The importance of higher-order beliefs to successful coordination

Beliefs about other players’ strategies are crucial in determining outcomes for coordination games. If players are to coordinate on an efficient equilibrium, they must believe that others will coordinate with them. In many settings there is uncertainty about beliefs as well as strategies. Do people consider these “higher-order” beliefs (beliefs about beliefs) when making coordination decisions? I design a modified stag hunt experiment that allows me to identify how these higher-order beliefs and uncertainty about higher-order beliefs matter for coordination. Players prefer to invest especially when they believe that others are “optimistic” that they will invest; but knowledge that others think them unlikely to invest does not cause players to behave differently than when they do not know what their partners think about them. Thus resolving uncertainty about beliefs can result in marked efficiency gains.     

Social Comparisons in Ultimatum Bargaining

Experiments are used to examine the effects of social comparisons in ultimatum bargaining. We inform responders about the average offer before they decide whether to accept or reject their specific offer. This significantly increases offers and offer‐specific rejection probabilities. For comparison, we consider another change in informational conditions: telling responders the total pie is $30—ex ante it was either $15 or $30—affects offers and rejection probabilities roughly as much. Our results are consistent with people’s dislike for deviations from the norm of equity but inconsistent with fairness theories, where people dislike income disparity between themselves and their referents.     

“Managing” the ultimate resource

Human intelligence is the ultimate resource. Even so, the use of the word “resource” is misleading if it makes people think of managing intelligence as they would manage minerals, trees, or livestock. If the ultimate resource is to benefit humanity, we must recognize that it works effectively only when it is free. Restricting people's freedom in order to “manage” them more “effectively” is a recipe for disaster.     

公平判断的形成机制

公平判断有两种范式：一是理性的认知过程,适合于人们有足够的时间和认知资源时采用,通过对结果的比较和对程序公平性的考查来进行公平判断;二是启发式方式,当人们没有足够的时间和认知资源时,常采取公平启发式进行公平判断。     

On relaxing the maximization postulate

We have agreed in behalf of the desirability of having a decision theory that includes nonoptimal decisions. Nonopti mal decisions are a basic cause of X-inefficiency in the production processes of firms, as well as in the economy as a whole. Therefore it is important to have a theory that allows us to examine the nature of, and use the possibility of suboptimal decision making.We suggested and examined briefly various decision procedures and behaviors which can yield suboptimal outcomes. These include faulty calculating procedures, which leave out steps from more careful calculating procedures; noncalculating responses, such as habits, conventions, rules of thumb, etc., non-responses as well as satisficing, and sacrificing types of behavior. The Yerkes-Dodson Law enables us to relate the likelihood that decisions will be optimal or suboptimal to the pressures felt by the decision maker. Up to a certain point pressure will increase the probability of optimal decisions, then will reduce it.Within the firm, in particular, there are certain behaviors which are likely to be suboptimal which are of special inter est. These are conventions, and other types of behaviors, that are constrained by peers or superiors. Conventions, in particular, are likely to prevent latent PD outcomes from occurring even though they are themselves suboptimal but Pareto superior to the PD outcome.Even though the idea of suboptimal decisions is not well accepted in economics, it is linguistically and logically consistent with the concept of maximizing behavior, and hence it is correct to allow for them in a more complete behavior postulate. The essential meanings of the words, “maximize,” “optimize,” and “choice” imqly that dissimilar options are available to the person doing the choosing. Furthermore “choice” implies that any options, optimal or suboptimal, are possible choices. Therefore, we argued that the logically correct interpretation of the maximization postulate must allow for the possibility of suboptimal choices along with optimal ones. We emphasize that we are not arguing against the possibil,ity of optimal choices being made. On the contrary, it seems likely that most decision sets will tend to be some mixture of optimal and suboptimal procedures.A major purpose of this paper has been to argue against the ideas that nonoptimal choices are unthinkable, misconceived or an unnecessary part of any decision postulate. To this end we attempted to identify several modes of argumentation in which the essential comparative meanings of “maximize,” and “choice” are commonly nullified. Such postulates were identified as, “whatever is chosen is optimal;” “preference is revealed by the choices made;” and “people maximize a function which can include the disutility of maximization.” Among the types of reasoning looked at critically were, that an apparent nonoptimal choice is really a misspecification of the objective function; and that a nonoptimal choice can be translated into an optimal one by adding another variable, or generalizing the time unit of utility. These circular reasonings amount to a denial of the comparative meaning of optimality when they are carried to the point where every assertion of nonoptimality is countered by arguments of this type. In general, we have argued that the possibility of nonoptimal choices and nonoptimal decision procedures cannot be denied.     

