Richard Zeckhauser's research while affiliated with John F. Kennedy University and other places

Publications (94)

Article
Ordeals are burdens placed on individuals that yield no benefits to others; hence they represent a dead-weight loss. Ordeals – the most common is waiting time – play a prominent role in rationing health care. The recipients most willing to bear them are those receiving the greatest benefit from scarce health-care resources. Health care is heavily s...
Preprint
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This paper proposes that strategic concerns about negotiations strongly influence whom parties select to be legislative leaders. Leaders tilt more extreme than the typical party member. Hence, they can credibly threaten to let negotiations break down if they find proposed legislation personally unacceptable. Such threats move negotiations towards t...
Article
For three decades, advocates for climate change policy have simultaneously emphasized the urgency of taking ambitious actions to mitigate greenhouse gas (GHG) emissions and provided false reassurances of the feasibility of doing so. The policy prescription has relied almost exclusively on a single approach: reduce emissions of carbon dioxide (CO2)...
Article
For decades, the U.S. Air Force has contemplated replacing the A-10 Thunderbolt II “Warthog” with a newer fighter aircraft. However, a quantitative analysis comparing the Warthog’s performance and costs with those of its intended replacement, the F-35 Lightning II Joint Strike Fighter, shows that retiring the Warthog would be operationally unsound...
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Scholars, practitioners, and pundits often leave their assessments of uncertainty vague when debating foreign policy, arguing that clearer probability estimates would provide arbitrary detail instead of useful insight. We provide the first systematic test of this claim using a data set containing 888,328 geopolitical forecasts. We find that coarsen...
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Behavioural economic research has established that defaults, one form of nudge, powerfully influence choices. In most policy contexts, all individuals receive the same nudge. We present a model that analyses the optimal universal nudge for a situation in which individuals differ in their preferences and hence should make different choices and may i...
Article
When making decisions under uncertainty, it is important to distinguish between the probability that a judgment is true and the confidence analysts possess in drawing their conclusions. Yet analysts and decision-makers often struggle to define “confidence” in this context, and many ways that scholars use this term do not necessarily facilitate deci...
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National security is one of many fields where experts make vague probability assessments when evaluating high-stakes decisions. This practice has always been controversial, and it is often justified on the grounds that making probability assessments too precise could bias analysts or decision makers. Yet these claims have rarely been submitted to r...
Chapter
Zeckhauser examined the shift from single-author works to mostly multiple-author works, a shift in modern trends. He zeroed in on the target population comprising Nobel laureates and the younger population of winners of the John Bates Clark Award. Collaboration was absent among the first ten Nobel Prize winners on their single most cited work. Simi...
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One in twelve Americans suffers from asthma and its annual costs are estimated to exceed $50 billion. Simultaneously, the root causes of the disease remain unknown. A recent hypothesis speculates that maternal vitamin D levels during pregnancy affect the probability the fetus later develops asthma. In two large-scale studies, we test this hypothesi...
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Mancur Olson offered us big thoughts on big subjects. Today, he might well attack the problem of climate change and the current failure of nations to act effectively. Olson would note the incentives of nations to ride free or cheaply. He would observe that climate change is an alliance problem, one where some nations have much more at stake than ot...
Article
The Medicare Advantage (MA) program continues to grow and thrive, despite plan payment cuts imposed through the Affordable Care Act. What explains this surprising outcome (one that is strikingly different than the experience of MA plans in the late 1990s, when payment cuts led to dramatic shrinkage in enrollment and curtailment of plans)? This anal...
Article
Benefit-cost analysis (BCA), a discipline best known for guiding policy choices, can also guide personal decisions. In either application, traditional BCA tallies benefits and costs using market values or willingness to pay. When future outcomes are uncertain, as they are across a wide array of situations, BCA must call as well on the methods of de...
Article
In a series of reports and meetings in Spring 2011, intelligence analysts and officials debated the chances that Osama bin Laden was living in Abbottabad, Pakistan. Estimates ranged from a low of 30 or 40 per cent to a high of 95 per cent. President Obama stated that he found this discussion confusing, even misleading. Motivated by that experience,...
