Title: Uncertainty-Driven Moral Behavior
Abstract: This paper examines how uncertainty may drive people to behave morally. We observe that subjects are more likely to share in a dictator game experiment and less likely to lie in a dice experiment, when they are in uncertain situations over two possible outcomes compared to the two corresponding deterministic situations of degenerate outcomes. Moreover, the observed pattern is stronger in more uncertain situations. To account for the observations, we propose a theoretical framework with an extended state space in which people entertain a belief that moral behavior would lead to realization of good outcome and vice versa.
Title: Uncertainty-Driven Moral Behavior
Abstract: This paper examines how uncertainty may drive people to behave morally. We observe that subjects are more likely to share in a dictator game experiment and less likely to lie in a dice experiment, when they are in uncertain situations over two possible outcomes compared to the two corresponding deterministic situations of degenerate outcomes. Moreover, the observed pattern is stronger in more uncertain situations. To account for the observations, we propose a theoretical framework with an extended state space in which people entertain a belief that moral behavior would lead to realization of good outcome and vice versa.
Title: Improving Information from Manipulable Data (joint with Alex Frankel)
Abstract: Data-based decision-making must account for the manipulation of data by agents who are aware of how decisions are being made and want to affect their allocations. We study a framework in which, due to such manipulation, data becomes less informative when decisions depend more strongly on data. We formalize why and how a decision-maker should commit to underutilizing data. Doing so attenuates information loss and thereby improves allocation accuracy.
Title: Increasing Differences, Normal Demand, and Multi-prior First Order Stochastic Dominance (with Pawel Dziewulski)
Abstract: In this paper we develop a basic result on monotone comparative statics in optimization problems where the constrained sets are changing. We apply this result to two broad areas. Using this basic result, we formulate necessary and sufficient conditions for demand to be normal and for marginal costs to be monotone in prices in classical models of production and consumption. Applying the same basic result we characterize first order stochastic dominance in multi-prior models, including maxmin expected utility, variational preferences, and multiplier preferences.
Title: Weight-Ranked Divide-and-Conquer Contracts
Abstract: This paper studies a large class of multi-agent bilateral contracting models with the property that agents payoffs constitute a weighted potential game. I fully characterize a contracting scheme that is optimal for a large set of equilibrium selection criteria and implementation requirements. This scheme ranks agents in ascending order of their weights in the weighted potential game and induces them to accept their offers in a dominance-solvable way, starting from the first agent. I apply the general results to networks and pure/impure public goods/bads.
Title: A Model of Sequential Crisis Management (joint with Jidong Zhou)
Abstract: This paper proposes a model to study the sequential response of societies to a common crisis. Due to the public's uncertainty over the severity of the crisis, the government faces a 'policy-making dilemma': if it acts aggressively and the crisis is contained, it can be accused of overreacting by the public; if it intervenes lightly and fails to contain the crisis, it can be criticised for underreacting. If there is another society which faces the same crisis afterwards, the government, however, can be relieved from this dilemma and safely take the aggressive approach. A good outcome realized in the first society makes the public in the second society optimistic and then induces a light intervention there. The resulting bad outcome helps reveal the true severity of the crisis, which justifies the first government's initial unpopular policy. Our model therefore predicts that the countries which encounter the crisis later do not necessarily perform better despite they have more information, while the earlier countries might benefit from a 'beggar-thy-neighbor' consequence.
Title: Auctions with Frictions (joint with Asher Wolinsky)
Abstract: Many markets are characterized by some forms of price competition. Auctions provide a convenient model of such informal price competition. However, existing models need to be extended to capture certain frictions that are more salient with informal price competition. In particular, the participating bidders may be the outcome of recruitment efforts by the seller and not all potential bidders may be willing to participate or submit serious bids. In addition, private information of the seller may be more consequential. Finally, the seller's commitment abilities may be limited. We develop a model of auctions with bidder recruitment and limited seler commitment that captures such scenarios and derives some novel predictions. In particular, outcomes are often inefficient and the markets sometimes "unravels".
Title: Principled Mechanism Design with Evidence (joint with Roland Strausz)
Abstract: Casting mechanism design with evidence into the general framework of Myerson (1982), we establish the validity of the usual revelation principle in this setting: Any implementable allocation rule is implementable by an incentive compatible direct mechanism inducing full revelation of information. Consequently, the role of evidence consists in providing incentives rather than information. Our approach further makes explicit that the existing literature studies evidence provision as a contractually verifiable but non-controllable action, yielding a problem of verifiable moral hazard. Extending the analysis to contractually controllable evidence provision, we show that such verifiable moral hazard is generally costly in that control has value, even under evidentiary “normality,” and we identify two conditions under which this value vanishes, one on the evidence structure, another on the preference structure.
