Essays in Behavioral Decision Theory

This thesis studies decision making under uncertainty and how economic agents respond to information. The classic model of subjective expected utility and Bayesian updating is often at odds with empirical and experimental results; people exhibit systematic biases in information processing and often exhibit aversion to ambiguity. The aim of this work is to develop simple models that capture observed biases and study their economic implications.

In the first chapter I present an axiomatic model of cognitive dissonance, in which an agent's response to information explicitly depends upon past actions. I introduce novel behavioral axioms and derive a representation in which beliefs are directionally updated. The agent twists the information and overweights states in which his past actions provide a higher payoff. I then characterize two special cases of the representation. In the first case, the agent distorts the likelihood ratio of two states by a function of the utility values of the previous action in those states. In the second case, the agent's posterior beliefs are a convex combination of the Bayesian belief and the one which maximizes the conditional value of the previous action. Within the second case a unique parameter captures the agent's sensitivity to dissonance, and I characterize a way to compare sensitivity to dissonance between individuals. Lastly, I develop several simple applications and show that cognitive dissonance contributes to the equity premium and price volatility, asymmetric reaction to news, and belief polarization.

The second chapter characterizes a decision maker with sticky beliefs. That is, a decision maker who does not update enough in response to information, where enough means as a Bayesian decision maker would. This chapter provides axiomatic foundations for sticky beliefs by weakening the standard axioms of dynamic consistency and consequentialism. I derive a representation in which updated beliefs are a convex combination of the prior and the Bayesian posterior. A unique parameter captures the weight on the prior and is interpreted as the agent's measure of belief stickiness or conservatism bias. This parameter is endogenously identified from preferences and is easily elicited from experimental data.

The third chapter deals with updating in the face of ambiguity, using the framework of Gilboa and Schmeidler. There is no consensus on the correct way way to update a set of priors. Current methods either do not allow a decision maker to make an inference about her priors or require an extreme level of inference. In this chapter I propose and axiomatize a general model of updating a set of priors. A decision maker who updates her beliefs in accordance with the model can be thought of as one that chooses a threshold that is used to determine whether a prior is plausible, given some observation. She retains the plausible priors and applies Bayes' rule. This model includes generalized Bayesian updating and maximum likelihood updating as special cases.

Stationary random response of multidegree-of-freedom systems

An approximate approach is presented for determining the stationary random response of a general multidegree-of-freedom nonlinear system under stationary Gaussian excitation. This approach relies on defining an equivalent linear system for the nonlinear system. Two particular systems which possess exact solutions have been solved by this approach, and it is concluded that this approach can generate reasonable solutions even for systems with fairly large nonlinearities. The approximate approach has also been applied to two examples for which no exact or approximate solutions were previously available.

Also presented is a matrix algebra approach for determining the stationary random response of a general multidegree-of-freedom linear system. Its derivation involves only matrix algebra and some properties of the instantaneous correlation matricies of a stationary process. It is therefore very direct and straightforward. The application of this matrix algebra approach is in general simpler than that of commonly used approaches.

A Multiwavelength Study of the Intracluster Medium and the Characterization of the Multiwavelength Sub/millimeter Inductance Camera

The first part of this thesis combines Bolocam observations of the thermal Sunyaev-Zel’dovich (SZ) effect at 140 GHz with X-ray observations from Chandra, strong lensing data from the Hubble Space Telescope (HST), and weak lensing data from HST and Subaru to constrain parametric models for the distribution of dark and baryonic matter in a sample of six massive, dynamically relaxed galaxy clusters. For five of the six clusters, the full multiwavelength dataset is well described by a relatively simple model that assumes spherical symmetry, hydrostatic equilibrium, and entirely thermal pressure support. The multiwavelength analysis yields considerably better constraints on the total mass and concentration compared to analysis of any one dataset individually. The subsample of five galaxy clusters is used to place an upper limit on the fraction of pressure support in the intracluster medium (ICM) due to nonthermal processes, such as turbulent and bulk flow of the gas. We constrain the nonthermal pressure fraction at r500c to be less than 0.11 at 95% confidence, where r500c refers to radius at which the average enclosed density is 500 times the critical density of the Universe. This is in tension with state-of-the-art hydrodynamical simulations, which predict a nonthermal pressure fraction of approximately 0.25 at r500c for the clusters in this sample.