The dynamics of preference formation

Individual's preferences are explained on the basis of two types of influences, his own past consumption and the consumption of others which is directly observable by him. These effects are estimated using the “individual welfare function” approach of Van Praag, and a model of preferences formation.     

A Statistical Interpretation of Student Evaluation Feedback

This article deals with the same basic subject—student evaluation of teaching—covered by Marlin and Niss in this issue. Dilts's approach is quite different, however. Readers will want to compare the model he used with that suggested by Marlin and Niss. One of Dilts's major findings is that “student course evaluations are directly associated with grade expectations and inversely associated with the degree to which the course is required.” In his paper he proposes a method that should help “to control for factors that distort evaluation.”     

Starting Small and Commitment

I study a model of a long-term partnership with two-sided incomplete information. The partners jointly determine the stakes of their relationship and individually decide whether to cooperate with or betray each other over time. I characterize the extremal—interim incentive efficient—equilibria. In these equilibria, the partners generally “start small,” and the level of interaction grows over time. The types of players separate quickly. Further, cooperation between “good” types is viable regardless of how pessimistic the players are about each other initially. The quick nature of separation in an extremal equilibrium contrasts with the outcome selected by a strong renegotiation criterion (as studied in Watson (1999, J. Econ. Theory85, 52–90). Journal of Economic Literature Classification Numbers: C72, C73, D74.     

Unfair inequality,governance and individual beliefs

Unfair inequality arises when incentives are not fairly tied to effort or investment across the socio-economic spectrum. The actual limitations on economic activity from this failure may depend on whether people believe the system is unfair, and how well governing institutions safeguard fair-play. In this paper, I study whether unfair wealth inequality is correlated with beliefs about fairness, and whether good governance can be a substitute in belief formations for decreases in unfair inequality. I find a that people in countries with recent increases in unfair wealth inequality are less likely to believe that inequality is due to fair processes. This relationship holds when“fair” determinants of inequality include effort, as well as moral and meritocratic components. The relationship is strongest in countries with poor quality governance. In countries with high quality governance, people appear to be more tolerant of unfair inequality, as it is only weakly reflected in their beliefs about process fairness.     

Dissertation abstract: Reputational benefits of altruism and altruistic punishment

Recent studies in experimental economics have shown that many people have other-regarding preferences, potentially including preferences for altruism, reciprocity, and fairness. It is useful to investigate why people possess such preferences and what functional purpose they might serve outside the laboratory, because evolutionary and social learning perspectives both predict that cooperative sentiments should only exist if they bring benefits that outweigh the costs of other-regarding behavior. Theories of costly signaling suggest that altruistic acts may function (with or without intention) as signals of unobservable qualities such as resources or cooperative intent, and altruists may benefit (possibly unintentionally) from the advertisement of such qualities. After reviewing the theories that could potentially account for the evolution of altruism (Chapter 1), I test some predictions about cooperation derived from costly signaling theory. In Chapter 2, I show that participants in experimental public goods games were more cooperative when they had cues that they could benefit from having a good reputation, and that there was apparently some competition to be the most generous group member. Furthermore, in subsequent trust games, people tended to trust high public goods contributors more than low contributors. Chapter 3 failed to find evidence that granting high status to people makes them more likely to contribute to public goods or punish free-riders, but there was suggestive evidence that physical proximity to the experimenter affected contributions and punishment. In Chapter 4, I found that people tended to trust others who were willing to incur costs to punish those who free-ride on group cooperation provided that such punishment was justified, and men were more punitive than women. In Chapter 5, I show that women find altruistic men more desirable than neutral men for long-term relationships. Together, these results suggest that humans do treat altruism as a signal of willingness to be cooperative. These findings are discussed with respect to the adaptive design of cooperative sentiments as well as the current debate over group selection. Dissertation: Department of Psychology, Neuroscience & Behaviour, McMaster University, Hamilton, Ontarion Currently: Post-Doc, Department of Neurobiology & Behavior, Cornell University     

