Alkis Georgiadis-Harris

Working Papers

Preparing to Act                                                                                  

(2024 EYEA Best Paper Award) 

                    [Revise and Resubmit, Econometrica]

This paper develops a dynamic model of information acquisition in which the decision maker lacks control over the timing of her actions. Dynamic experiments are flexible, constrained only by the quantity of information they can generate. The optimal experiment produces a single piece of breakthrough evidence and follows a cost-efficiency principle: willingness to pay for information continuously decreases over time. We explore the dynamics of learning in two important environments: a known deadline, and a random decision time with a constant hazard rate. The presence of timing risk forces the decision maker to generate contrarian breakthroughs, pitting the same set of alternatives against each other until sufficient evidence accumulates to rule out one. This limits the breadth of learning relative to the case where the timing is known. Over time, interim-optimal actions become monotonically more extreme, while breakthroughs become increasingly rare and more impactful.

Smart Banks, with Maximilian Guennewig and Yuliyan Mitkov

Since Diamond and Dybvig (1983), banks have been viewed as inherently fragile. We challenge this view in a general mechanism design framework. Our approach allows for flexibility in the design of banking mechanisms while maintaining limited commitment of the intermediary to future mechanisms. We find that the unique equilibrium outcome is efficient. Consequently, runs cannot occur in equilibrium. Our analysis points to the ultimate sources of fragility: banks are fragile if they cannot collect and optimally respond to useful information during a run, and not because they engage in maturity transformation. We link our banking mechanisms to recent technological advances surrounding ‘smart contracts,’ which enrich the contracting space and can be used to eliminate financial fragility.

Bank Resolution, Deposit Insurance and Fragility, with Maximilian Guennewig

Since the Great Financial Crisis, the share of deposits---both insured and uninsured---in bank liabilities has increased substantially. In this paper, we document this fact for the largest US banks. We show that it can be theoretically explained by the introduction of resolution powers, i.e. the ability to impose losses on bank shareholders and creditors. In such a world, banks issue deposits in order to channel resources towards uninsured depositors, imposing losses on insured depositors and forcing the government to conduct bailouts. Our model suggests that resolution and deposit insurance must be complemented by equity or long-term debt requirements.

The Evolution of Asymmetric Risk Preferences in Dynamic Competitions

This paper analyzes a dynamic competition in which two players gamble independently, and fairly to affect their wealths. At each instant in time, a prize is allocated to the player with the highest wealth. There is a unique equilibrium in which the player lagging in wealth takes maximal risks, while the leading player takes no risks at all. An evolutionary interpretation of the result is offered, which provides a foundation for reference-dependent, asymmetric risk preferences. In particular, when fitness is determined by such dynamic competitions, S-shaped Bernoulli utility functions emerge uniquely.