Preponderance of evidence

This paper investigates the incentive properties of the standard of proof for a finding of negligence when evidence about injurers’ behavior is imperfect. We show that a “more-likely-than-not” decision rule provides maximal incentives for potential tort-feasors to exert care. An injurer is then held liable whenever inadequate care appears more likely than due care, and not liable otherwise. Our analysis provides a deterrence rationale for the exclusionary rules of evidence found in common law and the preponderance of evidence standard of proof.     

Removed preferences

In formalizing a ‘veil of ignorance’ type procedure, this paper considers how an agent?s preferences over a set of alternatives change as he is placed at an increasing ‘distance’ from the consequences of his choices. A definition for such ‘removed preferences’ is presented and its properties studied. As an application, it is demonstrated that present biased agents are ‘essentially’ exponential when distanced from the present, and that rank-dependent expected utility agents are ‘essentially’ expected utility when distanced from risk.     

Financial expectations and the ‘left-right’ political value scale: Testing for the POUM hypothesis

Using a uniquely defined indicator of political ideology we test whether expectations of future financial well-being have an effect on an individual’s position on the political ‘left-right’ spectrum. We find evidence of a significant “prospect of upward mobility” effect.     

Conditional preferences and updating

This paper axiomatizes updating rules for preferences that are not necessarily in the expected utility class. Two sets of results are presented. The first is the axiomatization of conditional preferences. The second consists of the axiomatization of three updating rules: the traditional Bayes rule, the Dempster-Shafer rule, and the generalized Bayes rule. The last rule can be regarded as the updating rule for the multi-prior expected utility (Gilboa and Schmeidler, J. Math. Econom. 18 (1989) 141). Operationally, it is equivalent to updating each prior by the traditional Bayes rule.     

Risk attitudes and the stag-hunt game

A stag-hunt game (with the risky and safe actions) has two pure Nash equilibria that are Pareto-rankable. The risky action leads either to the Pareto-superior equilibrium (high payoff) or to out of equilibrium (low payoff) depending on the opponent’s action. Both players may want to obtain high payoff but uncertainty about the opponent’s action may prevent them to take such strategic risk. This paper investigates how information about the risk attitude of an opponent affects a player’s action choice in the stag-hunt game. I find that although a subject’s propensity to choose the risky action depends on her opponent’s risk attitude, it does not depend on her own risk attitude.     

Impatience among preschool children and their mothers

Using experimental data of children and their mothers, this paper explores the intergenerational relationship of impatience. The child’s impatience stems from a delay of gratification experiment, the mother’s from a choice task. Findings demonstrate an intergenerational relationship in decision making.     

A simple model of herd behavior, a comment

In this paper we analyze the role played by the tie-breaking assumptions in Banerjee’s model of herd behavior. Changing one assumption we obtain three important results: players’ strategies are parameter dependent; an incorrect herd could be reversed; a correct herd is irreversible.     

On the welfare implications of restricting bankruptcy information

The Fair Credit Reporting Act (FCRA) dictates that adverse events such as a Chapter 7 bankruptcy filing must be removed from an individual’s credit record after 10 years. The intent of the law is to provide partial consumption insurance by giving an individual a fresh start. However, the law obviously weakens incentives not to default, which can result in higher interest rates that in turn reduce intertemporal insurance. Because of this tradeoff, it is unclear how long is the optimal length of time that an adverse event remains on an individual’s credit record. In this paper we assess the welfare consequences of varying the length of time that adverse events can be on one’s credit record. We calibrate the model to US data where the exclusion parameter is set to be 10 years on average. Then we run a counterfactual to find the length that maximizes ex-post economywide welfare using a consumption equivalent measure. The model predicts agents prefer to remove the bankruptcy flag after one year, though the gains are small.     

Imprecise probabilistic beliefs as a context for decision-making under ambiguity

Coherent imprecise probabilistic beliefs are modeled as incomplete comparative likelihood relations admitting a multiple-prior representation. Under a structural assumption of Equidivisibility, we provide an axiomatization of such relations and show uniqueness of the representation. In the second part of the paper, we formulate a behaviorally general “Likelihood Compatibility” axiom relating preferences and probabilistic beliefs and characterize its implications for the class of “invariant biseparable” preferences that includes the MEU and CEU models among others.     

