This week in research #117

Here's what caught my eye in research over the past week:

• Zhang et al. find that Uber’s entry into a US city significantly reduces crime rates, with larger effects in areas facing greater liquidity constraints (less bank credit supply, fewer local job opportunities, higher personal bankruptcy risk, and greater household financial stress)
• Sandorf and Navrud (open access) establish convergent validity between a contingent valuation survey and a discrete choice experiment (meaning that both measures are highly correlated), with the example they use being willingness-to-pay to reduce the spread of invasive crabs in Norway
• Desierto and Koyama (with ungated earlier version here) explain the economics of medieval castles in Europe
• Ordali and Rapallini (with ungated earlier version here) conduct a meta-analysis of the relationship between age and risk aversion, and confirm that there is a positive relationship in studies using survey data and lotteries
• Singh and Mukherjee conduct a replication of an earlier study that established 'action bias' among goalkeepers facing a penalty kick, and find that jumping left or right rather than staying in the centre of the goal is not a sub-optimal action for goalkeepers in FIFA World Cup matches, and so the high frequency of jumping is not indicative of action bias (it is good to see a replication study published in a good journal)
• Lindkvist et al. (open access) investigate attitudes toward research misconduct and questionable research practices among researchers and ethics reviewers across academic fields, and find that researchers and ethics reviewers in medicine, as well as more senior and female researchers and reviewers, took a more negative view of questionable research practices
• Lei et al. use China’s Compulsory Schooling Law as a quasi-natural experiment to investigate the effect of education on HIV/AIDS, finding that mass education significantly enhances knowledge about HIV/AIDS, and that each additional year of exposure to the law reduces HIV/AIDS and mortality rates by 6.51 percent and 2.15 percent respectively
• Daoud, Conlin, and Jerzak (open access) study the differential effects of World Bank and Chinese development projects in Africa between 2002 and 2013, using data across 9899 neighbourhoods in 36 African countries, and find that both donors raise wealth, with larger and more consistent gains for Chinese development projects
• Stoelinga and Tähtinen (open access) find that conflict exposure, on average, increases support for democracy in African countries, but the effects vary by ethnicity and regime type, but interestingly, violence increases trust in ruling institutions in autocratic regimes
• Ruiz et al. (with ungated earlier version here) find that, following the exodus of Cuban doctors from Brazil in 2018, the reduction in doctors was associated with persistent reductions in the care of chronic diseases, while service utilization for conditions requiring immediate care, such as maternal-related services and infections, quickly recovered
• Geddes and Holz (open access) investigate the effect of rent control on domestic violence in San Francisco, and find that there was a nearly 10 percent decrease in assaults on women for the average ZIP code (some good news for advocates of rent control, but it hardly offsets the bad outcomes)
• Clemens and Strain (with ungated earlier version here) add further to the literature on the disemployment effects of minimum wages, this time looking at the difference between large and small minimum wage changes, finding that relatively large minimum wage increases reduced usual hours worked per week among individuals with low levels of experience and education by just under one hour per week during the decade prior to the onset of the Covid-19 pandemic, while the effects of smaller minimum wage increases are economically and statistically indistinguishable from zero

Anticipating higher future petrol prices, consumers actually push up petrol prices now

In his 1984 book The Evolution of Cooperation, Robert Axelrod suggested that people cooperate in repeated games because of 'the shadow of the future'. They alter their behaviour by cooperating now, because they anticipate that will lead to greater gains for them in the future. I really like this analogy of the shadow of the future affecting our decisions now, and not just in the context of game theory and repeated games. In fact, we've seen it play out in a different context this past week, as reported by the New Zealand Herald:

Kiwis are rushing to fill up their cars across the country amid fears of price increases at the pump because of escalating conflict in the Middle East.

Video sent to the Herald of Waitomo Tinakori petrol station in Wellington today showed a queue of cars waiting for fuel, with vehicles spilling out on to the road.

Waitomo Group CEO Simon Parham said there has been a similar increase in demand at stations across the country, with sales increasing by 10-15% this week.

“People are filling up and filling their cars ahead of the price increase that will flow through the market over the coming weeks because of the Iran conflict,” he said.

