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.
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 introduce a theoretical framework that trades off anticipatory benefits against two potential costs of forming biased beliefs: (1) material costs which result from poor decisions, of Brunnermeier and Parker (2005), and (2) direct psychological costs of distorting reality, of Bracha and Brown (2012). The experiment exploits the potential of the increasingly popular BDM elicitation procedure adopted to lotteries to distort beliefs in different directions, depending on which costs are most important. Relative to an elicitation procedure without distortionary incentives, beliefs are biased in the optimistic direction. Increasing payments for accuracy further increases belief reports, in many cases away from the truth, consistent with psychological costs of belief distortion. Yet the overall results suggest that theories of optimism based on anticipatory benefits and material or psychological costs fail to explain how beliefs respond to financial incentives.
Working Papers
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.
We investigate how overconfidence persists in the face of objective feedback which depends on two dimensions of uncertainty. Self-attribution biases exist when individuals take credit for good outcomes, but blame poor outcomes on external factors. We present a modified Bayesian model of self-attribution bias, which distinguishes biases in attribution towards idiosyncratic noise versus a stable fundamental factor. In an experiment where individuals receive noisy performance feedback that also depends on a teammate, we identify precise patterns in attribution among these two dimensions of uncertainty. Individuals are overconfident and update in a biased self-serving way relative to the Bayesian benchmark and a control group which updates for a third party. Moreover, self-serving biases spill over to positively affect beliefs about the teammate, suggesting that nurturing such biased beliefs can generate a more broadly distorted worldview.
Work in Progress