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The joint understanding of the cross section of individuals' total and equity savings is crucial regarding various policy issues. In particular, it is important to understand why lower-income households do not participate in the stock market, which reflects the so-called stock market participation puzzle. As it is demonstrated in the first part of...
Article
Nonprofit charities and foundations hold endowments and many other kinds of investments. How do these investments perform? Some high-profile nonprofit endowments, including those of colleges and universities, have been studied previously. This study is the first, to our knowledge, that looks at a large number of the diverse types of nonprofits. We...
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We continue our examination of the investment performance of nonprofit charities and foundations. This analysis tests hypotheses about what types of organizations do better. Our motivating intuition is that nonprofits with greater focus on investment performance will secure higher returns. Our hypotheses are tested by regressing the rate of return...
Article
The US Intelligence Community (IC) has been heavily criticized for making inaccurate estimates. Many scholars and officials believe that these criticisms reflect inappropriate generalizations from a handful of cases, thus producing undue cynicism about the IC's capabilities. Yet there is currently no way to evaluate this claim, because the IC does...
Article
Money is the prime incentive considered in economic models. However, recent evidence indicates that people are also greatly concerned about their social rankings. Is this solely because rank brings tangible benefits, or because in addition people have an inherent preference for high rank? This paper deployed a field experiment that provides evidenc...
Article
Governments are unable to commit themselves not to renege on their contracts with foreign firms. The problem is particularly acute when profits are probabilistic, since the temptation to expropriate likely increases with the amount of money made by the firm. The function reflecting this temptation can be anticipated, causing the firm to take a numb...
Article
Individuals tend toward status quo bias: preferring existing options over new ones. There is a countervailing phenomenon: Humans naturally dispose of objects that disgust them, such as foul-smelling food. But what if the source of disgust is independent of the object? We induced disgust via a film clip to see if participants would trade away an ite...
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Economic activity can damage natural systems and reduce the flow of ecosystem services. The harms can be substantial, as our case studies vividly illustrate. Most degraded landscapes have at least some potential to be reclaimed. However, uncertainty plagues decision making regarding degradation and reclamation, in relation to the extent of the dama...
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We explore how risk-taking in the card game contract bridge, and in a financial gamble, correlate with variation in the dopamine receptor D4 gene (DRD4) among serious tournament bridge players. In bridge risk-taking, we find significant interactions between genetic predisposition and skill. Among men with the 7-repeat allele of DRD4, namely 7R + me...
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Consumerism arises when patients acquire and use medical information from sources other than their physicians. This practice has been hailed as a means of improving quality. This need not be the result. Our theoretical model identifies a channel through which consumerism may reduce quality: consumerist patients place additional demands on their doc...
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Background: Recent evidence suggests that individual variation in risk taking is partly due to genetic factors. Methodology/Principal Findings: We explore how self-reported risk taking in different domains correlates with variation in the dopamine receptor D4 gene (DRD4). Past studies conflict on the influence of DRD4 in relation to risk taking. A...
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Individuals differ significantly in their willingness to take risks. Such differences may stem, at least in part, from individual biological (genetic) differences. We explore how risk-taking behavior varies with different versions of the dopamine receptor D4 gene (DRD4), which has been implicated in previous studies of risk taking. We investigate r...
Article
Nonprofit charities and foundations hold endowments and other investments. How do their investments perform? Some high-profile nonprofit endowments, importantly those of colleges and universities, have been studied before. This is the first study, to our knowledge, that looks at a large number of nonprofits of many different types. We use a large p...
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Full-text available
Pharmaceutical expenditures have grown rapidly in recent decades, and now total nearly 10% of health care costs. Generic drug utilization has risen substantially alongside, from 19% of scripts in 1984 to 47% in 2001, thus tempering expenditure growth through significant direct dollar savings. However, generic drugs may lead to indirect savings as w...
Article
Hurricane Katrina drew increased attention to natural disasters and natural disaster planning in the United States. Katrina was particularly extreme. Yet, on average, losses from natural disasters in the United States and worldwide have been
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The behavioral revolution in economics has demonstrated that human beings often have difficulty making wise choices. The most widely chronicled difficulties arise for decisions made under conditions of uncertainty, those whose consequences unfold over significant amounts of time, and decisions made in complex environments. Unfortunately, these are...
