M Equilibrium: A Theory of Beliefs and Choices in Games

By Jacob K. Goeree and Philippos Louis

American Economic Review, December 2021

We introduce a set-valued solution concept, M equilibrium, to capture empirical regularities from over half a century of game theory experiments. We show M equilibrium serves as a meta theory for various models that hitherto were considered unrelated. M e...

Cheating with Models

By Kfir Eliaz, Ran Spiegler, and Yair Weiss

American Economic Review: Insights, December 2021

Beliefs and decisions are often based on confronting models with data. What is the largest "fake" correlation that a misspecified model can generate, even when it passes an elementary misspecification test? We study an "analyst" who fits a model, represen...

Information Networks and Collective Action: Evidence from the Women's Temperance Crusade

By Camilo García-Jimeno, Angel Iglesias, and Pinar Yildirim

American Economic Review, January 2022

How do social interactions shape collective action, and how are they mediated by networked information technologies? We answer these questions studying the Temperance Crusade, a wave of anti-liquor protest activity spreading across 29 states between 1873 ...

Counterfactuals with Latent Information

By Dirk Bergemann, Benjamin Brooks, and Stephen Morris

American Economic Review, January 2022

We describe a methodology for making counterfactual predictions in settings where the information held by strategic agents and the distribution of payoff-relevant states of the world are unknown. The analyst observes behavior assumed to be rationalized by...

Rational Habit Formation: Experimental Evidence from Handwashing in India

By Reshmaan Hussam, Atonu Rabbani, Giovanni Reggiani, and Natalia Rigol

American Economic Journal: Applied Economics, January 2022

We test the predictions of the rational addiction model, reconceptualized as rational habit formation, in the context of handwashing in rural India. To track handwashing, we design soap dispensers with timed sensors. We test for rational habit formation b...

Can Information Reduce Ethnic Discrimination? Evidence from Airbnb

By Morgane Laouénan and Roland Rathelot

American Economic Journal: Applied Economics, January 2022

We use data from Airbnb to identify the mechanisms underlying discrimination against ethnic minority hosts. Within the same neighborhood, hosts from minority groups charge 3.2 percent less for comparable listings. Since ratings provide guests with increas...

Information Frictions, Internet, and the Relationship between Distance and Trade

By Anders Akerman, Edwin Leuven, and Magne Mogstad

American Economic Journal: Applied Economics, January 2022

We examine how the adoption of information communication technology affects bilateral trade. The context is a public program in Norway that rolled out broadband access points leading to plausibly exogenous variation in the availability and adoption of bro...

Does Patient Demand Contribute to the Overuse of Prescription Drugs?

By Carolina Lopez, Anja Sautmann, and Simone Schaner

American Economic Journal: Applied Economics, January 2022

In an experiment in Mali, we tested whether patients pressure providers to prescribe unnecessary medical treatment. We varied patients' information about a discount for antimalarial tablets and measure demand for both tablets and costlier antimalarial inj...

Consumer Information and the Limits to Competition

By Mark Armstrong and Jidong Zhou

American Economic Review, February 2022

This paper studies competition between firms when consumers observe a private signal of their preferences over products. Within the class of signal structures that induce pure-strategy pricing equilibria, we derive signal structures that are optimal for f...

Incomplete Information Bargaining with Applications to Mergers, Investment, and Vertical Integration

By Simon Loertscher and Leslie M. Marx

American Economic Review, February 2022

We provide an incomplete information bargaining framework that captures the effects of differential bargaining power in markets with multiple buyers and multiple suppliers. The market is modeled as a mechanism that maximizes the expected weighted welfare ...

A Natural Experiment in Monetary Policy Covering Three Episodes of Growth and Decline in the Economy and the Stock Market

By Milton Friedman

Journal of Economic Perspectives, Fall 2005

The third of three episodes in a major natural experiment in monetary policy that started more than 80 years ago is just now coming to an end. The experiment consists in observing the effect on the economy and the stock market of the monetary policies fol...

Which Findings Should Be Published?

By Alexander Frankel and Maximilian Kasy

American Economic Journal: Microeconomics, February 2022

Given a scarcity of journal space, what is the optimal rule for whether an empirical finding should be published? Suppose publications inform the public about a policy-relevant state. Then journals should publish extreme results, meaning ones that move be...

Paths to the Frontier

By Avidit Acharya and Juan Ortner

American Economic Journal: Microeconomics, February 2022

We construct a model of collective search in which players gradually approach the Pareto frontier. The players have imperfect control over which improvements to the status quo will be considered. Inefficiency takes place due to the difficulty in finding i...

Stochastic Equilibria: Noise in Actions or Beliefs?

By Evan Friedman

American Economic Journal: Microeconomics, February 2022

We introduce noisy belief equilibrium (NBE) for normal-form games in which players best respond to noisy belief realizations. Axioms restrict belief distributions to be unbiased with respect to and responsive to changes in the opponents' behavior. The axi...

How Bayesian Persuasion Can Help Reduce Illegal Parking and Other Socially Undesirable Behavior

By Penélope Hernández and Zvika Neeman

American Economic Journal: Microeconomics, February 2022

We consider the question of how best to allocate enforcement resources across different locations with the goal of deterring unwanted behavior. We rely on "Bayesian persuasion" to improve deterrence. We focus on the case where agents care only about the e...

Negotiations with Limited Specifiability

By Satoshi Fukuda and Yuichiro Kamada

American Economic Journal: Microeconomics, February 2022

We study negotiations with limited specifiability⁠—each party may not be able to fully specify a negotiation outcome. We construct a class of negotiation protocols to conduct comparative statics on specifiability as well as move structures. We find th...

Regulating Product Communication

By Maarten C. W. Janssen and Santanu Roy

American Economic Journal: Microeconomics, February 2022

Information regulation that penalizes deceptive communication by firms can have significant unintended consequences. We consider a market where competing firms communicate private information about product quality through a combination of pricing and dire...

Learning in Relational Contracts

By Rumen Kostadinov and Aditya Kuvalekar

American Economic Journal: Microeconomics, February 2022

We study relational contracts between a firm and a worker with mutual uncertainty about match quality. The worker's actions are publicly observed and generate both output and information about the match quality. We show that the relational contracts may b...

Trust Building in Credence Goods Markets

By Yuk-Fai Fong, Ting Liu, and Xiaoxuan Meng

American Economic Journal: Microeconomics, February 2022

We study trust building in credence-goods markets in a dynamic setting. When consumers' expected loss is low and it is efficient to fix only the more severe problem, there is no trade in the one-shot game. In the repeated game, an expert's honesty is moni...

Showing Off or Laying Low? The Economics of Psych-outs

By Philipp Denter, John Morgan, and Dana Sisak

American Economic Journal: Microeconomics, February 2022

We analyze the incentives for showing off, which we model as a costly signaling game, and study the consequences of norms against such behavior. Prior to competing in a contest, a newcomer can signal his talent to an incumbent. In equilibrium, costly sign...