Top PDF Essays on applications of information economics

Essays on applications of information economics

Essays on applications of information economics

In my model, the seller has access to the second period information. I consider two scenarios concerning the second period information observed by the seller: He either commits to disclose or commits to not disclose the second period information before the first period. Assuming both information signals follow a uniform distribution, I show that in either scenario, at a low reserve price, the seller maximizes the expected revenue and the object is sold in the first period. Since the informed bidder is better informed in the second round, waiting decreases uncertainty so that he better estimates the value of the object, thus he benefits the most from waiting. This implies that from a seller’s point of view the less waiting the less rents the informed bidder can extract and the better return for the seller. Setting low reserve prices encourages both bidders to bid in the first period, thus it avoids the informed bidder gaining extra information in the second period. Consequently, it decreases the informed bidder’s expected profits and increases the seller’s ex ante revenue. This result provides an explanation to why in OCS auctions the government has been setting low reserve prices. 3
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Essays in industrial economics: applications for marketing and management decisions

Essays in industrial economics: applications for marketing and management decisions

This chapter contributes to several other strands of literature. First, this chapter contributes to the empirical structural analysis of learning literature (Jovanovich, 1979; Miller, 1984; Erdem and Keane, 1996; Ackerberg, 2003; Crawford and Shum, 2005; Dickstein, 2014; Covert, 2013) by developing empirical learning models to analyse complicated situations for which existing models do not work. Second, boundedly rational solution are increasingly used in the field of in- dustrial organisation to solve complicated empirical models (Weintraub, Benkard, and Van Roy, 2008; Fershtman and Pakes, 2012). My modelling strategy is consistent with this trend. Third, introducing agents who are learning the environment under uncertainty but with limited infor- mation acquisition and processing capability is becoming common in macroeconomics (Mankiw and Reis, 2002; Sims, 2003; Woodford, 2009; Angeletos and La’O, 2009). This paper provides a motivating example for this assumption and an estimate for the appropriate degree of informa- tional friction in a firm. Finally, establishing an empirical framework quantifying these issues based on managerial information has direct implications for organisational learning literature in management and marketing science (Easterby-Smith and Lyles, 2011).
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Essays in information economics and political economy

Essays in information economics and political economy

In general, the Bayesian persuasion approach fits the process of security issuance very well. The issuing party (sender) has to first draft a proposal which will be sent to a potential underwriting bank (receiver). Routinely, the issuer possesses marked flexibility in selecting what to disclose and how precise the disclosure is. In effect, issuers usually exercise discretion in reporting forward-looking information which contributes to the valu- ation of the proposed security. Such information includes but is not limited to forecasts of future sales, earnings, and growth opportunities, which can be either purely qualitative, or quantitative with varying precision – a range or a point estimate. Moreover, issuers often choose to release unique marketing information about business models, corporate strategy, and prospects of the industry to attract potential investors. In sum, the proposal-drafting stage resembles the sender’s communication about the optimally designed signal system to the receiver. After seeing the proposal, the investment bank further investigates the realization of the signal through due diligence if it still cannot decide whether it should underwrite. If the bank agrees to underwrite, it engages in information production with the issuer to prepare the information memorandum (for debt) or prospectus (for equity), which is then circulated to potential investors (other receivers). In this sense, the infor- mation memorandum or prospectus reflects the informativeness of the issuer’s disclosure. The underwriter then prices the security based on the collected information. This stage corresponds to the mapping from the signal realization to the pricing of the security.
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Three Essays on Information Economics

Three Essays on Information Economics

Delegation often involves multidimensional decisions. Consider a parent who chooses between two schools for her child. Many aspects of a school affect a child’s well-being: the physical activity level, the social environment and the cur- riculum, etc. A school can reveal these information about itself, but may not credibly convey whether it is optimal for the child. For example, a school may announce that their students have PE classes twice a week. Without knowing the optimal frequency of PE classes for a child, a parent cannot evaluate how well the school does in terms of physical well-being. In this paper, I show that if both schools know the consequence of PE class frequency, then the school that is stronger in developing students’ physical well-being has an incentive to be vague about their PE class frequency. The reason is, by making a specific announcement of its PE class frequency, it reveals the optimal PE class level to the parent. The weaker school can in turn promise an appropriate PE class level that makes it slightly better overall. In other words, by being specific, a school’s advantage is undermined.
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Essays in Nonmarket Valuation with Applications to Environmental Economics

