arXiv subjects

Luca Rigotti

Publications and source records attributed to Luca Rigotti.

7 recordsLinked to original sources

arXiv2022

Revealed Incomplete Preferences

We elicit incomplete preferences over monetary gambles with subjective uncertainty. Subjects rank gambles, and these rankings are used to estimate preferences; payments are based on estimated preferences. About 40\% of subjects express incompleteness, but they do so infrequently. Incompleteness is similar for individuals with precise and imprecise beliefs, and in an environment with objective uncertainty, suggesting that it results from imprecise tastes more than imprecise beliefs. When we force subjects to choose, we observe more inconsistencies and preference reversals. Evidence suggests there is incompleteness that is indirectly revealed -- in up to 98\% of subjects -- in addition to what we directly measure.

econ.GN↗

arXiv2021

Moral Hazard with Heterogeneous Beliefs

We study a model of moral hazard with heterogeneous beliefs where each of agent's actions gives rise to a pair of probability distributions over output levels, one representing the beliefs of the agent and the other those of the principal. The agent's relative optimism or pessimism dictates whether the contract is high-powered (i.e. with high variability between wage levels) or low-powered. When the agent is sufficiently more optimistic than the principal, the trade-off between risk-sharing and incentive provision may be eliminated. Using Monotone Likelihood Ratio ranking to model disagreement in the parties' beliefs, we show that incentives move in the direction of increasing disagreement. In general, the shape of the wage scheme is sensitive to the differences in beliefs. Thereby, key features of optimal incentive contracts under common beliefs do not readily generalize to the case of belief heterogeneity.

econ.TH↗

arXiv2021

Uncertainty in Mechanism Design

This paper studies the design of mechanisms that are robust to misspecification. We introduce a novel notion of robustness that connects a variety of disparate approaches and study its implications in a wide class of mechanism design problems. This notion is quantifiable, allowing us to formalize and answer comparative statics questions relating the nature and degree of misspecification to sharp predictions regarding features of feasible mechanisms. This notion also has a behavioral foundation which reflects the perception of ambiguity, thus allowing the degree of misspecification to emerge endogenously. In a number of standard settings, robustness to arbitrarily small amounts of misspecification generates a discontinuity in the set of feasible mechanisms and uniquely selects simple, ex post incentive compatible mechanisms such as second-price auctions. Robustness also sheds light on the value of private information and the prevalence of full or virtual surplus extraction.

econ.TH↗

arXiv2021

Identification of Incomplete Preferences

We provide a sharp identification region for discrete choice models where consumers' preferences are not necessarily complete even if only aggregate choice data is available. Behavior is modeled using an upper and a lower utility for each alternative so that non-comparability can arise. The identification region places intuitive bounds on the probability distribution of upper and lower utilities. We show that the existence of an instrumental variable can be used to reject the hypothesis that the preferences of all consumers are complete. We apply our methods to data from the 2018 mid-term elections in Ohio.

econ.EM↗

arXiv2021

The Experimenters' Dilemma: Inferential Preferences over Populations

We compare three populations commonly used in experiments by economists and other social scientists: undergraduate students at a physical location (lab), Amazon's Mechanical Turk (MTurk), and Prolific. The comparison is made along three dimensions: the noise in the data due to inattention, the cost per observation, and the elasticity of response. We draw samples from each population, examining decisions in four one-shot games with varying tensions between the individual and socially efficient choices. When there is no tension, where individual and pro-social incentives coincide, noisy behavior accounts for 60% of the observations on MTurk, 19% on Prolific, and 14% for the lab. Taking costs into account, if noisy data is the only concern Prolific dominates from an inferential power point of view, combining relatively low noise with a cost per observation one fifth of the lab's. However, because the lab population is more sensitive to treatment, across our main PD game comparison the lab still outperforms both Prolific and MTurk.

econ.GN↗

arXiv2019

Detectability, Duality, and Surplus Extraction

We study surplus extraction in the general environment of McAfee and Reny (1992), and provide two alternative proofs of their main theorem. The first is an analogue of the classic argument of Cremer and McLean (1985, 1988), using geometric features of the set of agents' beliefs to construct a menu of contracts extracting the desired surplus. This argument, which requires a finite state space, also leads to a counterexample showing that full extraction is not possible without further significant conditions on agents' beliefs or surplus, even if the designer offers an infinite menu of contracts. The second argument uses duality and applies for an infinite state space, thus yielding the general result of McAfee and Reny (1992). Both arguments suggest methods for studying surplus extraction in settings beyond the standard model, in which the designer or agents might have objectives other than risk neutral expected value maximization.

econ.TH↗

arXiv2018

Uncertainty and Robustness of Surplus Extraction

This paper studies a robust version of the classic surplus extraction problem, in which the designer knows only that the beliefs of each type belong to some set, and designs mechanisms that are suitable for all possible beliefs in that set. We derive necessary and sufficient conditions for full extraction in this setting, and show that these are natural set-valued analogues of the classic convex independence condition identified by Cremer and McLean (1985, 1988). We show that full extraction is neither generically possible nor generically impossible, in contrast to the standard setting in which full extraction is generic. When full extraction fails, we show that natural additional conditions can restrict both the nature of the contracts a designer can offer and the surplus the designer can obtain.

econ.TH↗