Decision Making & Negotiations

In a multi-armed bandit (MAB) problem a gambler needs to choose at each round of play one of K arms, each characterized by an unknown reward distribution. Reward realizations are only observed when an arm is selected, and the gambler's objective is to maximize cumulative expected earnings over some planning horizon of length T. To do this, the gambler needs to acquire information about arms (exploration) while simultaneously optimizing immediate rewards (exploitation). The gambler's policy is measured relative to a (static) oracle that knows the identity of the best arm a priori.

Although the gender wage gap in the U.S. has narrowed, women's career trajectories diverge from men's after the birth of children, suggesting a potential role for family-friendly policies. We provide new evidence on employer provision of these policies. Using the American Time Use Survey, we find that women are less likely than men to have access to any employer-provided paid leave and this differential is entirely explained by part-time status. Using the NLSY97, we find that young women are more likely to have access to specifically designated paid parental leave, even in part-time jobs.

Why do young firms pay less? Using confidential microdata from the US Census Bureau, we find lower earnings among workers at young firms. However, we argue that such measurement is likely subject to worker and firm selection. Exploiting the two-sided panel nature of the data to control for relevant dimensions of worker and firm heterogeneity, we uncover a positive and significant young-firm pay premium. Furthermore, we show that worker selection at firm birth is related to future firm dynamics, including survival and growth.

After decades of supporting free trade, in 2018 the U.S. raised import tariffs and major trade partners retaliated. We analyze the short-run impact of this return to protectionism on the U.S. economy. Import and retaliatory tariffs caused large declines in imports and exports. Prices of imports targeted by tariffs did not fall, implying complete pass-through of tariffs to duty-inclusive prices. The resulting losses to U.S. consumers and firms who buy imports was $51 billion, or 0.27% of GDP. We embed the estimated trade elasticities in a general-equilibrium model of the U.S. economy.

Although consumer behavior theory has traditionally regarded evaluations as instrumental to consumer choice, in reality consumers often assess and express what they like and dislike even when there is no decision at stake. Why are consumers so eager to express their evaluations when there is no ostensible purpose for doing so? In this research, we advance the thesis that this is because consumers derive an inherent pleasure from assessing and expressing their likes and dislikes.

This paper considers a two-sided dynamic matching market where agents arrive at the market randomly. An arriving agent is immediately matched if there are agents waiting on the other side. Otherwise, the arriving agent has to decide whether to leave the market and take her outside option or to join a (possibly empty) queue and wait for a match. The equilibrium is characterized by a cutoff, k*, so that an agent joins the queue if, and only if, the length of the queue is less than k*. Our main result compares k* with the socially optimal queue size, K*.

The well-documented underreaction of stock prices to news exhibits substantial time variation. Higher risk-bearing capacity of financial intermediaries, lower passive ownership of stocks, and more informative news increase price responses to contemporaneous news; surprisingly, they also increase price responses to lagged news (underreaction). Our findings are not driven by short-sale constraints, serial correlation in news flow, or improved information processing capacity. We discuss possible mechanisms based on investor behavior and strategic order-splitting by institutions.

Human enhancement products allow consumers to radically enhance their mental abilities. Focusing on cognitive enhancements, we introduce and study a novel factor dehumanization (i.e., denying a person emotional ability and likening them to a robot) which plays a key role in consumers' reluctance to use enhancement products. In study 1, consumers who enhance their mental abilities beyond normal levels were dehumanized, whereas consumers who use the same products to restore lost abilities were not.

We use a labor-search model to explain why the worst employment slumps often follow expansions of household debt. We find that households protected by limited liability suffer from a household-debt-overhang problem that leads them to require high wages to work. Firms respond by posting high wages but few vacancies. This vacancy-posting effect implies that high household debt leads to high unemployment.