Essays in Nonmarket Valuation with Applications to Environmental Economics

Aggregation methods make the assumption that alternatives can be grouped into representative choice options. For a recreational demand context, similar recreation sites can be treated as one; in housing, a group of homes in a given sub-development can be aggregated. This methodology can be effective but is problematic in that the success of estimation is entirely dependent on the assumptions made in the aggregation. McFadden (1978) and Ben-Akiva and Lerman (1985) have both shown that this technique can produce biased estimates if the utility variance and composite size within aggregates is not accounted for. Although the composite size is commonly observed or easily proxied in recreation demand applications, the utility variance depends on unknown parameters and is therefore unknown and difficult to proxy by the analyst. Kaoru amd Smith (1990), Parsons and Needleman (1992) and Feather (1994) empirically investigate the bias arising from ignoring the utility variance with a recreation data set. In some cases, they find large differences between disaggregated and aggregated models, but their results suggest no clear direction of bias from aggregation. Similarly, Lupi and Feather (1998) consider a partial site aggregation method where the most popular sites and those most important for policy analysis will enter as individual site alternatives, while the remaining sites are aggregated into groups of similar sites. Their empirical results suggest =partial site aggregation can reduce but not eliminate aggregation bias.
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Essays on mathematical finance: Applications of moment expansions and filtering theory

Essays on mathematical finance: Applications of moment expansions and filtering theory

Several papers deal with characteristics of prices in carbon emissions markets. Carmona, Fehr, Hinz and Porchet (2009) studied cap-and-trade schemes in an equilibrium setting and gave several qualitative properties of equilibrium prices. Seifert, Uhrig-Homburg and Wagner (2008) assumed every market participant is risk-neutral or the existence of a representative agent with a logarithmic util­ ity, thereby reducing the problem to th at of a representative agent who aims to maximize the total profit of all agents. Chesney and Taschini (2009) con­ structed an endogenous model for describing the emission allowance spot price dynamics th at accounts for the potential presence of asymmetric information in the market. Several papers investigate the price process from econometric view­ points; Daskalakis, Psychoyios and Markellos (2009) studied spot prices and the stochastic convenience yield with several jump-diffusion processes. Benz and Truck (2009) suggested the use of AR-GARCH and Markov regime-switching models for explaining log returns of EUA prices. Goodness-of-fit tests on in- sample data and forecasting analysis with out-of-sample data were conducted. Paolella and Taschini (2006) undertook an econometric analysis of emission al­ lowance spot market returns and found th at the unconditional tails can be well represented by a Pareto distribution while the conditional dynamics can be ap­ proximated by a new GARCH-type structure. There is a growing number of papers in the area of stochastic filtering in finance. For example, Elliott and van der Hoek (1997) applied a filtering technique for the optimal asset alloca­ tion problem. Landen (2000) considered zero-coupon bond pricing in which the drift term in the underlying diffusion process is modulated with a Markov chain. Several papers use a filtering technique to model the imperfect information in­ vestors can observe. For example, Qetin, Jarrow, Protter and Yildirim (2004), Jeanblanc and Valchev (2005) and Duffie, Eckner, Horel and Saita (2009) con­ sidered incomplete information in reduced-form modelling of credit risk. Lakner (1998) and Sass and Haussmann (2004) applied filtering theory to portfolio op­ timization problems under partial information.
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Essays in Information Economics

