
on Microeconomics 
Issue of 2012‒09‒16
thirteen papers chosen by JingYuan Chiou IMT Lucca Institute for Advanced Studies 
By:  YiChun Chen (Dept. of Economics, National University of Singapore); Alfredo Di Tillio (IGIR and Dept. of Economics, Universita Luigi Bocconi); Eduardo Faingold (Cowles Foundation, Yale University); Siyang Xiong (Dept. of Economics, Rice University) 
Abstract:  Previous research has established that the predictions made by game theory about strategic behavior in incomplete information games are quite sensitive to the assumptions made about the players' infinite hierarchies of beliefs. We evaluate the severity of this robustness problem by characterizing conditions on the primitives of the model  the players’ hierarchies of beliefs  for the strategic behavior of a given Harsanyi type to be approximated by the strategic behavior of (a sequence of) perturbed types. This amounts to providing characterizations of the strategic topologies of Dekel, Fudenberg, and Morris (2006) in terms of beliefs. We apply our characterizations to a variety of questions concerning robustness to perturbations of higherorder beliefs, including genericity of common priors, and the connections between robustness of strategic behavior and the notion of common pbelief of Monderer and Samet (1989). 
Keywords:  Games with incomplete information, Rationalizability, Higherorder beliefs, Robustness 
JEL:  C70 C72 
Date:  2012–09 
URL:  http://d.repec.org/n?u=RePEc:cwl:cwldpp:1875&r=mic 
By:  Francoise Forges (LEDa  Laboratoire d'Economie de Dauphine  Université Paris IX  Paris Dauphine, CEREMADE  CEntre de REcherches en MAthématiques de la DEcision  CNRS : UMR7534  Université Paris IX  Paris Dauphine); Vincent Iehlé (LEDa  Laboratoire d'Economie de Dauphine  Université Paris IX  Paris Dauphine, CEREMADE  CEntre de REcherches en MAthématiques de la DEcision  CNRS : UMR7534  Université Paris IX  Paris Dauphine) 
Abstract:  According to a minimalist version of Afriat's theorem, a consumer behaves as a utility maximizer if and only if a feasibility matrix associated with his choices is cyclically consistent. An essential experiment consists of observed consumption bundles (x_1,..., x_n) and a feasibility matrix \alpha. Starting with a standard experiment, in which the economist has access to precise budget sets, we show that the necessary and sufficient condition for the existence of a utility function rationalizing the experiment, namely, the cyclical consistency of the associated feasibility matrix, is equivalent to the existence, for any budget sets compatible with the deduced essential experiment, of a utility function rationalizing them (and typically depending on them). In other words, the conclusion of the standard rationalizability test, in which the economist takes budget sets for granted, does not depend on the full specification of the underlying budget sets but only on the essential data that these budget sets generate. Starting with an essential experiment (x_1,..., x_n; alpha) only, we show that the cyclical consistency of alpha, together with a further consistency condition involving both (x_1,..., x_n) and alpha, guarantees the existence of a budget representation and that the essential experiment is rationalizable almost robustly, in the sense that there exists a single utility function which rationalizes at once almost all budget sets which are compatible with (x_1,..., x_n; alpha). The conditions are also trivially necessary. 
Keywords:  Afriat's theorem, budget sets, cyclical consistency, rational choice, revealed preference 
Date:  2012–07–05 
URL:  http://d.repec.org/n?u=RePEc:hal:wpaper:halshs00727806&r=mic 
By:  Ilan Yaniv; Shoham ChoshenHillel 
Abstract:  We investigated how perspectivetaking might be used to overcome bias and improve advicebased judgments. Decision makers often tend to underweight the opinions of others relative to their own, and thus fail to exploit the wisdom of others. We tested the idea that decision makers taking the perspective of another person engage a less egocentric mode of processing of advisory opinions and thereby improve their accuracy. In Studies 12, participants gave their initial opinions and then considered a sample of advisory opinions in two conditions. In one condition (selfperspective), they were asked to give their best advicebased estimates. In the second (otherperspective), they were asked to give advicebased estimates from the perspective of another judge. The dependent variables were the participants’ accuracy and indices that traced their judgment policy. In the selfperspective condition participants adhered to their initial opinions, whereas in the otherperspective condition they were far less egocentric, weighted the available opinions more equally and produced more accurate estimates. In Study 3, initial estimates were not elicited, yet the data patterns were consistent with these conclusions. All the studies suggest that switching perspectives allows decision makers to generate advicebased judgments that are superior to those they would otherwise have produced. We discuss the merits of perspectivetaking as a procedure for correcting bias, suggesting that it is theoretically justifiable, practicable, and effective. 
Date:  2012–08 
URL:  http://d.repec.org/n?u=RePEc:huj:dispap:dp622&r=mic 
By:  Tsakas Elias (METEOR) 
Abstract:  We provide epistemic conditions for correlated rationalizability, which are considerably weakerthan the ones by Zambrano (2008). More specifically, we simultaneously replace mutual knowledge ofrationality and mutual knowledge of the event that every player deems possible only strategyprofiles that belong to the support of her actual conjecture, with strictly weaker epistemicconditions of pairwise mutual knowledge of these events.Moreover, we show that our epistemic foundation for correlated rationalizability does not implymutual knowledge of rationality. 
Keywords:  microeconomics ; 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:dgr:umamet:2012031&r=mic 
By:  Méder Zsombor; Flesch János; Peeters Ronald (METEOR) 
Abstract:  This paper lays down conceptual groundwork for optimal choice of a decision maker facing afinitestate Markov decision problem on an infinite horizon. We distinguish two notions of astrategy being favored on the limit of horizons, and examine the properties of the emerging binaryrelations. After delimiting two senses of optimality, we define a battery of optimal strategy sets– including the RamseyWeizäcker overtaking criterion – and analyze their relationships andexistence properties. We also relate to the work on pointwise limits of strategies by Fudenbergand Levine (1983). 
