political uncertainty and macroeconomic performance abstract it is often claimed that politically induced economic flucturations are harmful for the society in this paper we show that this conjecture is not necessarily correct and such fluctuations can actually improve society s macroeconomic performance

do too many cooks always spoil the stew an experimental analysis of rent seeking and the role of a strategic buyer laboratory methods are used to evaluate the effects of institutional arrangements and rent defending activity on rent seeking auction outcomes in part nash equilibrium predictions are a useful behavioral guide as predicted more rents are dissipated in perfectly discriminating auctions where the high bidder wins than in lotteries where relative bids determine the chance of winning also as predicted the introduction of a rent defending buyer reduces social costs nevertheless the social costs of rent seeking consistently exceed predicted levels moreover individual bidding especially by buyers deviates markedly from nash predictions

all pay auctions an experimental study this paper reports the results of a repeated all pay auction game the auction form used is the simplest possible complete information perfect recall and common value our main findings are that in such an auction over bidding is quite drastic and the seller s revenue depends strongly on the number of bidders in early stages however after a few rounds of play this dependence completely disappears and the seller s revenue becomes independent of the number of participants the results are confronted with two solution concepts of economic theory the nash equilibrium and the symmetric logit equilibrium 2005 published by elsevier b v

winner take all and proportional prize contests theory and experimental results abstract this study provides a unified framework to compare three canonical types of contests winner take all contests won by the best performer winner take all lotteries where probability of success is proportional to performance and proportional prize contests in which rewards are shared in proportion to performance we derive equilibria and observe outcomes from each contest in a laboratory experiment equilibrium and observed efforts are highest in winner take all contests lotteries and proportional prize contests have the same nash equilibrium but empirically lotteries induce higher efforts and lower more unequal payoffs behavioral deviations from theoretical benchmarks in different contests are caused by the same underlying attributes such as risk aversion and the utility of winning finally we find that subjects exhibit consistent behavior across different types of contests with subjects exerting higher effort in one contest also exerting higher effort in another contest

the strategic equivalence of rent seeking innovation and patent race games abstract we establish the strategic equivalence of a variety of rent seeking contests innovation tournaments and patent race games the results allow us to disentangle negative and positive externalities and to apply theorems and results intended for rent seeking games to other games and vice versa we conclude with several examples that highlight the practical utility of our results

election goals and the allocation of campaign resources this paper compares the equilibrium behavior and outcomes in a model of two party competition for legislative seats under two different assumptions about the parties goals 1 parties maximize the expected number of seats won and 2 parties maximize the probability of winning a majority of the seats the two goals may lead to qualitatively different behavior and studying the differences yields insights into the relationship between the goals and the role of assymetries between the parties

contests with limited resources abstract many interesting phenomena electoral competition r d races lobbying are instances of multiple simultaneous contests with unconditional commitment of limited resources specifically the following game is analyzed two players compete in a number of simultaneous contests the players have limited resources budgets and must decide how to allocate these to the different contests in each contest the player who expends more resources than his adversary wins a corresponding prize mixed strategy equilibria are characterized in the case of identical values and budgets and the connections with the classical blotto game are analyzed

why money talks and wealth whispers monetary uncertainty and mystique this paper analyzes the effect of monetary uncertainty on the inflationary bias and the variance of output and inflation monetary policy uncertainty is modeled as a shock to the central banker s preference for inflation stabilization relative to output stabilization that cannot be observed by the public we find that the mean and variance of inflation increase with the variance of this preference shock however unlike other studies we find that monetary uncertainty may very well have a positive effect on output stabilization and therefore also on society s welfare

using subjective income expectations to test for excess sensitivity of consumption to predicted income growth abstract we test for precautionary saving and excess sensitivity of consumption to predicted income growth using a 1989 1993 panel survey of italian households that has measures of subjective income and inflation expectations these expectations provide a powerful instrument for predicting income growth the empirical specification controls for predictable changes in labor supply and allows a fairly general specification for the stochastic structure of the forecast error we find that consumption growth is positively correlated with the expected variance of income and uncorrelated with predicted income growth overall the results support the precautionary saving model

