nep-mic New Economics Papers
on Microeconomics
Issue of 2013‒02‒16
nine papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Polarization and Ambiguity By Sandeep Baliga; Eran Hanany; Peter Klibanoff
  2. Coordination in 2 x 2 Games by Following Recommendations from Correlated Equilibria By Johne Bone; Michalis Drouvelis; Indrajit Ray
  3. Approximate Nash equilibrium under the single crossing conditions By Kukushkin, Nikolai S.
  4. Reputation in the Presence of Noisy Exogenous Learning By Ju Hu
  5. Existence of Nash Equilibrium in games with a measure space of players and discontinuous payoff functions By Carmona, Guilherme; Podczeck, Konrad
  6. Competing with Asking Prices By Lester, Benjamin R.; Visschers, Ludo; Wolthoff, Ronald P.
  7. Procurement Auctions with General Price-Quality Evaluation By Makoto HANAZONO; Jun NAKABAYASHI; Masanori TSURUOKA
  8. Characterizing Behavioral Decisions with Choice Data By Ghosal, Sayantan; Dalton, Patricio
  9. Strategic manipulability of self-­selective social choice rules By Mostapha Diss

  1. By: Sandeep Baliga; Eran Hanany; Peter Klibanoff
    Abstract: We offer a theory of polarization as an optimal response to ambiguity. Suppose individual A's beliefs first-order stochastically dominate individual B's. They observe a common signal. They exhibit polarization if A's posterior dominates her prior and B's prior dominates her posterior. Given agreement on conditional signal likelihoods, we show that polarization is impossible under Bayesian updating or after observing extreme signals. However, we also show that polarization can arise after intermediate signals as ambiguity averse individuals implement their optimal prediction strategies. We explore when this polarization will occur and the logic underlying it.
    Keywords: Ambiguity aversion, Ellsberg, beliefs, updating, dynamic consistency
    Date: 2013–01–10
  2. By: Johne Bone; Michalis Drouvelis; Indrajit Ray
    Abstract: We consider three games, Symmetric Battle of the Sexes, Modified Battle of the Sexes and Chicken and two different correlation devices, public and private, with the same expected payoffs in equilibrium, which is also the best correlated equilibrium payoff for these games. Despite our choices of the payoffs in these games based on some theoretical criteria, we find that coordination and following recommendations vary significantly among our treatments. We explain these differences by analysing players' choices in cases when they do and do not follow recommendations in different games.
    Keywords: Coordination, Public message, Recommendation, Correlated equilibrium
    JEL: C72 C92 D83
    Date: 2013–02
  3. By: Kukushkin, Nikolai S.
    Abstract: We consider strategic games where strategy sets are linearly ordered while the preferences of the players are described by binary relations. All restrictions imposed on the preferences are satisfied in the case of epsilon-optimization of a bounded-above utility function. A Nash equilibrium exists and can be reached from any strategy profile after a finite number of best response improvements if the single crossing conditions hold w.r.t.\ pairs [one player's strategy, a profile of other players' strategies], and the preference relations are transitive. If, additionally, there are just two players, every best response improvement path reaches a Nash equilibrium after a finite number of steps. If each player is only affected by a linear combination of the strategies of others, the single crossing conditions hold w.r.t.\ pairs [one player's strategy, an aggregate of the strategies of others], and the preference relations are interval orders, then a Nash equilibrium exists and can be reached from any strategy profile with a finite best response path.
    Keywords: strong acyclicity; single crossing; Cournot tatonnement; Nash equilibrium; aggregative game
    JEL: C72
    Date: 2013–02–10
  4. By: Ju Hu (Department of Economics, University of Pennsylvania)
    Abstract: This paper studies the reputation effect in which a long-lived player faces a sequence of uninformed short-lived players and the uninformed players receive informative but noisy exogenous signals about the type of the long-lived player. We provide an explicit lower bound on all Nash equilibrium payoffs of the long-lived player. The lower bound shows when the exogenous signals are sufficiently noisy and the long-lived player is patient, he can be assured of a payoff strictly higher than his minmax payoff.
