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on Microeconomics |
| By: | Gabriel Desgranges (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise); Stéphane Gauthier (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | We study how asymmetric information affects the set of rationalizable solutions in a linear setup where the outcome is determined by forecasts about this same outcome. The unique rational expectations equilibrium is also the unique rationalizable solution when the sensitivity of the outcome to agents' forecasts is less than one, provided that this sensitivity is common knowledge. Relaxing this common knowledge assumption, multiple rationalizable solutions arise when the proportion of agents who know the sensitivity is large, and the uninformed agents believe it is possible that the sensitivity is greater than one. Instability is equivalent to existence of some kind of sunspot equilibria. |
| Keywords: | Asymmetric information; common knowledge; eductive learning; rational expectations; rationalizability |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:pseose:hal-00780372&r=mic |
| By: | Sujoy Mukerji; Peter Klibanoff; Kyoungwon Seo |
| Abstract: | We axiomatize preferences that can be represented by a monotonic aggregation of subjective expected utilities generated by a utility function and some set of i.i.d. probability measures over a product state space, S1. For such preferences, we define relevant measures, show that they are treated as if they were the only marginals possibly governing the state space and connect them with the measures appearing in the aforementioned representation. These results allow us to interpret relevant measures as reflecting part of perceived ambiguity, meaning subjective uncertainty about probabilities over states. Under mild conditions, we show that increases or decreases in ambiguity aversion cannot affect the relevant measures. This property, necessary for the conclusion that these measures reflect only perceived ambiguity, distinguishes the set of relevant measures from the leading alternative in the literature. We apply our findings to a number of well-known models of ambiguity-sensitive preferences. For each model, we identify the set of relevant measures and the implications of comparative ambiguity aversion. |
| Keywords: | Symmetry, beliefs, ambiguity, ambiguity aversion, sets of probabilities |
| JEL: | D01 D80 D81 D83 |
| Date: | 2014–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:711&r=mic |
| By: | Antoine Billot (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - Université Paris II - Panthéon-Assas : EA4442 - Sorbonne Universités); Vassili Vergopoulos (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne) |
| Abstract: | While models of ambiguity are reputed to generate a basic tension between dynamic consistency and the Ellsberg choices, this paper identifies a third implicit ingredient of this tension, namely the parsimony rule, which enforces each state of nature to encode a well-defined unique observation. This paper then develops nonparsimonious interpretations of the state space to make the Ellsberg choices compatible with both expected utility and dynamic consistency. The state space may contain nonobservable states: a state is allowed to encode more than one observation, a pattern called state ambiguity. The presence of such ambiguous states motivates an explicit distinction between the decision-maker and the theory-maker, the latter designing the state space and eliciting the former's preferences. |
| Keywords: | Ambiguity ; State of nature ; Epistemics ; Dynamic consistency |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-01006698&r=mic |
| By: | Oliver Hart; Luigi Zingales |
| Abstract: | What is so special about banks that their demise often triggers government intervention? In this paper we develop a simple model where, even ignoring interconnectedness issues, the failure of a bank causes a larger welfare loss than the failure of other institutions. The reason is that agents in need of liquidity tend to concentrate their holdings in banks. Thus, a shock to banks disproportionately affects the agents who need liquidity the most, reducing aggregate demand and the level of economic activity. In the context of our model, the optimal fiscal response to such a shock is to help people, not banks, and the size of this response should be larger if a bank, rather than a similarly-sized nonfinancial firm, fails. |
| JEL: | E41 E51 G21 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20207&r=mic |
| By: | Sofia Priazhkina (Department of Economics, Indiana University); Frank Page (Department of Economics, Indiana University) |
