminishes over time, enduring for more than 20 years. Within the limits of the available data, I also explore potential underlying mechanisms of the effect. I do not find any evidence for an intergenerational transmission of parental voting behavior or an increase in the strength of individuals' political identity. Rather, the experienced degree of electoral competition seems to persistently affect beliefs about the value of voting. Taken together, my findings imply that periods of reduced political competition contribute to voter apathy and reinforce existing inequalities in political participation. <br /> Chapter 2 deals with the cognitive effects of negative emotional responses to the spread of an infectious disease. In the context of an episode of heightened public concern about the possibility of a local Ebola outbreak in the US in October 2014, I investigate whether worrying about an epidemic impairs cognitive function. My analysis relies on data from cognitive tests administered as part of a wave of survey interviews by a large US panel study, which I combine with measures of local concern about Ebola based on internet search volume. For identification, I exploit temporal and spatial variation in Ebola concern caused by the emergence of four cases of Ebola that were diagnosed in the US. Using proximity to the US cases as an instrumental variable, I show that the local level of Ebola concern individuals are exposed to at the time and place of the interview reduces their scores on the cognitive test. In additional analyses, I find no indication of fear-induced selection effects that could plausibly explain this result. Moreover, proximity to subsequent Ebola locations is unrelated to test scores for interviews conducted before the emergence of the first US case. My findings indicate that emotional responses to epidemics can entail a temporary cognitive cost even for individuals for whom the actual health risk never materializes. Since cognitive function is an important determinant of economic decision-making and productivity, this points to the possibility that worrying about an epidemic has adverse economic consequences. <br /> In Chapter 3, I conduct an online experiment to test whether negative emotional responses to the COVID-19 pandemic impair labor productivity. Subjects are exposed to a worry-amplifying or worry-alleviating media report before working on a cognitively demanding mental arithmetic task for a piece-rate wage. In line with the conjecture that the COVID-19 pandemic is a major source of emotional distress, the treatment manipulation induces a multi-faceted negative emotional response, comprising an increase in worry and a decrease in happiness. However, the induced emotional responses do not translate into economically meaningful differences in productivity on the cognitive task. Nonetheless, I find suggestive evidence of changes in cognition: exposure to the worry-amplifying media report increases relative interest in pandemic-related news and the reported incidence of distracting thoughts during the task. One plausible interpretation of the combined set of results is that subjects compensate for worry-induced cognitive effects by increasing their mental effort, in line with the notion of income targeting. These findings qualify the economic significance of cognitive effects of epidemic-induced emotions, implying that they either require levels of worry that are beyond the scope of an experimental manipulation or do not necessarily translate into reductions in labor productivity.