Thinking about Attention in Games: Backward and Forward Induction

Behavioral economics improves economic analysis by using psychological regularity to suggest limits on rationality and self-interest (e.g. Camerer and Loewenstein 2003). Expressing these regularities in formal terms permits productive theorizing, suggests new experiments, can contribute to psychology, and can be used to shape economic policies which make normal people better off

Learning and Visceral Temptation in Dynamic Saving Experiments

This paper tests two explanations for apparent undersaving in life cycle models: bounded rationality and a preference for immediacy. Each was addressed in a separate experimental study. In the first study, subjects saved too little initially—providing evidence for bounded rationality—but learned to save optimally within four repeated life cycles. In the second study, thirsty subjects who consume beverage sips immediately, rather than with a delay, show greater relative overspending, consistent with quasi-hyperbolic discounting models. The parameter estimates of overspending obtained from the second study, but not the first, are in range of several empirical studies of saving (with an estimated β = 0.6–0.7)

Learning and Visceral Temptation in Dynamic Savings Experiments

In models of optimal savings with income uncertainty and habit formation, people should save early to create a buffer stock, to cushion bad income draws and limit the negative internality from habit formation. In experiments in this setting, people save too little initially, but learn to save optimally within four repeated lifecycles, or 1-2 lifecycles with “social learning.” Using beverage rewards (cola) to create visceral temptation, thirsty subjects who consume immediately overspend compared to subjects who only drink after time delay. The relative overspending of immediate-consumption subjects is consistent with hyperbolic discounting and dual-self models. Estimates of the present-bias choices are β=0.6-0.7, which are consistent with other studies (albeit over different time horizons)

Cognition and framing in sequential bargaining for gains and losses

Noncooperative game-theoretic models of sequential bargaining give an underpinning to cooperative solution concepts derived from axioms, and have proved useful in applications (see Osborne and Rubinstein 1990). But experimental studies of sequential bargaining with discounting have generally found systematic deviations between the offers people make and perfect equilibrium offers derived from backward induction (e.g., Ochs and Roth 1989). We have extended this experimental literature in two ways. First, we used a novel software system to record the information subjects looked at while they bargained. Measuring patterns of information search helped us draw inferences about how people think, testing as directly as possible whether people use backward induction to compute offers. Second, we compared bargaining over gains that shrink over time (because of discounting) to equivalent bargaining over losses that expand over time. In the games we studied, two players bargain by making a finite number of alternating offers. A unique subgame-perfect equilibrium can be computed by backward induction. The induction begins in the last period and works forward. Our experiments use a three-round game with a pie of $5.00 and a 50-percent discount factor (so the pie shrinks to$2.50 and $1.25 in the second and third rounds). In the perfect equilibrium the first player offers the second player$1.25 and keeps $3.75

The process-performance paradox in expert judgment - How can experts know so much and predict so badly?

A mysterious fatal disease strikes a large minority of the population. The disease is incurable, but an expensive drug can keep victims alive. Congress decides that the drug should be given to those whose lives can be extended longest, which only a few specialists can predict. The experts work around the clock searching for a cure; allocating the drug is a new chore they would rather avoid

Detecting Failures of Backward Induction: Monitoring Information Search in Sequential Bargaining

We did experiments in a three-round bargaining game where the (perfect) equilibrium offer was $1.25 and an equal split was$2.50. The average offer was $2.11. Patterns of information search (measured with a computerized information display) show limited lookahead rather than backward induction. Equilibrium theories which adjust for social utilities (reflecting inequality-aversion or reciprocity) cannot explain the results because they predict subjects will make equilibrium offers to “robot” players, but offers to robots are only a little lower. When trained subjects (who quickly learned to do backward induction) bargained with untrained subjects, offers ended up halfway between equilibrium and$2.11

Detecting Failures of Backward Induction: Monitoring Information Search in Sequential Bargaining

We ran three-round sequential bargaining experiments in which the perfect equilibrium offer was $1.25 and an equal split was$2.50. Subjects offered $2.11 to other subjects,$1.84 to “robot” players (who are known to play subgame perfectly), and $1.22 to robots after instruction in backward induction. Measures of information search showed that subjects did not look at the amounts being divided in different rounds in the correct order, and for the length of time, necessary for backward induction, unless they were specifically instructed. The results suggest that most of the departure from perfect equilibrium is due to limited computation and some is due to fairness

