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Francesca PANCOTTO

Professore Associato
Dipartimento di Studi Linguistici e Culturali

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Pubblicazioni

2024 - Soccer Bubble: Is There a Speculative Bubble in the Price of International Soccer Players? [Articolo su rivista]
Pancotto, Francesca; Addessi, Giorgio; Auteri, Nicola
abstract

An exponentially increasing trend of players’ registration prices has taken place since 2012, and we test the hypothesis that this may be a speculative bubble, using a structural break test (Chow test) on a data set of international soccer players’ registration prices, that ranges from 2007 to 2019. The test confirms the presence of an abrupt change in the trend of these prices since the year 2012, both for the whole data set and for subgroups based on the types of competition considered (Champions League, Europa League, and residual) and on the age of the players. We surmise that a possible root at the base of this trend is the need for soccer teams to cope with the Fair Play regulation, which has taken place exactly in the same years, and caused an excess of players’ trading as a means to comply with the obligation for teams to balance their books over time.

2023 - On the role of fundamentals, private signals, and beauty contests to predict exchange rates [Articolo su rivista]
Pignataro, G.; Raggi, D.; Pancotto, F.
abstract

This paper proposes a model where heterogeneous agents formulate their predictions of exchange rates based on a Bayesian learning process and higher-order beliefs where fundamentals and private information are used. We exploit survey data on professional forecasts to estimate the model through a Bayesian approach. Our analysis shows that higher-order beliefs are crucial, as they improve the ability to make predictions of exchange rates due to the possible coordination among agents. Moreover, public information plays the most critical role in determining individual predictions. Although the precision of the private signal is higher than the public one, information publicly revealed does exert a disproportionate influence, and differences in the estimated signals determine the equilibrium strategy of each agent as a combination of personal beliefs and higher-order expectations.

2023 - Using mobile phone data to map evacuation and displacement: a case study of the central Italy earthquake [Articolo su rivista]
Giardini, F.; Hadjidimitriou, N. S.; Mamei, M.; Bastardi, G.; Codeluppi, N.; Pancotto, F.
abstract

Population displacement is one of the most common consequences of disasters, and it can profoundly affect communities and territories. However, gaining an accurate measure of the size of displacement in the days and weeks following a major disaster can be extremely difficult. This study uses aggregated Call Detail Records as an inexpensive and efficient technique to measure post-disaster displacement in four Italian regions affected by repeated earthquakes in 2016-2017. By comparing post-disaster mobile phone count with a forecast computed before the earthquake hit, we can compute an index of change in the presence of mobile phones (MPE). This measure, obtained thanks to advanced analytical techniques, provides a reliable indication of the effect of the earthquake in terms of immediate and medium-term displacement. We test this measure against census data and in combination with other datasets. Looking into available data on economic activities and requests for financial support to rebuild damaged buildings, we can explain MPE and identify significant factors affecting population displacement. It is possible to apply this innovative methodology to other disaster scenarios and use it by policymakers who want to understand the determinants of population displacement.

2023 - Voluntary play increases cooperation in the presence of punishment: a lab in the field experiment [Articolo su rivista]
Pancotto, F.; Righi, S.; Takacs, K.
abstract

Problems of cooperation have often been simplified as the choice between defection and cooperation, although in many empirical situations it is also possible to walk away from the interaction. We present the results of two lab-in-the-field experiments with a diverse pool of subjects who play optional and compulsory public goods games both with and without punishment. We find that the most important institution to foster cooperation is punishment, which is more effective in a compulsory game. In contrast to Rand and Nowak (Nat Commun 2(1):1–7, 2011), we find that loners are not responsible for anti-social punishment, which is mostly imputable to low-contributors (free-riders). Loners neither totally free-ride nor they significantly punish cooperators (or other types of players): they simply avoid all forms of participation whenever possible.

