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Articles 211 - 240 of 315
Full-Text Articles in Econometrics
Bondholder Reorganization Of Systemically Important Financial Institutions, Steven Gjerstad
Bondholder Reorganization Of Systemically Important Financial Institutions, Steven Gjerstad
ESI Working Papers
This paper describes a resolution process for faltering financial firms that quickly allocates losses to bondholders and transfers ownership of the firm to them. This process overcomes the most serious flaws in resolution plans submitted by banks under Dodd-Frank Title I and in the FDIC receivership procedure in Dodd-Frank Title II by restoring the balance sheet of a failing financial institution and immediately replacing the management and board of directors who allowed its demise. In almost all bank failures, this process would eliminate the need for government involvement beyond court certification of the reorganization. The procedure overcomes the serious incentive …
Gender, Punishment, And Cooperation: Men Hurt Others To Advance Their Interests, Terence C. Burnham
Gender, Punishment, And Cooperation: Men Hurt Others To Advance Their Interests, Terence C. Burnham
ESI Working Papers
A laboratory experiment that reports on gender, cooperation, and punishment in two repeated public goods game using high-powered punishment. In a repeated public goods game with punishment, no statistically significant differences between men and women are reported. In a modified game that adds an explicit payoff for relative performance, men punish more than women, men obtain higher rank, and punishment by males decreases payoffs for both men and for women. These results contribute to the debate about the origins and maintenance of cooperation.
Profitable Horizontal Mergers Without Efficiencies Can Increase Consumer Surplus, Charles J. Thomas
Profitable Horizontal Mergers Without Efficiencies Can Increase Consumer Surplus, Charles J. Thomas
ESI Working Papers
In a simple model I show consumer surplus can increase after competing sellers consummate a profitable merger that generates no cost savings. This finding contrasts sharply with the conventional wisdom that horizontal mergers without efficiencies must enhance sellers’ market power to be profitable, thereby harming buyers. The model fits industries in which individual buyers conduct distinct procurement contests for which sellers incur costs to participate, say to assess their product’s fit with the buyer’s preferences. Mergers benefit buyers by inducing stronger contest-level entry, echoing common claims from merging parties that their merger is beneficial because it creates a stronger competitor.
The Ideological Roots Of Institutional Change, Murat Iyigun, Jared Rubin
The Ideological Roots Of Institutional Change, Murat Iyigun, Jared Rubin
ESI Working Papers
Why do some societies fail to adopt more efficient institutions in response to changing economic conditions? And why do such conditions sometimes generate ideological backlashes and at other times lead to transformative sociopolitical movements? We propose an explanation that highlights the interplay--or lack thereof--between new technologies, ideologies, and institutions. When new technologies emerge, uncertainty results from a lack of understanding how the technology will fit with prevailing ideologies and institutions. This uncertainty discourages investment in institutions and the cultural capital necessary to take advantage of new technologies. Accordingly, increased uncertainty during times of rapid technological change may generate an ideological …
The Cultural Transmission Of Trust Norms: Evidence From A Lab In The Field On A Natural Experiment, Jared Rubin, Elira Karaja
The Cultural Transmission Of Trust Norms: Evidence From A Lab In The Field On A Natural Experiment, Jared Rubin, Elira Karaja
ESI Working Papers
We conduct trust games in three villages in a northeastern Romanian commune. From 1775-1919, these villages were arbitrarily assigned to opposite sides of the Habsburg and Ottoman/Russian border despite being located seven kilometers apart. Russian and Ottoman Öscal institutions were more rapacious than Habsburg institutions, which may have eroded trust of outsiders (relative to co-villagers). Our design permits us to rigorously test this conjecture, and more generally, whether historically institutionalized cultural norms are transmitted intergenerationally. We Önd that participants on the Ottoman/Russian side are indeed less likely to trust outsiders but more likely to trust co-villagers.
