Essays on decision making

Abstract

The three essays in this dissertation examine individual decision making from a behavioral economics perspective. The first two essays report the results of an experiment that examine bidding behavior and belief formation in market-like environments with common values. In the first essay, using elicited beliefs of bidders on the value of the object at different stages of bidding, I examine whether information cascades and rational herding can be credited for the occurrence of the 'winners' curse' I find that the role of information cascades in the occurrence of the winner's curse is marginal and bidders tend to give more weight to private information in making the bidding decisions. The winner's curse is caused primarily by herding due to disconfirmation bias and conservatism in updating beliefs. In the second essay, I extend the analysis to understand heuristics and biases like confirmation bias, disconfirmation bias, conservatism and overreaction exhibited by decision makers in the formation of subjective beliefs. The results show hardly any evidence for Bayesian updating by the bidders. Confirmation bias, disconfirmation bias and heuristics like conservatism and are observed in the formation of beliefs but are sensitive to treatment conditions. Non-optimal belief formation due to upwardly biased prior beliefs and conservatism in updating beliefs are responsible for overbidding in markets with sequential bids and common values. Another important finding is that Perfect Bayesian equilibrium behavior is consistent with the presence of biases and heuristics.The third essay estimates a series of random parameter logit models of the college-to-work migration decisions of technology graduates and holders of doctorates within the United States. I employ detailed information on the migration-relevant characteristics of individuals, as well as on their actual origins and destinations at the metropolitan scale. The results demonstrate that science and technology graduates migrate to better educated places, other things equal; that PhD graduates pay greater attention to amenity characteristics than other degree holders; and that foreign students from some immigrant groups migrate to places where those groups are concentrated.

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