RESEARCH STATEMENT
Overview Individuals may deviate from the assumption of standard economic models, in terms of (i) preference, (ii) beliefs, and (iii) decision making. Among these, my research mainly concentrates on the non-standard preferences. The non-standard preferences deviate from the standard ones in about three respects: time preference (time-inconsistency), risk preferences (reference-dependence) and social preferences (care about others).
Temporal Preferences Three of the four essays of my dissertation are dedicated to general equilibrium models of inter-temporal decision making in which (i) decision makers have short term planning horizons, due to bounded rationality, (ii) decision makers have present biased preferences and (iii) decision maker’s utility depends not only on the periodic consumption but is also dependent upon his expectation about present and future optimal consumption (Belief dependent preferences).
Agents who are defined by these preferences are re-optimizing over time if they realize that their past decision for today is no more optimal due to (a) limited information (Essay 1), (b) negating their earlier resolution (Essay 2: Naive agent), (c) changing taste (Essay 3: time-varying loss aversion). These are the key elements that derive the decision making under those preferences can generate different paths than the standard ones. In this sense, their preferences are "temporal."
Quantitative Analysis on Social Behaviors Another area of my research focuses on economic behavior as driven by social preferences. Altruism, reciprocity, fairness and pro-social behaviors, among others extend the rigid boundary of standard preference where economic agents are purely self-interested and affected only by their own well-being. By allowing decision–makers to be directly affected by others around them, some properties regarding the private provision of public goods can be explained.
Temporal Preferences Three of the four essays of my dissertation are dedicated to general equilibrium models of inter-temporal decision making in which (i) decision makers have short term planning horizons, due to bounded rationality, (ii) decision makers have present biased preferences and (iii) decision maker’s utility depends not only on the periodic consumption but is also dependent upon his expectation about present and future optimal consumption (Belief dependent preferences).
Agents who are defined by these preferences are re-optimizing over time if they realize that their past decision for today is no more optimal due to (a) limited information (Essay 1), (b) negating their earlier resolution (Essay 2: Naive agent), (c) changing taste (Essay 3: time-varying loss aversion). These are the key elements that derive the decision making under those preferences can generate different paths than the standard ones. In this sense, their preferences are "temporal."
Quantitative Analysis on Social Behaviors Another area of my research focuses on economic behavior as driven by social preferences. Altruism, reciprocity, fairness and pro-social behaviors, among others extend the rigid boundary of standard preference where economic agents are purely self-interested and affected only by their own well-being. By allowing decision–makers to be directly affected by others around them, some properties regarding the private provision of public goods can be explained.
RESEARCH PAPERS
"Bounded Rationality and Optimal Retirement Age"
This paper explores a lifecycle model of labor supply and endogenous retirement behavior for households whose planning window is truncated and who will reoptimize as extra information on productivity is revealed over time. This short horizon model internalizes the restriction on rationality for temporal resource allocation and the labor supply is closely dependent on the degree of productivity changes in view. With the model, the endogenous retirement timing---the moment at which the marginal utility from the intended expenditure drops below a threshold---also evolves along the planning window. Using a discrete time overlapping generations framework with leisure substitutability, in which the constraint on time is explicitly added, I demonstrate that the calibrated model economy reasonably replicates the salient facts regarding lifecycle labor supply and retirement behaviors without a borrowing constraint commonly found in models of leisure-consumption substitutability. With the extended environment of Social Security and mortality risks, this paper explicitly quantifies the relationship among retirement age, IES, planning horizon, social security benefits and other lifecycle characteristics from the calibrated general equilibrium, and furthermore this result is robust to tax experiments and sensitivity check.
"A general equilibrium model of dynamic loss aversion"
A multi-self model of dynamic loss aversion is developed to explore consumption dynamics in a calibrated general equilibrium for consumers whose utility depends on gain-loss feelings relative to their reference expectations. The model is versatile enough to not only fit the consumption data without resorting to any other mechanism than the preference, but also to reconcile consumption smoothing motivation with the nonmonotonic lifecycle consumption in data. This paper demonstrates that the key mechanism of the flexibility comes from the dual value function for gains and losses, which make the nonmonotonic profile feasible, as well as the model's descriptive property by which any plan of non-standard consumption behaviors is incorporated into the optimization procedure. Moreover, using a modified model in which the reference dependent consumers are restricted in their ability to foresee their future income flow, this paper provides an insight into loss aversion over a lifecycle implied from the income flow.
