The “gambler’s fallacy” is the false belief that a random event is less likely to occur if the event has occurred recently. Such beliefs are false if the onset of events is in fact independent of previous events. We study gender differences in the gambler’s fallacy using data from the...

We investigate the "law of small numbers" using a unique panel data set on lotto gambling. Because we can track individual players over time, we can measure how they react to outcomes of recent lotto drawings. We can therefore test whether they behave as if they believe they can predict lotto...

Abstract: This paper models expectation formation by taking into account that agents produce heterogeneous expectations due to model uncertainty, informational frictions and different capacities for processing information. We show that there are two general classes of steady states within this...

A sophisticated player is an individual who takes the action of the opponents, in a strategic situation, as determined by decision of rational opponents, and acts accordingly. A sophisticated agent is rational in the choice of his action, but ignores the fact that he is part of a strategic...

We study the economic role of banks’ soft information, which evolved from repeated lending relationships, in the context of loan default. Using a proprietary database from one of the largest state-owned commercial banks in China, we find that the bank’s internal credit rating scores play a...

In repeated games with differential information on one side, the labelling "general case" refers to games in which the action of the informed player is not known to the uninformed, who can only observe a signal which is the random outcome of his and his opponent's action. Here we consider the...

We compare communication about private information to communication about actions in a one- shot 2-person public good game with private information. The informed player, who knows the exact return from contributing and whose contribution is unobserved, can send a message about the return or her...

The common prior assumption is pervasive in game-theoretic models with incomplete information. This paper investigates experimentally the importance of inducing a common prior in a two-person signaling game. For a specific probability distribution of the sender’s type, the long-run behavior...

We compare signaling by words and actions in a one-shot 2-person public good game with private information. The informed player, who knows the exact return from contributing, can signal by contributing first (actions) or by sending a costless message (words). Words can be about the return or...