the nature of social learning experimental evidence in the wide economic literature on social learning many types of behavior rational and non rational have been proposed i suggest a level k model that unifies many of them in one framework this paper analyzes experimental data that is able to distinguish between levels of reasoning at the individual level it relies on rich existing data from celen and kariv 2004 as well as new experimental data that includes written accounts of reasoning from incentivized intra team communication three datasets provide consistent evidence that naive inference in form of the best response to truthful play is the most common approach to social learning the empirical type distributions feature heterogeneity similar to other level k applications

the impact of mandatory disclosure laws on product choices an analysis of the salad dressing market abstract the nutrition labeling and education act nlea requires most food products to include a nutrition label prior to the nlea labeling was voluntary this study uses nutrition label information and supermarket scanner data pre and post nlea to examine the impact of moving from a voluntary to a mandatory labeling regime on consumer product choice the voluntary unraveling of information is shown to be an important market mechanism prior to the nlea all low fat salad dressings had a nutrition label while the majority of the higher fat dressings did not however there remained large variation in fat content among dressings that did not voluntarily label those with the highest fat levels experienced a significant decline in sales after they were required to disclose the results indicate that even in markets with credible low cost mechanisms to disclose mandatory labeling can have an impact on consumer behavior and health

boundedly rational versus optimization based models of strategic thinking and learning in games harstad and selten s article in this forum performs a valuable service by highlighting the dominance of optimization based models over boundedly rational models in modern microeconomics and questioning whether optimization based models are a better way forward than boundedly rational models this article complements rabin s response to harstad and selten focusing on modeling strategic behavior i consider harstad and selten s examples and proposed boundedly rational models in the light of modern behavioral economics and behavioral game theory commenting on the challenges that remain and the most promising ways forward

information school choice and academic achievement evidence from two experiments we examine a natural experiment and a field experiment that provided direct information on school test scores to lower income families in a public school choice plan receiving information significantly increases the fraction of parents choosing higher performing schools parents with high scoring alternatives nearby were more likely to choose nonguaranteed schools with higher test scores using random variation from each experiment we find that attending a higher scoring school increases student test scores the results imply that school choice will most effectively increase academic achievement for disadvantaged students when parents have easy access to test score information and good options from which to choose

the perceived returns to education and the demand for schooling economists emphasize the link between market returns to education and investments in schooling though many studies estimate these returns with earnings data it is the perceived returns that affect schooling decisions and these perceptions may be inaccurate using survey data for eighth grade boys in the dominican republic we find that the perceived returns to secondary school are extremely low despite high measured returns students at randomly selected schools given information on the higher measured returns completed on average 0 20 0 35 more years of school over the next four years than those who were not

imperfect choice or imperfect attention understanding strategic thinking in private information games to understand the thinking process in private information games we use mousetracking to record which payoffs subjects attend to the games have three information states and vary in strategic complexity subjects consistently deviate from nash equilibrium choices and often fail to look at payoffs which they need to in order to compute an equilibrium response choices and lookups are similar when stakes are higher when cluster analysis is used to group subjects according to lookup patterns and choices three clusters appear to correspond approximately to level 3 level 2 and level 1 thinking in level k models and a fourth cluster is consistent with inferential mistakes as for example in qre or cursed equilibrium theories deviations from nash play are associated with failure to look at the necessary payoffs the time durations of looking at key payoffs can predict choices to some extent at the individual level and at the trial by trial level

a major in science initial beliefs and final outcomes for college major and dropout taking advantage of unique longitudinal data we provide the first characterization of what college students believe at the time of entrance about their final major relate these beliefs to actual major outcomes and provide an understanding of why students hold the initial beliefs about majors that they do the data collection and analysis are based directly on a conceptual model in which a student s final major is best viewed as the end result of a learning process we find that students enter school quite optimistic about obtaining a science degree but that relatively few students end up graduating with a science degree the substantial overoptimism about completing a degree in science can be attributed largely to students beginning school with misperceptions about their ability to perform well academically in science copyright 2014 oxford university press

the deer hunter the unintended effects of hunting regulations abstract to control the deer population state game commissions regulate the types of deer that can be legally harvested these regulations however might have an unintended effect on hunting related accidents by changing the care hunters take when firing their rifles a moral hazard effect or changing the composition of hunters using detailed data on hunting accidents and regulations in pennsylvania counties from 1990 to 2005 we find compelling evidence that harvesting restrictions increase the care hunters take in a manner consistent with moral hazard thus these regulations have a positive safety externality

a test for moral hazard in the labor market contractual arrangements effort and health moral hazard plays a central role in many models depicting contractual relationships involving worker effort the authors show how time series information on worker health consumption and work time can be used to measure the effort effects of payment schemes estimates from longitudinal data describing farming rural households indicate that time wage payment schemes and share tenancy contracts reduce effort compared to piece rate payment schemes and on farm employment the evidence also indicates consistent with moral hazard that the same workers consume more calories under a piece rate payment scheme or in on farm employment than when employed for time wages copyright 1994 by mit press

one two three infinity newspaper and lab beauty contest experiments beauty contest is a game in which participants have to choose typically a number in 0 100 the winner being the person whose number is closest to a proportion of the average of all chosen numbers we describe and analyze beauty contest experiments run in newspapers in uk spain and germany and find stable patterns of behavior across them despite the uncontrollability of these experiments these results are then compared with lab experiments involving undergraduates and game theorists as subjects in what must be one of the largest empirical corroborations of interactive behavior ever tried we claim that all observed behavior across a wide variety of treatments and subject pools can be interpretedas iterative reasoning level 1 reasoning level 2 reasoning and level 3 reasoning are commonly observed in all the samples while the equilibrium choice level maximum reasoning is only prominently chosen by newspaper readers and theorists the results show the empirical power of experiments run with large subject pools and open the door for more experimental work performed on the rich platform offered by newspapers and magazines

