Working Papers and Recent Publications

Rationalization and Cognitive Dissonance: Do Choices Affect or Reflect Preferences?
This draft: January, 2008
Abstract:
Cognitive dissonance is one of the most influential theories in social psychology, and its oldest experiential realization is choice-induced dissonance. Since 1956, dissonance theorists have claimed that people rationalize past choices by devaluing rejected alternatives and upgrading chosen ones, an effect known as the spreading of preferences. Here, I show that every study which has tested this suffers from a fundamental methodological flaw. Specifically, these studies (and the free-choice methodology they employ) implicitly assume that before choices are made, a subject's preferences can be measured perfectly, i.e. with infinite precision, and under-appreciate that a subject's choices reflect their preferences. Because of this, existing methods will mistakenly identify cognitive dissonance when there is none. This problem survives all controls present in the literature, including control groups, high and low dissonance conditions, and comparisons of dissonance across cultures or affirmation levels. The bias this problem produces can be fixed, and correctly interpreted several prominent studies actually reject the presence of choice-induced dissonance in their subjects. This suggests that mere choice may not be enough to induce rationalization, a reversal that may significantly change the way we think about cognitive dissonance as a whole.

One-Way Essential Complements
Joint with Barry Nalebuff
This draft: April, 2007
Abstract:
While competition between firms producing substitutes is well understood, less is known about rivalry between complementors. We study the interaction between firms in markets with one-way essential complements. One good is essential to the use of the other but not vice versa, as arises with an operating system and applications. Our interest is in the division of surplus between the two goods and the related incentive for firms to create complements to an essential good.
Formally, we study a two-good model where consumers value A alone, but can only enjoy B if they also purchase A. When one firm sells A and another sells B, the firm that sells B earns a majority of the value it creates. However, if the A firm were to buy the B firm, it would optimally charge zero for B, provided marginal costs are zero and the average value of B is small relative to A. Hence, absent strong antitrust or intellectual property protections, the A firm can leverage its monopoly into B costlessly by producing a competing version of B and giving it away. For example, Microsoft provided Internet Explorer as a free substitute for Netscape; in our model, this maximizes Microsoft’s joint monopoly profits. Furthermore, Microsoft has no incentive to raise prices, even if all browser competition exits. This may seem surprising since it runs counter to the traditional gains from price discrimination and versioning. We also show that a essential monopolist has no incentive to degrade rival complementary products, which suggests that a monopoly internet service provider will offer net neutrality.
There are other means for the essential A monopolist to capture surplus from B. We consider the incentive to add a surcharge (or subsidy) to the price of B, or to act as a Stackelberg leader. We find a small gain from pricing first, but much greater profits from adding a surcharge to the price of B. The potential for A to capture B’s surplus highlights the challenges facing a firm whose product depends on an essential good.

Agendas in Multi-Issue Bargaining
This Draft: January, 2006
Abstract:
In practice, negotiators deal with numerous issues by ordering them in an agenda, yet in theory separating components of a decision can preclude Pareto-improving tradeoffs. Why then do negotiators address issues separately, rather than all at once? Moreover, what determines the order issues get addressed, and what effect does it have on the final agreement? I characterize an extension of Rubinstein Bargaining to the multiple-issue setting and show it has a simple and unique equilibrium agenda. Under this equilibrium issue-by-issue bargaining can ameliorate ex-ante bargaining risk, leading to Pareto improvements. Issue bargaining can also allow bargainers to make implicit, if not explicit, tradeoffs between issues, and can dramatically change a negotiation's final agreement. My results suggest that issue-by-issue bargaining may be socially optimal and preferred by one or both parties if players are sufficiently asymmetric, or if bargaining frictions are large.

Modeling a Presidential Prediction Market
Joint with Jonathan E. Ingersoll and Edward H. Kaplan
Forthcoming, Management Science, August 2008
Abstract:
Prediction markets now cover many important political events. The 2004 presidential election featured an active prediction market at Intrade.com where securities addressing many different election-related outcomes were traded. Using the 2004 data from this market, we examined three alternative models for these security prices with special focus on the electoral college rules that govern US presidential elections to see which models are more (or less) consistent with the data. The data reveal dependencies in the evolution of the security prices across states over time. We show that a simple diffusion model provides a good description of the overall probability distribution of electoral college votes, while an even simpler ranking model provides excellent predictions of the probability of winning the presidency. Ignoring dependencies in the evolution of security prices across states leads to considerable underestimation of the variance of the number of electoral college votes received by a candidate, which in turn leads to overconfidence in predicting whether or not that candidate wins the election. Overall, the security prices in the Intrade presidential election prediction market appear jointly consistent with probability models that satisfy the rules of the electoral college.

The Taste for Leisure, Career Choice, and the Returns to Education
Joint with Judith Chevalier
Economics Letters, May 2008
Abstract:
We develop a simple methodology to estimate the returns to education despite heterogeneous labor/leisure preferences. The labor supply behavior of doctors and physician assistants is consistent with people choosing between the two careers based on differing tastes for leisure.

