Online talk scheduled for Oct 4th, 3 pm UK time at Seminars in Economic Theory
This paper examines connections between stochastic growth and decision problems. We use tools from the theory of large deviations to show that wishful thinking decision problems are equivalent to utility maximization problems, both of which are equivalent to growth maximization under idiosyncratic risk. Rational inattention problems are equivalent to growth-optimal portfolio problems, both of which are equivalent to growth maximization under aggregate risk. Stochastic growth generates extreme inequality, with nearly all wealth eventually held by those who happen to have faced an empirical distribution of shocks that matches the solution to the wishful thinking or rational inattention problem.
A growing body of evidence suggests that consumers are not fully informed about prices, contrary to a critical assumption of classical consumer theory. We analyze a model in which consumer types can vary in both their preferences and their information about prices. Given data on demand and the distribution of prices, we identify the set of possible values of the consumer surplus. Each surplus in this set can be rationalized with simple information structures and preferences. We also show how to narrow down the set of values using richer datasets and provide bounds on counterfactual demands at perfectly observed prices.
In a model inspired by neuroscience, we show that constrained optimal perception encodes lottery rewards using an S-shaped encoding function and over-samples low-probability events. The implications of this perception strategy for behavior depend on the decision-maker's understanding of the risk. The strategy does not distort choice in the limit as perception frictions vanish when the decision-maker fully understands the decision problem. If, however, the decision-maker underrates the complexity of the decision problem, then risk attitudes reflect properties of the perception strategy even for vanishing perception frictions. The model explains adaptive risk attitudes and probability weighting, as in prospect theory and, additionally, predicts that risk attitudes are strengthened by time pressure and attenuated by anticipation of large risks.
We study the impact of manipulating the attention of a decision-maker who learns sequentially about a number of items before making a choice. Under natural assumptions on the decision-maker's strategy, directing attention toward one item increases its likelihood of being chosen regardless of its value. This result applies when the decision-maker can reject all items in favor of an outside option with known value; if no outside option is available, the direction of the effect of manipulation depends on the value of the item. A similar result applies to manipulation of choices in bandit problems.
Selective Sampling with Information-Storage Constraints, 2020, with Jehiel, presentation, Economic Journal, 1753-1781
On the Cost of Misperception: General Results and Behavioral Applications, 2018, with Gossner, J. Econ. Theory 177, 816-847, presentation
Price Distortions under Coarse Reasoning with Frequent Trade, 2015, with Stewart, J. Econ. Theory 159, 574-595, presentation, supplement
Coordination with Private Learning, 2012, with Dasgupta
and Stewart, Game Econ Behav 74, 83-101
Communication, Timing, and Common Learning, 2011, with Stewart, J. Econ. Theory 146, 230-247, (the paper explained on the blog of Jeff Ely)
Contagion through Learning, 2008, with Stewart, Theoretical Economics 3, 431-458
Coordination of Mobile Labor, 2008, J. Econ. Theory 139(1), 25-46
Coordination Cycles, 2008, Game Econ Behav 63(1), 308-327
The Effects of Risk Aversion in Mixed-Strategy Equilibria of 2x2 Games, 2007, with Engelmann, Game Econ Behav 60, 381-388
A Trace of Anger is Enough: On the Enforcement of Social Norms, 2007, Economics Bulletin, vol. 8.
Dynamic scaling and universality in evolution of fluctuating random networks, 2002, with Kotrla and Slanina, Europhys. Lett. 60, 14-20