Deception And Reception: The Behavior Of Information Providers And Users, Roman M. Sheremeta, Timothy W. Shields
Deception And Reception: The Behavior Of Information Providers And Users, Roman M. Sheremeta, Timothy W. Shields
ESI Working Papers
We investigate the behavior of information providers (underwriters) and users (investors) in a controlled laboratory experiment where underwriters have incentives to deceive and investors have incentives to avoid deception. Participants play simultaneously as underwriters and investors in one-shot information transmission games. The results of our experiment show a significant proportion of both deceptive and non-deceptive underwriters. Despite the presence of deceptive underwriters, investors are receptive to underwriters’ reports, gleaning information content, albeit overly optimistic. Within our sample, deception by underwriters and reception by investors are the most profitable strategies. Moreover, participants who send deceptive reports to investors, but at the …
Monitoring Institutions In Indefinitely Repeated Games, Gabriele Camera, Marco Casari
Monitoring Institutions In Indefinitely Repeated Games, Gabriele Camera, Marco Casari
ESI Working Papers
Does monitoring past conduct facilitate intertemporal cooperation? We designed an experiment characterized by strategic uncertainty and multiple equilibria where coordinating on the efficient outcome is a challenge. Participants, interacting anonymously in a group, could pay a cost either to obtain information about their counterparts, or to create a freely available public record of individual conduct. Both monitoring institutions were actively employed. However, groups were unable to attain higher levels of cooperation compared to a treatment without monitoring. Information about past conduct alone thus appears to be ineffective in overcoming coordination challenges.
Targeted Campaign Competition, Loyal Voters, And Supermajorities, Pierre C. Boyer, Kai A. Konrad, Brian Roberson
Targeted Campaign Competition, Loyal Voters, And Supermajorities, Pierre C. Boyer, Kai A. Konrad, Brian Roberson
ESI Working Papers
We consider campaign competition in which candidates compete for votes among a continuum of voters by engaging in persuasive efforts that are targetable. Each individual voter is persuaded by campaign effort and votes for the candidate who targets more persuasive effort to this voter. Each candidate chooses a level of total campaign effort and allocates their effort among the set of voters. We completely characterize equilibrium for the majoritarian objective game and compare that to the vote-share maximizing game. If the candidates are symmetric ex ante, both types of electoral competition dissipate the rents from once in expectation. However, the …
The Paradox Of Power: Principal-Agent Problems And Fiscal Capacity In Absolutist Regimes, Debin Ma, Jared Rubin
The Paradox Of Power: Principal-Agent Problems And Fiscal Capacity In Absolutist Regimes, Debin Ma, Jared Rubin
ESI Working Papers
Tax extraction in Qing China was low relative to Western Europe. It is not obvious why: China was much more absolutist and had stronger rights over property and people. Why did the Chinese not convert their absolute power into revenue? We propose a model, supported by historical evidence, which suggests that i) the center could not ask its tax collecting agents to levy high taxes because it would incentivize agents to overtax the peasantry; ii) the center could not pay agents high wages in return for high taxes because the center had no mechanism to commit to refrain from confiscating …
Investing In The Presence Of Massive Flows, Terence C. Burnham, Harry Gakidis, Jeffrey Wurgler
Investing In The Presence Of Massive Flows, Terence C. Burnham, Harry Gakidis, Jeffrey Wurgler
ESI Working Papers
Approximately $10 trillion is benchmarked to Morgan Stanley Capital International’s Developed, Emerging, Frontier, and standalone market indexes. Reclassifications from one index to another require thousands of investors to decide how to react. We study a comprehensive sample of past reclassifications to guide this decision. Reclassified markets’ prices substantially overshoot between the announcement and effective dates—prices fall when a market moves from an index with more benchmarked ownership to one with less, such from Emerging to Frontier, and vice-versa—but revert within a year. We identify alpha-maximizing responses to reclassifications for both tightly benchmarked and more flexible investors.
Bubbles In Experimental Asset Markets, Praveen Kujal, Owen Powell
Bubbles In Experimental Asset Markets, Praveen Kujal, Owen Powell
ESI Working Papers
"One can define a bubble as a persistent increase in the price of an asset over and above its fundamental value with an abrupt fall in prices when no buyers are available to make purchases. The occurrence of market bubbles has a long history, starting with the Dutch Tulip Mania (1624-1637) to the South Sea and Mississippi Bubble (1716-1720), the British Railway Mania (1840´s) to the crash of 1929. Recent events have been the crash of 1987, the dot-com bubble (1990s) to the most recent housing crisis in early 2000. Even though bubbles, and a subsequent crash, may reallocate resources …
Humans’ (Incorrect) Distrust Of Reflective Decisions, Antonio Cabrales, Antonio M. Espín, Praveen Kujal, Stephen Rassenti
Humans’ (Incorrect) Distrust Of Reflective Decisions, Antonio Cabrales, Antonio M. Espín, Praveen Kujal, Stephen Rassenti
ESI Working Papers
Recent experiments suggest that social behavior may be shaped by the time available for decision making. It is known that fast decision making relies more on intuition whereas slow decision making is affected by reflective processes. Little is known, however, about whether people correctly anticipate the effect of intuition vs. reflection on others’ decision making. This is important in everyday situations where anticipating others’ behavior is often essential. A good example of this is the extensively studied Trust Game where the trustor, by sending an amount of money to the trustee, runs the risk of being exploited by the trustee’s …
Risk Preference, Time Preference, And Salience Perception, Jonathan Leland, Mark Schneider
Risk Preference, Time Preference, And Salience Perception, Jonathan Leland, Mark Schneider
ESI Working Papers
A model of decision making is introduced that provides a unified approach for predicting choices under risk and over time. The model predicts systematic departures from expected utility and discounted utility using the same mathematical structure and the same psychological intuition and shows that a dozen diverse choice anomalies can be given a common underlying explanation. The model weights attribute differences both by their importance (consistent with expected utility and discounted utility) and by their salience or similarity (consistent with procedural models based on heuristics), and so provides a bridge between rational and heuristic representations of decision making.
