Working papers results

In a recent paper, Lin & Palfrey (2022, revised 2023) developed a theory of cognitive hierarchies (CH) in sequential games and observed that this solution concept in not reduced-normal-form invariant. In this note I qualify this observation by showing that the CH model is normal-form invariant, and that the diferences arising from the application of the CH model to the reduced normal form depend only on how randomization by level-0 types is modeled. Indeed, while the uniform behavior strategy in the extensive form yields the uniform mixed strategy in the normal form, the latter does not correspond to the uniform randomization in the reduced normal form, because different reduced strategies may correspond to sets of equivalent strategies with different cardinalities. I also note that results in the literature on transformations of sequential games imply that the sequential CH model of Lin & Palfrey is in variant to the interchanging of essentially simultaneous moves, but it is not invariant to coalescing of moves(and, of course, its inverse, sequential agents splitting).Finally, I note that the independence of ex ante beliefs about the level-types of co-players is preserved by updated beliefs conditional on information sets in all games with observable deviators.

We study whether a better knowledge of the functioning of pay-as-you-go pension systems and recent demographic trends affects natives’ attitudes towards immigration. In two online experiments conducted in Italy and Spain, we randomly treated participants with a video explaining how, in pay-as-you-go systems, the payment of current pensions depends on the contributions paid by current workers. The video also informs participants about population aging trends in their countries. The treatment increases knowledge of pay-as-you-go systems and future demographic trends for all participants. However, it improves attitudes towards migrants only for treated participants who do not support populist and anti-immigrant parties.

We document the spiral of populism in Europe and the direct and indirect role of economic insecurity shocks. Using survey data on individual voting, we make two contributions to the literature, namely: (1) Economic insecurity shocks have a significant impact on the populist vote share, directly as demand for protection, and
indirectly through the induced changes in trust and attitudes; (2) A key consequence of increased economic insecurity is a drop in turnout. The impact of this largely neglected turnout effect is substantial: conditional on voting, when economic insecurity increases almost 40% of the induced change in the vote for a populist party comes from the turnout channel.

This paper empirically shows that the imbalance between an ethnic group’s political and military power is crucial to understanding the likelihood that such a group engages in a conflict. We develop a novel measure of a group’s military power by combiningmachine learning techniques with rich data on ethnic group characteristics and
outcomes of civil conflicts in Africa and theMiddle East. We couple thismeasure with available indicators of an ethnic group’s political power as well as with a novel proxy based on information about the ethnicity of cabinet members. We find that groups characterized by a highermismatch betweenmilitary and political power are between 30% and 50% more likely to engage in a conflict against their government depending on the specification used. We also find that the effects of power mismatch are nonlinear, which is in agreement with the predictions of a simplemodel that accounts for the cost of conflict. Moreover, our results suggest that high-mismatched groups are typically involved in larger and centrist conflicts. The policy implication is that powersharing recommendations and institutional design policies for peace should consider primarily the reduction of power mismatches between relevant groups, rather than focusing exclusively on equalizing political power in isolation.

We analyze the infinite repetition with imperfect feedback of a simultaneous or sequential game, assuming that players are strategically sophisticated---but impatient---expected-utility maximizers. Sophisticated strategic reasoning in the repeated game is combined with belief updating to provide a foundation for a refinement of self-confirming equilibrium. In particular, we model strategic sophistication as rationality and common strong belief in rationality. Then, we combine belief updating and sophisticated reasoning to provide sufficient conditions for a kind of learning---that is, the ability, in the limit, to exactly forecast the sequence of future observations---thus showing that impatient agents end up playing a sequence of self-confirming equilibria in strongly rationalizable conjectures of the one-period game.

How do people form beliefs about novel risks, with which they have little or no experience? Motivated by survey data we collected in 2020, which showed that beliefs about Covid’s lethality depended on a range of personal experiences in unrelated domains, we build a model based on the psychology of selective memory. When a person thinks about an event, different experiences compete for retrieval, and retrieved experiences are used to simulate the event based on how similar they are to it. The model yields predictions on how experiences interfere with each other in recall and how non domain-specific experiences bias beliefs based on their similarity to the assessed event. We test these predictions using data from our Covid survey and from a primed-recall experiment about cyberattack risk. Experiences and their measured similarity to the cued event successfully help explain beliefs, with patterns consistent with our theory. Our approach offers a new, structured way to study and jointly account for systematic biases and substantial belief heterogeneity.

We construct an index of long term expected earnings growth for S&P500 firms and show that it has remarkable power to jointly predict future errors in these expectations and stock returns, in both the aggregate market and the cross section. The evidence supports a mechanism whereby good news cause investors to become too optimistic about long term earnings growth, for the market as a whole but especially for a subset of firms. This leads to inflated stock prices and, as beliefs are systematically disappointed, to subsequent low returns in the aggregate market and for the subset of firms. Overreaction of long term expectations helps resolve or asset pricing puzzles without time series or cross-sectional variation in required returns.

We document two new facts about the distributions of answers in famous statistical problems: they are i) multi-modal and ii) unstable with respect to irrelevant changes in the problem. We offer a model in which, when solving a problem, people represent each hypothesis by attending “bottom up” to its salient features while neglecting other, potentially more relevant, ones. Only the statistics associated with salient features are used, others are neglected. The model unifies Gambler’s Fallacy, its variation by sample size, under- and overreaction in inference, and insensitivity to multiple signals, all as a byproduct of selective attention. The model also makes new predictions on how controlled changes in the salience of specific features should jointly shape measured attention and biases. We test and confirm these predictions experimentally, including by measuring attention and documenting novel biases predicted by the model. Bottom-up attention to features emerges as a unifying framework for biases conventionally explained using a variety of stable heuristics or distortions of the Bayes rule. 

This handbook chapter studies how natural resource wealth can in many contexts fuel armed conflict. Starting from a simple theoretical model, we stress the role of geography and power mismatch in the so called "natural resource curse". Drawing on recent empirical evidence, the importance of resource abundance, asymmetry and capital-intensiveness is highlighted, alongside local grievances and international interventions. We propose a series of evidence-driven policy conclusions, ranging from "smart green transition" and democratic institution building over labor-market intervention to a series of specific policies requiring international coordination.

This paper discusses the historical and social origins of the bifurcation in the political institutions of China and Western Europe. An important factor, recognized in the literature, is that China centralized state institutions very early on, while Europe remained politically fragmented for much longer. These initial differences, however, were amplified by the different social organizations (clans in China, corporate structures in Europe) that spread in these two societies at the turn of the first millennium AD. State institutions interacted with these organizations, and were shaped and influenced by this interaction. The paper discusses the many ways in which corporations contributed to the emergence of representative institutions and gave prominence to the rule of law in the early stages of state formation in Europe, and how specific features of lineage organizations contributed to the consolidation of the Imperial regime in China.