| Abstract: | This paper presents a model of collusive bargaining networks. Given a status quo network, game is played in two stages: in the first stage, pairs of sellers form the network by signing two-sided contracts that allow sellers to use connections of other sellers; in the second stage, sellers and buyers bargain for the product. We extend the notion of a pairwise Nash stability with transfers to pairwise Nash stability with contracts and characterize the subgame perfect equilibria. The equilibrium rents are determined for all firms based on their collateral and bargaining power. When a stable equilibrium exists, sharing always generates maximum social welfare and eliminates the frictions created by the network structure. The equilibria depend on the initial network setup, likewise bargaining and contractual procedures. In the homogeneous case, equilibria exist when the number of buyers and sellers are relatively unequal. When the number of buyers exceeds number of sellers, bargaining privileges of sellers over buyers and a low sharing transfer are required for the equilibrium to exist. In the networks with relatively few monopolized sellers, sharing leads to a complete reallocation of surplus to sellers and a zero sharing transfer. When the global market is dominated by sellers, surplus is divided relatively equitably. It is also shown that in the special case of the model with only one monopolistic seller and no market entry, the sharing process organizes sellers in the supply chain order. |
| Keywords: | Social Networks, Oligopoly Pricing, Collusion, Market Sharing Agreements |
| JEL: | L11 L14 L12 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2014.52&r=mic |
| By: | Manuel Förster (CES, Université Paris 1 Panthéon-Sorbonne, France, and CORE, University of Louvain Louvain-la-Neuve, Belgium); Ana Mauleon (CEREC, Saint-Louis University, Brussels, CORE, University of Louvain, Louvain-la-Neuve, Belgium); Vincent J. Vannetelbosch (CORE, University of Louvain, Louvain-la-Neuve, CEREC, Saint-Louis University, Brussels, Belgium) |
| Abstract: | We investigate the role of manipulation in a model of opinion formation. Agents repeatedly communicate with their neighbors in the social network, can exert effort to manipulate the trust of others, and update their opinions about some common issue by taking weighted averages of neighbors' opinions. The incentives to manipulate are given by the agents' preferences. We show that manipulation can modify the trust structure and lead to a connected society. Manipulation fosters opinion leadership, but the manipulated agent may even gain influence on the long-run opinions. Finally, we investigate the tension between information aggregation and spread of misinformation. |
| Keywords: | Social networks, Trust, Manipulation, Opinion leadership, Consensus, Wisdom of Crowds |
| JEL: | D83 D85 Z13 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2014.50&r=mic |
| By: | Christian Robert (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I (UCBL) : EA2429); Pierre-Emmanuel Thérond (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I (UCBL) : EA2429) |
| Abstract: | We consider the class of concave distortion risk measures to study how choice is influenced by the decision-maker's attitude to risk and provide comparative static results. We also assume ambiguity about the probability distribution of the risk and consider a framework à la Klibanoff, Marinacci and Mukerji (2005) to study the value of information that resolves ambiguity. We show that this value increases with greater ambiguity, with greater ambiguity aversion, and in some cases with greater risk aversion. Finally we examine whether a more risk-averse and a more ambiguity-averse individual will invest in more effort to shift his initial risk distribution to a better target distribution. |
| Keywords: | Ambiguity ; dual theory ; risk measures ;distorsion ; optimal effort |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00813199&r=mic |
| By: | Berno Buechel (Department of Economics, University of Hamburg); Tim Hellmann (Institute of Mathematical Economics, Bielefeld University); Stefan Kölßner (Statistics and Econometrics, Saarland University) |
| Abstract: | We study a dynamic model of opinion formation in social networks. In our model, boundedly rational agents update opinions by averaging over their neighbors' expressed opinions, but may misrepresent their own opinion by conforming or counter-conforming with their neighbors. We show that an agent's social influence on the long-run group opinion is increasing in network centrality and decreasing in conformity. Concerning efficiency of information aggregation or “wisdom" of the society, it turns out that misrepresentation of opinions need not undermine wisdom, but may even enhance it. Given the network, we provide the optimal distribution of conformity levels in the society and show which agents should be more conforming in order to increase wisdom. |
| Keywords: | Opinion Leadership, Wisdom Of Crowds, Consensus, Social Networks, Conformity, Eigenvector Centrality |
| JEL: | C72 D83 D85 Z13 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2014.51&r=mic |