A Flexible And Customizable Method For Assessing Cognitive Abilities, Andrea Civelli, Cary Deck
A Flexible And Customizable Method For Assessing Cognitive Abilities, Andrea Civelli, Cary Deck
ESI Working Papers
Raven's Progressive Matrices are a broadly used tool for measuring cognitive ability. This paper develops and validates a set of nonverbal puzzles that can be viewed as an extension of or substitute for the well-known Ravens tasks. Specifically, we describe the characteristics of our puzzles and provide a calibration of the matrices in terms of response accuracy and response time as a function of these characteristics. Then we directly compare within-subject performance on our puzzles and Ravens tasks. Finally, we replicate a previous experimental paper, substituting our puzzles for the Ravens matrices, and show the two tools have similar predictive …
Minimal Frames And Transparent Frames For Risk, Time, And Uncertainty, Jonathan Leland, Mark Schneider, Nathaniel Wilcox
Minimal Frames And Transparent Frames For Risk, Time, And Uncertainty, Jonathan Leland, Mark Schneider, Nathaniel Wilcox
ESI Working Papers
It has been argued that behavior differs between transparent and nontransparent representations of a decision. However, the notion of a ‘transparent representation’ has not been precisely defined. We address this gap by providing formal definitions of ‘transparent frames’ for risk and time, establishing their uniqueness, presenting an approach to construct such frames, and comparing these framesto the ‘standard’ presentation format. Our typology of frames provides a logic for predicting systematic shifts in risk and time preferences as well as changes in the violation rates of rational choice theory. We conduct an experiment for choice under risk to investigate the framing …
All-Pay Auctions With Ties, Alan Gelder, Dan Kovenock, Brian Roberson
All-Pay Auctions With Ties, Alan Gelder, Dan Kovenock, Brian Roberson
ESI Working Papers
We study the two-player, complete information all-pay auction in which a tie ensues if neither player outbids the other by more than a given amount. In the event of a tie, each player receives an identical fraction of the winning prize. Thus players engage in two margins of competition: losing versus tying, and tying versus winning. Two pertinent parameters are the margin required for victory and the value of tying relative to winning. We fully characterize the set of Nash equilibria for the entire parameter space. For much of the parameter space, there is a unique Nash equilibrium which is …
A Perspective On Electronic Alternatives To Traditional Currencies, Gabriele Camera
A Perspective On Electronic Alternatives To Traditional Currencies, Gabriele Camera
ESI Working Papers
The institution of money is rapidly evolving thanks to developments in computer-based cryptography. Technological advances have made possible the creation of cost-effective electronic alternatives to banknotes and coins, which are the traditional physical currencies. This document aims to describe — based on scientific literature — the use and characteristics of money, some of the problems associated with issuing a new currency or a new payment instrument, and the possible comparative advantages of a central bank in leading the way relative to private issuers.
Asymmetric Social Norms, Gabriele Camera, Alessandro Gioffré
Asymmetric Social Norms, Gabriele Camera, Alessandro Gioffré
ESI Working Papers
Studies of cooperation in infinitely repeated matching games focus on homogeneous economies, where full cooperation is efficient and any defection is collectively sanctioned. Here we study heterogeneous economies where occasional defections are part of efficient play, and show how to support those outcomes through contagious punishments.
