“Strategic Risk-taking in Dynamic Contests” [Job Market Paper][under review][Working paper (pdf)]
We investigate a process of decision-making in a multi-period winner-take-all contest, in which competing players simultaneously choose among actions with different levels of risk every period. Strategic risk-taking is analyzed in isolation from effort choices, and, according to expected utility theory, risk preferences are irrelevant. We derive a closed-form solution of the dynamic game for any number of periods. In the equilibrium, a leading player chooses the lowest level of risk, a trailing player chooses the highest level of risk, and all elements of the action space with intermediate levels of risk are irrelevant. We design a laboratory experiment to test various comparative statics of the model and explore behavioral deviations. Our findings are consistent with theoretical predictions - subjects tend to choose riskier lotteries when they are behind and safer lotteries when they are ahead, while the magnitude of the advantage does not seem to affect the risk-taking levels. We also observe some behavioral deviations such as a decline in risk-taking in the absence of the safe option, which only occurs while being behind. We find the quantal response equilibrium of our dynamic game and explain some of behavioral deviations; incorporating learning, subject types, and the probability weighting function into the behavioral model allows us to achieve a 40% improvement in fit and explain the rest of behavioral findings obtained from the data.
“Dynamic Model of Endogenous Development: the Role of Labor Pioneers”
We address the question of why certain locations end up being more developed compared to other locations, resulting in observed income differences across space. We design a laboratory experiment involving a dynamic game to understand the impact that early investments in public goods have on long-term outcomes. In our experiment we focus on a setting in which heterogeneous workers freely choose locations or firms to work in. In equilibrium, a high-ability worker, the pioneer, sacrifices some short-term benefits and chooses a location with relatively low public goods level. By doing that, the pioneer contributes to the development and creates incentives for low-ability agents to move to the initially underdeveloped location. Our results show that heterogeneous nature of players matters in the endogenous process of development as behavior of different types is significantly different from each other. As predicted, we observe that with good incentives, high-contribution agents indeed serve as pioneers, providing development by anticipating that long-term benefits are more important than short-term losses.
WORK IN PROGRESS
“Dynamics of Specialization Process: Experimental Evidence” (with Luke Boosey and Sebastian Goerg)
We study the way people adjust their specialization under ambiguity in future earnings, and there is a lot of evidence that workers in declining industries, such as coal miners, reject retraining, even with the state assistance. We design a laboratory experiment and focus on informational interactions between workers in a dynamic game, in which workers simultaneously choose occupations. We implement the learning-by-doing component as well as shocks to occupations. Thus, we introduce a trade-off between switching to a potentially more beneficial new occupation and sticking to an occupation which might be in crisis, while being more skillful in that occupation. Our results provide an insight on observed cyclical fluctuations of supply and demand of specialists in a given profession as well as technology-based changes such as industries dying off or new specializations appearing.
“Charitable Giving with Endogenous Number of Recipients” (with Joseph Duff and Svetlana Pevnitskaya)
“Continuous-time Model of Crowdfunding” (with Arthur Nelson)