time preferences and mortgage choice abstractmortgage decisions have important consequences for consumers lenders and the state of the economy more generally mortgage decisions are also prototypical of consumer financial choices that involve a stream of expenditures and consumption occurring across time the authors use heterogeneity in time preferences for both immediate present bias and long term outcomes to explain a sequence of mortgage decisions including mortgage choice and the decision to abandon a mortgage the authors employ an analytic model and a survey of mortgaged households augmented by zip code level house price and foreclosure data the model suggests and data confirm that consumers with greater present bias and long term discounting tend to choose mortgages that minimize up front costs however greater present bias decreases homeowners willingness to abandon a mortgage locking them into the contract long term patience increases mortgage abandonment this reversal across mortgage decisions is difficult for alternati

equilibrium homophily in networks abstract i look at the equilibrium effects of homophily in network formation games having positive externalities i show that very weak preferences for network effects such as a preference for being part of a clique may result in very high levels of homophily at equilibrium i present an empirical procedure that allows an evaluation of the role of network effects on the observed level of homophily in the data i apply my method to the formation of friendship networks in the usa i show that network effects are small and have a negligible contribution to the observed racial homophily in friendship networks

paying not to go to the gym how do consumers choose from a menu of contracts we analyze a novel dataset from three u s health clubs with information on both the contractual choice and the day to day attendance decisions of 7 752 members over three years the observed consumer behavior is difficult to reconcile with standard preferences and beliefs first members who choose a contract with a flat monthly fee of over 70 attend on average 4 3 times per month they pay a price per expected visit of more than 17 even though they could pay 10 per visit using a 10 visit pass on average these users forgo savings of 600 during their membership second consumers who choose a monthly contract are 17 percent more likely to stay enrolled beyond one year than users committing for a year this is surprising because monthly members pay higher fees for the option to cancel each month we also document cancellation delays and attendance expectations among other findings leading explanations for our findings are overconfidence about future self control or about future efficiency overconfident agents overestimate attendance as well as the cancellation probability of automatically renewed contracts our results suggest that making inferences from observed contract choice under the rational expectation hypothesis can lead to biases in the estimation of consumer preferences

conventional contracts intentional behavior and logit choice equality without symmetry abstract when coordination games are played under the logit choice rule and there is intentional bias in agents non best response behavior we show that the egalitarian bargaining solution emerges as the long run social norm without intentional bias a new solution the logit bargaining solution emerges as the long run norm these results contrast with results under non payoff dependent deviations from best response behavior where it has previously been shown that the kalai smorodinsky and nash bargaining solutions emerge as long run norms we complement the theory with experiments on human subjects results of which suggest that non best response play is payoff dependent and displays intentional bias this suggests the egalitarian solution as the most likely candidate for a long run bargaining norm

mistakes in cooperation the stochastic stability of edgeworth s recontracting in an exchange economywith a finite number of indivisible goods we analyze a dynamic trading process of coalitional recontracting where agents may make mistakes with small probability we show first that the recurrent classes of the unperturbed mistake free process consist of i all core allocations as absorbing states and ii cycles of non core allocations next we introduce a perturbed process where the resistance of each transition is a function of the number of agents that make mistakes do not improve in the transition and of the seriousness of each mistake if preferences are always strict we show that the unique stochasticallystable state of the perturbed process is the walrasian allocation in economies with indifferences non core cycles are sometimes stochastically stable while some core allocations are not

evolutionary bargaining with intentional idiosyncratic play abstract we study equilibrium selection in stochastic evolutionary bargaining games in which idiosyncratic play is intentional instead of random in contract games the stochastically stable state selected by intentional idiosyncratic play is the nash bargain rather than the usual kalai smorodinsky solution

stochastic stability under logit choice in coalitional bargaining problems abstract this study examines a dynamic process of n person coalitional bargaining problems we investigate the evolution of social conventions by embedding a coalitional bargaining setting in a dynamic process in each period a group of players may make some coalitional move that is forming a new team or negotiating the division of a surplus players revise their coalitions and surplus divisions over time in the presence of stochastic noise which leads players to make a suboptimal decision under a logit specification of choice probabilities we find that the stability of a core allocation decreases in the wealth of the richest player furthermore stochastically stable allocations are core allocations that minimize the wealth of the richest player

coalitions tipping points and the speed of evolution this study considers pure coordination games on networks and the waiting time for an adaptive process of strategic change to achieve ecient coordination although it is in the interest of every player to coordinate on a single globally ecient norm coalitional behavior at a local level can greatly slow as well as hasten convergence to eciency

coalitional stochastic stability in games networks and markets abstract this paper examines a dynamic process of unilateral and joint deviations of agents and the resulting stochastic evolution of social conventions our model unifies stochastic stability analysis in static settings including normal form games network formation games and simple exchange economies as stochastic stability analysis in a class of interactions in which agents unilaterally and jointly choose their strategies we embed a static setting in a dynamic process over time agents revise their strategies based on the improvements that the new strategy profile offers them in addition to the optimization process there are persistent random shocks on agents utility that potentially lead to switching to suboptimal strategies under a logit specification of choice probabilities we characterize the set of states that will be observed in the long run as noise vanishes we apply these results to examples of certain potential games

