Alexander Coutts

Assistant Professor of Economics, Nova School of Business and Economics

Bayesian updating remains the benchmark for dynamic modeling under uncertainty within economics. Recent theory and evidence suggest individuals may process information asymmetrically when it relates to personal characteristics or future life outcomes, with good news receiving more weight than bad news. I examine information processing across a broad set of contexts: 1) ego relevant, 2) financially relevant, and 3) non value relevant. In the first two cases, information about outcomes is valenced, containing either good or bad news. In the third case, information is value neutral. In contrast to a number of previous studies I do not find differences in belief updating across valenced and value neutral settings. Updating across all contexts is asymmetric and conservative: the former is influenced by sequences of signals received, a new variation of confirmation bias, while the latter is driven by non-updates. Despite this, posteriors are well approximated by those calculated using Bayes' rule. Most importantly these patterns are present across all contexts, cautioning against the interpretation of asymmetric updating or other deviations from Bayes' rule as being motivated by psychological biases.
Working Papers
Optimistic beliefs affect important areas of economic decision making, yet direct knowledge on how belief biases operate remains limited. To better understand these biases I conduct an experiment examining beliefs about binary events with financial stakes. By varying financial prizes in outcomes, as well as incentive payments for accuracy, the experiment is able to distinguish between two leading theories of optimistic belief formation that differ in their assumptions about how such beliefs are constrained. The Optimal Expectations theory of Brunnermeier and Parker (2005) models beliefs as being constrained through the future costs of holding incorrect beliefs, while the Affective Decision Making model of Bracha and Brown (2012) argues that beliefs are constrained by mental costs of distorting reality. The results suggest that people hold optimistically biased beliefs, and comparative statics indicate that these beliefs are not constrained by increasing the costs of making inaccurate judgments. In fact, the results support the theory of Bracha and Brown (2012), as observed bias is increasing in the size of incentive payments for accuracy.
The use of lab in the field experiments has increased dramatically, given benefits of studying relevant populations. Conducted in environments where researchers must relinquish the control a standard laboratory offers, they raise the specter of communication from past to future participants, posing problems for inference. In rural villages participating in public goods games in Rwanda, I recover estimates of these spillovers by matching villages on all available pre-study observables, comparing those with and without communication opportunities. I find communication led to substantial unanticipated increases in cooperation, driven by conditional cooperators. I conclude with advice to manage potential bias from spillovers.
The political resource curse is the idea that natural resources can lead to the deterioration of public policies through corruption and rent-seeking of those closest to political power. One prominent consequence is the emergence of conflict. In this paper, we take this theory to the data for the case of Mozambique, where a substantial discovery of natural gas recently took place. We focus on the anticipation of a resource boom and the behavior of local political structures and communities. For this purpose, we designed and implemented a large-scale field experiment to follow the dissemination of information about the newly-discovered resources. We designed two types of treatments, one with information for local leaders, the other with information and deliberation activities targeting communities at large. We measure a variety of theory-inspired outcomes through surveys, behavioral activities, and lab-in-thefield experiments. Our measures of actual conflict come from geo-referenced international datasets. We find that information given to leaders increases elite capture and rent-seeking, while information/deliberation given to citizens increases mobilization/accountability-related outcomes and decreases conflict. We conclude that while the political resource curse is likely to be in place, the dissemination of information to communities is a force in the opposite direction.
Work in Progress