NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Luminita Stevens

Department of Economics
University of Maryland
7343 Preinkert Drive
College Park, MD 20742

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NBER Working Papers and Publications

December 2016Discrete Adjustment to a Changing Environment: Experimental Evidence
with Mel Win Khaw, Michael Woodford: w22978
We conduct a laboratory experiment to shed light on the cognitive limitations that may affect the way decision makers respond to changes in their economic environment. The subjects solve a tracking problem: they estimate the probability of a binary event, which changes stochastically. The subjects observe draws and indicate their draw-by-draw estimate. Our subjects depart from the optimal Bayesian benchmark in systematic ways, but these deviations are not simply the result of some boundedly rational, but deterministic rule. Rather, there is a random element in the subjects' response to any given history of evidence. Moreover, subjects adjust their forecast in discrete jumps rather than after each new ring draw, even though there are no explicit adjustment costs. They adjust by both large a...

Published: Mel Win Khaw & Luminita Stevens & Michael Woodford, 2017. "Discrete Adjustment to a Changing Environment: Experimental Evidence," Journal of Monetary Economics, .

June 2014Investor Sophistication and Capital Income Inequality
with Marcin Kacperczyk, Jaromir B. Nosal: w20246
What contributes to the growing income inequality across U.S. households? We develop an information- based general equilibrium model that links capital income derived from financial assets to a level of investor sophistication. Our model implies income inequality between sophisticated and unsophisticated investors that is growing in investors' aggregate and relative sophistication in the market. We show that our model is quantitatively consistent with the data from the U.S. market. In addition, we provide supporting evidence for our mechanism using a unique set of cross-sectional and time-series predictions on asset ownership and stock turnover.
 
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