Econometrics Commons^™

Does Free Information Provision Crowd Out Costly Information Acquisition? It’S A Matter Of Timing, Diego Aycinena, Alexander Elbittar, Andrei Gomberg, Lucas Rentschler

ESI Working Papers

We consider the issue of how timing of provision of additional information affects information-acquisition incentives. In environments with costly attention, a sufficiently confident agent may choose to act based on the prior, without incurring those costs. However, a promise of additional information in the future may be used to encourage additional attentional effort. This may be viewed as a novel empirical implication of rational inattention. In a lab experiment designed to test this theoretical prediction, we show that promise of future “free” information induces subjects to acquire information which they would not be acquiring without such a promise.

The Impact Of Taxes And Wasteful Government Spending On Giving, Roman Sheremeta, Neslihan Uler

ESI Working Papers

We examine how taxes impact charitable giving and how this relationship is affected by the degree of wasteful government spending. In our model, individuals make donations to charities knowing that the government collects a flat-rate tax on income (net of charitable donations) and redistributes part of the tax revenue. The rest of the tax revenue is wasted. The model predicts that a higher tax rate increases charitable donations. Surprisingly, the model shows that a higher degree of waste decreases donations (when the elasticity of marginal utility with respect to consumption is high enough). We test the model’s predictions using a …

The Economics Of Babysitting A Robot, Aleksandr Alekseev

ESI Working Papers

I study the welfare effect of automation on workers in a setting where technology is complementary but imperfect. Using a modified task-based framework, I argue that imperfect complementary automation can impose non-pecuniary costs on workers via a behavioral channel. The theoretical model suggests that a critical factor determining the welfare effect of imperfect complementary automation is the automatability of the production process. I confirm the model's predictions in an experiment that elicits subjects' revealed preference for automation. Increasing automatability leads to a significant increase in the demand for automation. I explore additional drivers of the demand for automation using machine …

Public Leaderboard Feedback In Sampling Competition: An Experimental Investigation, Stanton Hudja, Brian Roberson, Yaroslav Rosokha

ESI Working Papers

We investigate the role of performance feedback, in the form of a public leaderboard, in a sequential-sampling contest with costly observations. The player whose sequential random sample contains the observation with the highest value wins the contest and obtains a prize with a fixed value. We find that there exist parameter configurations such that in the subgame perfect equilibrium of contests with a fixed ending date (i.e., finite horizon), providing public performance feedback results in fewer expected observations and a lower expected value of the winning observation. We conduct a controlled laboratory experiment to test the theoretical predictions, and find …

Forecasting Skills In Experimental Markets: Illusion Or Reality?, Brice Corgnet, Cary Deck, Mark Desantis, David Porter

ESI Working Papers

Using experimental asset markets, we study the situation of a financial analyst who is trying to infer the fundamental value of an asset by observing the market’s history. We find that such capacity requires both standard cognitive skills (IQ) as well as social and emotional skills. However, forecasters with high emotional skills tend to perform worse when market mispricing is high as they tend to give too much emphasis to the noisy signals from market data. By contrast, forecasters with high social skills perform especially well in markets with high levels of mispricing in which their skills could help them …

Trust, Reciprocity, And Social History: New Pathways Of Learning When Max U (Own Reward) Fails Decisively, Vernon L. Smith

ESI Working Papers

"This evaluation begins with the BDM protocol—itself a methodological contribution—and the experimental findings. The question of the replicability and robustness of these unexpected results is addressed next in a summary of two subsequent experimental papers. We follow with a discussion of two attempts to explain qua understand the BDM findings; both, however, have methological deficiencies—Reciprocity and Social Preference explanations. Finally, we offer a brief on Adam Smith’s (1759; 1853; hereafter in the text, Sentiments) model of human sociability, based on strictly self-interested actors, that culminates in propositions that (1) account for trust game choices, and (2) predict action in new …