This paper previously appeared as the working paper:
The Taste for Leisure, Career Choice, and the Returns to Education: Evidence from the Medical Field
Joint with Judith Chevalier

Do Harsher Prison Conditions Reduce Recidivism? A Discontinuity-Based Approach
American Law and Economics Review Distinguished Article Prize of 2008
Joint with Jesse Shapiro
American Law and Economic Review, June 2007
Abstract:
We estimate the causal effect of prison conditions on recidivism rates by exploiting a discontinuity in the assignment of federal prisoners to security levels. Inmates housed in higher security levels are no less likely to recidivate than those housed in minimum security; if anything, our estimates suggest that harsher prison conditions lead to more post-release crime. Though small sample sizes limit the precision of our estimates, we argue that our findings may have important implications for prison policy, and that our methodology is likely to be applicable beyond the particular context we study.

How Basic are Behavioral Biases? Evidence from Capuchin-Monkey Trading Behavior
Joint with Venkat Lakshminarayanan & Laurie Santos
Journal of Political Economy, June 2006
Abstract:
Behavioral economics has demonstrated systematic decision-making biases in both lab and field data. Do these biases extend across contexts, cultures, or even species? We investigate this question by introducing fiat currency and trade to a colony of capuchin monkeys, and recovering their preferences over a range of goods and gambles. We show that capuchins react rationally to both price and wealth shocks, but display several hallmark biases when faced with gambles, including reference-dependence and loss-aversion. Given our capuchins' inexperience with trade and gambles, these results suggest that loss-aversion extends beyond humans, and may be innate rather than learned.

This paper previously appeared as the working paper:
The Evolution of Our Preferences: Evidence from Capuchin-Monkey Trading Behavior
Joint with Venkat Lakshminarayanan & Laurie Santos

Some Thoughts on the Adaptive Function of Inequity Aversion: An Alternative to Brosnan’s Social Hypothesis
Joint with Laurie Santos
Social Justice Research, June 2006
Abstract:
In this commentary, we review and question Brosnan's hypothesis that inequity aversion (IA) evolved as a domain-specific social mechanism. We then outline an alternative, domain-general, account of IA. As opposed to Brosnan's social hypothesis, we propose that IA evolved from more general reward mechanisms. In particular, we argue reference-dependence and loss-aversion can account for the evolution of IA in primates. We discuss recent work on reference-dependence and explore how it may have given rise to inequality-averse behavior in social settings. We conclude with suggestions for future work examining the proximate mechanisms that give rise to IA.

Modeling Reciprocation and Cooperation in Primates: Evidence for a Punishing Strategy
Joint with Marc Hauser
Journal of Theoretical Biology, May 2005
Quicktime Movie Clip: Tamarins playing games (Tamarins play a repeated game, pulling to provide the other with food)
Abstract:
Experiments in which animals interact strategically with a conspecific or search over some experimentally constructed domain are becoming increasingly common. While these experiments hold the promise of illuminating surprisingly sophisticated behavior, the analysis of the resulting data is often quite coarse. For example, simply tallying the number of observations consistent with a particular behavioral theory fails to utilize systematic variation among observations inconsistent with the theory. Using a new data set generated by cotton-top tamarin monkeys playing a repeated food-exchange game, we apply a maximum-likelihood estimation technique (more commonly used to study human economic behavior) which utilizes much more of the information in these data, and which uncovers unexpectedly sophisticated cooperative behavior from our subjects. Tamarin cooperation remains stable as long as there are no more than two consecutive defections by one player, a strategy that resembles tit-for-two-tats. We present these supplementary results to our previous work on cooperation, detail the basic framework of our data analysis, enumerate the benefits of a maximum-likelihood approach in experimental settings such as ours, and suggest other areas in which these techniques may be fruitful.

Give Unto Others: Genetically Unrelated Cotton-Top Tamarin Monkeys Preferentially Give Food to Those Who Altruistically Give Food Back
Joint with Marc Hauser, Frances Chen & Emmeline Chuang
Proceedings of the Royal Society, Nov 2003
Quicktime Movie Clip: Tamarins playing games (Tamarins play a repeated game, pulling to provide the other with food)
Abstract:
Altruistic food giving among genetically unrelated individuals is rare in nature. The few examples that exist suggest that when animals give food to unrelated others, they may do so on the basis of mutualistic or reciprocally altruistic relationships. We present the results of four experiments designed to tease apart the factors mediating food giving among genetically unrelated cotton-top tamarins [Saguinus oedipus], a cooperatively breeding New World primate. In Experiment 1 we show that individuals give significantly more food to a trained conspecific who unilaterally gives food than to a conspecific who unilaterally never gives food. The apparent contingency of the tamarins’ food giving behavior motivated the design of Experiments 2-4. Results from all three experiments show that altruistic food giving is mediated by prior acts of altruistic food giving by a conspecific. Specifically, tamarins do not give food to unrelated others when the food received in the past represents the byproduct of another’s selfish actions (Experiments 2,3) or when a human experimenter gives them food (Experiment 4) as did the unilateral altruist in Experiment 1. In contrast, if one tamarin gives another food without obtaining any immediate benefit, then the recipient is more likely to give food in return. Overall, these results provide clear evidence of altruistic food giving among genetically unrelated individuals, indicate that tamarins discriminate between altruistic and selfish actions, and provide the necessary foundation for the evolution of reciprocal altruism.