In games with strategic complementarities, public information about the state of the world has a larger impact on equilibrium actions than private information of the same precision, because the former is more informative about the likely behavior of others. This may lead to welfare-reducing...

We designed four observational learning experiments to identify the key channels that, along with Bayes-rational inferences, drive herd behavior. In Experiment 1, unobserved, whose actions remain private, learn from the public actions made in turn by subjects endowed with private signals of...

Many information structures generate correlated rather than mutually independent signals, the news media being a prime example. This paper shows experimentally that in such contexts many people neglect these correlations in the updating process and treat correlated information as independent. In...

We conduct a laboratory experiment to shed light on the cognitive limitations that may affect the way decision makers respond to changes in their economic environment. The subjects solve a tracking problem: they estimate the probability of a binary event, which changes stochastically. The...

It has been argued that guilt aversion (the aversion to violate others’ expectations) and the compliance to descriptive social norms (the aversion to act differently than others in the same situation) are important drivers of human behavior. We show in a formal model that both motives are...

A key open question for theories of reference-dependent preferences is what determines the reference point. One candidate is expectations: what people expect could affect how they feel about what actually occurs. In a real-effort experiment, we manipulate the rational expectations of subjects...

Procrastination is often attributed to time-inconsistent preferences but may also arise when individuals derive anticipatory utility from holding optimistic beliefs about their future effort costs. This study provides a rigorous empirical test for this notion of 'motivated procrastination'. In a...

Bayesian Updating is the dominant theory of learning in economics. The theory is silent about how individuals react to events that were previously unforeseeable or unforeseen. Recent theoretical literature has put forth axiomatic frameworks to analyze the unknown. In particular, we test if...

This paper investigates whether limited liability and moral hazard affect risk-taking through motivated beliefs. On the one hand, limited liability pushes investors towards taking excessive risks. On the other, such excesses make it hard for investors to maintain a positive self-image when moral...

We use the trust and the dictator games to explore the effects of religious identity on trust, trustworthiness, prosociality, and conditional reciprocity within a beliefs-based model. We provide a novel and rigorous theoretical model to derive the relevant predictions, which are then tested in...