''Giving and volunteering over a lifecycle''
Charitable giving in the US is substantial, contributing 2% of the annual GDP. I develop a lifecycle model of warm-glow giving for consumers who derive utility from both acts of giving and volunteering, and explore the general equilibrium characteristics of an economy populated by these pro-social consumers. By separating the charitable deduction rate from the income tax rate as well as identifying non-separable utility between consumption and charitable giving, the model unambiguously determines the direction of welfare from any particular change in a tax system, illuminating the role of policy in the private provision of public goods. In the model, consumers subject to mortality risks are enabled to endogenously choose their retirement age, revealing salient features regarding lifecycle giving/volunteering on top of consumption/leisure behaviors in an empirically plausible, calibrated OLG equilibrium. A simulation result shows that given an income tax rate, an increase in deduction rate increases not only giving but also output and consumption, due to greater labor supply. Reasonable parameterization of the model confers the highest level of welfare for the tax rate of about 23% given an equal rate for the income tax and charitable deduction.
''Bounded Rationality, Lifecycle Consumption, and Social Security'' with James Feigenbaum
This paper explores an overlapping-generations model of bounded rationality in which consumers only foresee the future over a subset of their life span. We focus in particular on whether the model can, in general equilibrium, produce a hump-shaped lifecycle consumption profile with a peak that matches data for the average U.S. consumer. For a simple four-period model, we show that an increasing income profile along with exogenously imposed retirement are sufficient to induce a hump. With no other mechanism that can account for a hump besides bounded rationality, the model best fits the salient features of consumption data with a planning horizon of twenty years, which is well-supported by the behavioral evidence found in surveys on retirement planning. Finally, we show that the age of the consumption peak is robust to the introduction of Social Security, mortality risk, and another species of bounded rationality, quasihyperbolic discounting. Moreover, Social Security can be welfare improving with a short planning horizon. We can calibrate the model to jointly explain the timing of the consumption hump and the optimality of the current Social Security system. With quasihyperbolic discounting instead, we can calibrate the model so the current Social Security system is optimal but we cannot also account for the timing of the consumption hump. If we add quasihyperbolic discounting in addition to a short planning horizon, the present bias has a negligible effect in equilibrium.
''Inter-temporal Choices with temporal Reference Dependence''
I develop an intertemporal choice model for rational deviators whose preferences depend not only on their actual consumption but also on comparison to their beliefs about the optimal consumption. The standard decision maker is loss averse with respect to this belief-dependent reference point. When psychologically weighted loss aversion is low, a decision maker deviates from the standard intertemporal choice behavior and over-consumption, as well as the alternative possibility of under-consumption can be rationalized. When the decision maker has time-varying degrees of loss aversion, he re-optimizes the consumption plan through adjusted beliefs as subsequent selves realize that past decision for the present period is no longer optimal. In the dynamic model, I solve for consistent intertemporal optimization rules by which a dynamic deviator should meet rational intertemporal consistency at each point in time. Finally, I demonstrate that both the static and dynamic reference dependent models can solve a puzzling feature in lifecycle consumption data.
''Present Biased Preference and The Constrained Consumer''
A consumer who has present-biased preference is more likely to accumulate debts because of his time-inconsistent taste for immediate gratification. From this observation, I examine how the consumers with such preference react to credit constraints and explore the general equilibrium characteristics of an economy of these myopic consumers. With analytic solutions that define life time consumption of the agents who re-optimize, negating earlier resolution, both with and without the credit constraint, I show the possibility of consumption and income co-movement without resorting to any other constraint. For a constrained consumer who has a generalized discounting function for immediate gratification my model produces the prominent consumption hump in an empirically plausible, calibrated general equilibrium. Beyond the baseline analysis, I also introduce a pay-as-you-go social security system, as well as mortality risks and bequests to the model, making it even more empirically plausible and keep finding that the model predicts many of salient lifecycle features of consumption data. Finally, the simulation exercise demonstrates that the values of the discount factors estimated from field experiments are consistent with the model's prediction.