Title: Competition under Moment Conditions (joint with Youngwoo Koh and Weijie Zhong)
Abstract: We analyze a contest in which each player chooses a random variable (distribution) subject to a set of moment constraints in order to maximize the probability that her random variable yields the highest realization. We derive a simple necessary and sufficient condition for symmetric equilibrium, which highlights how the competition level (i.e., the number of players) interacts with the given moment conditions. We also provide full characterization for a few representative settings, compare the equilibrium distribution to the principal's optimal solution, and illustrate how some of our results generalize to the asymmetric case.
Title: Risk Classification in Insurance Markets with Risk and Preference Heterogeneity
Abstract: We consider a competitive model of insurance provision where consumers are privately informed about their risk level and preferences. The presence of two-dimensional heterogeneity introduces novel distribution effects absent from the one-dimensional model typically studied in the literature. Focusing on the case of small preference heterogeneity, we obtain explicit formulas for equilibrium prices and payoffs. We use these results to study the use of demographic characteristics in pricing (risk classification) and the effect of changes to the risk distribution.
We study risk classification by considering the public release of a signal that is informative about individual risk and show that it leads interim and ex-ante welfare improvements if, and only if, the signal structure satisfies a certain monotonicity condition, while non-monotonic signals may harm some consumers and be overall welfare reducing. We also show that an increase in the risk distribution, according to the monotonic likelihood ratio property (MLRP), leads to higher prices and lower welfare, while risk-distribution increases in the sense of first order stochastic dominance (FOSD) can be beneficial for some consumers.
Title: Social Value of Information in Networked Economies
Abstract: This paper studies the welfare implications of information dissemination in networked economies. First, I study how the equilibrium use of information depends on network structures. The key result shows that a centrality measure reminiscent of Katz (1953) and Bonacich (1987) predicts the relative sensitivity of agents' equilibrium actions to private and public information. I then use this result to study how equilibrium payoffs vary with the underlying information structure. The main result relates the topology of the network to the distributional effects of information dissemination. In particular, public information can have a negative value for less central agents while having a positive value for more central ones. Moreover, in economies featuring significant heterogeneity in agents' centralities, the aggregate welfare effect of public information can be negative.
Title: Monotone Additive Statistics
Abstract: Consider the collection of bounded random variables on a nonatomic standard probability space. A statistic is a function that assigns a single real number to each random variable, for example its mean or median value. We characterize all statistics that are monotone with respect to first order stochastic dominance, and are additive with respect to independent random variables. Applications to risk and time preferences are discussed.
Title: A Theory of Brand Positioning: Product-Portfolio View
Abstract: Beyond real functional differences, brand positioning can have profound effects on the purchase decisions of consumers. Using a product-portfolio and consumer search framework, we provide a micro-foundation for why and how brand positioning can deliver credible information to consumers. Consumers form their perceptions of a brand from various interactions with all products under the same brand. We conceptualize brand positioning as the average location of a brand's products on a Hotelling-line. When consumers conduct their search for product matches, they are guided by how brands are positioned in the market. We show that niche brands naturally convey more information than mainstream brands. A firm with a mainstream brand has incentives to opportunistically dilute its brand by offering a wide range of products. A niche brand may arise as an equilibrium even in a monopolistic market because it serves as a commitment device for no dilution.
Title: Signaling under Double-Crossing Preferences
Abstract: This paper provides a general analysis of signaling under double-crossing preferences with a continuum of types. There are natural economic environments where indifference curves of two types cross twice, so that the celebrated single-crossing property fails to hold. Equilibrium exhibits a particular form of pooling: there is a threshold type below which types choose actions that are fully revealing and above which they choose actions that are clustered in possibly non-monotonic ways, with a gap separating these two sets of types. We also provide an algorithm to establish equilibrium existence by construction under mild conditions.
Title: Attitudes Towards Success and Failure
Abstract: While personality has long been central to the study of psychology, it is only recently that it has drawn attention in economics, and it has done so mainly from an empirical perspective. Traits related to attitudes towards success and failure appear particularly important for economic contexts. Currently, however, we do not have a clear definition of such attitudes in terms of preferences, in a way analogous to attitude towards risk or time. This paper proposes definitions of failure avoidance, success seeking, and related but separate attitudes towards failure and success, in terms of individuals' preferences over lotteries.
Within a standard expected utility framework, appended with a reference point, we characterize properties of the Bernoulli utility functions associated with such attitudes. These properties concern: (i) the relationship between the curvature of the utility functions in the failure and the success regions; (ii) the shape of function at the reference point, which may either exhibit a discontinuity or different shape of kinks. We also show that failure avoidance accommodates, as a special case, the well-known notion of loss aversion (e.g., Kahneman and Tversky, 1979), which we characterize in terms of primitive preferences over lotteries, while success seeking includes a representation sometimes used in models of aspirations (e.g., Genicot and Ray, 2017).
Lastly, we turn to comparative statics: we define the meaning of having more or less of each of these attitudes in the space of the primitive preferences over lotteries, and we characterize such orderings in terms of tractable indices based on the key features of the utility representations.