Essays in Information Economics

computing efficient allocations in dynamic environments with private information and hidden actions. Early contributors to this field include Rogerson (1985) and Spear and Srivastava (1987) who study a dynamic moral hazard problem. The former shows that an efficient contract does not satisfy the usual Euler equation, but rather an “inverse” Euler equation. The latter shows that the dynamic moral hazard problem can be written recursively by using the expected continuation utility as a state variable. Green (1987), Thomas and Worrall (1990), and Atkeson and Lucas (1992), among others, have studied efficient contracts in both partial and general equilibrium environments with (exogenous) private information. Phelan and Townsend (1991) show how the optimal contract can be computationally constructed using lotteries in a dynamical environment with hidden information. Analytic results on the optimal contract in the dynamic moral hazard problem have recently been achieved in continuous time by Sannikov (2007). Modeling output as a Brownian motion whose drift depends on the effort by the agent, Sannikov shows that in the optimal contract the principal cannot provide the agent with incentives to exert effort at the extremes of utility and almost surely “retires” all agents at the lower utility bound or some endogenous upper bound of utility. Williams investigates a more general problem with hidden state variables in continuous time.
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Essays in information economics

Essays in information economics

A large literature has looked at how information is transmitted to legislators by lobby- ists (e.g. Potters & van Winden (1992), Austen-Smith & Wright (1992), Rasmusen (1993), Austen-Smith (1993), Lagerlof (1997)). The most closely related papers within that liter- ature study how informational lobbying is affected by information already held by policy makers. Felgenhauer (2013) shows that expert politicians are not always better at making decisions than non-experts in the presence of lobbyists. In his model, the expertise of the politician cannot affect the information provided by a single lobby and only has an effect when two lobbies compete. By allowing the information to be concealed, I show that even a single lobby can be induced to provide more information as the politician’s expertise increases. Cotton & Dellis (2016) show that informational lobbying can be detrimental if more information provided by lobbyists shifts the focus of a policy maker towards less important issues and thus reduces the information she collects. This substitution across the two sources of information relies on the existence of multiple policies and the limited capacity of the policy maker to act on these different policies. Substitution arises in my model even with one policy dimension because information can be confidential, so that the policy maker’s choice of information affects the beliefs of lobbyists and the amount of evidence they want to provide. Finally, in Ellis & Groll (2017), the trade-off between acquiring costly information in-house or relying on that provided by lobbyists comes from the difference in resource constraints of these two sources. Information is costless in my model and the interaction between the two types of information relies on whether that information is made public or not. 7 Another closely related paper, Cotton & Li (2018), studies the effect of internal information on monetary lobbying. They show that because a better informed politician might be harder to sway through contributions, politicians might prefer to remain uninformed or to reduce the informativeness of the signals they obtain. While they share some of the implications of this paper, they focus on the effect of internal information on monetary contributions rather than on information provision. Since influence can take both forms, this paper is complementary to theirs. With in- formational lobbying, additional information from the politician can be detrimental even when the politician wants to choose the socially optimal policy rather than to maximise contributions.
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Essays in learning and information design

Essays in learning and information design

Ball’s analyses focus on the case where the underlying information process is exogenous whereas we study the problem of revealing information that is endogenously generated. Kremer et al. (2014) and Che and Hörner (2017) are motivated by many of the same issues we are, and consider a design problem reminiscent of the one we have here except that agents are myopic and arrive sequentially. 29 A setting with information disclosure to non-myopic agents is of natural theoretical interest, but is of interest for the purposes of applications as well: Google’s users, for example, typically use Google’s services repeatedly, so it is worth considering a model where the designer and agents interact dynamically, as they do here. In particular, with myopic agents, the designer is not constrained by an agent’s desire to free-ride. One noteworthy resulting difference is that Kremer, et al. find that a benevolent designer can achieve the first-best when the number of agents is large whereas we have the exact opposite result, at least within the class of information structures we consider. Smolin (2015) studies a setting similar to ours with a single agent who does not observe their own payoffs, and is thus motivated instead by issues of information disclosure in the presence of disagreement between the
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Essays in labor and public economics

