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Federico Echenique

Publications and source records attributed to Federico Echenique.

At least 19 recordsLinked to original sources

Diversity as Majorization

How should institutions compare group diversity, and which group should they select when they value diversity and merit? We take a target-based approach that evaluates the entire group composition without treating any type as intrinsically diversity-enhancing. Because different diversity indices may rank groups differently, we instead adapt majorization to construct an ordinal diversity preorder. We show that its maximally diverse selections are exactly those maximizing every index in a broad class. This characterization yields a reserve-and-quota policy that selects a maximally diverse group and, among such groups, the highest-merit agents. Any alternative is less diverse, less meritorious, or both.

econ.TH

Response Time Enhances Alignment with Heterogeneous Preferences

Aligning large language models (LLMs) to human preferences typically relies on aggregating pooled feedback into a single reward model. However, this standard approach assumes that all labelers share the same underlying preferences, ignoring the fact that real-world labelers are highly heterogeneous and usually anonymous. Consequently, relying solely on binary choice data fundamentally distorts the learned policy, making the true population-average preference unidentifiable. To overcome this critical limitation, we demonstrate that augmenting preference datasets with a simple, secondary signal -- the user's response time -- can restore the identifiability of the population's average preference. By modeling each decision as a Drift-Diffusion Model (DDM), we introduce a novel, consistent estimator of heterogeneous preferences that successfully corrects the distortions of standard choice-only labels. We prove that our estimator asymptotically converges to the true average preference even in extreme cases where each anonymous labeler contributes only a single choice. Empirically, across both synthetic and real-world datasets, our method consistently outperforms standard baselines that otherwise fail and plateau at a bias floor. Because response times are essentially free to record and require zero user tracking or identification, our results bring promises and open up new opportunities for future data-collection pipelines to improve the social benefit without requiring user-level identifiers or repeated elicitations.

cs.LG

Robust Testing Of the Allais Paradox By Paired Choices vs. Paired Valuations

McGranaghan, Nielsen, O'Donoghue, Somerville, and Sprenger [2024] show that standard paired choice tests for the common ratio effect are structurally biased when choice is stochastic, proposing valuation tests as a robust alternative. Using valuation tests, they find no systematic evidence for the common ratio effect, seemingly overturning much of the extant literature. We evaluate this conclusion in light of stochastic choice theory. We argue that valuation tests are inherently biased and lack predictive power under standard expected utility assumptions. In contrast, we advocate for a ``strong'' paired choice test, proving it remains robustly unbiased across common models of stochastic choice. Applying this strong test to existing experimental data, we find that the common ratio effect remains highly prevalent.

econ.TH

Distributional Preferences for Market Design

Institutions selecting students, employees, or members value both about who is selected and the resulting group's composition. We study ``distributional'' preferences over group composition, and identify an upper-bound property and two exchange properties. With the upper-bound property, the exchange properties are necessary and sufficient for two results: the greedy rule is the unique choice rule that is non-wasteful, distributionally maximal, and free of justified envy; it is also path independent. In matching markets, deferred acceptance is the unique mechanism satisfying the three axioms, individual rationality, and strategy-proofness. Our framework accommodates intersectional identities and subsumes models based on reserves and matroids.

econ.TH

Compromise by "multimatum"

We propose a solution and a mechanism for two-agent social choice problems with large (infinite) policy spaces. Our solution is an efficient compromise rule between the two agents, built on a common cardinalization of their preferences. Our mechanism, the *multimatum* has the two players alternate in proposing sets of alternatives from which the other must choose. Our main result shows that the multimatum fully implements our compromise solution in subgame perfect Nash equilibrium. We demonstrate the power and versatility of this approach through applications to political economy, other-regarding preferences, and facility location.

econ.TH

Endogenous Inequality Aversion: Decision criteria for triage and other ethical tradeoffs

Medical ``Crisis Standards of Care'' call for a utilitarian allocation of scarce resources in public emergencies, whereas standards of care under normal conditions place relatively greater priority on the worst-off. Inspired by such triage rules, we study social welfare criteria whose distributive trade-offs depend on society's well-being, as captured by aggregate welfare. Because the welfare level determines the applicable aggregation criterion, while that criterion in turn determines welfare, the resulting criteria are self-referential. We provide an axiomatic foundation for a family of welfare criteria that become more utilitarian as aggregate welfare falls and more Rawlsian as it rises, thereby formalizing triage guidelines. We also characterize the converse case, in which priority to the worst-off increases as aggregate welfare falls.

