We provide an equilibrium framework for modeling the behavior of an agent who holds a simplified view of a dynamic optimization problem. The agent faces a Markov Decision Process, where a transition probability function determines the evolution of a state variable as a function of the previous...

Accounting for sample selection is a challenge not only for empirical researchers, but also for the agents populating our models. Yet most models abstract from these issues and assume that agents successfully tackle selection problems. We design an experiment where a person who understands...

How are the optimal tax and debt policies affected if the government has the option to default on its debt? We address this question from a normative perspective in an economy with noncontingent government debt, domestic default and labor taxes. On one hand, default prevents the government from...