Essays in labor and public economics

Our data comes from the Italian social security administration (INPS) and covers the universe of Italian employer-employee matches in the private sector, and the universe of all social security and transfer payments in Italy, from 1983 to 2015. Besides granular information on firms and workers’ histories, it provides detailed information on eligi- bility, applications and authorizations of the universe of STW episodes at both the firm and individual levels from 2005 to 2015. This data, combined with the specificities of the Italian STW program, which creates variation in eligibility across firms, allows us to provide causal evidence of the effects of STW. Identification stems from the interaction between two sources of variation in eligibility: INPS codes and firm size. First, we exploit the fact that within 5-digit industries, certain firms, defined by particular INPS codes, are eligible while others are not, because of the particular interpretation of the STW Law that was given by INPS in a circular dating back to the 1970s. While this variation in STW access across otherwise very similar firms appears exogenous to economic conditions at such fine level today, we use the additional requirement that firms must be above a cer- tain full-time equivalent size threshold to be eligible for the program. This enables us to test and control for the possibility that differential time shocks affected eligible and non- eligible INPS codes within 5-digit industries during the recession. We further provide multiple robustness checks for the validity of our approach. In particular, we show that our approach is not confounded by manipulation of size or INPS codes, nor by any other change in regulations at the main eligibility size threshold.
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Essays on the economics of energy efficiency policies

Essays on the economics of energy efficiency policies

Another option I considered is the Residential Energy Consumption Survey (RECS). The RECS is conducted in the US every four years and contains infor- mation about households’ characteristics, energy consumption and information about the type of energy-using durable goods purchased by each household. The main limitation imposed by this survey data is that it provides only aggregate information about energy consumption in the last four year-period for each house- hold. However, when a household adopts an energy efficient technology, its energy consumption is expected to decrease. The information in this data set provides only the overall energy consumption in the same period where the adoption of the new technology took place, and this is likely to induce a negative correlation between energy consumption and adoption decisions which could have nothing to do with the implications of the model presented in this chapter. Even though, for the empirical application presented here, it is very important to observe en- ergy consumption before adoption, since consumption after adoption is already affected by technology adoption. Nonetheless, the RECS survey data contains information about other interventions like energy audits and other smaller scale energy efficiency measures interventions that have potential to be used in further research.
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Essays On The Economics Of Networks

Essays On The Economics Of Networks

The results above focus only on the posterior mode, and the following analysis further investigates the patterns of the posterior distributions. For the correctly classified vertices, our categorical classification based on posterior mode is rather precise. Figure 4.3 shows that the differences in posterior probability between the highest posterior probability (i.e., the posterior of the true ideology) and the second highest posterior probability are highly concentrated around 1. This indicates that for most of these vertices, the posterior distribution is strongly informative of the true ideology. For the misclassified vertices, however, the scales of misclassification vary. Figure 4.4 shows that the differences in the posterior probability between the highest posterior probability and the posterior probability of the true ideology are approximately uniformly distributed between 0 where the classification is only a bit off and 1 where the classification is far off. This suggests that the misclassification is likely to be caused by unusual realizations of the networks process rather than the failure of our estimation algorithm. The randomness in the network formation renders the ideology information unclear or even misleading for some vertices, though this occurs rarely. Additional analysis of the posterior mean of other parameters are
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Essays in Behavioral Economics

Essays in Behavioral Economics

Participants received point multipliers for two weeks from Jan. 27, 2015 through Feb. 9, 2015. Participants in the salient condition received a kickoff email on Jan. 26, 2015: the day before the start of the point multiplier incentives. This email featured the subject line: “New Program to Encourage You to Walk (earn Bonus Points).” The contents of this email (depicted in Supporting Information, Figure S1) explained to participants that they had been enrolled in a program to increase their walking. It showed a calendar with point multipliers highlighted each day when they would be rewarded (every day for the next two weeks). Salient incentive condition participants also received email reminders about the program every other day for its duration (seven additional emails on days 1, 3, 5, 7, 9, 11, and 13 of the experiment), which contained all of the same information including the schedule of incentives depicted on a calendar. A reminder email is depicted in Supporting Information, Figure S2.
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Essays in economics

Essays in economics

By using a Digitised Thesis, I accept that Trinity College Dublin bears no legal responsibility for the accuracy, legality or comprehensiveness of materials contained within the thesis, and that Trinity College Dublin accepts no liability for indirect, consequential, or incidental, damages or losses arising from use of the thesis for whatever reason. Information located in a thesis may be subject to specific use constraints, details of which may not be explicitly described. It is the responsibility of potential and actual users to be aware of such constraints and to abide by them. By making use of material from a digitised thesis, you accept these copyright and disclaimer provisions. Where it is brought to the attention of Trinity College Library that there may be a breach of copyright or other restraint, it is the policy to withdraw or take down access to a thesis while the issue is being resolved.
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Essays in Applied Economics

