and
with Abstracts:
Roberto Weber
of Carnegie Mellon University
This Friday, April 4th, from 4:30to 6:00
in Truland, room 335, Arlington Campus
Self-interest through agency: An alternative rationale for the principal-agent relationshipEconomic actors are usually assumed to enter into principal-agent relationships due to efficiency gains from comparative advantage. This research explores whether such relationships may also arise because they allow principals to obtain a selfish, inequitable outcome without behaving themselves in an explicitly selfish manner. An experiment is reported in which principals either decide repeatedly how much money to share with recipients or select an agent to make the decision on their behalf. As hypothesized, principals keep more and recipients receive less when the allocation decision is made through agents.
Attachments1
The Delegation of Social BehaviorEconomic actors frequently delegate their decision making to agents. The usual interpretation for such agency relationships is that they are motivated by gains from exchange - for instance, due to comparative advantage. In this talk I discuss two experimental papers demonstrating alternative rationales for why people might want to delegate decision making to others. In one case, we demonstrate that having others make decisions on our behalf allows us to circumvent moral constraints on our behavior, and thus behave more self-interestedly than we would ourselves. We use the well-known "dictator game" to show that acting through agents produces outcomes that enhance self-interest at the expense of fairness. People reward agents for acting self-interestedly on their behalf, even though people rarely act as self-interestedly when making decisions directly. In a second (in progress) paper, we explore the extent to which delegation of decision making allows groups to solve the free-rider problem in public goods games. We observe that groups electing agents to make decisions on the groups' behalf reach cooperation levels close to the full-contribution maximum. However, we also observe cases in which the elected agent appeals to and rewards only a minimum-winning coalition, and delegation thereby serves as a mechanism through which a slight majority can coordinate on exploiting a minority.
This experiment explores whether individuals know that other people are biased. We confirm that overestimation of abilities is a pervasive problem, but observe that most people are not aware of it, i.e. they think others are unbiased. We investigate several explanations for this result. As a first one, we discuss a possible unfamiliarity with the task and the subjects�� inability to distinguish between random mistakes and a real bias. Second, we show how the relation between a subject��s belief about others and his belief about himself might be driven by a false consensus effect or self-correction mechanism. Third, we identify a self-serving bias when comparing how a subject evaluates his own and other people��s biases.
Several investors face an irreversible investment opportunity whose value V is governed by Brownian motion with upward drift and random expiration. The first investor i to seize the opportunity before expiration receives the current V less a privately known cost Ci ; the other investors receive nothing. We characterize Bayesian Nash Equilibrium (BNE) for this game, extending previously known results.
We also report a laboratory experiment with 72 subjects randomly matched into 600 triopolies. As predicted in BNE, subjects in triopolies invested at lower values than in monopolies, changes in Brownian parameters significantly altered investment values in monopoly but not in triopoly; and the lowest cost investor in a triopoly usually preempted the others. Evidence was mixed on other BNE predictions, e.g., whether higher cost brings smaller markups. Overall, subjects' earnings came rather close to the BNE prediction.
The pure exchange model is the foundation of the neoclassical theory of value, yet equilibrium predictions and models of price adjustment for this model remained untested prior to the experiment reported in this paper. With the exchange economy replicated several times, prices and allocations converge sharply to the competitive equilibrium in continuous double auction (CDA) trading. Convergence is evaluated by comparing the extent of price adjustment within each market replication (or trading period) to the extent of adjustment across trading periods: most observed price adjustment occurs within trading periods, so price adjustment data are evaluated with the Hahn process model (Hahn and Negishi [1962]), which is a disequilibrium model of within-period trades. Estimation demonstrates that the model is consistent with observed price paths within each period of the exchange economy. The model is augmented with an additional assumption �C based on observations from this experiment �C that the initial trade price in period t+1 is randomly drawn from the interval between the minimum and maximum trade prices in period t. The estimated within-period adjustment rule, combined with this across-period adjustment rule, generates price paths similar to data from an experiment session.
It To better understand the potential economic repercussions of a bioterrorist attack, this paper explores the effects of several catastrophic epidemics that struck American cities between 1690 and 1880. The epidemics considered here killed between 10 and 25 percent of the urban population studied. A particular emphasis is placed on smallpox and yellow fever, both of which have been identified as potential bioterrorist agents. The central findings of the paper are threefold. First, severe localized epidemics did not disrupt, in any permanent way, the population level or long-term growth trajectory of those cities. Non-localized epidemics (i.e., those that struck more than one major city) do appear to have had some negative effect on population levels and long-term growth. There is also modest evidence that ill-advised responses to epidemics on the part of government officials might have had lasting and negative effects in a few cities. Second, severe localized epidemics did not disrupt trade flows; non-localized epidemics had adverse, though fleeting, effects on trade. Third, while severe epidemics probably imposed some modest costs on local and regional economies, these costs were very small relative to the national economy.