Working papers results

This paper addresses the problem of sequentially allocating timesensitive goods, or one-period leases on a durable good, among agents who compete through time and learn about the common component of the value of the allocation through experience. I show that efficiency is unattainable, and I identify simple variations of sequential second-price or English auctions that implement the second best and the revenuemaximizing auction. When the units are divisible, I also identify the corresponding auctions that allow for double sourcing.

We establish an Ergodic Theorem for lower probabilities, a generalization of standard probabilities widely used in applications. As an application, we provide a version for lower probabilities of the Strong Law of Large Numbers.

We thoroughly study the non-standard optimal exercise policy associated with relevant capital investment options and with the prepayment option of widespread collateralized-borrowing contracts like the gold loan. Option exercise is optimally postponed not only when moneyness is insufficient but also when it is excessive. We contribute an important extension of the classical optimal exercise properties for American options. Early exercise of an American call with a negative underlying payout rate can occur if the option is moderately in the money. We fully characterize the existence, the monotonicity, the continuity, the limits and the symptotic behavior at maturity of the double free boundary that separates the exercise region from the double continuation region. We fifind that the fifinite-maturity non-standard policy conspicuously differs from the infifinite-maturity one.

We study a Mean-Risk model derived from a behavioral theory of Disappointment with multiple reference points. One distinguishing feature of the risk measure is that it is based on mutual deviations of outcomes, not deviations from a specific target. We prove necessary and sufficient conditions for strict first and second order stochastic dominance, and show that the model is, in addition, a Convex Risk Measure. The model allows for richer, and behaviorally more plausible, risk preference patterns than competing models with equal degrees of freedom, including Expected Utility (EU), Mean-Variance (MV), Mean-Gini (MG), and models based on non-additive probability weighting, such a Dual Theory (DT). For example, in asset allocation, the decision-maker can abstain from diversifying in a risky asset unless it meets a threshold performance, and gradually invest beyond this threshold, which appears more acceptable than the extreme solutions provided by either EU and MV (always diversify) or DT and MG (always plunge). In asset trading, the model allows no-trade intervals, like DT and MG, in some, but not all, situations. An illustrative application to portfolio selection is presented. The model can provide an improved criterion for Mean-Risk analysis by injecting a new level of behavioral realism and flexibility, while maintaining key normative properties.

Gender stereotypes are well established also among women. Yet, a recent literature suggests that earning from other women experience about the effects of maternal employment on children outcomes may increase female labor force participation. To further explore this channel, we design a randomized survey experiment, in which 1500 Italian women aged 20 to 40 are exposed to two informational treatments on the positive consequences of formal childcare on children future educational attainments. Surprisingly, we find that women reduce their intended labor supply.
However, this result hides strong heterogenous effects: high educated non-mothers are persuaded by the informational treatments to increase their intended use of formal child care (and to pay more); whereas low educated non-mothers to reduce their intended labor supply. These findings are consistent with women responding to monetary incentive and/or having different preferences for maternal care. These heterogenous responses across women send a warning signal about the true effectiveness - in terms of take up rates - of often advocated public policies regarding formal child care.

We performed a new test of transitivity based on individual measurements of the main intransitive choice models in decision under uncertainty. Our test is tailor-made and, therefore, more likely to detect violations of transitivity than previous tests. In spite of this, we observed only few intransitivities and we could not reject the hypothesis that these were due to random error. A possible explanation for the poor predictive performance of the intransitive choice models is that they only allow for interactions between acts, but exclude within-act interactions by retaining the assumption that preferences are separable overstates of nature. Prospect theory, which relaxes separability but retains transitivity, predicted choices significantly better than the nontransitive choice models. We conclude that descriptively realistic models need to allow for within-act interactions, but may retain transitivity.

Subject classifications: Utility/preference: Estimation. Decision analysis: Risk.

Area of review: Decision Analysis.

This work addresses the early phases of the elicitation of multiattribute value functions proposing a practical method for assessing interactions and monotonicity. We exploit the link between multiattribute value functions and the theory of high dimensional model representations. The resulting elicitation method does not state any a-priori assumption
on an individual's preference structure. We test the approach via an experiment in a riskless context in which subjects are asked to evaluate mobile phone packages that differ on three attributes.

We provide experimental evidence that subjects blame others based on events they are not
responsible for. In our experiment an agent chooses between a lottery and a safe asset; payment from the chosen option goes to a principal who then decides how much to allocate between the agent and a third party. We observe widespread blame: regardless of their choice, agents are blamed by principals for the outcome of the lottery, an event they are not responsible for. We provide an explanation of this apparently irrational behavior with a delegated-expertise principal-agent model, the subjects' salient perturbation of the environment.

Trading venues often impose a minimum trade unit constraint (MTUC) to facilitate order execution. This paper examines the effects of a natural experiment at Borsa Italiana where the exchange reduced the MTUC to one share for all stocks. After the removal of the MTUC, we observe a substantial improvement in liquidity, measured by a decrease in the bid-ask spread and an increase in market depth. The cross-sectional evidence shows that those firms for which the MTUC was more binding benefit the most from the microstructure change. These findings are consistent with a model of asymmetric information in which the MTUC affects traders' choice of order size. As the model predicts, liquidity improves following the reduction in adverse selection costs.

We show that following a tick size reduction in a decimal public limit order book (PLB) market quality and welfare fall for illiquid but increase for liquid stocks. If a Sub-Penny Venue (SPV) starts competing with a penny-quoting PLB, market quality deteriorates for illiquid, low priced stocks, while it improves for liquid, high priced stocks. As all traders can demand liquidity on the SPV, traders' welfare increases. If the PLB facing competition from a SPV lowers its tick size, PLB spread and depth decline and total volume and welfare increase irrespective of stock liquidity.