Essays On Economic Behavior Under Uncertainty

Youngsoo Heo, University of Pennsylvania


I study individuals' behavior under uncertainty and its implications for economies. In Chapter 1, I study a decision problem under uncertainty about multiple issues. In this environment, a decision maker may avoid uncertain acts that depend on many issues since it can be harder to form a belief about multiple issues jointly than about individual issues separately. I provide a novel behavioral property, Multi-issue Uncertainty Aversion, which captures this idea. I show that, for invariant biseparable preferences, exhibiting Multi-issue Uncertainty Aversion is equivalent to having a belief satisfying two conditions: richness of the core of the joint belief and superadditivity of the marginal beliefs. The richness condition provides a novel way of comparing a decision maker's degrees of uncertainty aversion about different sets of issues. In Chapter 2, I develop a signaling model to examine the idea that when there is more than one sender, a receiver may evaluate their signaling choices relatively. This idea is related to whether students will choose their education levels competitively based on what others choose even if there is no direct competition between them. My model extends the job market signaling game of Spence (1973) so that there are two workers, and each worker has a two-dimensional type, one dimension of which is positively correlated across workers. It is shown that, in this game, there exists an equilibrium in which a worker's wage is decreasing in the other's education level, which may result in competitive behavior in signaling. Chapter 3 provides novel axiomatizations of Choquet Expected Utility functions with convex capacities and disjointly superadditive capacities, respectively. I first show that one can characterize the two properties in alternative ways using the rank-dependent probabilities associated with a capacity. These new characterizations elucidate the tight connections between the properties and a decision maker's pessimistic belief faced with uncertainty.