SHACHAR KARIV
University of California, Berkeley
Department of Economics
kariv[at]berkeley[dot]edu
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RESAERCH
PUBLISHED AND FORTHCOMING PAPERS
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Bayesian Learning in Social
Networks, with
Douglas Gale, NYU. Games
and Economic Behavior, November
2003
Abstract. In this paper, we extend the standard model of social
learning in two ways. First, we introduce a social network and assume that
agents can only observe the actions of agents to whom they are connected by
this network. Secondly, we allow agents to choose a different action at each
date. If the network satisfies a connectedness assumption, the initial
diversity resulting from diverse private information is eventually replaced by
uniformity of actions, though not necessarily of beliefs, in finite time with probability
one. We look at particular networks to illustrate the impact of network
architecture on speed of convergence and the optimality of absorbing states.
Convergence is remarkably rapid, so that asymptotic results are a good
approximation even in the medium run.
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Observational Learning Under Imperfect Information, with Boğaçhan
Çelen, Columbia B-School. Games and Economic Behavior, March 2004, 47(1), pp. 72-86.
Abstract. This paper explores Bayes-rational
sequential decision making in a game with pure information externalities, where
each decision maker observes only her predecessor's binary action. Under
perfect information, the martingale property of the stochastic learning process
is used to establish convergence of beliefs and actions. Under imperfect
information, in contrast, beliefs and actions cycle forever. However, despite
the instability, over time the private information is ignored and decision
makers become increasingly likely to imitate their predecessors. Consequently,
we observe longer and longer periods of uniform behavior, punctuated by
increasingly rare switches. These results suggest that the kind of episodic
instability that is characteristic of social behavior in the real world makes
more sense in the imperfect-information model, and that the imperfect
information premise provides a better theoretical description of fads and
fashions.
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Distinguishing Informational
Cascades from Herd Behavior in the Laboratory, with Boğaçhan
Çelen, Columbia B-School. American Economic Review, June
2004, 94(3), pp. 484-497.
Abstract. This paper reports an experimental test of how individuals
learn from the behavior of others. By using techniques only available in the
laboratory, we elicit subjects' beliefs. This allows us to distinguish
informational cascades (convergence of beliefs) from herd behavior (convergence
of actions). By adding a setup with continuous signal and discrete action, we
enrich the ball-and-urn observational learning
experiments paradigm of Anderson and Holt (1997). We test a model that explains
subjects' behavior as a form of generalized Bayesian behavior that incorporates
limits on the rationality of others. We find strong evidence that, in Bayesian
terms, subjects put too much weight on their own
information and too little weight on the public information. Put differently,
subjects are overconfident in the precision of their private
information. To put the observed behavior into perspective, we use a
simple modification of the Bayesian model, which provides a framework that
enables us to understand individual behavior in the laboratory.
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An Experimental Test of
Observational Learning under Imperfect Information, with Boğaçhan
Çelen, Columbia B-School. Economic Theory, October 2005,
26(3), pp. 677-699 (NYU C.E.S.S. working paper).
Abstract. To explore the
difference between social learning under perfect and imperfect information,
this paper takes an experimental look at a situation in which individuals learn
by observing the behavior of their immediate predecessors. Our experimental
design is based on the theory of Çelen and Kariv (Observational Learning
Under Imperfect Information) and uses the procedures
of Çelen and Kariv (Distinguishing Informational Cascades from herd
Behavior in the Laboratory) with the exception that the history of actions
observed by subjects is different. We find is that imitation is much less
frequent when subjects have imperfect information, even less frequent than the
theory predicts. Further, while we find strong evidence that under perfect
information a form of generalized Bayesian behavior adequately explains
behavior in the laboratory, under imperfect information behavior is not even
consistent with this generalization of Bayesian behavior. To reconcile this
with the conclusions under perfect information, we undertake a modification of
the model that abandons the assumption of common knowledge of rationality.
