Strategic Decision Making With Inequality
Creators: name: Lyu, Xinxin
Publisher: name: Purdue University Graduate School
Year: 2024
Subjects: classificationCode: 380102
subject: Behavioural economics
classificationCode: 380106
subject: Experimental economics

description: This dissertation investigates strategic decision-making under conditions of environmental inequality. The three chapters explore various forms of inequality across different decision contextsThe first chapter examines the impact of income inequality on individuals' participation in multiple public goods investments. Specifically, it analyzes how a global club good opportunity influences local public goods provision in indefinitely repeated interactions within a linear public goods game using a voluntary contribution mechanism. The study varies global club entry costs and local community endowment compositions to assess their effects on contributions and welfare. It finds that income inequality does not significantly alter contribution behaviors in single public good settings under indefinitely repeated interactions. With the introduction of a global club good, lower entry costs lead to higher participation rates among subjects, resulting in increased total welfare for both homogeneous and heterogeneous communities. Conversely, higher entry costs reduce participation and overall welfare. Heterogeneous communities discontinue club use sooner than homogeneous ones. Efficiency, measured as realized payoff relative to maximal social benefits, declines across all treatments following the introduction of a global club good. Additionally, counterfactual simulations using an individual evolutionary learning model demonstrate that the welfare benefits of a global club good opportunity hinge on its ability to yield substantial social benefits compared to local public goods.The second chapter explores how power inequality influences cooperation in a dynamic game where competition and cooperation evolve over time. This research, conducted as part of a collaborative project with Yaroslav Rosokha, Denis Tverskoi, and Sergey Gavrilets, examines cooperation dynamics in scenarios where cooperation's benefits depend on political power derived from a contest. The study highlights that incumbency advantages in political contests precipitate a rapid breakdown of cooperation within social dilemmas. Furthermore, it investigates behavioral disparities between groups and individuals, leveraging simulations based on the Arifovic and Ledyard (2012) individual evolutionary learning model to shed light on the difference observed in the experiment.The third chapter investigates the impact of unequal positions in a directed communication network on individuals' optimal stopping rules and social learning outcomes. The study involves subjects making predictions about uncertain states of the world using private information and social information obtained through a directed network. Theoretical predictions suggest that individuals should wait when the benefit of waiting exceeds the associated cost. Empirical results confirm that subjects indeed wait longer in more connected networks or when waiting costs are low. However, deviations from equilibrium predictions indicate influences of bounded rationality (supported by quantal response equilibrium) and heuristic decision-making, where some subjects consistently wait for a single turn regardless of positional advantage. Importantly, under-waiting at an information aggregator's position has negative externalities on group-wide information acquisition.