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Economic theory distinguishes between principal-agent settings in which the agent has a private type and settings in which the agent takes a hidden action. Many practical problems, however, involve aspects of both. For example, brand X may…
The aim of this paper is to compare the performances of the optimal strategy under parameters mis-specification and of a technical analysis trading strategy. The setting we consider is that of a stochastic asset price model where the trend…
Applications of machine learning inform human decision makers in a broad range of tasks. The resulting problem is usually formulated in terms of a single decision maker. We argue that it should rather be described as a two-player learning…
Reading is a pervasive and cognitively demanding activity that underpins modern human culture. It is a prime instance of a class of tasks where eye movements are coordinated for the purpose of comprehension. Existing theories explain either…
This paper argues, first, that a major problem in the planning of large infrastructure projects is the high level of misinformation about costs and benefits that decision makers face in deciding whether to build, and the high risks such…
Boltzmann exploration is a classic strategy for sequential decision-making under uncertainty, and is one of the most standard tools in Reinforcement Learning (RL). Despite its widespread use, there is virtually no theoretical understanding…
Large language models (LLMs) have exhibited remarkable reasoning and planning capabilities. Most prior work in this area has used LLMs to reason through steps from an initial to a goal state or criterion, thereby effectively reasoning in a…
Many-to-many matching with contracts is studied in the framework of revealed preferences. All preferences are described by choice functions that satisfy natural conditions. Under a no-externality assumption individual preferences can be…
Behavioral research can provide important insights for SE practices. But in performing it, many studies of SE are committing a normative fallacy - they misappropriate normative and prescriptive theories for descriptive purposes. The…
In many settings, people exhibit behavior that is inconsistent across time --- we allocate a block of time to get work done and then procrastinate, or put effort into a project and then later fail to complete it. An active line of research…
Human decision-making deviates from the optimal solution, that maximizes cumulative rewards, in many situations. Here we approach this discrepancy from the perspective of bounded rationality and our goal is to provide a justification for…
We present a new approach for studying the problem of optimal hedging of a European option in a finite and complete discrete-time market model. We consider partial hedging strategies that maximize the success probability or minimize the…
The problem of stock hedging is reconsidered in this paper, where a put option is chosen from a set of available put options to hedge the market risk of a stock. A formula is proposed to determine the probability that the potential loss…
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…
This article presents results from the first statistically significant study of cost escalation in transportation infrastructure projects. Based on a sample of 258 transportation infrastructure projects worth US$90 billion and representing…
Previous work indicates that large language models exhibit a significant "English bias", i.e. they often perform better when tasks are presented in English. Interestingly, we have observed that using certain other languages in reasoning…
Hierarchical structures are ubiquitous in human and animal societies, but a fundamental understanding of their raison d'\^etre has been lacking. Here, we present a general theory in which hierarchies are obtained as the optimal design that…
Providing explanations is considered an imperative ability for an AI agent in a human-robot teaming framework. The right explanation provides the rationale behind an AI agent's decision-making. However, to maintain the human teammate's…
We study a participatory budgeting problem, where a set of strategic agents wish to split a divisible budget among different projects, by aggregating their proposals on a single division. Unfortunately, the straight-forward rule that…
Climate adaptation could yield significant benefits. However, the uncertainty of which future climate scenarios will occur decreases the feasibility of proactively adapting. Climate adaptation projects could be underwritten by benefits paid…