Flexible moral hazard problems

This paper considers a moral hazard problem where the agent can choose any output distribution with a support in a given compact set. The agent's effort-cost is smooth and increasing in first-order stochastic dominance. To analyze this model, we develop a generalized notion of the first-order approach applicable to optimization problems over measures. We demonstrate each output distribution can be implemented and identify those contracts that implement that distribution. These contracts are characterized by a simple first-order condition for each output that equates the agent's marginal cost of changing the implemented distribution around that output with its marginal benefit. Furthermore, the agent's wage is shown to be increasing in output. Finally, we consider the problem of a profit-maximizing principal and provide a first-order characterization of principal-optimal distributions

Linguistic constraints on statistical word segmentation: The role of consonants in Arabic and English

Statistical learning is often taken to lie at the heart of many cognitive tasks, including the acquisition of language. One particular task in which probabilistic models have achieved considerable success is the segmentation of speech into words. However, these models have mostly been tested against English data, and as a result little is known about how a statistical learning mechanism copes with input regularities that arise from the structural properties of different languages. This study focuses on statistical word segmentation in Arabic, a Semitic language in which words are built around consonantal roots. We hypothesize that segmentation in such languages is facilitated by tracking consonant distributions independently from intervening vowels. Previous studies have shown that human learners can track consonant probabilities across intervening vowels in artificial languages, but it is unknown to what extent this ability would be beneficial in the segmentation of natural language. We assessed the performance of a Bayesian segmentation model on English and Arabic, comparing consonant-only representations with full representations. In addition, we examined to what extent structurally different proto-lexicons reflect adult language. The results suggest that for a child learning a Semitic language, separating consonants from vowels is beneficial for segmentation. These findings indicate that probabilistic models require appropriate linguistic representations in order to effectively meet the challenges of language acquisition

Essays on Attention in Economics

This collection of essays investigates the effects of limited attention on economic outcomes. Chapter 1 studies a random choice procedure which I call Focus, Then Compare. First, the agent focuses on an option at random from the choice set. Then, she compares the focal option to each other alternative in the set. Comparisons are binary, random and independent of each other. The agent chooses the focal option if and only if it passes all comparisons favorably. Otherwise, the agent draws a new focal option with replacement. I characterize the revealed preference implications of the procedure, and show that it can accommodate a range of experimental findings, including the Attraction effect, Compromise effect and Choice overload. I then show that the procedure can approximate some deterministic models used in the literature to explain violations of utility maximization. Chapter 1 was presented at the ¿Decision - Theory, Experiments, and Applications 2012¿ conference. Chapter 2 studies a one-sided offers bargaining game in which a fully rational seller is making repeated offers to a rationally inattentive buyer (Sims, 2003). The good's quality is random and is known to the seller. The buyer needs to pay attention to both the quality of the good and the seller's offers. I show that the buyer attains half of the uncertain portion of the surplus as attention costs become negligible and offers are frequent. With infrequent offers the equilibrium involves the buyer paying more for, but also obtaining a higher surplus from, higher quality goods. Trade occurs with delay that is decreasing with the quality of the good and persists even when offers are frequent. Finally, I show that revealing the quality of the good to the buyer reduces both the buyer's surplus and overall efficiency

Contrast sensitivity and higher-order aberrations in Keratoconus subjects

This study analyzes the relationship between contrast-sensitivity and higher-order aberrations (HOA) in mild and subclinical-keratoconus in subjects with good visual-acuity (VA). Keratoconus group (including subclinical-keratoconus) and controls underwent autokeratometry, corneal-tomography, autorefraction and HOA measurement. Contrast-sensitivity was tested using a psychophysical two-alternative forced-choice Gabor patches in three blocks (6, 9, 12 cycles/deg). Controls were compared to the keratoconus group and to a keratoconus subgroup with VA of 0.00 LogMar group ("keratoconus-0.00VA"). Spearman correlation tested association between HOA and contrast-sensitivity. Twenty-two keratoconus subjects (38 eyes: 28 keratoconus, 10 subclinical-keratoconus, 20 keratoconus-0.00VA) and 35 controls were included. There was a significant difference between control and keratoconus, and between control and keratoconus-0.00VA, for keratometry, cylinder, thinnest and central corneal thickness (p < 0.001). Controls showed lower HOA and higher contrast-sensitivity for all spatial-frequencies (p < 0.001). Most HOA were negatively correlated with contrast-sensitivity for all spatial-frequencies for keratoconus group and for 9 and 12 cycles/deg for keratoconus-0.00VA. Keratoconus subjects with good VA showed reduction in contrast-sensitivity and increased HOAs compared to controls. HOA and contrast-sensitivity are inversely correlated in subjects with mild keratoconus despite good VA. This suggests that the main mechanism underlying the decreased vision quality in keratoconus is the increase of HOA

Monopoly, Product Quality, and Flexible Learning

A seller offers a buyer a schedule of transfers and associated product qualities, as in Mussa and Rosen (1978). After observing this schedule, the buyer chooses a flexible costly signal about his type. We show it is without loss to focus on a class of mechanisms that compensate the buyer for his learning costs. Using these mechanisms, we prove the quality always lies strictly below the efficient level. This strict downward distortion holds even if the buyer acquires no information or when the buyer's posterior type is the highest possible given his signal, reversing the "no distortion at the top" feature that holds when information is exogenous

Predicting Choice from Information Costs

An agent acquires a costly flexible signal before making a decision. We explore the degree to which knowledge of the agent's information costs helps predict her behavior. We establish an impossibility result: learning costs alone generate no testable restrictions on choice without also imposing constraints on actions' state-dependent utilities. By contrast, for most utility functions, knowing both the utility and information costs enables a unique behavioral prediction. Finally, we show that for smooth costs, most choices from a menu uniquely pin down the agent's decisions in all submenus

Learning before trading: on the inefficiency of ignoring free information

This paper analyzes a bilateral trade model in which the buyer’s valuation for the object is uncertain and she can privately purchase any signal about her valuation. The seller makes a take-it-or-leave-it offer to the buyer. The cost of a signal is smooth and increasing in informativeness. We characterize the set of equilibria when learning is free, and show they are strongly Pareto ranked. Our main result is that when learning is costly but the cost of information goes to zero, equilibria converge to the worst free-learning equilibrium

The Limits of Shape Recognition following Late Emergence from Blindness

SummaryVisual object recognition develops during the first years of life [1]. But what if one is deprived of vision during early post-natal development? Shape information is extracted using both low-level cues (e.g., intensity- or color-based contours) and more complex algorithms that are largely based on inference assumptions (e.g., illumination is from above, objects are often partially occluded) [2]. Previous studies, testing visual acuity using a 2D shape-identification task (Lea symbols), indicate that contour-based shape recognition can improve with visual experience, even after years of visual deprivation from birth [3]. We hypothesized that this may generalize to other low-level cues (shape, size, and color), but not to mid-level functions (e.g., 3D shape from shading) that might require prior visual knowledge. To that end, we studied a unique group of subjects in Ethiopia that suffered from an early manifestation of dense bilateral cataracts and were surgically treated only years later. Our results suggest that the newly sighted rapidly acquire the ability to recognize an odd element within an array, on the basis of color, size, or shape differences. However, they are generally unable to find the odd shape on the basis of illusory contours, shading, or occlusion relationships. Little recovery of these mid-level functions is seen within 1 year post-operation. We find that visual performance using low-level cues is relatively robust to prolonged deprivation from birth. However, the use of pictorial depth cues to infer 3D structure from the 2D retinal image is highly susceptible to early and prolonged visual deprivation