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on Microeconomics |
| By: | Paola Manzini (University of St. Andrews); Marco Mariotti (Queen Mary University of London) |
| Abstract: | We propose a novel method to model an agent who is imperfectly attentive in the sense that she may consider only some of the alternatives available. Our methodology departs from the standard 'revealed preference' one: we make plausible assumptions on the values to the imperfectly attentive agent of different choice situations. We derive in this way a simple reduced-form model that is compatible with several cognitive processes underlying choice: the agent stochastically forms a consideration set by noticing each alternative with a given probability and then maximises a deterministic utility function over the consideration set. |
| Keywords: | Attention, Bounded rationality, Stochastic choice |
| JEL: | D0 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp744&r=mic |
| By: | Ettinger, David; Michelucci, Fabio |
| Abstract: | We show that jump bids can be used by a bidder to create a winner's curse and preserve an informational advantage that would otherwise disappear in the course of an open ascending auction. The e ect of the winner's curse is to create allocative distortions and reduce the seller's expected revenue. Two novel features of equilibrium jump bids are also derived. First, the jump bid may partially reveal the value of the signal that the jump bid intends to hide. Second, the probability of calling a price might decrease with the type of the bidder who places the jump bid |
| Keywords: | Auctions; efficiency; jump bids; winner's curse; |
| JEL: | D82 D44 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:dau:papers:123456789/15048&r=mic |
| By: | Hoffmann, Florian; Inderst, Roman; Opp, Marcus |
| Abstract: | Our paper evaluates recent regulatory proposals mandating the deferral of bonus payments and claw-back clauses in the financial sector. We study a broadly applicable principal agent setting, in which the agent exerts effort for an immediately observable task (acquisition) and a task for which information is only gradually available over time (diligence). Optimal compensation contracts trade off the cost and benefit of delay resulting from agent impatience and the informational gain. Mandatory deferral may increase or decrease equilibrium diligence depending on the importance of the acquisition task. We provide concrete conditions on economic primitives that make mandatory deferral socially (un)desirable. |
| Keywords: | financial regulation,compensation design,principal-agent models |
| JEL: | G28 G21 D86 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:91&r=mic |
| By: | Kukushkin, Nikolai S. |
| Abstract: | The background of Stevenson's story is viewed as a stylized model of participation in a financial pyramid. You are invited to participate in a dubious activity. If you refuse, you neither gain nor lose anything. If you accept, you will gain if you are able to find somebody who will take your place on exactly the same conditions, but suffer a loss otherwise. The catch is that there is a finite number of discrete steps at which the substitution can be done, so the agent who joins in at the last step inevitably loses. Clearly, rational agents will not agree to participate at any step. However, an arbitrarily small probability of a "bailout," in which case that last agent will get the same gain as every other participant, plus an appropriately asymmetric structure of private information, change everything, so the proposal will be accepted in a (subgame perfect) equilibrium, provided there are sufficiently many steps ahead. |
| Keywords: | financial pyramid; partitional information structure; game of incomplete information; game of perfect information |
| JEL: | C72 D82 |
| Date: | 2015–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64639&r=mic |
| By: | Heller, Yuval |
| Abstract: | Various papers have presented folk-theorem results that yield efficiency in the repeated Prisoner's Dilemma with imperfect private monitoring. I present a mild refinement that requires robustness against small perturbations in the behavior of potential opponents, and I show that only defection satisfies this refinement among all the existing equilibria in the literature. |
| Keywords: | Belief-free equilibrium, evolutionary stability, imperfect private monitoring, repeated Prisoner's Dilemma, communication. |
| JEL: | C73 D82 |
| Date: | 2015–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64485&r=mic |
| By: | Vladimir Asriyan; William Fuchs; Brett Green |
| Abstract: | We study the effect of information spillovers and transparency in a dynamic setting with adverse selection and correlated asset values. A trade (or lack thereof) by one seller can provide information about the quality of other assets in the market. In equilibrium, the information content of this trading behavior is endogenously determined. We show that this endogeneity of information leads to multiple equilibria when the correlation between asset values is sufficiently high. That is, if buyers expect "bad" assets to trade quickly, then a seller with a bad asset has reason to be concerned about negative information being revealed, which induces her to trade quickly. Conversely, if buyers do not expect bad assets to trade quickly, then the seller has less to be concerned about and is more willing to wait. We study the implications for policies that target market transparency. We show that total welfare is higher when markets are fully transparent than when the market is fully opaque. However, both welfare and trading activity can decrease in the degree of market transparency. |
| Keywords: | asymmetric information, information spillovers, market transparency, liquidity |
| JEL: | G12 G14 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:827&r=mic |
| By: | Timo Hiller; Timo Hiller |
| Abstract: | This paper presents a simple model of strategic network formation with local complementarities in effort levels and positive local externalities for a general class of payoff functions. Results are obtained for one-sided and two-sided link creation. In both cases (pairwise) Nash equilibrium networks are nested split graphs, which are a strict subset of core-periphery networks. The relevance of the convexity of the value function (gross payoffs as a function of neighbours' effort levels when best responding) in obtaining nested split graphs is highlighted. Under additional assumptions on payoffs, we show that the only efficient networks are the complete and the empty network. Furthermore, there exists a range of linking cost such that any (pairwise) Nash equilibrium is inefficient and for a strict subset of this range any (pairwise) Nash equilibrium network structure is different from the efficient network. These findings are relevant for a wide range of social and economic phenomena, such as educational attainment, criminal activity, labor market participation, and R&D expenditures of firms. |
| Keywords: | Strategic network formation, peer effects, strategic complements, positive externalities. |
