We present a model of inductive inference that includes, as special cases, Bayesian reasoning, case-based reasoning, and rule-based reasoning. This unified framework allows us to examine, positively or normatively, how the various modes of inductive inference can be combined and how their...

We examine a repeated interaction between an agent, who undertakes experiments, and a principal who provides the requisite funding for these experiments. The repeated interaction gives rise to a dynamic agency cost — the more lucrative is the agent's stream of future rents following a failure,...

We argue that even when macroeconomic variables are constant, underlying microeconomic uncertainty and borrowing constraints generate inflation.We study stochastic economies with fiat money, a central bank, one nondurable commodity, countably many time periods, and a continuum of agents. The...

``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...

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...

In many labor markets, e.g., for lawyers, consultants, MBA students, and professional sport players, workers get offered and sign long-term contracts even though waiting could reveal significant information about their capabilities. This phenomenon is called unraveling. We examine the link...

We examine a repeated interaction between an agent, who undertakes experiments, and a principal who provides the requisite funding for these experiments. The repeated interaction gives rise to a dynamic agency cost – the more lucrative is the agent's stream of future rents following a failure,...

We examine a repeated interaction between an agent, who undertakes experiments, and a principal who provides the requisite funding for these experiments. The agent's actions are hidden, and the principal, who makes the offers, cannot commit to future actions. We identify the unique Markovian...

This paper examines circumstances under which subjectivity enhances the effectiveness of inductive reasoning. We consider a game in which Fate chooses a data generating process and agents are characterized by inference rules that may be purely objective (or data-based) or may incorporate...

We characterize competitive equilibrium in markets (financial etc.) where price taking Bayesian decision makers screen to accept or reject applicants. Unlike signaling models, equilibrium fails to resolve imperfect information. In classical statistics terminology, some qualified applicants are...