Article
Disasters are low-probability situations with high potential losses. Shortly before and during some disasters, government use of private property may reduce losses to others that strongly outweigh the costs imposed on the property owner, implying significant net benefits. Coercive takings or attempts to contract at the time of the emergency will fr...
Article
When contracting is not possible, a preference for fair exchange can generate efficient ex-change, fully exhausting the potential gains from trade — or no exchange at all, leaving all gains from trade unexploited. A profit-maximizing firm offers a wage to a fair-minded worker, who then chooses how much effort to exert. The Rotten Firm theorem says:...
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This paper addresses the question how individual saving rates and equity hold-ings vary with income. The joint understanding of the cross section of individuals' total and equity savings is crucial regarding various policy issues. In particular, it is important to understand why lower-income households do not participate in the stock market, which...
Article
We study the quality choices of institutional health-care providers, such as hospitals, assuming that the utility function of the key organizational decision maker includes both quality of care and financial surplus. We are primarily concerned with how changes in outside claims--particularly proportional outside claims--on the provider's financial...
Article
The ability of ecosystems to reduce the risks and scales of natural disasters, for example, by attenuating floodwaters and storm surges, has largely been neglected in natural disaster planning and policymaking. Both the 1993 flood on the Mississippi and Hurricane Katrina point to a loss of such "ecosystem services" in the Mississippi watershed, fro...
Article
Many recommendation and decision processes depend on eliciting evaluations of opportunities, products, and vendors. A scoring system is devised that induces honest reporting of feedback. Each rater merely reports a signal, and the system applies proper scoring rules to the implied posterior beliefs about another rater’s report. Honest reporting pro...
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This paper employs experiments to determine how effectively arrangements decreasing the expected cost of trust betrayal foster trust in three Gulf countries (Kuwait, Oman and the United Arab Emirates), and two Western countries (Switzerland and the United States). Our basic instrument elicits subjects' minimum acceptable probabilities for trustwort...
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Generic drug utilization has risen dramatically, from 19% of scrips in 1984 to 47% in 2001, thus bringing significant direct dollar savings. Generic drug use may also yield indirect savings if it lowers the average price of those brand-name drugs that are still purchased. Prior work indicates - and we confirm - that generic competition does not ind...
Article
Large male-female disparities in human capital outcomes are found in many developing countries, and are thought to arise from differential allocation of resources to sons and daughters within households. In this paper, we explore the role of fertility behavior as an alternative mechanism generating sex inequality. In particular, if couples have a s...
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Abstract A comment on the article by Victor Fuchs in this volume.
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Brookings-Wharton Papers on Financial Services 2004 (2004) 1-53 Formal insurance arrangements date back at least to ancient Greece. Marine loans in that era advanced money on a ship or cargo that would be repaid with substantial interest if the voyage succeeded but forfeited if the ship were lost, much like the structure of contemporary catastrophe...
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We consider mechanism design in social choice problems in which agents’ types are continuous, multidimensional, and mutually payoff-relevant, and there are three or more agents. If the center receives a signal that is stochastically related to the agents’ types and direct returns are bounded, then for any decision rule there is a balanced transfer...
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Why do indemnity insurance plans cost substantially more per capita--77% more in our study--than HMOs? We answer this question using data from a large organization's insurance pool, covering 215,000 lives. We decompose cost differences for eight major medical conditions into four sources: demographics, incidence within demographic groups, treatment...
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The Markovian model provides an insightful structure for analyzing environmental policy decisions. This framework is applied to a variety of conceptual issues. The analysis of reswitching phenomena shows that when multiple risks are involved, there is unlikely to be an unambiguous ranking of policies according to their future-mindedness. The discus...
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This paper tracks the relationship between a congressional district's two-party competition and a member's fidelity to voter interests. Median voter theory leads one to expect that fairly "centrist" candidates will emerge from competitive two-party districts. The paper outlines a theory of selective participation by political extremists whose activ...
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This paper reviews the state of the art of research on individual decision-making in high-stakes, low-probability settings. A central theme is that resolving high-stakes decisions optimally poses a formidable challenge not only to nave decision makers, but also to users of more sophisticated tools, such as decision analysis. Such decisions are diff...
