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Essays on Economic Behavior in Field Settings

  • Author(s): Goldman, Matthew
  • et al.
Abstract

This dissertation includes three empirical investigations of economic behavior in field settings. The first chapter studies the generalized second price (GSP) auction used to allocate billions of dollars of advertising on web-search platforms. The GSP has a tight link with the favorable properties of the truthful Vickrey-Clarke-Groves mechanism, which hinges on a critical assumption : higher slots must increase click-through-rate by the same scaling factor for all ads. Since position is endogenous, this assumption is largely untested. We develop a novel method to re-purpose internal business experimentation to estimate the causal impact of position for 20,000 search ads. We strongly reject the multiplicatively-separable model, position effects differ by 100\% across ads. This heterogeneity is partially explained by advertiser attributes. The remaining chapters study the prevalence of standard behavioral biases in the expert population of professional basketball players. In particular, the second chapter considers their adherence to optimal stopping rules. By rule, teams must shoot within 24 seconds of the start of a possession. At each second of the "shot clock,'' optimal play requires that a lineup's reservation shot value equals the continuation value of the possession. Using a structural stopping model, we find that most lineups adopt a reservation threshold that matches the continuation value function very closely. Mistakes we do observe come in the form too low a threshold and excess steepness. Overall, the lineups we study capture 84\% of the gains of a dynamic threshold vs. an optimal fixed threshold. Finally, the third chapter studies how reference dependence and loss aversion motivate effort in this same population. We find a very large "losing motivates'' effect, an average team scores like a league leader when trailing by ten points and a bottom dweller leading by ten. Detailed data on players' actions shows this effect comes through differential exertion of effort. Using betting spreads and lagged score margin, we test if expectations influence effort as would be predicted by any theory with a reference point updating over the course of the game; they do not. The reference point appears remarkably stable, far less malleable than previously found in experimental work studying less experienced agents

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