Research
Gill, Andrej, Florian Hett, and Johannes Tischer. "Time Inconsistency and Overdraft Use: Evidence from Transaction Data and Behavioral Measurement Experiments"
Journal of Finance (revise and resubmit), SAFE Working Paper No. 347. http://dx.doi.org/10.2139/ssrn.4076790
Households regularly fail to make optimal financial decisions. But what are the underlying reasons for this? Using two conceptually distinct measures of time inconsistency based on bank account transaction data and behavioral measurement experiments, we show that the excessive use of bank account overdrafts is linked to time inconsistency. By contrast, there is no correlation between a survey-based measure of financial literacy and overdraft usage. Our results indicate that consumer education and information may not suffice to overcome mistakes in households’ financial decision-making. Rather, behaviorally motivated interventions targeting specific biases in decision-making should also be considered as effective policy tools.
Eufinger, Christian, Andrej Gill, and Florian Hett. "Domestic Financial Conditions and MNCs’ Global Competitiveness: Evidence from the Swiss Franc Shock"
Journal of International Business Studies (accepted)
Our study examines the influence of the local financial conditions in a multinational corporation’s (MNC) home country on its global strategy and market position. Establishing headquarters in a country grants legitimacy with local stakeholders, which enhances firms’ access to local capital markets. Consequently, MNCs headquartered in a country with favorable financial conditions might gain an advantage over MNCs based in countries with a less advantageous financial environment. To analyze this hypothesis, we utilize local projections and a major policy shift by the Swiss National Bank in January 2015, which involved an exchange rate shock and a substantial interest rate cut to -0.75 %. Our analysis shows that Swiss-based MNCs, benefiting from lower domestic interest rates, significantly outperformed their EU-based rivals in terms of investment rates (8.4 to 9.7 percentage points higher) and employment growth (6.7 to 9.8 percentage points higher). Moreover, we show that this stimulating effect helped to offset the adverse consequences of the simultaneous appreciation of the domestic currency for Swiss-based MNCs in sectors more reliant on exports. Our results highlight the critical role of local financial conditions and, more broadly, local macroeconomic factors in shaping MNCs’ global strategies and competitive standing.
Hett, Florian, Markus Kröll, and Mario Mechtel. "The Structure and Behavioral Effects of Revealed Social Identity Preferences"
Economic Journal, 130(632) (2020), 2569-2595. https://doi.org/10.1093/ej/ueaa055
A large body of evidence shows that social identity affects behaviour. However, our understanding of the substantial variation of these behavioural effects is still limited. We use a novel laboratory experiment to measure differences in preferences for social identities as a potential source of behavioural heterogeneity. Facing a trade-off between monetary payments and belonging to different groups, individuals are willing to forego significant earnings to avoid belonging to certain groups. We then show that individual differences in these foregone earnings correspond to the differences in discriminatory behaviour towards these groups. Our results illustrate the importance of considering individual heterogeneity to fully understand the behavioural effects of social identity.
Hermes, Henning, Florian Hett, Mario Mechtel, Felix Schmidt, Daniel Schunk, and Valentin Wagner. "Do Children Cooperate Conditionally? Adapting the Strategy Method for First-Graders"
Journal of Economic Behavior & Organization, 179 (2020), 638-652. https://doi.org/10.1016/j.jebo.2018.12.032
We develop a public goods game (PGG) to measure cooperation and conditional cooperation in young children. Our design addresses several obstacles in adapting simultaneous and sequential PGGs to children who are not yet able to read or write, do not possess advanced abilities to calculate payoffs, and only have a very limited attention span. It features the combination of haptic offline explanation, fully standardized audiovisual instructions, computerized choices based on touchscreens, and a suitable incentive scheme. Applying our experimental protocol to 129 German first-graders, we find that already 6-year-olds cooperate conditionally and that the relative frequency of different cooperation types matches the findings for adult subjects. We also find that neither survey items from teachers nor from parents predict unconditional or conditional cooperation behavior; this underlines the value of incentivized experimental protocols for measuring cooperation in children.
Hett, Florian and Alexander Schmidt. "Bank Rescues and Bailout Expectations: The Erosion of Market Discipline During the Financial Crisis"
Journal of Financial Economics, 126 (2017), 635-651. https://doi.org/10.1016/j.jfineco.2017.10.003Winner of the Sturm & Drang Prize for the best publication by a young researcher of the Faculty of Economics and Business Administration
We design a novel test for changes in market discipline based on the relation between firm-specific risk, credit spreads, and equity returns. We use our method to analyze the evolution of bailout expectations during the recent financial crisis. We find that bailout expectations peaked in reaction to government interventions following the failure of Lehman Brothers, and returned to pre-crisis levels following the initiation of the Dodd-Frank Act. We do not find such changes in market discipline for non-financial firms. Finally, market discipline is weaker for government-sponsored enterprises (GSEs) and systemically important banks (SIBs) than for investment banks.
Bernard, Mark, Florian Hett, and Mario Mechtel. "Social Identity and Social Free Riding"
European Economic Review, 90 (2016), 4-17 (lead article). http://dx.doi.org/10.1016/j.euroecorev.2016.01.001
We model individual identification choice as a strategic group formation problem. When choosing a social group to identify with, individuals appreciate high social status and a group stereotype to which they have a small social distance. A group's social status and stereotype are shaped by the (exogenous) individual attributes of its members and hence endogenous to individuals' choices. Unless disutility from social distance is strong enough, this creates a strategic tension as individuals with attributes that contribute little to group status would like to join high-status groups, thereby diluting the latters' status and changing stereotypes. Such social free-riding motivates the use of soft exclusion technologies in high-status groups, which provides a unifying rationale for phenomena such as hazing rituals, charitable activities or status symbols that is not taste-based or follows a standard signaling mechanism.
Girard, Yann, Florian Hett, and Daniel Schunk. "How Individual Characteristics Shape the Structure of Social Networks"
Journal of Economic Behavior & Organization. 115 (2015), 197-216. http://dx.doi.org/10.1016/j.jebo.2014.12.005
We study how students’ social networks emerge by documenting systematic patterns in the process of friendship formation of incoming students; these students all start out in a new environment and thus jointly create a new social network. As a specific novelty, we consider cooperativeness, time and risk preferences – elicited experimentally – together with factors like socioeconomic and personality characteristics. We find a number of robust predictors of link formation and of the position within the social network (local and global network centrality). In particular, cooperativeness has a complex association with link formation. We also find evidence for homophily along several dimensions. Finally, our results show that despite these systematic patterns, social network structures can be exogenously manipulated, as we find that random assignments of students to groups on the first two days of university impacts the students’ friendship formation process.