Assistant Professor in the Department of Economics at the University of Ottawa
Experimental Economics, Behavioral Economics
Deflating Asset Price Bubbles with Leverage Constraints and Monetary Policy (with Mariya Mileva and Luba Petersen)
Journal of Economic Behavior & Organization (2018), 155, 1-27
We develop an experimental production economy to study the general equilibrium and welfare effects of speculation and stabilization policies. Participants playing the role of household-investors interact in labor, output, and, in some treatments, asset markets. Without the ability to trade assets, participants over-supply costly labor to acquire saving. The presence of asset markets improves welfare by allowing investors to substitute labor income for speculative gains. Asset prices deviate substantially from fundamental value. Leverage constraints that prevent investors from borrowing for speculation are ineffective at stabilizing asset prices. Households often circumvent the constraints by excessively supplying labor and generating increased wealth which can be used for speculation. Wealth inequality is worsened due to endogenously higher interest accumulated by borrowers and savers. An asset inflation targeting policy fuels initial asset price growth but, as interest rates rise rapidly, effectively deflates asset price deviations. With learning, the policy stabilizes asset prices and consequently interest rates, which enhances welfare and reduces inequality. We develop a model of heterogeneous expectations to rationalize our experimental findings.
[Link to Paper] [Working Paper]
Distributing Scarce Jobs and Output: Experimental Evidence on the Dynamic Effects of Rationing (with Luba Petersen)
Experimental Economics (2017), 20(3), 707-735
How does the allocation of scarce jobs and production influence their supply? We present the results of a macroeconomics laboratory experiment that investigates the effects of alternative rationing schemes on economic stability. Participants play the role of worker-consumers who interact in labor and output markets. All output, which yields a reward to participants, must be produced through costly labor. Automated firms hire workers to produce output so long as there is sufficient demand for all production. In every period either output or labor hours are rationed. Random queue, equitable, and priority (i.e., property rights) rationing schemes are compared. Production volatility is the lowest under a priority rationing rule and is significantly higher under a scheme that allocates the scarce resource through a random queue. Production converges toward the steady state under a priority rule, but can diverge to significantly lower levels under a random queue or equitable rule where there is the opportunity for and perception of free-riding. At the individual level, rationing in the output market leads consumer-workers to supply less labor in subsequent periods. A model of myopic decision-making is developed to rationalize the results.
[Link to Paper] [Working Paper]
External and Internal Consistency of Choices Made in Convex Time Budgets (with Anujit Chakraborty, Evan M. Calford and Yoram Halevy)
Experimental Economics (2017), 20(3), 687-706
We evaluate data on choices made from Convex Time Budgets (CTB) in Andreoni and Sprenger (2012a) and Augenblick et al (2015), two influential studies that proposed and applied this experimental technique. We use the Weak Axiom of Revealed Preference (WARP) to test for external consistency relative to pairwise choice, and demand, wealth and impatience monotonicity to test for internal consistency. We find that choices made by subjects in the original Andreoni and Sprenger (2012a) paper violate WARP frequently; violations of all three internal measures of monotonicity are concentrated in subjects who take advantage of the novel feature of CTB by making interior choices. Wealth monotonicity violations are more prevalent and pronounced than either demand or impatience monotonicity violations. We substantiate the importance of our desiderata of choice consistency in examining effort allocation choices made in Augenblick et al (2015), where we find considerably more demand monotonicity violations, as well as many classical monotonicity violations which are associated with time inconsistent behavior. We believe that the frequency and magnitude of WARP and monotonicity violations found in the two studies pose important confounds for interpreting and structurally estimating choice patterns elicited through CTB. We encourage researchers employing CTB in present and future experiments to include consistency tests in their design and pre-estimation analysis.
Piercing the "Payoff Function" Veil: Tracing Beliefs and Motives (with Giovanni Gallipoli and Yoram Halevy)
This paper develops an experimental methodology that allows the identification of decision-making processes in interactive settings using tracking of non-choice data. This non-intrusive and indirect approach provides essential information for the characterization of beliefs. The analysis reveals significant heterogeneity, which is reduced to two broad types, differentiated by the importance of pecuniary rewards in agents' payoff function. Most subjects maximize monetary rewards by best responding to beliefs shaped by recent history. Others are able to identify profit-maximizing actions but choose to systematically deviate from them. The interaction among different types is key to understanding aggregate outcomes.
Work in Progress
Improving Dynamic Optimization in Life-Cycle Consumption Experiments (with Luba Petersen)
Competitive Present Bias (with Anujit Chakraborty)
The Race to the Bottom (with Giovanni Gallipoli and Yoram Halevy)
Conditional Cooperation as an Informed Choice