We examine how agents allocate attention between private and public signals to reduce the uncertainty about observation noises when coordination is an important concern. In this setting, the attention allocation may not be monotone in endowed attention capacity. Agents may decrease their attention on or even ignore the more accurate signal when capacity increases. As a result, social welfare may decrease when they have more attention to process information. And it can be even higher when agents possess a finite amount of capacity than when they have an infinite amount of capacity. We derive sufficient and necessary conditions under which multiple equilibria emerge and study the implications of equilibrium multiplicity for macroeconomic policies.
Often, economic policies are directed toward outcomes that are measured as counts. Examples of economic variables that use a basic counting scale are number of children as an indicator of fertility, number of doctor visits as an indicator of health care demand, and number of days absent from work as an indicator of employee shirking. Several econometric methods are available for analyzing such data, including the Poisson and negative binomial models. They can provide useful insights that cannot be obtained from standard linear regression models. Estimation and interpretation are illustrated in two empirical examples.
We estimate productivities at the sector level for 72 countries and 5 decades, and examine how they evolve over time in both developed and developing countries. In both country groups, comparative advantage has become weaker: productivity grew systematically faster in sectors that were initially at greater comparative disadvantage. These changes have had a signicant impact on trade volumes and patterns, and a non-negligible welfare impact. In the counterfactual scenario in which each country's comparative advantage remained the same as in the 1960s, and technology in all sectors grew at the same country-specic average rate, trade volumes would be higher, cross-country export patterns more dissimilar, and intra-industry trade lower than in the data. In this counterfactual scenario, welfare is also 1.6% higher for the median country compared to the baseline. The welfare impact varies greatly across countries, ranging from −1.1% to +4.3% among OECD countries, and from −4.6% to +41.9% among non-OECD countries.
The subjective values of choice options can impact on behavior in two fundamentally different types of situations: first, when people explicitly base their actions on such values, and second, when values attract attention despite being irrelevant for current behavior. Here we show with functional magnetic resonance imaging (fMRI) that these two behavioral functions of values are encoded in distinct regions of the human brain. In the medial prefrontal cortex, value-related activity is enhanced when subjective value becomes choice-relevant, and the magnitude of this increase relates directly to the outcome and reliability of the value-based choice. In contrast, activity in the posterior cingulate cortex represents values similarly when they are relevant or irrelevant for the present choice, and the strength of this representation predicts attentional capture by choice-irrelevant values. Our results suggest that distinct components of the brain’s valuation network encode value in context-dependent manners that serve fundamentally different behavioral aims.
In this paper we conduct a laboratory experiment to test the extent to which Moore and Repullo's subgame perfect implementation mechanism induces truth-telling in practice, both in a setting with perfect information and in a setting where buyers and sellers face a small amount of uncertainty regarding the good's value. We find that Moore-Repullo mechanisms fail to implement truth-telling in a substantial number of cases even under perfect information about the valuation of the good. This failure to implement truthtelling is due to beliefs about the irrationality of one's trading partner. Therefore, although the mechanism should - in theory - provide incentives for truth-telling, many buyers in fact believe that they can increase their expected monetary payoff by lying. The deviations from truth-telling become significantly more frequent and more persistent when agents face small amounts of uncertainty regarding the good's value. Our results thus suggest that both beliefs about irrational play and small amounts of uncertainty about valuations may constitute important reasons for the absence of Moore-Repullo mechanisms in practice.
We measure the consequences of asymmetric information and imperfect competition in the Italian lending market. We show that banks' optimal price response to an increase in adverse selection varies with competition. Exploiting matched data on loans and defaults, we estimate models of demand for credit, loan use, pricing, and firm default. We find evidence of adverse selection and evaluate its importance. While indeed prices rise in competitive markets and decline in concentrated ones, the former effect dominates, suggesting that while market power can mitigate the adverse effects of asymmetric information, mainstream concerns about its effects survive with imperfect competition.
Laboratory experiments provide insights into the drivers of cheating behaviour, but it is unclear to what extent cheating in the lab generalizes to the field. We conducted an experiment with middle and high school students to test whether a common laboratory measure of cheating predicts three types of school misconduct: (i) disruptiveness in class, (ii) homework non-completion, and (iii) absenteeism. We find that students who cheat in the experimental task are more likely to misbehave at school, suggesting that experimental measures of cheating generalize to rule violating behaviour in naturally occurring environments.
A nudge is a paternalistic government intervention that attempts to improve choices by changing the framing of a decision problem. We propose a welfare- theoretic foundation for nudging similar in spirit to the classical revealed preference approach, by investigating a model where preferences and mistakes of an agent can be elicited from her choices under different frames. We provide characterizations of the classes of behavioral models for which nudging is possible or impossible, and we derive results on the required quantity of information. We also study an extended application to a savings problem.
