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Three Essays in Behavioral Economics

  • Author(s): Saunders, Daniel Kaiser
  • Advisor(s): Grossman, Zachary J
  • et al.
Abstract

This dissertation concerns two key topics in behavioral economics: bounded rationality and hyperbolic time preferences. While these two topics do not have much in common, per se, the analyses presented here do contain unifying themes. Each chapter focuses on issues pertaining to public economics. The environments are often characterized by strategic interaction, in that each individual's choices affects the welfare of others. In such cases, economic efficiency is by no means guaranteed.

The first two chapters examine environments with multiple Nash equilibria, which limits predictions. I utilize Quantal Response Equilibrium, which relaxes the assumption of pure best-response in favor of noisy best response. This allows me to make comparative static predictions across group-size, information completeness, payoff-type, and state of the world; predictions that are problematic under pure best-response. I conduct laboratory experiments for the threshold game (chapter one) and the market entry game (chapter two). I find that much of the seemingly anomalous behavior observed in the data is easily explained using QRE. This suggests that quantal response is a useful alternative assumption to best-response in coordination problems, and, in particular, logit QRE is a valuable equilibrium model of coordination failure with simple economic intuition.

The third chapter advances a simple β-δ model of quasi-hyperbolic time preferences. In this chapter, the theoretical model is used to construct the key variables from our data. This data was collected in the field by my co-author, when she visited the islands of Bonaire and Curaçao in 2010. While much of the data is survey response or demographic related, the last part of each interview includes a paid experiment to elicit time preferences over various time horizons. We find that, controlling for key demographic factors, decreased patience (lower δ) and present bias (β<1)$ are associated with an lower willingness to adopt marine reserve restrictions, but they have no effect on attitudes about gear restrictions.

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