racing with uncertainty and strategic interaction between competitors as the race unfolds most of the existing literature examines one or other of these features but not the two combined our aim is to see how the efforts of competitors in a race vary with the intensity of rivalry between them in our principal model whch is of a one dimensional race it is shown that the leader in the race makes greater efforts than the follower and efforts increase as the gap between competitors decreases under certain conditions the same results hold in our second related model which is of a two dimensional race

effectiveness of electoral systems for reducing government corruption a game theoretic analysis abstract a theoretical model is developed for predicting the relative effectiveness of different electoral systems for reducing government corruption we consider voting games in which parties with known corruption levels and known positions on a major policy question compete for legislative seats we find that approval voting and proportional representation are fully effective in the sense that all equilibria exclude corrupt parties from legislative seats plurality voting is partly effective in the sense that there always exist some equilibria that exclude corrupt parties borda voting is ineffective because for some political situations no equilibria can guarantee the exclusion of corrupt parties journal of economic literature classification number d72

primaries and the new hampshire effect candidates for u s presidential elections are determined through sequential elections in single states the primaries we develop a model in which candidates can influence their winning probability in electoral districts by spending money on campaigning the equilibrium replicates several stylized facts very well campaigning is very intensive in the first district the outcome of the first election then creates an asymmetry in the candidates incentives to campaign in the next district which endogenously increases the equilibrium probability that the first winner wins in further districts on the normative side our model oers a possible explanation for the sequential organization it leads in expectation to a lower level of advertising expenditures than simultaneous elections moreover if one of the candidates is the more eective campaigner sequential elections also perform better with regard to the selection of the best candidate

a model of the evolution of duopoly does the asymmetry between firms tend to increase or decrease this paper is an attempt to identify some of the factors that affect the evolution of market structure in a model of dynamic competition between two firms the stochastic evolution of the state of competition depends on the respective effort rates of the firms the question is whether the current leader works harder than the laggard does the gap between firms tend to increase or decrease we show that several effects are at work the state tends to evolve in the direction where joint payoffs are greater since joint payoffs are related to joint product market profits less joint effort costs there are two classes of effect the joint profit effect and various joint cost effects the latter result in part from the pattern of profits and in part from endpoint effects that give relief from efforts asymptotic expansions illuminate these influences moreover we show by numerical simulation that there is another kind of joint cost effect the pattern of joint effort costs can influence the pattern of evolution of market structure and the evolution of the pattern of market structure can influence the pattern of efforts in a mutually self reinforcing manner in particular there may be equilibria in which this last effect means that the laggard works harder than the leader even though all the other effects work in favour of the leader

understanding rent dissipation on the use of game theory in industrial organization game theory has had a deep impact on the theory of industrial organization in a similar but less controversial way as the rational expectations revolution in macroeconomics the reason it has been embraced by a majority of researchers in the field is that it imposes some discipline on theoretical thinking it forces economists to clearly specify the strategic variables their timing and the information structure faced by firms as is often the case in economics the researcher learns as much from constructing the model the extensive form as from

