nep-mic New Economics Papers
on Microeconomics
Issue of 2011‒08‒02
seven papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Pricing and Investments in Matching Markets By George J. Mailath; Andrew Postlewaite; Larry Samuelson
  2. Dynamics of Inductive Inference in a Unified Framework By Itzhak Gilboa; Larry Samuelson; David Schmeidler
  3. Partially-honest Nash implementation: Characterization results By Lombardi, Michele; Yoshihara, Naoki
  4. Chicken or Checkin’? Rational Learning in Repeated Chess Games By Gerdes, Christer; Gränsmark, Patrik; Rosholm, Michael
  5. Uncertainty aversion and equilibrium in extensive games. By Rothe, Jorn
  6. Invader Strategies in the War of Attrition with Private Information By Lars Peter Metzger
  7. Condorcet admissibility: Indeterminacy and path-dependence under majority voting on interconnected decisions By Nehring, Klaus; Pivato, Marcus; Puppe, Clemens

  1. By: George J. Mailath (Dept. of Economics, University of Pennsylvania); Andrew Postlewaite (Dept. of Economics, University of Pennsylvania); Larry Samuelson (Cowles Foundation, Yale University)
    Abstract: Different markets are cleared by different types of prices -- seller-specific prices that are uniform across buyers in some markets, and personalized prices tailored to the buyer in others. We examine a setting in which buyers and sellers make investments before matching in a competitive market. We introduce the notion of premuneration values -- the values to the transacting agents prior to any transfers -- created by a buyer-seller match. Personalized price equilibrium outcomes are independent of premuneration values and exhibit inefficiencies only in the event of "coordination failures," while uniform-price equilibria depend on premuneration values and in general feature inefficient investments even without coordination failures. There is thus a trade-off between the costs of personalizing prices and the inefficient investments under uniform prices. We characterize the premuneration values under which uniform-price equilibria similarly exhibit inefficiencies only in the event of coordination failures.
    Keywords: Directed search, Matching, Premuneration value, Prematch investments, Search
    JEL: C78 D40 D41 D50 D83
    Date: 2011–07
  2. By: Itzhak Gilboa (Tel-Aviv University; HEC, Paris; Cowles Foundation, Yale University); Larry Samuelson (Cowles Foundation, Yale University); David Schmeidler (Ohio State University; Tel-Aviv University)
    Abstract: We present a model of inductive inference that includes, as special cases, Bayesian reasoning, case-based reasoning, and rule-based reasoning. This unified framework allows us to examine, positively or normatively, how the various modes of inductive inference can be combined and how their relative weights change endogenously. We establish conditions under which an agent who does not know the structure of the data generating process will decrease, over the course of her reasoning, the weight of credence put on Bayesian vs. non-Bayesian reasoning. We show that even random data can make certain theories seem plausible and hence increase the weight of rule-based vs. case-based reasoning, leading the agent in some cases to cycle between being rule-based and case-based. We identify conditions under which minmax regret criteria will not be effective.
    Keywords: Induction, Bayesian updating, Case-Based Reasoning, Inference
    JEL: C1 D8
    Date: 2011–07
  3. By: Lombardi, Michele; Yoshihara, Naoki
    Abstract: This paper studies implementation problems in the wake of a recent trend of implementation of non-consequentialist nature, which draws on the evidence taken from experimental and behavioral economics. Specifically, following the seminal works by Matsushima (2008) and Dutta and Sen (2009), the paper considers implementation problems with partially-honest agents, which presume that there is at least one individual in society who concerns herself with not only outcomes but also honest behavior at least in a limited manner. Given this setting, the paper provides a general characterization of Nash implementation with partially-honest individuals. It also provides the necessary and sufficient condition for Nash implementation with partially-honest individuals by mechanisms with some types of strategy-space reductions. As a consequence, it shows that in contrast to the case of the standard framework, the equivalence between Nash implementation and Nash implementation with strategy space reduction no longer holds.
