Developmental Readiness in the Understanding of Own and Other’s False Beliefs

One of the most important milestones in the development of theory of mind is the understanding of false beliefs. This study compares children’s understanding of representational change and others’ false beliefs and evaluates the effectiveness of an appearance-reality training for improving children’s false belief understanding. A total of 78 children ranging in age from 41 to 47 months were trained in three sessions and evaluated in a pretest and in a posttest. The results show that for children it is easier to understand representational change than false beliefs in others, and that the improvement after training was greater when starting from a higher score in the pretest. The implications of this for training in false belief understanding are discussed

The Cost of ownership in the governance of interfirm collaborations

This paper investigates the selection of governance forms in interfirm collaborations taking into account the predictions from transaction costs and property rights theories. Transaction costs arguments are often used to justify the introduction of hierarchical controls in collaborations, but the ownership dimension of going from “contracts” to “hierarchies” has been ignored in the past and with it the so called “costs of ownership”. The theoretical results, tested with a sample of collaborations in which participate Spanish firms, indicate that the cost of ownership may offset the benefits of hierarchical controls and therefore limit their diffusion. Evidence is also reported of possible complementarities between reputation effects and forms of ownership that go together with hierarchical controls (i.e. joint ventures), in contrast with the generally assumed substitutability between the two.

Equilibrium play and best response to (Stated) beliefs in constant sum games

We report experimental results on one-shot two person 3x3 constant sum games played by non-economists without previous experience in the laboratory. Although strategically our games are very similar to previous experiments in which game theory predictions fail dramatically, 80% of actions taken in our experiment coincided with the prediction of the unique Nash equilibrium in pure strategies and 73% of actions were best responses to elicited beliefs. We argue how social preferences, presentation effects and belief elicitation procedures may influence how subjects play in simple but non trivial games and explain the diferences we observe with respect to previous work.

The Role of model uncertainty and learning in the U.S. postwar policy response to oil prices

This paper studies optimal monetary policy in a framework that explicitly accounts for policymakers' uncertainty about the channels of transmission of oil prices into the economy. More specfically, I examine the robust response to the real price of oil that US monetary authorities would have been recommended to implement in the period 1970 2009; had they used the approach proposed by Cogley and Sargent (2005b) to incorporate model uncertainty and learning into policy decisions. In this context, I investigate the extent to which regulator' changing beliefs over different models of the economy play a role in the policy selection process. The main conclusion of this work is that, in the specific environment under analysis, one of the underlying models dominates the optimal interest rate response to oil prices. This result persists even when alternative assumptions on the model's priors change the pattern of the relative posterior probabilities, and can thus be attributed to the presence of model uncertainty itself.

The Political cost of reforms

This paper formalizes in a fully-rational model the popular idea that politicians perceive an electoral cost in adopting costly reforms with future benefits and reconciles it with the evidence that reformist governments are not punished by voters. To do so, it proposes a model of elections where political ability is ex-ante unknown and investment in reforms is unobservable. On the one hand, elections improve accountability and allow to keep well-performing incumbents. On the other, politicians make too little reforms in an attempt to signal high ability and increase their reappointment probability. Although in a rational expectation equilibrium voters cannot be fooled and hence reelection does not depend on reforms, the strategy of underinvesting in reforms is nonetheless sustained by out-of-equilibrium beliefs. Contrary to the conventional wisdom, uncertainty makes reforms more politically viable and may, under some conditions, increase social welfare. The model is then used to study how political rewards can be set so as to maximize social welfare and the desirability of imposing a one-term limit to governments. The predictions of this theory are consistent with a number of empirical regularities on the determinants of reforms and reelection. They are also consistent with a new stylized fact documented in this paper: economic uncertainty is associated to more reforms in a panel of 20 OECD countries.

