Papers in Economic Theory and the Biological Foundations of Economics

Chapter 1 gives the introduction to this thesis, describing the three essays that are contained herein. Chapter 2 is joint work with Erik Kimbrough and Arthur Robson. The article investigates the evolutionary foundation for our capacity to attribute preferences to others. It develops a theoretical model of this ability that the authors call “Theory of Preferences” (ToP), and then shows that ToP yields a sharp, unambiguous advantage over less sophisticated approaches to strategic interaction. The advantage to ToP arises because agents with this ability can extrapolate to novel circumstances information about opponents’ preferences that was learned previously. The chapter reports on experiments investigating ToP in a simpler version of the theoretical model. It finds highly significant learning of opponents’ preferences, providing strong evidence for the presence of ToP as in the model among subjects. Moreover, scores on standard measures of autism-spectrum behaviors are significant determinants of individual speeds of learning in experiments, so the notion of ToP is significantly correlated with theory of mind as in psychology. Chapter 3 studies the third party provision of information in a dynamic reputation model. Information is sold to consumers by a profit maximizing intermediary with monopoly access to information about a long run firm. The paper characterizes the optimal disclosure rule from the point of view of the intermediary, and shows that if consumers act as price takers in the market for information, then in every equilibrium the intermediary extracts from consumers the highest price possible for information. The resulting equilibrium is inefficient. Chapter 4 extends a matching and bargaining model of decentralized trade first developed by Gale and Sabourian (2005). The extension considers a market in which sellers bring to market several units rather than just one. The article then studies the effect on efficiency of an aversion to complexity among the agents. It shows that complexity aversion can preclude efficient exchange in contrast to the original model by Gale and Sabourian (2005). Allowing an agent to trade several times introduces an important strategic aspect that does not arise when each seller has only one unit for sale. In particular, a several-unit seller must consider, not only the price at which he currently trades, but also the effect of his exchange on future market conditions. A seller with several units thus attempts to manipulate the price in the future by engaging in inefficient trades currently.