Ulrike Malmendier, Professor

Closed (1) Research in Behavioral Economics and Behavioral Finance

Applications for Spring 2019 are now closed for this project.

Looking for highly motivated apprentices interested in behavioral economics or behavioral finance research for 2018 Spring semester. We list here several ongoing research projects. If selected, you will be likely to assist with one of them based on your interest.

Politician Voting: Does experience with government services affect lawmaker attitudes towards taxes and public expenditures? To address this question, we look at the voting patterns of congress to see how past experiences with roads, schools, crime and so on affects their decisions to vote for more or less funding for these areas. This paper builds on Professor Malmendier’s prior research looking at experience effects. For example, she has previously investigated how the personal inflation experience of the FOMC affected their voting behavior on interest rate hikes. In this paper, we use biographical details about congressman collected via web-scraping. Based on schools attended and places lived, we can then use other available data sets to infer something about a politician’s experience and then tie this experience to his actual votes on US federal spending. Apprentices have helped address this question with data work, web scraping, data collection, detailed investigation into the institutional details of US fiscal allocations, and more.

CEO Health: Do the stress and responsibility associated with being a CEO come at a cost to health? This paper looks at how the stress of being a CEO of a large public corporation affects managers' long-term health outcomes. We have already documented preliminary evidence that CEOs who head companies with stricter corporate governance regimes -- i.e., CEOs who face higher pressure by the board of directors -- die younger. In a next step, we analyze whether these health effects are also directly visible by asking whether CEOs age faster than suitable comparison groups with similar socioeconomic status. To do so, we collect pictures of CEOs taken at different points during their tenure and estimate their age using modern machine learning techniques. Over the next months, we aim to continue to unravel the complex relationship between CEO health and CEO stress. Apprentices have helped address this question with data work, facial analysis via API, photo collection, detailed investigation, and more.

Investment Sunk Costs and Fracking: The sunk cost fallacy is a classic concept in both decision theory and behavioral economics and has been studied by some of the brightest minds in economics like Richard Thaler who received the 2017 Nobel Prize for Economics. The question we ask in this paper is are corporations subject to the sunk cost fallacy. It is often hard to measure clear investments and related decisions. One key thing we do not observe for most corporations are clear investment choices with clear sunk costs. In the case of fracking, we can generally observe or estimate accurately the sunk cost investments of a given well. In addition, an oil company will only have a finite number of wells to drill, so their choices are limited, and their decision is easy to observe. For those interested in further reading, Erik Gilje at Wharton has used fracking data for several non-behavioral finance papers. Using data from 10-Ks, state agencies, and proprietary data, we investigate whether or not corporations are subject to the same sunk cost fallacy as individuals.

Institutional Memory: Building on an emerging literature in (behavioral) micro and macro on how past experiences affect belief formation, this project is among the first to consider institution-level and aggregate implications. Questions applied to the banking sector are: Do past events and corporate performance shape their future behavior? Does the memory of past banking crises explain heterogeneity in future risk-taking choices of banks? If so, what are the potential mechanisms? Apprentices will help answer these questions by working closely with historical banking data and by offering important feedbacks and ideas on data processing and empirical identification strategies. For more information on this project, please see a related precursor: http://eml.berkeley.edu/~ulrike/Papers/AER%20PnP%20proofs%20Mar26%202015.pdf

Qualifications: Applicants should have excellent grades, experience with coursework in economics and mathematics (Econ101a, Econ141 (or Econ C142), Math54 and Math104 preferred), a good work ethic, attention to detail, a strong intellectual curiosity, and experience of working with data. Experience in R, Python, STATA or other programming languages is a plus though not required. Students interested in graduate school in economics, finance or a related field are especially encouraged to apply. Interested students should write, in 400 words or less, a statement of interest and qualifications. Qualified applicants will then be given a short data collection task and interview at a later date.

Weekly Hours: 6-8 hrs

Closed (2) (Ancient) Law and its Role for Financial and Economic Development (Or: Business Corporations in the Roman Republic)

Applications for Spring 2019 are now closed for this project.

This project is primarily suitable for outstanding students in Ancient History or Classics (ideally with some interest in law and/or in economics) or students in Economics or Legal Studies with a very strong background in Ancient History, Latin, and ideally Ancient Greek. This coming semester I am particularly keen to hire someone able to read ancient Greek, even just a little, and Latin.

OVERVIEW: One of the most exciting areas of research in Economics is the “Law and Economics”/”Law and Finance.” This research starts from a central question in Economics: what are the causes of financial development and economic growth? Why do some countries flourish while others do not? The “Law and Finance” literature suggests that there is causal effect of countries’ legal systems on economic development. If, for example, market participants are protected against expropriation and legal rules keep transaction costs low, it will be easier to make economic progress than otherwise. The “counter-research” of the “Law and Politics” literature claims that this line of argument confounds cause and correlation. Economic development might be correlated with having a good legal system, but legal system and economic development are both outcomes of the political environment and the dominant political interests in a country.
One reason why this debate is so fierce is that definitive empirical evidence for either of those approaches is hard to come by. In order to cleanly distinguish the causal impact of law and of politics one would need to observe an exogenous “shock” to the system, i.e., some kind of perfect natural experiment that changes either legal or political circumstances in a country without the influence of other fundamental changes in the country. Given the scarcity of such natural experiments, careful and detailed analyses of individual historical cases have become a valuable part of the literature, even if they stop short of proving causality. In fact, much of the literature revolves around specific historical examples, mostly taken from the last two centuries.
In my research, I am expanding the current body of evidence to ancient Rome. I focus on a specific cornerstone of financial and economic development: the emergence of the business corporation. Contrary to widespread belief, the earliest predecessor of the modern business corporation was not the English East India Company but the Roman societas publicanorum, i.e. the “society of government leaseholders.” I use the Roman case to shed light on the “law and finance” versus “politics and finance” debate. It illustrates the limitations of the existing law and finance theories. In this case, legal restrictions (or the lack of legal development) per se appear to matter little as long as the law as practiced is flexible and adapts to economic needs. In fact, one of the most important periods of legal development, “classical Roman law,” appears to be negatively correlated with financial and economic development. I also show that ‘the law as practiced’ reflects prevalent political interests.

This line of research builds on previous research I have conducted on the societas publicanorum (published as a book) and in the area of Law and Finance (published in an economics book chapter and a refereed journal article). The involvement of the URAP student(s) would consist of several steps:
Introduction
1. Getting to know the “Law and Finance” research (i.e., reading a few recent research articles in economics, which I will provide)
2. Getting to know the relevant research in Roman Law, especially on the societas publicanorum (i.e., read some overview articles)


Qualifications: This line of research builds on previous research I have conducted on the societas publicanorum (published as a book) and in the area of Law and Finance (published in an economics book chapter and a refereed journal article). The involvement of the URAP student(s) would consist of several steps: Introduction 1. Getting to know the “Law and Finance” research (i.e., reading a few recent research articles in economics, which I will provide) 2. Getting to know the relevant research in Roman Law, especially on the societas publicanorum (i.e., read some overview articles) Research 1. Help write brief overview articles on “societas” and “publicani” 2. Help with a research chapter (for a book project) linking the findings on the societas publicanorum to the modern law-and-finance debate. 3. Help finishing up the book project.

Weekly Hours: 6-8 hrs