econ.TH

I Choose For You: an Experimental Study

We investigate whether risk and time preferences differ when individuals make decisions for others compared to making decisions for themselves. We introduce a novel ``skin in the game'' experimental design, where choices for others incur a direct cost to the decision-maker, ensuring a genuine trade-off between self-interest and surrogate allocation. The modal outcome is that participants are more risk-averse and impatient when choosing for others than for themselves. Our methodology reveals significant heterogeneity, successfully identifying selfish types often missed by the more standard ``no skin in the game'' approaches. The message is nuanced, as even non-selfish participants behave differently when they have skin in the game. Furthermore, our framework yields more consistent behavior and superior out-of-sample predictive power.

econ.GN

Implicit Incentive Provision with Misspecified Learning

We study misspecified Bayesian learning in principal-agent relationships, where an agent is assessed by an evaluator and rewarded by the market. The agent's outcome depends on their innate ability, costly effort -- whose effectiveness is governed by a productivity parameter -- and noise. The market infers the agent's ability from observed outcomes and rewards them accordingly. The evaluator conducts costly assessments to reduce outcome noise, which shape the market's inferences and provide implicit incentives for effort. Society -- including the evaluator and the market -- holds dogmatic, inaccurate beliefs about ability, which distort learning about effort productivity and effort choice. This, in turn, shapes the evaluator's choice of assessment. We describe a feedback loop linking misspecified ability, biased learning about effort, and distorted assessment. We characterize outcomes that arise in stable steady states and analyze their robust comparative statics and learning foundations. Applications to education and labor market reveal how stereotypes can reinforce across domains -- sometimes disguised as narrowing or even reversals of outcome gaps -- and how policy interventions targeting assessment can help.

econ.TH

Swap Bounded Envy

We study fairness in the allocation of discrete goods. Exactly fair (envy-free) allocations are impossible, so we discuss notions of approximate fairness. In particular, we focus on allocations in which the swap of two items serves to eliminate any envy, either for the allocated bundles or with respect to a reference bundle. We propose an algorithm that, under some restrictions on agents' preferences, achieves an allocation with ``swap bounded envy.''

econ.TH

A General Framework for Estimating Preferences Using Response Time Data

We propose a general methodology for recovering preference parameters from data on choices and response times. Our methods yield estimates with fast ($1/n$ for $n$ data points) convergence rates when specialized to the popular Drift Diffusion Model (DDM), but are broadly applicable to generalizations of the DDM as well as to alternative models of decision making that make use of response time data. The paper develops an empirical application to an experiment on intertemporal choice, showing that the use of response times delivers predictive accuracy and matters for the estimation of economically relevant parameters.

econ.TH

Prestige in Numbers: How Test Scores and Choices Reveal School Rankings

This paper introduces a novel revealed-preference approach to ranking colleges and professional schools based on applicants' choices and standardized test scores. Unlike traditional rankings that rely on data supplied by institutions or expert opinions, our methodology leverages the decentralized beliefs of potential students, as revealed through their application decisions. We develop a theoretical model where students with higher test scores apply to more selective institutions, allowing us to establish a clear relationship between test score distributions and school prestige. Using comprehensive data from over 490,000 GMAT test-takers applying to U.S. full-time MBA programs, we implement two ranking methods: one based on monotone functions of test scores across schools, and another using score-adjusted tournaments between school pairs. Our approach has distinct advantages over traditional rankings: it reflects the collective judgment of the entire applicant pool rather than a small group of experts, and it utilizes data from an independent testing organization, making it resistant to manipulation by institutions. The resulting rankings correlate strongly with leading published MBA rankings ($\rho = 0.72$) while offering the additional benefit of being customizable for different student subgroups. This method provides a transparent alternative to existing ranking systems that have been subject to well-documented manipulation.

econ.GN

Decision theory and the "almost implies near" phenomenon

We examine behavioral axioms in decision theory that are satisfied approximately rather than exactly. We demonstrate that in key domains -- decisions under risk, uncertainty, and intertemporal choice -- behavior that \emph{almost} satisfies an axiom implies the existence of a utility function that is \emph{near} one that adheres to the standard theoretical representation (e.g., expected utility, or exponentially discounted utility). We explicitly quantify the distance between the utility that captures actual behavior and the ideal theoretical utility as a function of the measured deviation from the axiom. This result formally connects two distinct quantitative exercises: measuring empirical deviations from theory and utilizing approximate optimization. Effectively, we show that small deviations from behavioral axioms rationalize the use of standard models as valid approximations.

