Rationalizing the Past: A Taste for Consistency People dislike knowing that they would be better off having made different past choices. This paper models the behavior of someone with a taste for rationalizing past actions by taking current actions for which those past actions were optimal. When past and present actions are strategic complements, then a past action higher than optimal leads to a present action also higher than optimal--the sunk-cost effect--and a past action lower than optimal leads to a present action also lower than optimal--an "unsunk-cost effect." A taste for consistency gives rise to the declining-price anomaly in sequential auctions. A rational monopolist may best respond to consumers who rationalize the past by limiting the menu of tariffs it offers them. People who underestimate their future taste for consistency overbid in wars of attrition and procrastinate in search models. pdf version.

Cursed Equilibrium (with Matthew Rabin) There is evidence that people do not fully take into account how other people's actions are contingent on these others' information. This paper defines and applies a new equilibrium concept in games with private information, cursed equilibrium, which assumes that each player correctly predicts the distribution of other players' actions, but underestimates the degree to which these actions are correlated with these other players' information. We apply the concept to common-values auctions, where cursed equilibrium captures the widely-observed phenomenon of the winner's curse. We also show how cursed equilibrium predicts other empirically-observed phenomena, such as trade in adverse-selection settings where conventional analysis predicts no trade, and "naive" voting in elections and juries where rational-choice models predict that voters fully take into account the informational content in being pivotal. pdf version.

Does Banning Affirmative Action Lower College Student Quality? (with Jimmy Chan), Forthcoming, American Economic Review Banning affirmative action from college admissions cannot prevent an admissions office that cares about diversity from achieving it in ways other than explicitly considering race. We model college admissions where candidates from two groups with different average qualifications compete for a fixed number of seats. Under affirmative action, an admissions office that cares both about quality and diversity admits the best-qualified candidates from each group. Under a ban, it may promote diversity by partially ignoring candidates' qualifications and therefore not admitting the best-qualified candidates from either group. A ban always reduces diversity and may also lower quality. pdf version.

Admission Impossible? Self Interest and Affirmative Action (with Jimmy Chan) This paper explains people's preferences for ethnic and racial diversity in higher education through a model based on self interest. Although all citizens from the majority group value diversity and their own education in the same way, their preferences for the level of diversity as well as the means of achieving it depend on their competitive positions in university admissions. High-income majority citizens, who tend to have better academic qualifications than lower-income majority candidates, prefer more diversity, which they want to achieve through affirmative action--by displacing marginal majority candidates for marginal minority candidates. Lower-income majority candidates prefer less diversity, which they want to achieve through admissions rules that partially ignore academic qualifications. Data from a CBS/NYT opinion poll confirm these predictions. Our model suggests why recently several American universities have replaced race-conscious admissions policies with race-blind policies that de-emphasize standardized tests, with little to no effect on diversity. Income inequality and competitive admissions both make banning affirmative action more likely. pdf version.