Value and exchange in law and economics: Buchanan versus posner

Meir Kohn’s Exchange and Value claims that economics can be organised around two opposed paradigms, the exchange and the value paradigms. In this paper, we apply this dichotomy to characterize the analyses proposed by economists in the field known as “law and economics”. We compare and contrasts the perspectives proposed by two prominent scholars—James Buchanan and Richard Posner—and argue that they, respectively, represent the exchange and the value paradigm in law and economics. More precisely, we show that Buchanan sticks to a definition of economics based on the exchange paradigm, and this leads him to define law and economics in a rather specific, different, narrower than Posner’s way to define law and economics—a definition that corresponds to a conception of economics based on the value paradigm.     

Can U.S. Cities afford living wage programs? An examination of alternatives

Since 1994. so-called “living wage” ordinances have passed in 20 cities in the United States, and activists are advancing similar proposals throughout the country. These proposals are a response to the declining real wages of low-wage workers in the United States—what David Gordon termed “the wage squeeze” in Fat and Mean—and, in particular, to the 30 percent fall in the real value of the minimum wage from its peak in 1968. We consider here the main arguments advanced by opponents of living wage proposals: 1) they will place a heavy burden on municipal government budgets, forcing, among other things, cuts in vital city services that benefit low-income people; 2) they will encourage local businesses to relocate and discourage new businesses from investing within cities that have such ordinances; and 3) they will cause unemployment among low-wage workers. Examining these issues in the context of proposals that were either passed or considered in different cities, we find that none of the criticisms of living wage proposals stand up to careful scrutiny or evidence. Rather, living wage proposals are affordable and workable. They represent a small but significant step toward reversing the “wage squeeze” so carefully documented and analyzed in Fat and Mean.     

Do accountability and voucher threats improve low-performing schools?

We study the effects of the threat of vouchers and stigma in Florida on the performance of “low-performing” schools. Estimates of the change in raw test scores from the first year of the reform are consistent with the early results which claimed large improvements associated with the threat of vouchers. However, we also find that much of this estimated effect may be due to other factors. The relative gains in reading are largely explained by changing student characteristics and the gains in math—though larger—appear limited to the high-stakes grade. We also find some evidence that these improvements were due more to the stigma of receiving the low grade rather than the threat of vouchers.     

金圣叹“才子情结”评析

金圣叹是明清之际的一个传奇人物,他因文学批评和“哭庙案”而名扬天下,然而本人又是一个极富争议的人物,无论生前死后,扬之者对其崇拜得五体投地,尊之如“神仙中人”;抑之者“见其书、闻其行,必欲杀之”而后快。通过对金圣叹“才子情结”及其心路历程的探究,并结合当时的社会历史背景,从另一个侧面深入,以期对这个历史人物有一个更加客观、立体化的认识。     

STATUS QUO IN THE WELFARE ANALYSIS OF TAX REFORMS

The welfare analysis of tax reforms most often consists of comparing the post‐reform distribution of individual welfare with the pre‐reform distribution or possibly that obtained from another reform as if they were completely independent. Such an “anonymous” approach does not take into account “changes” in individual situations, generally the main source of contention in any tax reform debate. This paper proposes a welfare criterion that allows comparison of reforms while taking into account individual status quo—i.e. pre‐reform—situations. This is done by extending standard utilitarian social welfare criteria to the case where individual utilities depend on initial income and income change.     