    Keywords: Nash implementation, canonical-mechanisms, s-mechanisms, self-relevant mechanisms, partial-honesty, permissive results
    JEL: C72 D71
    Date: 2011–07
  4. By: Gerdes, Christer (SOFI, Stockholm University); Gränsmark, Patrik (SOFI, Stockholm University); Rosholm, Michael (Aarhus School of Business)
    Abstract: We examine rational learning among expert chess players and how they update their beliefs in repeated games with the same opponent. We present a model that explains how equilibrium play is affected when players change their choice of strategy when receiving additional information from each encounter. We employ a large international panel dataset with controls for risk preferences and playing skills whereby the latter accounts for ability. Although expert chess players are intelligent, productive and equipped with adequate data and specialized computer programs, we find large learning effects. Moreover, as predicted by the model, risk-averse players learn substantially faster.
    Keywords: rational learning, risk aversion, beliefs
    JEL: C73 D83
    Date: 2011–07
  5. By: Rothe, Jorn
    Abstract: This paper formulates a rationality concept for extensive games in which deviations from rational play are interpreted as evidence of irrationality. Instead of confirming some prior belief about the nature of nonrational play, we assume that such a deviation leads to genuine uncertainty. Assuming complete ignorance about the nature of non-rational play and extreme uncertainty aversion of the rational players, we formulate an equilibrium concept on the basis of Choquet expected utility theory. Equilibrium reasoning is thus only applied on the equilibrium path, maximin reasoning applies off the equilibrium path. The equilibrium path itself is endogenously determined. In general this leads to strategy profiles differ qualitatively from sequential equilibria, but still satisfy equilibrium and perfection requirements. In the centipede game and the finitely repeated prisoners’ dilemma this approach can also resolve the backward induction paradox.
    Date: 2011
  6. By: Lars Peter Metzger
    Abstract: Second price allpay auctions (wars of attritions) have an evolutionarily stable equilibrium in pure strategies if valuations are private information. I show that for any level of uncertainty there exists a pure deviation strategy close to the equilibrium strategy such that for some valuations the equilibrium strategy has a selective disadvantage against the deviation if the population mainly plays the deviation strategy. There is no deviation strategy with this destabilizing property for all valuations if the distribution of valuations has a monotonic hazard rate. I argue that in the Bayesian game studied here, a mass deviation can be caused by the entry of a small group of agents. Numeric calculations indicate that the closer the deviation strategy to the equilibrium strategy, the less valuations are destabilizing. I show that the equilibrium strategy does not satisfy continuous stability.
    Keywords: Continuous Strategies, Evolutionary Stability, War of Attrition, Strict Equilibrium, Neighborhood Invader Strategy, Continuous Stability, Evolutionary Robustness
    JEL: C72 C73 D44
    Date: 2011–07
  7. By: Nehring, Klaus; Pivato, Marcus; Puppe, Clemens
    Abstract: Judgement aggregation is a model of social choice where the space of social alternatives is the set of consistent evaluations (`views') on a family of logically interconnected propositions, or yes/no-issues. Unfortunately, simply complying with the majority opinion in each issue often yields a logically inconsistent collection of judgements. Thus, we consider the Condorcet set: the set of logically consistent views which agree with the majority in as many issues as possible. Any element of this set can be obtained through a process of diachronic judgement aggregation, where the evaluations of the individual issues are decided through a sequence of majority votes unfolding over time, with earlier decisions possibly imposing logical constraints on later decisions. Thus, for a fixed profile of votes, the ultimate social choice can depend on the order in which the issues are decided; this is called path dependence. We investigate the size and structure of the Condorcet set ---and hence the scope and severity of path-dependence ---for several important classes of judgement aggregation problems.
    Keywords: judgement aggregation; diachronic; path-dependence; indeterminacy; Condorcet; median rule; majoritarian
    JEL: D71
    Date: 2011–07–24

This nep-mic issue is ©2011 by Jing-Yuan Chiou. 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.