Using Experiments To Compare The Predictive Power Of Models Of Multilateral Negotiations, Cary Deck, Charles J. Thomas
Using Experiments To Compare The Predictive Power Of Models Of Multilateral Negotiations, Cary Deck, Charles J. Thomas
ESI Working Papers
We conduct unstructured negotiations in a laboratory experiment designed to empirically assess the predictive power of three approaches to modeling the multilateral negotiations observed in diverse strategic settings. For concreteness we consider two sellers negotiating with a buyer who wants to make only one trade, with the modeling approaches distinguished by whether the buyer negotiates with the sellers sequentially, simultaneously, or in a “take-it-or-leave-it” fashion. Our experiment features two scenarios within which the three approaches have observationally distinct predictions: a differentiated scenario with one high-surplus and one low-surplus seller, and a homogeneous scenario with identical high-surplus sellers. In both scenarios …
Economic Analysis With Systematically Biased Agents, Mark Schneider
Economic Analysis With Systematically Biased Agents, Mark Schneider
ESI Working Papers
A tenet of behavioral economics is that biases are systematic and should have visible effects in economic applications. Expected utility maximization has been widely applied in economic analysis, but progress has been slower incorporating 'systematically biased' agents into applications involving risk. This contrasts with the widespread application of present-biased preferences in intertemporal settings. To address this gap, we advocate a model of quasi-rank dependent probability weighting as a natural analog to quasi-hyperbolic discounting for decisions under risk. The model satisfies stochastic dominance and transitivity and transforms individual rather than cumulative probabilities. We illustrate the model’s tractability in several economic applications.
The Pros And Cons Of Workplace Tournaments, Roman M. Sheremeta
The Pros And Cons Of Workplace Tournaments, Roman M. Sheremeta
ESI Working Papers
Tournaments are commonly used in the workplace to determine promotion, assign bonuses, and motivate personal development. Tournament-based contracts can be very effective in eliciting high effort, often outperforming other compensation contracts, but they can also have negative consequences for both managers and workers. The benefits and disadvantages of workplace tournaments have been identified in theoretical, empirical, and experimental research over the past several decades. Based on these findings, I provide suggestions and guidelines for when it might be beneficial to use tournaments in the workplace.
On The Robustness Of Higher Order Risk Preferences, Cary Deck, Harris Schlesinger
On The Robustness Of Higher Order Risk Preferences, Cary Deck, Harris Schlesinger
ESI Working Papers
Economists have begun to recognize the role that higher order risk preferences play in a variety of settings. As such, several experiments have documented the degree of prudence, temperance, and to a lesser extent, edginess and bentness that laboratory subjects exhibit. More recently, researchers have argued that higher order risk preferences generally conform to mixed risk averse and mixed risk loving patterns that arise from a preference for disaggregating or aggregating harms, respectively. This paper examines the robustness of this pattern in three ways. First, it attempts to directly replicate previous results with compound lotteries over monetary outcomes. Second, it …
Dual Process Utility Theory: A Model Of Decisions Under Risk And Over Time, Mark Schneider
Dual Process Utility Theory: A Model Of Decisions Under Risk And Over Time, Mark Schneider
ESI Working Papers
The Discounted Expected Utility model has been a major workhorse for analyzing individual behavior for over half a century. However, it cannot account for evidence that risk interacts with time preference, that time interacts with risk preference, that many people are averse to timing risk and do not discount the future exponentially, that discounting depends on the magnitude of outcomes, that risk preferences are not time preferences, and that risk and time preferences are correlated with cognitive ability. Here we address these issues in a decision model based on the interaction of an affective and a reflective valuation process. The …
Multi-Battle Contests: An Experimental Study, Shakun D. Mago, Roman M. Sheremeta
Multi-Battle Contests: An Experimental Study, Shakun D. Mago, Roman M. Sheremeta
ESI Working Papers
We examine behavior of subjects in simultaneous and sequential multi-battle contests, where each individual battle is modeled as an all-pay auction with complete information. In simultaneous best-of-three contests, subjects are predicted to make positive bids in all three battles, but we find that subjects often make positive bids in only two battles. In sequential contests, theory predicts sizable bids in the first battle and no bids in the subsequent battles. Contrary to this prediction, subjects significantly underbid in the first battle and overbid in subsequent battles. Consequently, instead of always ending in the second battle, contests often proceeds to the …
Impulsive Behavior In Competition: Testing Theories Of Overbidding In Rent-Seeking Contests, Roman M. Sheremeta
Impulsive Behavior In Competition: Testing Theories Of Overbidding In Rent-Seeking Contests, Roman M. Sheremeta
ESI Working Papers
Researchers have proposed various theories to explain overbidding in rent-seeking contents, including mistakes, systematic biases, the utility of winning, and relative payoff maximization. Through an eight-part experiment, we test and find significant support for the existing theories. Also, we discover some new explanations based on cognitive ability and impulsive behavior. Out of all explanations examined, we find that impulsivity is the most important factor explaining overbidding in contests.
