CaltechAUTHORS: Article
https://feeds.library.caltech.edu/people/Echenique-F/article.rss
A Caltech Library Repository Feedhttp://www.rssboard.org/rss-specificationpython-feedgenenWed, 11 Sep 2024 18:57:11 -0700Are stabilization programs expansionary?
https://resolver.caltech.edu/CaltechAUTHORS:20101008-085514476
Year: 2000
The empirical evidence presented in this paper casts doubts on the by now widely accepted "fact"that exchange rate based stabilization programs are expansionary. Even though these programs were associated with output booms, no evidence was found to support the thesis that the booms were caused by the stabilization programs. Rather, positive external shocks seem to have caused both the output booms and the stabilization programs.https://resolver.caltech.edu/CaltechAUTHORS:20101008-085514476Monotone Preferences over Information
https://resolver.caltech.edu/CaltechAUTHORS:20101004-101111961
Year: 2001
We consider preference relations over information that are monotone: more information is preferred to less. We prove that, if a preference relation on information about an uncountable set of states of nature is monotone, then it is not representable by a utility function.https://resolver.caltech.edu/CaltechAUTHORS:20101004-101111961Comparative Statics by Adaptive Dynamics and the Correspondence Principle
https://resolver.caltech.edu/CaltechAUTHORS:20101004-095913907
Year: 2002
N/Ahttps://resolver.caltech.edu/CaltechAUTHORS:20101004-095913907Strong comparative statics of equilibria
https://resolver.caltech.edu/CaltechAUTHORS:20100929-152217484
Year: 2003
DOI: 10.1016/S0899-8256(02)00548-1
Some results in the monotone comparative statics literature tell us that if a parameter increases, some old equilibria are smaller than some new equilibria. We give a sufficient condition such that at a new parameter value every old equilibrium is smaller than every new equilibrium. We also adapt a standard algorithm to compute a minimal such newer parameter value and apply this algorithm to a game of network externalities. Our results are independent of a theory of equilibrium selection and are valid for games of strategic complementarities.https://resolver.caltech.edu/CaltechAUTHORS:20100929-152217484Mixed equilibria in games of strategic complementarities
https://resolver.caltech.edu/CaltechAUTHORS:20100929-165802397
Year: 2003
DOI: 10.1007/s00199-002-0277-8
The literature on games of strategic complementarities (GSC) has focused on pure strategies. I introduce mixed strategies and show that, when strategy spaces are one-dimensional, the complementarities framework extends to mixed strategies ordered by first-order stochastic dominance. In particular, the mixed extension of a GSC is a GSC, the full set of equilibria is a complete lattice and the extremal equilibria (smallest and largest) are in pure strategies. The framework does not extend when strategy spaces are multi-dimensional. I also update learning results for GSC using stochastic fictitious play.https://resolver.caltech.edu/CaltechAUTHORS:20100929-165802397The equilibrium set of two-player games with complementarities is a sublattice
https://resolver.caltech.edu/CaltechAUTHORS:20100929-170823228
Year: 2003
DOI: 10.1007/s00199-002-0337-0
I prove that the equilibrium set in a two-player game with complementarities, and totally ordered strategy spaces, is a sublattice of the joint strategy space.https://resolver.caltech.edu/CaltechAUTHORS:20100929-170823228A characterization of strategic complementarities
https://resolver.caltech.edu/CaltechAUTHORS:20100929-154731523
Year: 2004
DOI: 10.1016/S0899-8256(03)00118-0
I characterize games for which there is an order on strategies such that the game has strategic complementarities. I prove that, with some qualifications, games with a unique equilibrium have complementarities if and only if Cournot best-response dynamics has no cycles; and that all games with multiple equilibria have complementarities. As applications of my results, I show that: (1) generic 2×2 games either have no pure-strategy equilibria, or have complementarities; (2) generic two-player finite ordinal potential games have complementarities.https://resolver.caltech.edu/CaltechAUTHORS:20100929-154731523A weak correspondence principle for models with complementarities
https://resolver.caltech.edu/CaltechAUTHORS:20101004-102525825
Year: 2004
DOI: 10.1016/S0304-4068(03)00090-9
I prove that, in models with complementarities, some non-monotone comparative statics must select unstable equilibria; and, under additional regularity conditions, that monotone comparative statics selects stable equilibria.https://resolver.caltech.edu/CaltechAUTHORS:20101004-102525825Extensive-form games and strategic complementarities
https://resolver.caltech.edu/CaltechAUTHORS:20100929-155427372
Year: 2004
DOI: 10.1016/S0899-8256(03)00122-2
I prove the subgame-perfect equivalent of the basic result for Nash equilibria in normal-form games of strategic complements: the set of subgame-perfect equilibria is a nonempty, complete lattice—in particular, subgame-perfect Nash equilibria exist. For this purpose I introduce a device that allows the study of the set of subgame-perfect equilibria as the set of fixed points of a correspondence. My results are limited because extensive-form games of strategic complementarities turn out—surprisingly—to be a very restrictive class of games.https://resolver.caltech.edu/CaltechAUTHORS:20100929-155427372Information is not about measurability
https://resolver.caltech.edu/CaltechAUTHORS:20101004-103515138
Year: 2004
DOI: 10.1016/S0165-4896(03)00083-0
We present a simple example where the use of σ-algebras as a model of information leads to a paradoxical conclusion: a decisionmaker prefers less information to more. We then explain that the problem arises because the use of σ-algebras as the informational content of a signal is inadequate. We provide a characterization of the different models of information in the literature in terms of Blackwell's theorem.https://resolver.caltech.edu/CaltechAUTHORS:20101004-103515138Core many-to-one matchings by fixed-point methods
https://resolver.caltech.edu/CaltechAUTHORS:20100929-153536535
Year: 2004
DOI: 10.1016/S0022-0531(03)00184-4
We characterize the core many-to-one matchings as fixed points of a map. Our characterization gives an algorithm for finding core allocations; the algorithm is efficient and simple to implement. Our characterization does not require substitutable preferences, so it is separate from the structure needed for the non-emptiness of the core. When preferences are substitutable, our characterization gives a simple proof of the lattice structure of core matchings, and it gives a method for computing the join and meet of two core matchings.https://resolver.caltech.edu/CaltechAUTHORS:20100929-153536535Mixed equilibria are unstable in games of strategic complements
https://resolver.caltech.edu/CaltechAUTHORS:20101004-104904914
Year: 2004
DOI: 10.1016/j.jet.2003.10.004
In games with strict strategic complementarities, properly mixed Nash equilibria—equilibria that are not in pure strategies—are unstable for a broad class of learning dynamics.https://resolver.caltech.edu/CaltechAUTHORS:20101004-104904914A short and constructive proof of Tarski's fixed-point theorem
https://resolver.caltech.edu/CaltechAUTHORS:20101004-105805417
Year: 2005
DOI: 10.1007/s001820400192
I give short and constructive proofs of Tarski's fixed-point theorem, and of Zhou's extension of Tarski's fixed-point theorem to set-valued maps.https://resolver.caltech.edu/CaltechAUTHORS:20101004-105805417Is school segregation good or bad?