stochastic asymmetric blotto games some new results stochastic asymmetric blotto games some new results john duffy abstract blotto games alexander matros we develop some new theoretical results for stochastic asymmetric keywords colonel blotto game contests resource allocation lotteries jel classification nos c72 c73 d72 d74 1 introduction the colonel blotto game borel 1921 is a two player non cooperative game in which players decide how to allocate their given resources across battlefields in borel s original version of this game the player who allocates the most resources to any given battlefield wins that battlefield with certainty the players objective function is either to maximize the sum of the value of the battlefields won or to win a majority value of the battlefields in this paper we study stochastic asymmetric versions of the blotto game under both of these objective functions in an asymmetric blotto game the values of the battlefields may di er from one another though these di erent values are common to all players in the stochastic asymmetric version of the blotto game the deterministic rule for determining which player wins each battlefield is replaced by a lottery contest success function where the chances of winning a given battlefield are increasing with the amount of resources devoted to that battlefield this stochastic lottery specification makes the payo function continuous as a result if a nash equilibrium exists it is unique and in pure strategies as opposed to the multiplicity of typically mixed strategy equilibria that arise in deterministic versions of the blotto game there are two main theoretical papers about stochastic asymmetric blotto games 1 the first one friedman 1958 considers two players who seek to maximize their expected total payo we show that friedman s result can be extended to any number of players the second paper lake 1979 was the first to study the stochastic asymmetric majority rule blotto game 2 this version of the game is particularly relevant to understanding electoral competitions in two party systems e g the electoral college system for electing the u s president lake studied only the case of equal budget constraints we show that if players budgets are the same as in lake or if they are su ciently similar and the number of items battlefields is not too large then resource allocation under the majority rule version of the stochastic asymmetric blotto game is proportional to the banzhaf power index for each item while more generally resource allocation for a particular item will not be proportional to each item s banzhaf power index our findings thus generalize those of lake 1979 department of economics university of california irvine email du y uci edu moore school of business university of south carolina and lancaster university management school email alexander matros gmail com see kovenock and roberson 2012 for a broader survey of the blotto game literature we discovered lake s 1979 paper only after we had completed our analysis his proofs are di erent from ours but his main result coincides with our prediction for the case of equal budgets we thank steve brams for providing this reference

loss aversion in a consumption savings model abstract we propose a model of consumption and saving based on kahneman and tversky s prospect theory that implies a fundamental asymmetry in consumption behavior inconsistent with other models of consumption when there is sufficient income uncertainty a person resists lowering consumption in response to bad news about future income this resistance is greater than the resistance to increasing consumption in response to good news we present empirical evidence from five countries that confirms this behavior

inflation targets and contracts with uncertain central banker preferences within a standard model of monetary delegation the authors show that the optimal linear inflation contract performs strictly better than the optimal inflation target when there is uncertainty about the central banker s preferences the optimal combination of a contract and a target performs best and eliminates the inflation bias and any variability not associated with supply shocks however variability due to shocks is enhanced by uncertain central banker preferences quadratic contracts are shown to overcome this problem partly but the advantages of delegation may still be dominated by the excess variability due to shocks hence the credibility stabilization tradeoff is restored

overbidding and overspreading in rent seeking experiments cost structure and prize allocation rules we study experimentally the effects of cost structure and prize allocation rules on the performance of rent seeking contests most previous studies use a lottery prize rule and linear cost and find both overbidding relative to the nash equilibrium prediction and significant variation of efforts which we term overspreading we investigate the effects of allocating the prize by a lottery versus sharing it proportionally and of convex versus linear costs of effort while holding fixed the nash equilibrium prediction for effort we find the share rule results in average effort closer to the nash prediction and lower variation of effort combining the share rule with a convex cost function further enhances these results we can explain a significant amount of non equilibrium behavior by features of the experimental design these results contribute towards design guidelines for contests based on behavioral principles that take into account implementation features of a contest

whether to attack a terrorist s resource stock today or tomorrow reprinted from games and economic behavior 64 2 kjell hausken whether to attack a terrorist s resource stock today or tomorrow pages no 548 564 copyright 2008 with permission from elsevier

union contracts and the life cycle permanent income hypothesis this paper isolates households in the psid whose heads can be matched to particular long term union contracts with high confidence the author uses use published information on these contracts to construct a household specific measure of expected wage growth he finds that predictable wage movements are significantly correlated with consumption changes contrary to neoclassical consumption theory the author finds that consumption responds more strongly to predictable income declines than to predictable income increases this asymmetry is inconsistent with liquidity constraints and myopia but is qualitatively consistent with models in which preferences exhibit loss aversion copyright 1995 by american economic association

