This paper studies via experimental setting whether diversification discount exists and what factors affect the magnitude of the discount. The results suggest that experience before decision increases the likelihood of exercising the real option of conglomerates. People are also more likely to convert if it is less risky to do so.

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The dissertation looks at three topics that involve experimental economics methods or individual decision making under risk: how do people make educational decisions when facing the risk of drop out; which models best characterize individuals' decision processes under risk; how can physicians improve discharge decisions to reduce the risk of unplanned readmissions. In the first chapter, I introduce the risk of dropout into Spence’s job market signaling model and test the modified model in the laboratory. I look at equilibria in the labor market and discuss the refinement based on the Cho-Kreps Intuitive Criterion. I derive the condition under which a separating equilibrium is the only perfect Bayesian equilibrium that survives the refinement and discuss the effects of workers' risk preferences on these equilibrium predictions. The data from lab experiments show that the market reaches the separating equilibrium more often when it is the only intuitive equilibrium. I also observe that, when the share of the low-ability type in the worker population decreases, or the cost to pursue a degree increases, the size of the wage premium for having the degree generally decreases. In the experiments, I use binary lottery tasks to elicit subjects' risk preferences to explain their strategies in the signaling games, and the analyses partially confirm the prediction that more risk-averse individuals pursue a higher degree less frequently in the presence of dropout risks. In the second chapter, as part of a joint project with Dr. Glenn W. Harrison and Dr. Rusty Tchernis, we apply the Bayesian econometric method to estimation of individual preferences under risk. We estimate a mixture model of Expected Utility Theory and Cumulative Prospect Theory using both simulated and observed binary lottery choices. We develop Markov Chain Monte Carlo algorithms to sample from the posterior distribution of parameters in the mixture model and compare the performances of different algorithms. The algorithms generally recover the true parameters used in the simulation, although some algorithms outperformed others in terms of efficiency. We also apply the algorithms to estimation using actual choice data. We find that 56.5% of the subjects can be characterized as consistent with Expected Utility Theory and 43.5% with Cumulative Prospect Theory. We find modest risk aversion among Expected Utility maximizers, and overweighting on the probabilities of extreme outcomes with very mild loss aversion among Cumulative Prospective Utility maximizers. In the third chapter, coauthored with Dr. Ira L. Leeds, Dr. Vjollca Sadiraj, Dr. James C. Cox, Dr. Timothy M. Pawlik, Dr. Kurt E. Schnier and Dr. John F. Sweeney, we sought to define the association between information used for hospital discharge and patients' subsequent risk of unplanned readmission. De-identified data for patients from a tertiary academic medical center's surgical services were analyzed using a time-to-event model to identify criteria that statistically explained the timing of discharges. The data were subsequently used to develop a prediction model of unplanned hospital readmissions. Comparison of discharge behaviors versus the predictive readmission model suggested important discordance with certain clinical measures not being accounted for to optimize discharges. We suggest that decision-support tools for discharge may utilize variables that are not routinely considered by healthcare providers.

The objective of our paper is to determine the effect of piracy advice from various sources on music consumer behavior. Specifically, does it matter if the source of advice has a stake in the outcome of the piracy decision? Does it matter if the source of advice has a social tie with the advisee? Accordingly, we conduct a lab experiment using teenagers and their parents as subjects, increasing the realism of the context by sampling potential pirates and their parents. Treatments represent various sources of piracy advice (e.g., the teen’s parent, a record label, or an external regulator). Subjects make decisions playing our new experimental game – The Piracy Game – extended from the volunteer’s dilemma literature. Interestingly, subjects respond negatively to advice from record labels over time, purchasing fewer songs as compared to other sources such as the subject’s parent. The existence of a social tie between the advisor and the subject assists in mitigating piracy, especially when a parent is facing potential penalties due to his/her child’s behavior. An external regulator, having no social tie or stake in the decision, provides the least credible source of advice, leading to the greatest amount of piracy. Our analyses not only provide managerial insights but also develop theoretical understanding of the role of social ties in the context of advice.

