This award funds doctoral dissertation research that uses a series of field experiments to investigate the impact of information and social networks on the decision to immigrate. The coPI models the decision to immigrate as a decision under ambiguity. A potential immigrant must consider the effect of his decision on his future economic welfare. If this person stays in his home country, he faces some uncertainty about his future earnings. However, while he cannot be certain about his future income, he has information about the range of possibilities. If this person instead moves to another country, he faces not simple uncertainty but ambiguity about future earnings. Not only is his future income uncertain, he does not even know the range of possible outcomes or the likelihood of any specific outcome. This model of immigration predicts that people who choose to immigrate are less ambiguity averse than people who remain in their home country.
The experimental design examines choices in ambiguous situations, information shared in the social network about the ambiguity, and responses to that information. Participants in the experiment include current and potential future immigrants. Participants are allowed to send (and receive) information about an ambiguous risk to (and from) members of their social networks. The research design compares the value for three different kinds of information that can be communicated along a social network: outcome information, descriptive information, and advice. The design allows the researcher to separate the effects of these different types of information and measure the perceived value of each.
The first stage of the research includes recent immigrants to the US. These participants will make choices in ambigious gambles and will give information about their social networks. They are allowed (at a cost) to send information to potential immigrants in their home village about the experimental tasks. The researcher will then travel to Mexico to contact the people in the immigrants? social networks. These people will also be invited to participate in the experiment and will make choices over a similar group of gambles. The research design will allow for a measurement of the dollar value of the information this second group of participants received from the first group.
This project yields new insights into how social networks serve as conduits for information that affects decisions under ambiguity. The project will also yield new insight into the behavioral factors that affect decisions to immigrate. Broader impacts include extensive involvement of undergraduates in the research and new insight into the forces that encourage or discourage immigration from Mexico to the United States.
Previous research shows that the likelihood of emigrating, obtaining a job, and getting higher wages in the destination country relies heavily on the experience of close members of the individual’s social network. One possible explanation is that current immigrants provide information to members of their social networks which influences the decisions of potential immigrants. This explanation identifies the role that positive externalities play via the transmission of pivotal information that reduces the uncertainty around immigrating such as future job opportunities, earnings, costs associated with housing, getting a job, and stress from homesickness, etc. Another possible explanation is herding behavior, i.e., potential immigrants do not have perfect information about the immigration process, and follow others who previously emigrated to the host country. This is consistent with the existence and persistence of ethnic enclaves, even when these enclaves negatively impact earnings, exacerbate poverty and create a culture of isolation. However, no direct evidence exists for either of these mechanisms. This study provides this evidence. We consider the decision to immigrate as an investment decision under risk or ambiguity. We use an artefactual field experiment with current and potential Mexican immigrants to test both explanations. We examine what types of information, and under what conditions, current immigrants send to individuals at varying levels of social distance from themselves, and elicit preferences from the potential immigrants about the information they could potentially receive from current immigrants. We contrast the supply of information sent by current immigrants and the demand for information by potential immigrants within the social network. We further examine the impact of the information transmitted on subsequent decision making. This design enables us to differentiate between the competing theories of positive externalities and herding, and to identify potential interventions which can be used to affect the frequency and success of immigration experiences. Previous literature on the impact of peer effects on financial decision making has identified three types of information that may be relevant for risky or ambiguous decisions and thus helpful to identify positive externalities and herding behavior. The first is decision information. In the immigration setting, this would involve observing current immigrants’ actions and the outcomes of those actions before making one’s own choice. The second is descriptive information. In the immigration setting, this would involve information provided by current immigrants about the ambiguous situation that the potential immigrant would face. The third is advice. In the immigration setting, this would involve advice given by a current immigrant to a potential immigrant about the choice they were about to make. These three types of information are shared within the social network in our study. Our results indicate that both the positive externalities and the herding explanations coexist on the different levels of the transmission of information. The supply and demand of information mostly transmit advices, prioritize family members among social networks, and are active in risky investment settings. These results support the positive externalities explanation at the transmission level. However, decisions from/to friends and strangers are also transmitted which is associated with herding. This study makes several important contributions. We are the first to provide a direct test on the hypothesized mechanisms through which social networks might affect one’s decision to immigrate. Second, this study is the first to examine how information from one’s social network affects decisions under risk and ambiguity. Third, we separate the effects of different types of information (decision, descriptive and advice) on risky and ambiguous choices. Fourth, we measure individuals’ preferences for the three types of information and its sources within a social network under risky and ambiguous decision-making. Fifth, we identify and test competing mechanisms of positive externalities and herding behavior in the immigration decision by comparing the supply and demand of information within an immigrant social network. Seventh, we implement the sharing of information within a U.S.-Mexican immigrant naturally-occurring social network. The results from this study have the potential to help us explain and predict when individuals will choose to immigrate given the information they acquire from their social networks. Broader impact: The results from our study improve our understanding of information transmission in the social network and its impact on decision-making under ambiguity. They illuminate the driving forces behind individual decisions to immigrate. The results have the potential to offer insights into how policymakers might design informational campaigns to encourage (or discourage) potential immigrants. For example, campaigns showing successful or unsuccessful cases of immigration by several sources of information as TV, newspapers, public ads, etc. We believe that a deeper understanding of information transmission in immigration can improve the effectiveness of policymaking to influence the selection of immigrants that benefits host countries, and to reduce the formation of ethnic enclaves that perpetuate poverty.