| JEL: | D62 D85 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:cep:stitep:564&r=mic |
| By: | Paola Manzini (University of St. Andrews, and IZA); Marco Mariotti (Queen Mary University of London) |
| Abstract: | There are many situations in which alternatives ranked by quality wish to be chosen and compete for the imperfect attention of a chooser by selecting their own salience. The chooser may be "tricked" into choosing more salient but inferior alternatives. We investigate when competitive forces ensure instead that "the showiest is the best", that is, when the best alternative is maximally salient (and the one that gets picked most often) in equilibrium. We prove that the structure of externalities in the technology of salience is key. Broadly speaking, positive externalities favour correlation between quality and salience. |
| Keywords: | Consideration sets, Bounded rationality, Stochastic choice |
| JEL: | D01 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp743&r=mic |
| By: | Maarten C. W. Janssen; Mariya Teteryatnikova |
| Abstract: | This paper studies the incentives of parties in political campaigns to disclose their true, intended policies to voters in a setting where these policies are exogenously given and where they are chosen strategically. Parties compete for the vote share that determines their political power or percentage of seats won in the election. We consider two cases: one in which parties can only disclose their own policy (no negative political campaigning) and the other, in which they can also disclose the policy of their adversary (negative political campaigning). In both cases and irrespective of whether policies are exogenous or strategic, full revelation is one of the equilibrium outcomes. More importantly, in case of negative campaigning, all equilibrium outcomes, with full and partial disclosure, are such that all voters make choices that they would have also made under full disclosure. If parties do not or are not allowed to engage in negative campaigning, a large variety of nondisclosure equilibria exist where voters' choices are dierent from those under full disclosure. |
| JEL: | D43 D82 D83 M37 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:1506&r=mic |
| By: | Franz Dietrich; Christian List |
| Abstract: | "Reason-based rationalizations" explain an agent's choices by specifying which properties of the options or choice context he/she cares about (the "motivationally salient properties") and how he/she cares about these properties the "fundamental preference relation"). We characterize the choice-behavioural implications of reason-based rationalizability and identify two kinds of context-dependent motivation in a reason-based agent: he/she may (i) care about different properties in different contexts and (ii) care not only about properties of the options, but also about properties relating to the context. Reason-based rationalizations can explain non-classical choice behaviour, including boundedly rational and sophisticated rational behaviour, and predict choices in unobserved contexts, an issue neglected in standard choice theory. |
| JEL: | D01 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:cep:stitep:565&r=mic |
| By: | Pascal Courty; Daniel Rondeau; Maurice Doyon |
| Abstract: | We study truthful revelation when a seller auctions bundles of goods and is interested in learning the buyer’s valuations for each individual good. We generalize the auction rules for the Becker- Degroot-Marschak mechanism and the Vickrey auction to induce truthful revelation. |
| Keywords: | Auction; truthful revelation; Becker-Degroot-Marschak mechanism; Vickrey auction |
| JEL: | D44 Q23 Q28 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:rep:wpaper:2015-05&r=mic |
| By: | Kristóf Madarász |
| Abstract: | People exaggerate the extent to which their private information is shared with others. This paper introduces this phenomenon portably into Bayesian games where people wrongly think that if they can condition their strategy on an event others can do as well. I apply the model to a variety of settings. In the context of social investment people misattribute the uncertainty they face about others preferences to others having antagonistic motives. Even if all parties prefer mutual investment, none invests, yet all come to believe that others prefer not to invest. In the context of communication with costly state veri…cation, the model predicts credulity: persuasion by advisors, who are known to have an incentive to exaggerate the quality of an asset, will nevertheless induce uniformly exaggerated average posteriors for receivers. When endogenizing the con‡ict of interest between senders and receivers, I show that such credulous belief-bubbles rise discontinuously as the size of the market or the complexity of the asset increases. Further implications to auctions, common value trade and zero-sum games are explored. |
| Keywords: | Projection, Social Investment, Pluralistic Ignorance, Persuasion Belief-Bubbles. |
| JEL: | D03 C7 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:cep:stitep:566&r=mic |
| By: | Michael Florig; Jorge Rivera Cayupi |
| Abstract: | We study economies where all commodities are indivisible at the individual level, but per- fectly divisible at the aggregate level of the economy. Under the survival assumption, we show that any rationing equilibrium (Florig and Rivera [7]) in the discrete economy converges to a Walras equilibrium of the limit economy when the level of indivisibility becomes small. If the survival assumption is not satisfied, then rationing equilibrium converges to a hierarchic equilibrium (Florig [5]). |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:udc:wpaper:wp404&r=mic |
| By: | Shurojit Catterji; Jordi Massó |
| Abstract: | We consider strategy-proof social choice functions operating on a rich do- main of preference profiles. We show that if the social choice function satisfies in addition tops-onlyness, anonymity and unanimity then the preferences in the domain have to satisfy a variant of single-peakedness (referred to as semilattice single-peakedness). We do so by deriving from the social choice function an endogenous partial order (a semilattice) from which the notion of a semilattice single-peaked preference can be defined. We also provide a converse of this main finding. Finally, we show how well-known restricted domains under which nontrivial strategy-proof social choice functions are admissible are semilattice single-peaked domains. |
| Keywords: | strategy-proofness, single-peakedness, anonymity, unanimity, tops-onlyness, semilattice |
| JEL: | D71 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:828&r=mic |
| By: | Constantinos Kardaras; Hao Xing; Gordan \v{Z}itkovi\'{c} |
| Abstract: | We study existence and uniqueness of continuous-time stochastic Radner equilibria in an incomplete markets model. An assumption of "smallness" type - imposed through the new notion of "closeness to Pareto optimality" - is shown to be sufficient for existence and uniqueness. Central role in our analysis is played by a fully-coupled nonlinear system of quadratic BSDEs. |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1505.07224&r=mic |