Alistair Wilson

  Wed, 24th Oct 2018

  15:30 - 16:30

   Butler Room - Nuffield College

   The Times They are a-Changing: Dynamic Adverse Selection in the Laboratory

ABSTRACT

Across a variety of contexts decision-makers exhibit a robust failure to understand the interaction of private information and strategy, with one prominent example being the winner’s curse. Such failures have generally been observed in static settings, where participants fail to think through a future hypothetical. We use a laboratory experiment to examine a common-value matching environment where strategic thinking is entirely backward looking, and adverse selection is a dynamic, non-stationary process. Our results indicate the majority of subjects in our environment use a sub-optimal stationary response — even after extended experience and feedback. In terms of learning, even stationary subjects learn to adjust their behavior in response to the adverse selection, though adjusting their unconditional response. In contrast the minority using non-stationary responses do so very quickly, reflecting an introspective rather than learned solution to the problem. PAPER LINK