nep-des New Economics Papers
on Economic Design
Issue of 2018‒02‒26
five papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. On the Limits of Incentive Design: Examining Medical Students' Misunderstanding of "the Match" By Alex Rees-Jones; Samuel Skowronek
  2. Dual Auctions for Assigning Winners and Compensating Losers By John Wooders; Matt Van Essen
  3. Excluding Compromise: Negotiating Only With Polarized Interests By Richard van Weelden
  4. Dynamical regularities of US equities opening and closing auctions By Damien Challet; Nikita Gourianov
  5. Balanced Voting By Gersbach, Hans; Wickramage, Kamali

  1. By: Alex Rees-Jones; Samuel Skowronek
    Abstract: How prevalent is preference misrepresentation in matching procedures that incentivize truth-telling, and who pursues it? To address these questions, we administered an online experiment to 1,714 medical students immediately after their participation in the medical residency match. When placed in an analogous matching task, we find that 23% of match participants act on an incorrect belief that the algorithm can be gamed. Better students are less likely to make these mistakes, due to both higher cognitive ability and a reduced propensity to game when in a strategically advantageous position. We explore additional determinants of gaming attempts, including overconfidence, expectations, advice, and trust. We discuss the implications of this behavior for the design of allocation mechanisms and the social welfare in markets that use them.
    Date: 2018–02
  2. By: John Wooders; Matt Van Essen (Department of Economics, Finance, and Legal Studies, University of Alabama)
    Abstract: We study the problem of allocating goods (or rights) and chores when participants have equal claim on a unit of the good or equal obligation to undertake a chore. We propose two dynamic auctions for solving problems of this type: a "goods" auction and a "chore" auction, which are duals of one another. Either auction can be used for allocating goods or chores by suitably deÖning a good or a chore. The auctions are efficient and payoff equivalent. We provide necessary and sufficient conditions for equilibrium for general utility functions for both auctions, and provide closed-form solutions when bidders are risk neutral and when they are CARA risk averse. The auctions have the same limit equilibrium bid function as bidders become infinitely risk averse. We show that the limit bid function is also the unique maxmin perfect strategy for both auctions.
    Date: 2018–01
  3. By: Richard van Weelden
    Abstract: We consider an auction involving bidders who are “polarized.†There are three potentialbidders, a moderate, a leftist, and a rightist who are polarized in the sense thatnon-moderate bidders prefer the moderate to win the auction rather than the bidder onthe other side of the spectrum. The seller cannot commit to an optimal mechanism, butcan decide which bidders to allow to participate. While greater competition is generallythought to be beneficial for the seller, we identify conditions under which the seller canincrease her expected revenue by preventing the moderate bidder from participating. Byexcluding the moderate, the seller increases the willingness to pay of the polarized bidders.Rather than serving as a means of bringing about compromise, our analysis suggeststhat organized negotiations can serve instead to exacerbate conflict. While potentially revenueenhancing, excluding the moderate always makes the auction less efficient; in fact,the incentive to exclude moderates is greatest precisely when it is most harmful from awelfare perspective. We discuss applications of our model in economics and politics.
    Date: 2018–01
  4. By: Damien Challet; Nikita Gourianov
    Abstract: We first investigate static properties of opening and closing auctions such as typical auction volume relative to daily volume and order value distributions. We then show that the indicative match price is strongly mean-reverting because the imbalance is, which we link to strategic behavior. Finally, we investigate how the final auction price reacts to order placement, especially conditional on imbalance improving or worsening events and find a large difference between the opening and closing auctions, emphasizing the role of liquidity and simultaneous trading in the pre-open or open-market order book.
    Date: 2018–02
  5. By: Gersbach, Hans; Wickramage, Kamali
    Abstract: We introduce 'Balanced Voting', a voting scheme tailored to fundamental societal decisions. It works as follows: Citizens may abstain from voting on a fundamental direction in a first stage. This guarantees the voting right in a second voting stage on the variants of the fundamental direction chosen in the first. All losers from the first stage also obtain voting rights in the second stage, while winners do not. We develop a model with two fundamental directions and variants of these directions. Information about the preferences is private. We identify circumstances under which Balanced Voting performs well with regard to utilitarian welfare and Pareto dominance. We discuss the robustness of the results, procedural rules to implement the voting scheme, and extensions. Moreover, we provide several examples, such as the US presidential election, for which the scheme could be applied.
    Keywords: Balanced Voting; fundamental decision; minority protection; tyranny of majority
    JEL: D7
    Date: 2018–02

This nep-des issue is ©2018 by Guillaume Haeringer and Alex Teytelboym. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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