correlation neglect in belief formation many information structures generate correlated rather than mutually independent signals the news media being a prime example this article provides experimental evidence that many people neglect the resulting double counting problem in the updating process in consequence beliefs are too sensitive to the ubiquitous telling and re telling of stories and exhibit excessive swings we identify substantial and systematic heterogeneity in the presence of the bias and investigate the underlying mechanisms the evidence points to the paramount importance of complexity in combination with people s problems in identifying and thinking through the correlation even though most participants in principle have the computational skills that are necessary to develop rational beliefs many approach the problem in a wrong way when the environment is moderately complex thus experimentally nudging people s focus towards the correlation and the underlying independent signals has large effects on beliefs

identifying higher order rationality strategic choice data from a carefully chosen set of ring network games are used to obtain individual level estimates of higher order rationality the experimental design exploits a natural exclusion restriction that is considerably weaker than the assumptions underlying alternative designs in the literature in our data set 93 percent of subjects are rational 71 percent are rational and believe others are rational 44 percent are rational and hold second order beliefs that others are rational and 22 percent are rational and hold at least third order beliefs that others are rational

games parents and adolescents play risky behaviors parental reputation and strategic transfers this article examines parental reputation formation in intra familial interactions in a repeated two stage game children decide whether to drop out of high school or daughters decide whether to have births as teens and parents then decide whether to provide support to their children beyond age 18 drawing on milgrom and roberts 1982 and kreps and wilson 1982 we show that under certain conditions parents have the incentive to penalise older children for their adolescent risk taking behaviour in order to dissuade their younger children from such behaviour when reaching adolescence we find evidence in favour of this parental reputation model

all in the family a simultaneous model of parenting style and child conduct the upbringing of children is modeled as a modified principal agent problem in which children attempt to maximize their own well being when faced with a parenting strategy chosen by the parent to maximize parent s perception of family well being thus children as well as parents are players but children have higher discount rates than parents the simultaneity of parenting and child behaviour is confirmed using the 1994 canadian national longitudinal survey of children this abstract was borrowed from another version of this item

moderation in groups evidence from betting on ice break ups in alaska we use a large sample of guessed ice break up dates for the tanana river in alaska to study differences between outcomes of decisions made by individuals versus groups we estimate the distribution of guesses conditional on whether they were made by individual bettors or betting pools we document two major distinctions between the two sets of guesses 1 the distribution of guesses made by groups of bettors appears to conform more to the distribution of historical break up dates than the distribution of guesses made by individual bettors and 2 the distribution for groups has less mass in its tails and displays lower variability than the distribution for individuals we argue that these two pieces of evidence are consistent with the hypothesis that group decisions are more moderate either because groups have to reach a compromise when their members disagree or because individuals with extreme opinions are less likely to be part of a group

education choices and returns on the labor and marriage markets evidence from data on subjective expectations in this paper we analyze the role of expected labor and marriage market returns as determinants of the college enrollment decisions of mexican high school graduates moreover we investigate whether the relative weights of these factors differ by gender we use data on individuals expectations regarding future labor market outcomes which we directly elicited from the youths and two different measures of marriage market returns first marriage market returns are proxied by the net supply of potential partners in the youths local marriage markets second we use data which elicits youths beliefs about their future spouse s earnings conditional on their own education level we find that labor market as well as marriage market returns are important determinants of the college enrollment decision however boys and girls preferences differ in terms of the relative role of the two determinants in that the relative weight of labor market versus marriage market returns is larger for boys than for girls

education choices and returns to schooling mothers and youths subjective expectations and their role by gender abstract in this paper we investigate the role of expected returns to schooling and of perceived risks of unemployment and earnings as determinants of schooling decisions moreover our data also allow us to analyze whether youths and or mothers expectations predict schooling decisions and whether this depends on the age and gender of the youth in particular we use mexican data that contain labor market expectations of mothers and youths we find that expected returns and risk perceptions are important determinants of schooling decisions the latter in particular from the perspective of the mother boys expectations predict the decision to enter college but not to enter high school while girls own expectations do not predict either of the two educational decisions mothers expectations are particularly strong predictors of their daughters decisions

level k mechanism design non equilibrium models of choice e g level k reasoning have significantly different sometimes more accurate predictions in games than does nash equilibrium when it comes to the maximal set of functions that are implementable in mechanism design however they turn out to have similar implications focusing on single valued rules we discuss the role and implications of different behavioural anchors arbitrary level 0 play and prove a level k revelation principle if a function is level k implementable given any level 0 play it must obey a slight weakening of standard strict incentive constraints further the same condition is also sufficient for level k implementability although the role of specific level 0 anchors is more controversial for the sufficiency argument nonetheless our results provide tight characterizations of level k implementable functions under a variety of level 0 play including truthful uniform and atomless anchors

an empirical analysis of hunting lease pricing and value of game in sweden game species generate considerable benefits to society in terms of hunting values tourism and maintenance of ecosystem balance this paper seeks to estimate hunting values for multiple hunted species by disentangling the role of wildlife harvesting opportunities from other factors that affect hunting lease prices we examine the determinants of hunting lease prices in sweden using both spatial and nonspatial econometric techniques our analysis confirms considerable hunting values for fallow deer and wild boar also the study reveals the presence of spatial spillovers in lease prices implying that landowners have little scope for exerting monopoly power on the hunting lease market

determinants of college major choice identification using an information experiment this article studies the determinants of college major choice using an experimentally generated panel of beliefs obtained by providing students with information on the true population distribution of various major specific characteristics students logically revise their beliefs in response to the information and their subjective beliefs about future major choice are associated with beliefs about their own earnings and ability we estimate a rich model of college major choice using the panel of beliefs data while expected earnings and perceived ability are a significant determinant of major choice heterogeneous tastes are the dominant factor in the choice of major analyses that ignore the correlation in tastes with earnings expectations inflate the role of earnings in college major choices we conclude by computing the welfare gains from the information experiment and find positive average welfare gains

