This award will fund two research projects. Both of these projects will be undertaken jointly with Wolfgang Pesendorfer of Princeton University.
Recent research in behavioral and experimental economics emphasizes the importance of incorporating psychological factors into standard economic models. What distinguishes such factors from those normally included in economic models is the fact that the former cannot be accounted for as a part of the description of consequences. The first research project will create and analyze a model of interdependent preferences that will allow for the construction of economic models in which individuals have concerns about the personalities of others. This model will (i) facilitate the analysis of existing experimental evidence showing that individuals' willingness to share rewards depends on the personality of the person with whom the rewards are to be shared, (ii) suggest additional applications, and (iii) provide alternative foundations for Harsanyi's notion of a type.
Preliminary results have included analyzing the effects of altruism, reciprocity and a desire to conform to (or violate) social standards. The two theorems already proven establish the existence and uniqueness of the canonical space of interdependent preference types and show that each type in that space can be interpreted as a pair consisting of a characteristic and a "personality". Future research will focus on (i) developing extension that incorporate both interdependent preferences and asymmetric information, (ii) understanding the relationship between the current model and those that model interdependent preferences through beliefs, and (iii) applications. The broader impact of this project will be to identify new factors that influence behavior and to develop more descriptive models of social interaction.
The second project is an analysis of electoral competition. Standard Downsian analysis yields models of political competition supporting the conclusion that candidates' policy choices and election outcomes will reflect median-voter preferences even if a significant fraction of the voters are uninformed. Evidence from U.S. elections often fails to support this conclusion. So far, this research has established that standard Downsian outcomes can be overturned if (i) some fraction of the voters are uninformed of both the policy choice of one candidate and of the distribution of preferences, (ii) voters have some small preference for the personality of one or other candidate, and (iii) the candidate knows the distribution of preferences. In a model with one strategic candidate, it has been shown that a candidate mostly concerned with getting elected facing an almost fully uninformed electorate never chooses the median preferred policy but gets elected whenever the majority prefers his personality. In contrast, a candidate who is mostly concerned with policy, always chooses the median preferred policy but never gets elected. Future research will focus on extending the analysis to models where multiple "candidates" make policy decisions and to apply the resulting models to problems in auction theory and corporate governnance. The intellectual merit of this project is in establishing the possibility of partisan politics (i.e., the candidate's failure to adopt median preferred policies), aggregation failure (i.e., voters' rejection of median preferred policies), and in showing that seemingly naive behavior (voting based on personality preferences) can be sustained in equilibrium even when agents are fully rational. and care little about personalities. The broader impact of this project is to (i) assess the e.ectiveness and limitations of instrumental voting models and (ii) understand the e.ectiveness of democratic systems in information aggregation and in determining socially desirable policy outcomes. 1
