Pre-play communication with forgone costly messages: experimental evidence on forward induction

We experimentally study optional costly communication in Stag-Hunt games. Prior research demonstrates that efficient coordination is difficult without a communication option but obtains regularly with mandatory costless pre-play messages. We find that even small communication costs dramatically reduce message use when communication is optional, but efficient coordination can occur with similar frequency as under costless communication. These findings can be accounted for by formalizations of forward induction that take Nash equilibrium as a reference point (such as Kohlberg and Mertens in Econometrica 54: 1003–1037, 1986; Govindan and Wilson in Econometrica 77: 1–28, 2009), while formalizations that only appeal to (higher-order) knowledge of rationality remain silent in this environment.     

EDUCATION AND THE NATIONAL WEALTH OF THE UNITED STATES*

Human capital theory has motivated a great many empirical investigations into the relationship between education and earnings potential. These studies test refinements of the theory, but do not attempt to value education for the economy as a whole. This study develops series which track human wealth and its educational components for the United States from 1946 to 1980. Three related educational time sequences emerge: (1) schooling wealth, the present value of the current and future contributions of the existing schooling stock to national income; (2) net change in schooling wealth, the amount added to present value in that year; and (3) schooling investment, the present value of the future contributions of the new schooling conducted in that year. One important lesson of this exercise is that the last two series can be quite different as a result of the pattern of appreciation and depreciation of human wealth over the lifetimes of individuals. Moreover, education increases the age of peak human wealth and thus should shorten the period during which individuals save for retirement. This phenomenon may induce a demographic cycle in the nation's savings rate, especially evidenced with the aging of the baby-boom cohort. The magnitudes of the human and schooling wealth estimates are large when compared to financial wealth. For a 4 percent rate, the period-wide average for human wealth is five times-and schooling wealth 2.6 times-the Federal Reserve Board's measure of household net worth. These estimates are naturally sensitive to the discount rate chosen, but show that the gap between human and financial wealth has been widening and that the value of schooling provided in any year greatly exceeds its cost. Schooling represents a form of saving whose value is several times the conventional measure of saving.