Strategic Problems With Risky Prospects, Alessandro Sontuoso, Cristina Bicchieri, Alexander Funcke, Einav Hart

ESI Working Papers

We study “hypothetical reasoning” in games where the impact of risky prospects (chance moves with commonly-known conditional probabilities) is compounded by strategic uncertainty. We embed such games in an environment that permits us to verify if risk-taking behavior is affected by information that reduces the extent of strategic uncertainty. We then test some implications of expected utility theory, while making minimal assumptions about individuals’ (risk or ambiguity) attitudes. Results indicate an effect of the information on behavior: this effect is triggered in some cases by a belief-revision about others’ actions, and in other cases by a reversal in risk …

Inequality In Foraging And Farming Societies: An Experimental Approach, Antonio J. Morales, Ismael Rodriguez-Lara

ESI Working Papers

We propose two games that resemble the conditions of human societies before and after the Neolithic agricultural revolution to test the hypothesis that the modes of production affected the level of inequality. We replicate the findings that foraging societies organized themselves around social division of labour and were more egalitarian than farming societies. We also find evidence that i) the transition from foraging to farming societies was heterogeneous, with groups that quickly adopted the agricultural practice and others that never experienced it, and ii) inequality in farming societies increases as agriculture settles. Our experimental data further suggest that the transition …

Religion In Economic History: A Survey, Sascha O. Becker, Jared Rubin, Ludger Woessmann

ESI Working Papers

This chapter surveys the recent social science literature on religion in economic history, covering both socioeconomic causes and consequences of religion. Following the rapidly growing literature, it focuses on the three main monotheisms—Judaism, Christianity, and Islam—and on the period up to WWII. Works on Judaism address Jewish occupational specialization, human capital, emancipation, and the causes and consequences of Jewish persecution. One set of papers on Christianity studies the role of the Catholic Church in European economic history since the medieval period. Taking advantage of newly digitized data and advanced econometric techniques, the voluminous literature on the Protestant Reformation studies its …

Trade Facilitation And Tariff Evasion, Cosimo Beverelli, Rohit Ticku

ESI Working Papers

This paper investigates the extent to which trade facilitation measures included in the WTO Trade Facilitation Agreement affect tariff evasion. In a dataset covering 121 countries and the whole set of HS6 product categories in 2012, 2015, and 2017, the paper shows that trade facilitation measures that improve legal certainty for traders moderate tariff evasion. Holding tariff rate constant at its mean, one standard deviation improvement in trade facilitation measures related to legal certainty reduces tariff evasion, as measured by missing imports in trade statistics, by almost 12%. In a counterfactual with full trade liberalization, countries with higher scores on …

Trust And Trustworthiness After Negative Random Shocks, Hernán Bejarano, Joris Gillet, Ismael Rodriguez-Lara

ESI Working Papers

We investigate experimentally the effect of a negative endowment shock in a trust game to assess whether different causes of inequality have different effects on trust and trustworthiness. In our trust game there may be inequality in favor of the second mover and this may (or may not) be the result of a negative random shock (i.e., the outcome of a die roll) that decreases the endowment of the first-mover. Our findings suggest that inequality leads to differences in behavior. First-movers send more of their endowment and second-movers return more when there is inequality. However, we do not find support …

Sanctuary Cities And Their Respective Effect On Crime Rates, Adam R. Schutt

Undergraduate Economic Review

According to the U.S. Center for Immigration Studies (2017), cities or counties in twenty-four states declare themselves as a place of “sanctuary” for illegal immigrants. This study addresses the following question: Do sanctuary cities experience higher crime rates than those cities that are not? Using publicly available data, this regression analysis investigates the relationship between crime rates in selected cities and independent variables which the research literature or the media has linked to criminal activity. Results of this research reveal that sanctuary cities do not experience higher violent or property crime rates than those cities that are not sanctuary cities.

