Knowledge that Transforms

This paper analyses the compensatory behavior of smokers. Exploiting data on cotinine concentration - a metabolite of nicotine - measured in a large population of smokers over time, we show that smokers compensate tax hikes by extracting more nicotine per cigarette. Our study makes two important contributions. First, as smoking more intensively a given cigarette is detrimental to health, our results question the usefulness of tax increases. Second, we develop a model of rational addiction where agents can also adjust their intensity of smoking and we show that the previous empirical results suffer from severe estimation biases.

Measuring market discrimination is extremely difficult except in the increasingly rare case where physical output measures allow direct measurement of productivity.We illustrate this point with evidence on elections to offices of the American Economic Association.Using a new technique to infer the determinants of the chances of observing a particular outcome when there are K choices out of N possibilities, we find that female candidates have a much better than random chance of victory.This advantage can be interpreted either as reverse discrimination or as reflecting voters' beliefs that women are more productive than observationally identical men in this activity.If the former this finding could be explained by the behavior of an unchanging median voter whose gender preferences were not satisfied by the suppliers of candidates for office; but there was a clear structural change in voting behavior in the mid-1970s.The results suggest that it is not generally possible to claim that differences in rewards for different groups measure the extent of discrimination or even its direction.

We use a Bayesian Markov Chain Monte Carlo algorithm to estimate a model that allows temporary gaps between a true expectational Phillips curve and the monetary authority's approximating nonexpectational Phillips curve.A dynamic programming problem implies that the monetary authority's inflation target evolves as its estimated Phillips curve moves.Our estimates attribute the rise and fall of post WWII inflation in the US to an intricate interaction between the monetary authority's beliefs and economic shocks.Shocks in the 1970s altered the monetary authority's estimates and made it misperceive the tradeoff between inflation and unemployment.That caused a sharp rise in inflation in the 1970s.Our estimates say that policymakers updated their beliefs continuously.By the 1980s,

The main difference in CG was the "discontinuous" effect of the cap.CG assumed c(x) = x for all x.When there was a cap equal to m, costs became c(x) = x for x ≤ m and c(x) = ∞ for x >

In an experiment, players’ ability to learn to cooperate in the repeated prisoner’s dilemma was substantially diminished when the payoffs were noisy, even though players could monitor one another's past actions perfectly. In contrast, in one-time play against a succession of opponents, noisy payoffs increased cooperation, by slowing the rate at which cooperation decays. These observations are consistent with the robust observation from the psychology literature that partial reinforcement (adding randomness to the link between an action and its consequences while holding expected payoffs constant) slows learning. This effect is magnified in the repeated game: When others are slow to learn to cooperate, the benefits of cooperation are reduced, which further hampers cooperation. These results show that a small change in the payoff environment, which changes the speed of individual learning, can have a large effect on collective behavior. And they show that there may be interesting comparative dynamics that can be derived from careful attention to the fact that at least some economic behavior is learned from experience.

Researchers in a variety of important economic literatures have assumed that current income variables as proxies for lifetime income variables follow the textbook errors-in-variables model.In an analysis of Social Security records containing nearly career-long earnings histories for the Health and Retirement Study sample, we find that the relationship between current and lifetime earnings departs substantially from the textbook model in ways that vary systematically over the life cycle.Our results can enable more appropriate analysis of and correction for errors-in-variables bias in a wide range of research that uses current earnings to proxy for lifetime earnings.