how to play 3 3 games a strategy method experiment abstract using the strategy method selten 1967 beitrage zur experimentellen wirtschaftsforschung pp 136 168 we elicit subjects strategies for playing any 2 person 3 3 game with integer payoffs between 0 and 99 in each of 5 tournaments every strategy pair plays 500 000 games the frequency of pure strategy equilibrium play increases from 51 in the first to 74 in the last tournament with the equilibria that maximize joint payoff being preferred when multiple exist for games without pure equilibria strategies are typically based on elements of the best reply cascade map maximize the expected payoff against uniformly randomizing opponents br map best reply to map and br br map best reply to br map

intended college attendance evidence from an experiment on college returns and costs abstract we conduct an information experiment about college returns and costs embedded within a representative survey of us household heads baseline perceptions of college costs and benefits are substantially biased with larger biases among lower income and non college households respondents are randomly exposed to objective information about average college returns or costs we find a significant impact of the returns experiment persisting in a follow up survey two months later intended college attendance expectations increase by about 0 2 of the standard deviation in the baseline likelihood and gaps by household income or parents education decline by 20 30 we find no impact of the cost information treatment further analysis supports the information s salience as opposed to information based updating as the main channel through which the returns intervention impacts intentions

the importance of information targeting for school choice although school choice programs are common we know little about the underlying decision making processes in this study we randomly assigned 900 junior high schools in ghana a country with universal secondary school choice to 1 of 3 treatment arms 1 information to students 2 information to students and guardians and 3 control group we observe changes in beliefs behaviors and the decision maker s identity through a survey of guardians our intervention increased the likelihood that guardians were involved with and informed about the school selection process moreover specifically targeting guardians led to significantly larger changes for most outcomes

does school tracking affect equality of opportunity new international evidence this paper investigates whether the interaction between family background and secondary school tracking affects human capital accumulation a widely shared view is that more tracking reinforces the role of parental privilege and thereby reduces equality of opportunities this may occur for several reasons including peer effects more talented students are gathered together teacher sorting better teachers prefer teaching better students differences in curricula academic oriented schools like the german gymnasium the french lycee the british grammar school or the italian liceo teach abilities that increase the probability of entering college and or differences in resource endowment compared to the current literature which focuses on early outcomes such as test scores at 13 and 15 years old we look at later outcomes including literacy dropout rates college enrolment employability and earnings while we do confirm the common view that school tracking reinforces the impact of family background when looking at educational attainment and labour market outcomes we do not confirm the same results when studying its impact on literacy and on the job training overall school tracking has an ambiguous effect in our sample of countries on the one hand and consistently with the previous literature tracking has a detrimental impact on educational attainment because it prevents some individuals from further progressing to the tertiary level of education the diversion effect on the other hand the curricula offered in vocational schools seem more effective in promoting further training and adult competences the specialization effect thereby reducing the impact of parental background on these two outcomes thus reducing the extent of student tracking either by raising the age of first selection or by reducing the number of tracks available may be appropriate for increasing intergenerational mobility in educational attainment but may increase social exclusion for people from disadvantaged backgrounds giorgio brunello and daniele checchi

pinocchio s pupil using eyetracking and pupil dilation to understand truth telling and deception in sender receiver games we conduct laboratory experiments on sender receiver games with an incentive for senders to exaggerate such as security analyst s painting a rosy picture about earnings prospects our results show that overcommunicati on messages are more informative of the true state than they should be in equilibri um is consistent with a level k model eyetracking shows that senders look much more on the payoff rows corresponding to the true state and much less at receiver payoffs than at their own payoffs senders pupils also dilate more when their deception is larger in magnitude together these data are consistent with the hypothesis that figuring out ho w to deceive another player is cognitively difficult as assumed in the level k mod el a combination of sender messages and lookup patterns predicts the true state about t wice as often as predicted by equilibrium using these measures would enable receiver subjects to hypothetically earn up to 16 21 percent more than they actually do

forming wage expectations through learning evidence from college major choices abstract how do college students choose their majors and what role does the family play in their choices i use data from two major longitudinal surveys to develop and estimate a model in which students learn about earning opportunities associated with different majors through the wages of older siblings and parents the probability of a student choosing a major that corresponds to the occupation of a family member is strongly correlated with the family member s wage at the time the major choice is made this correlation remains strong after controlling for family correlated abilities or preferences and additional empirical evidence suggests that the observed correlation arises through a family based wage information channel

occupational choice and the spirit of capitalism the british industrial revolution triggered a socioeconomic transformation whereby the landowning aristocracy was replaced by industrial capitalists rising from the middle classes as the economically dominant group we propose a theory of preference formation under financial market imperfections that can account for this pattern parents shape their children s preferences in response to economic incentives middle class families in occupations requiring effort skill and experience develop patience and a work ethic whereas upper class families relying on rental income cultivate a refined taste for leisure these class specific attitudes which are rooted in the nature of preindustrial professions become key determinants of success once industrialization transforms the economic landscape i introduction the industrial revolution was more than capital accumulation and growth it also set off a social and political transformation that redefined hierarchies in society and reshaped the distribution of income and wealth before the onset of industrialization in eighteenth century britain wealth and political power were associated with the possession of land over the course of the nineteenth century a new class of entrepreneurs and businessmen emerged as the economic elite for the most part the members of this class rose from humble beginnings and had their social origins in the urban middle classes the landed elite was left behind and eventually lost its political and economic predominance many observers of the time linked this reversal in economic fortunes to differences in values attitudes and ultimately preferences across social classes there are countless examples both in scholarly and in fictional writing of portrayals of members of the landowning class as averse to work unwilling to save ill disposed tocommercialactivity andunabletoconsidermoneyassomething