econ.TH

Utilitarian Social Choice and Distributional Welfare Analysis

Harsanyi (1955) showed that the only way to aggregate individual preferences into a social preference which satisfies certain desirable properties is ``utilitarianism'', whereby the social utility function is a weighted average of individual utilities. This representation forms the basis for welfare analysis in most applied work. We argue, however, that welfare analysis based on Harsanyi's version of utilitarianism may overlook important distributional considerations. We therefore introduce a notion of utilitarianism for discrete-choice settings which applies to \textit{social choice functions}, which describe the actions of society, rather than social welfare functions which describe society's preferences (as in Harsanyi). We characterize a representation of utilitarian social choice, and show that it provides a foundation for a family of \textit{distributional welfare measures} based on quantiles of the distribution of individual welfare effects, rather than averages.

econ.TH

Diversity in Choice as Majorization

We propose a framework that uses majorization to model diversity and representativeness in school admissions. We generalize the standard notion of majorization to accommodate arbitrary distributional targets, such as a student body that reflects the population served by the school. Building on this framework, we introduce and axiomatically characterize the $r$-targeting Schur choice rule, which balances diversity and priority in admissions. We show that this rule is optimal: any alternative rule must either leave seats unfilled, reduce diversity, or admit lower-priority students. The rule satisfies path independence (and substitutability), which guarantees desirable outcomes in matching markets. Our work contributes to the ongoing discourse on market design by providing a new and flexible framework for improving diversity and representation.

econ.TH

Binary Mechanisms under Privacy-Preserving Noise

We study mechanism design for public-good provision under a noisy privacy-preserving transformation of individual agents' reported preferences. The setting is a standard binary model with transfers and quasi-linear utility. Agents report their preferences for the public good, which are randomly ``flipped,'' so that any individual report may be explained away as the outcome of noise. We study the tradeoffs between preserving the public decisions made in the presence of noise (noise sensitivity), pursuing efficiency, and mitigating the effect of noise on revenue.

econ.TH

Manipulation of Belief Aggregation Rules

This paper studies manipulation of belief aggregation rules in the setting where the society first collects individual's probabilistic opinions and then solves a public portfolio choice problem with common utility based on the aggregate belief. First, we show that belief reporting in Nash equilibrium under the linear opinion pool and log utility is identified as the profile of state-contingent wealth shares in parimutuel equilibrium with risk-neutral preference. Then we characterize belief aggregation rules which are Nash-implementable. We provide a necessary and essentially sufficient condition for implementability, which is independent of the common risk attitude.

econ.TH

Screening $p$-Hackers: Dissemination Noise as Bait

We show that adding noise before publishing data effectively screens $p$-hacked findings: spurious explanations produced by fitting many statistical models (data mining). Noise creates "baits" that affect two types of researchers differently. Uninformed $p$-hackers, who are fully ignorant of the true mechanism and engage in data mining, often fall for baits. Informed researchers, who start with an ex-ante hypothesis, are minimally affected. We show that as the number of observations grows large, dissemination noise asymptotically achieves optimal screening. In a tractable special case where the informed researchers' theory can identify the true causal mechanism with very little data, we characterize the optimal level of dissemination noise and highlight the relevant trade-offs. Dissemination noise is a tool that statistical agencies currently use to protect privacy. We argue this existing practice can be repurposed to screen $p$-hackers and thus improve research credibility.

econ.TH

Stable allocations in discrete exchange economies

We study stable allocations in an exchange economy with indivisible goods. The problem is well-known to be challenging, and rich enough to encode fundamentally unstable economies, such as the roommate problem. Our approach stems from generalizing the original study of an exchange economy with unit demand and unit endowments, the \emph{housing model}. Our first approach uses Scarf's theorem, and proposes sufficient conditions under which a ``convexify then round'' technique ensures that the core is nonempty. The upshot is that a core allocation exists in categorical economies with dichotomous preferences. Our second approach uses a generalization of the TTC: it works under general conditions, and finds a solution that is a version of the stable set.

econ.TH