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Larry Samuelson Publications

Publish Date
Journal of Economic Theory
Abstract

We examine the evolutionary selection of attitudes toward aggregate risk in an age structured population. Aggregate shocks perturb the population's consumption possibilities. Consumption is converted to fertility via a technology that exhibits first increasing and then decreasing returns to scale, captured in the simplest case by a fertility threshold. We show that evolution will select preferences that exhibit arbitrarily high aversion to aggregate risks with even very small probabilities of sufficiently low outcomes. These findings complement the familiar result that evolution will select for greater aversion to aggregate than idiosyncratic risks by identifying circumstances under which the difference can be extreme.

Theoretical Economics
Abstract

Decision theory can be used to test the logic of decision making---one may ask whether a given set of decisions can be justified by a decision-theoretic model. Indeed, in principal-agent settings, such justifications may be required---a manager of an investment fund may be asked what beliefs she used when valuing assets and a government may be asked whether a portfolio of rules and regulations is coherent. In this paper we ask which collections of uncertain-act evaluations can be simultaneously justified under the maxmin expected utility criterion by a single set of probabilities. We draw connections to the the Fundamental Theorem of Finance (for the special case of a Bayesian agent) and revealed-preference results.

Abstract

People reason about uncertainty with deliberately incomplete models, including only the most relevant variables. How do people hampered by different, incomplete views of the world learn from each other? We introduce a model of “model-based inference.” Model-based reasoners partition an otherwise hopelessly complex state space into a manageable model. We nd that unless the differences in agents’ models are trivial, interactions will often not lead agents to have common beliefs, and indeed the correct-model belief will typically lie outside the convex hull of the agents’ beliefs. However, if the agents’ models have enough in common, then interacting will lead agents to similar beliefs, even if their models also exhibit some bizarre idiosyncrasies and their information is widely dispersed.

Abstract

Crowds” are often regarded as “wiser” than individuals, and prediction markets are often regarded as effective methods for harnessing this wisdom. If the agents in prediction markets are Bayesians who share a common model and prior belief, then the no-trade theorem implies that we should see no trade in the market. But if the agents in the market are not Bayesians who share a common model and prior belief, then it is no longer obvious that the market outcome aggregates or conveys information. In this paper, we examine a stylized prediction market comprised of Bayesian agents whose inferences are based on different models of the underlying environment. We explore a basic tension—the differences in models that give rise to the possibility of trade generally preclude the possibility of perfect information aggregation.

Abstract

(Contributing editors: Bo Honoré, Ariel Pakes, Monika Piazzesi, Serena Ng, Jesse M. Shapiro, Ulrich K. Müller, Mark W. Watson, Harald Uhlig, Dirk Krueger, Kurt Mitman, Fabrizio Peeri, Johannes Brumm, Felix Kubler, Simon Scheidegger, Jakub Kastl, Ivan A. Canay, Azeem M. Shaikh, Kate Ho, Adam M. Rosen)

This is the second of two volumes containing papers and commentaries presented at the Eleventh World Congress of the Econometric Society, held in Montreal, Canada in August 2015. These papers provide state-of-the-art guides to the most important recent research in economics. The book includes surveys and interpretations of key developments in economics and econometrics, and discussion of future directions for a wide variety of topics, covering both theory and application. These volumes provide a unique, accessible survey of progress on the discipline, written by leading specialists in their fields. The second volume addresses topics such as big data, macroeconomics, financial markets, and partially identified models.

Abstract

(Contributing editors: Bo Honoré, Ariel Pakes, Monika Piazzesi, Alessandro Pavan, Johannes Hörner, Andrzej Skrzypacz, Igal Hendel, Bernard Salanie, Fuhito Kojima, Parag A. Pathak, Sanjeev Goyal, Áureo de Paula, Rachel E. Kranton) 

This is the first of two volumes containing papers and commentaries presented at the Eleventh World Congress of the Econometric Society, held in Montreal, Canada in August 2015. These papers provide state-of-the-art guides to the most important recent research in economics. The book includes surveys and interpretations of key developments in economics and econometrics, and discussion of future directions for a wide variety of topics, covering both theory and application. These volumes provide a unique, accessible survey of progress on the discipline, written by leading specialists in their fields. The first volume includes theoretical and applied papers addressing topics such as dynamic mechanism design, agency problems, and networks.

Abstract

We analyze a model in which agents make investments and then match into pairs to create a surplus. The agents can make transfers to reallocate their pretransfer ownership claims on the surplus. Mailath, Postlewaite and Samuelson (2013) showed that when investments are unobservable, equilibrium investments are generally inefficient. In this paper we work with a more structured model that is sufficiently tractable to analyze the nature of the investment inefficiencies. We provide conditions under which investment is inefficiently high or low and conditions under which changes in the pretransfer ownership claims on the surplus will be Pareto improving, as well as examine how the degree of heterogeneity on either side of the market affects investment efficiency.