
on Microeconomics 
Issue of 2012‒06‒05
eleven papers chosen by JingYuan Chiou IMT Lucca Institute for Advanced Studies 
By:  Attila Ambrus; Kareen Rozen 
Abstract:  This paper studies a class of multiself decisionmaking models proposed in economics, psychology, and marketing. In this class, choices arise from the setdependent 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 (scaleinvariance), we show that generically at most five "reasons" are needed for every "mistake." 
Keywords:  Multiself models, index of irrationality, IIA violations, rationalizability 
JEL:  D11 D13 D71 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:duk:dukeec:1211&r=mic 
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 employersponsored 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 consumptionsavings model proposed by Amador, Werning and Angeletos in their 2006 Econometrica paper (henceforth AWA), in which individuals face the tradeoff between flexibility and commitment, we show that withdrawal penalties can be part of the optimal contract, despite involving moneyburning 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differ from AWA because the analysis in the latter implicitly assumes that the optimal contract is interior (the amount withdrawn from the savings account is strictly positive in each period in every state).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, selfcontrol, moneyburning 
JEL:  D23 D82 D86 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:duk:dukeec:1213&r=mic 
By:  Ori Haimanko (Department of Economics, BenGurion 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 zerosum 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, εequilibrium, upper hemicontinuity, zerosum games 
JEL:  C72 
Date:  2012–05 
URL:  http://d.repec.org/n?u=RePEc:kyo:wpaper:818&r=mic 
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 
URL:  http://d.repec.org/n?u=RePEc:pav:wpaper:173&r=mic 
By:  Bossert Walter; Peters Hans (METEOR) 
Abstract:  Singleplateaued preferences generalize singlepeaked preferences by allowing for multiple bestelements. These preferences have played an important role in areas such as voting,strategyproofness andmatching problems. We examine the notion of singleplateauedness in a choicetheoretic setting.Singleplateaued choice is characterized by means of a collinear interval continuity property inthe presence of independence of irrelevant alternatives. Further results establish that our notionof singleplateauedness 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 
URL:  http://d.repec.org/n?u=RePEc:dgr:umamet:2012026&r=mic 
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 
URL:  http://d.repec.org/n?u=RePEc:dgr:umamet:2012027&r=mic 
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 nonzero 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 exante welfare sense, for an interior proportion of the population to be informed. 
Keywords:  Asymmetric information, cooperation, effciency, social learning, social dilemmas, 
Date:  2011 
URL:  http://d.repec.org/n?u=RePEc:edn:sirdps:289&r=mic 
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 nonautarkic equilibrium exists and when the only equilibrium is autarky. Autarky is â€˜niceâ€™ (robust to small perturbations in the game) when it is the only equilibrium, and â€˜very niceâ€™ (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 
URL:  http://d.repec.org/n?u=RePEc:edn:sirdps:254&r=mic 
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 
URL:  http://d.repec.org/n?u=RePEc:edn:sirdps:253&r=mic 
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, Typespace, Incomplete information, Bayesian games, Equilibrium, Perfection, Undominated equilibrium, Weak dominance, Inattention. 
JEL:  C70 C72 D80 D82 
Date:  2012–05–08 
URL:  http://d.repec.org/n?u=RePEc:cda:wpaper:129&r=mic 
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 utilitybased 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 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:1205.6160&r=mic 