Simultaneous Nash bargaining with consistent beliefs

We propose and analyze a new solution concept, the R solution, for three-person, transferable utility, cooperative games. In the spirit of the Nash Bargaining Solution, our concept is founded on the predicted outcomes of simultaneous, two-party negotiations that would be the alternative to the grand coalition. These possibly probabilistic predictions are based on consistent beliefs. We analyze the properties of the R solution and compare it with the Shapley value and other concepts. The R solution exists and is unique. It belongs to the bargaining set and to the core whenever the latter is not empty. In fact, when the grand coalition can simply execute one of the three possible bilateral trades, the R solution is the most egalitarian selection of the bargaining set. Finally, we discuss how the R solution changes important conclusions of several well known Industrial Organization models.

Luck and the control theory of knowledge

The dissertation accomplishes two aims: 1) to diagnose what prevents true beliefs from being knowledge; 2) to give an positive account of knowledge. Concerning the first aim, it offers an account of the notion of luck. It defends the view that luck is a form of risk and distinguishes two types of luck. Then, it applies the account to the problem of epistemic luck and distinguishes, accordingly, two types of epistemic luck. It is argued that these two types of epistemic luck explain the whole range of cases of not-known true belief. Concerning the second aim, the dissertation advances an account of knowledge in terms of the notion of cognitive control that deals with the two forms of epistemic luck distinguished.

Two-sided learning in new keynesian models: dynamics, (lack of) convergence and the value of information

This paper investigates the role of learning by private agents and the central bank (two-sided learning) in a New Keynesian framework in which both sides of the economy have asymmetric and imperfect knowledge about the true data generating process. We assume that all agents employ the data that they observe (which may be distinct for different sets of agents) to form beliefs about unknown aspects of the true model of the economy, use their beliefs to decide on actions, and revise these beliefs through a statistical learning algorithm as new information becomes available. We study the short-run dynamics of our model and derive its policy recommendations, particularly with respect to central bank communications. We demonstrate that two-sided learning can generate substantial increases in volatility and persistence, and alter the behavior of the variables in the model in a signifficant way. Our simulations do not converge to a symmetric rational expectations equilibrium and we highlight one source that invalidates the convergence results of Marcet and Sargent (1989). Finally, we identify a novel aspect of central bank communication in models of learning: communication can be harmful if the central bank's model is substantially mis-specified

Goal recognition over POMDPs: inferring the intention of a POMDP agent

Plan recognition is the problem of inferring the goals and plans of an agent from partial observations of her behavior. Recently, it has been shown that the problem can be formulated and solved usingplanners, reducing plan recognition to plan generation.In this work, we extend this model-basedapproach to plan recognition to the POMDP setting, where actions are stochastic and states are partially observable. The task is to infer a probability distribution over the possible goals of an agent whose behavior results from a POMDP model. The POMDP model is shared between agent and observer except for the true goal of the agent that is hidden to the observer. The observations are action sequences O that may contain gaps as some or even most of the actions done by the agent may not be observed. We show that the posterior goal distribution P(GjO) can be computed from the value function VG(b) over beliefs b generated by the POMDPplanner for each possible goal G. Some extensionsof the basic framework are discussed, and a numberof experiments are reported.

The Economic Effects of Christian Moralities

This article examines the different influences that Catholicism and Protestantism exert on economically relevant values. It argues that Catholic theology and practice facilitate personal transactions while Protestantism favors values and types of moral and legal enforcement better adapted for impersonal trade. Protestantism may thus be more conducive to economic growth through anonymous exchange while Catholicism may provide better support for personal contracting. Several components of this hypothesis are confirmed using statistical models with data from the 1998 ISSP international survey on religion. These show that Protestants are more trusting of anonymous counter parties, develop more reliable institutions for legal enforcement and are more willing to spend resources on monitoring and punishing other members of the community. Catholicism is more protective of the family and small-group relationships, and provides more tolerant and less motivating beliefs. Relatively smaller and less consistent differences appear in terms of worldly personal success and incentives.