https://resolver.caltech.edu/CaltechAUTHORS:ECHaer06
Year: 2006
DOI: 10.1257/000282806777212198
It has been well documented that segregation across schools — denying access to resources, inferior educational production functions, and so on — exacerbates racial differences in achievement. Using an individual measure of social connections within schools, we have shown that this form of segregation — Asian kids sitting together in the cafeteria — has a substantively unimportant relationship with academic achievement or social behavior in school or later in life. There are important caveats to our analysis: (a) our estimates of the relationship between within - school segregation and outcomes are not causal; and (b) friendships may not be the only relevant cross-race social interaction that occurs within a school.https://resolver.caltech.edu/CaltechAUTHORS:ECHaer06A theory of stability in many-to-many matching markets
https://resolver.caltech.edu/CaltechAUTHORS:ECHte06
Year: 2006
We develop a theory of stability in many-to-many matching markets. We give conditions under which the setwise-stable set, a core-like concept, is nonempty and can be approached through an algorithm. The usual core may be empty. The setwise-stable set coincides with the pairwise-stable set and with the predictions of a non-cooperative bargaining model. The setwise-stable set possesses the conflict/coincidence of interest properties from many-to-one, and one-to-one models. The theory parallels the standard theory of stability for many-to-one, and one-to-one, models. We provide results for a number of core-like solutions, besides the setwise-stable set.https://resolver.caltech.edu/CaltechAUTHORS:ECHte06Counting combinatorial choice rules
https://resolver.caltech.edu/CaltechAUTHORS:20100929-155813419
Year: 2007
DOI: 10.1016/j.geb.2006.03.009
I count the number of combinatorial choice rules that satisfy certain properties: Kelso–Crawford substitutability, and independence of irrelevant alternatives. The results are important for two-sided matching theory, where agents are modeled by combinatorial choice rules with these properties. The rules are a small, and asymptotically vanishing, fraction of all choice rules. But they are still exponentially more than the preference relations over individual agents—which has positive implications for the Gale–Shapley algorithm of matching theory.https://resolver.caltech.edu/CaltechAUTHORS:20100929-155813419A solution to matching with preferences over colleagues
https://resolver.caltech.edu/CaltechAUTHORS:20100929-160859854
Year: 2007
DOI: 10.1016/j.geb.2006.07.003
We study many-to-one matchings, such as the assignment of students to colleges, where the students have preferences over the other students who would attend the same college. It is well known that the core of this model may be empty, without strong assumptions on agents' preferences. We introduce a method that finds all core matchings, if any exist. The method requires no assumptions on preferences. Our method also finds certain partial solutions that may be useful when the core is empty.https://resolver.caltech.edu/CaltechAUTHORS:20100929-160859854A Measure of Segregation Based on Social Interactions
https://resolver.caltech.edu/CaltechAUTHORS:ECHqje07
Year: 2007
DOI: 10.1162/qjec.122.2.441
We develop an index of segregation based on two premises: (1) a measure of segregation should disaggregate to the level of individuals, and (2) an individual is more segregated the more segregated are the agents with whom she interacts. We present an index that satisfies (1) and (2) and that is based on agents' social interactions: the extent to which blacks interact with blacks, whites with whites, etc. We use the index to measure school and residential segregation. Using detailed data on friendship networks, we calculate levels of within-school racial segregation in a sample of U. S. schools. We also calculate residential segregation across major U. S. cities, using block-level data from the 2000 U. S. Census.https://resolver.caltech.edu/CaltechAUTHORS:ECHqje07Finding all equilibria in games of strategic complements
https://resolver.caltech.edu/CaltechAUTHORS:20100929-152334467
Year: 2007
DOI: 10.1016/j.jet.2006.06.001
I present a simple and fast algorithm that finds all the pure-strategy Nash equilibria in games with strategic complementarities. This is the first non-trivial algorithm for finding all pure-strategy Nash equilibria.https://resolver.caltech.edu/CaltechAUTHORS:20100929-152334467Cohesion, Insurance and Redistribution
https://resolver.caltech.edu/CaltechAUTHORS:ECHqjps07
Year: 2007
DOI: 10.1561/100.00006056
Governments use redistributive policies to favor relatively unproductive economic sectors. Traditional economic wisdom teaches that the government should instead buy out the agents in these sectors, and let them relocate to more productive sectors. We show that redistribution to a sector whose agents have highly correlated incomes generates an insurance value. Taking this insurance value into account, a buy-out is not sufficient to compensate the agents in the sector for relocating. In fact, it may be efficient for the government to sustain agents in an activity that, while less productive, is subject to correlated income shocks. US data suggests that indeed, sectors that receive transfers are subject to more correlated income shocks than others.https://resolver.caltech.edu/CaltechAUTHORS:ECHqjps07English auctions and the Stolper–Samuelson theorem
https://resolver.caltech.edu/CaltechAUTHORS:DUBjet08
Year: 2008
DOI: 10.1016/j.jet.2008.07.001
We prove that the English auction (with bidders that need not be ex ante identical and may have interdependent valuations) has an efficient ex post equilibrium. We establish this result for environments where it has not been previously obtained. We also prove two versions of the Stolper–Samuelson theorem, one for economies with n goods and n factors, and one for non-square economies. Similar assumptions and methods underlie these seemingly unrelated results.https://resolver.caltech.edu/CaltechAUTHORS:DUBjet08What matchings can be stable? The testable implications of matching theory
https://resolver.caltech.edu/CaltechAUTHORS:ECHmor08
Year: 2008
DOI: 10.1287/moor.1080.0318
This paper studies the falsifiability of two-sided matching theory when agents' preferences are unknown. A collection of matchings is rationalizable if there are preferences for the agents involved so that the matchings are stable. We show that there are nonrationalizable collections of matchings; hence, the theory is falsifiable. We also characterize the rationalizable collections of matchings, which leads to a test of matching theory in the spirit of revealed-preference tests of individual optimizing behavior.https://resolver.caltech.edu/CaltechAUTHORS:ECHmor08Ordinal notions of submodularity
