Risk Sharing and Strategic Choice, with Brendan Daley [February 2023].
We undertake a decision-theoretic analysis of a model of bilateral risk sharing, conceptualized in two stages: in the first stage agents choose risky endowments (Savage acts), and in the second stage they form a risk-sharing arrangement. Only the first-stage choices are observable to the analyst. We formulate axioms that put joint restrictions on best responses in the first stage and a representation result according to which agents behave as if they are risk averse expected-utility maximizers who anticipate the subsequent sharing arrangement. All the parameters of the model, including the sharing arrangement, can be identified from this first-stage choice data. We generalize our model to allow frictions that impede efficient risk sharing, and we refine our model to feature risk sharing in accordance with prominent bargaining solutions. We compare the inefficiencies those solutions engender in first-stage choices in the context of a stylized example.
An Evolutionary Perspective on Updating Risk and Ambiguity Preferences, with Todd Sarver [May 2021].
Using an approach predicated on evolution and adaptation, we provide foundations for a model of choice under uncertainty based on adaptive preferences.
We argue that our approach can be applied in most contexts involving ambiguity, and we show that adaptive preferences nest variants of several established models of ambiguity and risk preferences as special cases. Our model provides a tight connection between ambiguity attitudes and violations of expected utility, and it generates novel predictions about the role of random choice in hedging against ambiguity. We also find that updating of adaptive preferences in response to new information respects dynamic consistency even at the cost of violating consequentialism, addressing a prominent tension in the ambiguity and non-expected-utility literature.
Information-dependent Utilities and Beliefs, with David Dillenberger and R. Vijay Krishna [April 2020].
We axiomatize a model of preferences over menus of acts in which not only beliefs but also state-dependent utilities depend on the individual’s choice of information. Our most general model features both contemplation about the appropriate way to evaluate alternatives as well as acquisition of information about the payoff relevant state of the world, before a choice is made. We then focus on the special case where the value of alternatives depends directly and exclusively on the state of the world and on the choice of information about that state.