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La tesis engloba un estudio sobre preferencias económicas, en concreto, preferencias individuales bajo Riesgo, Riesgo Compuesto y Ambigüedad. Este trabajo muestra la evidencia de un experimento de laboratorio en el que los individuos se enfrentan a una incertidumbre creciente (Riesgo/Riesgo compuesto/Ambigüedad) en tres dimensiones diferentes: probabilidades, pagos y tiempo. Se obtiene el Equivalente Cierto del Valor Presente (PVCE) de 36 loterías con tres fechas de pago diferentes para cada sujeto, y se atribuyen a las condiciones de tratamiento las diferencias entre esos PVCE. Utilizando pruebas no paramétricas y regresiones de efectos aleatorios, la evidencia muestra una notable heterogeneidad en el comportamiento de los individuos según la dimensión afectada por la incertidumbre. En concreto, si bien confirmamos la amplia evidencia sobre la aversión a la Ambigüedad en las probabilidades, encontramos que este efecto prácticamente desaparece cuando las dimensiones de incertidumbre son los pagos y, aún más, el tiempo. Para el caso del Riesgo Compuesto, los resultados encontrados van en la misma línea. Además, se encuentra heterogeneidad en cuanto al comportamiento bajo Riesgo. / Esta tesis ha sido elaborada gracias a la financiación de la Generalitat Valenciana (SEJI/2019/005 y Research Project Group 3/086).

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This dissertation contains three essays describing experiments in game theory and economics. Chapter one studies mixed strategies by asking whether game players are willing to pay for randomization. A natural intuition for mixed strategies is randomization for unpredictability, but this is theoretically fragile. A player should only randomize between strategies if indifferent, and then could choose a disequilibrium strategy. Various theories describe mixed strategies not as random play, but heterogeneous pure-strategy play. I conduct experiments in which players can choose to pay a fee to use a randomization device, applied to O’Neill’s zero-sum game. If subjects did so, it would show a strict preference for randomization over any available pure strategy. In fact, very few chose to use the randomization device. Subjects’ descriptions of their decision process were consistent with the notion of purification. Chapter two also studies mixed strategies, asking whether randomization is a property of individual choice or game play. In two experiments, game players are mirrored by guessers who make predictions about game play, distinguishing best-responding from game playing. In a Matching Pennies game, I find that game players are they are both more interested in unpredictability and actually more random. In an Asymmetric Matching Pennies game, I look at whether players are willing to forgo expected payoff in order to be unpredictable, and find little difference between players and guessers, with players being somewhat better at exploiting disequilibrium play. Chapter three experimentally implements markets for competing goods with network effects. Markets with strong network effects often have multiple equilibria, including winner-take-all equilibria in which one firm has a monopoly. Firms may compete dynamically with the aim of locking-in to a favorable equilibrium. In this paper we create an experimental market with differentiated products and network effects. When lock-in is created by simulating naïve buyers, monopoly does arise with sellers setting high prices. With human buyers, markets without switching costs are extremely competitive, with no support for stories of lock-in and monopoly. Markets with switching costs are inefficient, but this is overwhelmingly due to the individual switching costs rather than monopoly.

Thesis advisor: Peter Ireland / In Daubert v. Merrill Dow Pharmaceuticals, the Supreme Court ruled that judges are the gatekeepers of scientific evidence, thereby bringing the debate about economic methodology to the bench. Debate about the admissibility of scientific evidence, contentious even in the natural sciences, is amplified if the discipline incorporates numerous methodological approaches. In this paper, I will consider three different approaches to economic questions—theory, experiment, and econometrics—and examine how a judge can evaluate these approaches as evidence in the courtroom. The expansion of economic reasoning in law means that this question needs to be answered in a number of areas of law, but to give a thorough examination of the different methodological approaches, this paper will limit discussion to economic evidence in tying law. / Thesis (BA) — Boston College, 2010. / Submitted to: Boston College. College of Arts and Sciences. / Discipline: Economics Honors Program. / Discipline: Economics.

L'objet de cette thèse est d’explorer les mécanismes évolutionnaires à l'origine de la punition coûteuse chez les humains. Dans le chapitre 1, nous montrons que les comportements punitifs observés en laboratoire sont plus en adéquation avec des processus de sélection individuelle plutôt que de sélection de groupe. Dans le chapitre 2, nous fournissons des preuves empiriques que la décision de punir relève principalement de raisonnements intuitifs causés par une forte exposition à des environnements à réciprocité directe. Enfin, dans le chapitre 3, nous émettons quelques doutes quant à l'hypothèse (plutôt récente) que des stratégies de changement de partenaires pourraient se substituer à la punition coûteuse dans la nature. En somme, nos résultats soulignent le caractère maladaptatif du sentiment punitif tel qu'il se manifeste dans les jeux expérimentaux à un coup. / The aim of this thesis is to investigate the evolutionary roots of costly punishment in humans. In chapter 1, we show that available experimental data are more compatible with behavioral patterns sculpted by individual selective pressures than higher-population processes. In chapter 2, we provide experimental evidence that punishing decisions mostly rely on intuitive reasonings originally adapted to direct reciprocity environments. Finally, in chapter 3, we cast doubt on the (recent) claim that cheap partner switching opportunities make costly punishment anecdotal in the wild. In sum, our results emphasize the maladaptive nature of punitive behaviors observed in anonymous, one-shot laboratory settings.