Daniel Hauser

Daniel N. Hauser

My CV

I have an ERC Starting Grant for the project “Modeling Misspecification”

A brief survey on misspecification: “Misspecified Models in Learning and Games” (joint with Aislinn Bohren)

Publications

“Learning with Heterogeneous Misspecified Models: Characterization and Robustness” joint with Aislinn Bohren (Econometrica, November 2021)

This paper develops a general framework to study how misinterpreting information impacts learning. Our main result is a simple criterion to characterize long-run beliefs based on the underlying form of misspecification. We present this characterization in the context of social learning, then highlight how it applies to other learning environments, including individual learning. A key contribution is that our characterization applies to settings with model heterogeneity and provides conditions for entrenched disagreement. Our characterization can be used to determine whether a representative agent approach is valid in the face of heterogeneity, study how differing levels of bias or unawareness of others’ biases impact learning, and explore whether the impact of a bias is sensitive to parametric specification or the source of information. This unified framework synthesizes insights gleaned from previously studied forms of misspecification and provides novel insights in specific applications, as we demonstrate in settings with partisan bias, overreaction, naive learning, and level-k reasoning.

“Censorship and Reputation” (AEJ Micro, February 2023)

I study how a firm manages its reputation by investing in the quality of its product and censoring bad news. Without censorship, the threat of bad news provides strong incentives for investment. I highlight two discontinuities in the firm’s maximum equilibrium payoff the introduction of censorship creates. When the cost of investment exceeds the cost of censorship, a patient firm never invests in quality and receives the lowest possible payoff. In contrast, when censorship is more expensive than invesment, a patient firm’s payoffs approach the first best, which can exceed the maximum equilibrium payoff if it was unable to censor.

“Promoting a Reputation For Quality” (RAND, February 2024)

A firm manages its reputation not only by investing in the quality of its products, but also through promotional campaigns and other forms of advertisement. I model a firm who invests in both the quality of a product and in the information about quality it provides to the market. The market learns about the quality through information that the firm cannot influence and promotion controlled by the firm. When the market learns about quality primarily through promotion, the ability to promote creates and enhances incentives to invest in quality. This leads to reputation cycles, and periods of time where the firm promotes even though it is not investing in quality to increase the reputational dividend from past investment. Promotion impacts incentives for investment in quality, enhancing the incentives for investment at low reputations and eliminating equilibria with reputation traps, situations where low reputation firms can never reestablish a high reputation. In equilibrium the ability to promote also reduces incentives for investment at high reputations, leading to longer and larger reputation cycles than in environments with only exogenous news.

Working Papers

“The Behavioral Foundations of Model Misspecification” (Revise and Resubmit, Econometrica), joint with Aislinn Bohren

We link two approaches to biased belief formation: non-Bayesian updating and misspecified models. The former parameterizes a bias with an updating rule mapping signals to posterior beliefs or a belief forecast describing anticipated beliefs; the latter is an incorrect model of the signal generating process. Our main result derives necessary and sufficient conditions for an updating rule and belief forecast to have a misspecified model representation, shows that these two components uniquely pin down a representation, and constructs it. This clarifies the belief restrictions implicit in the misspecified model approach. It also allows leveraging of the distinct advantages of each approach by decomposing a model into empirically identifiable components, showing these components isolate the two forms of bias that the model encodes—the retrospective bias after information arrives and the prospective bias beforehand, and rendering off-the-shelf tools to characterize asymptotic learning and equilibrium predictions in misspecified models applicable to non-Bayesian updating.

Work in Progress

“Misinterpreting Social Outcomes and Information Campaigns,” joint with Aislinn Bohren (Extended Abstract)

This paper explores how information campaigns can counteract inefficient choices in a learning setting with social perception bias. Individuals learn from private information and the outcomes of others, and a social planner can release costly information about the state. We model social perception biases as misspecified model of others’ preferences. When individuals systematically overestimate the similarity between their own preferences and the preferences of others — exhibiting the false consensus effect — this can lead to incorrect learning, while when individuals systematically underestimate this similarity — exhibiting pluralistic ignorance — this can prevent beliefs from converging. We characterize how the type and level of social perception bias affects the optimal information policy, and show that the duration — temporary or permanent — and target — intervene to correct inefficient action choices or to reinforce efficient action choices — of the optimal information campaign depend crucially on the form of misspecification. We close with an application in which individuals misunderstand other individuals’ risk preferences.

“Social Learning with Endogenous Order of Moves” joint with Pauli Murto and Juuso Välimäki

We analyze social learning in a model where the players choose optimally the timing of their actions. We show the existence of an asymptotically fully revealing equilibrium for games with large numbers of players and a vanishing time delay between decision instants. We relate this outcome to equilibria in variants of the game with different informational assumptions.

“Posteriors as Signals in Misspecified Learning Models” joint with Aislinn Bohren

The Bayesian learning literature often normalizes a signal about an unknown state to be the set of posterior distributions over the state space induced by each signal realization, as formalized in Smith Sorensen (2000). In this note, we provide a foundation for such a normalization when agents have a misspecified model of the state-signal distributions. Given such a posterior normalization for the correctly specified state-signal distributions, we establish necessary and sufficient conditions to represent an agent’s misspecified model with respect to this normalized set of posterior distributions.

Other Publications

“Optimal Lending Contracts with Retrospective and Prospective Bias” joint with Aislinn Bohren (AEA Papers and Proceedings 2023)

Model misspecification is a common approach to model belief formation distortions. Misspecified models can be decomposed into two classes of distortions: prospective and retrospective biases (Bohren Hauser 2023). Prospective biases correspond to distortions in forecasting future beliefs, while retrospective biases correspond to distortions in interpreting information ex-post. We disentangle the impact of these two distortions on optimal lending contracts in the context of an entrepreneur who borrows to invest in a project. The entrepreneur learns about project quality from a signal, which she interprets with a misspecified model. A lender leverages each form of bias in distinct ways.

Other Ongoing Projects

“Misperception of Fines” joint with Martti Kaila and Xiaogeng Xu

Other Things

Nordic Theory Group