2022 - DISTRIBUTION CHANNELS AND FINANCIAL ADVERTISING IN THE ITALIAN ASSET MANAGEMENT MARKET [Articolo su rivista]
Ferretti, Riccardo; Giacomini, Emanuela; Pancotto, Francesca
abstract

Advertising has a major effect on individual investors' decisions. Financial instruments tend to be advertised more when market sentiment is high, as investors are more willing to buy. Mechanisms affecting the relationship between market sentiment and advertising activity remain unexplored in the finance literature. Using a novel dataset of advertisements for mutual and exchange-traded funds from the main Italian financial newspaper, we show that the effect of market sentiment on financial advertisements depends upon the distribution channel. Sentiment matters only for products directly traded by the investors, such as exchange-traded funds. Conversely, for financial products - like mutual funds - distributed through a captive distribution network (bank branches and tied agents), financial advisers' actions mitigate the effect of market sentiment on advertising activity. Overall, our findings provide some evidence of the persuasive power of financial advisers in investors' decisions, which arguably requires increased attention from financial market regulators.

2021 - Community social capital and status: The social dilemma of food waste [Articolo su rivista]
Piras, Simone; Pancotto, Francesca; Righi, Simone; Vittuari, Matteo; Setti, Marco
abstract

In developed countries, the largest share of food is wasted at the household level. Household food waste results from a complex interaction between economic factors, well-established routines, and social norms. To explain this interaction, we propose a simple model of waste behavior where the individual and social economic costs generated by wasting are counterbalanced by the security and status generated through acquiring excess food, thus causing a social dilemma. This trade-off is mediated by social capital, which measures the intensity with which each individual within a community evaluates the negative effects of waste. We test this model's hypotheses using a 2016 dataset of food behaviors and opinions of Italian households, which we merge with variables known to elicit the local level of social capital. We find individual food waste levels to be negatively related with social capital. Contrastingly, status concerns with respect to food and the lack of organizational abilities are both more prevalent in low social capital areas, and are related to increased food waste. This relationship is mediated by income.

2021 - Reflectivity relates differently to pro sociality in naïve and strategic subjects [Articolo su rivista]
Pancotto, F.; Righi, S.
abstract

Is pro sociality a natural impulse or the result of a self-controlled behavior? We investigate this issue in a lab in the field experiment with participants from the general adult population in Italy. We find two key results: first, that there is a positive relationship between pro sociality and strategic reasoning. Second, that reflectivity relates to lower pro sociality but only among strategic subjects, indicating that the intuitive view of pro sociality is valid only among strategic individuals. Non-strategic individuals are instead intuitively selfish. We surmise that these results emerge due to a common cognitive root between strategizing and pro sociality, namely empathy.

2021 - Reputation and punishment sustain cooperation in the optional public goods game [Articolo su rivista]
Podder, S.; Righi, S.; Pancotto, F.
abstract

Cooperative behaviour has been extensively studied as a choice between cooperation and defection. However, the possibility to not participate is also frequently available. This type of problem can be studied through the optional public goods game. The introduction of the 'Loner' strategy' allows players to withdraw from the game, which leads to a cooperator-defector-loner cycle. While pro-social punishment can help increase cooperation, anti-social punishment - where defectors punish cooperators - causes its downfall in both experimental and theoretical studies. In this paper, we introduce social norms that allow agents to condition their behaviour to the reputation of their peers. We benchmark this with respect both to the standard optional public goods game and to the variant where all types of punishment are allowed. We find that a social norm imposing a more moderate reputational penalty for opting out than for defecting increases cooperation. When, besides reputation, punishment is also possible, the two mechanisms work synergically under all social norms that do not assign to loners a strictly worse reputation than to defectors. Under this latter set-up, the high levels of cooperation are sustained by conditional strategies, which largely reduce the use of pro-social punishment and almost completely eliminate anti-social punishment. This article is part of the theme issue 'The language of cooperation: reputation and honest signalling'.