"Loss Aversion and Social Security: A General Equilibrium Approach"
Introducing an intertemporal model of loss aversion, I study the role of social security in determining intergenerational redistribution when consumers have reference-dependent preferences with loss aversion. Using a unified social security model in which different social security plans are specified via different degrees of fundedness, I examine the effect of the transition from a less funded system to a more funded one on savings, consumption, and capital accumulation for an OLG production economy. A general equilibrium analysis shows that the direction of intertemporal equilibrium is dependent on how the total savings responds to the interest rate change, but the effect of the payroll tax on capital accumulation is ambiguous. By deriving closed form solutions, I find that an increase in fundedness intensity unambiguously increases capital accumulation in steady states, while the tax effects on consumption and savings are not conclusive. Moreover, simulation exercises show that when consumers are prone to over-consume because they care more about the contemporaneous gain utility, the fully funded system may help the individuals smooth out their lifecycle consumption.
"Loss Aversion and Social Security: A General Equilibrium Approach"
Introducing an intertemporal model of loss aversion, I study the role of social security in determining intergenerational redistribution when consumers have reference-dependent preferences with loss aversion. Using a unified social security model in which different social security plans are specified via different degrees of fundedness, I examine the effect of the transition from a less funded system to a more funded one on savings, consumption, and capital accumulation for an OLG production economy. A general equilibrium analysis shows that the direction of intertemporal equilibrium is dependent on how the total savings responds to the interest rate change, but the effect of the payroll tax on capital accumulation is ambiguous. By deriving closed form solutions, I find that an increase in fundedness intensity unambiguously increases capital accumulation in steady states, while the tax effects on consumption and savings are not conclusive. Moreover, simulation exercises show that when consumers are prone to over-consume because they care more about the contemporaneous gain utility, the fully funded system may help the individuals smooth out their lifecycle consumption.
''Pro-Environmental Behavior and Demand for Green Products''
In this paper, I develop a model of pro-environmental behavior from warm glow motivation for individuals who derive utility from the act of such behavior and examine the voluntary provision of a public good (environmental quality) that may be achieved by using (demanding for) green products and reducing common consumption goods that can have detrimental effect on environment. In the model, individuals have different degrees of pro-environmental intensity and provide the optimal amount of public good as a function of this intensity. The equilibrium is solved both in static and dynamic model to show how the demand for green product depends on income level and preferences of the individuals, as well as the relative price of these products. In a two-period model, it is shown that the relative demand for green goods to common goods in the first period is always bigger than the one in the second period.
''Loss Aversion and Consumption Plan with Stochastic Reference Points''
This paper studies risky choices with an endogenous reference point, under the two schemes of state-independent and state-dependent stochastic references points. The former posits that the decision maker evaluates every possible outcome of a prospect with all possible outcomes of the reference point, while the latter assumes that the decision maker evaluates them only in the same state. Therefore, the decision maker experiences a loss if the outcome of the prospect in a state falls short of the outcome of the reference point in the other states in the state-independent world, while in the state-dependent world, losses are experienced only if they happen in the same state. In this paper I derive a two-period general equilibrium result with two agents who are different from each other in their attitude toward losses.
''Multi-Bidder First Price Auction with Beliefs''
This paper characterizes the set of equilibria in the first price auction with multiple bidders—specifically three bidders, each of whose type space is multi-dimensional, incorporating a bidder’s beliefs about others’ valuations. In this auction, each bidder independently and privately learns the other two opponents’ valuations with some probability. This paper derives closed form solutions for equilibrium bidding behaviors parameterized by the degree of information when the bidder has homogeneous beliefs regarding each opponent. This paper demonstrates how much the level of information affects the bidding behaviors of the informed bidders. In addition, this paper extends the model into N bidders when a high value bidder has fixed beliefs that all other bidders are identical types, and show how the value of information changes as the number of participants increases. Finally, this paper speculates on the possible changes in the efficiency of the model from increasing the valuation space to an arbitrary number.
"Over-consumption in behavioral models and the role of Social Security"
By exploring a class of non-standard consumer preferences for an OLG economy with Social Security, this paper not only provides the mathematical equivalence of the three well-known behavioral models for over-consumption i.e. (i) Quasi-hyperbolic discounting, (ii) Temptation and commitment, and (iii) Reference-dependence with loss aversion, in terms of the key mechanism, but also contributes to the literature on intergenerational distribution related to the pension system. The proposed model in the paper is versatile enough to incorporate over-consumption, as well as under-consumption, in a unified framework among the decision makers who deviate from the standard consumption behavior due to non-exponential time discounting, temptation utility and self-control cost, or low loss aversion. Furthermore, by utilizing an integrated scheme for social security system which allows partial intergenerational transfers, this paper can determine the transition effect from a movement toward a more funded social security system when consumers are prone to over-consume.