Revisiting Savage in a conditional world

Summary. I present an axiomatization of subjective expected utility and Bayesian updating in a conditional decision problem. This result improves our understanding of the Bayesian standard from two perspectives: 1) it uses a set of axioms which are weak and intuitive; 2) it provides a formal proof to results on the relation between dynamic consistency, expected utility and Bayesian updating which have never been explicitly proved in a fully subjective framework. Received: December 1, 2000; revised version: February 26, 2001     

Choice under uncertainty with the best and worst in mind: Neo-additive capacities

We develop the simplest generalization of subjective expected utility that can accommodate both optimistic and pessimistic attitudes towards uncertainty—Choquet expected utility with non-extreme-outcome-additive (neo-additive) capacities. A neo-additive capacity can be expressed as the convex combination of a probability and a special capacity, we refer to as a Hurwicz capacity, that only distinguishes between whether an event is impossible, possible or certain. We show that neo-additive capacities can be readily applied in economic problems, and we provide an axiomatization in a framework of purely subjective uncertainty.     

A note on Kuhn’s Theorem with ambiguity averse players

Kuhn’s Theorem shows that extensive games with perfect recall can equivalently be analyzed using mixed or behavioral strategies, as long as players are expected utility maximizers. This note constructs an example that illustrates the limits of Kuhn’s Theorem in an environment with ambiguity averse players who use a maxmin decision rule and full Bayesian updating.     

Paying the price of sweetening your donation: Evidence from a natural field experiment

We add a gift in appreciation of the subject’s contribution to a social reference treatment successfully proven to trigger higher donations, and find that the share of people contributing decreases significantly, thereby eroding the original treatment’s capacity to increase donations.     

Why do people place lower weight on advice far from their own initial opinion?

Experimental studies find that the weight put on advice is negatively related to the distance between the advice and the decision-maker’s initial opinion. We show that this can be rational if the decision-maker has imperfect knowledge about the advisor’s competence.     

Equilibrium of a sequence of auctions when bidders demand multiple items

We construct an ex post perfect equilibrium in a sequence of second-price auctions with two bidders where each bidder’s marginal values for additional units are decreasing. This equilibrium implies an increasing path of transaction prices and is ex post efficient.     

Do the world’s largest cities follow Zipf’s and Gibrat’s laws?

We examine whether the size distribution and the growth process of the world’s largest cities follow Zipf’s law and Gibrat’s law. The parametric results of the size distribution analysis reject Zipf’s law for all sample sizes and also show the Zipf exponent systematically declines as the sample size increases. The growth process analysis confirms Gibrat’s law and yields a local Zipf exponent of one for cities with a normalized population less than 0.53%, which includes about 95% of the total observations. The deviations from Zipf’s law occur at the extreme upper tail and are likely a result of restricted mobility of population across countries. However, given that Gibrat’s law holds, we can expect the size distribution to converge to Zipf’s law with a decline in the barriers to immigration.     

Working under pressure: Evidence from the impacts of soccer fans on players’ performance

In this paper we study how pressure affects individual’s behavior. For this purpose we use sports data, where the attendance is a proxy for pressure, to investigate if the number of fans in the stadium affects the performance of the players. We overcome the reverse causality problem by proposing an instrument variable: a promotion in Brazil during which low cost tickets were assigned to random soccer matches. In contrast to previous literature, our results suggest that pressure does not significantly affect players’ behavior.     

Citizens’ trust in government and their willingness-to-pay

We employ the Hicksian compensating variation and a citizen’s subjective perspective on trustworthiness of government, and draw a positive association between citizens’ trust in government and their willingness-to-pay. Our finding suggests that public projects can be hindered by prevailing distrust toward government.     

Equally-distributed equivalent utility,ex post egalitarianism and utilitarianism

We provide an axiomatization of expected equally-distributed equivalent-utility social welfare functions in the context of Harsanyi?s impartial observer theorem. For this family of social welfare functions, we show what additional axiom is necessary and sufficient for the observer to exhibit aversion to ex post inequality. We also relate this axiomatization to our axiomatization in a companion paper of generalized utilitarian social welfare functions. Given certain richness assumptions, the only social welfare functions that belong to both families are the utilitarian.     

Evaluating the median voter model’s explanatory power

We match individual senators’ voting behavior on legislative proposals with 24 real referendum decisions on exactly the same issues with identical wording. This setting allows us to evaluate the median voter model’s quality with revealed constituents’ preferences. Results indicate a limited explanatory power of the median voter model: It explains 17.6% points more than random voting and that a senator’s probability to accept a proposal in parliament increases on average by 8.4% points when the district median voter accepts the proposal.