Guerra Forero, JA; (2014) Essays on Applied and Experimental Economics. Doctoral thesis , UCL (University College London).

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Abstract

In this dissertation I exploit observational and experimental data to study individual decision making when agents face social interactions or are described by non-standard neoclassical preferences. In the first chapter I study how social interactions, could explain occupational choice in an incomplete information setting. In a discrete choice framework I allow for group unobservables affecting decisions. I show that asymmetries in the peer influence enables to separately identify the effects from group members’ expected behaviour and the effects from their characteristics. I provide an empirical application to nineteenth century London. The results show that social networks were important in determining occupations but are somewhat lower than estimates which do not impose consistent beliefs nor allow for unobservables. Secondly, I implement an artefactual field experiment with small entrepreneurs. Subjects were given an initial amount of money to be invested across alternatives. Some of the subjects were informed about the possibility of getting either a high or a low income level. The income level was either predetermined or allocated after a fair lottery. Agents who started with a low income after the lottery were more risk loving. A model of reference–dependent preferences with multiple reference points, formed through recently held expectations on foregone and actual outcomes, fits most of the experimental results. In the last chapter I study game interactions in interdependent value auctions fol- lowing Kim (2003). Agents are asymmetrically informed in terms of how precisely they know the different aspects of the object’s value. Due to the mismatch of bidding strategies between these bidders, the second-price auction is inefficient. The English auction has an equilibrium in which bidders can infer information and attain efficiency. The increase in perfectly informed bidders increases the seller’s revenue. A laboratory experiment confirms key predictions about efficiency and revenues and reveals naive bidding.

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