2020 - La pubblicità dei fondi comuni d’investimento: un’analisi del mercato italiano [Articolo su rivista]
Ferretti, Riccardo; Pancotto, Francesca; Giacomini, Emanuela
abstract

There is a clear evidence to support the hypothesis that advertising can influence investment choices. In particular, Mutual funds advertising influences subscription flows, using a behavioral model of persuasion rather than a rational one. What is overlooked in the literature is whether and how the dynamics and content of the advertising message are influenced by the funds’ distribution channel. In case of distribution through a captive network, the action of sellside financial advisors could, in fact, reduce the importance of savers’ sentiment in the decision to buy mutual funds, making the effectiveness of advertising independent of the market phase. In contrast, for funds bought directly from investors, such as Etf, market sentiment should take over. Using a dataset containing 3,344 advertisements collected from 2006 to 2018, this work provides early evidence about the relationship between the distribution channel of financial instruments and the effectiveness of advertising in different market phases.

2020 - Voluntary play increases cooperation in the presence of punishment: A lab in the field experiment [Working paper]
Pancotto, Francesca; Righi, Simone; Takács, Károly
abstract

Problems of cooperation have often been simplified as the choice between defection and cooperation, although in many empirical situations it is also possible to walk away from the interaction. When opting out of is a feasible alternative, it is questionable whether known solutions to the problem of cooperation, such as punishment could still work, given the limited sanctioning potential it imposes on free riders. We present the results of two experiments with non-student subjects who play optional and compulsory public goods games both with and without a punishment stage. We find that the possibility of opting-out motivates cooperation. Instead, when punishment is introduced, higher cooperation emerges in the compulsory game. This key result indicates that informal solutions to public good problems might rule each other out and punishment is a robust solution only if players are not allowed to opt out of the interaction.

2019 - Improve Education Opportunities for Better Integration of Syrian Refugees in Turkey [Capitolo/Saggio]
Mamei, M.; Cylasun, S. M.; Lippi, M.; Pancotto, F.; Tumen, S.
abstract

2019 - Policy implications of the D4R Challenge [Capitolo/Saggio]
Ali Salah, Albert; Tarık Altuncu, M.; Balcisoy, Selim; Frydenlund, Erika; Mamei, Marco; Ali Akyol, Mehmet; Yavuz Arslanlı, Kerem; Bensason, Ivon; Boshuijzen-van Burken, Christine; Bosetti, Paolo; Boy, Jeremy; Bozcaga, Tugba; Mümin Cilasun, Seyit; Işık, Oğuz; Kalaycıoğlu, Sibel; Seyyide Kaptaner, Ayse; Kayi, Ilker; Ozan Kılıç, Özgün; Kjamili, Berat; Kucukali, Huseyin; Martin, Aaron; Lippi, Marco; Pancotto, Francesca; Rhoads, Daniel; Sevencan, Nur; Sezgin, Ervin; Solé-Ribalta, Albert; Sterly, Harald; Surer, Elif; Taşkaya Temizel, Tuğba; Tümen, Semih; Uluturk, Ismail
abstract

The Data for Refugees (D4R) Challenge resulted in many insights related to the movement patterns of the Syrian refugees within Turkey. In this chapter, we summarize some of the important findings, and suggest policy recommendations for the main areas of the challenge. These recommendations are sometimes broad suggestions, as the policy interventions involve many factors that are difficult to take into account. We give examples of such issues to help policy-makers.

2018 - Complaining in Consumer Credit: Evidence from the Italian Financial System [Capitolo/Saggio]
Cosma, Stefano; Pancotto, Francesca; Vezzani, Paola
abstract

In many countries, Banking Authorities have adopted an Alternative Dispute Resolution (ADR) procedure to manage complaints that customers and financial intermediaries cannot solve by themselves. As a consequence, banks have had to implement complaint management systems in order to deal with customers’ demands. The growth rate of customer complaints has been increasing during the last few years. This does not seem to be only related to the quality of financial services or to lack of compliance of banking output. Another reason lies in the characteristics of the procedures themselves, which are very simple and free of charge. The paper analyzes some determinants regarding the willingness to complain.

