Essays on Learning, Uncertainty, and Choice

Abstract

This dissertation presents three independent essays in microeconomic theory. Motivated by the rise of social media, Chapter 1 (co-authored with Yuhta Ishii) builds a model studying the effect of an economy's potential for social learning on the adoption of innovations of uncertain quality. Provided consumers are forward-looking (i.e. recognize the value of waiting for information), equilibrium dynamics depend non-trivially on qualitative and quantitative features of the informational environment. We identify informational environments that are subject to a saturation effect, whereby increased opportunities for social learning slow down adoption and learning and do not increase consumer welfare (possibly even being harmful). We also suggest a novel, purely informational explanation for different commonly observed adoption patterns (S-shaped vs. concave curves). Chapter 2 (co-authored with Assaf Romm) studies the solution concept $S^\infty W$ (one round of elimination of weakly dominated strategies followed by iterated elimination of strongly dominated strategies) in incomplete-information games. Under complete information, Dekel and Fudenberg (1990) and Börgers (1994) motivate $S^\infty W$ via its connection with "approximate common certainty" (ACC) of admissibility. Under incomplete information, we cast doubt on this connection: $S^\infty W$ corresponds to ACC of admissibility only when this is not accompanied by even the slightest changes to players' beliefs about states of nature. If we allow for vanishingly small perturbations to beliefs, then $S^\infty W$ is a (generally strict) subset of the predicted behavior, which we characterize in terms of a generalization of Hu's (2007) perfect $p$-rationalizable set. Motivated by the literature on "choice overload", Chapter 3 studies a boundedly rational agent whose choice behavior admits a monotone threshold representation: There is an underlying rational benchmark, corresponding to maximization of a utility function $v$, from which the agent departs in a menu-dependent manner. The severity of the departure is quantified by a threshold map $\delta$, which is monotone with respect to set inclusion. I axiomatically characterize the model, extending familiar characterizations of rational choice. I classify monotone threshold representations as a special case of Simon's theory of "satisficing", but as strictly more general than both Tyson's (2008) "expansive satisficing" model as well as Fishburn (1975) and Luce's (1956) model of choice behavior generated by a semiorder. I axiomatically characterize the difference, providing novel foundations for these models.