nep-mic New Economics Papers
on Microeconomics
Issue of 2012‒06‒05
eleven papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Rationalizing Choice with Multi-Self Models By Attila Ambrus; Kareen Rozen
  2. Commitment-Flexibility Trade-Off and Withdrawal Penalties By Attila Ambrus; Georgy Egorov
  3. On Continuity of Robust Equilibria By Ori Haimanko; Atsushi Kajii
  4. Evolution towards asymptotic efficiency, preliminary version. By Stefano Demichelis
  5. Single-plateaued choice By Bossert Walter; Peters Hans
  6. Judgment aggregation in search for the truth: the case of interconnections By Bozbay Irem
  7. When Do We Learn to Cooperate? The Role of Social Learning in Social Dilemmas By Best, James A
  8. Trade in bilateral oligopoly with endogenous market formation By Dickson, Alex; Hartley, Roger
  9. Transaction Costs and Institutions By Nolan, Charles; Trew, Alex
  10. Bayesian Games with Unawareness and Unawareness Perfection By Martin Meier; Burkhard Schipper
  11. Stability of the exponential utility maximization problem with respect to preferences By Hao Xing

  1. By: Attila Ambrus; Kareen Rozen
    Abstract: This paper studies a class of multi-self decision-making models proposed in economics, psychology, and marketing. In this class, choices arise from the set-dependent aggregation of a collection of utility functions, where the aggregation procedure satisfies some simple properties. We propose a method for characterizing the extent of irrationality in a choice behavior, and use this measure to provide a lower bound on the set of choice behaviors that can be rationalized with n utility functions. Under an additional assumption (scale-invariance), we show that generically at most five "reasons" are needed for every "mistake."
    Keywords: Multi-self models, index of irrationality, IIA violations, rationalizability
    JEL: D11 D13 D71
    Date: 2012
  2. By: Attila Ambrus; Georgy Egorov
    Abstract: Withdrawal penalties are common features of time deposit contracts offered by commercial banks, as well as individual retirement accounts and employer-sponsored plans. Moreover, there is a significant amount of early withdrawals from these accounts, despite the associated penalties, and empirical evidence shows that liquidity shocks of depositors are a major driving force of this. Using the consumption-savings model proposed by Amador, Werning and Angeletos in their 2006 Econometrica paper (henceforth AWA), in which individuals face the trade-off between flexibility and commitment, we show that withdrawal penalties can be part of the optimal contract, despite involving money-burning from an ex ante perspective. For the case of two states (which we interpret as “normal times” and a “negative liquidity shock”), we provide a full characterization of the optimal contract, and show that within the parameter region where the first best is unattainable, the likelihood that withdrawal penalties are part of the optimal contract is decreasing in the probability of a negative liquidity shock, increasing in the severity of the shock, and it is nonmonotonic in the magnitude of present bias. We also show that contracts with the same qualitative feature (withdrawal penalties for high types) arise in continuous state spaces, too. Our conclusions differ from AWA because the analysis in the latter implicitly assumes that the optimal contract is interior (the amount withdrawn from the savings account is strictly positive in each period in every state). We show that for any utility function consistent with their framework there is an open set of parameter values for which the optimal contract is a corner solution, inducing money burning in some states.
    Keywords: Commitment, flexibility, self-control, money-burning
    JEL: D23 D82 D86
    Date: 2012
  3. By: Ori Haimanko (Department of Economics, Ben-Gurion University); Atsushi Kajii (Institute of Economic Research, Kyoto University)
    Abstract: We relax the Kajii and Morris (1997a) notion of equilibrium ro- bustness by allowing approximate equilibria when information in a game becomes incomplete. The new notion is termed "approximate robustness". The approximately robust equilibrium correspondence turns out to be upper hemicontinuous, unlike the (exactly) robust equilibrium correspondence. Another distinction comes to light when we show that, as a corollary of upper hemicontinuity, approximately robust equilibria exist in all zero-sum games. Thus, although approx- imate robustness is only a small variation of the original notion, it is strictly weaker than the latter, and its adoption enriches the domain of games for which robust equilibria exist.
    Keywords: incomplete information, robustness, Bayesian Nash equi- librium, ε-equilibrium, upper hemicontinuity, zero-sum games
    JEL: C72
    Date: 2012–05
  4. By: Stefano Demichelis (Department of Economics and Business, University of Pavia)
    Abstract: We show that in long repeated games, or in infinitely repeated games with discount rate close to one, payoffs corresponding to evolutionary stable sets are asymptotically efficient, as intuition suggests. Actions played at the beginning of the game are used as messages that allow players to coordinate on Pareto optimal outcomes in the following stages. The result builds a bridge between the theory of repeated games and that of communication games.