2018 - Customer Complaining and Probability of Default in Consumer Credit [Working paper]
Cosma, S.; Pancotto, F.; Vezzani, P.
abstract

In many countries, Banking Authorities have adopted an Alternative Dispute Resolution (ADR) procedure to manage complaints that customers and financial intermediaries cannot solve by themselves. As a consequence, banks have had to implement complaint management systems in order to deal with customers’ demands. The growth rate of customer complaints has been increasing during the last few years. This does not seem to be only related to the quality of financial services or to lack of compliance in banking products. Another reason lies in the characteristics of the procedures themselves, which are very simple and free of charge. The paper analyzes some determinants regarding the willingness to complain. In particular, it examines whether a high customers’ probability of default leads to an increase in non-valid complaints. The paper uses a sample of approximately 1,000 customers who received a loan and made a claim against the lender. The analysis shows that customers with higher Probability of Default are more likely to make claims against Financial Institutions. Moreover, it shows that opportunistic behaviors and non-valid complaints are more likely if the customer is supported by a lawyer or other professionals and if the reason for the claim may result in a refund or damage compensation.

2018 - Food waste as a (negative) measure of social capital. A study across Italian Provinces [Working paper]
Piras, S.; Pancotto, F.; Righi, S.; Vittuari, M.; Setti, M.
abstract

Household food waste is a crucial problem in developed countries. Food waste behaviour is the result of complex interactions among economic factors, deeply rooted habits, and social norms. It can thus be considered a measure of the social capital characterizing a community. We test this hypothesis using a national-level dataset on household food-related behaviours and opinions in Italy gathered in 2016. This country is an ideal test bed for a comparative analysis on social capital. We find household food waste measures to be negatively related with the local level of social capital. This relationship is mediated by family income, as it becomes weaker for better-off families. Furthermore, we find that behaviours and opinions eliciting status concerns with respect to food, as well as lack of organisational abilities, generate increased food waste. In turn, these behaviours and opinions are more prevalent in areas with low social capital. Our results, captured by a simple model where food waste decisions are considered in the context of a modified public good game, allow to derive several policy implications for the reduction of food waste.

2018 - Food waste as a (negative) measure of social capital. A study across Italian Provinces [Working paper]
Piras, S.; Pancotto, F.; Righi, S.; Vittuari, M.; Setti, M.
abstract

Household food waste is a crucial problem in developed countries. Food waste behaviour is the result of complex interactions among economic factors, deeply rooted habits, and social norms. It can thus be considered a measure of the social capital characterizing a community. We test this hypothesis using a national-level dataset on household food-related behaviours and opinions in Italy gathered in 2016. This country is an ideal test bed for a comparative analysis on social capital. We find household food waste measures to be negatively related with the local level of social capital. This relationship is mediated by family income, as it becomes weaker for better-o families. Furthermore, we find that behaviours and opinions eliciting status concerns with respect to food, as well as lack of organisational abilities, generate increased food waste. In turn, these behaviours and opinions are more prevalent in areas with low social capital. Our results, captured by a simple model where food waste decisions are considered in the context of a modified public good game, allow to derive several policy implications for the reduction of food waste.

2018 - Is social capital associated with synchronization in human communication? An analysis of Italian call records and measures of civic engagement [Articolo su rivista]
Mamei, Marco; Pancotto, Francesca; De Nadai, Marco; Lepri, Bruno; Vescovi, Michele; Zambonelli, Franco; Pentland, Alex
abstract

Social capital has been studied in economics, sociology and political science as one of the key elements that promote the development of modern societies. It can be defined as the source of capital that facilitates cooperation through shared social norms. In this work, we investigate whether and to what extent synchronization aspects of mobile communication patterns are associated with social capital metrics. Interestingly, our results show that our synchronization-based approach well correlates with existing social capital metrics (i.e., Referendum turnout, Blood donations, and Association density), being also able to characterize the different role played by high synchronization within a close proximity-based community and high synchronization among different communities. Hence, the proposed approach can provide timely, effective analysis at a limited cost over a large territory.

