Andrew Ellis
Assistant Professor of Economics
Contact
Department of Economics
London School of Economics
Houghton Street
London
WC2A 2AE
Email: a.ellis[at]lse.ac.uk
Curriculum Vitae (pdf)
Research Interests
Microeconomic Theory
Decision Theory
Publications
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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.
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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.
Working Papers
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Subjective Causality in Choice, with H. C. Thysen.
Abstract.
An agent makes a stochastic choice from a set of lotteries. She infers the outcomes of her options using a subjective causal model represented by a directed acyclic graph, and consequently may misinterpret correlation as causation. Her choices affect her inferences which in turn affect her choices, so the two together must form a personal equilibrium. We show how an analyst can identify the agent's subjective causal model from her random choice rule. In addition, we provide necessary and sufficient conditions that allow an analyst to test whether the agent's behavior is compatible with the model.
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Identifying Assumptions and Research Dynamics, with R. Spiegler
Abstract.
A representative researcher pursuing a question has repeated opportunities for empirical research. To process findings, she must impose an identifying assumption, which ensures that repeated observation would provide a definitive answer to her question. Research designs vary in quality and are implemented only when the assumption is plausible enough according to a KL-divergence-based criterion, and then beliefs are Bayes-updated as if the assumption were perfectly valid. We study the dynamics of this learning process and its induced long-run beliefs. The rate of research cannot uniformly accelerate over time. We characterize environments in which it is stationary. Long-run beliefs can exhibit history-dependence. We apply the model to stylized examples of empirical methodologies: experiments, causal-inference techniques, and (in an extension) ``structural'' identification methods such as ``calibration'' and ``Heckman selection.'' -
Correlation Concern. [slides]
Revision requested by the Journal of Economic Theory
Abstract.
In many choice problems, the interaction between several distinct variables determines the payoff of each alternative. I propose and axiomatize a model of a decision maker who recognizes that she may not accurately perceive the correlation between these variables, and who takes this into account when making her decision. She chooses as if she calculates each alternative's expected outcome under multiple possible correlation structures, and then evaluates it according to the worst expected outcome. -
Misspecified Higher-Order Beliefs and Failures of Social Learning, with M.R. Levy and B. Szentes [pdf coming soon].
Abstract.
We study a model of social learning with misspecified higher-order beliefs. The environment is such that with rational beliefs, players' actions would converge to the public information optimal action. A small misperception at an arbitrarily high level of the belief hierarchy may lead to predetermined learning: agents become arbitrarily convinced that a given state obtains, independently of the true state of the world.