Knowledge that Transforms

This paper explores the relationship between adult heights and the distribution of income across populations of individuals. There is a long literature that examines the relationship between mean adult heights and living standards. If adult height is set by the balance between food intake and charges to disease in early childhood, it is informative about economic and epidemiological conditions in childhood. Because taller populations are better-off, more productive, and live longer, the relationship between childhood conditions and adult height has become an important focus in the study of the relationship between health and wealth. Here I follow one of the tributaries of this main stream. A relationship between income and height at the individual level has implications for the effects of income inequality on the distribution of heights. These relationships parallel, but are somewhat more concrete than, the various relationships between income inequality and health that have been debated in the economic and epidemiological literatures, Richard G. Wilkinson (1996), Angus Deaton (2003).

We investigate the sources of the important shifts in the volatility of US macroeconomic variables in the postwar period. To this end, we propose the estimation of DSGE models allowing for time variation in the volatility of the structural innovations. We apply our estimation strategy to a large-scale model of the business cycle and find that shocks specific to the equilibrium condition of investment account for most of the sharp decline in volatility of the last two decades. (JEL C51, E32)

Information Aggregation and Strategic Abstention in Large Laboratory Elections by Marco Battaglini, Rebecca B. Morton and Thomas R. Palfrey. Published in volume 98, issue 2, pages 194-200 of American Economic Review, May 2008

Who Chooses Annuities? An Experimental Investigation of the Role of Gender, Framing, and Defaults by Julie R. Agnew, Lisa R. Anderson, Jeffrey R. Gerlach and Lisa R. Szykman. Published in volume 98, issue 2, pages 418-22 of American Economic Review, May 2008

We study how the use of judgment or “add-factors” in macroeconomic forecasting may disturb the set of equilibrium outcomes when agents learn using recursive methods. We examine the possibility of a new phenomenon, which we call exuberance equilibria, in the New Keynesian monetary policy framework. Inclusion of judgment in forecasts can lead to self-fulfilling fluctuations in a subset of the determinacy region. We study how policymakers can minimize the risk of exuberance equilibria. (JEL E17, E31, E52)

In several school choice districts in the United States, the student proposing deferred acceptance algorithm is applied after indifferences in priority orders are broken in some exogenous way. Although such a tie-breaking procedure preserves stability, it adversely affects the welfare of the students since it introduces artificial stability constraints. Our main finding is a polynomial-time algorithm for the computation of a student-optimal stable matching when priorities are weak. The idea behind our construction relies on a new notion which we call a stable improvement cycle. We also investigate the strategic properties of the student-optimal stable mechanism. (JEL C78, D82, I21)

Five stationary concepts for completely mixed 2x2-games are experimentally compared: Nash equilibrium, quantal response equilibrium, action-sampling equilibrium, payoff-sampling equilibrium (Martin J. Osborne and Ariel Rubinstein 1998), and impulse balance equilibrium. Experiments on 12 games, 6 constant sum games, and 6 nonconstant sum games were run with 12 independent subject groups for each constant sum game and 6 independent subject groups for each nonconstant sum game. Each independent subject group consisted of four players 1 and four players 2, interacting anonymously over 200 periods with random matching. The comparison of the five theories shows that the order of performance from best to worst is as follows: impulse balance equilibrium, payoff-sampling equilibrium, action-sampling equilibrium, quantal response equilibrium, Nash equilibrium. (JEL C70, C91)

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Context can influence decisions. This malleability of choice is usually invoked as evidence that people do not maximize stable preference orderings. In a market equilibrium, however, context conveys payoff-relevant information to consumers. Consequently, these consumers rationally violate naïve formulations of standard choice theoretic principles. I identify informational asymmetries under which apparently anomalous behaviors, namely the compromise effect and choice overload, arise as market equilibria. Firms respond to consumers' contextual inference; in case of the compromise effect, a firm may introduce premium loss leaders (expensive goods of overly high quality that increase the demand for other goods). (JEL D11, D83, M31)

We modify the Salop (1979) model of price competition with differentiated products by assuming that consumers are loss averse relative to a reference point given by their recent expectations about the purchase. Consumers' sensitivity to losses in money increases the price responsiveness of demand—and hence the intensity of competition—at higher relative to lower market prices, reducing or eliminating price variation both within and between products. When firms face common stochastic costs, in any symmetric equilibrium the markup is strictly decreasing in cost. Even when firms face different cost distributions, we identify conditions under which a focal-price equilibrium (where firms always charge the same “focal” price) exists, and conditions under which any equilibrium is focal. (JEL D11, D43, D81, L13)