Shocks To Aggregate Demand And Aggregate Supply In The Midst Of Covid-19, Anna M. Gellerman

Publications and Research

COVID-19 sent shockwaves throughout the economy, changing the amounts of goods and services distributed and altering the demand. This article discusses the negative demand shock and adverse supply shock that the U.S. economy faced in 2020, and the policies that the government implemented to reverse these effects.

Shutdown Policies And Worldwide Conflict, Nicolas Berman, Mathieu Couttenier, Nathalie Monnet, Rohit Ticku

ESI Working Papers

We provide real-time evidence on the impact of Covid-19 restrictions policies on conflicts globally. We use daily information on conflict events and government policy responses to limit the spread of coronavirus to study how conflict levels vary following shutdown and lockdown policies. We use the staggered implementation of restriction policies across countries to identify their effect on conflict incidence and intensity. Our results show that imposing a nation-wide shutdown reduces the likelihood of daily conflict by around 9 percentage points. The reduction is driven by a drop in the incidence of battles, protests and violence against civilians. Across actors the …

Institutions, Opportunism And Prosocial Behavior: Some Experimental Evidence, Antonio Cabrales, Irma Clots-Figueras, Roberto Hernán-González, Praveen Kujal

ESI Working Papers

Formal or informal institutions have long been adopted by societies to protect against opportunistic behavior. However, we know very little about how these institutions are chosen and their impact on behavior. We experimentally investigate the demand for different levels of institutions that provide low to high levels of insurance and its subsequent impact on prosocial behavior. We conduct a large-scale online experiment where we add the possibility of purchasing insurance to safeguard against low reciprocity to the standard trust game. We compare two different mechanisms, the private (purchase) and the social (voting) choice of institutions. Whether voted or purchased, we …

Information Aggregation And The Cognitive Make-Up Of Traders, Brice Corgnet, Mark Desantis, David Porter

ESI Working Papers

We assess the effect of the cognitive make-up of traders on the informational efficiency of markets. We put forth that cognitive skills, such as cognitive reflection, are crucial for ensuring the informational efficiency of markets because they endow traders with the ability to infer others’ information from prices. Using laboratory experiments, we show that information aggregation is significantly enhanced when (i) all traders possess high levels of cognitive sophistication and (ii) this high level of cognitive sophistication is common information for all traders. Our findings shed light on the cognitive and informational constraints underlying the efficient market hypothesis.

Neoclassical Supply And Demand, Experiments, And The Classical Theory Of Price Formation, Sabiou M. Inoua, Vernon L. Smith

ESI Working Papers

"The 1870s neoclassical marginal revolution in economics culminated a century later in a striking conclusion: The core utility maximization principle of neoclassical economics was shown to have no interesting implication for aggregate market behavior (Sonnenschein, 1972, 1973a, 1973b; Debreu, 1974; Mantel, 1974; Kirman, 1989; Shafer & Sonnenschein, 1993; Rizvi, 2006). We argue that neoclassical price theory was founded on two axioms—price-taking behavior and the law of one price in a market—that, if imposed on the theory, were logically inconsistent with a theory of market price formation. This logical gap in neoclassical theory was filled essentially with thought experiments: Jevons derives …

The Ncaa's Breaking Point For Equal Opportunity: A Title Ix Perspective On Name, Image, And Likeness Sponsorship Legislation, Joshua C. Sorbe

Honors Thesis

This paper analyzes the efficacy of Title IX when considering national name, image, and likeness (NIL) legislation and NCAA Division I athletic department expenditure behavior. To answer this question, I analyzed Title IX’s legislative history, current compliance rules, recent litigation, and academic literature. Using publicly-available data reported to the US Department of Education, I performed regression analysis on institutional characteristics and expenditure behaviors to assess the impact that spending behavior has on gender equity. My results show that revenue-generating sports had a large impact on spending equity, and disparities in expenditures are more distinct than participation. Ultimately, the market-based exceptions …

Viral Social Media Videos Can Raise Pro-Social Behaviours When An Epidemic Arises, Youting Guo, Jason Shachat, Matthew J. Walker, Lijia Wei