patent competition rent dissipation and the persistence of monopoly the role of research budgets abstract the paper investigates how patent rights can contribute to the persistence of monopoly patent competition is modelled as a dollar auction game between two firms incumbent and entrant any bid expenditure on r d in the game constitutes sunk cost whose total amount is constrained by fixed research budgets the explicit solution subgame perfect equilibrium determines who wins the patent and how the winning expenditures depend on order of play and budgets of firms the entrant can win if he moves first and has the higher budget rent may or may not be dissipated by the competition

the economic design of sporting contests what is the optimal number of entrants in a race or the optimal number of teams in a baseball league what is the optimal structure of prizes for a golf tournament or degree of revenue sharing for a football championship how evenly balanced should the competing teams be in the nascar or formula one championships what is the maximum number of entrants per nation to the olympic games that should be permitted what quota of qualifying teams to the soccer world cup should be allocated to the developing nations

best of three contest experiments strategic versus psychological momentum abstract we conduct an experimental analysis of a best of three tullock contest intermediate prizes lead to higher efforts while increasing the role of luck as opposed to effort leads to lower efforts both intermediate prizes and luck reduce the probability of the contest ending in two rounds the patterns of players efforts and the probability that a contest ends in two rounds are consistent with strategic momentum i e a momentum generated due to strategic incentives inherent in the contest we do not find evidence for psychological momentum i e a momentum which emerges when winning affects players confidence similar to the previous studies of contests we find significantly higher efforts than predicted and strong heterogeneity in effort between the subjects

the gender difference in the value of winning we design an all pay auction experiment in which we reveal the gender of the opponent using this design we find that women bid higher than men but only when bidding against other women these findings interpreted through a theoretical model incorporating differences in risk attitude and the value of winning suggest that women have a higher value of winning than men

multi battle contests abstract we study equilibrium in a multistage race in which players compete in a sequence of simultaneous move component contests players may win a prize for winning each component contest as well as a prize for winning the overall race each component contest is an all pay auction with complete information we characterize the unique subgame perfect equilibrium analytically and demonstrate that it exhibits endogenous uncertainty even a large lead by one player does not fully discourage the other player and each feasible state is reached with positive probability in equilibrium pervasiveness expected effort in the component contests may be non monotonic in the closeness of the race and realized individual effort may exceed the value of the prize by a factor that is proportional to the maximum number of stage victories required

experimental comparison of multi stage and one stage contests this article experimentally studies a two stage elimination contest and compares its performance with a one stage contest contrary to the theory the two stage contest generates higher revenue than the equivalent one stage contest there is significant over dissipation in both stages of the two stage contest and experience diminishes over dissipation in the first stage but not in the second stage our experiment provides evidence that winning is a component in a subject s utility a simple behavioral model that accounts for a non monetary utility of winning can explain significant over dissipation in both contests it can also explain why the two stage contest generates higher revenue than the equivalent one stage contest

competitive burnout theory and experimental evidence abstract we examine equilibrium selection in a two stage sequential elimination contest in which contestants compete for a single prize this game has a continuum of equilibria only one of which satisfies the coalition proof nash equilibrium cpne refinement that equilibrium involves burning out by using all of one s resources in the first stage it is pareto dominated by many other equilibria we find that cpne predicts well when four people compete but not when eight people compete for two second stage spots using a cognitive hierarchy ch framework we show that when the number of players and the mean number of thinking steps are large the ch prediction involves burning out this provides a partial explanation of our results we also develop a formal argument as to why cpne logic is more compelling with more players we conclude that more competition leads to higher bids and that burning out is indeed a competitive phenomenon

rigging the lobbying process an application of the all pay auction textabstractin a world where a politician can explicitly auction off a prize to the high bidder the standard auction literature can be used to analyse political behavior the justice system however precludes politicians from explicitly selling the prize to the highest bidder thus politicians cannot let it become public knowledge that they are in the business of selling political favors an institution has emerged in political markets to overcome this constraint which are termed as lobbying lobbyists make implicit payments to the politician through campaign contributions if these up front payments were rebated to those failing to receive the prize it would be clear that the politician was selling favors this article has examined an interesting principle arising in all pay auctions this principle states that a politician wishing to maximize political rents may find it in his best interest to exclude certain lobbyists from participating in the lobbying process particularly lobbyists valuing most the political prize