https://resolver.caltech.edu/CaltechAUTHORS:CHAjme08
Year: 2008
DOI: 10.1016/j.jmateco.2008.03.001
We consider several ordinal formulations of submodularity, defined for arbitrary binary relations on lattices. Two of these formulations are essentially due to Kreps [Kreps, D.M., 1979. A representation theorem for "Preference for Flexibility". Econometrica 47 (3), 565–578] and one is a weakening of a notion due to Milgrom and Shannon [Milgrom, P., Shannon, C., 1994. Monotone comparative statics. Econometrica 62 (1), 157–180]. We show that any reflexive binary relation satisfying either of Kreps's definitions also satisfies Milgrom and Shannon's definition, and that any transitive and monotonic binary relation satisfying the Milgrom and Shannon's condition satisfies both of Kreps's conditions.https://resolver.caltech.edu/CaltechAUTHORS:CHAjme08Supermodularity and preferences
https://resolver.caltech.edu/CaltechAUTHORS:20100929-143716093
Year: 2009
DOI: 10.1016/j.jet.2008.06.004
We uncover the complete ordinal implications of supermodularity on finite lattices under the assumption of weak monotonicity. In this environment, we show that supermodularity is ordinally equivalent to the notion of quasisupermodularity introduced by Milgrom and Shannon. We conclude that supermodularity is a weak property, in the sense that many preferences have a supermodular representation.https://resolver.caltech.edu/CaltechAUTHORS:20100929-143716093Sequential entry in many-to-one matching markets
https://resolver.caltech.edu/CaltechAUTHORS:BOYscw08
Year: 2009
DOI: 10.1007/s00355-008-0347-3
We study sequential bargaining in many-to-one matching markets. We show that there is an advantage to entering late in the market, and that the last agent to enter the market will receive his or her best partner in a stable matching, extending the results of Blum and Rothblum (J Econ Theory 103(2):429–443, 2002) and Cechlárová (Randomized matching mechanism revisited. Mimeo, Safarik University, 2002) for the marriage model.We also discuss the relation between sequential bargaining and a possible alternative formulation based on the NTU Shapley value.https://resolver.caltech.edu/CaltechAUTHORS:BOYscw08Testing Models With Multiple Equilibria by Quantile Methods
https://resolver.caltech.edu/CaltechAUTHORS:20090819-112123347
Year: 2009
DOI: 10.3982/ECTA6223
This paper proposes a method for testing complementarities between explanatory and dependent variables in a large class of economic models. The proposed test is based on the monotone comparative statics (MCS) property of equilibria. Our main result is that MCS produces testable implications on the (small and large) quantiles of the dependent variable, despite the presence of multiple equilibria. The key features of our approach are that (i) we work with a nonparametric structural model of a continuous dependent variable in which the unobservable is allowed to be correlated with the explanatory variable in a reasonably general way; (ii) we do not require the structural function to be known or estimable; (iii) we remain fairly agnostic on how an equilibrium is selected. We illustrate the usefulness of our result for policy evaluation within Berry, Levinsohn, and Pakes's (1999) model.https://resolver.caltech.edu/CaltechAUTHORS:20090819-112123347Profit maximization and supermodular technology
https://resolver.caltech.edu/CaltechAUTHORS:20091006-144532274
Year: 2009
DOI: 10.1007/s00199-008-0340-1
A dataset is a list of observed factor inputs and prices for a technology; profits and production levels are unobserved. We obtain necessary and sufficient conditions for a dataset to be consistent with profit maximization under a monotone and concave revenue based on the notion of cyclic monotonicity. Our result implies that monotonicity and concavity cannot be tested, and that one cannot decide if a firm is competitive based on factor demands. We also introduce a condition, cyclic supermodularity, which is both necessary and sufficient for data to be consistent with a supermodular technology. Cyclic supermodularity provides a test for complementarity of production factors.https://resolver.caltech.edu/CaltechAUTHORS:20091006-144532274On behavioral complementarity and its implications
https://resolver.caltech.edu/CaltechAUTHORS:20101004-113353153
Year: 2010
DOI: 10.1016/j.jet.2010.08.004
We study the behavioral definition of complementary goods: if the price of one good increases, demand for a complementary good must decrease. We obtain its full implications for observable demand behavior (its testable implications), and for the consumer's underlying preferences. We characterize those data sets which can be generated by rational preferences exhibiting complementarities. The class of preferences that generate demand complements has Leontief and Cobb–Douglas as its as extreme members.https://resolver.caltech.edu/CaltechAUTHORS:20101004-113353153Testable Implications of Gross Substitutes in Demand for Two Goods
https://resolver.caltech.edu/CaltechAUTHORS:20160317-150553469
Year: 2011
DOI: 10.1257/mic.3.1.129
We present a nonparametric "revealed-preference test" for gross substitutes in demand for two goodshttps://resolver.caltech.edu/CaltechAUTHORS:20160317-150553469Implications of Pareto efficiency for two-agent (household) choice
https://resolver.caltech.edu/CaltechAUTHORS:20110713-073733616
Year: 2011
DOI: 10.1016/j.jmateco.2011.01.001
We study when two-member household choice behavior is compatible with Pareto optimality. We ask when an external observer of household choices, who does not know the individuals' preferences, can rationalize the choices as being Pareto-optimal. Our main contribution is to reduce the problem of rationalization to a graph-coloring problem. As a result, we obtain simple tests for Pareto optimal choice behavior. In addition to the tests, and using our graph-theoretic representation, we show that Pareto rationalization is equivalent to a system of quadratic equations being solvable.https://resolver.caltech.edu/CaltechAUTHORS:20110713-073733616Complexity and economics: computational constraints may not matter empirically
https://resolver.caltech.edu/CaltechAUTHORS:20160321-131503486
Year: 2011
DOI: 10.1145/1978721.1978722
Recent results in complexity theory suggest that various economic theories require agents to solve intractable problems. However, such results assume the agents are optimizing explicit utility functions, whereas the economic theories merely assume the agents' behavior is rationalizable by the optimization of some utility function.