To see what is going on here, let's consider the retail market for petrol, as shown in the diagram below. Before the current conflict in the Middle East, the equilibrium price of petrol was P0, and Q0 petrol was traded per week. Then the conflict begins. Consumers anticipate that the price of petrol will increase in the future, so they decide to fill up their vehicles now. That increases the demand for petrol from D0 to D1. The equilibrium price of petrol increases to P1, and there is Q1 petrol traded in the week. 

Notice that by trying to avoid the high petrol price in the future, the consumers cause the price to rise today, which is exactly the outcome they were trying to avoid! In effect, when consumers rush to fill up early, they bring some of the future price pressure forward into the present. Expectations about future prices can cause self-fulfilling prophecies like this, which is a point I will make in my ECONS101 class in several weeks, when we talk about financial markets (where self-fulfilling prophecies are a clear and present danger at all times). The shadow of the future matters - consumers' actions based on trying to avoid future price rises make those price rises happen now instead.

Consumers can't tell the difference in audio quality between high-end audio cables and a banana

Consumers are not very good judges of quality. They can't tell the difference between bottled water and tap water. They can't even tell the difference between pâté and dog food. And now, according to this article by Futurism last month, they can't tell the difference between audio cables and a banana:

High-quality cables have long been marketed as a key way to get the most out of high-end equipment, such as expensive studio-grade monitor speaker cables and gold-plated HDMI cables for cutting-edge TVs.

In the high-end audiophile world, which is renowned for eye-bulging prices, cables can cost tens of thousands of dollars for ultra-pure copper with silver plating, specialized insulation, and dozens of individual conductors that manufacturers claim will squeeze the most out of a luxury-grade sound system aimed at the uber-wealthy.

The laws of physics, however, have long dictated that spending that kind of cash on cables simply isn’t worth it in the vast majority of circumstances — as long as you don’t go for the cheapest option from the dollar store, of course.

To put the decades-long debate to the ultimate test, a moderator who goes by Pano at the audiophile enthusiast forum diyAudio conducted an eyebrow-raising experiment back in 2024, which was rediscovered by Headphonesty late last month and Tom’s Hardware last week.

Pano ran high-quality audio through a number of different mediums, including pro audio copper wire, an unripe banana, old microphone cable soldered to pennies, and wet mud. He then challenged his fellow forum members to listen to the resulting clips, which were musical recordings from official CD releases run through the different “cables.”

The results confirmed what most hobbyist audiophiles had already suspected: it was practically impossible to tell the difference.

Consumers are not fully informed about the quality of the products that they buy. When they lack quality information before they buy, but that information is revealed after the consumer buys the good, we say that quality is an experience characteristic (and goods like that are called experience goods). A used car is an example of an experience good - the consumer doesn't really know if it is a high-quality car until they drive it. However, for some goods, the quality isn't revealed even after the good is purchased. In that case, quality is a credence characteristic (and goods like that are called credence goods). Health care is a credence good, because patients don't know for sure what would have happened to them without treatment, so it is impossible to judge the quality of the treatment.

Coming back to using an unripe banana as an audio cable, it appears that the quality of audio cable may also be a credence characteristic. At least, that's what this research tells us.

Why does this matter? The thing about credence goods is that the buyer may be reliant on the seller telling them about the quality. In the case of audio cables, the industry has a strong incentive to convince buyers that a 'high-quality' audio cable matters for sound quality, even if the consumer can't tell the difference. That changes the nature of competition in the industry. When buyers cannot verify quality for themselves, sellers can't compete on quality, and instead rely on reputation, branding, expert language, and the seller’s ability to sound convincing. They aren't going to want to sell banana cables, even if the banana cable would be produce audio of equivalent quality to a 'fancier' cable. Overall, this is a good reminder that in some markets, what consumers pay for is not better quality, but a more persuasive story about quality.

[HT: Marginal Revolution]

Read more:

• Can people tell the difference between bottled water and tap water?

Perceptions of inequality and satisfaction with democracy

Last week, my ECONS101 class covered (among many other things) the faulty causation fallacy. This occurs when we observe two variables that appear to be related to each other (they are correlated), but a change in one of the variables does not actually cause a change in the other variable (there is no causal relationship). We might observe a relationship between two variables (call them A and B), and it might be because a change in A causes a change in B, in which case the relationship is causal. But even if we can tell a really good story explaining why we think a change in A causes a change in B, that in itself doesn't make it true. We might observe that relationship because a change in B causes a change in A (we call this reverse causation). Or, we might observe that relationship because a change in some other variable causes a change in both A and B (we call this confounding). Or, the two variables might be completely unrelated, and the observed relationship happens by chance (we call this spurious correlation).