gender and say a model of household behaviour with endogenously determined balance of power the evidence that the same total income can lead a household to choose different consumption vectors depending on who brings in how much of the income has led to an effort to replace the standard unitary model of the household with the collective model which recognizes that the husband and the wife may have different preferences and depending on the balance of power between them the household may choose differently one weakness of this new literature is that it fails to recognize that the household s choice could in turn influence the balance of power once this two way relation between choice and power is recognized we are forced to confront some new questions concerning how to model the household this paper tries to answer these by defining a household equilibrium examining its game theoretic properties and drawing out its testable implications it is shown for instance that once we allow for dynamic interaction a household can exhibit inefficient behavior and that for a certain class of parameters children will be less likely to work in a household where power is evenly balanced than one in which all power is concentrated in the hands of either the father or the mother the paper also draws out the implications for female labor supply

electoral competition with third party entry in the lab abstract electoral competition between two vote share maximizing candidates in the context of the unidimensional spatial model leads to platform convergence both candidates end up proposing the ideal policy of the median voter downs 1957 palfrey 1984 famously argued that if third candidate entry is expected after the two main candidates choose their platforms the unique equilibrium is such that the two main candidates locate substantially far from each other by conducting a laboratory experiment we put this popular idea to test for the first time we allow entry to take place with four different probabilities and find that indeed the degree of polarization of the two main candidates platforms increases as third candidate entry becomes more likely to occur providing strong evidence in support of palfrey 1984 s formal results and underlying intuition

deposit insurance regulation and moral hazard in the thrift industry evidence from the 1930 s this paper compares risk taking of insured and uninsured thrifts operating under strict and less strict regulatory regimes during the 1930 s analysis of balance sheet data indicates that while newly insured thrifts undertook less risk than their uninsured counterparts possibly because of screening by deposit insurance authorities moral hazard emerged gradually insured institutions operating under relatively permissive regulatory regimes were more prone to undertake risky lending activities than their more tightly regulated counterparts possibly because of screening by deposit insurance authorities moral hazard emerged gradually insured institutions operating under relatively premissive regulatory regimes were more prone to undertake risky lending activities than their more tightly regulated counterparts given the current system of deposit insurance the results suggest that effective regulation and supervision will play a key role in maintaining thrift stability in the 1990s copyright 1992 by american economic association

investing in schooling in chile the role of information about financial aid for higher education we investigate the impacts of providing low income chilean adolescents with information about how to finance higher education and ask whether providing parents with the same information magnifies the effects on schooling outcomes we randomly assigned eighth graders and some parents to receive information about aid for higher education exposure to information raised college preparatory high school enrollment primary school attendance and financial aid knowledge with gains concentrated among medium and high grade students parental exposure to information did not significantly magnify these effects our results demonstrate that access to relevant information about financial aid affects important schooling choices long before tertiary education begins

coordination under limited depth of reasoning this paper provides the first unified explanation of behavior in coordinated attack games under both public and private information it demonstrates that the main experimental results such as threshold strategies comparative statics and the differences in behavior under public and private information are robust predictions of limited depth of reasoning models this is in contrast to equilibrium which mispredicts the coordinating roles of public and private information the analysis has implications for understanding macroeconomic phenomena like currency attacks and debt crises which are commonly modeled using incomplete information coordinated attack games

attention in games an experimental study abstract a common assumption in game theory is that players concentrate on one game at a time however in everyday life we play many games and make many decisions at the same time and have to decide how best to divide our limited attention across these settings in this paper we ask how players solve this attention allocation problem we find that players attention is attracted to particular features of the games they play and how much attention a subject gives to a given game depends on the other game that the person is simultaneously attending to

learning your own ability abstract families human capital investments depend on beliefs about their children s performance i build a dynamic model of expectation formation to show how agents use both observable and unobservable information to predict their school scores the model shows parents and students have substantial knowledge of unobservable factors affecting their performance especially in middle and high school families are overconfident towards expecting higher grades and expectation formation differs by race families ability to predict future scores improved substantially during middle school due to several factors lower bias and variance of the prediction errors and a better use of past scores as predictors

estimating the moral hazard effect of supplemental medical insurance in the demand for prescription drugs by the elderly almost all persons over the age of 65 are insured under the medicare program for inpatient drug consumption this national insurance plan does not however generally cover the purchase of outpatient prescription drugs rx in 1992 more than onethird of all outpatient drug expenditures in the united states were incurred by medicare enrollees yet approximately 50 percent of the elderly did not have any coverage for this type of treatment daniel waldo 1994 in response to this and other gaps in medicare coverage private firms have offered insurance instruments specifically designed to fill such voids commonly known as medigap policies in addition to this form of financial protection contingent upon state of residency and economic status elderly persons may qualify and obtain coverage for rx through medicaid or a state sponsored drug program however even with these incomeand wealth sensitive options many relatively poor elderly are faced with significant outof pocket drug expenditures coverage is concentrated among those elderly with income over 200 percent of poverty and those below the poverty line stephen long 1994 the most vulnerable elderly seem to be protected from the financial hardship of excessive rx expenses through medicaid coverage but private supplemental insurance is potentially too expensive for seniors near the poverty line to alleviate this burden 11 states currently offer some form of rx insurance that is targeted at those elderly or disabled persons who are relatively poor but do not qualify for medicaid at the national level policymakers and interest groups have advocated adding coverage to the medicare program to assess such programmatic changes an accurate forecast of the potential change in rx usage is needed in this paper we use a 1990 sample of medicare enrolled pennsylvanians who may have private medigap insurance or coverage under the state s rx program to estimate the amount by which the rx demand of the average individual would change in the presence of insurance coverage ceteris paribus such a residual increase in the consumption of a medical commodity has been labeled the moralhazard effect of health insurance the estimation of this effect requires a nonstandard regression technique because insurance coverage for rx and those types of treatments that are complementary or substitutable for prescriptions may be endogenously determined those persons with a higher demand for drugs are more likely to demand supplemental insurance for rx coulson and terza department of economics pennsylvania state university university park pa 16802 neslusan division of economic research at the social security administration 4301 connecticut avenue n w washington dc 20008 stuart department of health policy and administration pennsylvania state university university park pa 16802 funding for survey design and implementation used in this research was supported by grants from the pew charitable trusts and the health care financing administration grant no 88 01439 001 the views expressed herein are not necessarily endorsed by either these agencies or the social security administration 1the now repealed medicare catastrophic coverage act of 1988 as well as many of the recent healthcare reform proposals would have provided for outpatient rx coverage for the elderly 122