For a major economic theory, the theory of the consumer, we show that behaving in a rationalizable way is easier than the corresponding optimization problem. Specifically, if an agent's behavior is at all rationalizable, then it is rationalizable using a utility function that is easy to maximize in every budget set.https://resolver.caltech.edu/CaltechAUTHORS:20160321-131503486The Money Pump as a Measure of Revealed Preference Violations
https://resolver.caltech.edu/CaltechAUTHORS:20160317-145446059
Year: 2011
DOI: 10.1086/665011
We introduce a measure of the severity of violations of the revealed preference axioms, the money pump index (MPI). The MPI is the amount of money one can extract from a consumer who violates the axioms. It is also a statistical test for the hypothesis that a consumer is rational when behavior is observed with error. We present an application using a panel data set of food expenditures. The data exhibit many violations of the axioms. Mostly, the MPI for these violations is small. The MPI indicates that the hypothesis of consumer rationality cannot be rejected.https://resolver.caltech.edu/CaltechAUTHORS:20160317-145446059Contracts versus Salaries in Matching
https://resolver.caltech.edu/CaltechAUTHORS:20171102-165954225
Year: 2012
DOI: 10.1257/aer.102.1.594
Firms and workers may sign complex contracts that govern many aspects of their interactions. I show that when firms regard contracts as substitutes, bargaining over contracts can be understood as bargaining only over wages. Substitutes is the assumption commonly used to guarantee the existence of stable matchings of workers and firms.https://resolver.caltech.edu/CaltechAUTHORS:20171102-165954225When does aggregation reduce risk aversion?
https://resolver.caltech.edu/CaltechAUTHORS:20130214-101049767
Year: 2012
DOI: 10.1016/j.geb.2012.07.015
We study the problem of risk sharing within a household or syndicate. A household
shares risky prospects using a social welfare functional. We characterize the social welfare
functionals such that the household is collectively less risk averse than each member,
and satisfies the Pareto principle and an invariance axiom. We single out the sum of
certainty equivalents as the unique member of this family which is quasiconcave over
riskless allocations.https://resolver.caltech.edu/CaltechAUTHORS:20130214-101049767The Revealed Preference Theory of Stable and Extremal Stable Matchings
https://resolver.caltech.edu/CaltechAUTHORS:20130225-081304317
Year: 2013
DOI: 10.3982/ECTA10011
We investigate the testable implications of the theory of stable matchings. We provide a characterization of the matchings that are rationalizable as stable matchings when agents' preferences are unobserved. The characterization is a simple nonparametric test for stability, in the tradition of revealed preference tests. We also characterize the observed stable matchings when monetary transfers are allowed and the stable matchings that are best for one side of the market: extremal stable matchings. We find that the theory of extremal stable matchings is observationally equivalent to requiring that there be a unique stable matching or that the matching be consistent with unrestricted monetary transfers.https://resolver.caltech.edu/CaltechAUTHORS:20130225-081304317On the consistency of data with bargaining theories
https://resolver.caltech.edu/CaltechAUTHORS:20140307-082628059
Year: 2014
DOI: 10.3982/TE1095
We develop observable restrictions of well known theories of bargaining over money. We suppose that we observe a finite data set of bargaining outcomes, including data on allocations and disagreement points, but no information on utility functions. We ask when a given theory could generate the data. We show that if the disagreement point is fixed and symmetric, the Nash, utilitarian, and egalitarian max-min bargaining solutions are all observationally equivalent. Data compatible with these theories are, in turn, characterized by the property of co-monotonicity of bargaining outcomes.
We establish different tests for each of the theories under consideration in the case in which the disagreement point can be variable. Our results are readily applicable, outside of the bargaining framework, to testing the tax code for compliance with the principle of equal loss.https://resolver.caltech.edu/CaltechAUTHORS:20140307-082628059The Axiomatic Structure of Empirical Content
https://resolver.caltech.edu/CaltechAUTHORS:20141007-100805737
Year: 2014
DOI: 10.1257/aer.104.8.2303
We define the empirical content of an economic theory as the least restrictive observationally equivalent theory. We show that the empirical content of a theory is captured by a certain kind of axiomatization, with axioms that are universal negations of conjunctions of atomic formulae.https://resolver.caltech.edu/CaltechAUTHORS:20141007-100805737The Core Matchings of Markets with Transfers
https://resolver.caltech.edu/CaltechAUTHORS:20101008-104911510
Year: 2015
DOI: 10.1257/mic.20130089
We characterize the structure of the set of core matchings of an assignment game (a two-sided market with transfers). Such a set satisfies a property we call consistency. Consistency of a set of matchings states that, for any matching v, if, for each agent i there exists a matching μ in the set for which μ(i) = v(i), then v is in the set. A set of matchings satisfies consistency if and only if there is an assignment game for which all elements of the set maximize the surplus.https://resolver.caltech.edu/CaltechAUTHORS:20101008-104911510Savage in the Market
https://resolver.caltech.edu/CaltechAUTHORS:20150828-084210399
Year: 2015
DOI: 10.3982/ECTA12273
We develop a behavioral axiomatic characterization of subjective expected utility (SEU) under risk aversion. Given is an individual agent's behavior in the market: assume a finite collection of asset purchases with corresponding prices. We show that such behavior satisfies a "revealed preference axiom" if and only if there exists a SEU model (a subjective probability over states and a concave utility function over money) that accounts for the given asset purchases.https://resolver.caltech.edu/CaltechAUTHORS:20150828-084210399How to Control Controlled School Choice
https://resolver.caltech.edu/CaltechAUTHORS:20150828-083614475
Year: 2015
DOI: 10.1257/aer.20130929
We characterize choice rules for schools that regard students as substitutes while expressing preferences for a diverse student body. The stable (or fair) assignment of students to schools requires the latter to regard the former as substitutes. Such a requirement is in conflict with the reality of schools' preferences for diversity. We show that the conflict can be useful, in the sense that certain unique rules emerge from imposing both considerations. We also provide welfare comparisons for students when different choice rules are employed.https://resolver.caltech.edu/CaltechAUTHORS:20150828-083614475Strategic complementarities and unraveling in matching markets
https://resolver.caltech.edu/CaltechAUTHORS:20160225-150950399
Year: 2016
DOI: 10.3982/TE1831
We present a theoretical explanation of inefficient early matching in matching markets. Our explanation is based on strategic complementarities and strategic unraveling. We identify a negative externality imposed on the rest of the market by agents who make early offers. As a consequence, an agent may make an early offer because she is concerned that others are making early offers. Yet other agents make early offers because they are concerned that others worry about early offers, and so on and so forth. The end result is that any given agent is more likely to make an early offer than a late offer.https://resolver.caltech.edu/CaltechAUTHORS:20160225-150950399The Empirical Implications of Privacy-Aware Choice
