Knowledge that Transforms

This paper investigates the effects of polling station administrator diversity on elections in India, using a natural experiment: the random assignment of government officials to teams managing stations on election day, together with surveys conducted with voters and election officers. I demonstrate that changes in the religious and caste composition of officer teams impact voting at the polling station level, causing shifts in coalition vote shares large enough to influence election outcomes. Effects are strongest when officers have greater discretion over the voting process. I also provide evidence suggesting own-group favoritism by election personnel as one relevant mechanism.

Richard H. Thaler delivered his Prize Lecture on 8 December 20167 at the Aula Magna, Stockholm University.

In this comment on Callen et al. (2014), I revisit recent evidence uncovering a “preference for certainty” in violation of dominant normative and descriptive theories of decision-making under risk. I show that the empirical findings are potentially confounded by systematic noise. I then develop choice lists that allow me to disentangle these different explanations. Experimental results obtained with these lists reject explanations based on a preference for certainty in favor of explanations based on random choice. From a theoretical point of view, the levels of risk aversion detected in the choice list involving certainty can be accounted for by prospect theory through reference dependence activated by salient outcomes.

The National Resident Matching program seeks a stable matching of medical students to teaching hospitals. With couples, stable matchings need not exist. Nevertheless, for any student preferences, we show that each instance of a matching problem has a "nearby" instance with a stable matching. The nearby instance is obtained by perturbing the capacities of the hospitals. In this perturbation, aggregate capacity is never reduced and can increase by at most four. The capacity of each hospital never changes by more than two.

How large are the benefits of transportation infrastructure projects, and what explains these benefits? This paper uses archival data from colonial India to investigate the impact of India's vast railroad network. Guided by four results from a general equilibrium trade model, I find that railroads: (1) decreased trade costs and interregional price gaps; (2) increased interregional and international trade; (3) increased real income levels; and (4) that a sufficient statistic for the effect of railroads on welfare in the model accounts well for the observed reduced-form impact of railroads on real income in the data.

We revisit the transmission mechanism from monetary policy to household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of wealth and marginal propensities to consume because of two features: uninsurable income shocks and multiple assets with different degrees of liquidity and different returns. In this environment, the indirect effects of an unexpected cut in interest rates, which operate through a general equilibrium increase in labor demand, far outweigh direct effects such as intertemporal substitution. This finding is in stark contrast to small- and medium-scale Representative Agent New Keynesian (RANK) economies, where the substitution channel drives virtually all of the transmission from interest rates to consumption. Failure of Ricardian equivalence implies that, in HANK models, the fiscal reaction to the monetary expansion is a key determinant of the overall size of the macroeconomic response.

Mazzocco and Saini (2012) propose and implement a test of efficient risk sharing that allows for preference heterogeneity. They motivate their approach as yielding different results from those of a standard efficiency test with homogeneous preferences. We show that the standard efficiency test results are misreported in their paper and that the correctly reported results do not present as compelling a case for the importance of accounting for heterogeneous preferences.

We model the joint distribution of choice probabilities and decision times in binary decisions as the solution to a problem of optimal sequential sampling, where the agent is uncertain of the utility of each action and pays a constant cost per unit time for gathering information. We show that choices are more likely to be correct when the agent chooses to decide quickly, provided the agent’s prior beliefs are correct. This better matches the observed correlation between decision time and choice probability than does the classical drift-diffusion model (DDM), where the agent knows the utility difference between the choices.

Differences in employment-population ratios across US commuting zones have persisted for many decades. We claim these disparities represent real gaps in economic opportunity for individuals of fixed characteristics. These gaps persist despite a strong migratory response, and we attribute this to high persistence in labor demand shocks. These trends generate a “race” between local employment and population: population always lags behind employment, yielding persistent deviations in employment rates. Methodologically, we argue the employment rate can serve as a sufficient statistic for local well-being; and we model population and employment dynamics using an error correction mechanism, which explicitly allows for disequilibrium.

We identify structural vector autoregressions using narrative sign restrictions. Narrative sign restrictions constrain the structural shocks and/or the historical decomposition around key historical events, ensuring that they agree with the established narrative account of these episodes. Using models of the oil market and monetary policy, we show that narrative sign restrictions tend to be highly informative. Even a single narrative sign restriction may dramatically sharpen and even change the inference of SVARs originally identified via traditional sign restrictions. Our approach combines the appeal of narrative methods with the popularized usage of traditional sign restrictions.