''Multi-Bidder First Price Auction with Beliefs''
This paper characterizes the set of equilibria in the first price auction with multiple bidders—specifically three bidders, each of whose type space is multi-dimensional, incorporating a bidder’s beliefs about others’ valuations. In this auction, each bidder independently and privately learns the other two opponents’ valuations with some probability. This paper derives closed form solutions for equilibrium bidding behaviors parameterized by the degree of information when the bidder has homogeneous beliefs regarding each opponent. This paper demonstrates how much the level of information affects the bidding behaviors of the informed bidders. In addition, this paper extends the model into N bidders when a high value bidder has fixed beliefs that all other bidders are identical types, and show how the value of information changes as the number of participants increases. Finally, this paper speculates on the possible changes in the efficiency of the model from increasing the valuation space to an arbitrary number.
"Over-consumption in behavioral models and the role of Social Security"
By exploring a class of non-standard consumer preferences for an OLG economy with Social Security, this paper not only provides the mathematical equivalence of the three well-known behavioral models for over-consumption i.e. (i) Quasi-hyperbolic discounting, (ii) Temptation and commitment, and (iii) Reference-dependence with loss aversion, in terms of the key mechanism, but also contributes to the literature on intergenerational distribution related to the pension system. The proposed model in the paper is versatile enough to incorporate over-consumption, as well as under-consumption, in a unified framework among the decision makers who deviate from the standard consumption behavior due to non-exponential time discounting, temptation utility and self-control cost, or low loss aversion. Furthermore, by utilizing an integrated scheme for social security system which allows partial intergenerational transfers, this paper can determine the transition effect from a movement toward a more funded social security system when consumers are prone to over-consume.
RESEARCH IN PROGRESS
"Loss Aversion, Borrowing Constraints, and Stochastic Reference Points"
This paper studies constrained risky choices following loss aversion with endogenous reference expectations under the two schemes of state-independent and state-dependent stochastic reference points. Under the environment of stochastic reference points, it is known that when loss aversion is high, the reference-dependent consumers save decisively more than those in a standard model, while when loss aversion is low, the overall result is ambiguous. This paper specifically aims to see what would happen when the loss-tolerant consumers are borrowing-constrained. This paper explores its theoretic implication through analytic solutions and further studies consumers’ lifecycle behaviors under the environment.
"Reference Dependence, Factor Prices, and Welfare"
The effect of demographic change on the welfare of current and future generations is analyzed in an intertemporal model with social security. As societies are aging, labor becomes relatively scarce and capital relatively abundant which leads to increases of wages and decreases in rates of return. Based on this notion, I study an OLG model in an production economy and analyze the effect of factor price changes on the consumer welfare when they have reference-dependent preferences. Furthermore, I introduce social security to understand its role in determining intergenerational redistribution.
"Time Allocation over Lifecycle and Endogenous Labor Supply"
I develop a lifecycle model of time allocation for individuals who face trade-off between private and public choice over lifecycle, allocate their limited resources for providing goods and time not only for themselves but for others. I derive analytic solutions that define the optimal resource level committed to spend on consumption goods each period with respect to time constraint and explore the conditions under which the individuals choose either to retire early or postpone entering into the labor market. In a full-blown model where consumers are subject to mortality risks and choose endogenously their retirement age, I demonstrate that the model features salient facts regarding lifecycle aspect of the four variables: an inverse U-shaped consumption, giving, and labor, similar to the data, while it confirms the existing findings of a U-shaped leisure over a lifecycle.
This paper studies constrained risky choices following loss aversion with endogenous reference expectations under the two schemes of state-independent and state-dependent stochastic reference points. Under the environment of stochastic reference points, it is known that when loss aversion is high, the reference-dependent consumers save decisively more than those in a standard model, while when loss aversion is low, the overall result is ambiguous. This paper specifically aims to see what would happen when the loss-tolerant consumers are borrowing-constrained. This paper explores its theoretic implication through analytic solutions and further studies consumers’ lifecycle behaviors under the environment.