Agents as Empirical Macroeconomists: Thomas J. Sargent’s Contribution to Economics*

Thomas J. Sargent has fundamentally changed and, in the words of Art Rolnick, who interviewed him in 2010, “irrevocably transformed” the field of macroeconomics—whether as sole author, as co‐author with collaborators, as an author influenced by others, or as a teacher of the profession, influencing others. This paper is about his contribution to our field. The Nobel Memorial prize to Thomas J. Sargent and Christopher A. Sims has been awarded for the “empirical research on cause and effect in the macroeconomy” or, more broadly, for macroeconometrics. One often likes to distinguish between theorists, on the one hand, and empiricists and econometricians, on the other. Thomas J. Sargent holds a unique position in between. A key theme in a large part of his work has been to put the agents in his model on equal footing with the econometrician who is observing data from the model (i.e., to assume that agents are themselves empirical macroeconomists or macroeconometricians). In this paper, I use this theme to examine his work and his contributions to the study of economics.     

A general theory of demand for information about product quality

The purpose of this paper is to construct a general theory—analogous to the neoclassical theory of consumer demand—of demand for information about product quality. The model proposed here introduces uncertain product quality by assuming that commodities possess attributes which consumers desire and that an uncertain commodity possesses are unknown quantity of some attribute. It is assumed that information about the quality of uncertain products is available. The consumer's utility function of information is derived and his information demand function is obtained.Partial analogues of the neoclassical theorems are proved for information demand. Roughly, we find that the Slutsky matrix is symmetric and that a submatrix is negative definite. The negative definite submatrix contains those terms which measure the effect of (income compensated) changes in information prices on information demand.The analysis employed to obtain these results parallels—with some important modifications—the neoclassical analysis of commodity demand. The method used to obtain expressions for the Slutsky substitution terms is an extension of the approach introduced by McKenzie [10] and later used by Hurwicz and Uzawa [6]. This approach uses an “income compensation” function to arrive at an “income compensated” demand function.     

More Is Better, But Fair Is Fair: Tipping in Dictator and Ultimatum Games

This paper examines Allocators' willingness to reward and punish their paired Recipients. Recipients only compete in a skill-testing contest, the outcome of which determines the size of the surplus. In the dictator game, Allocators reward skillful Recipients, but punish unskillful ones only modestly. The punishment effect is mitigated by the belief held by some Allocators thateffortis the appropriate measure of deservingness. The ultimatum game extension reveals offerers' ability to adapt to the strategic environment. Offers to skillful Recipients in the ultimatum game, however, are shown to be motivated by a taste for fairness, and not strategic considerations.Journal of Economic LiteratureClassification Numbers: C70, C91, D63.     

Does informative media commentary reduce politicians' incentives to pander?

Elections sometimes give policy makers incentives to pander, i.e., to implement a policy that voters think is in their best interest, even though the policy maker knows that a different policy is actually better for the voters. Pandering incentives are typically attenuated when voters learn, prior to the election, whether the policy chosen by the incumbent truly was in their best interest. This suggests that the media can improve accountability by reporting to voters information about whether an incumbent made good policy choices. We show that, although media monitoring does sometimes eliminate the incumbent's incentive to pander, in other cases it makes the problem of pandering worse. Furthermore, in some circumstances incumbent incentives are improved when the media acts as a “yes man”—suppressing some information that indicates the policy maker made the wrong choice. We explain these seemingly paradoxical results by focusing on how media commentary affects voters' tendency to apply an asymmetric burden of proof to the incumbent, based on whether she pursues popular or unpopular policies.