The second part of this thesis focuses on the characterization of the Multiwavelength Sub/millimeter Inductance Camera (MUSIC), a photometric imaging camera that was commissioned at the Caltech Submillimeter Observatory (CSO) in 2012. MUSIC is designed to have a 14 arcminute, diffraction-limited field of view populated with 576 spatial pixels that are simultaneously sensitive to four bands at 150, 220, 290, and 350 GHz. It is well-suited for studies of dusty star forming galaxies, galaxy clusters via the SZ Effect, and galactic star formation. MUSIC employs a number of novel detector technologies: broadband phased-arrays of slot dipole antennas for beam formation, on-chip lumped element filters for band definition, and Microwave Kinetic Inductance Detectors (MKIDs) for transduction of incoming light to electric signal. MKIDs are superconducting micro-resonators coupled to a feedline. Incoming light breaks apart Cooper pairs in the superconductor, causing a change in the quality factor and frequency of the resonator. This is read out as amplitude and phase modulation of a microwave probe signal centered on the resonant frequency. By tuning each resonator to a slightly different frequency and sending out a superposition of probe signals, hundreds of detectors can be read out on a single feedline. This natural capability for large scale, frequency domain multiplexing combined with relatively simple fabrication makes MKIDs a promising low temperature detector for future kilopixel sub/millimeter instruments. There is also considerable interest in using MKIDs for optical through near-infrared spectrophotometry due to their fast microsecond response time and modest energy resolution. In order to optimize the MKID design to obtain suitable performance for any particular application, it is critical to have a well-understood physical model for the detectors and the sources of noise to which they are susceptible. MUSIC has collected many hours of on-sky data with over 1000 MKIDs. This work studies the performance of the detectors in the context of one such physical model. Chapter 2 describes the theoretical model for the responsivity and noise of MKIDs. Chapter 3 outlines the set of measurements used to calibrate this model for the MUSIC detectors. Chapter 4 presents the resulting estimates of the spectral response, optical efficiency, and on-sky loading. The measured detector response to Uranus is compared to the calibrated model prediction in order to determine how well the model describes the propagation of signal through the full instrument. Chapter 5 examines the noise present in the detector timestreams during recent science observations. Noise due to fluctuations in atmospheric emission dominate at long timescales (less than 0.5 Hz). Fluctuations in the amplitude and phase of the microwave probe signal due to the readout electronics contribute significant 1/f and drift-type noise at shorter timescales. The atmospheric noise is removed by creating a template for the fluctuations in atmospheric emission from weighted averages of the detector timestreams. The electronics noise is removed by using probe signals centered off-resonance to construct templates for the amplitude and phase fluctuations. The algorithms that perform the atmospheric and electronic noise removal are described. After removal, we find good agreement between the observed residual noise and our expectation for intrinsic detector noise over a significant fraction of the signal bandwidth.

Stationary absolute distributions for chains of infinite order

Let {Ƶ_n}^∞_{n = -∞} be a stochastic process with state space S₁ = {0, 1, …, D – 1}. Such a process is called a chain of infinite order. The transitions of the chain are described by the functions

Q_i(i⁽⁰⁾) = Ƥ(Ƶ_n = i | Ƶ_{n - 1} = i ⁽⁰⁾₁, Ƶ_{n - 2} = i ⁽⁰⁾₂, …) (i ɛ S₁), where i⁽⁰⁾ = (i⁽⁰⁾₁, i⁽⁰⁾₂, …) ranges over infinite sequences from S₁. If i⁽ⁿ⁾ = (i⁽ⁿ⁾₁, i⁽ⁿ⁾₂, …) for n = 1, 2,…, then i⁽ⁿ⁾ → i⁽⁰⁾ means that for each k, i⁽ⁿ⁾_k = i⁽⁰⁾_k for all n sufficiently large.