coalition formation as a dynamic process abstract we study coalition formation as an ongoing dynamic process with payoffs generated as coalitions form disintegrate or regroup a process of coalition formation pcf is an equilibrium if a coalitional move to some other state can be justified by the expectation of higher future value compared to inaction this future value in turn is endogenous it depends on coalitional movements at each node we study existence of equilibrium pcfs we connect deterministic equilibrium pcfs with unique absorbing state to the core and equilibrium pcfs with multiple absorbing states to the largest consistent set in addition we study cyclical as well as stochastic equilibrium pcfs

the duration of unemployment stocks and flows on regional labour markets in the netherlands in this paper flows into and out of the stock of umemployed are estimated by means of a statistical method using aggregate data of incomplete unemployment spells a distinguishing feature of this method is that it is not based on stationarity assumptions of the stock of unemployed results are presented for the netherlands from the period 1983 7 speical attention is paid to inter regional differences in inflow outflow patterns of unemployed an effort is made to explain the observed regional differences in the average length of completed spells of unemployment by differences in professional and demographic patterns and in the number of vacancies per region it appears that the number of vacant jobs in a region has a favourable influence on the duration of unemployment

the red and the black mental accounting of savings and debt in the standard economic account of consumer behavior the cost of a purchase takes the form of a reduction in future utility when expenditures that otherwise could have been made are forgone the reality of consumer hedonics is different when people make purchases they often experience an immediate pain of paying which can undermine the pleasure derived from consumption the ticking of the taxi meter for example reduces one s pleasure from the ride we propose a double entry mental accounting theory that describes the nature of these reciprocal interactions between the pleasure of consumption and the pain of paying and draws out their implications for consumer behavior and hedonics a central assumption of the model which we call prospective accounting is that consumption that has already been paid for can be enjoyed as if it were free and that the pain associated with payments made prior to consumption but not after is buffered by thoughts of the benefits that the payments will finance another important concept is coupling which refers to the degree to which consumption calls to mind thoughts of payment and vice versa some financing methods such as credit cards tend to weaken coupling whereas others such as cash payment produce tight coupling our model makes a variety of predictions that are at variance with economic formulations contrary to the standard prediction that people will finance purchases to minimize the present value of payments our model predicts strong debt aversion that they should prefer to prepay for consumption or to get paid for work after it is performed such pay before sequences confer hedonic benefits because consumption can be enjoyed without thinking about the need to pay for it in the future likewise when paying beforehand the pain of paying is mitigated by thoughts of future consumption benefits contrary to the economic prediction that consumers should prefer to pay at the margin for what they consume our model predicts that consumers will find it less painful to pay for and hence will prefer flat rate pricing schemes such as unlimited internet access at a fixed monthly price even if it involves paying more for the same usage other predictions concern spending patterns with cash charge or credit cards and preferences for the earmarking of purchases we test these predictions in a series of surveys and in a conjoint like analysis that pitted our double entry mental accounting model against a standard discounting formulation and another benchmark that did not incorporate hedonic interactions between consumption and payments our model provides a better fit of the data for 60 of the subjects the discounting formulation provides a better fit for only 29 of the subjects even when allowing for positive and negative discount rates the pain of paying we argue plays an important role in consumer self regulation but is hedonically costly from a hedonic perspective the ideal situation is one in which payments are tightly coupled to consumption so that paying evokes thoughts about the benefits being financed but consumption is decoupled from payments so that consumption does not evoke thoughts about payment from an efficiency perspective however it is important for consumers to be aware of what they are paying for consumption this creates a tension between hedonic efficiency and what we call decision efficiency various institutional arrangements such as financing of public parks through taxes or usage fees play into this tradeoff a producer developing a pricing structure for their product or service should be aware of these two conflicting objectives and should try to devise a structure that reconciles them

financial literacy financial education and downstream financial behaviors policy makers have embraced financial education as a necessary antidote to the increasing complexity of consumers financial decisions over the last generation we conduct a meta analysis of the relationship of financial literacy and of financial education to financial behaviors in 168 papers covering 201 prior studies we find that interventions to improve financial literacy explain only 0 1 of the variance in financial behaviors studied with weaker effects in low income samples like other education financial education decays over time even large interventions with many hours of instruction have negligible effects on behavior 20 months or more from the time of intervention correlational studies that measure financial literacy find stronger associations with financial behaviors we conduct three empirical studies and we find that the partial effects of financial literacy diminish dramatically when one controls for psychological traits that have been omitted in prior research or when one uses an instrument for financial literacy to control for omitted variables financial education as studied to date has serious limitations that have been masked by the apparently larger effects in correlational studies we envisage a reduced role for financial education that is not elaborated or acted upon soon afterward we suggest a real but narrower role for just in time financial education tied to specific behaviors it intends to help we conclude with a discussion of the characteristics of behaviors that might affect the policy maker s mix of financial education choice architecture and regulation as tools to help consumer financial behavior this paper was accepted by uri gneezy behavioral economics

