Cursed beliefs with common-value public goods

Abstract

The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-pro t purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. AbstractI show how improper conditioning of beliefs can reduce contribution in public goods environments with interdependent values. I consider a simple model of a binary, excludable public good. In equilibrium, provision of the public good is good news about its value. Naïve players who condition expectations only on their private information contribute too little, despite the absence of free-riding incentives. In a laboratory experiment, contributions indeed fall short of the equilibrium prediction. Using modified games with different belief-conditioning effects, I verify that subjects fail to condition beliefs properly. However, improper belief conditioning cannot fully explain the results.

Common-value public goods and informational social dilemmas

“…Fewer studies have examined common-value public goods. Cox (2015) considers a commonvalue excludable threshold public good and finds that under-provision may occur due to improper conditioning of beliefs, similar to the winner's curse in common-value auctions (Thaler, 1988;Kagel, 1995;Kagel and Levin, 2002). Butera and List (2017) examine a linear public goods game with Knightian uncertainty and private information about the uncertain return to contribution, finding that greater uncertainty may actually increase contribution.…”

“…Moreover, in many public goods environments there may also be decentralized private information related to the value of contribution (Cox, 2015;Butera and List, 2017). We refer to such public goods as common-value public goods.…”

Communication in a threshold public goods game under ambiguity

“…Decision makers often end up with private information as the only estimate of commonvalue public goods whose profitability is pervaded by uncertainty (Cox, 2015). For instance, investment in prevention typically produces variable outcomes due to the unpredictable nature of natural disasters and epidemics, in such a way that even the investors themselves cast doubt on the efficacy of such actions.…”

Essays in Behavioural and Experimental Economics: Emotions, Uncertainty and Cooperation

“…Decision makers often end up with private information as the only estimate of common-value public goods whose profitability is pervaded by uncertainty (Cox, 2015). For instance, investment in prevention typically produces variable outcomes due to the unpredictable nature of natural disasters and epidemics, in such a way that even the investors themselves cast doubt on the efficacy of such actions.…”