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Aims Social scientists have postulated that the discrepancy between achievements and expectations affects individuals' subjective well-being. Still, little has been done to qualify and quantify such a psychological effect. Our empirical analysis assesses the consequences of positive and negative affective forecasting errors—the difference between realized and expected subjective well-being—on the subsequent level of subjective well-being. Data We use longitudinal data on a representative sample of 13,431 individuals from the German Socio-Economic Panel. In our sample, 52% of individuals are females, average age is 43 years, average years of education is 11.4 and 27% of our sample lives in East Germany. Subjective well-being (measured by self-reported life satisfaction) is assessed on a 0–10 discrete scale and its sample average is equal to 6.75 points. Methods We develop a simple theoretical framework to assess the consequences of positive and negative affective forecasting errors—the difference between realized and expected subjective well-being—on the subsequent level of subjective well-being, properly accounting for the endogenous adjustment of expectations to positive and negative affective forecasting errors, and use it to derive testable predictions. Given the theoretical framework, we estimate two panel-data equations, the first depicting the association between positive and negative affective forecasting errors and the successive level of subjective well-being and the second describing the correlation between subjective well-being expectations for the future and hedonic failures and successes. Our models control for individual fixed effects and a large battery of time-varying demographic characteristics, health and socio-economic status. Results and conclusions While surpassing expectations is uncorrelated with subjective well-being, failing to match expectations is negatively associated with subsequent realizations of subjective well-being. Expectations are positively (negatively) correlated to positive (negative) forecasting errors. We speculate that in the first case the positive adjustment in expectations is strong enough to cancel out the potential positive effects on subjective well-being of beaten expectations, while in the second case it is not, and individuals persistently bear the negative emotional consequences of not achieving expectations. ; Aims Social scientists have postulated that the discrepancy between achievements and expectations affects individuals' subjective well-being. Still, little has been done to qualify and quantify such a psychological effect. Our empirical analysis assesses the consequences of positive and negative affective forecasting errors—the difference between realized and expected subjective well-being—on the subsequent level of subjective well-being. Data We use longitudinal data on a representative sample of 13,431 individuals from the German Socio-Economic Panel. In our sample, 52% of individuals are females, average age is 43 years, average years of education is 11.4 and 27% of our sample lives in East Germany. Subjective well-being (measured by self-reported life satisfaction) is assessed on a 0–10 discrete scale and its sample average is equal to 6.75 points. Methods We develop a simple theoretical framework to assess the consequences of positive and negative affective forecasting errors—the difference between realized and expected subjective well-being—on the subsequent level of subjective well-being, properly accounting for the endogenous adjustment of expectations to positive and negative affective forecasting errors, and use it to derive testable predictions. Given the theoretical framework, we estimate two panel-data equations, the first depicting the association between positive and negative affective forecasting errors and the successive level of subjective well-being and the second describing the correlation between subjective well-being expectations for the future and hedonic failures and successes. Our models control for individual fixed effects and a large battery of time-varying demographic characteristics, health and socio-economic status. Results and conclusions While surpassing expectations is uncorrelated with subjective well-being, failing to match expectations is negatively associated with subsequent realizations of subjective well-being. Expectations are positively (negatively) correlated to positive (negative) forecasting errors. We speculate that in the first case the positive adjustment in expectations is strong enough to cancel out the potential positive effects on subjective well-being of beaten expectations, while in the second case it is not, and individuals persistently bear the negative emotional consequences of not achieving expectations.

Whistleblowing is a powerful and rather inexpensive instrument to deter tax evasion. Despite the deterrent effects on tax evasion, whistleblowing can reduce trust and undermine agents' attitude to cooperate with group members. Yet, no study has investigated the potential spillover effects of whistleblowing on ingroup cooperation. This paper reports results of a laboratory experiment in which subjects participate in two consecutive phases in unchanging groups: a tax evasion game, followed by a generalized gift exchange game. Two dimensions are manipulated in our experiment: the inclusion of a whistleblowing stage in which, after observing others' declared incomes, subjects can signal other group members to the tax authority, and the provision of information about the content of the second phase before the tax evasion game is played. Our results show that whistleblowing is effective in both curbing tax evasion and improving the precision of tax auditing. Moreover, we detect no statistically significant spillover effects of whistleblowing on ingroup cooperation in the subsequent generalized gift exchange game, with this result being unaffected by the provision of information about the experimental task in the second phase. Finally, the provision of information does not significantly alter subjects' (tax and whistleblowing) choices in the tax evasion game: thus, knowledge about perspective ingroup cooperation did not alter attitude toward whistleblowing.

We use an original variant of the standard trust game to study the effects of corruption on trust and trustworthiness. In this game, both the trustor and the trustee know that part of the surplus they can generate may be captured by a third "corrupted" player under different expected costs of audit and prosecution. We find a slightly higher trustor's giving in the presence of corruption, matched by a significant excess of reciprocity from the trustee. Both the trustor and the trustee expect, on average, corruption to act as a tax, inelastic to changes in the probability of corruption prosecution. Expectations are correct for the inelasticity assumption and for the actual value of the "corruption tax". Our experimental findings lead to the rejection of four standard hypotheses based on purely self-regarding preferences. We discuss how the apparently paradoxical excess reciprocity effect is consistent with the cultural role of heroes in history, where examples of commendable giving have been used to stimulate emulation of ordinary people. Our results suggest that the excess reciprocity component of the trustee makes the trustor's excess giving a rational and effective strategy.

We use an original variant of the standard trust game to study the effects of corruption on trust and trustworthiness. In this game, both the trustor and the trustee know that part of the surplus they can generate may be captured by a third "corrupted" player under different expected costs of audit and prosecution. We find a slightly higher trustor's giving in the presence of corruption, matched by a significant excess of reciprocity from the trustee. Both the trustor and the trustee expect, on average, corruption to act as a tax, inelastic to changes in the probability of corruption prosecution. Expectations are correct for the inelasticity assumption and for the actual value of the "corruption tax". Our experimental findings lead to the rejection of four standard hypotheses based on purely self-regarding preferences. We discuss how the apparently paradoxical excess reciprocity effect is consistent with the cultural role of heroes in history, where examples of commendable giving have been used to stimulate emulation of ordinary people. Our results suggest that the excess reciprocity component of the trustee makes the trustor's excess giving a rational and effective strategy.

We experimentally study sequential procurement auctions where bidders' capacity constraints are private information. Our experiment involves two first-price auctions with a belief elicitation stage at the end of the first. Our results show that (i) observed behavior in the second auction is overall consistent with sequential rationality; (ii) first auction bids are decreasing in the capacity of the bidder, but (iii) stated beliefs are inconsistent with the actual play. Hence, subjects seem to be aware of the opportunity cost of early bids (which leads capacity constrained bidders to bid more cautiously than unconstrained ones); on the other hand, since they do not recognize the informative content of bids, the potential signaling cost associated with early bids does not come into play.