Experimental economics, behavioral economics, applied micro, behavioral finance
PUBLISHED & FORTHCOMING ARTICLES
The Common-Probability Auction Puzzle with Andrew Schotter.
American Economic Review 2023, 113(6): 1572–1599.
Featured: Anderson Review
Abstract: This paper presents a puzzle in the behavior of experimental subjects in what we call common-probability auctions. In common-value auctions, uncertainty is defined over values while, in common-probability auctions, uncertainty is defined over probabilities. We find that in contrast to the substantial overbidding found in common-value auctions, bidding in strategically equivalent common-probability auctions is consistent with Nash-equilibrium. In our experiments we isolate the different steps of reasoning involved in the bidding process and conclude that in competitive environments the difference in bids across our two auctions stems from differences in the way subjects estimate the object's value they are bidding for rather than the way they bid conditional on these valuations.
Learning from unrealized vs. realized prices with Georg Weizsäcker.
American Economic Journal: Microeconomics 2021, 13(2): 174–201.
Earlier version in pdf: DIW Discussion Paper 1487.
Abstract: Our experiments investigate the extent to which traders learn from the price, differentiating between situations where orders are submitted before versus after the price has realized. In simultaneous markets with bids that are conditional on the price, traders neglect the information conveyed by the hypothetical value of the price. In sequential markets where the price is known prior to the bid submission, traders react to price to an extent that is roughly consistent with the benchmark theory. The difference’s robustness to a number of variations provides insights about the drivers of this effect.
Journal of Economic Theory 195 (2021) 105282.
Abstract: This experiment studies belief updating under ambiguity, using subjects’ bid and ask prices for an asset with ambiguous payoff distribution. Bid and ask quotes allow for distinguishing between the two main paradigms of updating under ambiguity–full Bayesian updating and maximum likelihood updating. We find substantial heterogeneity in subjects' reaction to information. The majority of subjects (54%) chose quotes that were in line with full Bayesian updating, but another non-negligible group (35%) behaved like maximum likelihood updaters.
The Resolution of Uncertainty in the Value and Probability Domains with Eungik Lee and Andrew Schotter.
Abstract: We compare preferences for temporal resolution when uncertainty is resolved over a probability rather than a value. In various frameworks–e.g., Kreps and Porteus (1978)–, preferences over gradual versus one-shot resolution do not depend on whether values or probabilities define the main object of uncertainty. In our experiment, however, most subjects resolved uncertain values gradually but uncertain probabilities all at once–both in the gain and loss frames. This systematic discrepancy motivates an explanation for it that we call “process utility”, which highlights the importance of information processing when deducing revealed preferences for temporal resolution from choice data.