Andrew Ellis

Publications

  • Revealing Choice Bracketing, with D. Freeman (2024). American Economic Review, 114(9):2668-2700.
    Abstract. Experiments suggest that people fail to take into account interdependencies between their choices -- they do not broadly bracket. Researchers often instead assume that people narrowly bracket, but existing designs do not test it. We design a novel experiment and revealed preference tests for how someone brackets their choices. In portfolio allocation under risk, social allocation, and induced-value shopping experiments, 40-43% of subjects are consistent with narrow bracketing and 0-16% with broad bracketing. Adjusting for each model's predictive precision, 74% of subjects are best described by narrow bracketing, 13% by broad bracketing, and 6% by intermediate cases.
  • Equilibrium Securitization with Diverse Beliefs, with M. Piccione and S. Zhang (2022). Theoretical Economics, 17(1):121-52. [slides]
    Abstract. We study the effects of diverse beliefs on equilibrium securitization under risk neutrality. We provide a simple characterization of the optimal securities. Pooling and tranching of assets emerges in equilibrium as a consequence of the traders' diverse beliefs about asset returns. The issuer of securities tranches the asset pool, and traders sort among the tranches according to their beliefs. We show how the traders' disagreement about the correlation of asset returns is a key factor in determining which assets are pooled.
  • Choice with Endogenous Categorization, with Y. Masatlioglu (2022). Review of Economic Studies, 89(1):240-278. [slides]
    Abstract. We propose and axiomatize the categorical thinking model (CTM) in which the framing of the decision problem affects how agents categorize alternatives, that in turn affects their evaluation of it. Prominent models of salience, status quo bias, loss-aversion, inequality aversion, and present bias all fit under the umbrella of CTM. This suggests categorization is an underlying mechanism of key departures from the neoclassical model of choice. We specialize CTM to provide a behavioral foundation for the salient thinking model of Bordalo et al. (2013) that highlights its strong predictions and distinctions from other models.

    An older version, also with Yusufcan, that has some results more specific to Salient Thinking model: A Behavioral Foundations for Endogenous Salience

  • On Dynamic Consistency in Ambiguous Games (2018). Games and Economic Behavior, 111:241-249. [slides]
    Abstract. I consider static, incomplete information games where players may not be ambiguity neutral. Every player is one of a finite set of types, and each knows her own type but not that of the other players. Ex-ante, players differ only in their taste for outcomes. If every player is dynamically consistent with respect to her own information structure, respects consequentialism, and has at least two possible types, then the function representing beliefs must be additive on types.

  • Foundations for Optimal Inattention (2018). Journal of Economic Theory, 173:56-94. [slides]
    Abstract. This paper models an agent who has a limited capacity to pay attention to information and thus conditions her actions on a coarsening of the available information. The main result provides properties of the agent's conditional choices that are necessary and sufficient for the following as if interpretation: she chooses both her coarsening and her actions by constrained maximization of an underlying subjective expected utility preference relation. Observing these choices permits unique identification of the agent's utility index, cognitive constraint and prior (the last under a suitable richness condition). An application considers a market in which strategic firms offer differentiated products. If the consumer's information concerns firms' quality, then equilibrium consumer surplus may be higher with an optimally inattentive consumer than with one who processes all available information.

    Supplementary material.

  • Correlation Misperception in Choice, with M. Piccione (2017). American Economic Review, 107(4):1264-1292. [slides]
    Abstract. We present a decision-theoretic analysis of an agent's understanding of the interdependencies in her choices. We provide the foundations for a simple and flexible model that allows the misperception of correlated risks. We introduce a framework in which the decision maker chooses a portfolio of assets among which she may misperceive the joint returns, and present simple axioms equivalent to a representation in which she attaches a probability to each possible joint distribution over returns and then maximizes subjective expected utility using her (possibly misspecified) beliefs.

    An earlier version, "Complexity, Correlation, and Choice", with more results.

  • Condorcet Meets Ellsberg (2016). Theoretical Economics, 11(3):865-895. [slides]
    Abstract. The Condorcet Jury Theorem states that given subjective expected utility maximization and common values, the equilibrium probability that the correct candidate wins goes to one as the size of the electorate goes to infinity. This paper studies strategic voting when voters have pure common values but may be ambiguity averse -- exhibit Ellsberg-type behavior -- as modeled by maxmin expected utility preferences. It provides sufficient conditions so that the equilibrium probability of the correct candidate winning the election is bounded above by one half in at least one state. As a consequence, there is no equilibrium in which information aggregates.

    An earlier version with Poisson population can be found here.