Yan Xu

We propose an instrument to measure individuals’ social preferences regarding equity and efficiency behind a veil of ignorance. We pair portfolio and wealth distribution choice problems which have a common budget set. For a given bundle, the distribution over an individual’s wealth is the same for both problems. The portfolio choice serves as a benchmark to evaluate whether the wealth distribution choice exhibits equity or efficiency preferring tastes. We report experiments using a within-subject design testing the veracity of this instrument. We find clusters of equity preferring, efficiency preferring, and socially agnostic individuals through reduced form, revealed preference, and structural estimation analyses. Moreover, we find that individuals’ preferences for equity and efficiency behind the veil of ignorance are not correlated with their risk preferences.

This paper introduces two simple betting mechanisms, Top-Flop and Threshold betting, to elicit unverifiable information from crowds. Both mechanisms offer agents bets on the scores of two items, one about which they have a private signal and the other one about which they do not. For instance, in Top-Flop betting, agents bet on or against a movie they just watched having a higher score than another, random movie. Alternatively, in Threshold betting, agents bet which movie will exceed a threshold score. We characterize conditions for the chosen bet to reveal agents’ private signal (e.g. their truthful assessment of the movie). We further establish microfoundations of the scores in a game setting, in which the scores underlying the bets are endogenously determined by the actions of other agents. In the game setting, we relax standard assumptions of the literature such as common prior and homogeneous and risk-neutral agents, and we still obtain that bet choices reveal private signals.

In many economic scenarios, people face incomplete information about the payoff-relevant states of the world, and they may resort to different tests (e.g., analysts, medical diagnoses, or psychic octopuses) to obtain information to reduce their risk exposure. This paper studies how people evaluate and choose tests. Are they able to avoid useless ones (quacks) and identify genuinely useful ones (experts)? Are they over-paying for quacks and under-paying for experts, and why? I develop a novel experiment wherein people face a rich and structured choice set of expert and quack tests and choose their favorite ones through a graphic coloring task. I find that people do fail to distinguish experts and quacks on a large scale, and they are over-paying for quacks but accurately paying for experts. These results are not driven by the standard explanations suggested in the literature, including belief updating bias, failure in best-responding, and intrinsic preference over certain information characteristics. Instead, I show that the main culprit is the failure of contingent reasoning in information processing. That is, people cannot correctly foresee how expert and quack tests influence their decision problems for all contingencies. The failure of contingent reasoning underlies many decision problems in behavioral economics and game theory and provide new implications for these fields.

Bayesian Market is a new mechanism that incentivizes individuals to tell the subjective truth. This paper tests the performance of Bayesian markets with three different degrees of manipulation in participants’ beliefs in others’ truthfulness. I find that Bayesian markets effectively induce truthful revelations when participants believe that others are truthful. However, when there is noise in agents’ beliefs, Bayesian markets become less effective. Participants expect that the asset value is higher than the fundamental value and thus are more likely to buy assets, which further raising asset value ex-post. Since ex-ante belief of asset value is confirmed by its realization, bubbles arise in the market.