strategic sophistication and attention in games an eye tracking study abstract we used eye tracking to measure the dynamic patterns of visual information acquisition in two player normal form games participants played one shot games in which either neither or only one of the players had a dominant strategy first we performed a mixture models cluster analysis to group participants into types according to the pattern of visual information acquisition observed in a single class of games then we predicted agents choices in different classes of games and observed that patterns of visual information acquisition were game invariant our method allowed us to predict whether the decision process would lead to equilibrium choices or not and to attribute out of equilibrium responses to limited cognitive capacities or social motives our results suggest the existence of individually heterogeneous but stable patterns of visual information acquisition based on subjective levels of strategic sophistication and social preferences

heterogeneous quantal response equilibrium and cognitive hierarchies we explore an equilibrium model of games where behavior is given by logit response functions but payoff responsiveness and beliefs about others responsiveness are heterogeneous we study two substantively different ways of extending quantal response equilibrium qre to this setting 1 heterogeneus qre where players share identical correct beliefs about the distribution of payoff responsiveness and 2 truncated qre where players have downward looking beliefs systematically underestimating others responsiveness we show that the cognitive hierarchy model is a special case of truncated qre we conduct experiments designed to differentiate these approaches we find significant evidence of payoff responsive stochastic choice and of heterogeneity and downward looking beliefs in some games

collusion in bertrand vs cournot competition a virtual bargaining approach how do firms manage to collude without communicating why do we find more collusion in price competition than in quantity competition why is collusion so hard to detect we examine strategic behavior in competitive interactions by developing and applying the concept of virtual bargaining when decision makers virtually bargain they mentally simulate and choose among agreements that they could reach if they were able to explicitly negotiate with each other virtual bargainers focus on agreements that offer some protection against the possibility that their counterparts may deviate and best respond to these agreements we develop a formal account of virtual bargaining and demonstrate that it leads to collusion in bertrand but not in cournot competition in this framework collusion is a result of virtual bargaining as a mode of reasoning and requires neither communication nor dynamic considerations such as rewards and punishments between the players this paper was accepted by manel baucells decisi

social learning through endogenous information acquisition an experiment this paper provides a test of a theory of social learning through endogenous information acquisition a group of subjects face a decision problem under uncertainty subjects are endowed with private information about the fundamentals of the problem and make decisions sequentially the key feature of the experiment is that subjects can observe the decisions of predecessors by forming links at a cost the model predicts that the average welfare is enhanced in the presence of a small cost our experimental results support this prediction when the informativeness of signals changes across treatments behavior changes in accordance with the theory however within treatments there are important deviations from rationality such as a tendency to conform and excessive link formation given these biases our results indicate that subjects would except when faced with a small cost have been better off not forming any links this paper was accepted by teck ho behavioral economics

the effect of information on product quality evidence from restaurant hygiene grade cards this study examines the effect of an increase in product quality information to consumers on e rms choices of product quality in 1998 los angeles county introduced hygiene quality grade cards to be displayed in restaurant windows we show that the grade cards cause i restaurant health inspection scores to increase ii consumer demand to become sensitive to changes in restaurants hygiene quality and iii the number of foodborne illness hospitalizations to decrease we also provide evidence that this improvement in health outcomes is not fully explained by consumers substituting from poor hygiene restaurants to good hygiene restaurants these results imply that the grade cards cause restaurants to make hygiene quality improvements

the nature of information and its effect on bidding behavior laboratory evidence in a first price common value auction abstract we study in the laboratory a series of first price sealed bid auctions of a common value good bidders face three types of information private information public information and common uncertainty auctions are characterized by the relative size of these three information elements only half of our subjects bid differently depending on whether the last piece of information obtained is private or public but they do not react to each type of information as predicted by theory the other half of the subjects do not distinguish between private and public information and either consistently underbid or consistently overbid

parameter bias from unobserved effects in the multinomial logit model of consumer choice abstract over the past two decades validation of choice models has focused on predictive validity rather than parameter bias in real world validation of choice models true parameter values are unknown so examination of parameter bias is not possible in contrast the main focus of this study is parameter bias in simulated scanner panel choice data with known parameter values study of parameter bias enables the assessment of a fundamental issue not addressed in the choice modeling literature the extent to which the logit choice model is capable of distinguishing unobserved effects that give rise to persistence in observed choices e g heterogeneity and state dependence although econometric theory provides some information about the causes of bias the extent of such bias in typical scanner data applications remains unclear the authors present an extensive simulation study that provides information on the extent of bias resulting from the misspecification of four unobserved effects that receive fr

costly information acquisition experimental analysis of a boundedly rational model the directed cognition model assumes that agents use partially myopic option value calculations to select their next cognitive operation the current paper tests this model by studying information acquisition in two experiments in the first experiment information acquisition has an explicit financial cost in the second experiment information acquisition is costly because time is scarce the directed cognition model successfully predicts aggregate information acquisition patterns in these experiments when the directed cognition model and the fully rational model make demonstrably different predictions the directed cognition model better matches the laboratory evidence jel d83

