Trust affects almost all human relationships – in families, organizations, markets and politics. However, identifying the conditions under which trust, defined as people's beliefs in the trustworthiness of others, has a causal effect on the efficiency of human interactions has proven to be...

In a model inspired by neuroscience, we show that constrained optimal perception encodes lottery rewards using an S-shaped encoding function and over-samples low-probability events. The implications of this perception strategy for behavior depend on the decision-maker’s understanding of the...

We extend the swaps index of rationality, introduced by Apesteguia and Ballester (2015) for a finite set of alternatives, to the standard consumer choice setting with infinite commodity spaces. Applications include consumer demand from competitive budget sets and the state-space approach to...

Under weak contract enforcement the trading parties’ trust, defined as their belief in other’s trustworthiness, appears important for realizing gains from trade. In contrast, under strong contract enforcement beliefs about other’s trustworthiness appear less important, suggesting that...

Under weak contract enforcement the trading parties’ trust, defined as their belief in other’s trustworthiness, appears important for realizing gains from trade. In contrast, under strong contract enforcement beliefs about other’s trustworthiness appear less important, suggesting that...

We construct a fully specified extensive form game that captures competitive markets with adverse selection. In particular, it allows firms to offer any finite set of contracts, so that cross-subsidization is not ruled out. Moreover, firms can withdraw from the market after initial contract...