Social Exchange of Motivated Beliefs

We use laboratory experiments to study whether biases in beliefs grow more severe when people socially exchange these beliefs with one another. We elicit subjects’ (naturally biased) beliefs about their relative performance in an intelligence quotient (IQ) test and allow them to update these beliefs in real time. Part of the way through the task we give each subject access to the beliefs of a counterpart who performed similarly on the test and allow them both to observe the evolution of one another’s beliefs. We find that subjects respond to one another’s beliefs in a highly asymmetric way, causing a severe amplification of subjects’ initial bias. We find no such patterns in response to objective public signals or in control treatments without social exchange or scope for motivated beliefs. We also provide evidence that the pattern is difficult to reconcile with Bayesianism and standard versions of confirmation bias. Overall, our results suggest that bias amplification is likely driven by “motivated assignment of accuracy” to others’ beliefs: subjects selectively attribute higher informational value to social signals that reinforce their motivation.

Persuading Voters: It's Easy to Whisper, It's Hard to Speak Loud

We focus on the following natural question: is it possible to influence the outcome of a voting process through the strategic provision of information to voters who update their beliefs rationally? We investigate whether it is computationally tractable to design a signaling scheme maximizing the probability with which the sender's preferred candidate is elected. We resort to the model recently introduced by Arieli and Babichenko (2019) (i.e., without inter-agent externalities), and focus on, as illustrative examples, k-voting rules and plurality voting. There is a sharp contrast between the case in which private signals are allowed and the more restrictive setting in which only public signals are allowed. In the former, we show that an optimal signaling scheme can be computed efficiently both under a k-voting rule and plurality voting. In establishing these results, we provide two contributions applicable to general settings beyond voting. Specifically, we extend a well-known result by Dughmi and Xu (2017) to more general settings and prove that, when the sender's utility function is anonymous, computing an optimal signaling scheme is fixed-parameter tractable in the number of receivers' actions. In the public signaling case, we show that the sender's optimal expected return cannot be approximated to within any factor under a k-voting rule. This negative result easily extends to plurality voting and problems where utility functions are anonymous.

Rules versus Discretion in Bank Resolution

Recent reforms have given regulators broad powers to “bail-in” bank creditors during financial crises. We analyze efficient bail-ins and their implementation. To preserve liquidity, regulators must avoid signaling negative private information to creditors. Therefore, optimal bail-ins in bad times only depend on public information. As a result, the optimal policy cannot be implemented if regulators have wide discretion, due to an informational time-inconsistency problem. Rules mandating tough bail-ins after bad public signals, or contingent convertible (co-co) bonds, improve welfare. We further show that bail-in and bailout policies are complementary: if bailouts are possible, then discretionary bail-ins are more effective.

Persuading policy-makers

Interest groups persuade policy-makers by publicly providing information about policies—for example, through commissioning scientific studies or piloting programs—or about constituents’ views—for example, through opinion polls or organizing manifestations. By understanding these public lobbying activities as public signals whose informational content can be strategically manipulated, this paper studies the strategic use of these tools in order to persuade a policy-maker. A game between a policy-oriented interest group who can design a public signal and a self-interested executive who can implement a policy is used to analyze the equilibrium public signal and policy, the underlying persuasion mechanism, and the consequences for voters. This paper finds that, even when an interest group always wants the same policy regardless of the state of the world, voters can sometimes benefit from the group’s activity. Furthermore, voters may be best served by a worse (less able or more cynical) policy-maker. This is because a-priori a worse policy-maker will tend to herd on the prior relatively more than a better policy-maker; this will force interest groups to release greater amounts of information in order to change the policy-maker’s mind, which increases the probability that the voters’ best policy is implemented. Ideologically biased policy-makers are not totally undesirable either, for they induce similar incentives to interest groups of opposite ideology.