Article history: Received 7 May 2009 Available online 13 February 2010 JEL classification: C7 C9 D74

Article history: Received 11 November 2009 Available online 16 July 2010 JEL classification: C9 D02 D7 D8

Expectations play a crucial role in modern macroeconomic models. We consider a New Keynesian framework under rational expectations and under a behavioral model of expectation formation. We show how the economy behaves in the alternative scenarios with a focus on inflation volatility. Contrary to the rational model, the behavioral model predicts that inflation volatility can be lowered if the ce...

i n the past decades, the effect of different tax amendments on various economic issues has been studied. the majority of these studies have avoided considering shadow economy as part of the calculation and analysis, and an issue, which has received little attention, is the relationship between green tax reforms and shadow economy, as for informal labor, which is well-connected to unemployment ...

This paper reports the results of laboratory experiments that are designed to test theoretical predictions in a multi-battle contest with complementarities. The specific setting is a game of Hex where control of each region is determined by a Tullock contest and the overall winner is determined by the combination of claimed regions. We find that in a game with only a few regions, aggregate beha...

Arbitration is frequently utilized to settle disputes. Much research has focused on the properties of final-offer arbitration (FOA) relative to conventional arbitration. Both mechanisms should encourage settlement in standard environments, but previous empirical work finds that impasses remain common. A modification of FOA, amended final-offer arbitration (AFOA), has been proposed as an alterna...

Limited Attention as the Scarce Resource in an Information-rich Economy This paper uses basic empirical facts from attention and perception psychology for a behavioral approach to equilibrium analysis at the industry and the macroeconomic level. The paper endogenously determines whether an economy is information-rich and whether scarcity of attention complements economic scarcity. A conventiona...

We introduce a two-person beauty contest game with a unique Nash equilibrium that is identical to the game with many players. However, iterative reasoning is unnecessary in the two-person game as choosing zero is a weakly dominant strategy. Despite this “easier” solution concept, we find that a large majority of players do not choose zero. This is the case even with a sophisticated subject pool...

Five Open Questions About Prediction Markets Interest in prediction markets has increased in the last decade, driven in part by the hope that these markets will prove to be valuable tools in forecasting, decision-making and risk management – in both the public and private sectors. This paper outlines five open questions in the literature, and we argue that resolving these questions is crucial t...

We explore individuals’ preferences over limiting the choice sets of themselves and others. Specifically, we conduct public goods games in which participants can mandate the contributions of others or restrict choices to a subset of feasible contributions levels. We find that, relative to a baseline treatment in which individuals make choices from the set of all contribution alternatives, allow...