    Keywords: Reputation, repeated games, learning, relative entropy
    JEL: C73 D82 D83
    Date: 2013–02–06
  5. By: Carmona, Guilherme; Podczeck, Konrad
    Abstract: Balder's (2002) model of games with a measure space of players is integrated with the line of research on finite-player games with discontinuous payoff functions which follows Reny (1999). Specifically, we extend the notion of continuous security, introduced by McLennan, Monteiro and Tourky (2011) and Barelli and Meneghel (2012) for finite-players games, to games with a measure space of players and establish the existence of pure strategy Nash equilibrium for such games. A specification of our main existence result is provided which is ready to fit the needs of applications. As an illustration, we consider several optimal income tax problems in the spirit of Mirrlees (1971) and use our game-theoretic result to show the existence of an optimal income tax in each of these problems.
    Keywords: Existence of equilibrium; measure space of players; discontinuities
    JEL: C72
    Date: 2013–01–24
  6. By: Lester, Benjamin R. (Federal Reserve Bank of Philadelphia); Visschers, Ludo (Universidad Carlos III de Madrid); Wolthoff, Ronald P. (University of Toronto)
    Abstract: In many markets, sellers advertise their good with an asking price. This is a price at which the seller is willing to take his good off the market and trade immediately, though it is understood that a buyer can submit an offer below the asking price and that this offer may be accepted if the seller receives no better offers. Despite their prevalence in a variety of real world markets, asking prices have received little attention in the academic literature. We construct an environment with a few simple, realistic ingredients and demonstrate that using an asking price is optimal: it is the pricing mechanism that maximizes sellers' revenues and it implements the efficient outcome in equilibrium. We provide a complete characterization of this equilibrium and use it to explore the positive implications of this pricing mechanism for transaction prices and allocations.
    Keywords: asking prices, competing mechanism design, auctions with entry, competitive search
    JEL: C78 D21 D44 D82 D83 L11 R31
    Date: 2013–01
  7. By: Makoto HANAZONO (School of Economics, Nagoya University); Jun NAKABAYASHI (Institute of Social and Economic Research, Osaka University); Masanori TSURUOKA (Department of Economics, University of Tokyo)
    Abstract: We offer a general framework to study procurement auctions when quality matters. In this environment, sellers compete for a project by bidding a price-quality pair, and the winning bidder is determined by the score assigned to each bid. In contrast to the existing study in which only the quasilinear scoring rule is considered, our analysis allows a broad class of scoring rules including many other realistic ones. We focus on the analyses of the equilibrium bidding behavior of first-score (FS) and second-score (SS) auctions. We find that FS or SS auctions can be transformed into equivalent, single-dimensional score-bid auctions where the bidder's utility (payoff upon winning) is non-linear in the score-bid. Our analysis demonstrates that the ranking of the two auction formats, in terms of expected scores, depends on the scoring rule and that the equivalence fails unless scoring rules are quasilinear. FS auctions induce less aggressive bidding than SS auctions if, for example, the scoring rule is price-quality ratio (PQR).
    Keywords: scoring auctions, non-quasilinear scoring rules, procurement
    JEL: D44 H57 L13
    Date: 2013–01
  8. By: Ghosal, Sayantan (University of Warwick); Dalton, Patricio (Tilberg University)
    Abstract: This paper provides an axiomatic characterization of choices in a setting where a decision-maker may not fully internalize all the consequences of her choices on herself. Such a departure from rationality, it turns out, is common across a variety of positive behavioral models and admits the standard rational choice model as a special case. We show that choice data satisfying (a) Sen’s axioms and fully characterize behavioral decisions, and (b) Sen’s axiom and fully characterize standard decision-making. In addition, we show that (a) it is possible to identify a minimal and a maximal set of psychological states using choice data alone, and (b) under specific choice scenarios, "revealed mistakes" can be inferred directly from choice data.
    Keywords: Behavioral Decisions, Revealed and Normative Preferences, Welfare, Axiomatic characterization
    Date: 2013
  9. By: Mostapha Diss (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon)
    Abstract: We provide exact relations giving the probability of individual and coalitional manipulation of three specific social choice functions (Borda rule, Copeland rule, Plurality rule) in three-alternative elections when the notion of self-selectivity is imposed. The results suggest that the Borda rule is more vulnerable to coalitional manipulation than the Copeland rule and the Plurality rule. However, Plurality rule seems to be more vulnerable to individual manipulability when the number of voters is greater than a certain threshold value. In addition, the probability of individual and coalitional manipulation tends to vanish significantly when the notion of selfs-electivity is imposed.
    Keywords: Voting rules; Self-selectivity; Stability; Manipulability; Probability
    Date: 2013–02–06

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