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  3. American Economic Review
  4. September 2019
  5. Bayesian Identification: A Theory for State-Dependent Utilities

Bayesian Identification: A Theory for State-Dependent Utilities

  • Jay Lu
American Economic Review
vol. 109, no. 9, September 2019
(pp. 3192-3228)
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Abstract

We provide a revealed preference methodology for identifying beliefs and utilities that can vary across states. A notion of comparative informativeness is introduced that is weaker than the standard Blackwell ranking. We show that beliefs and state-dependent utilities can be identified using stochastic choice from two informational treatments, where one is strictly more informative than another. Moreover, if the signal structure is known, then stochastic choice from a single treatment is enough for identification. These results illustrate novel identification methodologies unique to stochastic choice. Applications include identifying biases in job hiring, loan approvals, and medical advice.

Citation

Lu, Jay. 2019. "Bayesian Identification: A Theory for State-Dependent Utilities." American Economic Review, 109 (9): 3192-3228. DOI: 10.1257/aer.20171534

Additional Materials

JEL Classification

  • D11 Consumer Economics: Theory
  • D82 Asymmetric and Private Information; Mechanism Design
  • D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
  • J23 Labor Demand
  • M51 Personnel Economics: Firm Employment Decisions; Promotions