Essays in Applied Economics

If plans can renegotiate with doctors, then the bonus payments are just a transfer, and total surplus—consumer surplus less drug spending—is the relevant welfare metric. Panel F shows that total surplus is increasing under all contracts, and most strongly for the “quality” contract. “Comply” and “threshold” produce much weaker gains that do not increase rapidly with the bonus amount, despite the increase in patient utility they generate. The problem is that the “comply” and “threshold” contract, despite exploiting doctor’s pri- vate information about match quality, target the wrong patients. The contracts encourages doctors to improve compliance for patients just on the margin of complying and not. 23 But for these patients, improving compliance reduces efficiency. Since their drug purchases are heavily subsidized, their willingness to pay is far below the cost to the plan of procuring the drug. Encouraging compliance among these patients reduces welfare. Alternative con- tracts can therefore ameliorate but not fully solve the agency problems in the market for anti-cholesterol drugs, but optimal contracts—which likely lie outside of the set of contracts considered here—must encourage compliance only among high-value patients.
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Essays In Labor Economics

Essays In Labor Economics

In Figure 3, I show the unemployment and short-time rates for Germany and Nurem- berg. I construct the unemployment and short-time rates by dividing the total number of unemployed and short-time workers, respectively, by the total number of individuals who are attached to the labor force. The time series for the Nuremberg data is based on the data sources described above. The time series for Germany are constructed using the Sample of Integrated Labour Market Biographies (SIAB), a 2% sample of the IEB for the entire country. I obtain the total number of short-time workers from the aggregate short-time work statistics published by the Federal Employment Agency. 27 Short-time work take-up in Nuremberg closely mirrors that of the rest of the country. Short-time work begins to increase in late 2008, then peaks at about 7.5% in the first half of 2009, and subsequently decreases to almost zero by the end of 2010. Even though the information on short-time work in my dataset is limited to the time period between June 2008 and December 2010, the aggregate data suggest that my dataset covers the relevant time period. While the short-time rates for Germany and Nuremberg look very similar, the Nuremberg unemployment rate is consistently lower than the nation-wide average. The make up of the Nuremberg labor force differs from Germany as a whole, as Nuremberg relies more heavily on manufacturing and its labor force tends to be slightly younger and more educated than the rest of the
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Essays on communication, social interactions and information

Essays on communication, social interactions and information

This thesis consists of three papers in the broad field of Applied Economics. I focus on three “soft factors”, namely, face-to-face communication, brief social inter- actions and information updates. I study on how they affect individual and organ- isational outcomes using different natural experiments. The first chapter provides causal evidence on how the ability to communicate face-to-face (in addition to elec- tronic communication) can increase organisational performance. The study exploits a natural experiment within a large organisation where workers must communicate electronically with their teammates. A computerized system allocates the tasks to workers creating exogenous variation in the co-location of teammates. Workers who share the same room, can also communicate in person. The main findings are that face-to-face communication increases productivity and that this effect significantly varies across tasks, team characteristics and working environments. In the second chapter I construct a novel dataset of immigrants and ships arrived to the US in the early 20th century to study the effects of brief social interactions and their per- sistence over time. The chapter shows that individuals travelling (during few days) with shipmates that have better connections in the US, have higher quality jobs. Several findings are consistent with the mechanism whereby individuals get informa- tion or access to job opportunities from their shipmates. The study highlights the importance of social interactions with unknown individuals during critical life junc- tures. It also suggests that they are more relevant for individuals with poor access to information or weak social networks. The third chapter shows that executions cause a local and temporary reduction in serious violent crime. The interpretation of this result follows from a theoretical framework connecting information updates with the increasing ’awareness’ of individuals about the consequences of crime. Consistently with the predictions of the model, the study finds that effects are stronger when media attention is high and lower in places with high propensity to apply the death penalty.
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Essays on economics of information

