Market Panics, Frenzies, and Informational Efficiency: Theory and Experiment

By Chad Kendall

American Economic Journal: Microeconomics, August 2020

In a market rush, the fear of future adverse price movements causes traders to trade before they become well informed, reducing the informational efficiency of the market. I derive theoretical conditions under which market rushes are equilibrium behavior ...

Image versus Information: Changing Societal Norms and Optimal Privacy

By S. Nageeb Ali and Roland Bénabou

American Economic Journal: Microeconomics, August 2020

We analyze the costs and benefits of using social image to foster desirable behaviors. Each agent acts based on his intrinsic motivation, private assessment of the public good, and reputational concern for appearing prosocial. A Principal sets the general...

Long-Run Growth of Financial Data Technology

By Maryam Farboodi and Laura Veldkamp

American Economic Review, August 2020

"Big data" financial technology raises concerns about market inefficiency. A common concern is that the technology might induce traders to extract others' information, rather than to produce information themselves. We allow agents to choose how much they ...

Stability and Bayesian Consistency in Two-Sided Markets

By Qingmin Liu

American Economic Review, August 2020

We propose a criterion of stability for two-sided markets with asymmetric information. A central idea is to formulate off-path beliefs conditional on counterfactual pairwise deviations and on-path beliefs in the absence of such deviations. A matching-be...

Long-Term Care Insurance: Information Frictions and Selection

By M. Martin Boyer, Philippe De Donder, Claude Fluet, Marie-Louise Leroux, and Pierre-Carl Michaud

American Economic Journal: Economic Policy, August 2020

This paper conducts a stated-choice experiment where respondents are asked to rate various insurance products aimed to protect against financial risks associated with long-term care needs. Using exogenous variation in prices from the survey design and ind...

Facts and Myths about Misperceptions

By Brendan Nyhan

Journal of Economic Perspectives, Summer 2020

Misperceptions threaten to warp mass opinion and public policy on controversial issues in politics, science, and health. What explains the prevalence and persistence of these false and unsupported beliefs, which seem to be genuinely held by many people?...

Overreaction in Macroeconomic Expectations

By Pedro Bordalo, Nicola Gennaioli, Yueran Ma, and Andrei Shleifer

American Economic Review, September 2020

We study the rationality of individual and consensus forecasts of macroeconomic and financial variables using the methodology of Coibion and Gorodnichenko (2015), who examine predictability of forecast errors from forecast revisions. We find that individu...

Nonrivalry and the Economics of Data

By Charles I. Jones and Christopher Tonetti

American Economic Review, September 2020

Data is nonrival: a person's location history, medical records, and driving data can be used by many firms simultaneously. Nonrivalry leads to increasing returns. As a result, there may be social gains to data being used broadly across firms, even in the ...

Policy Language and Information Effects in the Early Days of Federal Reserve Forward Guidance

By Kurt G. Lunsford

American Economic Review, September 2020

I show that the nature of the Federal Open Market Committee's (FOMC's) forward guidance language shapes the private sector's responses to monetary policy statements. From February 2000 to June 2003, the FOMC only gave forward guidance about economic outlo...

Ultimatum Bargaining with Rational Inattention

By Doron Ravid

American Economic Review, September 2020

A seller bargains with a rationally inattentive buyer (Sims 2003) over a good of random quality. After observing quality, the seller makes a take-it-or-leave-it offer. The buyer pays attention to the seller's product and offer at a cost proportional to ex...

Misperceived Social Norms: Women Working Outside the Home in Saudi Arabia

By Leonardo Bursztyn, Alessandra L. González, and David Yanagizawa-Drott

American Economic Review, October 2020

We show that the vast majority of young married men in Saudi Arabia privately support women working outside the home (WWOH) and substantially underestimate support by other similar men. Correcting these beliefs increases men's (costly) willingness to help...

Artificial Intelligence, Algorithmic Pricing, and Collusion

By Emilio Calvano, Giacomo Calzolari, Vincenzo Denicolò, and Sergio Pastorello

American Economic Review, October 2020

Increasingly, algorithms are supplanting human decision-makers in pricing goods and services. To analyze the possible consequences, we study experimentally the behavior of algorithms powered by Artificial Intelligence (Q-learning) in a workhorse oligopoly...

Fighting Crises with Secrecy

By Gary Gorton and Guillermo Ordoñez

American Economic Journal: Macroeconomics, October 2020

How does central bank lending during a crisis restore confidence? Emergency lending facilities that are opaque (in that names of borrowers are kept secret) raise the perceived average quality of bank assets in the economy, creating an information external...

Information Transmission under the Shadow of the Future: An Experiment

By Alistair J. Wilson and Emanuel Vespa

American Economic Journal: Microeconomics, November 2020

We experimentally examine how information transmission functions in an ongoing relationship. Where the one-shot cheap-talk literature documents substantial overcommunication and preferences for honesty, the outcomes in our repeated setting are more consis...

Informational Cycles in Search Markets

By Eeva Mauring

American Economic Journal: Microeconomics, November 2020

I show that market participants' equilibrium beliefs can create fluctuations in the volume of trading, even in a stationary environment. I study a sequential search model where buyers face an unknown distribution of offers. Each buyer learns about the dis...

Codiffusion of Technologies in Social Networks

By Natalia Lazzati

American Economic Journal: Microeconomics, November 2020

This paper studies the diffusion process of two complementary technologies among people who are connected through a social network. It characterizes adoption rates over time for different initial allocations and network structures. In doing so, we provide...

Devotion and Development: Religiosity, Education, and Economic Progress in Nineteenth-Century France

By Mara P. Squicciarini

American Economic Review, November 2020

This paper studies when religion can hamper diffusion of knowledge and economic development, and through which mechanism. I examine Catholicism in France during the Second Industrial Revolution (1870–1914). In this period, technology became skill-intens...

Discounts and Deadlines in Consumer Search

By Dominic Coey, Bradley J. Larsen, and Brennan C. Platt

American Economic Review, December 2020

We present a new equilibrium search model where consumers initially search among discount opportunities, but are willing to pay more as a deadline approaches, eventually turning to full-price sellers. The model predicts equilibrium price dispersion and ra...

A Model of Competing Narratives

By Kfir Eliaz and Ran Spiegler

American Economic Review, December 2020

We formalize the argument that political disagreements can be traced to a "clash of narratives." Drawing on the "Bayesian Networks" literature, we represent a narrative by a causal model that maps actions into consequences, weaving a selection of other ra...

A Few Bad Apples Spoil the Barrel: An Anti-folk Theorem for Anonymous Repeated Games with Incomplete Information

By Takuo Sugaya and Alexander Wolitzky

American Economic Review, December 2020

We study anonymous repeated games where players may be "commitment types" who always take the same action. We establish a stark anti-folk theorem: if the distribution of the number of commitment types satisfies a smoothness condition and the game has a "p...