Related papers: Welfare effects of information and rationality in …
This paper delves into financial markets that incorporate a novel form of heterogeneity among investors, specifically in terms of their beliefs regarding the reliability of signals in the business cycle economy model, which may be biased.…
We study the welfare effects of overreaction to information in the form of diagnostic expectations in markets with asymmetric information, and the effect of a simple intervention in the form of a tax or a subsidy. A large enough level of…
Analyses of voting algorithms often overlook informational externalities shaping individual votes. For example, pre-polling information often skews voters towards candidates who may not be their top choice, but who they believe would be a…
Assuming that agents' preferences satisfy first-order stochastic dominance, we show how the Expected Utility paradigm can rationalize all optimal investment choices: the optimal investment strategy in any behavioral law-invariant…
To choose between two discrete goods, a consumer pays attention to only those with prices below a threshold. From these, she chooses her most preferred good. We assume consumers in a population have the same preference but may have…
Consider an investor trading dynamically to maximize expected utility from terminal wealth. Our aim is to study the dependence between her risk aversion and the distribution of the optimal terminal payoff. Economic intuition suggests that…
We study the optimal joint intervention of a planner who can influence both the standalone marginal utilities of agents in a network and the weights of the links connecting them. The welfare-maximizing intervention displays two key…
We propose a novel approach to infer investors' risk preferences from their portfolio choices, and then use the implied risk preferences to measure the efficiency of investment portfolios. We analyze a dataset spanning a period of six…
We initiate the study of the effects of non-transparency in decision rules on individuals' ability to improve in strategic learning settings. Inspired by real-life settings, such as loan approvals and college admissions, we remove the…
We study how a monopolist's use of consumer data for price discrimination affects welfare. To answer this question, we develop a model of market segmentation subject to residual uncertainty. We fully characterize when data usage…
Welfare economics relies on access to agents' utility functions: we revisit classical questions in welfare economics, assuming access to data on agents' past choices instead of their utilities. Our main result considers the existence of…
Strong empirical evidence from laboratory experiments, and more recently from population surveys, shows that individuals, when evaluating their situations, pay attention to whether they experience gains or losses, with losses weighing more…
Human decision-making in real-life deviates significantly from the optimal decisions made by fully rational agents, primarily due to computational limitations or psychological biases. While existing studies in behavioral finance have…
In mainstream neoclassical economics, utility maximization is the only engine of individual action, and the other or the social, if it is modeled for decisions deemed fundamental, it is done as a tacit externality parameter affecting an…
Portfolio underdiversification is one of the most costly losses accumulated over a household's life cycle. We provide new evidence on the impact of financial inclusion services on households' portfolio choice and investment efficiency using…
The long-term impact of algorithmic decision making is shaped by the dynamics between the deployed decision rule and individuals' response. Focusing on settings where each individual desires a positive classification---including many…
We study the effects of introducing information inefficiency in a model for a random linear economy with a representative consumer. This is done by considering statistical, instead of classical, economic general equilibria. Employing two…
We develop a novel five-component decomposition of optimal dynamic portfolio choice, which reveals the simultaneous impacts from market incompleteness and wealth-dependent utilities. Under the HARA utility and a nonrandom interest rate, we…
We maximize the expected utility from terminal wealth for an HARA investor when the market price of risk is an unobservable random variable. We compute the optimal portfolio explicitly and explore the effects of learning by comparing it…
We investigate a continuous-time investment-consumption problem with model uncertainty in a general diffusion-based market with random model coefficients. We assume that a power utility investor is ambiguity-averse, with the preference to…