college choice as a collective decision although the choice between colleges can be thought of as being made collectively by a family models of educational choice almost universally portray the decision as made by the student alone using a novel experimental method for identifying collective decision functions i find that students have more influence than parents over the decision but not exclusive control students care more than parents about classroom experience and future earnings ignoring the dual agent nature of the decision can weaken predictions and lead to poorly targeted policy designs jel i21 j24 d13

multidimensional separating equilibria and moral hazard an empirical study of national football league contract negotiations this paper empirically tests for a multidimensional separating equilibrium in contract negotiations and tests for evidence of the moral hazard inherent in many contracts using contract and performance data on players drafted into the national football league from 1986 through 1991 we find evidence that players use delay to agreement and incentive clauses to reveal their private information during contract negotiations in addition our empirical tests of the moral hazard issue indicate that a player s effort level is influenced by the structure of his contract

group decision making with uncertain outcomes unpacking child parent choice of the high school track predicting group decisions under uncertainty requires disentangling individual members utilities over the consequences of choice their expectations for uncertain outcomes and their choice process as a group i estimate simple bayesian models of child parent choice of high school track with subjective risk and unilateral or bilateral nonstrategic decisions by combining families actual choices with novel survey information about children s and parents subjective probabilities over choice consequences their individually preferred choices and their decision roles a set of policy counterfactuals confirms the importance of introducing the beliefs and decision roles of individual members in models and policy analysis of group decisions

binary choice under social interactions an empirical study with and without subjective data on expectations this paper examines two methods of modeling binary choice with social interactions models assuming homogeneous rational expectations and models using subjective data on expectations exploiting a unique survey conducted during the 1996 us presidential election that was designed to study voting behavior under social context we find that in various model specifications using subjective expectations consistently improves models goodness of fit and that subjective expectations are not rational as formulated by brock and durlauf specifically members characteristics are individually important in forming expectations we also include correlated effect in the rational expectation model this extension provides a remedy to the selection issues that often arise in social interaction models copyright 2008 john wiley sons ltd

are low interest rates deflationary a paradox of perfect foresight analysis we argue that an influential neo fisherian analysis of the effects of low interest rates depends on using perfect foresight equilibrium analysis under circumstances where it is not plausible for people to hold expectations of that kind we propose an explicit cognitive process by which agents may form their expectations of future endogenous variables perfect foresight is justified by our analysis as a reasonable approximation in some cases but in the case of a commitment to maintain a low nominal interest rate for a long time our reflective equilibrium implies neither neo fisherian conclusions nor implausibly strong predicted effects of forward guidance

information cascades in the laboratory when a series of individuals with private information announce public predictions initial conformity can create an information cascade in which later predictions match the early announcements this paper reports an experiment in which private signals are draws from an unobserved urn subjects make predictions in sequence and are paid if they correctly guess which of two urns was used for the draws if initial decisions coincide then it is rational for subsequent decisionmakers to follow the established pattern regardless of their private information rational cascades formed in most periods in which such an imbalance occurred copyright 1997 by american economic association

revisiting games of incomplete information with analogy based expectations this paper studies the effects of analogy based expectations in static two player games of incomplete information players are assumed to be boundedly rational in the way they forecast their opponent s state contingent strategy they bundle states into analogy classes and play best responses to their opponent s average strategy in those analogy classes we provide general properties of analogy based expectation equilibria and apply the model to a variety of well known games we characterize conditions on the analogy partitions for successful coordination in coordination games under incomplete information rubinstein a 1989 the electronic mail game strategic behavior under almost common knowledge amer econ rev 79 385 391 we show how analogy grouping of the receiver may facilitate information transmission in crawford and sobel s cheap talk games crawford v p sobel j 1982 strategic information transmission econometrica 50 1431 1451 and we show how analogy grouping may give rise to betting in zero sum betting games such as those studied to illustrate the no trade theorem

games of perfect information predatory pricing and the chain store paradox the thesis of this paper is that finite noncooperative games possessing both complete and perfect information ought to be treated like one player decision problems that is players ought to assign at every move subjective probabilities to every subsequent choice in the game and ought to make decisions via backward induction this view is in contrast with the gametheoretic approach of nash equilibrium after expanding on this view for games in the abstract in sections 2 and 3 attention is turned in section 4 to an example due to reinhard selten called the chain store paradox which possesses the flavor of a situation involving a predatory pricing monopolist it is argued that for the chain store game the decision analytic approach leads under certain assumptions to more realistic outcomes than the standard nash equilibrium approach

lying for strategic advantage rational and boundedly rational misrepresentation of intentions starting from hendricks and mcafee s 2000 example of the allies decision to feint at calais and attack at normandy on d day this paper models misrepresentation of intentions to competitors or enemies allowing for the possibility of bounded strategic rationality and rational players responses to it yields a sensible account of lying via costless noiseless messages in many cases the model has generically unique pure strategy sequential equilibria in which rational players exploit boundedly rational players but are not themselves fooled in others the model has generically essentially unique mixed strategy sequential equilibria in which rational players strategies protect all players from exploitation

best response dynamics with level n expectations in two stage games this paper analyzes behavior in repeatedly played two stage games where players choose actions in both stages according to best replies using level n expectations about the opponent s actions in both stages level n expectations are recursively defined in a way that a player holding level n expectations correctly predicts the action of an opponent holding level n 1 expectations a general conceptual framework to study such dynamics for two stage games is developed and it is shown that contrary to results for single stage games the fixed points of the dynamics depend on the level of the expectations in particular for level 0 expectation fixed points correspond to a nash equilibrium of a simultaneous move version of the game whereas under certain conditions fixed points converge towards the subgame perfect equilibrium of the two stage game if the level of expectations goes to infinity the approach is illustrated using a two stage duopoly game where firms in the first stage invest in activities reducing their marginal costs and in the second stage engage in cournot competition conditions for local stability of the fixed points are derived for different levels of expectations and it is shown that level 2 expectations are sufficient to move the fixed point of the dynamics to a close neighborhood of the subgame perfect equilibrium furthermore it is demonstrated that although firms benefit from unilateral increases in the level of expectations an increase of n by all firms reduces all profits

