Research

We argue that choices that are modified, absent any informational change, can be characterized as mistakes. In an experiment, we allow subjects to choose from budgets over binary lotteries. To identify mistakes, which we interpret as deviations from optimizing behavior, we allow subjects to revise a subset of their initial choices. The set of revised decisions improve under several standard definitions of optimality. These mistakes are prevalent: subjects modify over 75% of their initial choices when given the chance. Subjects make mistakes more often when inexperienced and when choosing over lotteries with small probabilities of winning.

Using a revealed preference approach, we conduct an experiment where subjects make choices from linear convex budgets in the domain of risk. We find that many individuals prefer mixtures of lotteries in ways that systematically rule out expected utility behavior. We explore the extent to which an individual's risk preferences are related to a preference for randomization by comparing choices from a convex choice task to the decisions made in a repeated discrete choice task. We find that risk preferences are positively correlated with behavior from repeated discrete choice tasks.  

Lab evidence on trust games involves more cooperation than conventional economic theory predicts. We explore whether this pattern extends to a field setting where we are able to control for (lack of) repeat-play and reputation: the taxi market in Mexico City. We find a remarkably high degree of trustworthiness, even with price-haggling which was predicted to reduce trustworthiness.

Most decisions we make in life have uncertain consequences and impact or involve other people. Yet we do not fully understand how those two fundamental attitudes toward risks and others operate together and interact. In a flexible yet principled manner, we proposed a unified framework to study risk attitudes and other-regarding preferences. We also derive closed-form solutions to choice problems that characterize how all these preferences operate together for a parametric specification. Moreover, to test the implications of our model and those of a competing theory, we deploy a laboratory experiment that uses convex budgets to elicit preferences in four types of tasks: (1) deterministic giving, (2) fair risks, (3) risks that are ex-post unfair but ex-ante fair, and (4) probabilistic giving. We find that participants’ behavior is consistent with our model’s predictions. Subjects also exhibit both ex-post and ex-ante fairness preferences. Novel to the literature, we fit our model’s parameters at the individual level, which allows us to disentangle all four preference types: risk attitudes, altruism, inequality aversion, and ex-ante vs. ex-post fairness concerns. Notably, we estimate the weight of ex-ante fairness preferences for each individual. Finally, we compare the predictive validity of our model against a competing theory.

Previous literature analyzing the effects of incentive compatibility of experimental payment mechanisms is dominated by theory. With overwhelming evidence of theory violations in a multiplicity of domains, we fill this gap by empirically exploring the effects of different payment mechanisms in induced preference elicitation using a large sample of over 3800 participants across three experiments. In Experiment 1, we collected responses for offer prices to sell a card like in Cason and Plott (2014), systematically varying on a between-subjects basis the way subjects received payments over repeated rounds, by either paying for all decisions (and various modifications) or just one, as well as making the payments certain, probabilistic or purely hypothetical. While we find that the magnitude of the induced value and the range of the prices used to draw a random price significantly affect misbidding behavior, neither the payment mechanism nor the certainty of payment affected misbidding. In Experiment 2, we replaced the BDM mechanism with a second price auction and found similar results, albeit less misbidding rates. In Experiment 3, we examine the effect of payment mechanisms on choice under risk and find portfolio effects (i.e., paying all rounds) when the lottery pairs do not involve options with certainty. Overall, our empirical exercise shows that payment mechanism design considerations should place more weight on the choice architecture rather than on incentive compatibility.

We provide necessary and sufficient conditions for expected utility and risk-averse expected utility to rationalize behavior when the decision maker faces linear probability-prize tradeoffs. The setting subsumes those proposed in Andreoni and Harbaugh (2009) and Crosetto and Flippin (2013). The tests are intuitive, straightforward to carry out, and lead naturally to measures for how close the models are to explaining the choice sets. We implement these results empirically and show that only small portions of choice sets can be rationalized by risk-averse expected utility.

Recent debate has identified important gaps in the understanding of intertemporal risks. Critical to closing these gaps is evidence on which dimension of intertemporal risk – the risk or the time – is evaluated first. Though under discounted expected utility this ordering is of no consequence, under discounted non-expected utility models the order of evaluation is critical. We provide experimental tests in which different orderings of evaluation generate different predictions for behavior. We find more support for the notion that the risk dimension is evaluated first.