Cytoprotective Activated Protein C Averts Nlrp3 Inflammasome–Induced Ischemia-Reperfusion Injury Via Mtorc1 Inhibition

Cytoprotection by activated protein C (aPC) after ischemia-reperfusion injury (IRI) is associated with apoptosis inhibition. However, IRI is hallmarked by inflammation, and hence, cell-death forms disjunct from immunologically silent apoptosis are, in theory, more likely to be relevant. Because pyroptosis (ie, cell death resulting from inflammasome activation) is typically observed in IRI, we speculated that aPC ameliorates IRI by inhibiting inflammasome activation. Here we analyzed the impact of aPC on inflammasome activity in myocardial and renal IRIs. aPC treatment before or after myocardial IRI reduced infarct size and Nlrp3 inflammasome activation in mice. Kinetic in vivo analyses revealed that Nlrp3 inflammasome activation preceded myocardial injury and apoptosis, corroborating a pathogenic role of the Nlrp3 inflammasome. The constitutively active Nlrp3A350V mutation abolished the protective effect of aPC, demonstrating that Nlrp3 suppression is required for aPC-mediated protection from IRI. In vitro aPC inhibited inflammasome activation in macrophages, cardiomyocytes, and cardiac fibroblasts via proteinase-activated receptor 1 (PAR-1) and mammalian target of rapamycin complex 1 (mTORC1) signaling. Accordingly, inhibiting PAR-1 signaling, but not the anticoagulant properties of aPC, abolished the ability of aPC to restrict Nlrp3 inflammasome activity and tissue damage in myocardial IRI. Targeting biased PAR-1 signaling via parmodulin-2 restricted mTORC1 and Nlrp3 inflammasome activation and limited myocardial IRI as efficiently as aPC. The relevance of aPC-mediated Nlrp3 inflammasome suppression after IRI was corroborated in renal IRI, where the tissue protective effect of aPC was likewise dependent on Nlrp3 inflammasome suppression. These studies reveal that aPC protects from IRI by restricting mTORC1-dependent inflammasome activation and that mimicking biased aPC PAR-1 signaling using parmodulins may be a feasible therapeutic approach to combat IRI

PAR2 absence completely rescues inflammation and ichthyosis caused by altered CAP1/Prss8 expression in mouse skin

Altered serine protease activity is associated with skin disorders in humans and in mice. The serine protease channel-activating protease-1 (CAP1; also termed protease serine S1 family member 8 (Prss8)) is important for epidermal homeostasis and is thus indispensable for postnatal survival in mice, but its roles and effectors in skin pathology are poorly defined. In this paper, we report that transgenic expression in mouse skin of either CAP1/Prss8 (K14-CAP1/Prss8) or protease-activated receptor-2 (PAR2; Grhl3PAR2/+), one candidate downstream target, causes epidermal hyperplasia, ichthyosis and itching. K14-CAP1/Prss8 ectopic expression impairs epidermal barrier function and causes skin inflammation characterized by an increase in thymic stromal lymphopoietin levels and immune cell infiltrations. Strikingly, both gross and functional K14-CAP1/Prss8-induced phenotypes are completely negated when superimposed on a PAR2-null background, establishing PAR2 as a pivotal mediator of pathogenesis. Our data provide genetic evidence for PAR2 as a downstream effector of CAP1/Prss8 in a signalling cascade that may provide novel therapeutic targets for ichthyoses, pruritus and inflammatory skin diseases

The political economy of natural disaster damage

Economic damage from natural hazards can sometimes be prevented and always mitigated. However, private individuals tend to underinvest in such measures due to problems of collective action, information asymmetry and myopic behavior. Governments, which can in principle correct these market failures, themselves face incentives to underinvest in costly disaster prevention policies and damage mitigation regulations. Yet, disaster damage varies greatly across countries. We argue that rational actors will invest more in trying to prevent and mitigate damage the larger a country's propensity to experience frequent and strong natural hazards. Accordingly, economic loss from an actually occurring disaster will be smaller the larger a country's disaster propensity – holding everything else equal, such as hazard magnitude, the country's total wealth and per capita income. At the same time, damage is not entirely preventable and smaller losses tend to be random. Disaster propensity will therefore have a larger marginal effect on larger predicted damages than on smaller ones. We employ quantile regression analysis in a global sample to test these predictions, focusing on the three disaster types causing the vast majority of damage worldwide: earthquakes, floods and tropical cyclones