This dissertation consists of three essays that investigate the role uncertainty and risk play in shaping outcomes in several economic contexts of interest. In the first chapter, based on joint work with Muhammed Bulutay, Patrick Julius, and Weiwei Tasch, we experimentally explore the behaviors and response pathways of economic agents who are placed in a competitive market environment in with exogenous cost shocks, strategic complementarities, and large cross-price effects, but in which communication is not permitted. Here our subjects experience strategic uncertainty over the pricing decisions of their competitors, and the predominant response we observe confirms the asymmetric price transmission (APT) phenomenon that is widely observed in the empirical literature. Moreover, by varying the number of sellers across markets we evaluate the role competition plays in APT. We report similar magnitudes of asymmetry in markets w ith 3, 4, 6, and 10 sellers, but not in duopolies. Furthermore, sellers consistently set their prices above the best-response levels implied by their forecasts, particularly in periods following negative cost shocks. We interpret these pricing deviations as sellers’ intentions to collude and note that they mechanically drive the pricing asymmetries we observe, consistent with a hypothesis of tacit collusion.

In the second chapter, based on joint work with Hazem Alshaikhmubarak, Maria Kogelnik, Molly Schwarz, and Kent Strauss, we investigate the role of strategic uncertainties, themselves shaped by the presence information uncertainties, affect subject willingness to engage in risk to pursue socially optimal outcomes. We employ an experiment to study the ways in which mutual payoff information affects play in strategic settings. Subjects play the Prisoner’s Dilemma or Stag Hunt game against randomly re-matched opponents under two information treatments. In our partial-information treatment subjects are shown only their own payoffs, while in our full-information treatment they are shown both their own and their opponent’s payoffs. In both treatments, they receive feedback on their opponent’s action after each round. We find that mutual payoff information initially facilitates reaching the Pareto-efficient outcome in both games. While play in the Prisoner’s Dilemma converges toward the unique Nash equilibrium of the game under both information treatments, mutual payoff information has a substantial impact on the equilibrium selection in the Stag Hunt throughout all rounds of the game. Using a belief-learning model and simulations of play, we provide evidence that these effects are driven not only by initial play but also by the way subjects learn. We propose that strategic uncertainty is a probable channel through which payoff information affects play.

In the third chapter, based on joint work with Mary Riddel, we examine how public misperceptions of cancer risks interplay with risk preferences to influence behaviors that either increase or decrease cancer risk. While there are numerous previous studies that link risk perceptions with risky behavior, it is notable that none of these controls for risk aversion. Similarly, studies that control for risk aversion fail to control for risk misperceptions. We use a survey of 474 men and women to investigate the influence of risk aversion, risk misperceptions, and cognitive ability on the choice to engage in behaviors that either increase or mitigate cancer risk. We measure optimism in two dimensions: baseline optimists are those who inaccurately believe their cancer risk to be below its expert-assessed level, while control optimists are those who believe they can reduce their risk of cancer (by changing their lifestyle choices) to a greater extent than is actually the case. Our results indicate that baseline optimism is significantly and negatively correlated with subjects' tendencies to engage in cancer-risk-reducing behaviors, and positively correlated with risky behaviors. Subjects’ control misperceptions also appear to play a role in their tendency to engage in risky and prevention behaviors. When controlling for both of these types of risk misperception, risk aversion plays a much smaller role in determining health behaviors than found in past studies.