ESI Working Papers

At the onset of an epidemic, can viral social media videos induce the high levels of trust and pro-sociality required for a successful community response? Shortly after the outbreak of the COVID-19 virus in Wuhan, China, we conducted an experiment assessing the impact of viral videos on individual preferences and pro-social behaviour. Prior to the experiment, participants viewed one of three videos culled from Chinese social media: a central government leader visiting a local hospital and supermarket, health care volunteers transiting to Wuhan, or an emotionally neutral video unrelated to the emergency. Viewing one of the first two videos leads …

A Test Of The Modigliani-Miller Theorem, Dividend Policy And Algorithmic Arbitrage In Experimental Asset Markets, Tibor Neugebauer, Jason Shachat, Wiebke Szymczak

ESI Working Papers

Modigliani and Miller showed that the market value of the company is in dependent of its capital structure, and suggested that dividend policy makes no difference to this law of one price. We experimentally test the MM theorem in a complete market with two simultaneously traded assets, employing two experimental treatment variations. The first variation involves the dividend stream. According to this variation the dividend payout order is either identical or independent. The second variation involves the market participation, or not, of an algorithmic arbitrageur. We find that Modigliani-Miller's law of one price can be supported on average with or …

The Classical Theory Of Supply And Demand, Sabiou M. Inoua, Vernon L. Smith

ESI Working Papers

This paper introduces and formalizes the classical view on supply and demand, which, we argue, has an integrity independent and distinct from the neoclassical theory. Demand and supply, before the marginal rev-olution, are defined not by an unobservable criterion such as a utility func-tion, but by an observable monetary variable, the reservation price: the buyer’s (maximum) willingness to pay (WTP) value (a potential price) and the seller’s (minimum) willingness to accept (WTA) value (a potential price) at the marketplace. Market demand and supply are the cumulative distri-bution of the buyers’ and sellers’ reservation prices, respectively. This WTP-WTA classical view of …

Let’S Chat... When Communication Promotes Efficiency In Experimental Asset Markets, Brice Corgnet, Mark Desantis, David Porter

ESI Working Papers

The growing prevalence of stock market chat rooms and social media suggests communication between traders may affect market outcomes. Using data from a series of laboratory experiments, we study the causal effect of trader communication on the price efficiency of markets. We show that communication allows markets to convey private information more effectively. This effect is most pronounced when the communication platform publicizes a reputation score that might identify a person as not being truthful. This illustrates the need for market designers to consider social interactions when designing market institutions to leverage the social motives that foster information aggregation.

An Empirical Study Of The Sentiment Capital Asset Pricing Model, Soroush Ghazi, Mark Schneider

ESI Working Papers

What is market sentiment? This paper takes a new approach to this question and de- rives a formula for market sentiment as a function of the risk-free rate, the price/dividend ratio, and the conditional stock market volatility. The formula is derived from a representative agent with a prospect theory probability weighting function. We estimate the model and find that our sentiment measure correlates positively with the leading sentiment indexes. The model matches the equity premium while generating a low and stable risk-free rate with low risk aversion. We also apply the model to explain other anomalies for the aggregate stock …

Categorical Salience Theory, Mark Schneider, Cary Deck, Patrick Dejarnette

ESI Working Papers

Monetary lotteries are the overwhelmingly predominant tool for understanding decisions under risk. However, many real-world decisions concern multidimensional out- comes involving different goods. Recent studies have tested whether people treat multidimensional risky choices in the same manner as unidimensional monetary lotteries and found that choices over consumer goods are less risk-averse and more consistent with expected utility theory than choices over monetary lotteries. While these puzzling results cannot be explained by any standard model of decision making, we demonstrate that these findings are predicted by a salience-based model of category-dependent preferences that also explains the classic anomalies for choices under …

Working Too Much For Too Little: Stochastic Rewards Cause Work Addiction, Brice Corgnet, Simon Gaechter, Roberto Hernán González

