Articles in Refereed Journals
„Managerial Overconfidence and Bank Bailouts„
Daniel Gietl and Bernhard Kassner, 2020
Journal of Economic Behavior & Organization, vol. 179, pages 202-222.
Abstract: Empirical evidence suggests that managerial overconfidence and government guarantees contribute substantially to excessive risk-taking in the banking industry. This paper incorporates managerial overconfidence and limited bank liability into a principal-agent model, where the bank manager unobservably chooses the level of risk. An overconfident manager overestimates the returns to risk. Our main result is that managerial overconfidence necessitates an intervention into banker pay. This is due to the bank’s exploitation of the manager’s overvaluation of bonuses, which causes excessive risk-taking in equilibrium and is amplified by government guarantees. Moreover, we show that an optimal bonus tax rises in overconfidence, if returns to risk-taking are positive. Finally, the model indicates that overconfident managers are more likely to be found in banks with large government guarantees, low bonus taxes, and lax capital requirements.
Working Papers
Taming Overconfident CEOs Through Stricter Financial Regulation
Abstract: A large body of literature finds that managerial overconfidence increases risk-taking by financial institutions. This paper shows that financial regulation can be effective at mitigating this type of risk. Exploiting regulatory changes introduced after the financial crisis as a natural experiment, I find that overconfidence-induced risk-taking decreases in financial institutions subject to stricter regulation. Following the easing of these regulations, overconfidence-induced risk-taking increases again. These findings confirm the effectiveness of financial regulation at correcting overconfident behavior, but also suggest that the impact fades away quickly once removed.
The Effects of Overconfidence on the Political and Financial Behavior of a Representative Sample (joint with Ciril Bosch-Rosa and Steffen Ahrens)
Abstract: We study the relationship between overconfidence and the political and financial behavior of a nationally representative sample. To do so, we introduce a new method of directly eliciting overconfidence of individuals that is simple to understand, quick to implement, and that captures respondents’ excess confidence in their own judgment. Our results show that, in line with theoretical predictions, an excessive degree of confidence in one’s judgment is correlated with lower portfolio diversification, larger stock-price forecasting errors, and more extreme political views. Additionally, we find that overconfidence is correlated with voting absenteeism. These results show that overconfidence is a bias that permeates several aspects of peoples’ lives.
Non-standard Errors (joint with half of the profession; forthcoming in The Journal of Finance)
Abstract: In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty: Non-standard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for better reproducible or higher rated research. Adding peer-review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants.
Work in Progress
Irrational Inattention (joint with Ciril Bosch-Rosa and Muhammed Bulutay)
Other Publications
„Propagation of changes in demand through international trade: A Case study China„
Jochen Andritzky, Bernhard Kassner and Wolf Heinrich Reuter, 2019
The World Economy, vol. 42(4), pages 1259-1285.
Link to article
Abstract: China’s economy, the second largest in the world, is undergoing a fundamental transition. Its transition from a strong focus on investment and exports towards a larger share of consumption could have important ramifications for China’s trading partners. Using China as a case study, this paper deploys a sectoral input–output (IO) analysis to take into account higher‐round spillovers from a reduction of import demand or a shift in the composition of the Chinese economy. This approach demonstrates strong indirect effects that exceed by far the initial shock from direct trade links, reflecting China’s integration into a closely knit global value chain. The result suggests that the ongoing transition in China will have important effects on the global economy.
„Can consumption growth in China keep up as investment slows?“
Mali Chivakul and Bernhard Kassner, 2019
Comparative Economic Studies, vol. 61(3), pages 381-412.
Link to article
Abstract: Rebalancing away from investment to consumption has been on China’s agenda in order to keep up higher growth rates. This paper uses both national- and provincial-level data to empirically answer the question how a slowdown in investment could have an impact on household consumption. Our empirical results from both the national- and provincial-level data using Bayesian vector autoregressions and panel regression methods suggest that investment has had a significant impact on household consumption beyond the standard household income channel. The effects are particularly strong in the post-global-financial-crisis period. Policy measures to encourage rebalancing away from investment should take the extra effect it may have on consumption beyond the impact on household income into account.
„Eine Analyse des Antwortverhaltens in der ifo Industrieumfrage“
Bernhard Kassner and Klaus Wohlrabe, 2018
ifo Schnelldienst, ifo Institute – Leibniz Institute for Economic Research at the University of Munich, vol. 71(3), pages 29-34, 02
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„Aktuelle Ergebnisse der ifo Investorenrechnung: Steigende Leasingquoten vor allem bei Fahrzeuginvestitionen“
Bernhard Kassner and Stefan Sauer, 2017
ifo Schnelldienst, ifo Institute – Leibniz Institute for Economic Research at the University of Munich, vol. 70(10), pages 30-32, 05
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