    Date: 2012–05
  5. By: Bossert Walter; Peters Hans (METEOR)
    Abstract: Single-plateaued preferences generalize single-peaked preferences by allowing for multiple bestelements. These preferences have played an important role in areas such as voting,strategy-proofness andmatching problems. We examine the notion of single-plateauedness in a choice-theoretic setting.Single-plateaued choice is characterized by means of a collinear interval continuity property inthe presence of independence of irrelevant alternatives. Further results establish that our notionof single-plateauedness conforms to the motivation underlying the term and we analyze theconsequences of alternative continuity properties. The importance of basic assumptions such asclosedness and convexity is discussed.
    Keywords: microeconomics ;
    Date: 2012
  6. By: Bozbay Irem (METEOR)
    Abstract: This paper analyses the problem of aggregating judgments when strategic voters hold privateinformation about which propositions are true and share a common preference for true collectivejudgments. We go beyond previous work by introducing logical interconnections between thepropositions. A voter''s private information can be inconclusive. The goal is to determine thevoting rules which lead to collective judgments that efficiently incorporate all privateinformation. We characterize the (rare) situations in which such rules exist, as well as thenature of these rules.
    Keywords: microeconomics ;
    Date: 2012
  7. By: Best, James A
    Abstract: In this paper, I look at the interaction between social learning and cooperative behavior. I model this using a social dilemma game with publicly observed sequential actions and asymmetric information about pay offs. I find that some informed agents in this model act, individually and without collusion, to conceal the privately optimal action. Because the privately optimal action is socially costly the behavior of informed agents can lead to a Pareto improvement in a social dilemma. In my model I show that it is possible to get cooperative behavior if information is restricted to a small but non-zero proportion of the population. Moreover, such cooperative behavior occurs in a finite setting where it is public knowledge which agent will act last. The proportion of cooperative agents within the population can be made arbitrarily close to 1 by increasing the finite number of agents playing the game. Finally, I show that under a broad set of conditions that it is a Pareto improvement on a corner value, in the ex-ante welfare sense, for an interior proportion of the population to be informed.
    Keywords: Asymmetric information, cooperation, effciency, social learning, social dilemmas,
    Date: 2011
  8. By: Dickson, Alex; Hartley, Roger
    Abstract: We study a strategic market game in which traders are endowed with both a good and money and can choose whether to buy or sell the good. We derive conditions under which a non-autarkic equilibrium exists and when the only equilibrium is autarky. Autarky is ‘nice’ (robust to small perturbations in the game) when it is the only equilibrium, and ‘very nice’ (robust to large perturbations) when no gains from trade exist. We characterize economies where autarky is nice but not very nice; that is, when gains from trade exist and yet no trade takes place.
    Keywords: Bilateral oligopoly, strategic market game, trade,
    Date: 2011
  9. By: Nolan, Charles; Trew, Alex
    Abstract: This paper proposes a simple framework for understanding endogenous transaction costs - their composition, size and implications. In a model of diversification against risk, we distinguish between investments in institutions that facilitate exchange and the costs of conducting exchange itself. Institutional quality and market size are determined by the decisions of risk averse agents and conditions are discussed under which the efficient allocation may be decentralized. We highlight a number of differences with models where transaction costs are exogenous, including the implications for taxation and measurement issues.
    Keywords: Exchange costs, transaction costs, general equilibrium, institutions,
    Date: 2011
  10. By: Martin Meier; Burkhard Schipper (Department of Economics, University of California Davis)
    Abstract: Applying unawareness belief structures introduced in Heifetz, Meier, and Schipper (2012), we develop Bayesian games with unawareness, define equilibrium, and prove existence. We show how equilibria are extended naturally from lower to higher awareness levels and restricted from higher to lower awareness levels. We apply Bayesian games with unawareness to investigate the robustness of equilibria to uncertainty about opponents' awareness of actions. We show that a Nash equilibrium of a strategic game is robust to unawareness of actions if and only if it is not weakly dominated. Finally, we discuss the relationship between standard Bayesian games and Bayesian games with unawareness.
    Keywords: Awareness, Unawareness, Type-space, Incomplete information, Bayesian games, Equilibrium, Perfection, Undominated equilibrium, Weak dominance, Inattention.
    JEL: C70 C72 D80 D82
    Date: 2012–05–08
  11. By: Hao Xing
    Abstract: This paper studies stability of the exponential utility maximization when there are small variations on agent's utility. Two settings are studied. First, in a general semimartingale model where random endowments are present, there is a sequence of utilities defined on R converging to the exponential utility. Under a uniform condition on their marginal utilities, convergence of value functions, optimal terminal wealth and optimal investment strategies are obtained, their rate of convergence are determined. Stability of utility-based pricing is also discussed. Second, there is a sequence of utilities defined on R_+ each of which is comparable to a power utility whose relative risk aversion converges to infinity. Their associated optimal strategies, after appropriate scaling, converge to the optimal strategy for the exponential hedging problem. This complements Theorem 3.2 in \textit{M. Nutz, Probab. Theory Relat. Fields, 152, 2012}, by allowing general utilities in the converging sequence.
    Date: 2012–05

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