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Behavioral Aspects of Learning
in Social Networks: An Experimental Study, with Syngjoo Choi, NYU, and Douglas Gale, NYU. Advances
in Applied Microeconomics,
Volume 13, Behavioral and Experimental Economics, 2005, edited by John Morgan.
Abstract. Networks are
natural tools for understanding social and economic phenomena. For example, all
markets are characterized by agents connected by complex, multilateral information
networks, and the network structure influences economic outcomes. In an earlier
study, we undertook an experimental investigation of learning in various
three-person networks, each of which gives rise to its own learning patterns.
In the laboratory, learning in networks is challenging and the difficulty of
solving the decision problem is sometimes massive even in the case of three
persons. We found that the theory can account surprisingly well for the
behavior observed in the laboratory. The aim of the present paper is to
investigate important and interesting questions about individual and group
behavior, including comparisons across networks and information treatments. We
find that in order to explain subjects' behavior, it is necessary to take into
account the details of the network architecture as well as the information
structure. We also identify some black spots where the theory does least well
in interpreting the data.
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Financial Networks, with Douglas Gale, NYU. American
Economic Review, Papers & Proceedings, May 2007,
97(2), pp. 99-103.
Abstract. Apart from
centralized exchanges such as the NYSE, most financial transactions take place in
networks where one or more intermediaries link the initial seller and final
buyer. This paper presents a model of financial networks, in which
financial exchange is intermediated by traders who
form a chain of links between the initial owner of the assets and ultimate
owner of the assets. Networks are incomplete in the sense that each trader can
only exchange assets with a limited number of other traders. The greater the
incompleteness of the network, the more intermediation is required to transfer
the assets between initial and final owners. Intermediation takes time and time
is costly, so incompleteness constitutes a potentially important market
imperfection. The cost and uncertainty of trade in networks may give rise to
other problems and, in extreme cases, lead to a market breakdown. The results
are applicable not just to financial networks but to
any model of exchange which shares the same basic network structure.
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Revealing Preferences
Graphically: An Old Method Gets a New Tool Kit, with Syngjoo Choi, UCL, Ray Fisman, Columbia
B-School, and Douglas Gale,
NYU. American Economic Review, Papers & Proceedings, May
2007, 97(2), pp.153-158.
Abstract. This paper describes the necessary tools, both methodological and
analytical, for providing a comprehensive individual-level analysis of
decision-making under risk. Two distinctive features of the paper are the new
experimental technique, and the application of the tools of the theory of
consumer demand to individual decision-making in the laboratory. To characterize
an individual's decision-making under risk, it is necessary to generate many
observations per subject over a wide range of choice sets. An innovative
graphical interface was developed for this purpose, where subjects see on a
computer screen a geometrical representation of a portfolio choice problem. Subjects
choose portfolios through a simple point-and-click. This intuitive and
user-friendly interface allows for the quick and efficient elicitation of many
decisions per subject under a wide range of choice scenarios. The experimental
platform and analytical techniques that have been developed can also be applied
to many types of individual choice problems.
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Individual Preferences for Giving,
with
Ray Fisman,
Columbia B-School, and Daniel
Markovits, Yale Law School. American Economic Review, May 2007, 97(5), pp. 1858-1876.
(Previously distributed in three different papers titled Individual
Preferences for Giving, Pareto Damaging Behaviors
and Distinguishing Social Preferences from Preferences
for Altruism.) [Appendix I][Appendix II][Appendix III][Appendix IV][Appendix V][Appendix VI]
Abstract. We utilize graphical
representations of Dictator Games which generate rich individual-level data.
Our baseline experiment employs budget sets over feasible payoff-pairs. We test
these data for consistency with utility maximization, and we recover the
underlying preferences for giving (tradeoffs between own payoffs and the
payoffs of others). Two further experiments augment the analysis. An extensive
elaboration employs three-person budget sets to distinguish preferences for
giving from social preferences (tradeoffs between the payoffs of others). And
an intensive elaboration employs step-shaped sets to distinguish between
behaviors that are compatible with well-behaved preferences and those that are
compatible only with not well-behaved cases.