excess sensitivity and asymmetries in consumption an empirical investigation most empirical studies on liquidity constraints classify a consumer as being constrained on the basis of a single indicator such as the asset to income ratio in this analysis the authors model the probability that a consumer faces liquidity constraints as a function of multiple social and economic factors this probability function is estimated simultaneously with the degree of excess sensitivity of consumption to income in a switching regressions framework the switching regressions apply optimal weights to the densities for the euler equations in the two states and are less susceptible to sample misclassification our results based on data from the cex confirm that liquidity constrained consumers are excessively sensitive to variables already known to economic agents however there is also evidence that the unconstrained consumers exhibit behavior that is inconsistent with the theoretical predictions further analysis suggests that such behavior could be explained by time non separable preferences copyright 1997 by ohio state university press

multi battle contests an experimental study this study examines behavior of subjects in simultaneous and sequential multi battle contests in simultaneous contests subjects make positive bids in each battle 80 of the time and bids fall within the predicted boundaries however 35 of the time subjects make positive bids in only two instead of all three battles and they significantly overuse moderately high bids in sequential contests theory predicts sizable bids in the first battle and no bids in the subsequent battles contrary to this prediction subjects significantly underbid in the first battle and overbid in subsequent battles consequently instead of always ending in the second battle contest proceeds to the third battle 38 of the time finally in both simultaneous and sequential settings subjects make higher aggregate bids than predicted resulting in negative expected payoffs

excess sensitivity of consumption to income growth a model of loss aversion the article provides an empirical test on micro data of a model of individual behavior based on loss aversion utility is s shaped i e concave above reference consumption and convex below it as a consequence individuals do not reduce current consumption in response to an expected income decline as long as uncertainty is high enough such a behavior is consistent with excess sensitivity of consumption to income growth an empirical regularity which is hard to explain within a standard life cycle model loss aversion is tested on an italian dataset the bank of italy s survey on households income and wealth the conclusion is that excess sensitivity could be explained by a model that do not assume individuals to be expected utility maximizers copyright 2009 oxford university press

why money talks and wealth whispers monetary uncertainty and mystique we demonstrate that in important cases propositions 3 and 4 in eijffinger hoeberichts and schaling journal of money credit and banking may 2000 may fail moreover their monetary policy delegation arrangement which advocates that central banker preference uncertainty may be desirable is dominated by other arrangements without any such uncertainty finally their way of modelling preference uncertainty leads to arbitrary effects on average monetary policy without these preference uncertainty is never desirable

racing with uncertainty a patent race experiment this paper presents an experimental test of the multi stage patent race model of harris and vickers rev econ stud 54 1987 1 tied competitors invested more when nearer the end of the race but this may have followed from a more general and unexplained pattern of a positive correlation between investment and progress in the race the relationship between investment and gap between competitors was mostly not as predicted also leaders did not invest more than not heavily lagging followers and the race did not approach monopoly as the gap between competitors widened overall the evidence brings only limited support to the theory

consumption puzzles and precautionary savings abstract when marginal utility is convex agents accumulate savings as a precautionary measure against labor income eventualities this paper shows that precautionary savings can go a long way in making the excess growth excess smoothness and excess sensitivity features of consumption consistent with the stochastic processes of labor income observed in the u s at the microeconomic level

talk is cheap although friedrich a von hayek leonid hurwicz and others stressed how the price system communicates private information on preferences technology and endowments our main means of communication is surely words but it is unclear whether mere words can be trusted absent outside sanctions for lying such as perjury law or a valuable reputation for honesty talk is cheap the perspective of the standard theory of signaling seems to suggest that cheap talk should be uninformative but this is misleading cheap talk can sometimes convey information and affect real payoffrelevant actions yet cheap talk s power is limited for example even given an unlimited chance to talk rational people may not reach an equilibrium or may not escape a bad one a growing literature in game theory political science and economics which i cannot survey here studies what cheap talk can and cannot do here i merely sketch some themes

