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on Microeconomics |
| By: | Chong Huang (Department of Economics, University of Pennsylvania) |
| Abstract: | This paper studies the interaction between coordination and social learning in a dynamic regime change game. Social learning provides public information to which players overreact due to the coordination motive. So coordination affects the aggregation of private signals through players' optimal choices. Such endogenous provision of public information results in inefficient herds with positive probability, even though private signals have an unbounded likelihood ratio property. Therefore, social learning is a source of coordination failure. An extension shows that if players could individually learn, inefficient herding disappears, and thus coordination is successful almost surely. This paper also demonstrates that along the same history, the belief convergence differs in different equilibria. Finally, social learning can lead to higher social welfare when the fundamentals are bad. |
| Keywords: | Coordination, social learning, inefficient herding, dynamic global game, common belief |
| JEL: | C72 C73 D82 D83 |
| Date: | 2011–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:11-021&r=mic |
| By: | Hart, Oliver; Zingales, Luigi |
| Abstract: | We study an economy where the lack of a simultaneous double coincidence of wants creates the need for a relatively safe asset (money). We show that, even in the absence of asymmetric information or an agency problem, the private provision of liquidity is inefficient. The reason is that liquidity affects prices and the welfare of others, and creators do not internalize this. This distortion is present even if we introduce lending and government money. To eliminate the inefficiency the government must restrict the creation of liquidity by the private sector. |
| Keywords: | banking; liquidity; money |
| JEL: | E41 E51 G21 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8525&r=mic |
| By: | Klaus Adam; Albert Marcet |
| Abstract: | We present a decision theoretic framework in which agents are learning about market behavior and that provides microfoundations for models of adaptive learning. Agents are 'internally rational', i.e., maximize discounted expected utility under uncertainty given dynamically consistent subjective beliefs about the future, but agents may not be 'externally rational', i.e., may not know the true stochastic process for payoff relevant variables beyond their control. This includes future market outcomes and fundamentals. We apply this approach to a simple asset pricing model and show that the equilibrium stock price is then determined by investors' expectations of the price and dividend in the next period, rather than by expectations of the discounted sum of dividends. As a result, learning about price behavior affects market outcomes, while learning about the discounted sum of dividends is irrelevant for equilibrium prices. Stock prices equal the discounted sum of dividends only after making very strong assumptions about agents' market knowledge. |
| Keywords: | learning, internal rationality, consumption based asset pricing |
| JEL: | G12 G14 D83 D84 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1068&r=mic |
| By: | Antonio Cabrales (Departamento de Economía - Universidad Carlos III de Madrid); Gary Charness (Department of Economics, University of California - University of California, Santa Barbara); Marie-Claire Villeval (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon) |
| Abstract: | We devise an experiment to explore the effect of different degrees of bargaining power on the design and the selection of contracts in a hidden-information context. In our benchmark case, each principal is matched with one agent of unknown type. In our second treatment, a principal can select one of three agents, while in a third treatment an agent may choose between the contract menus offered by two principals. We first show theoretically how different ratios of principals and agents affect outcomes and efficiency. Informational asymmetries generate inefficiency. In an environment where principals compete against each other to hire agents, these inefficiencies may disappear, but they are insensitive to the number of principals. In contrast, when agents compete to be hired, efficiency improves dramatically, and it increases in the relative number of agents because competition reduces the agents' informational monopoly power. However, this environment also generates a high inequality level and is characterized by multiple equilibria. In general, there is a fairly high degree of correspondence between the theoretical predictions and the contract menus actually chosen in each treatment. There is, however, a tendency to choose more 'generous' (and more efficient) contract menus over time. We find that competition leads to a substantially higher probability of trade, and that, overall, competition between agents generates the most efficient outcomes. |
| Keywords: | experiment; hidden information; bargaining power; competition; efficiency |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00614472&r=mic |
| By: | Tarbush, Bassel |
| Abstract: | Following from Tarbush (2011a), we explore the implications of using two different definitions of informativeness over kens; one that ranks objective, and the other subjective information. With the first, we create a new semantic operation that allows us to derive agreement theorems even when decision functions are based on interactive information (for any r ≥ 0). Effectively, this operation, unlike information cell union captures the notion of an agent becoming “more ignorant” for all modal depths. Using the definition that ranks subjective information however, we show an impossibility result: In generic models, agreement theorems using the standard Sure-Thing Principle do not hold when decision functions depend on interactive information (when r > 0). |
| Keywords: | Agreeing to disagree; knowledge; common knowledge; belief; information; epistemic logic |
| JEL: | D89 D83 D80 |
| Date: | 2011–08–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32850&r=mic |
| By: | Campbell, Arthur; Ederer, Florian; Spinnewijn, Johannes |
| Abstract: | We analyze costly information acquisition and information revelation in groups in a dynamic setting. Even when group members have perfectly aligned interests the group may inefficiently delay decisions. When deadlines are far away, uninformed group members freeride on each others' efforts to acquire information. When deadlines draw close, informed group members stop revealing their information in an attempt to incentivize other group members to continue searching for information. Surprisingly, setting a tighter deadline may increase the expected decision time and increase the expected accuracy of the decision in the unique equilibrium. As long as the deadline is set optimally, welfare is higher when information is only privately observable to the agent who obtained information rather than to the entire group. |
| Keywords: | deadlines; group decisions; information disclosure; information search |
| JEL: | D71 D82 D83 H42 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8531&r=mic |
| By: | Da Silva, Sergio; Baldo, Dinora; Matsushita, Raul |
| Abstract: | We conducted a questionnaire study with student subjects to look for explicit correlations between selected biological characteristics of the subjects and manifestation of the Allais paradox in the pattern of their choices between sets of two pairs of risky prospects. We found that particular characteristics, such as gender, menstrual cycle, mother’s age at delivery, parenthood, second- to fourth-digit ratio, perceived negative life events, and emotional state, can be related to the paradox. Women,particularly when not menstruating, are less susceptible to the paradox. Those born to not-too-young mothers are also less prone to the paradox. The same holds true for men who have fathered children and had been exposed to high levels of prenatal testosterone, people who had experienced many negative life events, and those who were anxious, excited, aroused, happy, active, or fresh at the time of the experiment. Further, left-handers and atheists may be less inclined to display the paradox. |
| Keywords: | Allais paradox; choice under risk; biological characteristics; experimental economics |
| JEL: | D81 C91 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32747&r=mic |