I study the interaction of two forces in the formation of social groups: the preference for high quality peers and the desire for status among one's peers.
I examine their equilibrium effects under different market structures and find that status concern reduces the potential for and benefit of sorting - both for a social planner and a monopolist - but the interaction between preference for quality and status can make the exclusion of some agents a second-best outcome. Even in settings with complementarities, price discrimination and screening can be necessary to facilitate sorting and increase welfare. Nevertheless, positional concerns can be beneficial for welfare if they provide sufficient incentive to engage more with one's group and thus increase positive spillovers.
In those cases, welfare is higher if individuals have at least some degree of status concern, even if the welfare measure ignores such relative comparisons.
We study the effect of asymmetry in linear public good games.
Individuals may differ in their endowments (their ability to contribute to a public good) and in their productivities (how effective their contributions are).
Given the individuals’ productivities, we ask which allocation of endowments is optimal for cooperation. To this end, we consider two notions of optimality.
The first notion focuses on the resilience of cooperation. The respective endowment distribution ensures that full cooperation is feasible even under the most adverse conditions.
The second notion focuses on efficiency. The corresponding endowment distribution maximizes group welfare. Using analytical methods, we fully characterize these two endowment distributions.
This analysis reveals that both optimality notions favor some endowment inequality: More productive players ought to get higher endowments.
Yet the two notions disagree on how unequal endowments are supposed to be. A focus on resilience results in less inequality.
With additional simulations, we show that the optimal endowment allocation needs to account for both the resilience and the efficiency of cooperation.
This paper analyses how risk-taking behaviour and preferences over consumption rank can emerge when individuals have an incentive to coordinate their actions.
Using an evolutionary game theory framework, it is shown that when ex-ante homogeneous individuals face a strategic interaction where they benefit from choosing distinct actions, i.e. an anti-coordination game, stable types must be willing to accept risky gambles over consumption to differentiate themselves.
This is the case despite an assumed concavity of the objective function, which makes any gamble costly in expectation.
Consumption differences act as a form of costly communication that allows for coordination.
More specifically, it is shown that when individuals have access to any fair consumption lottery, there exists a neutrally stable equilibrium where individuals choose a risky lottery and condition their action in the anti-coordination game on relative consumption. Furthermore, the evolutionarily optimal risk-taking behaviour can be induced by preferences over consumption rank.
This suggests status preferences might have evolved and are salient in settings where miscoordination is particularly detrimental.
We explore how two fundamental mistakes in information processing - incorrect beliefs about the world and misperception of information - can be mitigated by a benevolent information moderator
who has no superior access to information but is more skilled at interpreting it. We introduce a simple sender-receiver model in which a moderator (i.e., sender) can manipulate signals
that contain information about a payoff-relevant state. We characterize when such manipulation can be beneficial, both for a decision maker unaware of any interference (naïve), and one who takes it into account (sophisticated).
Contrasting the optimal moderation policies, we find that sophistication allows the moderator to beneficially intervene in more cases but can render moderation less effective. A particularly interesting case arises
when moderator and decision maker completely disagree about which action should follow which signal. If there are at least three states, such complete disagreement can be caused by only small differences in how information is interpreted.
We provide necessary and sufficient conditions for the possibility of complete disagreement and examine the consequences for moderation and welfare.
What might look to an outside observer like malicious misinformation can make the decision maker strictly better-off, yet completely misinformed.
Public goods games are frequently used to model strategic aspects of social dilemmas and to understand the evolution of cooperative behaviour among members of a group.
While providing a baseline case, a (local) public goods model implies an equal sharing of returns.
This appears an unsatisfying modelling choice in contexts where contributors are heterogeneous and returns can be divided freely.
Furthermore, it is intrinsically linked to the negative effect of inequality on cooperation, which is observed both theoretically and experimentally.
To better understand the link between inequality and cooperation when returns can be shared flexibly, we characterise sharing behaviour that maximises contributions in an infinitely repeated voluntary contribution game, where players differ in both their endowments as well as the productivities of their contributions.
In sharp contrast to egalitarian sharing, we find that endowment inequality makes cooperation easier to sustain when returns can be shared unequally.
Maybe surprisingly, this qualitative relation between endowment inequality and cooperation is independent of players' productivities.
We derive a unique sharing rule as a function of productivities and endowments that is weakly superior to all other sharing rules.
This rule generically departs from both equal as well as proportional sharing. If inequality is high, for example, individuals with the highest endowment need to be compensated more in absolute terms, but their relative share may be significantly less than their proportional contribution.
Our analytical findings are qualitatively supported by numerical simulations of simple evolutionary learning dynamics.
Misperceiving bad news: the effect of feedback on task motivation and belief updating
with Kerstin Grosch, Sabine Fischer, and Maria Kleshnina
2022
Utilizing a Bayesian framework, we examine in a multi-stage lab experiment how individuals update beliefs about their abilities based on their own experiences as well as external feedback.
Beyond the general issue of belief formation, we focus on how and to what extent external performance feedback can contribute to a more accurate self-assessment and improved outcomes.
More specifically, participants are asked to solve a set of logical puzzles in two comparable rounds and are incentivized to accurately guess their performances.
After the initial round, they receive feedback (treatment) regarding their performance, or not (control).
We find that, on average, individuals in both groups adjust their guesses in the right direction after the initial round, providing evidence that they learn from experience.
This holds for participants who are under- and overconfident in their ability (i.e., assess their performance initially as too low/high).
Feedback does not improve the average accuracy of guesses, but this is driven by strongly overconfident individuals who seem to ignore the information from external feedback (but nevertheless adjust their performance estimates downward in the treatment and control group). Under- and moderately overconfident participants improve their guesses with feedback. Beyond the effect on self-assessment, negative feedback appears to crowd out task motivation, leading to a lower performance in the second round.
