Person:

Peysakhovich, Alexander

Essays in this dissertation cover three topics in behavioral economics: social preferences, ambiguity aversion and self-control. The first essay, based on work with Aurelie Ouss, studies the behavior of individuals making decisions to punish norm violators. It addresses two types of questions. First, what parameters affect these punishment decisions? Second, what do outcomes look like when these decisions are aggregated? Experimental data show that individual punishment decisions appear to respond to individual cost and not necessarily social cost. Additionally, individuals appear not to take the probability that violators will be apprehended into account. Finally, punishment by others does not act as a perfect substitute for own punishment. These combined effects mean that aggregate levels of punishment rarely resemble those in line with commonly used benchmarks such as optimal deterrence. The second essay, based on work with Uma Karmarkar, studies how information affects valuation of ambiguous financial prospects. Experimental results show that across several domains individual valuations appear to react much more strongly to favorable information than unfavorable information. Additional studies indicate that this effect is driven by two mechanisms. The first is a bias towards the integration of favorable information. The second is an effect of ambiguity aversion, individuals appear to be averse to subjective ignorance and so unfavorable information has a positive component: it removes some of this uncertainty. The final essay looks at how dual-self (Fudenberg-Levine (2006)) decision makers can use commitment contracts to combat self-control problems and implement long-run optimal behavior. The main results show that both stick contracts, which levy a fine when an individual gives in to a temptation, and carrot contracts, which give rewards for resisting, can simulate binding commitments. However, carrots have several advantages over sticks. Sticks create a temptation to cancel the contract, carrots are less vulnerable to trembles and finally carrots allow for more flexibility.

Most daily decisions involve uncertainty about outcome probabilities arising from incomplete knowledge, i.e., ambiguity. We explore how the addition of partial information affects these types of choices using theoretical and empirical methods. Our experiments in both gain and loss domains demonstrate that when such information supports a favorable outcome, it strongly increases valuation of an ambiguous financial prospect. However, when information supports an unfavorable outcome, it has significantly less impact. We find that two mechanisms drive this asymmetry. First, unfavorable information decreases estimates of a good outcome occurring but also reduces aversive uncertainty. These factors act in opposition, minimizing the effects of unfavorable information. Second, when information can be subjectively interpreted, unfavorable information is less likely to be integrated into evaluations. Our findings reveal mechanisms not captured by traditional models of decision making under uncertainty and highlight the importance of increasing the salience of unfavorable information in uncertain contexts to promote unbiased decision making.