Given functions Q_i(i⁽⁰⁾) such that

(i) 0 ≤ Q_i(i⁽⁰) ≤ ξ ˂ 1

(ii)D – 1/Ʃ/i = 0 Q_i(i⁽⁰⁾) Ξ 1

(iii) Q_i(i⁽ⁿ⁾) → Q_i(i⁽⁰⁾) whenever i⁽ⁿ⁾ → i⁽⁰⁾,

we prove the existence of a stationary chain of infinite order {Ƶ_n} whose transitions are given by

Ƥ (Ƶ_n = i | Ƶ_{n - 1}, Ƶ_{n - 2}, …) = Q_i(Ƶ_{n - 1}, Ƶ_{n - 2}, …)

With probability 1. The method also yields stationary chains {Ƶ_n} for which (iii) does not hold but whose transition probabilities are, in a sense, “locally Markovian.” These and similar results extend a paper by T.E. Harris [Pac. J. Math., 5 (1955), 707-724].

Included is a new proof of the existence and uniqueness of a stationary absolute distribution for an Nth order Markov chain in which all transitions are possible. This proof allows us to achieve our main results without the use of limit theorem techniques.

I. Quantum mechanics of one-dimensional two-particle models. II. A quantum mechanical treatment of inelastic collisions

Part I

Solutions of Schrödinger’s equation for system of two particles bound in various stationary one-dimensional potential wells and repelling each other with a Coulomb force are obtained by the method of finite differences. The general properties of such systems are worked out in detail for the case of two electrons in an infinite square well. For small well widths (1-10 a.u.) the energy levels lie above those of the noninteresting particle model by as much as a factor of 4, although excitation energies are only half again as great. The analytical form of the solutions is obtained and it is shown that every eigenstate is doubly degenerate due to the “pathological” nature of the one-dimensional Coulomb potential. This degeneracy is verified numerically by the finite-difference method. The properties of the square-well system are compared with those of the free-electron and hard-sphere models; perturbation and variational treatments are also carried out using the hard-sphere Hamiltonian as a zeroth-order approximation. The lowest several finite-difference eigenvalues converge from below with decreasing mesh size to energies below those of the “best” linear variational function consisting of hard-sphere eigenfunctions. The finite-difference solutions in general yield expectation values and matrix elements as accurate as those obtained using the “best” variational function.

The system of two electrons in a parabolic well is also treated by finite differences. In this system it is possible to separate the center-of-mass motion and hence to effect a considerable numerical simplification. It is shown that the pathological one-dimensional Coulomb potential gives rise to doubly degenerate eigenstates for the parabolic well in exactly the same manner as for the infinite square well.

Part II

A general method of treating inelastic collisions quantum mechanically is developed and applied to several one-dimensional models. The formalism is first developed for nonreactive “vibrational” excitations of a bound system by an incident free particle. It is then extended to treat simple exchange reactions of the form A + BC →AB + C. The method consists essentially of finding a set of linearly independent solutions of the Schrödinger equation such that each solution of the set satisfies a distinct, yet arbitrary boundary condition specified in the asymptotic region. These linearly independent solutions are then combined to form a total scattering wavefunction having the correct asymptotic form. The method of finite differences is used to determine the linearly independent functions.

The theory is applied to the impulsive collision of a free particle with a particle bound in (1) an infinite square well and (2) a parabolic well. Calculated transition probabilities agree well with previously obtained values.

Several models for the exchange reaction involving three identical particles are also treated: (1) infinite-square-well potential surface, in which all three particles interact as hard spheres and each two-particle subsystem (i.e. BC and AB) is bound by an attractive infinite-square-well potential; (2) truncated parabolic potential surface, in which the two-particle subsystems are bound by a harmonic oscillator potential which becomes infinite for interparticle separations greater than a certain value; (3) parabolic (untruncated) surface. Although there are no published values with which to compare our reaction probabilities, several independent checks on internal consistency indicate that the results are reliable.

I. Stokes flow past a thin screen. II. Viscous flows past porous bodies of finite size

Part I

The slow, viscous flow past a thin screen is analyzed based on Stokes equations. The problem is reduced to an associated electric potential problem as introduced by Roscoe. Alternatively, the problem is formulated in terms of a Stokeslet distribution, which turns out to be equivalent to the first approach.

Special interest is directed towards the solution of the Stokes flow past a circular annulus. A "Stokeslet" formulation is used in this analysis. The problem is finally reduced to solving a Fredholm integral equation of the second kind. Numerical data for the drag coefficient and the mean velocity through the hole of the annulus are obtained.

