Empirical essays on dynamic decision making

Abstract

This thesis is a collection of empirical and experimental studies on dynamic decision making. Chapter 1 studies the non-linear incentive of academics in economics departments of the U.K. high education institutions based on the data throughout the last four RAEs/REFs (i.e., RAE1996, RAE2001, RAE2008, REF2014). The time-discontinuity features of the RAEs/REFs and the constraints on job moving result in academics facing non-linear incentives. The data shows that in a harsh working environment with a periodical decline of the UK economics study, academic economists respond to such incentives by postponing the publication of their high-quality outputs to the beginning of the next assessment period, as expected. Chapter 2 presents an experiment designed to study how people play a two-person two-stage

dynamic game with incomplete information and uncertainty and to study the effect of different elicitation methods on equilibrium and level-k play. The experimental data shows that around half of the subjects are strategic thinkers and level-k thinking dominates in strategic thinking. Furthermore, the comparison between the direct-response and the strategy method reveals that the latter method has a negative effect

on players’ strategic thinking.

Chapter 3 is an experimental study of the intertemporal consumption and saving behaviour of agents who have a finite lifecycle in an endowment economy in the presence of two different time profiles of taxes. A series of farsighted models (i.e., rational expectation and adaptive learning) and myopic models are introduced to explain players’ saving behaviour in the presence of a tax decrease in the middle of their lifecycle. In this setting, the data analysis shows that most of the subjects’ behaviours are consistent with the suggestions of myopic models.