Endogenous Market Formation And Monetary Trade: An Experiment, Gabriele Camera, Dror Goldberg, Avi Weiss
Endogenous Market Formation And Monetary Trade: An Experiment, Gabriele Camera, Dror Goldberg, Avi Weiss
ESI Working Papers
The theory of money assumes decentralized bilateral exchange and excludes centralized multilateral exchange. However, endogenizing the exchange process is critical for understanding the conditions that support the use of money. We develop a “travelling game” to study the spontaneous emergence of decentralized and centralized exchange, theoretically and experimentally. Players located on separate “islands” can either trade locally, or pay a cost to trade elsewhere, so decentralized and centralized markets can both emerge in equilibrium. The latter maximize trade meetings and are socially efficient; the former minimize trade costs through the use of money. In the laboratory, centralized exchange more frequently …
Do Economic Inequalities Affect Long-Run Cooperation?, Gabriele Camera, Cary Deck, David Porter
Do Economic Inequalities Affect Long-Run Cooperation?, Gabriele Camera, Cary Deck, David Porter
ESI Working Papers
Does inequality affect a group’s cohesion and ability to prosper? Participants in laboratory economies played an indefinite sequence of helping games in random, anonymous pairs. A coin flip determined donor and recipient roles in each pair. This random shock ensured equality of opportunity but not of results, because earnings depended on realized shocks. We manipulated the ability to condition choices on this uncontrollable inequality source. In all treatments, uncertain ending supports multiple Pareto-ranked equilibria, including full cooperation. Theoretically, inequalities do not alter the incentives’ structure. Empirically, inequality disclosures altered conduct, weakened norms of mutual support and reduced efficiency.
Focality And Asymmetry In Multi-Battle Contests, Subhashish M. Chowdhury, Dan Kovenock, David Rojo Arjona, Nathaniel Wilcox
Focality And Asymmetry In Multi-Battle Contests, Subhashish M. Chowdhury, Dan Kovenock, David Rojo Arjona, Nathaniel Wilcox
ESI Working Papers
This article examines behavior in two-person constant-sum Colonel Blotto games in which each player maximizes the expected total value of the battlefields won. A lottery contest success function is employed in each battlefield. Recent experimental research on such games provides only partial support for Nash equilibrium behavior. We hypothesize that the salience of battlefields affects strategic behavior (the salient target hypothesis). We present a controlled test of this hypothesis – against Nash predictions – when the sources of salience come from certain asymmetries in either battlefield values or labels (as in Schelling (1960)). In both cases, subjects over-allocate the resource …
Dynamic Behavior And Player Types In Majoritarian Multi-Battle Contests, Alan Gelder, Dan Kovenock
Dynamic Behavior And Player Types In Majoritarian Multi-Battle Contests, Alan Gelder, Dan Kovenock
ESI Working Papers
In a dynamic contest where it is costly to compete, a player who is behind must decide whether to surrender or to keep fighting in the face of bleak odds. We experimentally examine the game theoretic prediction of last stand behavior in a multi-battle contest with a winning prize and losing penalty, as well as the contrasting prediction of surrendering in the corresponding contest with no penalty. We find varied evidence in support of these hypotheses in the aggregated data, but more conclusive evidence when scrutinizing individual player behavior. Players’ realized strategies tend to conform to one of several “types”. …
Mean-Dispersion Preferences With A Specific Dispersion Function, Mark Schneider, Manuel Nunez
Mean-Dispersion Preferences With A Specific Dispersion Function, Mark Schneider, Manuel Nunez
ESI Working Papers
A popular approach to modeling ambiguity aversion is to decompose preferences into the subjective expected utility of an act and an ambiguity index, or an adjustment factor, or a dispersion function. However, in these approaches the dispersion function (or ambiguity index, or adjustment factor) has very little structure imposed on it, leaving the selection of a specific dispersion function in applications to be rather arbitrary. In this note, working in the Anscombe- Aumann (1963) framework, we provide a simpler axiomatic characterization of mean-dispersion preferences which uniquely identifies the dispersion function from the infinite class of possible alternatives. Given the representation, …