2017 - Persuasion in financial advertising: Behavioral or rational? [Articolo su rivista]
Ferretti, Riccardo; Pancotto, Francesca; Rubaltelli, Enrico
abstract

In this paper we test whether a behavioral or a rational model is used in financial advertising. We run Granger-causality tests separately for risky and non-risky products advertising, finding that the behavioral model of advertising is supported when the ads of risky financial products and services are considered, while the rational model is true for the non-risky products ads. We ascribe this result to the dual process of reasoning operating at the level of the investor: when an investor evaluates the decision to buy risky financial products and services, he/she activates the automatic, rapid decision making process. Advertis- ing companies anticipate this trait and implement an advertising strategy that responds to market trends, confirming the use of a behavioral model. Consistently we find that the stock index Granger-causes risky financial products ads. When non-risky financial products ads are considered, a slow and sequential pro- cess, operates, compatibly with a rational decision making process: advertising companies are aware of this and implement a strategy unrelated to the stock index. Coherently, no significant relationship is found between the stock index and non-risky financial products and services ads.

2017 - Reflexivity reduces pro-sociality but only among strategic subjects [Working paper]
Codeluppi, F.; Pancotto, F.; Righi, S.
abstract

Is pro-sociality a natural impulse or the result of a self-controlled behavior? The literature is not quite univocal on the cognitive mechanisms behind this key feature of observed human behavior. We investigate this issue in a lab in the field experiment with participants selected among the general adult population in Italy. We test prosociality with a Distribution game (or three player dictator game), reflexive versus impulsive behavior with an extended version of the Cognitive Reflection Test and strategic reasoning with the guessing game. In the latter, we request to participants to provide also a motivation of the choice they made in the game. We find two important results: first, that there is a positive relationship between pro-sociality and strategic reasoning. Second, reflexivity reduces pro-sociality but only among strategic subjects. Our results support the intuitive view of pro-sociality: naive individuals that do not control their impulses behave pro-socially, while among strategic subjects the ability to suppress the pro-social impulse is achieved by those subjects making a more selfcontrolled and reflexive choice.

2016 - A test of the Behavioral versus the Rational model of Persuasion in Financial Advertising [Working paper]
Ferretti, R.; Pancotto, F.; Rubaltelli, E.
abstract

We present a test of the behavioral versus the rational model of advertising in the financial market. We analyze the Granger-causality relationship existing between Comit stock market index and advertising of financial products and services from the most important daily published financial newspaper in Italy. We run the test for both the risky and non-risky advertising, finding that the behavioral model of advertising is supported when risky financial products and services are considered, while the rational model is true for the non-risky. We ascribe this result to the dual process of reasoning: When investors evaluate the decision to buy risky financial products and services, they activate the automatic, rapid decision making process. The behavioral model of advertising copes with it and provides an advertising strategy that responds to market evolutions. When non-risky financial products and services are considered, a different mental process, requiring slow and sequential reasoning, operates, compatibly with a rational decision making process.

2016 - Amoral Familism, Social Capital, or Trust? The Behavioural Foundations of the Italian North-South Divide [Articolo su rivista]
Bigoni, Maria; Bortolotti, Stefania; Casari, Marco; Gambetta, Diego; Pancotto, Francesca
abstract

We present the first lab-in-the field experiment on the Italian North-South divide. Using a representative sample of the population, we measure whether regional disparities in ability to cooperate emerge even if differences in geography, institutions, and criminal intrusion are silenced. We report that a behavioural gap in cooperation exists: Northern and Southern citizens react differently to the same incentives. Moreover, this gap cannot be accounted for by tolerance for risk, proxies of social capital, and ’amoral familism.’ At least a share of North-South disparities is likely to derive from persistent differences in social norms.

2015 - Norms of Punishment: Experiments with students and the General Population [Articolo su rivista]
Bortolotti, Stefania; Casari, Marco; Pancotto, Francesca
abstract

Norms of cooperation and punishment differ across societies, but also within a single society. In an experiment with two subject pools sharing the same geographical and cultural origins, we show that opportunities for peer punishment increase cooperation among students but not in the general population. In previous studies, punishment magnified the differences across societies in people’s ability to cooperate. Here, punishment reversed the order: with punishment, students cooperate more than the general population while they cooperate less without it.