https://resolver.caltech.edu/CaltechAUTHORS:20160602-090011567
Year: 2016
DOI: 10.1287/opre.2015.1458
This paper initiates the study of the testable implications of choice data in settings where agents have privacy preferences. We adapt the standard conceptualization of consumer choice theory to a situation where the consumer is aware of, and has preferences over, the information revealed by her choices. The main message of the paper is that little can be inferred about consumers' preferences once we introduce the possibility that the consumer has concerns about privacy. This holds even when consumers' privacy preferences are assumed to be monotonic and separable. This motivates the consideration of stronger assumptions and, to that end, we introduce an additive model for privacy preferences that has testable implications.https://resolver.caltech.edu/CaltechAUTHORS:20160602-090011567Testing theories of financial decision making
https://resolver.caltech.edu/CaltechAUTHORS:20160329-072655949
Year: 2016
DOI: 10.1073/pnas.1517760113
PMCID: PMC4839416
We describe the observable content of some of the most widely used models of decision under uncertainty: models of translation invariant preferences. In particular, we characterize the models of variational, maxmin, constant absolute risk aversion, and constant relative risk aversion utilities. In each case we present a revealed preference axiom that is satisfied by a dataset if and only if the dataset is consistent with the corresponding utility representation. We test our axioms using data from an experiment on financial decisions.https://resolver.caltech.edu/CaltechAUTHORS:20160329-072655949Efficiency and Bargaining Power in the Interbank Loan Market
https://resolver.caltech.edu/CaltechAUTHORS:20160527-090941607
Year: 2016
DOI: 10.1111/iere.12173
Using detailed transactions-level data on interbank loans, we examine the efficiency of an overnight interbank lending market and the bargaining power of its participants. Our analysis relies on the equilibrium concept of the core, which imposes a set of no-arbitrage conditions on trades in the market. For Canada's Large Value Transfer System, we show that although the market is fairly efficient, systemic inefficiency persists throughout our sample. The level of inefficiency matches distinct phases of both the Bank of Canada's operations as well as phases of the 2007–8 financial crisis. We find that bargaining power tilted sharply toward borrowers as the financial crisis progressed and (surprisingly) toward riskier borrowers.https://resolver.caltech.edu/CaltechAUTHORS:20160527-090941607Clearinghouses for two-sided matching: An experimental study
https://resolver.caltech.edu/CaltechAUTHORS:20170105-162456663
Year: 2016
DOI: 10.3982/QE496
We experimentally study the Gale and Shapley, 1962 mechanism, which is utilized in a wide set of applications, most prominently the National Resident Matching Program (NRMP). Several insights come out of our analysis. First, only 48% of our observed outcomes are stable, and among those a large majority culminate at the receiver-optimal stable matching. Second, receivers rarely truncate their true preferences: it is the proposers who do not make offers in order of their preference, frequently skipping potential partners. Third, market characteristics affect behavior: both the cardinal representation and core size influence whether laboratory outcomes are stable. We conclude by using our controlled results and a behavioral model to shed light on a number of stylized facts we derive from new NRMP survey and outcome data, and to explain the small cores previously documented for the NRMP.https://resolver.caltech.edu/CaltechAUTHORS:20170105-162456663Ordinal and cardinal solution concepts for two-sided matching
https://resolver.caltech.edu/CaltechAUTHORS:20170417-152127453
Year: 2017
DOI: 10.1016/j.geb.2015.10.002
We characterize solutions for two-sided matching, both in the transferable- and in the nontransferable-utility frameworks, using a cardinal formulation. Our approach makes the comparison of the matching models with and without transfers particularly transparent. We introduce the concept of a no-trade stable matching to study the role of transfers in matching. A no-trade stable matching is one in which the availability of transfers does not affect the outcome.https://resolver.caltech.edu/CaltechAUTHORS:20170417-152127453General revealed preference theory
https://resolver.caltech.edu/CaltechAUTHORS:20170622-074223418
Year: 2017
DOI: 10.3982/TE1924
We generalize the standard revealed preference exercise in economics, and prove a sufficient condition under which the revealed preference formulation of an economic theory has universal implications and when these implications can be recursively enumerated. We apply our theorem to two theories of group behavior: the theory of group preference and the theory of Nash equilibrium.https://resolver.caltech.edu/CaltechAUTHORS:20170622-074223418Response time and utility
https://resolver.caltech.edu/CaltechAUTHORS:20170628-110121372
Year: 2017
DOI: 10.1016/j.jebo.2017.04.008
Response time is the time an agent needs to make a decision. One fundamental finding in psychology and neuroscience is that, in a binary choice, there is a monotonic relationship between the response time and the difference between the utilities of the two options. We consider situations in which utilities are not observed, but rather inferred from revealed preferences: meaning they are inferred from subjects' choices. Given data on subjects' choices, and the time to make those choices, we give conditions on the data that characterize the property that response time is a monotonic function of utility differences.https://resolver.caltech.edu/CaltechAUTHORS:20170628-110121372On path independent stochastic choice
https://resolver.caltech.edu/CaltechAUTHORS:20180215-100647346
Year: 2018
DOI: 10.3982/TE2653
We investigate stochastic choice when only the average and not the entire distribution of choices is observable, focusing attention on the popular Luce model. Choice is path independent if it is recursive, in the sense that choosing from a menu can be broken up into choosing from smaller submenus. While an important property, path independence is known to be incompatible with continuous choice. The main result of our paper is that a natural modification of path independence, which we call partial path independence, is not only compatible with continuity, but ends up characterizing the ubiquitous Luce (or logit) rule.https://resolver.caltech.edu/CaltechAUTHORS:20180215-100647346A Characterization of Combinatorial Demand
https://resolver.caltech.edu/CaltechAUTHORS:20180329-161710055
Year: 2018
DOI: 10.1287/moor.2017.0859
We prove that combinatorial demand functions are characterized by two properties: continuity and the law of demand.https://resolver.caltech.edu/CaltechAUTHORS:20180329-161710055The perception-adjusted Luce model
https://resolver.caltech.edu/CaltechAUTHORS:20180228-092329391
Year: 2018
DOI: 10.1016/j.mathsocsci.2018.02.004
