| This thesis consists of three essays in behavioral economics and industrial organization. In recent decades, behavioral economics has uncovered many new insights about the limitations of rationality, including time inconsistent behavior and cognitive biases in processing information. Understanding how bounded rationality interacts with economic institutions can have important policy implications. In the first chapter, I show that time inconsistent consumer preferences have important implications for public health policy on alcohol. In the second chapter, I extend the demand model developed in the first chapter and describe how data can be used to test whether consumer behaves as if time inconsistent. In the third chapter which is joint work with Toomas Hinnosaar, we show that a bias toward respect for authority impacts social learning.;In chapter 1, I study restrictions on the days when alcohol is available in the stores. The alcohol sales restrictions are commonly used tools in order to reduce alcohol consumption. However, a forward looking consumer can buy in advance, thereby mostly undo the impact of the restriction. I study whether time inconsistent consumer preferences can provide a justification for restrictions on alcohol sales time. I estimate a demand model which allows a fraction of consumers to be time inconsistent, using scanner data of beer purchases and other shopping behavior. According to the estimation results, 20% of consumers are time inconsistent and they account for 64% of beer consumption. I find that Sunday sales restriction decreases weekend consumption by the same amount as a sales tax increase by 21 percentage points. In terms of consumer welfare, the sales restriction is preferable to the tax increase.;In chapter 2, I develop a storable goods demand model in the continuous time infinite horizon framework that allows consumers to be time inconsistent. I derive the optimal consumption and shopping policy for three types of consumers: time consistent, sophisticated time inconsistent and naive time inconsistent. I compare their implied shopping patterns, and describe how to test whether a consumer is time inconsistent using data on the quantity and frequency of purchases.;Chapter 3 studies a behavior, namely respect for authority, which also might deviate from the fully rational. People at positions with formal authority are often expected to make better decisions and fewer mistakes, and therefore their opinions and contributions are given higher weight. This can be an equilibrium effect: people may be selected to the positions with formal authority because of their knowledge or skills. But respect for authority could also be a behavioral bias. These two explanations have very different implications. Our goal is to measure the authority bias, which we define as the difference between perceived and true quality of contributions by people with formal authority. Identifying the authority bias is complicated by the fact that almost always the observable outcomes include both explanations. We propose a method of identifying the authority bias that allows us to separate it from the equilibrium effect. We estimate the authority bias using a novel dataset from Wikipedia. In Wikipedia, editors at high-rank positions are treated differently, and there is high regional variation. Our preliminary estimation results indicate that the authority bias does not exist in Western Europe, but is large in Eastern Europe. The authority bias more than doubles the time needed for the mistakes made by high-rank editors in Eastern Europe to be corrected. |