2015 - Pro-sociality and Strategic Reasoning in Economic Decisions [Articolo su rivista]
Arruñada, Benito; Casari, Marco; Pancotto, Francesca
abstract

We study the relationship between pro-social preferences and strategic reasoning. These aspects are typically studied separately but little is known about their joint distribution. In an experiment, for each participant we elicit individual concerns toward pro-sociality - inequality aversion and efficiency - as well as the number of steps of reasoning through a guessing game. We report that self-regarding and pro-social participants exhibit similar levels of strategic reasoning, which supports the view that pro-sociality and strategic reasoning can be studied independently.

2015 - Social Learning and Higher Order Beliefs: A Structural Model of Exchange Rates Dynamics [Working paper]
Pignataro, Giuseppe; Raggi, Davide; Pancotto, Francesca
abstract

This paper proposes a structural model of exchange rates where agents formulate their one-step ahead predictions based on social learning process and higher order beliefs. Individual choices are then aggregated and plugged into a rather standard macroeconomic model to derive the dynamics of exchange rates. Bayesian estimation of the structural parameters is implemented exploiting Foreign exchange Consensus Survey data of heterogeneous forecasts and fundamentals. Results show that higher order beliefs accounts for a large part of the total value, while public information play the most important role in determining individual expectations. Although the precision of the private signal is larger than the public one, information publicly revealed does exert a disproportionate influence, and differences in the estimated signals determine the equilibrium strategy of each agent as a combination between personal beliefs and higher order expectations.

2014 - Overreaction in Survey Exchange Rate Forecasts [Articolo su rivista]
Pancotto, Francesca; F., Pericoli; M., Pistagnesi
abstract

We use survey data on five bilateral exchange rates to provide empirical evidence of the fact that professional forecasters of foreign exchange rates behave irrationally, in the specific sense that they respond inaccurately to available information in the market when forming their predictions. In particular, we find systematic biases in the forecasts resulting in the overreaction of analysts to past information contained in the exchange rate dynamics: forecasters change their prediction more than it would be rational on the basis of past realized changes. In addition, forecasters are heterogeneous in their irrationality: low performers in previous periods show a more pronounced overreaction effect. This can be read as an indication of perpetration of past errors and continued inability to learn from the past. In the second part of the paper, we exploit the novel structure of our dataset, which consists of survey data extracted from the Bloomberg platform and readily available to anyone. This feature allows us to consider their own and others' past forecasts as part of the information set that analysts use in making their predictions. By using past forecasts as proxies for relevant macroeconomic variables, we find evidence that analysts fail to correctly process not only the information contained in the spot rate past dynamics but also the information in this broader set. We see this as confirmation of the existence of inefficiency and heterogeneity between low and high performers also when full information is available.

2014 - The Minority Game Unpacked: Coordination and Competition in a Team-based Experiment [Articolo su rivista]
Giovanna, Devetag; Pancotto, Francesca; Thomas, Brenner
abstract

In minority games, players in a group must decide at each round which of two available options to choose, knowing that only subjects who picked the minority option obtain a positive reward. Previous experiments on the minority and similar congestion games have shown that players interacting repeatedly are remarkably able to coordinate eciently, despite not conforming to Nash equilibrium behavior. We conduct an experiment on a minority-of-three game in which each player is a team composed by three subjects. Each team can freely discuss its strategies in the game and decisions must be made via a majority rule. Team discussions are recorded and their content analyzed to detect evidence of strategy co-evolution among teams playing together. Our main results of team discussion analysis show no evidence supporting the mixed strategy Nash equilibrium solution, and support a low-rationality, backward-looking approach to model behavior in the game, more consistent with reinforcement learning models than with belief-based models. Showing level-2 ratio- nality (i.e., reasoning about others' beliefs) is positively and signicantly correlated with higher than average earnings in the game, showing that a mildly sophisticated approach pays off. In addition, teams that are more successful tend to become more egocentric over time, paying more attention to their own past successes than to the behavior of other teams. Finally, we nd evidence of mutual adaptation over time, as teams that are more strategic (i.e., they pay more attention to other teams' moves) induce competing teams to be more egocentric instead. Our results contribute to the understanding of coordination dynamics resting on heterogeneity and co-evolution of decision rules rather than on conformity to equilibrium behavior. In addition, they provide support at the decision process level to the validity of modeling behavior using low-rationality reinforcement learning models.

