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Cursed beliefs with common-value public goods

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  • Cox, Caleb
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    Abstract

    I show how improper conditioning of beliefs can lead to under-contribution in public goods environments with interdependent values. I consider a simple model of a binary, excludable public good. In equilibrium, provision of the public good is good news about its value. Naive players who condition expectations only on their private information contribute too little, despite the absence of free-riding incentives. In a laboratory experiment, subjects indeed under-contribute relative to equilibrium. Using modified games with different belief conditioning effects, I verify that under-contribution is due to improper belief conditioning. I find little evidence of learning over multiple rounds of play.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 53074.

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    Date of creation: 21 Jan 2014
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    Handle: RePEc:pra:mprapa:53074

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    Keywords: Public goods; experiments; cursed equilibrium; game theory;

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