We develop an axiomatic theory of random choice that builds on Luce's (1959) model to incorporate a role for perception. We capture the role of perception through perception priorities; priorities that determine whether an object or alternative is perceived sooner or later than other alternatives. We identify agents' perception priorities from their violations of Luce's axiom of independence from irrelevant alternatives (IIA). The direction of the violation of IIA implies an orientation of agents' priority rankings. We adjust choice probabilities to account for the effects of perception, and impose that adjusted choice probabilities satisfy IIA. So all violations of IIA are accounted for by the perception order. The theory can explain some very well-documented behavioral phenomena in individual choice.https://resolver.caltech.edu/CaltechAUTHORS:20180228-092329391On Multiple Discount Rates
https://resolver.caltech.edu/CaltechAUTHORS:20180817-125113975
Year: 2018
DOI: 10.3982/ECTA14866
We study the problem of resolving conflicting discount rates via a social choice approach. We introduce several axioms, seeking to capture the tension between allowing for intergenerational comparisons of utility, and imposing intergenerational fairness. Depending on which axioms are judged appropriate, we are led to one of several conclusions: a utilitarian, maxmin, or a multi‐utilitarian rule, whereby a utility stream is judged by the worst in a set of utilitarian weighting schemes across discount rates.https://resolver.caltech.edu/CaltechAUTHORS:20180817-125113975General Luce model
https://resolver.caltech.edu/CaltechAUTHORS:20191114-143959789
Year: 2019
DOI: 10.1007/s00199-018-1145-5
We extend the Luce model of discrete choice theory to satisfactorily handle zero-probability choices. The Luce mode struggles to explain choices that are not made. The model requires that if an alternative y is never chosen when x is available, then there is no set of alternatives from which y is chosen with positive probability. In our model, if an alternative y is never chosen when x is available, then we infer that y is dominated by x. While dominated by x, y may still be chosen with positive probability, when grouped with a comparable set of alternatives.https://resolver.caltech.edu/CaltechAUTHORS:20191114-143959789The Pareto Comparisons of a Group of Exponential Discounters
https://resolver.caltech.edu/CaltechAUTHORS:20200521-105245076
Year: 2020
DOI: 10.1287/moor.2019.1004
Agents with different discount factors disagree about some intertemporal trade-offs, but they will also agree sometimes. We seek to understand precisely the nature of their agreements and disagreements. A group of agents is identified with a set of discount factors. We characterize the comparisons that a given interval of discount factors will agree on, including what all discount factors in the interval [0, 1] will agree on. Our result is analogous to how all risk-averse and monotone agents agree on mean-preserving spreads. Motivated by a maxmin representation, we also characterize the comparisons that are consistent with some set of discount factors, when the set is not known or exogenously given. In other words, we describe the Pareto comparisons that are consistent with a society, or group, of exponentially discounting agents.https://resolver.caltech.edu/CaltechAUTHORS:20200521-105245076Third-Party Data Providers Ruin Simple Mechanisms
https://resolver.caltech.edu/CaltechAUTHORS:20190626-155536214
Year: 2020
DOI: 10.1145/3379478
Motivated by the growing prominence of third-party data providers in online marketplaces, this paper studies the impact of the presence of third-party data providers on mechanism design. When no data provider is present, it has been shown that simple mechanisms are "good enough'' -- they can achieve a constant fraction of the revenue of optimal mechanisms. The results in this paper demonstrate that this is no longer true in the presence of a third-party data provider who can provide the bidder with a signal that is correlated with the item type. Specifically, even with a single seller, a single bidder, and a single item of uncertain type for sale, the strategies of pricing each item-type separately (the analog of item pricing for multi-item auctions) and bundling all item-types under a single price (the analog of grand bundling) can both simultaneously be a logarithmic factor worse than the optimal revenue. Further, in the presence of a data provider, item-type partitioning mechanisms---a more general class of mechanisms which divide item-types into disjoint groups and offer prices for each group---still cannot achieve within a $łog łog$ factor of the optimal revenue. Thus, our results highlight that the presence of a data-provider forces the use of more complicated mechanisms in order to achieve a constant fraction of the optimal revenue.https://resolver.caltech.edu/CaltechAUTHORS:20190626-155536214Third-Party Data Providers Ruin Simple Mechanisms
https://resolver.caltech.edu/CaltechAUTHORS:20200709-084932341
Year: 2020
DOI: 10.1145/3410048.3410108
Motivated by the growing prominence of third-party data providers in online marketplaces, this paper studies the impact of the presence of third-party data providers on mechanism design. When no data provider is present, it has been shown that simple mechanisms are "good enough" -they can achieve a constant fraction of the revenue of optimal mechanisms. The results in this paper demonstrate that this is no longer true in the presence of a third-party data provider who can provide the bidder with a signal that is correlated with the item type. Specifically, even with a single seller, a single bidder, and a single item of uncertain type for sale, the strategies of pricing each item-type separately (the analog of item pricing for multiitem auctions) and bundling all item-types under a single price (the analog of grand bundling) can both simultaneously be a logarithmic factor worse than the optimal revenue. Further, in the presence of a data provider, item-type partitioning mechanisms-a more general class of mechanisms which divide item-types into disjoint groups and offer prices for each group-still cannot achieve within a log log factor of the optimal revenue. Thus, our results highlight that the presence of a data-provider forces the use of more complicated mechanisms in order to achieve a constant fraction of the optimal revenue.https://resolver.caltech.edu/CaltechAUTHORS:20200709-084932341New Developments in Revealed Preference Theory: Decisions Under Risk, Uncertainty, and Intertemporal Choice
https://resolver.caltech.edu/CaltechAUTHORS:20201210-152928419
Year: 2020
DOI: 10.1146/annurev-economics-082019-110800
This article reviews recent developments in revealed preference theory. It discusses the testable implications of theories of choice that are germane to specific economic environments. The focus is on expected utility in risky environments, subjected expected utility and maxmin expected utility in the presence of uncertainty, and exponentially discounted utility for intertemporal choice. The testable implications of these theories for data on choice from classical linear budget sets are described and shown to follow a common thread. The theories all imply an inverse relation between prices and quantities, with different qualifications depending on the functional forms in the theory under consideration.https://resolver.caltech.edu/CaltechAUTHORS:20201210-152928419Spherical Preferences
https://resolver.caltech.edu/CaltechAUTHORS:20190626-145326274
Year: 2020
DOI: 10.1016/j.jet.2020.105086
We introduce and study the property of orthogonal independence, a restricted additivity axiom applying when alternatives are orthogonal. The axiom requires that the preference for one marginal change over another should be maintained after each marginal change has been shifted in a direction that is orthogonal to both.