2014 - Till Labor Cost Do Us Part [Articolo su rivista]
Pancotto, Francesca; Filippo, Pericoli
abstract

A sustainable long-run pattern in the relative competitiveness of Euro area countries is a key factor for the survival of the monetary union. We analyse the issue focussing on unit labour cost dynamics using cointegration analysis for the whole economy and for the manufacturing sector separately. Our findings show that the introduction of the Euro has increased, rather than decreased, the distance among member countries, as measured in the metric of unit labour costs. Dispersion of productivity rather than wage compensation suggests that persisting idiosyncratic dynamics are driven by real factors, i.e. diverging technological patterns rather than by monetary factors, expressed by wage compensation.

2013 - Cooperation hidden frontiers: The behavioral foundations of the Italian North-South divide [Working paper]
M., Bigoni; S., Bortolotti; M., Casari; D., Gambetta; Pancotto, Francesca
abstract

Socio-economic performance differs not only across countries but within countries too and can persist even after religion, language, and formal institutions are long shared. One interpretation of these disparities is that successful regions are characterized by higher levels of trust, and, more generally, of cooperation. Here we study a classic case of within-country disparities, the Italian North-South divide, to find out whether people exhibit geographically distinct abilities to cooperate independently of many other factors and whence these differences emerge. Through an experiment in four Italian cities, we study the behavior of a sample of the general population toward trust and contributions to the common good. We find that trust and contributions vary in unison, and diminish moving from North to South. This regional gap cannot be attributed to payoffs from cooperation or to institutions, formal or informal, that may vary across Italy, as the experimental methodology silences their impact. The gap is also independent of risk and other-regarding preferences which we measure experimentally, suggesting that the lower ability to cooperate we find in the South is not due to individual \moral" flaws. The gap could originate from emergent collective properties, such as different social norms and the expectations they engender. The absence of convergence in behavior during the last 150 years, since Italy was unified, further suggests that these norms can persist overtime. Using a millennium-long dataset, we explore whether the quality of past political institutions and the frequency of wars could explain the emergence of these differences in norms.

2013 - Inefficiency in survey exchange rates forecasts [Working paper]
Pancotto, F.; Pericoli, F.; Pistagnesi, M.
abstract

We use survey data on five bilateral exchange rates to provide empirical evidence of the fact that professional forecasters of foreign exchange rates behave irrationally, in the specific sense that they respond inaccurately to available information in the market when forming their predictions. In particular, we find systematic biases in the forecasts resulting in the overreaction of analysts to past information contained in the exchange rate dynamics: forecasters change their prediction more than would be rational on the basis of past realized changes. In addition, forecasters are heterogeneous in their irrationality: low performers in previous periods show a more pronounced overreaction effect. This can be read as an indication of perpetration of past errors and continued inability to learn from the past. In the second part of the paper, we exploit the novel structure of our dataset, which consists of survey data extracted from the Bloomberg platform and readily available to anyone. This feature allows us to consider own and others’ past forecasts as part of the information set that analysts use in making their predictions. By using past forecasts as proxies for relevant macroeconomic variables, we find evidence that analysts fail to correctly process not only the information contained in the spot rate past dynamics, but also the information in this broader set. We see this as confirmation of the existence of inefficiency and heterogeneity between low and high performers also when full information is available.