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We thank Geoffrey Kirkman and Mridul Chowdhury for useful comments. 1 There is great optimism over the potential for information and communication technologies (ICT’s) to promote economic development and alleviate poverty. Currently, however, there is neither a solid theoretical basis nor convincing empirical evidence to support such optimism. This...
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For buyers and sellers alike, there's no better way to earn one another's trust in online interactions.
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This article reviews the basic theoretical model of risk adjustment (Glazer/McGuire 2000) with a special focus on a coherent presentation of the main results. With adverse selection a regulator pursuing efficiency and solidarity objectives will need a risk adjustment scheme acting on a signal to accomplish both aims. With an imperfect signal this r...
Article
The menu-setting problem (MSP) determines the goods and services an institution offers and the prices charged. It appears widely in health care, from choosing the services an insurance arrangement offers, to selecting the health plans an employer proffers. The challenge arises because purchases are subsidized, and consumers (or their physician agen...
Article
Recent developments in computer networks have driven the cost of distributing information virtually to zero, creating extraordinary opportunities for sharing product evaluations. We present pricing and subsidy mechanisms that operate through a computerized market and induce the efficient provision of evaluations. The mechanisms overcome three major...
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Investors are keenly interested in financial reports of earnings because earnings provide important information for investment decisions. Thus, executives who are monitored by investors and directors face strong incentives to manage earnings. We introduce consideration of behavioural/institutional thresholds for earnings in this mix of incentives a...
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The information superhighway directly connects millions of people, each both a consumer of information and a potential provider. If their exchanges are to be efficient, yet protected on matters of privacy, sophisticated mediators will be required. Electronic brokers can play this important role by organizing markets that promote the efficient produ...
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Many people read online newsgroups but their evaluations are not collected. These people would continue to read and evaluate once a centralized entry and collection system is enacted. But such a system would create incentives to avoid the burden of reading unhelpful messages by free-riding on the evaluations provided by others. Free-riding leads to...
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We examine the effects of Proposition 2-1/2--a property tax limitation law approved by Massachusetts voters in 1980--and assess voter satisfaction with these effects. We find that the proposition had a smaller effect on local revenues and spending than expected, as a result of both amendments to the law and a strong economy. Voters in 1980 believed...
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This paper analyses corporate risk choice when firms and their managers have private information regarding firm quality. Managers – representing themselves or shareholders – have a short time horizon and wish to boost the firm’s reputation in the market. Investors observe the firm’s current earnings to assess firm quality. Each firm has an opportun...
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We are grateful to Kim O'Neill for helping to inspire our work on this topic, to Alan Altshuler, Ed Glaeser, and Judy Temple for helpful comments, and to Roger Hatch and Burt Lewis from the Massachusetts Department of Revenue for assistance with obtaining and interpreting data. This research was supported by the Alfred Sloan Foundation, the Nationa...
Article
Contracting to provide technological information (TI) is a significant challenge. TI is an unusual commodity in five ways. (i) TI is difficult to count and value; conventional indicators, such as patients and citations, hardly indicate value. TI is often sold at different prices to different parties. (ii) To value TI, it may be necessary to "give a...
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Australian and New Zealand environmental economists have played a significant role in the development of concepts and their application across three fields within their subdiscipline: non-market valuation, institutional economics and bioeconomic modelling. These contributions have been spurred on by debates within and outside the discipline. Much o...
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The pecuniary effects of cash and in-kind programs differ. A program that builds housing for the poor, for example, is likely to result in a lower price of existing low-income housing than would an equally costly cash transfer program. Low-income renters in general would benefit; landlords would lose. The process we label Robin-Hooding rents employ...
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We investigate the transition from private to public ownership of companies that had previously been subject to leveraged buyouts. As they go to the public markets for equity, such firms face an information asymmetry problem. Behavioral effects are also likely to be at work. We show that the combination of informational and behavioral effects will...
Article
The insights of descriptive decision theorists and psychologists, we believe, have much to contribute to our understanding of financial market macrophenomena. We propose an analytic agenda that distinguishes those individual idiosyncrasies that prove consequential at the macro-level from those that are neutralized by market processes such as poachi...