"Reference Dependence, Factor Prices, and Welfare"
The effect of demographic change on the welfare of current and future generations is analyzed in an intertemporal model with social security. As societies are aging, labor becomes relatively scarce and capital relatively abundant which leads to increases of wages and decreases in rates of return. Based on this notion, I study an OLG model in an production economy and analyze the effect of factor price changes on the consumer welfare when they have reference-dependent preferences. Furthermore, I introduce social security to understand its role in determining intergenerational redistribution.
"Time Allocation over Lifecycle and Endogenous Labor Supply"
I develop a lifecycle model of time allocation for individuals who face trade-off between private and public choice over lifecycle, allocate their limited resources for providing goods and time not only for themselves but for others. I derive analytic solutions that define the optimal resource level committed to spend on consumption goods each period with respect to time constraint and explore the conditions under which the individuals choose either to retire early or postpone entering into the labor market. In a full-blown model where consumers are subject to mortality risks and choose endogenously their retirement age, I demonstrate that the model features salient facts regarding lifecycle aspect of the four variables: an inverse U-shaped consumption, giving, and labor, similar to the data, while it confirms the existing findings of a U-shaped leisure over a lifecycle.
''Surplus Utility, Asset Prices and Reference Dependent Preferences'' (With John Duffy)
We construct an asset pricing model where agents have reference dependence preferences (RDP) with respect to consumption following Koszegi and Rabin (2006, 2007, 2009). Distinct from prior work using RDP in which the formation of the reference point is not different from traditional habit formation models, we propose a model of RDP where the reference point is determined via forward looking expectations. Compared with the surplus consumption approach of Campbell and Cochrane (1999), in our model the surplus utility ratio can generate cyclical behavior for asset prices. We will use this framework to determine if our forward looking RDP model provides a better fit to features of the asset price data relative to other RDP models. Finally, we wish to revisit the permanent income hypothesis and explore its implication under our forward-looking version of RDP.
We construct an asset pricing model where agents have reference dependence preferences (RDP) with respect to consumption following Koszegi and Rabin (2006, 2007, 2009). Distinct from prior work using RDP in which the formation of the reference point is not different from traditional habit formation models, we propose a model of RDP where the reference point is determined via forward looking expectations. Compared with the surplus consumption approach of Campbell and Cochrane (1999), in our model the surplus utility ratio can generate cyclical behavior for asset prices. We will use this framework to determine if our forward looking RDP model provides a better fit to features of the asset price data relative to other RDP models. Finally, we wish to revisit the permanent income hypothesis and explore its implication under our forward-looking version of RDP.
''A Bridge between Habit Formation and Reference Dependent Utility'' (With John Duffy)
Habit formation preferences have been widely utilized in many macroeconomic applications, while Reference Dependent Utility, a seemingly close cousin of habit formation preferences, has been used primarily to understand microeconomic behavior. This paper clarifies the relationship between these two modeling approaches. Using three different types of gain-loss functions, this research provides conditions under which habit formation and RDP approaches may be viewed as special cases of one another as well as conditions where the two approaches are distinct from one another.
''OLG Based Asset Pricing with Housing''
Based on the recent development that lifecycle features in OLG play a crucial role in improving the consumption based asset pricing, this research explores the possibility of better prediction on risk premium, equity, bond and housing return with OLG based asset pricing under the existence of housing asset. Many research works on asset pricing models with housing mainly focus on the infinitely lived agent (ILA) model in partial equilibrium and ignore the general advantage of OLG over ILA and the implication of general equilibrium. Following the works of Bohm, Kikuchi and Vachadze (2008) who research the relative strength of asset pricing models (without housing asset) of two-period OLG v.s ILA, my project explicitly incorporates the implication of housing asset on the OLG model. With two-period OLG model, this research i) replicates the asset returns with both partial equilibrium and general equilibrium, ii) proposes theoretic building blocks to explain the puzzle iii) estimates. And with T-Period OLG with heterogeneous consumers, this project (a) calibrates the general equilibrium under collateral constraint, (b) assess asset allocation over lifetime and (c) finds the role of wealth distribution over different age group.
