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Open Access Publications from the University of California

Recent Work

The department was founded in 1964 and has 35 permanent members. We are a relatively young group, all committed to a rigorous analytical approach to both teaching and research. As a consequence, we have a congenial and cooperative atmosphere in which department members take an unusually active interest in their colleagues' research. There are no social or administrative distinctions between junior and senior faculty, except on promotion decisions. Eight faculty members are Fellows of the Econometric Society, three are on the Econometric Society Council, and three are Fellows of the American Academy of Arts and Sciences. Five are NBER Research Associates, and twelve have NSF grants.

University of California, San Diego
9500 Gilman Drive
La Jolla, CA 92093-0508
USA

Cover page of Contingent Thinking and the Sure-Thing Principle: Revisiting Classic Anomalies in the Laboratory#

Contingent Thinking and the Sure-Thing Principle: Revisiting Classic Anomalies in the Laboratory#

(2023)

Abstract: We present an experimental framework to study the extent to which failures of contingent thinking explain classic anomalies in a broad class of environments, including overbidding in auctions and the Ellsberg paradox. We study environments in which the subject’s choices affect payoffs only in some states, but not in others. We find that anomalies are in large part driven by incongruences between choices in the standard presentation of each problem and a ‘contingent’ presentation, which focuses the subject on the set of states where her actions matter. Additional evidence suggests that this phenomenon is in large part driven by people’s failure to put themselves in states that have not yet happened even though they are made aware that their actions only matter in those states.

Cover page of Cognitive Limitations: Failures of Contingent Thinking

Cognitive Limitations: Failures of Contingent Thinking

(2023)

In recent years, experiments have documented a new mechanism that leads to failures of profit maximization: the failure of contingent thinking (FCT). This article summarizes key experimental findings, clarifies what constitutes an FCT, and outlines how FCTs can be tested in other environments. Subsequently, we relate FCTs to recent theoretical work on cognitive limitations in behavioral economics. Finally, we connect FCTs to suboptimal behavior documented in applied environments.

Cover page of Liquidity and Exchange Rates: An Empirical Investigation

Liquidity and Exchange Rates: An Empirical Investigation

(2023)

Abstract: We find strong empirical evidence that the liquidity yield on government bonds in combination with standard economic fundamentals can well account for nominal exchange rate movements. We find impressive evidence that changes in the liquidity yield are significant in explaining exchange rate changes for all the G10 countries, and we stress that the US dollar is not special in this relationship. We show how these relationships arise out of a canonical two-country New Keynesian model with liquidity returns. Additionally, we find a role for sovereign default risk and currency swap market frictions.

Omitted Variable Bias of Lasso-Based Inference Methods: A Finite Sample Analysis

(2023)

Abstract: We study the finite sample behavior of Lasso-based inference methods such as post–double Lasso and debiased Lasso. We show that these methods can exhibit substantial omitted variable biases (OVBs) due to Lasso's not selecting relevant controls. This phenomenon can occur even when the coefficients are sparse and the sample size is large and larger than the number of controls. Therefore, relying on the existing asymptotic inference theory can be problematic in empirical applications. We compare the Lasso-based inference methods to modern high-dimensional OLS-based methods and provide practical guidance.

Sprouting Cities: How Rural America Industrialized

(2023)

We study the joint process of urbanization and industrialization in the US economy between 1880 and 1940. We show that only a small share of aggregate industrialization is accounted for by the relocation of workers from remote rural areas to industrial hubs like Chicago or New York City. Instead, most sectoral shifts occurred within rural counties, dramatically transforming their sectoral structure. Most within-county industrialization occurred through the emergence of new “factory” cities with notably higher manufacturing shares rather than the expansion of incumbent cities. In contrast, today's shift toward services seems to benefit large incumbent cities the most.

Cover page of Thick Market Externality and Concentration of `Money'

Thick Market Externality and Concentration of `Money'

(2022)

A thick market external e ect is applied to a trading post model of N 3 commodities with transaction costs and distinct bid and ask prices. An existence theorem for general equilibrium with external e ects in the trading post model is stated and proved. Media of exchange occur endogenously as liquid commodities, characterized by a narrow bid/ask price spread. The thick market externality can lead to concentration of the endogenously determined media of exchange towards an equilibrium with a single medium. In a class of examples, we show that if the households have su ciently heterogeneous tastes relative to the size of the economy, the monetary equilibrium leads to higher consumption than the barter equilibrium.