Keywords:  mathematical economics; 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:dgr:umamet:2012024&r=mic 
By:  Athanasiou Efthymios; Dey Santanu; Valletta Giacomo (METEOR) 
Abstract:  We put forward a model of private goods with externalities. Agents derive benefit fromcommunicating with each other. In order to communicate they need to have a language in common.Learning languages is costly. In this setting no individually rational and feasible Grovesmechanism exists. We characterize the bestinclass feasible Groves mechanism and thebestinclass individually rational Groves mechanism. 
Keywords:  public economics ; 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:dgr:umamet:2012016&r=mic 
By:  Omer Edhan 
Abstract:  We prove that every continuous value on a space of vector measure market games $Q$, containing the space of nonatomic measures $NA$, has the \textit{conic property}, i.e., if a game $v\in Q$ coincides with a nonatomic measure $\nu$ on a conical diagonal neighborhood then $\varphi(v)=\nu$. We deduce that every continuous value on the linear space $\mathcal M$, spanned by all vector measure market games, is determined by its values on $\mathcal{LM}$  the space of vector measure market games which are Lipschitz functions of the measures. 
Date:  2012–08 
URL:  http://d.repec.org/n?u=RePEc:huj:dispap:dp623&r=mic 
By:  Omer Edhan 
Abstract:  We prove that a singlevalued solution of perfectly competitive TU economies underling nonatomic exact market games is uniquely determined as the Mertens value by four plausible valuerelated axioms. Since the Mertens value is always a core element, this result provides an axiomatization of the Mertens value as a coreselection. Previous works in this direction assumed the economies to be either di erentiable (e.g., Dubey and Neyman [9]) or of uniform nitetype (e.g., Haimanko [14]). Our work does not assume that, thus it contributes to the axiomatic study of payo s in perfectly competitive economies (or values of their derived market games) in general. In fact, this is the rst contribution in this direction. 
Date:  2012–09 
URL:  http://d.repec.org/n?u=RePEc:huj:dispap:dp627&r=mic 
By:  Yehuda (John) Levy 
Abstract:  We study nonzerosum continuoustime stochastic games, also known as continuoustime Markov games, of fixed duration. We concentrate on Markovian strategies. We show by way of example that equilibria need not exist in Markovian strategies, but they always exist in Markovian publicsignal correlated strategies. To do so, we develop criteria for a strategy profile to be an equilibrium via differential inclusions, both directly and also by modeling continuoustime stochastic as differential games and using the HamiltonJacobiBellman equations. We also give an interpretation of equilibria in mixed strategies in continuoustime, and show that approximate equilibria always exist. 
Date:  2012–08 
URL:  http://d.repec.org/n?u=RePEc:huj:dispap:dp617&r=mic 
By:  Abraham Neyman 
Abstract:  Every continuoustime stochastic game with finitely many states and actions has a uniform and limitingaverage equilibrium payoff. 
Date:  2012–08 
URL:  http://d.repec.org/n?u=RePEc:huj:dispap:dp616&r=mic 
By:  Mikel AlvarezMozos; Ziv Hellman; Eyal Winter 
Abstract:  Assuming a `spectrum' or ordering on the players of a coalitional game, as in a political spectrum in a parliamentary situation, we consider a variation of the Shapley value in which coalitions may only be formed if they are connected with respect to the spectrum. This results in a naturally asymmetric power index in which positioning along the spectrum is critical. We present both a characterisation of this value by means of properties and combinatoric formulae for calculating it. In simple majority games, the greatest power accrues to `moderate' players who are located neither at the extremes of the spectrum nor in its centre. In supermajority games, power increasingly accrues towards the extremes, and in unaninimity games all power is held by the players at the extreme of the spectrum. 
Date:  2012–08 
URL:  http://d.repec.org/n?u=RePEc:huj:dispap:dp618&r=mic 
By:  Herings P. JeanJacques; Britz Volker; Predtetchinski Arkadi (METEOR) 
Abstract:  We consider noncooperative multilateral bargaining games with endogenous bargaining protocols.Under an endogenous protocol, the probability with which a player becomes the proposer in a roundof bargaining depends on the identity of the player who previously rejected. An important exampleis the frequently studied rejectorbecomesproposer protocol. We focus on subgame perfectequilibria in stationary strategies which are shown to exist and to be efficient. Equilibriumproposals do not depend on the probability to proposeconditional on the rejection by another player, though equilibrium acceptance sets do depend onthese probabilities. Next we consider the limit, as the bargaining friction vanishes. In case noplayer has a positive probability to propose conditional on his rejection, each player receiveshis utopia payoff conditional on being recognized and equilibrium payoffs are in general Paretoinefficient. Otherwise, equilibrium proposals of all players converge to a weighted NashBargaining Solution, where the weights are determined by the probability to propose conditional ona rejection. 
Keywords:  microeconomics ; 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:dgr:umamet:2012030&r=mic 
By:  Tom POTTOMS; Luc LAUWERS 
Abstract:  We characterize a new quasiordering on the collection of opportunity (or choice) sets. This new rule combines two criteria: the individual preferences on the universal set of options and the number of maximal options in the opportunity set. This new rule is compared with the indirect utility approach, and is further refined towards the leximax rule defined by Bossert, Pattanaik, and Xu (Journal of Economic Theory, 63, 1994). 
Date:  2012–09 
URL:  http://d.repec.org/n?u=RePEc:ete:ceswps:ces12.13&r=mic 