We show that continuous preferences satisfy orthogonal independence if and only if they are spherical: their indifference curves are spheres with the same center, with preference being "monotone" either away or towards the center. Spherical preferences include linear preferences as a special (limiting) case. We discuss different applications to economic and political environments. Our result delivers Euclidean preferences in models of spatial voting, quadratic welfare aggregation in social choice, and expected utility in models of choice under uncertainty.https://resolver.caltech.edu/CaltechAUTHORS:20190626-145326274On the falsifiability and learnability of decision theories
https://resolver.caltech.edu/CaltechAUTHORS:20210209-152718234
Year: 2020
DOI: 10.3982/te3438
We study the degree of falsifiability of theories of choice. A theory is easy to falsify if relatively small datasets are enough to guarantee that the theory can be falsified: the VC dimension of a theory is the largest sample size for which the theory is "never falsifiable." VC dimension is motivated strategically. We consider a model with a strategic proponent of a theory, and a skeptical consumer, or user, of theories. The former presents experimental evidence in favor of the theory, and the latter may doubt whether the experiment could ever have falsified the theory. We focus on decision-making under uncertainty, considering the central models of Expected Utility, Choquet Expected Utility and Max-min Expected Utility models. We show that Expected Utility has VC dimension that grows linearly with the number of states while that of Choquet Expected Utility grows exponentially. The Max-min Expected Utility model has infinite VC dimension when there are at least three states of the world. In consequence, Expected Utility is easily falsified, while the more flexible Choquet and Max-min Expected Utility are hard to falsify. Finally, as VC dimension and statistical estimation are related, we study the implications of our results for machine learning approaches to preference recovery.https://resolver.caltech.edu/CaltechAUTHORS:20210209-152718234Testable Implications of Models of Intertemporal Choice: Exponential Discounting and Its Generalizations
https://resolver.caltech.edu/CaltechAUTHORS:20201214-070708764
Year: 2020
DOI: 10.1257/mic.20180028
We present revealed-preference characterizations of the most common models of intertemporal choice: the model of exponentially discounted concave utility, and some of its generalizations. Our characterizations take consumption data as primitives, and provide nonparametric revealed-preference tests. We apply our tests to data from two recent experiments and find that our axiomatization delivers new insights and perspectives on datasets that had been analyzed by traditional parametric methods.https://resolver.caltech.edu/CaltechAUTHORS:20201214-070708764Stability and Median Rationalizability for Aggregate Matchings
https://resolver.caltech.edu/CaltechAUTHORS:20210503-143303932
Year: 2021
DOI: 10.3390/g12020033
We develop the theory of stability for aggregate matchings used in empirical studies and establish fundamental properties of stable matchings including the result that the set of stable matchings is a non-empty, complete, and distributive lattice. Aggregate matchings are relevant as matching data in revealed preference theory. We present a result on rationalizing a matching data as the median stable matching.https://resolver.caltech.edu/CaltechAUTHORS:20210503-143303932A Characterisation of 'Phelpsian' Statistical Discrimination
https://resolver.caltech.edu/CaltechAUTHORS:20210729-212407084
Year: 2021
DOI: 10.1093/ej/ueaa107
We establish that a type of statistical discrimination—that based on informativeness of signals about workers' skills and the ability appropriately to match workers to tasks—is possible if and only if it is impossible uniquely to identify the signal structure observed by an employer from a realised empirical distribution of skills. The impossibility of statistical discrimination is shown to be equivalent to the existence of a fair, skill-dependent, remuneration for workers. Finally, we connect the statistical discrimination literature to Bayesian persuasion, establishing that if discrimination is absent, then the optimal signalling problem results in a linear pay-off function (as well as a kind of converse).https://resolver.caltech.edu/CaltechAUTHORS:20210729-212407084Recovering Preferences from Finite Data
https://resolver.caltech.edu/CaltechAUTHORS:20210303-151215927
Year: 2021
DOI: 10.3982/ECTA17845
We study preferences estimated from finite choice experiments and provide sufficient conditions for convergence to a unique underlying "true" preference. Our conditions are weak and, therefore, valid in a wide range of economic environments. We develop applications to expected utility theory, choice over consumption bundles, and menu choice. Our framework unifies the revealed preference tradition with models that allow for errors.https://resolver.caltech.edu/CaltechAUTHORS:20210303-151215927Fairness and efficiency for allocations with participation constraints
https://resolver.caltech.edu/CaltechAUTHORS:20210303-151951189
Year: 2021
DOI: 10.1016/j.jet.2021.105274
We propose a notion of fairness for allocation problems in which different agents may have different reservation utilities, stemming from different outside options, or property rights. Fairness is usually understood as the absence of envy, but this can be incompatible with reservation utilities. It is possible that Alice's envy of Bob's assignment cannot be remedied without violating Bob's participation constraint. Instead, we seek to rule out justified envy, defined as envy for which a remedy would not violate any agent's participation constraint. We show that fairness, meaning the absence of justified envy, can be achieved together with efficiency and individual rationality. We introduce a competitive equilibrium approach with price-dependent incomes obtaining the desired properties.https://resolver.caltech.edu/CaltechAUTHORS:20210303-151951189Constrained Pseudo-Market Equilibrium
https://resolver.caltech.edu/CaltechAUTHORS:20210304-093802203
Year: 2021
DOI: 10.1257/aer.20201769