pork barrel politics targetable policies and fiscal federalism this article utilizes a simple model of redistributive politics with jurisdictional specific local projects to analyze the inefficiencies that arise under differing levels of targetability in both taxes transfers and local projects the ability to tactically target taxes transfers and or local projects leads political parties to engage in pandering to favored groups however in equilibrium we find that greater targetability in the set of available policies actually intensifies the competition between the political parties and so increases efficiency in the provision of local projects jel d72 h41

demand dynamics with socially evolving preferences in this work we first identify a few stylized facts concerning microconsumption acts second building on them we develop a simple model of boundedly rational consumers who endogenously evolve their preferences via both innovation and social imitation third we explore some statistical properties of the demand patterns generated by the model which despite its simplicity are surprisingly in line with the empirical evidence these results we suggest bring encouraging support to microfoundations of demand theory based on cognitive and behavioral foundations more in tune with the psychological and sociological evidence based on heterogeneous agents who are much less rational and much more social than in standard theory and who collectively discover along the way what they like within a growing universe of available commodities

from custer to thermopylae last stand behavior in multi stage contests abstract in a multi stage contest known as a two player race players display two fundamental behaviors 1 the laggard will make a last stand in order to avoid the cost of losing and 2 the player who is ahead will defend his lead if it is threatened last stand behavior in particular contrasts with previous research where the underdog simply gives up the distinctive results are achieved by introducing losing penalties and discounting into the racing environment this framework permits the momentum effect typically ascribed to the winner of early stages to be more thoroughly examined i study the likelihood that the underdog will catch up i find that neck and neck races are common when the losing penalty is large relative to the winning prize while landslide victories occur when the prize is relatively large closed form solutions are given for the case where players have a common winning prize and losing penalty

communication and efficiency in competitive coordination games costless pre play communication has been found to effectively facilitate coordination and enhance efficiency in games with pareto ranked equilibria we report an experiment in which two groups compete in a weakest link contest by expending costly efforts allowing intra group communication leads to more aggressive competition and greater coordination than control treatments without any communication on the other hand allowing inter group communication leads to less destructive competition as a result intra group communication decreases while inter group communication increases payoffs our experiment thus provides an example of an environment where communication can either enhance or damage efficiency this contrasts sharply with experimental findings from public goods and other coordination games where communication always enhances efficiency and often leads to socially optimal outcomes

three object two bidder simultaneous auctions chopsticks and tetrahedra symmetric equilibria are constructed for a class of symmetric auction games the games all have two identical bidders bidding in three simultaneous first price sealed bid auctions for identical objects information is complete and the bidders marginal valuations increase for the second object and then decrease for the third in all cases the support of the mixture that generates the equilibrium is two dimensional and it surrounds a three dimensional set of best responses this appears to be a previously unknown structure

beyond chopsticks symmetric equilibria in majority auction games majority auction games are simultaneous sealed bid auctions of identical objects among identical bidders who each want to win a specified fraction more than a half of the objects each bidder receives no benefit from winning less than the specified fraction and no additional benefit from winning more than it symmetric equilibria having simple intuitive forms are shown to exist in first price second price and all pay versions of such games when the number of bidders is sufficiently large this contrasts with earlier results for the two bidder pure chopstick majority auction games where the only known equilibria are more complicated

package auctions and exchanges we report recent advances concerning the package allocation problem in which traders seek to buy or sell combinations of goods the problems are most difficult when some goods are not substitutes in that case competitive equilibrium typically fail to exist but the core is non empty and comprises the competitive solutions also in that case the vickrey auction fails to select core allocations and yield revenues that are less than competitive the ausubel milgrom auction generally selects core allocations and when goods are substitutes prescribes the vickrey allocation we also evaluate the problems and promise of mechanisms for the package exchange problem

