ESSAYS IN BEHAVIORAL ECONOMICS

Abstract

Chapter 1: In many settings, it is natural to think of limited consideration exhibiting spillovers: attention paid to a particular alternative may “spill over” to another alternative based on shared characteristics, complementarities, features of the choice environment, etc. However, it is not straightforward whether, given choice data, a) preferences among alternatives can be revealed, or b) the network of consideration spillovers can be revealed. Using a novel laboratory experiment, I test a deterministic Network Choice model proposed in previous work and find a plethora of violations thereof, even at the individual level. I then propose a stochastic model, Random Network Choice, and analyze its properties regarding the formation of consideration sets. When applied to the laboratory data, I find considerable consistency with the general Random Network Choice model. Armed with a model of network choice consistent with my experimental data, I consider one application in the realm of advertising to show that such a generalization of so-called “positive spillovers” in attention is necessary to avoid misleading welfare analysis. Chapter 2: This paper experimentally investigates the effect of introducing un- available alternatives and irrelevant information regarding the alternatives on the optimality of decisions in choice problems. We find that interaction between the unavailable alternatives and irrelevant information regarding the alternatives generates suboptimal decisions. Irrelevant information in any dimension increases the time costs of decisions. We also identify a pure “preference for simplicity” beyond the desire to make optimal decisions or minimize time spent on a decision problem. Our results imply that the presentation set, distinct from the alternative set, needs to be a part of decision making models. Chapter 3: To what extent does positive reciprocity extent to environments with uncertainty? In order to answer this question, we propose a new game, the Stochastic Gift Exchange game (SGE), that extends the standard sequential deterministic Gift Exchange game (DGE) into an environment with uncertainty. SGE shares the unique subgame perfect Nash equilibrium with DGE wherein no players trade, leading to a suboptimal ex-ante allocation. However, contrary to DGE, leading models of reciprocity do not predict departures from this equilibrium in the direction of positive giving. When we conduct SGE in a laboratory experiment, we find positive Wages and Effort, indicating the presence of an ex-ante reciprocal motive. Moreover, Wages are lower in SGE than in DGE, indicating both that ex-post reciprocal motives also matter and that laboratory studies of gift exchange, which have been exclusively conducted with DGE, may overestimate the amount of positive reciprocity in the real world. Finally, we conduct two alterations of the SGE to investigate to what extent the source of uncertainty matters for reciprocal giving. Results from these treatments indicate that a) the source of uncertainty does not matter for Wage and Effort determination, but that b) there is evidence of an endowment effect in the ex-ante vs ex-post fairness domains. When endowed with the ability to affect the ex-ante (ex-post) allocation, ex-ante (ex-post) reciprocal motives dominate. Such a phenomenon runs contrary to the additive separability of ex-ante and ex-post motives, a common assumption in leading models that incorporate both risk and social preferences. Our results suggest new directions for future theoretical explorations of ex-ante reciprocity.