The Sub-proportionality of Subjective Probability Weighting in Poker
by William Clark
Abstract
This study uses Texas Hold’em poker to investigate decision making under uncertainty and the concept of probability weighting, where individuals may overvalue or undervalue uncertain outcomes. I conduct an experiment to assess Cumulative Prospect Theory’s relevance to subjective probabilities in poker by simplifying the game to compare complex and simple gamble evaluations. The research aims to understand how risk preferences and probability estimation without complete information are influenced by individuals’ poker experience and framing effects. We find that deviations from what theory predicts in the subjective-probability Poker frame can be explained well by the framing effects made in the decision maker’s editing phase. By examining the difference in the predictive power of decision making models in explicit vs subjective probability gambles, the study seeks to improve comprehension of cognitive processes in navigating uncertainty.
Professor Philipp Sadowski, Faculty Advisor
Professor Grace Kim, Faculty Advisor
JEL Codes: C91, D80, D91
Heterogeneity in Mortgage Refinancing
By Julia Wu
Abstract
Many households who would benefit from and are eligible to refinance their mortgages fail to do so. A recent literature has demonstrated a significant degree of heterogeneity in the propensity to refinance across various dimensions, yet much heterogeneity is left unexplained. In this paper, I use a clustering regression to characterize heterogeneity in mortgage refinancing by estimating the distribution of propensities to refinance. A key novelty to my approach is that I do so without relying on borrower characteristics, allowing me to recover the full degree of heterogeneity, rather than simply the extent to which the propensity to refinance varies with a given observable. I then explore the role of both observed and unobserved heterogeneity in group placement by regressing group estimates on a set of demographic characteristics. As a complement to my analysis, I provide evidence from a novel dataset of detailed information on borrower perspectives on mortgage refinancing to paint a more nuanced picture of how household characteristics and behavioral mechanisms play into the decision to refinance. I find a significant degree of heterogeneity in both the average and marginal propensity to refinance across households. While observables such as education, race and income do significantly correlate with group heterogeneity, it is clear that much heterogeneity may still be attributed to the presence of unobservable characteristics.
Professor David Berger, Faculty Advisor
Professor Michelle Connolly, Faculty Advisor
JEL codes: D9, E52, G21
Economic Situations and Social Distance: Taxation and Donation
by Alexander Brandt
Abstract:
This experimental study evaluated the effects of two common economic situations – taxation and donation – on the social distance between participants in the situations, an original effect of interest that is the opposite of prior research. This study employed a novel survey framework, in which subjects gave money to others in the economic situations and socially judged recipients of their money. Findings mostly did not support predictions that the economic situations would differently affect social distance, but the novel framework enabled an effective test of the effect of economic situations on social distance and is a major contribution to the field.
Professor Rachel E. Kranton, Faculty Advisor
Professor Scott A. Huettel, Faculty Advisor
Professor Grace Kim, Seminar Advisor
JEL Codes: C91; D64; D89; D90
Does Media Coverage of Sexual Assault Cases Cause Victims to Go to the Police? Evidence from FBI Data and Google Trends
By Harry Elworthy
This paper investigates the effect that national news coverage of prominent sexual assaults has on the reporting decisions of sexual assault victims. Estimates are based on time series data of reports made to police stations in the US from 2008 to 2016 and Google Trends data of search volume, along with an identification strategy that uses a number of individual high profile sexual assault allegations and related events as instruments. By removing assaults that occurred on the day that they were reported, I estimate the effect of coverage only on the reporting of assaults, and not on assaults themselves. A significant positive effect of news coverage on sexual assault reporting is found using several specifications. Back-of-the-envelope calculations suggest that there were between 31 and 121 additional reports of sexual assault for each of the 38 high profile events captured. No evidence is found to suggest that these additional reports of sexual assault have different arrest rates to other reports, indicating that there are not a significant number of false reports. This paper adds to current literature on the sexual assault reporting decision by considering the effect of news coverage and by using different methods of inference to previous papers.
Advisor: Professor Patrick Bayer | JEL Codes: D91, J16, K42, L86, Z13
The Effects of Prevention and Treatment Interventions in a Microeconomic Model of HIV Transmission
By Allison Stashko
A rational choice-based model for sexual transmission of HIV demonstrates the behavioral and epidemiological effects of public health interventions. Susceptible individuals choose to protect or expose, both responding to and determining HIV prevalence. Interventions are modeled as exogenous shocks to the cost of protection, treatment coverage, and treatment quality. A prevention intervention is more effective when infected individuals are better off. Specifically, treatment interventions increase the elasticity of behavioral change with respect to the cost of protection. Complementary effects between different types of interventions are important for finding an optimal public health HIV strategy.
Advisor: Curtis Taylor | JEL Codes: D61, D69, D91 | Tagged: Epidemiology, HIV/AIDS, Microeconomics
Do Teenagers Exhibit Rational Expectations Regarding Mortality, Fertility and Education Outcomes?
By Nikolay Braykov
Microeconomic models often use the Rational Expectation Hypothesis (REH) instead of including expectation data. This paper examines the validity of the REH using subjective probability questions about mortality, fertility and education outcomes from panel data. First, I ask whether expectations are accurate and homogenous at the individual level; I find substantial forecast biases that depend on the nature of the outcome and decrease with ability and elimination of focal responses. I then propose a Bayesian learning framework to explain biases and find evidence of partial learning, suggesting probabilities become more accurate over time. Finally, I find subjective probabilities have predictive power over and above objective estimates, suggesting they contain private information about anticipated events.
Thesis not available at this time
Advisor: Frank Sloan | JEL Codes: D9