''Optimal Irrational Behavior with Idiosyncratic Risk'' (With James Feigenbaum)
Feigenbaum, Caliendo, and Gahramanov (JEBO, 2010) show that contrary to the usual presumption that welfare is maximized if consumers behave rationally, there always exists a rule of thumb that can weakly improve upon the lifecycle rule with irrational households. Here we focus on the risk-sharing properties of the optimal rule of thumb. We explore the possibility of welfare change of the irrational agents due to the uninsured idiosyncratic risk. Especially we entangle the welfare effect of precautionary saving of the irrational agents from (i) Prudence (curvature of marginal utility), (ii) Income uncertainty (iii) Potentially binding borrowing constraint in the future. The market-clearing mechanism introduces a pecuniary externality that individual rational house holds do not consider when making decisions, but a publicly shared rule of thumb can exploit this effect. Then the main question is, Does the precautionary saving of the irrational agent a¤ect the level of pecuniary externality so that their welfare level would be decreased? This research answers for that question and look for if the improvement of the welfare of irrational households is robust to the introduction of rational agents under uncertainty too. Generalizing to a more realistic lifecycle model, this research wants to find in particular that the Save More TomorrowTM (SMarT) Plan can confer higher lifetime utility than the permanent-income rule in general equilibrium of the model.
''Dynamic Efficiency, Social Security and the Learning Equilibria''
Dynamic efficiency is a central issue to understand a number of positive and normative questions raised by economic analysis. Also expectation plays a key role in macroeconomics. By introducing adaptive learning, this research specifically analyzes how the agents can form expectation under the uncertainty and assesses the dynamic efficiency of these learning equilibria to the multi-period production economy with social security. The key question is: can the dynamic inefficiency taking place in societies populated by expectation forming agents who adaptively learn on the rate of return to the capital when the societies are implementing social security system?
FUTURE RESEARCH PLAN
Near Future I have several near future research agendas that are related with my current works. The topics are like the followings:
A. Belief Formation
''Rational Beliefs vs. Adaptive Beliefs''
''Stochastic Reference Points in Reference Dependence Model''
B. Extended Preferences
''Macroeconomic Modeling with Social Preferences''
''Labor Market Implication from Consumption and Leisure Choice with Non-Standard Preferences''
''Asset Pricing Modeling with Bounded Rationality''
C. Experiments
''Macro Experiments testing the Implication of the Lifecycle Consumption Smoothing''
''Lab or Field Experiments on the Loss Aversion over Age''
''Experiments on Belief Formation''
''Lab Experiments on Temporal Preferences''
D. Asset Pricing or Financial Market
''Financial Market Implication from decision makers with non-standard preferences''
''Financial Market Implication from decision makers with non-standard beliefs''
''Financial Market Implication from decision makers with non-standard decision making''
''Quantitative Asset Pricing Implications of Housing Collateral Constraint'' (Risk Premium, Risk Sharing and the Collateral Constraint)
E. International Economics
''Behavioral International Macroeconomics''
''Game Theoretic Approach to International Trade''
F. Monetary Economics
''Behavioral Monetary Economics''
''Preferences with Money Illusion''
A. Belief Formation
''Rational Beliefs vs. Adaptive Beliefs''
''Stochastic Reference Points in Reference Dependence Model''
B. Extended Preferences
''Macroeconomic Modeling with Social Preferences''
''Labor Market Implication from Consumption and Leisure Choice with Non-Standard Preferences''
''Asset Pricing Modeling with Bounded Rationality''
C. Experiments
''Macro Experiments testing the Implication of the Lifecycle Consumption Smoothing''
''Lab or Field Experiments on the Loss Aversion over Age''
''Experiments on Belief Formation''
''Lab Experiments on Temporal Preferences''
D. Asset Pricing or Financial Market
''Financial Market Implication from decision makers with non-standard preferences''
''Financial Market Implication from decision makers with non-standard beliefs''
''Financial Market Implication from decision makers with non-standard decision making''
''Quantitative Asset Pricing Implications of Housing Collateral Constraint'' (Risk Premium, Risk Sharing and the Collateral Constraint)
E. International Economics
''Behavioral International Macroeconomics''
''Game Theoretic Approach to International Trade''
F. Monetary Economics
''Behavioral Monetary Economics''
''Preferences with Money Illusion''
Long Term Research Project My long term research project is about how to construct macroeconomic models in which the preference and decision making of individuals are heterogeneous. Each individual is different in terms of preference, beliefs, and decision making. This project is about how to conglomerate different types of individuals in a society where there are persistent fluctuations in beliefs, allocations, and information in equilibrium and to build models of transmission by which collective economic decisions can be made.