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We analyze the exploitation of an antibiotic in a market subject to open access on the part of antibiotic producers to the common pool of antibiotic efficacy. While the market equilibrium depends only on current levels of antibiotic efficacy and infection of the epidemiological system, the social optimum accounts for the dynamic externalities which...
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The net returns of no-load mutual growth funds exhibit a hot-hands phenomenon during 1974-87. When performance is measured by Jensen's alpha, mutual funds that perform well in a one year evaluation period continue to generate superior performance in the following year. Underperformers also display short-run persistence. Hot hands persists in 1988 a...
Chapter
Thirty-five years ago Kenneth Arrow asked a profound question: Is it ‘formally possible to pass from a set of known individual tastes to a pattern of social decision-making, the procedure in question being required to satisfy certain natural conditions’? (Arrow, 1951, p. 2). He laid out an appealing set of conditions and demonstrated that the answe...
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We consider agents as a source of welfare for a principal. The principal provides funds, and the benefits produced are known only to the source. If more productive sources are less risk-averse, the principal offers fixed and variable bundles to screen sources. The analysis reveals that the optimal lottery achieves great target efficiency. Indeed, w...
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I use two groups of surveys; one survey was provided by the Pew Center for Research on People and the Press; Andrew Cooley and Julie Curtis compiled the second while students at the Kennedy School of Government. In addition to the fine work by Andrew Cooley and Julie Curtis, I thank the following people for either reading drafts of this paper or fo...
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In a theoretical model, we study how for-proÞt, nonproÞt, and public providers respond to a prospective payment system (similar to the DRG system used by Medicare in the United States) in a static game when costs are uncertain. For-proÞts default in high-cost states, provide minimum quality in low-cost states, and have a relatively high incentive t...
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In October of 1998 Nicaragua was hit by Hurricane Mitch, the third most powerful hurricane formed in the Tropical Atlantic basin in the 20 th century. We exploit this exogenous variation and the trajectory of the hurricane in a quasi-experimental design to evaluate the medium-term effects of a large negative shock on children's welfare. While we fi...
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Substantial literature in public economics examines coordination in public goods games. We conduct an experiment to explore how varying patterns of thresholds aect the willingness of subjects to contribute to a public good. We exploit experimental vari-ation in threshold patterns (decreasing, constant and increasing) across time to show that for ne...
Article
Abstract In a theoretical model, we study how for-proÞt, nonproÞt, and public providers respond to a prospective payment,system (similar to the DRG system used by Medicare in the United States) in a static game when costs are uncertain. For-proÞts default in high-cost states, provide minimum quality in low-cost states, and have a relatively high in...
Article
Previous studies have showed that we care for other people's payoffs for two main reasons: altruism and inequality-aversion. This study focuses on the third reason: social ranking. In a series of lab and field experiments, we demonstrate that participants try to achieve high social ranks. This is found true with and without tangible benefits associ...

Citations

... Moral hazard is another risk-that the promise of cheap, quick geoengineering fixes to global warming will reduce political pressure for decarbonization (Aldy and Zeckhauser, 2020;Asayama and Hulme, 2019;Wagner and Merk, 2019). This is a serious issue as SRM will not prevent rising levels of atmospheric CO 2 from acidifying the oceans with catastrophic impacts on marine life (Eyre et al., 2018). ...
... While better forecasts themselves do not seem to be the most significant bottleneck in decision-making (Dessai, Hulme, Lempert, & Pielke, 2009), the literature on superforecasting provides a treasure trove of information on robust, adaptive decision-making under uncertainty (Tetlock & Gardner, 2016). People who tend to perform extraordinarily well at this type of judgement are humble, self-aware, pragmatic analysts with a probabilistic worldview who continuously strive to improve (Mellers, Tetlock, Baker, Friedman, & Zeckhauser, 2019). ...
... Fuerza Aérea Colombiana ser parámetros de difícil acceso a una aeronave ya manufacturada y antigua (Green & Zeckhauser, 2019). En retrospectiva, no se sugiere una eliminación de flota, más bien, se exige un camino de transformación y adaptación a los nuevos conflictos que presenta el siglo xxi (Nordhagen, 2018). ...