Publications
When Fair Isn’t Fair:
Understanding Choice Reversals Involving Social Preferences
with J. Andreoni, B. Barton, D. Bernheim and J. Naecker
Journal of Political Economy, 2020, 128 (5)
In settings with uncertainty, tension exists between ex ante and ex post notions of fairness. Subjects in an experiment most commonly select the ex ante fair alternative ex ante and switch to the ex post fair alternative ex post. One potential explanation embraces consequentialism and construes reversals as time inconsistent. Another abandons consequentialism in favor of deontological (rule-based) ethics and thereby avoids the implication that revisions imply inconsistency. We test these explanations by examining contingent planning and the demand for commitment. Our findings suggest that the most common attitude toward fairness involves a time-consistent preference for applying a naive deontological heuristic.
Published Version
Citation
Working Paper
Supplemental Appendix
Consumption Response to Credit Expansions:
Evidence from Experimental Assignment of 45,307 Credit Lines
American Economic Review, 2022, 112 (1), Lead Article
In a field experiment that constructs a randomized credit limit shock, participants borrow to spend 11 cents on the dollar in the first quarter and 28 cents by the third year. Effects extend to those far from the limit, those who had the new limits as available credit, and those with a liquid asset buffer. In the short-run, flexible and installment contracts are used in tandem, with unconstrained using installments more. Long-run borrowing is predominantly using installments. Near limits, participants borrow when credit expands but save out of constraints when limits are tight. Findings support a buffer-stock interpretation emphasizing precautionary saving.
Published Version
Citation
Working Paper
Slides
Supplemental Appendix
Johns Hopkins Macro Comp
Working Papers
Forbearance vs. Interest Rates:
Tests of Liquidity and Strategic Default Triggers
in a Randomized Debt Relief Experiment
I study debt relief policies in a large-scale field experiment with a unique 2-by-2-by-2 design. I then provide novel tests of models in which default is triggered by solvency, liquidity, and strategic behavior. In contrast to solvency driving decisions, modifications orthogonal to face value affect whether and when to default. Forbearance only has short-term effects, whereas rate reductions have immediate effects that persist. In contrast to liquidity being the sole trigger, reduction in payments has a weak association with default. Forbearance reduces payments twice as much as rate reductions, whereas delinquencies are more responsive to a rate reduction. Compatible with strategic behavior, unexpected news about a dollar increase in future payments increases defaults by as much as a 30-cent increase in current payments. Compatible with the endogeneity of triggers, whether a borrower is Ricardian—merely postponing forbearance is ineffective, behavior is sensitive to future payments, and defaults are strategic—is tightly linked to balance sheets. Among alternatives, results are most compatible with the interpretation whereby every default is strategic, with the endogenous trigger being influenced by liquidity and distress, as in Campbell and Cocco (2015). Findings provide a unified explanation for disagreeing results from previous debt relief studies and have implications for modeling loan modifications and the pass-through of interest rates.