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Consistency and Heterogeneity of
Individual Behavior under Uncertainty, with Syngjoo
Choi, UCL, Douglas Gale,
NYU, and Ray Fisman,
Columbia B-School). American Economic Review, December 2007, 97(5), pp. 1921-1938. (Some
of the results reported here are also distributed in Substantive
and Procedural Rationality in Decisions under Uncertainty.) [Appendix I] [Appendix II]
[Appendix III] [Appendix
IV] [Appendix V] [Appendix
VI] [Appendix VII] [Appendix
VIII]
Abstract. By using graphical
representations of simple portfolio choice problems, we generate a very rich
data set to study behavior under uncertainty at the level of the individual
subject. We test the data for consistency with the maximization hypothesis, and
we estimate preferences using a two-parameter utility function based on Faruk Gul (1991). This
specification provides a good interpretation of the data at the individual
level and can account for the highly heterogeneous behaviors observed in the
laboratory. The parameter estimates jointly describe attitudes toward risk and
allow us to characterize the distribution of risk preferences in the
population.
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Sequential Equilibrium in
Monotone Games: Theory-Based Analysis of Experimental Data, with Syngjoo Choi, UCL, and Douglas Gale, NYU. Journal of Economic Theory, December
2008, 143(1), pp. 302–330. [Appendix]
Abstract. A monotone game
is an extensive-form game with complete information, simultaneous moves and an
irreversibility structure on strategies. It captures a variety of situations in
which players make partial commitments and allows us to characterize conditions
under which equilibria result in socially desirable outcomes. However, since
the game has many equilibrium outcomes, the theory lacks predictive power. To
produce stronger predictions, one can restrict attention to the set of
sequential equilibria, or Markov equilibria, or symmetric equilibria, or
pure-strategy equilibria. This paper explores the relationship between
equilibrium behavior in a class of monotone games, namely voluntary
contribution games, and the behavior of human subjects in an experimental
setting. Several key features of the symmetric Markov perfect equilibrium
(SMPE) are consistent with the data. To judge how well the SMPE fits the data,
we estimate a model of Quantal Response Equilibrium (QRE) (McKelvey
and Palfrey 1995, 1998) and find that the decision rules of the QRE model are
qualitatively very similar to the empirical choice probabilities.
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Trading in Networks: A Normal
Form Game Experiment, with Douglas Gale, NYU. Version:
September 30, 2008. Forthcoming, American
Economic Journal: Microeconomics, August 2009, 1(2), pp. 114-132. [Appendix I] [Appendix II]
Abstract. This paper reports an experimental study of trading
networks. Networks are incomplete in the sense that each trader can only
exchange assets with a limited number of other traders. The greater the
incompleteness of the network, the more intermediation is required to transfer
the assets between initial and final owners. The uncertainty of trade in
networks constitutes a potentially important market friction. Nevertheless, we
find that the pricing behavior observed in the laboratory converges to
competitive equilibrium behavior in a variety of treatments. However, the rate
of convergence varies depending on the network, pricing rule, and payoff
function.
-
An Experimental Test of Advice
and Social Learning, with Boğaçhan Çelen, Columbia B-School,
and Andrew Schotter,
NYU. Version: June 17, 2010. Management
Science, October 2010, 56(10), pp. 1678-1701. [Appendix
I]
Abstract. Social learning describes any situation in which
individuals learn by observing the behavior of others. In the real world,
however, individuals learn not just by observing the actions of others, but
also learn from advice. This paper introduces advice giving into the standard
social-learning experiment of Çelen and Kariv (2005). The experiments
are designed so that both pieces of information – action and advice - are
equally informative (in fact, identical) in equilibrium. Despite the
informational equivalence of advice and actions, we find that subjects in a
laboratory social-learning situation appear to be more willing to follow the
advice given to them by their predecessor than to copy their action, and that
the presence of advice increases subjects' welfare.
