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Ulric B. and Evelyn L. Bray Social Sciences Seminar

Wednesday, May 16, 2018
4:00pm to 5:00pm
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Baxter B125
The Times They Are A-Changing: Dynamic Adverse Selection in the Laboratory
Stephanie Wang, Associate Professor of Economics, University of Pittsburgh; Visiting Associate Professor of Economics, Stanford University,

Abstract: Across a variety of contexts decision-makers exhibit a robust failure to understand the interaction of private information and strategy. Such failures have generally been observed in static settings, where participants fail to think through a future hypothetical, with closer response to theory in sequential settings. We use a laboratory experiment to examine a common-value matching environment where strategic thinking is entirely backward looking, and adverse selection is a dynamic, non-stationary process. While a minority of subjects do condition on time, reflecting an introspective rather than learned solution to the problem, the majority of subjects use a sub-optimal stationary response, even after extended experience and feedback. Though unreactive to time, stationary subjects' responses do exhibit strong learning effects. After outlining a misspecified model of the world that describes these subjects' steady-state behavior, we construct two further treatments that validate this learning model out of sample.

Research performed with Felipe A. Araujo and Alistair J. Wilson.

For more information, please contact Letty Diaz by phone at 626-395-1255 or by email at [email protected] or visit the full paper, "The Times They Are A-Changing: Dynamic Adverse Selection in the Laboratory," here..