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on Microeconomics |
| By: | Heller, Yuval; Winter, Eyal |
| Abstract: | We study the strategic advantages of following rules of thumb that bundle different games together (called rule rationality) when this may be observed by one's opponent. We present a model in which the strategic environment determines which kind of rule rationality is adopted by the players. We apply the model to characterize the induced rules and outcomes in various interesting environments. Finally, we show the close relations between act rationality and “Stackelberg stability” (no player can earn from playing first). |
| Keywords: | Bounded Rationality, Commitments, Categorization, Value of information. |
| JEL: | C72 D82 |
| Date: | 2013–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:48746&r=mic |
| By: | Anton Kolotilin (School of Economics, the University of New South Wales) |
| Abstract: | A sender chooses ex ante how her information will be disclosed to a privately informed receiver who then takes one of two actions. The sender wishes to maximize the probability that the receiver takes the desired action. The sender faces an ex ante quantity-quality tradeoff: sending positive messages more often (in terms of the sender's information) makes it less likely that the receiver will take the desired action (in terms of the receiver's information). Interestingly, the sender's and receiver's welfare is not monotonic in the precision of the receiver's private information: the sender may find it easier to influence a more informed receiver, and the receiver may suffer from having more precise private information. Necessary and sufficient conditions are derived for full and no information revelation to be optimal. |
| Keywords: | information disclosure, persuasion, informed decision maker, two-way communication |
| JEL: | C72 D81 D82 D83 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2013-19&r=mic |
| By: | Bruno Jullien; Alessandro Pavan |
| Abstract: | We study monopolistic and competitive pricing in a two-sided market where agents have incomplete information about the quality of the product provided by each platform. The analysis is carried out within a global-game framework that offers the convenience of equilibrium uniqueness while permitting the outcome of such equilibrium to depend on the pricing strategies of the competing platforms. We first show how the dispersion of information interacts with the network effects in determining the elasticity of demand on each side and thereby the equilibrium prices. We then study "informative" advertising campaigns that increase the agents’ ability to estimate their own valuations and/or the distribution of valuations on the other side of the market. |
| Date: | 2013–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1568&r=mic |
| By: | O'Callaghan, Patrick |
| Abstract: | Prospect theory [KT79] and its more recent formalizations [KR06, KR07] prescribe "nonlinear" reference-dependence. The same may be said of other forms of context-dependence such as status quo bias [MO05]. Even in settings where there is a strong case for linear context-dependence such as Gilboa and Schmeidler's theory of case-based decisions, nonlinearity is typical in the absence of "diversity of preference". Furthermore, the hope of providing an axiomatic foundation for neuroscientific models of decision making, where context is interpreted as a physical state or "connectome" suggest a general, ordinal axiomatization of nonlinear context-dependence is called for. As with traditional, "context-free" models of ordinal utility (eg. Debreu [Deb54]), the issue of continuity is central: precise, yet simple and intuitive, conditions on the set of contexts are needed if preferences have a representation that is continuous across contexts. The continuity condition I employ is the obvious choice and is a generalisation of [GS03a]. There are interesting connections with literature on jointly continuous utility [Lev83, CCM09]. Finally, a promising feature of the present approach is it that may be used to axiomatise payoffs associated with discontinuous games (such as Bertrand oligopoly). |
| Keywords: | Risk and Uncertainty, |
| Date: | 2013–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:ags:uqsers:152450&r=mic |
| By: | Bernard Salanié; Alfred Galichon (Département d'économie) |
| Abstract: | We investigate a model of one-to-one matching with transferable utility when some of the characteristics of the players are unobservable to the analyst. We allow for a wide class of distributions of unobserved heterogeneity, subject only to a separability assumption that generalizes Choo and Siow (2006). We first show that the stable matching maximizes a social gain function that trades off the average surplus due to the observable characteristics and a generalized entropy term that reflects the impact of matching on unobserved characteristics. We use this result to derive simple closed-form formulæ that identify the joint surplus in every possible match and the equilibrium utilities of all participants, given any known distribution of unobserved heterogeneity. If transfers are observed, then the pre-transfer utilities of both partners are also identified. We also present a very fast algorithm that computes the optimal matching for any specification of the joint surplus. We conclude by discussing some empirical approaches suggested by these results. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/5rkqqmvrn4tl22s9mc0c7apsi&r=mic |
| By: | Sidartha Gordon (Département d'économie); Talia Bar (University of Connecticut); Vidya Atal (Montclair State University) |
| Abstract: | We examine project adoption decisions of firms constrained in the number of projects they can handle at once. Adoption requires a commitment for a period of uncertain duration, restricting the firm in subsequent periods. Capacity constraints create a “fear of commitment” — some positive return projects are not adopted. In the sequential move dynamic game, the second mover sometimes adopts projects that were rejected by the first, even when both firms are symmetric and equally informed. We study the e§ects of competition on the fear of commitment, and compare the jointly optimal adoption decision to the behavior of strategic non-cooperative firms. |
| Keywords: | adoption, project selection, commitment, Markov perfect equilibrium |
| JEL: | L10 L13 D21 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpecon:info:hdl:2441/7o52iohb7k6srk09n8t8j8cil&r=mic |
| By: | Tania Bar (University of Connecticut); Sidartha Gordon (Département d'économie) |
| Abstract: | We study mechanisms for selecting up to m out of n projects. Project managers’ private information on quality is elicited through transfers. Under limited liability, the optimal mechanism selects projects that maximize some function of the project’s observable and reported characteristics. When all reported qualities exceed their own project-specific thresholds, the selected set only depends on observable characteristics, not reported qualities. Each threshold is related to (i) the outside option level at which the cost and benefit of eliciting information on the project cancel out and (ii) the optimal value of selecting one among infinitely many ex ante identical projects. |
| Keywords: | adverse selection, information acquisition, mechanism design, project selection, limited liability, R&D. |
| JEL: | D82 O32 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpecon:info:hdl:2441/7o52iohb7k6srk09n8t49coi7&r=mic |
| By: | Heller, Yuval |
| Abstract: | A leading solution concept in the evolutionary study of extensive-form games is Selten's (1983) (selten1983evolutionary) notion of limit ESS. We demonstrate that a limit ESS does not imply neutral stability, and that it may be dynamically unstable (almost any small perturbation takes the population away). These problems arise due to an implicit assumption that “mutants” are arbitrarily rare relative to “trembling” incumbents. Finally, we present a novel definition that solves this issue and has appealing properties. |
| Keywords: | Limit ESS, evolutionary stability, extensive-form games. |
| JEL: | C73 |
| Date: | 2013–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:48160&r=mic |