discounting time and time discounting subjective time perception and intertemporal preferences abstract consumers often make decisions about outcomes and events that occur over time this research examines consumers sensitivity to the prospective duration relevant to their decisions and the implications of such sensitivity for intertemporal trade offs especially the degree of present bias i e hyperbolic discounting the authors show that participants subjective perceptions of prospective duration are not sufficiently sensitive to changes in objective duration and are nonlinear and concave in objective time consistent with psychophysical principles more important this lack of sensitivity can explain hyperbolic discounting the results replicate standard hyperbolic discounting effects with respect to objective time but show a relatively constant rate of discounting with respect to subjective time perceptions the results are replicated between subjects experiment 1 and within subjects experiments 2 with multiple time horizons and multiple descriptors and with different measurement ord

coalition proof equilibrium we characterize the agreements that the players of a noncooperative game may reach when they can communicate prior to play but they cannot reach binding agreements a coalition proof equilibrium is a correlated strategy from which no coalition has an improving and self enforcing deviation we show that any correlated strategy whose support is contained in the set of actions that survive the iterated elimination of strictly dominated strategies and weakly pareto dominates every other correlated strategy whose support is contained in that set is a coalition proof equilibrium consequently the unique equilibrium of a dominance solvable game is coalition proof journal of economic literature classification

altruists egoists and hooligans in a local interaction model the authors study a population of agents each of whom can be an altruist or an egoist altruism is a strictly dominated strategy agents choose their actions by imitating others who earn high payoffs interactions between agents are local so that each agent affects and is affected by only his neighbors altruists can survive in such a world if they are grouped together so that the benefits of altruism are enjoyed primarily by other altruists who then earn relatively high payoffs and are imitated altruists continue to survive in the presence of mutations that continually introduce egoists into the population copyright 1998 by american economic association

coalitional stochastic stability abstract this paper takes the idea of coalitional behavior groups of people occasionally acting together to their mutual benefit and incorporates it into the framework of evolutionary game theory that underpins the social learning literature an equilibrium selection criterion is defined which we call coalitional stochastic stability css this differs from existing work on stochastic stability in that profitable coalitional deviations are given greater importance than unprofitable single player deviations a general characterization of css is given together with more detailed characterizations for specific classes of games applications include contracting asymmetric social norms and collusive price setting the latter of which is shown in some circumstances to facilitate competitive outcomes

a strategic model of social and economic networks we study the stability and efficiency of social and economic networks when self interested individuals can form or sever links first for two stylized models we characterize the stable and efficient networks there does not always exist a stable network that is efficient next we show that this tension persists generally to assure that there exists a stable network that is efficient one is forced to allocate resources to nodes that are not responsible for any of the production we characterize one such allocation rule the equal split rule and another rule that arises naturally from bargaining of the players

evolution in games with endogenous mistake probabilities abstract j bergin and b lipman econometrica 64 1996 943 956 show that the selection effect from the random mutations in the adaptive population dynamics in m kandori g mailath and r rob econometrica 61 1993 29 56 and p young econometrica 61 1993 57 84 is due to restrictions on how these mutation rates vary across population states we here model mutation rates as endogenously determined mistake probabilities by assuming that players with some effort can control the probability of implementing the intended strategy this is shown to corroborate the results in kandori mailath rob 1993 and under certain regularity conditions those in young 1993 journal of economic literature classification number c72

estimating individual discount rates in denmark a field experiment we estimate individual discount rates with respect to time streams of money using controlled laboratory experiments these discount rates are elicited by means of field experiments involving real monetary rewards the experiments were carried out across denmark using a representative sample of 268 people between 19 and 75 years of age individual discount rates are estimated for various households differentiated by socio demographic characteristics such as income and age our conclusions are that discount rates are constant over the 12 month to 3 year horizons used in these experiments and that discount rates vary substantially with respect to several socio demographic variables hence we conclude that it would be reasonable to assume constant discount rates for specific household types but not the same rates across all households

an illfare approach to the measurement of unemployment based on an illfare approach a new index of unemployment is proposed which unlike the traditional measures takes into account the incidence of unemployment mean duration of unemployment and the disparity in the distribution of the burden of unemployment the proposed measure is most relevant for comparing levels of unemployment across regions or over a period of time an illustation with us data is presented

exploiting naivete about self control in the credit market we develop a model of the credit market where competitive lenders oer long term contracts specifying a non linear schedule of possible repayment schedules to borrowers who may dier both in their taste for immediate gratication and their prior beliefs about that taste the equilibrium contract to a borrower with given beliefs is discontinuous it features an advantageous option involving fast repayment and a penalty for deviating and repaying later these predictions seem to resemble some salient features of many credit card and mortgage contracts for fully sophisticated borrowers the discontinuity acts as a commitment device and yields fast repayment but all other borrowers even those with an arbitrarily small amount of naivete end up delaying repayment despite the penalty and receive little benet from commitment furthermore because they believe they will repay early they underestimate the cost of credit and hence borrow too much non sophisticated borrowers cross subsidize sophisticated borrowers while sophisticated borrowers discipline rms by preventing very exploitative contracts we identify natural conditions under which the above results obtain even if