Bounded rationality in currency design and status effect in a socialist setting

This dissertation primarily examines two separate topics: evidencing the presence of boundedly rational behavior on currency designs and re-examination of extant status theory as applied to high-status actors in a socialist setting. The first two chapters address exchange rate illusion post currency redenomination policies and potential effects on the exchange rate movement. I show that redenomination policy that leads to significant changes in the currency quotation can lead to significant exchange rate depreciation. The last chapter is a joint work with my supervisor (Professor Rajiv Kozhikode) and Professor Rekha Krishnan. We re-examine extant status theory's central assumption that high-status actors are beneficiaries of biased evaluations of their audience. We find evidence in support of detrimental judgement for high-status firms in socialist settings. The first chapter, entitled "Currency Redenomination and the Nominal Superiority Shock on Exchange Rates: A Time Series Analysis", examines movements in exchange rates after redenomination. I find evidence of exchange rate depreciation of the currency with nominal superiority shock during the redenomination policy but not for currencies without the shock. The uniqueness in the exchange rate depreciation of the currency affected by the nominal shock is supported by an event study of neighboring currencies with no concurrent redenomination policy. The second chapter, entitled "Evidencing Forex Illusion under Currency Redenomination: Experimental Approach", is a follow up study on the empirical time series results obtained in the first chapter. This chapter examines the presence of a nominal illusion bias associated with nominal exchange rate and currency conversion decisions in an incentivized experiment. The results of the experiment support the presence of Forex Illusion further lending credence to the shift in currency demand and depreciation post redenomination. The third chapter, entitled "Guilty Until Proven Otherwise: High Status and the Burden of Proof under Socialism", we re-examine extant status theory's central assumption that high-status actors are beneficiaries of biased evaluations of their audience. We contend that, in socialist settings, high-status firms invoke a negative stereotype in the eyes of their evaluators. We find support for our theory in our analysis of the verdicts on lawsuits between commercial banks in India and their defaulting borrowers in the High Court of Kerala.