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Marriott Marquis, Del Mar
Hosted By:
Econometric Society
Stochastic Choice and Experiments on Decision Making
Paper Session
Sunday, Jan. 5, 2020 10:15 AM - 12:15 PM (PDT)
- Chair: Yoram Halevy, University of Toronto
Audits as Evidence: Experiments, Ensembles, and Enforcement
Abstract
We study the ability of correspondence studies utilizing fictitious applicants to detect illegal discrimination by individual employers. Employers violate US employment law if their propensity to call applicants back depends on protected applicant characteristics such as age, race, or sex. We establish identification of higher moments of the effects of protected characteristics on callback rates as a function of the number of fictitious applications sent to each job ad. These moments are used to bound the fraction of jobs that are illegally discriminating. Applying our results to three experimental datasets, we find evidence of significant employer heterogeneity in discriminatory behavior, with the standard deviation of gaps in job specific callback probabilities across protected groups averaging roughly twice the mean gap. In two experiments manipulating racially distinctive names, we estimate that at least 70% of the jobs that call back both of two white applications and neither of two black applications engaged in illegal racial discrimination. To assess more carefully the tradeoff between type I and II errors presented by these behavioral patterns, we consider the performance of a series of “auditing rules” for investigating suspicious callback behavior under a simple two-type model that rationalizes the experimental data. Though, in our preferred specification, only 17% of employers are estimated to discriminate on the basis of race, we find that an experiment sending 10 applications to each job would enable accurate detection of 7.5% of discriminators while falsely accusing fewer than 0.2% of non-discriminators. An experiment employing an optimally-chosen application portfolio of races and other resume characteristics would boost the detection rate to roughly 10% without increasing false accusations. Our results suggest illegal labor market discrimination can be reliably monitored at relatively low cost.Decision Making under Uncertainty: An Experimental Study in Market Settings
Abstract
We design and implement a novel experimental test of subjective expected utility theory and its generalizations. Our experiments are implemented in the laboratory with a student population and pushed out through a large-scale panel to a general sample of the US population. We find that a majority of subjects' choices are consistent with the maximization of some utility function, but not with subjective utility theory. The theory is tested by gauging how subjects respond to price changes. A majority of subjects respond to price changes in the direction predicted by the theory, but not to a degree that makes them fully consistent with subjective expected utility. Surprisingly, maxmin expected utility adds no explanatory power to subjective expected utility. Our findings remain the same regardless of whether we look at laboratory data or the panel survey, even though the two subject populations are very different. The degree of violations of subjective expected utility theory is not affected by age nor cognitive ability, but it is correlated with financial literacy.Repeated Choice: A Theory of Stochastic Intertemporal Preferences
Abstract
We provide a repeated-choice foundation for stochastic choice. An agent chooses from a menu repeatedly over time, generating a time series of choices. We identify the limit frequency of these choices as stochastic choice. We characterize a tractable model of stochastic intertemporal preferences where the agent repeatedly chooses today’s consumption and tomorrow’s continuation menu, aware that future preferences will evolve according to a subjective ergodic utility process. Using our model, we demonstrate how not taking into account the agent’s preference for early (late) resolution of uncertainty would lead an analyst to underestimate (resp., overestimate) the agent’s risk aversion. Estimation of preferences can be performed by the analyst without explicitly modeling continuation problems (i.e. stochastic choice is independent of continuation menus) if and only if the utility process takes on the standard additive and separable form. Applications include estimation under dynamic discrete choice.Law of Demand and Stochastic Choice
Abstract
We characterize consistent random choice rules in terms of the optimality of their support. We then study stochastic choice in a consumer theory setting. We prove a law of individual demand for stochastic choice that generalizes the standard deterministic law.Hard-to-Interpret Signals
Abstract
Decisions under uncertainty are often made with information that is difficult to interpret because multiple interpretations are possible. Individuals may perceive and handle uncertainty about interpretation differently and in ways that are not directly observable to a modeler. This paper identifies and experimentally examines behavior that can be interpreted as reflecting an individual's attitude towards such uncertainty.JEL Classifications
- D8 - Information, Knowledge, and Uncertainty
- D0 - General