a fresh look at the rotten kid theorem and other household mysteries gary becker s rotten kid theorem asserts that if all family members receive gifts of money income from a benevolent household member then even if the household head does not precommit to an incentive plan for family members it will be in the interest of selfish family members to maximize total family income i show by examples that the rotten kid theorem is not true without assuming transferable utility i find a simple condition on utility functions that is necessary and sufficient for there to be the kind of transferable utility needed for a rotten kid theorem while restrictive these conditions still allow one to apply the strong conclusions of the rotten kid theorem in an interesting class of examples

quantal response and nonequilibrium beliefs explain overbidding in maximum value auctions we report new experimental data on a simple common value auction to investigate the extent to which bidding can be explained by logit qre in combination with different models about bidder beliefs cursed equilibrium level k and cognitive hierarchy there is a close correspondence between the predicted bidding patterns in those models and the distribution of observed bids the pattern of median bids in the data consists of a combination of overbidding with low signals and near value bidding with higher signals logit qre with heterogeneous bidders approximates this pattern combining qre with any of the other models of belief formation leads to a closer match with the data all the estimated models predict only small treatment effects across different versions of the game consistent with the data we also reanalyze an earlier dataset for the same game ivanov et al 2010 which exhibited much more overbidding and reach similar qualitative conclusions

choice set heterogeneity and the role of advertising an analysis with micro and macro data abstract the authors show how to use microlevel survey data from a tracking study on brand awareness in conjunction with data on sales and advertising expenditures to improve the specification estimation and interpretation of aggregate discrete choice models of demand in a departure from the commonly made full information assumption they incorporate limited information in the form of choice sets to reflect that consumers may not be aware of all available brands at purchase time they find that both the estimated brand constants and the price coefficient are biased downward when consumer heterogeneity in choice sets is ignored these biased estimates can lead firms to make costly price setting mistakes in addition the tracking data enable the authors to identify separately two processes by which advertising influences market shares they find that advertising has a direct effect on brand awareness inclusion in choice set in addition to its effect on consumer preferences increase in utility this

the schooling decision family preferences intergenerational conflict and moral hazard in the brazilian favelas this paper experimentally analyzes the schooling decisions of poor households in urban brazil we elicit parents choices between monthly government transfers conditional on their adolescent child attending school and guaranteed unconditional transfers of varying sizes in the baseline treatment an overwhelming majority of parents prefer conditional transfers to larger unconditional transfers however few parents prefer conditional payments if they are offered text message notifications whenever their child misses school these findings suggest important intergenerational conflicts in these schooling decisions a lack of parental control and observability of school attendance and an additional rationale for conditional cash transfer programs the monitoring they provide

what do parents value in education an empirical investigation of parents revealed preferences for teachers this paper examines revealed preferences of parents for their children s education using parent requests for individual elementary school teachers and information on teacher attributes including principal reports of teacher characteristics that are typically unobservable on average parents strongly prefer teachers whom principals describe as good at promoting student satisfaction though they also value teacher ability to raise academic achievement these aggregate effects mask striking differences across schools families in higher poverty schools strongly value student achievement and appear indifferent to the principal s report of a teacher s ability to promote student satisfaction the results are reversed for families in wealthier schools

parent child bargaining parental transfers and the post secondary education decision schooling decisions are often modelled within a unitary preference framework in this article an alternative to the unitary preference model is proposed in which parents and child have conflicting preferences over parental transfers and the level of post secondary schooling and participate in cooperative bargaining as a means of resolving this conflict comparisons of the implications of the bargaining and unitary preference models motivate tests of parental altruism and income pooling to test these hypotheses reduced form transfer and schooling equations are estimated using data from the high school and beyond surveys the evidence suggests that the unitary preference model be rejected

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

cooperating over losses and competing over gains a social dilemma experiment evidence from studies in international relations the politics of reform collective action and price competition suggests that economic agents in social dilemma situations cooperate more to avoid losses than in the pursuit of gains to test whether the prospect of losses can induce cooperation we let experimental subjects play the traveler s dilemma in the gain and loss domain subjects cooperate substantially more over losses furthermore our results suggest that this treatment effect is best explained by reference dependent risk preferences and reference dependent strategic sophistication we discuss the implications of our results and relate our findings to other experimental games played in the loss domain

an incentive model of the effect of parental income on children economists explain the positive relationship between parental income and children s outcomes using an investment model building on work in psychology and sociology this paper emphasizes the importance of child rearing practices which vary with income i argue that parents ability to mold their children s behavior through pecuniary incentives is limited at low incomes leading to lower outcomes and increased reliance on nonpecuniary mechanisms such as corporal punishment my model generates a positive relationship between parental income and children s outcomes especially at low incomes and endogenously produces a relationship between parental income and child rearing practices empirical work confirms these implications

child control in education decisions an evaluation of targeted incentives to learn in india i report the results of a field experiment in gurgaon india that offered cash and noncash incentives to learn either to children or to their parents while i find no evidence that the identity of the recipient or form of the reward mattered in the aggregate noncash incentives targeted to children were more effective for initially low performing children while cash incentives were more effective for high performing children to explore the mechanisms behind this result i present a model of household education production and find additional empirical results consistent with the model

