ppindex

Manipulation of Choice Behavior, with Marco Mariotti and Christopher J. Tyson, SSRN Working Paper, July 2011

Abstract: We introduce and study the problem of manipulation of choice behavior. In a class of two-stage models of decision making, with the agent's choices determined by three "psychological variables," we imagine that a subset of these variables can be selected by a "manipulator." To what extent does this confer control of the agent's behavior? Within the specified framework, which overlaps with two existing models of choice under cognitive constraints, we provide a complete answer to this question.

A Salience Theory of Choice Errors, with Marco Mariotti, SSRN Working Paper, IZA Discussion Paper No. 5006, University of St. Anders discussion paper No. 1003, April 2010, Revised July 2011 (latest version here)

Abstract: We study a psychologically based foundation for choice errors. The decision maker applies a preference ranking after forming a 'consideration set' prior to choosing an alternative. Membership of the consideration set is determined both by the alternative specific salience and by the rationality of the agent (his general propensity to consider all alternatives). The model turns out to include a logit formulation as a special case. In general, it has a rich set of implications both for exogenous parameters and for a situation in which alternatives can affect their own salience (salience games). Such implications are relevant to assess the link between 'revealed' preferences and 'true' preferences: for example, less rational agents may paradoxically express their preference through choice more truthfully than more rational agents.

Moody Choice, with Marco Mariotti, SSRN Working Paper, IZA Discussion Paper No. 5005, CRIEFF Discussion paper No. 1002, June 2010 , Revised April 2011
Abstract:

If choices depend on the decision maker's mood, is the attempt to derive any consitency in choice doomed? In this paper we argue that, even with full unpredictability of mood, the way choices from a menu relate to choices from another menu exhibits some structure. We present two alternative models of `moody choice' and show that, in either of them, not all choice patterns are possible. Indeed, we characterise both models in terms of consistency requirements of the observed choice data.

Abstract:

If people are irrational, how are they irrational? And how can we describe their behavior and perform welfare analysis? We study the question experimentally. We test several boundedly rational decision models which are testable by means of simple revealed preference type of axioms. In an experiment, we first show `menu effects' to drive irrationality more than cycles of choice. Then, by using the revealed preference methodology, we show that a version of the Categorise Then Choose model we propose performs best (in terms of the Selten score of predictive success) in a group of models. (most recent version here). The technical and data appendix is here

Choosing monetary sequences: theory and experimental evidence, with Marco Mariotti, and Luigi Mittone, CEEL Working paper 1-06, March 2006, and IZA Discussion Paper No. 2129 Revised November 2009
Abstract:

In this paper we formulate and investigate experimentally a model of how individuals choose between sequences of monetary outcomes spread out in time. The theoretical model assumes that a decision-maker uses, in a sequential way, two criteria to screen options. Each criterion only permits a decision between some pairs of options, while the other options are incomparable according to that criterion When the first criterion is not decisive, the decision maker resorts to the second criterion to select an alternative. This type of decision procedures has encountered the favour of several psychologists, though it is quite under-explored in the economics domain. We find that: 1) traditional economic models based on discounting alone cannot explain a significant (almost 30%) proportion of the data no matter how much variability in discount functions is allowed; 2) our model, despite considering only a specific (exponential) form of discounting, can explain the data much better solely thanks to the use of the secondary criterion; 3) our model explains certain specific patterns in the choices of the ‘irrational’ people: we can reject the hypothesis that anomalous behaviour is due simply to random ‘mistakes’ around the basic predictions of discounting theories: the deviations are not random and there are clear systematic patterns of association between ‘irrational’ choices. The technical and data appendix is here

The elicitation of time preferences, with Marco Mariotti and Luigi Mittone, CEEL Working paper 5-08, June 2008
Abstract:
We compare three methods for the elicitation of time preferences in an experimental setting: the Becker-DeGroot-Marschak (BDM) procedure (BDM), a second price auction and the multiple price list format. The first two methods have been used rarely to elicit time preferences. Although all methods used are broadly strategically equivalent, and should induce the same `truthful' revelation, we find that the methods do differ: the money discount rates elicited with the multiple price list tend to be higher than those elicited with the other two methods. Furthermore, there are no significant differences between the rates elicited with the BDM and the auction elicitation procedure. The technical and data appendix is here

Two-stage bargaining solutions, with Marco Mariotti, Queen Mary Working paper n. 572/2006, September 2006 and SSRN Working paper, July 2006, Revised May 2009
Abstract:
We introduce and characterize a new class of bargaining solutions: those which can be obtained by sequentially applying two binary relations to eliminate alternatives. As a by-product we obtain as a particular case a partial characterization result by Zhou (Econometrica, 1997) of an extension of the Nash axioms and solution to domains including non-convex problems, as well as a complete characterizations of solutions that satisfy Pareto optimality, Covariance with positive affine transformations, and Independence of irrelevant alternatives.

Shortlisting, with Marco Mariotti, Working paper EconWPA ewp-pe/0503006, March 2005, Revised March 2006
Abstract:

We study the properties of decisions made by committees who select alternatives by constructing shortlists. We find that even when committees are themselves rational, such procedures may not give rise to rational choices. A necessary condition for this to occur is disagreement between committees. However, we delimit substantially the extent of `irrationality' that these procedures allow.

Wage Determination and the Sources of Bargaining Power, May 2002, (with Dennis Snower) Revised January 2005
Abstract:

This paper explores the sources of bargaining power in wage negotiations. In the standard analyses of wage bargaining, the negotiating partners are specified a priori, and thus it is impossible to address the question of how they achieve and retain their negotiating positions, on which their bargaining power is based. In our analysis, by contrast, the firm can choose between two sets of wage negotiations: those it can conduct with its incumbent employees and those with new job seekers. These negotiations are imperfectly substitutable, and the degree of substitutability is determined by the firm's labor turnover costs (e.g. costs of hiring, training, and firing). In this context, labor turnover costs not only influence the negotiators' alternatives to bargaining (i.e. their fall-back positions and outside options); they affect the nature of the bargaining process itself. This approach leads to a new theory of wage determination.

How vague can one be? Rational preferences without completeness or transitivity, with Marco Mariotti, December 2003, Working paper EconWPA ewp-game/0312006, Revised April 2004
Abstract: What can it mean for preferences to be rational when transitivity or completenss are not assumed? In this paper we provide a framework and a set of conditions to deal with this question. We provide representation results in terms of a pair of functions, a utility function and a vagueness function.

Time preferences: do they matter in bargaining?, Working Paper n. 445, Department of Economics, Queen Mary, University of London.
Abstract:
Experimental studies of bargaining generally impose time preferences' on subjects, in the sense that in case of disagreement, the experimenter reduces the size of the surplus bargained over by imposing exogenously some monetary cost. Contrary to this practice, in this study time preferences are first elicited in a preliminary phase, and then bargaining begins. I show that although subjects are sensitive to the timing of a monetary reward, this plays no role in determining bargaining behaviour. Furthermore, when the bargaining game is played in conventional experimental setting with monetary costs of delay, these do have an impact on subjects' conduct in negotiations.