Job Market Paper
The Burden of Household Debt
We propose that holding debt causes worse financial decisions using a novel experimental design where we randomly assign debt. Our design isolates the consequences of holding debt while controlling for potential confounding factors such as initial wealth levels, selection, risk, and time preferences. Our findings show that debt causes behavioral biases detrimental to subjects' financial payoffs. However, subjects' strategies are not random but instead debt-biased, consistent with an additional penalty for holding negative balances. We refer to the financial losses caused by debt as the Burden of Debt and provide evidence that, under certain circumstances, these behavioral biases can compound and lead to substantial losses. Furthermore, we show in additional treatments how these debt-biased behaviors can also deter subjects from borrowing and forego profitable opportunities.
Failures in Contingent Reasoning: The Role of Uncertainty
American Economic Review. 10, 3437-3474
We propose a new channel to account for the difficulties of individuals with contingent reasoning: the presence of uncertainty. When moving from an environment with one state of known value to one with multiple possible values, two changes occur. First, the number of values to consider increases. Second, the value of the state is uncertain. We show in an experiment that this lack of certainty, or the loss of the Power of Certainty, impedes payoff maximization and that it accounts for a substantial portion of the difficulties with contingent reasoning.
A Theory of Chosen Preferences
American Economic Review, Forthcoming
We propose and develop a theory of preference formation based on the idea that people evaluate their lives according to worldviews that provide accounts of success and failure, and that they choose those worldviews subject to feasibility constraints. Our framework highlights the role of mindset ﬂexibility, a trait that determines the relative weights the decision maker places on her current and anticipated worldviews when evaluating future outcomes. We show that our theory generates rich behavioral dynamics, thereby illuminating a wide range of applications and providing potential accounts for a variety of observed phenomena.
When a Town Wins the Lottery: Evidence from Spain
How do local wealth shocks impact economic activity? For over two centuries,
Spain has conducted a national lottery which often results in the random
allocation of up to $800 million in cash to the citizens of one town. This is the
only case in the world where individuals living in the same location randomly
receive pure wealth shocks of this scale. Leveraging data on town-level lottery
ticket expenditures, we compare winning towns to non-winning towns that had
the same probability of winning. We find that although consumption increases,
the lottery causes a slowdown in economic activity and deters new migration to
towns that won in recent decades. However, an analysis of a century of lottery
winners reveals large and persistent increases in population for towns that won
in earlier periods.
Information Asymmetry and Beliefs Reveal Self Interest Not Fairness
Decades of research suggests that other-regarding preferences explain deviations from the self-interested behavior predicted by standard theory. However, the vast majority of this evidence considers strategic interactions when agents are fully informed and economic conditions are stable. We relax both of these conditions by expanding the widely used gift-exchange game to include permanent endowment shocks and information frictions. Varying information conditions reveals that a large fraction of the behavior previously attributed to fairness and reciprocity is actually driven by self-interest motives and intentions-based concerns. Counter-intuitively, we find that information frictions do not always benefit the more informed party.
Work in Progress
Ingraining Traditional Gender Roles in the Classroom: Evidence from the Spanish Social Service
This study uses a regression discontinuity framework to examine the long-
run effects of conservative education on women's' family and labor decisions.
In 1939, the Spanish dictatorship created the Social service, a compulsory 6-
month training program aimed at relegating women to the roles of mothers
and housewives. We exploit the discontinuity induced by the sudden abolition of
the Social Service, in addition to variation in the age of enrollment, to examine
the consequences of attending the program. Using historical enrollment records
and the universe of birth certificates, we find the Social Service was successful in
instilling the regime's ideology. Women exposed to the class get married and
have kids at younger ages, consistent with the desire to form a family sooner.
In addition, they are more likely to declare being housewives when their first
child is born. Future work will explore the underlying mechanisms and the
effects on children by surveying women who enrolled around abolition.