The political cost of reforms

This paper formalizes in a fully-rational model the popular idea that politiciansperceive an electoral cost in adopting costly reforms with future benefits and reconciles it with the evidence that reformist governments are not punished by voters.To do so, it proposes a model of elections where political ability is ex-ante unknownand investment in reforms is unobservable. On the one hand, elections improve accountability and allow to keep well-performing incumbents. On the other, politiciansmake too little reforms in an attempt to signal high ability and increase their reappointment probability. Although in a rational expectation equilibrium voters cannotbe fooled and hence reelection does not depend on reforms, the strategy of underinvesting in reforms is nonetheless sustained by out-of-equilibrium beliefs. Contrary tothe conventional wisdom, uncertainty makes reforms more politically viable and may,under some conditions, increase social welfare. The model is then used to study howpolitical rewards can be set so as to maximize social welfare and the desirability of imposing a one-term limit to governments. The predictions of this theory are consistentwith a number of empirical regularities on the determinants of reforms and reelection.They are also consistent with a new stylized fact documented in this paper: economicuncertainty is associated to more reforms in a panel of 20 OECD countries.

Two-sided learning in New Keynesian models: Dynamics, (lack of) convergence and the value of information

This paper investigates the role of learning by private agents and the central bank(two-sided learning) in a New Keynesian framework in which both sides of the economyhave asymmetric and imperfect knowledge about the true data generating process. Weassume that all agents employ the data that they observe (which may be distinct fordifferent sets of agents) to form beliefs about unknown aspects of the true model ofthe economy, use their beliefs to decide on actions, and revise these beliefs througha statistical learning algorithm as new information becomes available. We study theshort-run dynamics of our model and derive its policy recommendations, particularlywith respect to central bank communications. We demonstrate that two-sided learningcan generate substantial increases in volatility and persistence, and alter the behaviorof the variables in the model in a significant way. Our simulations do not convergeto a symmetric rational expectations equilibrium and we highlight one source thatinvalidates the convergence results of Marcet and Sargent (1989). Finally, we identifya novel aspect of central bank communication in models of learning: communicationcan be harmful if the central bank's model is substantially mis-specified.

Campaign rhetoric: A model of reputation

We analyze conditions under which a candidate's campaignrhetoric may affect the beliefs of the voters over whatpolicy the candidate will implement in case he wins theelection. We develop a model of repeated elections withcomplete information in which candidates are purely ideological. Voter's strategies involve a credible threat to punish candidates that renege of their campaignpromises, and in equilibrium all campaign promises arebelieved by voters, and honored by candidates. We obtainthat the degree to which promises are credible in equilibriumis an increasing function of the value of a candidate'sreputation.

The benefits of limited feedback in organizations

In most firms, managers periodically assess workers' performance. Evidence suggeststhat managers withhold information during these reviews, and some observersargue that this necessarily reduces surplus. This paper assesses the validity of thisargument when workers have career concerns. Disclosure has two effects: it exposesthe worker to uncertainty about future effort levels, but allows him to use current effortto influence his employer's beliefs about future effort. The surplus-maximizingdisclosure policy reveals output realizations in the center of the distribution, butnot in the tails. Thus, it is efficient for firms to reveal some but not all performanceinformation.

Circulation of private notes during a currency shortage

This paper provides a search theoretical model that captures two phenomena that have characterized several episodes of monetary history: currency shortages and the circulation of privately issued notes. As usual in these models, the media of exchange are determined as part of the equilibrium. We characterize all the different equilibria and specify the conditions under which there is a currency shortage and/or privately issued notes are used as means of payment. There is multiplicity of equilibria for the entire parameter space, but there always exist an equilibrium in which notes circulate, either alone or together with coins. Hence, credit is a self-fulfilling phenomenon that depends on the beliefs of agents about the acceptability and future repayment of notes. The degree of circulation of coins depends on two crucial parameters, the intrinsic utility of holding coins and the extent with which it is possible to find exchange opportunities in the market.