This paper studies the temporal path of subjective probability assessments. A reference-dependent agent who experiences utility from anticipation and from changes in this anticipatory emotion makes utility-maximizing assessments about his likelihood of success in a future lottery. Consistent...

This paper reports data from a laboratory experiment on two-period moral hazard problems. The findings corroborate the contract-theoretic insight that even though the periods are technologically unrelated, due to incentive considerations principals can benefit from offering long-term contracts...

In this paper, we introduce a notion of epistemic equivalence between hierarchies of conditional beliefs and hierarchies of lexicographic beliefs, thus extending the standard equivalence results of Halpern (2010) and Brandenburger et al. (2007) to an interactive setting, and we show that there...

Numerous gift-exchange experiments have found a positive wage–effort relationship. In (almost) all these experiments the employer both owns and controls the firm. This paper explores to what extent the separation of ownership and control affects the wage–effort relationship. We compare the...

We study a stochastic version of Fudenberg–Tirole's preemption game. Two firms contemplate entering a new market with stochastic demand. Firms differ in sunk costs of entry. If the demand process has no upward jumps, the low cost firm enters first, and the high cost firm follows. If leader's...

A decision maker (DM) considers the acquisition of a multi-attribute object with uncertain qualities which can be discovered at a cost. DM's problem is to decide how much to invest in the discovery and whether to adopt or discard based on partial information. We characterize the solution in some...

We study first- and second-order subjective expectations (beliefs) in strategic decision-making. We elicit probabilistically both first- and second-order beliefs and apply the method to a Hide-and-Seek experiment. We study the relationship between choice and beliefs in terms of whether observed...

This paper investigates the crowding-out effect of formal insurance on informal risk-sharing arrangements via theory and laboratory experiment. Our model and simulation predict that the crowding out of private transfers is often more than one-for-one and will reduce the total risk coverage....

Financial, managerial, and medical decisions often involve alternatives whose possible outcomes have uncertain probabilities. In contrast to alternatives whose probabilities are known, these uncertain alternatives offer the benefits of learning. In repeat-choice situations, such learning brings...

Decision makers are often described as seeking higher expected payoffs and avoiding higher variance in payoffs. We provide some necessary and some sufficient conditions for learning rules, that assume the agent has little prior and feedback information about the environment, to reflect such...