Stokes flow past a circular screen with numerous holes is also attempted by assuming a set of approximate boundary conditions. An "electric potential" formulation is used, and the problem is also reduced to solving a Fredholm integral equation of the second kind. Drag coefficient and mean velocity through the screen are computed.

Part II

The purpose of this investigation is to formulate correctly a set of boundary conditions to be prescribed at the interface between a viscous flow region and a porous medium so that the problem of a viscous flow past a porous body can be solved.

General macroscopic equations of motion for flow through porous media are first derived by averaging Stokes equations over a volume element of the medium. These equations, including viscous stresses for the description, are more general than Darcy's law. They reduce to Darcy's law when the Darcy number becomes extremely small.

The interface boundary conditions of the first kind are then formulated with respect to the general macroscopic equations applied within the porous region. An application of such equations and boundary conditions to a Poiseuille shear flow problem demonstrates that there usually exists a thin interface layer immediately inside the porous medium in which the tangential velocity varies exponentially and Darcy's law does not apply.

With Darcy's law assumed within the porous region, interface boundary conditions of the second kind are established which relate the flow variables across the interface layer. The primary feature is a jump condition on the tangential velocity, which is found to be directly proportional to the normal gradient of the tangential velocity immediately outside the porous medium. This is in agreement with the experimental results of Beavers, et al.

The derived boundary conditions are applied in the solutions of two other problems: (1) Viscous flow between a rotating solid cylinder and a stationary porous cylinder, and (2) Stokes flow past a porous sphere.

Microwave dynamics of quasiparticles and critical fields in superconducting films

The microwave response of the superconducting state in equilibrium and non-equilibrium configurations was examined experimentally and analytically. Thin film superconductors were mostly studied in order to explore spatial effects. The response parameter measured was the surface impedance.

For small microwave intensity the surface impedance at 10 GHz was measured for a variety of samples (mostly Sn) over a wide range of sample thickness and temperature. A detailed analysis based on the BCS theory was developed for calculating the surface impedance for general thickness and other experimental parameters. Experiment and theory agreed with each other to within the experimental accuracy. Thus it was established that the samples, thin films as well as bulk, were well characterised at low microwave powers (near equilibrium).

Thin films were perturbed by a small dc supercurrent and the effect on the superconducting order parameter and the quasiparticle response determined by measuring changes in the surface resistance (still at low microwave intensity and independent of it) due to the induced current. The use of fully superconducting resonators enabled the measurement of very small changes in the surface resistance (< 10^-9 Ω/sq.). These experiments yield information regarding the dynamics of the order parameter and quasiparticle systems. For all the films studied the results could be described at temperatures near T_c by the thermodynamic depression of the order parameter due to the static current leading to a quadratic increase of the surface resistance with current.

For the thinnest films the low temperature results were surprising in that the surface resistance decreased with increasing current. An explanation is proposed according to which this decrease occurs due to an additional high frequency quasiparticle current caused by the combined presence of both static and high frequency fields. For frequencies larger than the inverse of the quasiparticle relaxation time this additional current is out of phase (by π) with the microwave electric field and is observed as a decrease of surface resistance. Calculations agree quantitatively with experimental results. This is the first observation and explanation of this non-equilibrium quasiparticle effect.

For thicker films of Sn, the low temperature surface resistance was found to increase with applied static current. It is proposed that due to the spatial non-uniformity of the induced current distribution across the thicker films, the above purely temporal analysis of the local quasiparticle response needs to be generalised to include space and time non-equilibrium effects.

The nonlinear interaction of microwaves arid superconducting films was also examined in a third set of experiments. The surface impedance of thin films was measured as a function of the incident microwave magnetic field. The experiments exploit the ability to measure the absorbed microwave power and applied microwave magnetic field absolutely. It was found that the applied surface microwave field could not be raised above a certain threshold level at which the absorption increased abruptly. This critical field level represents a dynamic critical field and was found to be associated with the penetration of the app1ied field into the film at values well below the thermodynamic critical field for the configuration of a field applied to one side of the film. The penetration occurs despite the thermal stability of the film which was unequivocally demonstrated by experiment. A new mechanism for such penetration via the formation of a vortex-antivortex pair is proposed. The experimental results for the thinnest films agreed with the calculated values of this pair generation field. The observations of increased transmission at the critical field level and suppression of the process by a metallic ground plane further support the proposed model.