Essays on economics of information

Communication Within Organizations: The importance of communication in organizations has been long recognized in economics (Gibbons et al. 2013). Early contributions that view an organization as an optimizer of communication structures do not model a conflict of interest between the players and focus on the costs of di- rect communication or information processing. Keren and Levhari (1979) look at the time required to prepare instructions for productive units. Marschak and Radner (1962) look at minimization of communication costs from a team-theoretical per- spective. More recently, Bolton and Dewatripont (1994), and Radner and van Zandt (1992, 2001), study the processing of information and the costs of communication. The literature on knowledge-based hierarchies models organizational structures as a solution to the trade-off between the costly acquisition and the costly communica- tion of knowledge (see Garicano, 2000, Garicano and Wu, 2012, and the literature review in Garicano and Rossi-Hansberg, 2014). Calv´ o-Armengol and di Marti (2007) analyse communication using a team-theoretic framework in the tradition of Radner (1962) and Marschak and Radner (1972). All those papers do not model strategic communication, which is different from my approach. Strategic communication is important, as shown in the motivating examples in the introduction. In the theoret- ical literature, Milgrom and Roberts (1988) emphasize that those who are endowed with knowledge but are excluded from the final decisions might have incentives to distort the information they forward to the management. Thus, the question of op- timal communication design should account for the possibility that an expert might lie while reporting to the decision maker(s).
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Essays in economics of information and optimal contracting

Essays in economics of information and optimal contracting

graph relates to the feedback effect in capital markets. In order to capture the feedback effect, some insights of the model are required. First, I assume that the project succeeds as long as effort is exerted. Thus, a critical role in our model is played by threshold ˆ c, which denotes the maximum value of effort cost for which an entrepreneur exerts effort in the implementation of his project. This threshold is negatively related to the interest rate the entrepreneur is expected to pay. Suppose now that an investor considers financing an entrepreneur. First, he forms his beliefs about the probability of default, which in this setup coincides with the probability that the en- trepreneur’s cost is above ˆ c. Based on his beliefs, the investor demands an interest rate which allows him to break even. This interest rate affects the threshold ˆ c, which in turn, affects investors beliefs about the probability of default, and so on (feedback effect). We show that the increase in the inter- est rate and the corresponding probability of default, due to the feedback effect, is decreasing in the entrepreneur’s ex-ante efficiency. Thus, for mild information asymmetry, when introducing a CRA, the negative effect on an HEC entrepreneur dominates the positive effect on an LEC entrepreneur. Along these lines, Kliger and Sarig (2000) use a natural experiment to show that credit ratings affect the cost of capital, and Kisgen (2006) shows that a firm’s structural decision is directly affected by credit ratings.
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Three Essays on Economics and Information Shocks

Three Essays on Economics and Information Shocks

One take-away from the last two chapters is that the effects of large-scale shocks on average measurements of health may be smaller than expected. We see something similar in the chapter on social media and punishment. One might predict that introducing social interaction would lead to an enormous increase in punishing (or rewarding) behavior. However, the social condition only had about 21 percent more instances of individuals inflicting punishment and 12 percent more instances of reward, and neither difference is statistically significant. However, on average, the net losses generated by punishment almost doubled. This increase depended on the emergence of unpopular organizations that, due to social information, received concentrated punishment and relatively few rewards. The social condition showed some evidence of an increase in the net effects of rewards. Together these effects generated large increases in inequality across the organizations. The substantial effects on the distribution of points but modest effect on the overall propensity to punish or reward gives away the fact that attention is the main mechanism. The social effects on rewarding behavior appear to result almost entirely from the attention-manipulating algorithm used to dynamically construct the web page. Punishing behavior has some social influence that goes beyond the algorithm, but these effects appear to relate largely to helping potential punishers seek out unpopular organizations. The social condition also had no significant effect on the average degree of self-reported anger. It is—at least in this setting—much easier to manipulate people’s attention and where they direct their efforts than to persuade them to do more or less of some action. Attention-related choices, to the extent that they can be called choices, are made under weak incentives. The value of any potential object of attention cannot even be determined until some attention has been directed to it. Without any information to distinguish the various objects on a screen, attention will be determined by very weak influences, for example, small differences in effort costs related to manipulating the window. Since potentially important choices follow from where attention is directed, the ultimate consequences of small influences on attention may
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