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Working Paper
Differences of Opinions
Aliprantis, Dionissi (2016-01-20)
This paper presents a generalization of the DeGroot learning rule in which social learning can lead to polarization, even for connected networks. I first develop a model of biased assimilation in which the utility an agent receives from past decisions depends on current beliefs when uncertainty is slow to resolve. I use this model to motivate key features of an agent?s optimization problem subject to scarce private information, which forces the agent to extrapolate using social information. Even when the agent extrapolates under ?scientific? assumptions and all individuals in the network ...
Working Papers (Old Series) , Paper 1604

Working Paper
Investor Sentiment and the (Discretionary) Accrual-return Relation
Sun, Bo; Jiang, Jiajun; Liu, Qi (2020-09-18)
Discretionary accruals are positively associated with stock returns at the aggregate level but negatively so in the cross section. Using Baker-Wurgler investor sentiment index, we find that a significant presence of sentiment-driven investors is important in accounting for both patterns. We document that the aggregate relation is only prominent during periods of high investor sentiment. Similarly, the cross-section relation is considerably stronger in high-sentiment periods in both economic magnitude and statistical significance. We then embed investor sentiment into a stylized model of ...
International Finance Discussion Papers , Paper 1300

Working Paper
Targeted search in matching markets
Tutino, Antonella; Restrepo-Echavarria, Paulina; Cheremukhin, Anton A. (2016-05-20)
We propose a parsimonious matching model where people's choice of whom to meet endogenizes the degree of randomness in matching. The analysis highlights the interaction between a productive motive, driven by the surplus attainable in a match, and a strategic motive, driven by reciprocity of interest of potential matches. We find that the interaction between these two motives differs with preferences ? vertical versus horizontal ? and that this interaction implies that preferences estimated using our model can look markedly different from those estimated using a model where the degree of ...
Working Papers , Paper 1610

Working Paper
Screening and adverse selection in frictional markets
Lester, Benjamin; Venkateswaran, Venky; Shourideh, Ali; Zetlin-Jones, Ariel (2016-03-10)
We incorporate a search-theoretic model of imperfect competition into an otherwise standard model of asymmetric information with unrestricted contracts. We develop a methodology that allows for a sharp analytical characterization of the unique equilibrium and then use this characterization to explore the interaction between adverse selection, screening, and imperfect competition. On the positive side, we show how the structure of equilibrium contracts?and, hence, the relationship between an agent?s type, the quantity he trades, and the corresponding price?is jointly determined by the severity ...
Working Papers , Paper 16-10

Working Paper
Rational Inattention via Ignorance Equivalence
Armenter, Roc; Strangebye, Zachary; Müller-Itten, Michèle (2021-09-03)
We introduce the concept of the ignorance equivalent to effectively summarize the payoff possibilities in a finite Rational Inattention problem. The ignorance equivalent is a unique fictitious action that is weakly preferable to all existing learning strategies and yet generates no new profitable learning opportunities when added to the menu of choices. We fully characterize the relationship between the ignorance equivalent and the optimal learning strategies. Agents with heterogeneous priors self-select their own ignorance equivalent, which gives rise to an expected-utility analogue of the ...
Working Papers , Paper 21-29

Working Paper
Relative price dispersion: evidence and theory
Menzio, Guido; Rudanko, Leena; Kaplan, Greg; Trachter, Nicholas (2016-02-29)
REVISED: 8/1/18: We use a large data set on retail pricing to document that a sizable portion of the cross-sectional variation in the price at which the same good trades in the same period and in the same market is due to the fact that stores that are, on average, equally expensive set persistently different prices for the same good. We refer to this phenomenon as relative price dispersion. We argue that relative price dispersion stems from sellers? attempts to discriminate between high-valuation buyers who need to make all of their purchases in the same store and low-valuation buyers who are ...
Working Papers , Paper 16-6

Working Paper
The Natural Rate of Interest Through a Hall of Mirrors
Rungcharoenkitkul, Phurichai; Winkler, Fabian (2022-03-18)
Prevailing explanations of persistently low interest rates appeal to a secular decline in the natural interest rate, or r-star, due to factors outside monetary policy's control. We propose informational feedback via learning as an alternative explanation for persistently low rates, where monetary policy plays a crucial role. We extend the canonical New Keynesian model to an incomplete information setting where the central bank and the private sector learn about r-star and infer each other's information from observed macroeconomic outcomes. An informational feedback loop emerges when each side ...
Finance and Economics Discussion Series , Paper 2022-010

Working Paper
Privacy Regulation and Quality Investment
Lefouili, Yassine; Toh, Ying Lei (2019-07-30)
This paper analyzes whether a privacy regulation that restricts a dominant firm?s data disclosure level harms the firm?s incentives to invest in service quality and thereby harms social welfare. We study how the regulation affects the privacy and quality choices of a monopoly service provider, who derives revenues solely from disclosing user data to third parties, as well as how those choices in turn affect consumers? participation and information-sharing decisions. We show that the regulation does not always harm investment incentives; moreover, even when it does, it may still improve social ...
Research Working Paper , Paper RWP 19-5

Report
Information and anti-American attitudes
Zafar, Basit; Delavande, Adeline (2012)
This paper investigates how attitudes toward the United States are affected by the provision of information. We generate a panel of attitudes in urban Pakistan, in which respondents are randomly exposed to fact-based statements describing the United States in either a positive or negative light. Anti-American sentiment is high and heterogenous in our sample at the baseline, and systematically correlated with intended behavior, such as intended migration. We find that revised attitudes are, on average, significantly different from baseline attitudes: attitudes are revised upward (downward) ...
Staff Reports , Paper 558

Briefing
What Consumer Surveys Say about the Design of a U.S. CBDC for Retail Payments
Noll, Franklin (2023-03-29)
Although researchers continue to discuss the possibility of a central bank digital currency (CBDC) for retail payments in the United States, the success of a CBDC will depend on consumer adoption. To understand how a CBDC could provide a good user experience, recent surveys in the United States and in other countries have asked consumers about their wants and needs for a potential CBDC. In the United States, a majority of respondents to these surveys seek dependability, convenience, and security.
Payments System Research Briefing

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