the lulling effect the impact of child resistant packaging on aspirin and analgesic ingestions in 1972 the food and drug administration imposed a protective bottlecap requirement on aspirin and other selected drugs this regulation epitomizes the technological approach to social regulation the strategy for reducing children s poisoning risks was to design caps that would make opening containers of hazardous substances more difficult this engineering approach will be effective provided that children s exposure to hazardous products does not increase if however parents leave protective caps off bottles because they are difficult to open or increase children s access to these bottles because they are supposedly child proof the regulation may not have a beneficial effect indeed in this case there was no significant impact of the regulation on aspirin poisoning rates but there has been an alarming upward shift in the trend of analgesic ingestion rates since 1972 the source of this pattern appears to be attributable to a general reduction in parental caution with respect to such medicines which has had an adverse spillover effect on unregulated products the economic mechanisms involved can be best understood by considering the nature of individuals response to regulatory protection

the 11 20 money request game a level k reasoning study we study experimentally a new two player game each player requests an amount between 11 and 20 shekels nis he receives the requested amount and if he requests exactly one shekel less than the other player he receives an additional 20 shekels level k reasoning is appealing due to the natural starting point requesting 20 and the straightforward best response operation nevertheless almost all subjects exhibit at most three levels of reasoning using two variants of the game we demonstrate that the depth of reasoning is not increased by enhancing the attractiveness of the level 0 strategy or by reducing the monetary cost of undercutting the other player

information cascades replication and an extension to majority rule and conformity rewarding institutions in a randomly determined order each agent was given an independent private signal about which of two states was selected by a random draw after receiving the private signal each agent made a publicly announced decision about the state thus at the time of personal decision each agent had a private signal and also knew the decisions of all preceding agents the experiments focused on three different types of organization 1 agents were rewarded according to whether their announced decision was right or wrong this individualistic institution is the one studied by anderson and holt aer 1997 their discovery of information cascades is replicated 2 agents were rewarded according to whether a majority of announced decisions were right or wrong under this majority rule institution the instance of information cascades is sharply reduced 3 agents are rewarded more according to whether their personal announced decision was the same as the majority decision than they were rewarded if their decision was correct this conformity rewarding institution is motivated by proceedings in which there is incentive to produce reports that conform to the reports of others substantial information cascades are observed

the demand for and return to education when education outcomes are uncertain this article treats education as a sequential choice that is made under uncertainty a simple model is used to explore the effects of ability high school preparation preferences for schooling the borrowing rate and ex post payoffs to college on the probability of various post secondary college outcomes and the ex ante return to starting college the model motivates an empirical method of accounting for uncertainty about educational outcomes and for nonlinearity in the relationship between years of education and earnings when estimating the expected return to the first year of college

endogenous depth of reasoning we introduce a model of strategic thinking in games of initial response unlike standard models of strategic thinking in this framework the player s depth of reasoning is endogenously determined and it can be disentangled from his beliefs over his opponent s cognitive bound in our approach individuals act as if they follow a cost benet analysis the depth of reasoning is a function of the player s cognitive abilities and his payos the costs are exogenous and represent the game theoretical sophistication of the player the benet instead is related to the game payos behavior is in turn determined by the individual s depth of reasoning and his beliefs about the reasoning process of the opponent thus in our framework payos not only aect individual choices in the traditional sense but they also shape the cognitive process itself our model delivers testable implications on players chosen actions as incentives and opponents change we then test the model s predictions with an experiment we administer dierent treatments that vary beliefs over payos and opponents as well as beliefs over opponents beliefs the results of this experiment which are not accounted for by current models of reasoning in games strongly support our theory we also show that the predictions of our model are highly consistent both qualitatively and quantitatively with well known unresolved empirical puzzles our approach therefore serves as a novel unifying framework of strategic thinking that allows for predictions across games

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

recombinant estimation for normal form games with applications to auctions and bargaining abstract when analyzing economic games researchers frequently estimate quantities describing group outcomes such as the expected revenue in an auction for such applications we propose an improved statistical estimation technique called recombinant estimation the technique takes observations of players strategies and recombines them to compute all possible group outcomes that could have resulted from different player combinations in applications to an auction and a bargaining game the improved efficiency of our estimator is equivalent to increasing the sample size between 25 and 200 we discuss how to design experiments in order to utilize recombinant estimation we also discuss practical computational issues and provide software for computing estimates and standard errors

parental beliefs about returns to educational investments the later the better in this paper we study parental beliefs about the returns to parental investments made during different periods of childhood using two independent samples we document that parents perceive the returns to different late investments to be higher than the returns to early investments and that they perceive investments in different time periods as substitutes rather than complements we show that parental beliefs about the returns to investments vary substantially across the population and that individual beliefs are predictive of actual investment decisions moreover we document that parental beliefs about the productivity of investments differ significantly across socioeconomic groups perceived returns to early parental investments are positively associated with household income thereby potentially contributing to the intergenerational persistence in earnings

moral hazard and risk spreading in partnerships partnerships provide a classic example of the tradeoff between risk spreading and moral hazard the degree to which firms choose to spread risk and sacrifice efficiency incentives depends upon risk preferences for which data are typically unavailable we use a unique dataset on medical group practice to investigate this tradeoff risk aversion leads to compensation arrangements which spread risk through greater sharing of revenues we find that compensation arrangements with greater degrees of revenue sharing significantly reduce physician effort the results imply that changing the method of physician payment from fee for service to capitation will dramatically reduce physician effort

attention discrimination theory and field experiments with monitoring information acquisition we link two important ideas attention is scarce and lack of information about an individual drives discrimination in selection decisions our model of allocation of costly attention implies that applicants from negatively stereotyped groups face attention discrimination less attention in highly selective cherry picking markets where more attention helps applicants and more attention in lemon dropping markets where it harms them to test the prediction we integrate tools to monitor information acquisition into correspondence field experiments in both countries we study we find that unfavorable signals minority names or unemployment systematically reduce employers efforts to inspect resumes also consistent with the model in the rental housing market which is much less selective than labor markets we find landlords acquire more information about minority relative to majority applicants we discuss implications of endogenous attention for magnitude and persistence of discrimination in selection decisions returns to human capital and potentially for policy