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ABSTRACTThe paper shows that monetary precommitment can be advantageous to the government in a macroeconomic policy game where (i) the government's objectives are explicitly derived from those of the citizens, (ii) inflation has a real cost and (iii) the suboptimality of the output level arises from the structure of the private sector rather than from fiscal policy. It suggests that, to this extent, welfare interpretations of game theoretic monetary policy models are coherent.

AbstractThe Description-Experience gap (DE gap) is widely thought of as a tendency for people to act as if overweighting rare events when information about those events is derived from descriptions but as if underweighting rare events when they experience them through a sampling process. While there is now clear evidence that some form of DE gap exists, its causes, exact nature, and implications for decision theory remain unclear. We present a new experiment which examines in a unified design four distinct causal mechanisms that might drive the DE gap, attributing it respectively to information differences (sampling bias), to a feature of preferences (ambiguity sensitivity), or to aspects of cognition (likelihood representation and memory). Using a model-free approach, we elicit a DE gap similar in direction and size to the literature's average and find that when each factor is considered in isolation, sampling bias stemming from under-represented rare events is the only significant driver of the gap. Yet, model-mediated analysis reveals the possibility of a smaller DE gap, existing even without information differences. Moreover, this form of analysis of our data indicates that even when information about them is obtained by sampling, rare events are generally overweighted.

A two period, general equilibrium, model is analysed in which agents foresee how the second period outcome is determined by the investment decisions which they make in the first period. These decisions concern the acquisition of human and physical capital. The paper considers the impact of a minimum wage in the second period. It shows that, in equilibrium, this policy increases both types of investment. There is a range of values of the minimum wage at which the increases in investment are obtained without any reduction in period 2 employment. This is welfare‐improving for a range of parameter values. Under very specific circumstances, the minimum wage achieves a Pareto efficient outcome.

"Since the 1980s, there has been explosive growth in the use of experimental methods in economics, leading to exciting developments in economic theory and policy. Despite this, the status of experimental economics remains controversial. In Experimental Economics, the authors draw on their experience and expertise in experimental economics, economic theory, the methodology of economics, philosophy of science, and the econometrics of experimental data to offer a balanced and integrated look at the nature and reliability of claims based on experimental research. The authors explore the history of experiments in economics, provide examples of different types of experiments, and show that the growing use of experimental methods is transforming economics into a genuinely empirical science. They explain that progress is being held back by an uncritical acceptance of folk wisdom regarding how experiments should be conducted, a failure to acknowledge that different objectives call for different approaches to experimental design, and a misplaced assumption that principles of good practice in theoretical modeling can be transferred directly to experimental design. Experimental Economics debates how such limitations might be overcome, and will interest practicing experimental economists, nonexperimental economists wanting to interpret experimental research, and philosophers of science concerned with the status of knowledge claims in economics." --Amazon.com