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Network Architecture, Salience and Coordination, with Syngjoo Choi, UCL, Douglas Gale, NYU, and Thomas Palfrey, Caltech.
Version: January 5, 2011. Games and Economic Behavior, September 2011,
73(1), pp. 76-90. [Appendix I] [Appendix II] [Appendix III]
Abstract. This paper reports the results of an experimental
investigation of dynamic games in networks. In each period, the subjects
simultaneously choose whether or not to make an irreversible contribution to
the provision of an indivisible public good. Subjects observe the past actions
of other subjects if and only if they are connected by the network. Networks
may be incomplete so subjects are asymmetrically informed about the actions of
other subjects in the same network, which is typically an obstacle to the
attainment of an efficient outcome. For all networks, the game has a large set
of (possibly inefficient) equilibrium outcomes. Nonetheless, the network
architecture makes certain strategies salient and this in turn facilitates
coordination on efficient outcomes. In particular, asymmetries in the network
architecture encourage two salient behaviors, strategic delay and strategic
commitment. By contrast, we find that symmetries in the network architecture can
lead to mis-coordination and inefficient outcomes.
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Network Architecture and Mutual Monitoring in Public Goods
Experiments, with Jeffrey Carpenter,
Middlebury College, and Andrew Schotter, NYU. Review of Economic Design, September 2012, 16(2-3),
pp. 175-191. [Appendix I]
Abstract. Following Fehr and Gäechter
(2000), a large and growing number of experiments show that public goods can be
provided at high levels when mutual monitoring and costly punishment are
allowed. Nearly all experiments, however, study monitoring and punishment in a
complete network where all subjects can monitor and punish each other. The
architecture of social networks becomes important when subjects can only
monitor and punish the other subjects to whom they are connected by the
network. We study several incomplete networks and find that they give rise to
their own distinctive patterns of behavior. Nevertheless, a number of simple,
yet fundamental, properties in graph theory allow us to interpret the variation
in the patterns of behavior that arise in the laboratory and to explain the impact
of network architecture on the efficiency and dynamics of the experimental
outcomes.
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Social Learning in Networks: A Quantal Response Equilibrium
Analysis of Experimental Data, with
Syngjoo Choi, UCL, and Douglas Gale, NYU. Review of
Economic Design, September 2012, 16(2-3), pp. 93-118. [Appendix I] [Appendix II]
Abstract. Individuals living in society are bound together by a
social network and, in many social and economic situations, individuals learn
by observing the behavior of others in their local environment. This process is
called social learning. Learning in incomplete networks, where different
individuals have different information, is especially challenging: because of
the lack of common knowledge individuals must draw inferences about the actions
others have observed, as well as about their private information. This paper
reports an experimental investigation of learning in three-person networks and
uses the theoretical framework of Gale and Kariv (2003) to interpret the data
generated by the experiments. The family of three-person networks includes several
non-trivial architectures, each of which gives rise to its own distinctive
learning patterns. To test the usefulness of the theory in interpreting the
data, we adapt the Quantal Response Equilibrium (QRE) model of McKelvey and Palfrey (1995, 1998). We find that the theory
can account for the behavior observed in the laboratory in a variety of
networks and informational settings. This provides important support for the
use of QRE to interpret experimental data.
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An
Old Measurement of Decision-making Quality Sheds New Light on Paternalism, with Dan
Silverman, Arizona State University. Journal of Institutional and
Theoretical Economics, February
2013, 169(1), pp. 29-44.
Abstract. Definitive judgment about the quality of decision
making is made difficult by twin problems of measurement and identification. A
measure of decision-making quality is hard to formalize, to quantify, and to
make practical for use in a variety of choice environments; and it is difficult
to distinguish differences in decision-making quality from unobserved
differences in preferences, information, beliefs, or constraints. In this
paper, we describe a widely applicable set of tools for theoretical analysis and
experimental methods for addressing these problems. These tools and methods can
indicate a more targeted approach to “light paternalism” polices
aimed at improving decision-making quality.
