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on Microeconomics |
| By: | Ellis, Andrew; Masatlioglu, Yusufcan |
| Abstract: | We propose and axiomatize the categorical thinking model (CTM) in which the framing of the decision problem affects how agents categorize alternatives, that in turn affects their evaluation of it. Prominent models of salience, status quo bias, loss-aversion, inequality aversion, and present bias all fit under the umbrella of CTM. This suggests categorization is an underlying mechanism of key departures from the neoclassical model of choice. We specialize CTM to provide a behavioural foundation for the salient thinking model of Bordalo et al. (2013, Journal of Political Economy, 121, 803–843) that highlights its strong predictions and distinctions from other models. |
| Keywords: | choice; categorization; salience; SES-1628883; OUP deal |
| JEL: | D01 D11 D80 D90 |
| Date: | 2022–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:109787&r= |
| By: | Foros, Øystein (Dept. of Economics, Norwegian School of Economics and Business Administration); Kind, Hans Jarle (Dept. of Economics, Norwegian School of Economics and Business Administration); Stähler, Frank (University of Tübingen) |
| Abstract: | Competition between firms that sell incompatible varieties of network products might be fierce, because it is important for each of them to attract a large number of users. The literature therefore predicts that stronger network effects decrease prices and profits. We show that this prediction hinges critically on an implicit or explicit assumption that each consumer buys only one of the varieties offered in the market (singlehoming consumers). We show that multihoming (some consumers buy more than one variety) may arise endogenously if the number of exclusive features that each variety offers is sufficiently high. In sharp contrast to the conventional prediction under consumer singlehoming, we further show that both prices and profits could increase in the strength of the network effects if (some) consumers multihome. However, this does not necessarily imply that profits are higher under multihoming than under singlehoming. On the contrary, multihoming might constitute a prisoner s dilemma for the firms, in the sense that they could make higher profits if each consumer bought only one of the varieties. |
| Keywords: | multihoming; incremental pricing; network effects. |
| JEL: | L13 L14 L82 |
| Date: | 2022–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2022_002&r= |
| By: | Attila Gaspar; Tommaso Giommoni; Massimo Morelli; Antonio Nicolò |
| Abstract: | This paper shows that corruption generates extremism, but almost exclusively on the opposition side. When the majority has greater ability to use corruption to obtain her favorite policy outcome from the minority, then the minority group has an incentive to select a more extreme representative because it is more unlikely that such a type will accept a bribe. On the majority side, on the other hand, the perception of more likely use of the corruption tool does not create any distortion in the choice of political representatives. We provide strong causal evidence for these novel predictions using two different types of corruption signals, in Indonesia and Brazil. |
| Keywords: | Corruption, Extremism, Delegation, elections |
| JEL: | D72 D73 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp21163&r= |
| By: | Vladimir Asriyan; Dana Foarta; Victoria Vanasco |
| Abstract: | We study the joint determination of product quality and complexity in a rational setting. We introduce a novel notion of complexity, which affects how costly it is for an agent to acquire information about product quality. In our model, an agent can accept or reject a product proposed by a designer, who can affect the quality and the complexity of the product. Examples include banks that design financial products that they offer to retail investors, or policymakers who propose policies for approval by voters. We find that complexity is not necessarily a feature of low quality products. While an increase in alignment between the agent and the designer leads to more complex but better quality products, higher product demand or lower competition among designers leads to more complex and lower quality products. Our findings produce novel empirical implications on the relationship between quality and complexity, which we relate to evidence within the context of financial products and regulatory policies. |
| Keywords: | complexity, information acquisition, signaling, regulation, financial products |
| JEL: | D82 D83 G18 P16 D78 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp21155&r= |
| By: | Catherine Bobtcheff (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Raphaël Levy (HEC Paris - Ecole des Hautes Etudes Commerciales); Thomas Mariotti (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Two players receiving independent signals on a risky project with common value compete to be the first to invest. We characterize the equilibrium of this preemption game as the publicity of signals varies. Private signals create a winner's curse: the first mover suspects that his rival might have privately received adverse information, hence exited. To compensate, players seek more evidence supporting the project, resulting in later investment. A conservative planner concerned with avoiding unprofitable investments may then prefer private signals. Our results suggest that policy interventions should primarily tackle winner-takes-all competition, and regulate transparency only once competition is sufficiently mild. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03507030&r= |
| By: | Gérard Mondello (UCA - Université Côte d'Azur) |
| Abstract: | This paper studies the impact of the reliability of information sources on choices under ambiguity. Using the Ellsberg's (1961) framework it studies two conjectures. First, the conditions of appearance of the Ellsberg paradox when the information source offers two probable proportions of red and black balls in two urns. Second, the consequence on choices of a non-reliable information source. This source proposes a unique proportion of red and black balls against an unknown one (inside box 1). |
| Keywords: | Uncertainty theory,decision theory,ambiguity aversion,Information I1,I18,I19,D80,D81,D83 |
| Date: | 2021–12–26 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03502603&r= |
| By: | Andersson, Lina (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | Fear is an important factor in decision-making under risk and uncertainty. Psychology research suggests that fear influences one’s risk attitude and fear may have important consequences for decisions concerning for example investments, crime, conflicts, and politics. I model strategic interactions between players who can be in either a neutral or a fearful state of mind. A player’s state of mind determines his or her utility function. The two main assumptions are that (i) fear is triggered by an increase in the probability or cost of negative outcomes and (ii) a player in the fearful state is more risk averse. A player’s beliefs over the probability and cost of negative outcomes determine how the player transitions between the states of mind. I use psychological game theory to analyze the role of fear in three applications, a robbery game, a bank run game, and a public health intervention. |
| Keywords: | emotions; fear; risk aversion; psychological game theory |
| JEL: | C72 D01 D91 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0819&r= |
| By: | Philippe de Donder (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Humberto Llavador (UPF - Universitat Pompeu Fabra [Barcelona]); Stefan Penczynski (UEA - University of East Anglia [Norwich]); John Roemer (Yale University [New Haven]); Roberto Vélez (Centro Estudios Espinosa Yglesias) |
| Abstract: | Whether or not to vaccinate one's child is a decision that a parent may approach in several ways. The vaccination game, in which parents must choose whether to vaccinate a child against a disease, is one with positive externalities (herd immunity). In some societies, not vaccinating is an increasingly prevalent behavior, due to deleterious side effects that parents believe may accompany vaccination. The standard game-theoretic approach assumes that parents make decisions according to the Nash behavioral protocol, which is individualistic and non-cooperative. Because of the positive externality that each child's vaccination generates for others, the Nash equilibrium suffers from a free-rider problem. However, in more solidaristic societies, parents may behave cooperatively –they may optimize according to the Kantian protocol, in which the equilibrium is efficient. We test, on a sample of six countries, whether childhood vaccination behavior conforms better to the individualistic or cooperative protocol. In order to do so, we conduct surveys of parents in these countries, to ascertain the distribution of beliefs concerning the subjective probability and severity of deleterious side effects of vaccination. We show that in all the countries of our sample the Kant model dominates the Nash model. We conjecture that, due to the free-rider problem inherent in the Nash equilibrium, a social norm has evolved, quite generally, inducing parents to vaccinate with higher probability than they would in the noncooperative solution. Kantian equilibrium offers one precise version of such a social norm. |
| Keywords: | Kantian equilibrium,Nash equilibrium,Vaccination,Social norm |
| Date: | 2021–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03504644&r= |