A theory of Conscientiousness
(Cerreia-Vioglio, Maccheroni, Marinacci, Rustichini)
Abstract: We provide an axiomatic foundation for a personality trait which has important implications for economic behavior, Conscientiousness, and two aspects of that factor, the inhibitive and the proactive. We refer to these two aspects here with the names, probably more intuitive for economists, of control and motivation. The first aspect is commonly associated in analysis of individual behavior with the ability to override impulses and distractions when pursuing a goal. The second is usually associated with the inclination to set ambitious goals.
Our setup and analysis closely follow those of standard decision theoretic analysis. In our model an individual is characterized by a preference order over acts, which are maps from states to lotteries over prizes. In the framework of Dreze (1987), we allow the possibility that the individual can affect the probability of the state which is realized, at some cost. The differences in this cost of control make formal the differences in conscientiousness among individuals: a higher cost of control over the probability corresponds to a lower degree of inhibitive side of conscientiousness. The utility in each state deriving from the realization of an outcome is state dependent. An important part of the research reported here is an axiomatic foundation of preferences with moral hazard and state dependent preferences, first treated in Dreze (1987). This utility evaluated by the individual in reference to a subjective benchmark, or aspiration level. An extreme and simple example is given by an individual who sets an aspiration level, which is a point in a partially ordered space, and derives a positive utility when his outcome is larger than the set level, and does not when the outcome is lower. The level of the aspiration set by the individual corresponds to his motivation, which corresponds to the proactive side of Conscientiousness.
(forthcoming The Review of Economic Studies)
Abstract: We introduce a theoretical framework to study interdependent preferences, where the outcome of others affects the welfare of the decision maker. The dependence may take place in two conceptually different ways, which depend on how the decision maker evaluates his and others' outcomes. In the first he values his outcomes and those of others on the basis of his own utility. In the second, he ranks outcomes according to a social value function. These two representations express two different views of the nature and functional role of interdependent preferences. The first is Festinger's view that the evaluation of peers' outcomes is useful to improve individual choices by learning from the comparison. The second is Veblen's view that interdependent preferences keep track of social status derived from a social value attributed to the goods one consumes.
We give different axiomatic foundations to these two different, but complementary, views of the nature of the interdependence. On the basis of this axiomatic foundation we build a behavioral theory of comparative statics within subjects and across subjects. We characterize preferences according to the relative importance assigned to social gains and losses, that is, pride and envy. This parallels the standard analysis of private gains and losses (as well as that of regret and relief). We give an axiomatic foundation of inter personal comparison of preferences, ordering individuals according to their sensitivity to social ranking. These characterizations provide the behavioral foundation for applied analysis of market and game equilibria with interdependent preferences.
Abstract: We study a two-period economy in which agents' preferences take into account relative economic position. The study builds on a decision theoretic analysis of the social emotions that underlie these concerns, i.e., envy and pride, which respond to social losses and gains, respectively. The analysis allows individual differences in their relative importance and, in the tradition of Prospect Theory, summarizes these differences in the geometric properties of the externality function that represents relative outcome concerns.
Our main result is that envy leads to conformism in consumption behavior and pride to diversity. We thus establish a link between emotions that are object of study in psychology and neuroscience, and important features of economic variables, in the first place the equilibrium distribution of consumption and income. This research provides a tool to relate experimental and empirical studies of individual preferences for relative position and important features of macro data.
Abstract: We study economies of asymmetric information with observable types. Trade takes place in lotteries. Individuals face a standard budget constraint, while the incentive compatibility constraints are imposed on the production set of the intermediaries. This formalization encompasses moral hazard, as in Jerez (2003, 2005), and private information economies.
Equilibrium allocations are constrained efficient, but, contrary to what stated for example in Jerez (2005), the set of equilibrium allocations may be empty and the Second Welfare Theorem may fail. This happens for two reasons. First, constrained efficient allocations may violate the necessary and sufficient conditions of price supportability for the individuals. Second, even when constrained efficient allocation are price supportable, they may fail to be a profit maximizing choice of the firm at the individual supporting prices. To restore existence of an equilibrium the firm has to be restricted to supply allocations with support in the set of incentive compatible contracts.