WORKING PAPERS
-
Who is (More) Rational? with Syngjoo Choi, UCL, Wieland Müller,
Tilburg University, and Dan
Silverman, Arizona State University. Version: April 11, 2013. Revise and
resubmitted American Economic Review. [Appendix I]
[Appendix II] [Appendix III]
[Appendix IV] [Appendix V]
Abstract. Revealed preference theory offers a criterion for
decision-making quality: if decisions are high quality then there exists a utility function the choices maximize. We conduct a
large-scale experiment to test for consistency with utility maximization.
Consistency scores vary markedly within and across socioeconomic groups. In
particular, consistency is strongly related to wealth: a standard deviation
increase in consistency is associated with 15-19 percent more household wealth.
This association is quantitatively robust to conditioning on correlates of
unobserved constraints, preferences, and beliefs. Consistency with utility
maximization under laboratory conditions thus captures decision-making ability
that applies across domains and influences important real-world outcomes.
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Choosing a President: Does
Character Matter? with Bill Zame,
UCLA. Version: Jan 16, 2013.
Abstract. Campaigns for the
Presidency often place a great deal of emphasis on the "character" of
the candidates, but why? Why should voters care
whether a candidate has an illicit affair or smokes in secret or invests
speculatively or exaggerates athletic accomplishments? Moral issues aside, such
behavior would seem to matter only if it provided a guide to policymaking
decisions. But it might, because such behavior is risky and a candidate's (past
and present) attitude toward risk in the private domain may provide clues about
– or even pin down completely – the candidate's attitude toward
risk in the public domain, if there is a sufficiently strong linkage between
these attitudes. This paper formalizes this issue, identifies a linkage, and
provides a necessary and sufficient condition that the linkage be strong
enough. This condition requires that voters observe a large – perhaps
impossibly large – amount of information about the candidate's
choices/preferences.
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How Did the Great Recession Impact Social Preferences? with Ray Fisman, Columbia
B-School, and Pam Jakiela,
University of Maryland. Version: January 12, 2013. [Appendix
I] [Appendix II] [Appendix
III]
Abstract. We compare
behavior in modified dictators game during the “Great Recession” to
behavior in otherwise identical experiments conducted amidst the economic boom
that preceded it. The experiments capture both differences in indexical
selfishness and differences in equality-efficiency tradeoffs. Subjects exposed
to the recession exhibit higher levels of indexical selfishness and greater
emphasis on efficiency relative to equality. Reproducing recessionary
conditions inside the laboratory by confronting subjects with negative payoffs
relative to initial endowments intensifies selfishness and increases the
willingness to trade equality for efficiency, though the impact is modest
relative to that of the real-world economic downturn.
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Estimating Ambiguity Aversion in
a Portfolio Choice Experiment, with David Ahn, Berkeley, Syngjoo Choi, UCL, and Douglas Gale, NYU. Version:
March 10, 2011. Revise and resubmit, Quantitative Economics. [Appendix I] [Appendix II]
[Appendix III] [Appendix IV]
[Appendix V] [Appendix VI] [Appendix VII] [Appendix
VIII] [Appendix IX] [Appendix X]
Abstract. We report a laboratory experiment that enables us to estimate parametric
models of ambiguity aversion in portfolio-choice problems. The assets are Arrow
securities corresponding to three states of nature, where the probability of
one state is known and the remaining two are ambiguous. There is a variety of
theoretical models of attitudes toward risk and ambiguity, but they all give
rise to one of two main specifications. These specifications are characterized
by two parameters: one is the familiar coefficient of risk aversion and the
other is a measure of ambiguity aversion. We also estimate a three-parameter
specification that allows for loss/disappointment aversion as well as ambiguity
aversion. The parameter estimates for individual subjects exhibit considerable
heterogeneity. Nevertheless, tests of significance suggest that the majority of
subjects are well described by the Subjective Expected Utility model. The remainder have a statistically significant degree of
ambiguity and/or loss aversion.
