Department of Economics

We extend the beauty contest game to two dimensions: each player chooses two numbers to be as close as possible to certain target values, which are linear functions of the averages of the two number choices. One of the targets depends on the averages of both numbers, making the choices interrelated. We report on an experiment where we vary the eigenvalues of the associated two-dimensional linear system and find that subjects can learn the Pareto-optimal Nash Equilibrium of the system if both eigenvalues are stable and cannot learn it if both eigenvalues are unstable. Interestingly, subjects can also learn it if the system has the saddlepath property – with one stable and one unstable eigenvalue — but only if the one unstable eigenvalue is negative. We show theoretically that our results cannot be explained by homogeneous level-k models where all agents apply the same level k depth of reasoning to their choices, including the naïve learning model. However, our results can be explained by a mixed cognitive-levels model, including the adaptive learning model. We also run a horserace between many models used in the literature with the winner being a simple mixed model with levels 0, 1, and equilibrium reasoning.

Early childhood poverty is a risk factor for lower school achievement, reduced earnings, and poorer health, and has been associated with differences in brain structure and function. Whether poverty causes differences in neurodevelopment, or is merely associated with factors that cause such differences, remains unclear. Here, we report estimates of the causal impact of a poverty reduction intervention on brain activity in the first year of life. We draw data from a subsample of the Baby's First Years study, which recruited 1,000 diverse low-income mother-infant dyads. Shortly after giving birth, mothers were randomized to receive either a large or nominal monthly unconditional cash gift. Infant brain activity was assessed at approximately 1 y of age in the child's home, using resting electroencephalography (EEG; n = 435). We hypothesized that infants in the high-cash gift group would have greater EEG power in the mid- to high-frequency bands and reduced power in a low-frequency band compared with infants in the low-cash gift group. Indeed, infants in the high-cash gift group showed more power in high-frequency bands. Effect sizes were similar in magnitude to many scalable education interventions, although the significance of estimates varied with the analytic specification. In sum, using a rigorous randomized design, we provide evidence that giving monthly unconditional cash transfers to mothers experiencing poverty in the first year of their children's lives may change infant brain activity. Such changes reflect neuroplasticity and environmental adaptation and display a pattern that has been associated with the development of subsequent cognitive skills.

This paper discusses how macroeconomics can and already has begun to make use of controlled experimental methods to address the assumptions and predictions of macroeconomic models as well as to evaluate the impacts of macroeconomic policy interventions. Specific issues addressed include rational expectations and alternatives, intertemporal optimization with an application to household consumption and savings decisions and the efficacy of various monetary policies.

We compare two fixed-prize mechanisms for funding public goods, an all-pay auction and a lottery, where public good provision can only occur if the participants’ contributions equal or exceed the fixed-prize value. We show that the provisional nature of the fixed-prize means that efficiency and endowment conditions must both be satisfied to assure positive public good provision. Our main finding is that provisional fixed-prize lotteries can outperform provisional fixed-prize all-pay auctions in terms of public good provision when endowments are large relative to prize values. We test these predictions in a laboratory experiment where we vary the number of participants, the marginal per capita return (mpcr) on the public good, and the mechanism for awarding the prize, either a lottery or an all-pay auction. Consistent with the theory, we find that the mpcr matters for contribution amounts under the lottery mechanism. However, inconsistent with the theory, bids are significantly higher than predicted and there is no significant difference in the level of public good provision under either provisional, fixed-prize mechanism. We consider several different modifications to our framework that might help to explain these departures from theoretical predictions.

We propose a model of social norms changing in response to evolving privately held preferences. Our aim is to rationalize the tendency for individuals who hold minority preferences to take actions favored by the majority. We do this using a game involving a tension between a desire to act according to one's underlying preferences and a desire to conform to the majority opinion. We find that even after a majority of the population shares what was previously a minority opinion, members of the new majority are slow to change their behavior. The timing and speed with which behavior transitions to match new, majority-held opinions depends on the size of the reward for conformity. When the rewards for conformity are low, the transition is gradual, with considerable periods of costly public disagreement. When the rewards for conformity are high, transitions are slow to start but conclude rapidly once they begin.

A survey targeting education researchers conducted in November 2020 provides forecasts of how much achievement gaps between low- and high-income students in U.S elementary schools will change as a result of COVID-related disruptions to in-class instruction and family life. Relative to a pre-COVID achievement gap of 1.00 SD, respondents’ median forecasts for the jump in the achievement gaps in elementary school by spring 2021 were large–a change from 1.00 to 1.30 and 1.25 SD for math and reading achievement. Forecasts were similar for 2022. Although forecasts were heterogeneous, respondents showed overwhelming consensus that gaps would grow. We discuss implications for strategies to reduce learning gaps exacerbated by the pandemic as well as the mental models researchers appear to employ in making their forecasts.

In spite of the popularity of e-shopping, only 16% of US adults have ordered groceries online, and 7 out of 10 of those who currently buy groceries online do so at most twice a month. Understanding the determinants of e-grocery shopping is important for grocers, supply chain managers, and urban planners. In this context, we first explore how deliveries from online shopping have been changing over time. From our analysis of the 2009 and 2017 National Household Travel Surveys, we found that online shopping has been embraced by increasingly diverse households, although income, education, and some racial/ethnic differences persist. Our analysis of the 2017 American Time Use Survey shows that Americans are 24 times more likely to shop for groceries in stores than online. Moreover, in-store grocery shoppers are more likely to be female and unemployed, but less likely to belong to younger generations, to have less than a college degree, or to be African American. The gender imbalance in grocery shopping is larger online than in stores, but e-grocery shoppers do not otherwise differ from the general population. Future travel and e-shopping surveys (especially for e-grocery) should combine time use and travel questions with retrospective questions about online purchases.