Standard economic models have long been applied to choices over private consumption goods, but have recently been extended to incorporate social situations as well. We challenge the applicability of standard decision theoretic models to social settings. We argue that, in economically relevant social settings, agents may choose to randomize over any of the deterministic outcomes in a way that clashes with standard decision theory axioms that require lotteries not to be valued strictly above the best deterministic outcome. Thus, mainstream economic analysis is unable to fully accommodate such choices. We find little evidence of such deviations in non-social settings.
On the Difference Between Social and Private Goods
We document a revealed preference for randomization for “social goods”, while such non-standard behavior is not present for private consumption goods.
American Economic Review, 2015, Vol 105 (10), 3030-3060. With Leo Kaas. We propose a tractable competitive search model with heterogeneous multi-worker firms, and investigate firm growth and business cycles. Go to paper
International Economic Review, 2012, Vol 53 (1), 1-21. With M. Galenianos. We study a finite directed-search wage posting game among heterogeneous firms (allowing for risk aversion, moral hazard,…), including limit theorems. Go to paper
American Economic Review P&P, 2017, 107(5): 158–162 With J. Greenwood, C. Santos & M. Tertilt. In a quantitative equilibrium model of sexual behavior and HIV/AIDS transmission we study policies that encourage long-term partnerships. Go to paper
Quarterly Journal of Economics, 2008/123(2), pp. 621-661. With A. Postlewaite. [technical appendix] In a model of social learning, the better informed (wealthier) consumers get preferential service because their consumption signals high quality to others. Go to paper
International Economic Review, 2011, 52(1), pp 85-104. With M. Galenianos and G. Virag. [technical appendix] In directed search with a finite population, minimum wages improve employment but reduce output and efficiency, and reverse for unemployment benefits. Go to paper