We propose a pseudo-market solution to resource allocation problems subject to constraints. Our treatment of constraints is general: including bihierarchical constraints due to considerations of diversity in school choice, or scheduling in course allocation; and other forms of constraints needed to model, for example, the market for roommates, combinatorial assignment problems, and knapsack constraints. Constraints give rise to pecuniary externalities, which are internalized via prices. Agents pay to the extent that their purchases affect the value the of relevant constraints at equilibrium prices. The result is a constrained-efficient market-equilibrium outcome. The outcome is fair to the extent that constraints treat agents symmetrically.https://resolver.caltech.edu/CaltechAUTHORS:20210304-093802203Statistical discrimination and affirmative action in the lab
https://resolver.caltech.edu/CaltechAUTHORS:20211208-558195000
Year: 2022
DOI: 10.1016/j.geb.2021.11.013
We present results from laboratory experiments studying statistical discrimination and affirmative action. We induce statistical discrimination in simple labor-market interactions between firms and workers. We then introduce affirmative-action policies that vary in the size and duration of a subsidy that firms receive for hiring discriminated-against workers. These different affirmative-action policies have nearly the same effect, and practically eliminate discriminatory hiring practices. However, once lifted, few positive effects remain and discrimination reverts to its initial levels. One exception is lengthy affirmative-action policies, which exhibit somewhat longer-lived effects. Stickiness of beliefs, which we elicit, helps explain the observed outcomes.https://resolver.caltech.edu/CaltechAUTHORS:20211208-558195000Twofold multiprior preferences and failures of contingent reasoning
https://resolver.caltech.edu/CaltechAUTHORS:20210303-133740093
Year: 2022
DOI: 10.1016/j.jet.2022.105448
We propose a model of incomplete twofold multiprior preferences, in which an act f is ranked above an act g only when f provides higher utility in a worst-case scenario than what g provides in a best-case scenario. The model explains failures of contingent reasoning, captured through a weakening of the state-by-state monotonicity (or dominance) axiom. Our model gives rise to rich comparative statics results, as well as extension exercises, and connections to choice theory. We present an application to second-price auctions.https://resolver.caltech.edu/CaltechAUTHORS:20210303-133740093Top of the Batch: Interviews and the Match
https://resolver.caltech.edu/CaltechAUTHORS:20210304-084112774
Year: 2022
DOI: 10.1257/aeri.20200800
Most doctors in the National Resident Matching Program (NRMP) match with one of their most preferred internship programs. However, surveys indicate doctors' preferences are similar, suggesting a puzzle: how can so many doctors match with their top choices when positions are scarce? We provide one possible explanation. We show that the patterns in the NRMP data may be an artifact of the interview process that precedes the match. Our study highlights the importance of understanding market interactions occurring before and after a matching clearinghouse. It casts doubts on analyses of clearinghouses that take reported preferences at face value.https://resolver.caltech.edu/CaltechAUTHORS:20210304-084112774The Edgeworth Conjecture with Small Coalitions and Approximate Equilibria in Large Economies
https://resolver.caltech.edu/CaltechAUTHORS:20220810-253911000
Year: 2022
DOI: 10.1287/moor.2022.1263
We revisit the connection between bargaining and equilibrium in exchange economies and study its algorithmic implications. We consider bargaining outcomes to be allocations that cannot be blocked (i.e., profitably retraded) by coalitions of small size, and show that these allocations must be approximate Walrasian equilibria. Our results imply that deciding whether an allocation is approximately Walrasian can be done in polynomial time, even in economies for which finding an equilibrium is known to be computationally hard.https://resolver.caltech.edu/CaltechAUTHORS:20220810-253911000Cite-seeing and reviewing: A study on citation bias in peer review
https://authors.library.caltech.edu/records/e9s5x-n1e83
Year: 2023
DOI: 10.1371/journal.pone.0283980
PMCID: PMC10328240
<p>Citations play an important role in researchers' careers as a key factor in evaluation of scientific impact. Many anecdotes advice authors to exploit this fact and cite prospective reviewers to try obtaining a more positive evaluation for their submission. In this work, we investigate if such a <i>citation bias</i> actually exists: Does the citation of a reviewer's own work in a submission cause them to be positively biased towards the submission? In conjunction with the review process of two flagship conferences in machine learning and algorithmic economics, we execute an observational study to test for citation bias in peer review. In our analysis, we carefully account for various confounding factors such as paper quality and reviewer expertise, and apply different modeling techniques to alleviate concerns regarding the model mismatch. Overall, our analysis involves 1,314 papers and 1,717 reviewers and detects citation bias in both venues we consider. In terms of the effect size, by citing a reviewer's work, a submission has a non-trivial chance of getting a higher score from the reviewer: an expected increase in the score is approximately 0.23 on a 5-point Likert item. For reference, a one-point increase of a score by a single reviewer improves the position of a submission by 11% on average.</p>https://authors.library.caltech.edu/records/e9s5x-n1e83Approximate Expected Utility Rationalization
https://resolver.caltech.edu/CaltechAUTHORS:20230717-55915200.35
Year: 2023
DOI: 10.1093/jeea/jvad028
We propose a new measure of deviations from expected utility theory. For any positive number e, we give a characterization of the datasets with a rationalization that is within e (in beliefs, utility, or perceived prices) of expected utility (EU) theory, under the assumption of risk aversion. The number e can then be used as a measure of how far the data is to EU theory. We apply our methodology to data from three large-scale experiments. Many subjects in these experiments are consistent with utility maximization, but not with EU maximization. Our measure of distance to expected utility is correlated with the subjects' demographic characteristics.https://resolver.caltech.edu/CaltechAUTHORS:20230717-55915200.35