promotions and incentives the case of multistage elimination tournaments promotions play an important role for the provision of incentives in firms we analyze incentives in multistage elimination tournaments with controlled laboratory experiments in our two main treatments we compare a two stage tournament to a one stage tournament subjects in the two stage treatment provide excess effort in the first stage both with respect to nash predictions and compared to the strategically equivalent one stage tournament additional control treatments confirm that excess effort in early stages is a robust finding and suggest that above equilibrium effort might be driven by limited degrees of forward looking behavior and subjects deriving nonmonetary value from competing

multi player race abstract we present a model of race with multiple players and study players effort choices and expected prizes in equilibrium we show that in equilibrium once any two players win one battle each the remaining players do not exert any effort anymore this turns the continuation game into a two player race this is different than the results in previous two player models of race which report that all states of the game are reached with positive probabilities we also provide a set of comparative static results on the effects of the number of players and the victory threshold

how prudent are consumers using data from the consumer expenditure survey this paper presents a simple test that provides an explicit estimate of the parameter in the utility function that reflects the strength of the precautionary saving motive the coefficient of relative prudence the test yields a fairly precise estimate of a small precautionary motive in fact the estimate is too small to be consistent with widely accepted beliefs about risk aversion the presence of liquidity constrained households does not appear to explain this finding and there is some evidence that self selection of households into risky environments also cannot explain the results

the incidence of overdissipation in rent seeking contests tullock s analysis of rent seeking and overdissipation is reconsidered we show that while equilibrium strategies do not permit overdissipation in expectation for particular realizations of players mixed strategies the total amount spent competing for rents can exceed the value of the prize we also show that the cross sectional incidence of overdissipation in the perfectly discriminating contest ranges from 0 50 to 0 44 as the number of players increases from two to infinity thus even though the original analysis of overdissipation is flawed there are instances in which rent seekers spend more than the prize is worth

from utilities to mental models a critical survey on decision rules and cognition in consumer choice this work critically discusses a selected body of mainly experimental studies on consumer behavior in the light of two general questions first can one identify within the vast literature from psychology marketing etc a few stylized facts which might be the grounds of a behavioral theory of consumption parsimonious enough to be useful to economic theorizing and at the same time not in open violation of the evidence on how consumers actually behave second to what extent should such theories be nested into an explicit account of the cognitive processes leading to particular consumption acts copyright 1999 by oxford university press

uncertainty and consumer durables adjustment we characterize infrequent durables stock adjustment by consumers who also derive utility from non durable consumption flows in the presence of idiosyncratic income uncertainty the data we analyse include subjective future income uncertainty measures which we use as instruments in the estimation of relevant parameters of heterogeneous consumers dynamic adjustment problems the data feature two conceptually distinct sources of variation cross sectional heterogeneity of the sampled households dynamic problems and history dependent heterogeneity in their situation during the observation period we note that the latter should affect the likelihood but not the size of stock adjustment decisions and find broad support for theoretical predictions in formal selection controlled regressions based on this insight

an empirical analysis of earnings and employment risk the mean and higher moments of the distribution of future income are crucial determinants of individual choices these moments are usually estimated in panel data from past income realizations inthis article we rely instead on subjective expectations available in the 1995 survey of household income and wealth a large random sample representative of italian households the survey elicits information on the distribution of future earnings and on the probability of unemployment analysis of this distribution helps us understand how individual uncertainty evolves over the life cycle and if attitudes toward risk affect occupational choices and income riskiness

optimal linear contracts under common agency and uncertain central bank preferences we analyze the effects of imperfectly known central banker s preferences on optimal linear contracts offered by the government and an interest group these effects depend on the type of uncertainty faced by the principals when the central bank s output target is uncertain the results by campoy and negrete public choice 137 197 206 2008 under perfectly known preferences obtain uncertainty about the central banker s degree of conservatism or about its degree of selfishness has a multiplicative impact on the principals instruments in the agent s best response function this may generate an inflation bias independently of the type of contract offered by the interest group