-
Exposure to Ideology and
Distributional Preferences, with Ray Fisman, Columbia
B-School, and Daniel
Markovits, Yale Law School. Version:
July 19, 2009 (under revision). [Appendix I]
[Appendix II] [Appendix III]
Abstract. We study the impact of
exposure to ideology on distributional preferences in the context of modified
Dictator Games that vary the price of giving. We exploiting a natural
experiment in education -- random assignment to first-term instructors at the
Yale Law School -- in order to distinguish the self-selection into a discipline
from the learning that education in this discipline provides. We find that
subjects exposed to instructors that stress traditional economic ideas display
a greater emphasis on efficiency (increasing total payoffs) relative to those
exposed to instructors that stress ideas from the humanities, who emphasize
equity (reducing differences in payoffs). Subjects exposed to economics
instructors also display greater levels of indexical selfishness (greater
weight on own payoff) relative to those exposed to humanist instructors.
-
Piercing the Veil of Ignorance, with Bill
Zame, UCLA. Version: September 15, 2008 (under revision).
Abstract. Theories of
justice in the spirit of Harsanyi and Rawls argue
that fair-minded people should aspire to make choices for society -- that is,
for themselves and for others -- as if in the original position, behind a veil
of ignorance that prevents them from knowing their own social and economic
positions in society. While the original position is a purely hypothetical
situation, developed as a thought experiment, the main result of this paper is
that (under certain assumptions) preferences -- hence choices -- behind the
veil of ignorance are determined by preferences in front of the veil of
ignorance. This linkage between preferences behind and in front of the veil of
ignorance has implications for distributive theories of justice and for
theories of choice.
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Substantive and Procedural
Rationality in Decisions under Uncertainty, with Syngjoo
Choi, UCL, Douglas Gale,
NYU, and Ray Fisman,
Columbia B-School. Version: March 31, 2006 (under revision).
Abstract. We report a
laboratory experiment that enables us to study systematically the substantive
and procedural rationality of decision making under uncertainty. By using novel
graphical representations of budget sets over bundles of state-contingent
commodities, we generate a very rich data set well-suited to studying behavior
at the level of the individual subject. We test the data for consistency with
the maximization hypothesis, and we recover underlying preferences using both
nonparametric and parametric methods. We find considerable heterogeneity in
individual behaviors across subjects. In spite of this heterogeneity, we
identify prototypical heuristics that inform subjects' decision rules. To
account for these heuristics, we propose a type-mixture model based on Expected
Utility Theory employing only combinations of three heuristics which correspond
to the behavior of individuals who are infinitely risk averse,
risk neutral, and expected utility maximizers with intermediate
risk aversion. This links the procedural rationality that is evident in the
data to substantive rationality, and supports the use of Expected Utility
Theory for both normative and descriptive purposes.
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Overconfidence and Informational Cascades.
Version: March 21, 2005 (under revision).
Abstract. This paper combines behavioral economics and social
learning. We test how robust the theory is to the well-known behavioral
phenomenon of individual overconfidence (mistaken private information
perception, specifically overvaluing). In the context of social learning,
overconfident agents overweigh their private information relative to the public
information revealed by the decisions of others. Therefore, when following a
herd, they broadest more of the information available to them. However,
overconfidence trades the additional information revealed by overconfident
decisions against more information that is being suppressed by perfectly
rational decisions. Thus, the presence of overconfident individuals intensifies
the free-rider problem of rational individuals. With the help of numerical
simulations, we show that, from a social perspective, the presence of
overconfident agents cannot improve decisions accuracy or break the poor information
flow intrinsic to erroneous uniform behavior.
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| Resume | CV | Research | Teaching | Personal