ESI Working Papers

People are generally assumed to shy away from activities generating stochastic rewards, thus re-quiring extra compensation for handling any additional risk. In contrast with this view, neurosci-ence research with animals has shown that stochastic rewards may act as a powerful motivator. Applying these ideas to the study of work addiction in humans, and using a new experimental paradigm, we demonstrate how stochastic rewards may lead people to continue working on a re-petitive and effortful task even after monetary compensation becomes saliently negligible. In line with our hypotheses, we show that persistence on the work task is especially pronounced when the …

Harnessing The Power Of Social Incentives To Curb Shirking In Teams, Brice Corgnet, Brian C. Gunia, Roberto Hernán González

ESI Working Papers

We study several solutions to shirking in teams that trigger social incentives by reshaping the workplace social context. Using an experimental design, we manipulate social pressure at work by varying the type of workplace monitoring and the extent to which employees engage in social interaction. This design allows us to assess the effectiveness as well as the popularity of each solution. Despite similar effectiveness in boosting productivity across solutions, only organizational systems involving social interaction (via chat) were at least as popular as a baseline treatment. This suggests that any solution based on promoting social interaction is more likely to …

Adam Smith’S Theory Of Value: A Reappraisal Of Classical Price Discovery, Sabiou M. Inoua, Vernon L. Smith

ESI Working Papers

The relevance of Adam Smith for understanding human morality and sociality is recognized in the growing interest in his work on moral sentiments among scholars of various academic backgrounds. But, paradoxically, Adam Smith’s theory of economic value enjoys a less prominent stature today among economists, who, while they view him as the “father of modern economics”, considered him more as having had the right intuitions about a market economy than as having developed the right concepts and the technical tools for studying it. Yet the neoclassical tradition, which replaced the classical school around 1870, failed to provide a satisfactory theory …

Airline Fare Competition In The Post-Merger Era, Parker Michael Armstrong

Honors Theses and Capstones

This paper expands on the research of competition within the airline industry. This analysis estimates the fare-impact of new full-service or low-cost competition in city-pair markets in the domestic United States. Given the comprehensive restructuring of the airline industry as a result of the Delta-Northwest, United-Continental, and American-US Airways mergers, this analysis examines how the fare-impact of competition may have changed since the pre-merger era. This paper suggests evidence of a weaker effect regarding the entry of a low-cost carrier and a stronger effect regarding the entry of a legacy carrier in the post-merger era relative to the pre-merger period. …

Price Value Frazer Duncan Collar Bienenfeld, Anwar Shaikh Phd

Archives of Anwar Shaikh

This collection includes:

• Classical theory of price matrix algebra by Anwar Shaikh (unpublished work).
• Marx's last theorem by Anwar Shaikh (unpublished work).
• Sraffa prices and eigenvector normalization by Anwar Shaikh (unpublished work).
• Vmi data set patterns by Anwar Shaikh (unpublished work).
• Shaikh, A. (2003, December 22). In what sense is a non-negative matrix reducible to its eigenvalue moduli? (Unpublished manuscript note).
• Shaikh, A. (2006, April 10). Graphvmigini3, vmi80r.wf1 chart analysis. (Unpublished manuscript note).
• Shaikh, A. (2006, April 10). What is avg income share of top 20%, in a power law? (Unpublished manuscript note).
• Shaikh, A. (2006, April 14). Thermal …

Does Racial Discrimination Exist In The Nba?, Logan Kendall

Williams Honors College, Honors Research Projects

This paper aims to examines the affect of race on compensation for NBA players. Based on prior research, I pose the hypothesis that racial discrimination does exist in the NBA with there being a premium for white players. A second hypothesis I present based on the previous research is that the premium for white players exist for only some groups of players and for other groups there with not exist discrimination based on player race. By using career data from every player who played in the 2019-2020 NBA season and their 2019-2020 salaries, a few different models where ran. The …