To illustrate this, I'm going to use the example of the research in this 2024 discussion paper by Nicholas Biddle and Matthew Gray (both Australian National University). They also wrote a non-technical summary of their paper on The Conversation. Biddle and Gray look at the relationship between perceptions of income inequality and faith in democratic institutions. To be fair to them, they do say in the paper that "This does not, however, demonstrate a causal relationship from views on inequality to views on democracy". However, most of their interpretations and their policy recommendations assume that the relationship is causal. For example, they conclude that:

The fundamental issue identified in this paper is that the Australian population has identified the income distribution in Australia as being unfair, and that this appears to be impacting views on democracy.

First though, let's take a step back and look at the research. Biddle and Gray use data from Waves 5 and 6 (from 2018 and 2023 respectively) of the Asian Barometer Survey (with a sample size of over a thousand in each wave for Australia), as well as from the ANUPoll surveys, which is a quarterly survey of public opinion run by the Social Research Centre at ANU. For the ANUPoll, they use the January 2024 data, which includes data from over 4000 respondents.

First, from the Asian Barometer, Biddle and Gray find that there is substantial concern about inequality:

In both waves 5 and 6 of the survey, respondents were asked ‘How fair do you think income distribution is in Australia?’... more Australians think that the income distribution is unfair or very unfair (60.5 per cent) than think it is fair or very fair. This gap has widened slightly since 2018, particularly in terms of those who think the distribution is very unfair as opposed to just unfair.

Second, in the ANUPoll data, they find that:

Combined, 30.3 per cent of Australians were not at all or not very satisfied with democracy in January 2024 (compared to 34.2 per cent in October 2023). This is still well above the January 2023 levels of dissatisfaction (22.9 per cent) and even more so the March 2008 levels (18.6 per cent).

So over time, Australians' perceptions of inequality have gotten worse (they think the income distribution is less fair), and they are less satisfied with democracy. It is reasonable, then, to ask whether those concerns about inequality affect people's faith in democratic institutions. Biddle and Gray next look at that relationship, using to the ANUPoll data, and find that:

There is a very strong relationship between views on income inequality in Australia and views on democracy...

Their model (shown in Table 1 in the paper [*]) shows that the most negative views of the income distribution are associated with negative satisfaction with democracy, while the more positive views of the income distribution are associated with positive views of democracy.

So, there is a strong correlation between perceptions of inequality and satisfaction with democracy. But is that just a correlation, or is there a causal relationship? We can tell a good story here (and Biddle and Gray do that). People who are less satisfied with the income distribution may lay some blame on government, and therefore their satisfaction with democracy falls.

Before we conclude that this relationship is causal though, let me lay out some alternatives. First, perhaps people who are less satisfied with democracy become less satisfied in general with many aspects of society, including the income distribution. In this case, there could be reverse causality. Second, perhaps people who are less satisfied with life in general express less satisfaction with many aspects of life and society, and so they answer more negatively when asked about the satisfaction with democracy, and they answer more negatively when asked about their views of the income distribution. In this case, there would be confounding. Third, perhaps satisfaction with democracy is declining over time for some reason, and views about the income distribution are becoming more negative for some completely different reason. But they look like they are related because they are both trending downwards. In this case, there would be a spurious correlation between perceptions of inequality and satisfaction with democracy.

It isn't straightforward to see two variables that appear to be related, and assume that a change in one of those variables causes a change in the other variable. Economists and other researchers have developed a number of statistical tools and experimental methods to try and tease out when a correlation really is demonstrating a causal relationship. Biddle and Gray haven't done that. It might be that negative perceptions of inequality reduce satisfaction with democracy. By itself, this research doesn't allow us to conclude that.

[HT: The Conversation]

*****

[*] Table 1 in the paper actually has an error. The explanatory variable in the table is labelled as satisfaction with democracy, when that is actually the dependent variable. It is perceptions of inequality that is the explanatory variable.