2011 - Does volatility matter? Expectations of price return and variability in an asset pricing experiment [Articolo su rivista]
Giulio, Bottazzi; Giovanna, Devetag; Pancotto, Francesca
abstract

We present results of an experiment on expectation formation in an asset market. Participants in our experiment must provide forecasts of the stock future return to computerized utility-maximizing investors, and are rewarded according to how well their forecasts perform in the market. In the Baseline treatment participants must forecast the stock return one period ahead; in the volatility treatment, we also elicit subjective confidence intervals of forecasts, which we take as a measure of perceived volatility. The realized asset price is derived from a Walrasian market equilibrium equation with non-linear feedback from individual forecasts. Our experimental markets exhibit high volatility, fat tails and other properties typical of real financial data. Eliciting confidence intervals for predictions has the effect of reducing price fluctuations and increasing subjects’ coordination on a common prediction strategy.

2006 - Equilibria, stability and asymptotic dominance in a speculative market with heterogeneous traders [Articolo su rivista]
M., Anufriev; G., Bottazzi; Pancotto, Francesca
abstract

We consider a pure exchange economy where one risky and one riskless security are traded in discrete time. Individual demands are expressed as fractions of individual wealth and depend on traders’ forecasts about future price movement.Introducing the ‘Equilibrium Market Line’ as the locus of all possible equilibrium returns, we show that, irrespectively of the number of traders and of their investment behavior, the economy possesses isolated equilibria where a single agent dominates the market and continuous manifolds of equilibria where many agents hold finite wealth shares. Moreover, we prove that no global dominance order relation among strategies can be defined.

2005 - Speculative equilibria and asymptotic dominance in a market with adaptive CRRA traders [Relazione in Atti di Convegno]
Anufriev, M.; Bottazzi, G.; Pancotto, F.
abstract

We consider a simple pure exchange economy with two assets, one riskless, yielding a constant return on investment, and one risky, paying a stochastic dividend. Trading takes place in discrete time and in each trading period the price of the risky asset is fixed through the market clearing condition. Individual demands are expressed as fractions of traders wealth and depend on traders forecasts about future price movement. Under these assumptions, we derive the stochastic dynamical system that describes the evolution of price and wealth. We study the cases in which one or two agents operate in the market, identifying the possible equilibria and discussing their stability conditions. The main novelty of this paper rests in the abstraction from the precise characterization of agents' beliefs and preferences. In this respect our results generalize several previous contributions in the field. In particular, we show that, irrespectively of agents' behavior, the system can only possess isolated generic equilibria where a single agent dominates the market and continuous manifolds of nongeneric equilibria where heterogeneous agents hold finite shares of the aggregate wealth. Moreover, we show that all possible equilibria belong to a one dimensional "Equilibria Market Line". Finally we discuss the role of different parameters for the stability of equilibria and the selection principle governing market dynamics.

2004 - Price and Wealth Asymptotic Dynamics with CRRA Technical Trading Strategies [Working paper]
Mikhail, Anufriev; Pancotto, Francesca; Giulio, Bottazzi
abstract

In this paper we study the dynamics of a simple asset pricing model describing the trading activity of heterogeneous agents in a "stylized" market. The economy in the model contains two assets: a bond with risk-less return and a dividend paying stock. The price of the stock is determined through market clearing condition. Traders are speculators described as expected utility maximizers with heterogeneous beliefs about future stock price and with heterogeneous estimation of risk. In particular, we consider traders who base their investment decision on different time horizons and we analyze the effect of these differences on the price dynamics. Under suitable parameterization, the stock no-arbitrage "fundamental" price can emerge as a stable fixed point of the model dynamics. For different parameterizations, however, the market shows cyclical or chaotic price dynamics with speculative bubbles and crashes. We find that the sole heterogeneity of agents with respect to their time horizons is not enough to guarantee the instability of the fundamental price and the emergence of non-trivial price dynamics. However, if different groups of agents are characterized by different trading behaviors, the introduction of heterogeneous investment horizons can help to decrease the stability region of the "fundamental" fixed point. The role of time horizons turns out to be different for different trade behaviors and, in general, depends on the whole ecology of agents' beliefs. We demonstrate this effect discussing a case in which the increase of fundamentalists time horizons can lead to cyclical or chaotic price behavior, while the same increase for the chartists helps to stabilize the fundamental price.