| By: | Manuel Foerster (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique); Michel Grabisch (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | We study a stochastic model of influence where agents have "yes" or "no" inclinations on some issue, and opinions may change due to mutual influence among the agents. Each agent independently aggregates the opinions of the other agents and possibly herself. We study influence processes modeled by ordered weighted averaging operators, which are anonymous: they only depend on how many agents share an opinion. For instance, this allows to study situations where the influence process is based on majorities, which are not covered by the classical approach of weighted averaging aggregation. We find a necessary and sufficient condition for convergence to consensus and characterize outcomes where the society ends up polarized. Our results can also be used to understand more general situations, where ordered weighted averages are only used to some extent. Furthermore, we apply our results to fuzzy linguistic quantifiers, i.e., expressions like "most" or "at least a few". |
| Keywords: | Influence; Anonymity; Ordered weighted averaging operator; Convergence; Consensus; Fuzzy linguistic quantifier |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:hal:pseose:halshs-00913235&r=mic |
| By: | Roman V. Belavkin (Middlesex University London) |
| Abstract: | The von Neumann and Morgenstern theory postulates that rational choice under uncertainty is equivalent to maximization of expected utility (EU). This view is mathematically appealing and natural because of the affine structure of the space of probability measures. Behavioural economists and psychologists, on the other hand, have demonstrated that humans consistently violate the EU postulate by switching from risk-averse to risk-taking behaviour. This paradox has led to the development of descriptive theories of decisions, such as the celebrated prospect theory, which uses an S-shaped value function with concave and convex branches explaining the observed asymmetry. Although successful in modelling human behaviour, these theories appear to contradict the natural set of axioms behind the EU postulate. Here we show that the observed asymmetry in behaviour can be explained if, apart from utilities of the out comes, rational agents also value information communicated by random events. We review the main ideas of the classical value of information theory and its generalizations. Then we prove that the value of information is an S-shaped function, and that its asymmetry does not depend on how the concept of information is defined, but follows only from linearity of the expected utility. Thus, unlike many descriptive and `non-expected' utility theories that abandon the linearity (i.e. the `independence' axiom), we formulate a rigorous argument that the von Neumann and Morgenstern rational agents should be both risk-averse and risk-taking if they are not indifferen to information. |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:beb:wpseet:201403&r=mic |
| By: | Mishra, Ajit; Samuel, Andrew |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:eid:wpaper:37907&r=mic |
| By: | Dziewulski, Pawel |
| Abstract: | Consider an experiment in which subjects are asked to choose between pairs consisting of a monetary payment and a time-delay at which the payment is delivered. Given a finite set of observations, under what conditions the choices of an individual agent can be rationalised by a discounted utility function? We develop an axiomatic characterisation of time-preference with various forms of discounting, including weakly present-biased, quasi-hyperbolic, and exponential, and determine the testable restrictions for each specification. Moreover, we discuss identification issues which may arise in this class of experiments. |
| Keywords: | revealed preference, testable restrictions, rationalisation, time{-}preference, discounted utility |
| JEL: | C14 C60 C61 D11 D12 |
| Date: | 2014–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:56596&r=mic |
| By: | Bajoori, Elnaz |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:eid:wpaper:37904&r=mic |
| By: | Vitor Miguel Ribeiro (Vitor Miguel Ribeiro - FEP and CEF.UP - Vitor) |
| Abstract: | We develop a duopoly price competition model that establishes a link between the recent literature of two-sided markets and behavior economics. We fully characterize the subgame perfect Nash equilibrium, which depends on the level of …xed costs. Moreover, introducing discrimination between the two sides of the market in terms of the desutility in time, we demonstrate that divide & conquer strategies are present in equilibrium. Finally, we study entry by an inferior-quality platform and entry by a superior-quality platform to conclude that, in both cases, the entry deterrence strategy can be sustain. We conclude that, under the presence of inter-group externalities, the entry deterrence strategy occurs when price competition is softened but the inter-group externalities do not promote a higher presence of an entry deterrence strategy on the market. Finally, entry deterrence strategies may be conducted by an inferior-quality incumbent although less likely relatively to the case where the incumbent has a superior-quality. |
| Keywords: | Two-sided markets, Horizontal differentiation, Vertical differentiation, Behavior Economics. |
| JEL: | D42 D43 L13 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:538&r=mic |
| By: | Matsumura, Toshihiro; Ogawa, Akira |
| Abstract: | We investigate endogenous timing in a mixed duopoly in a differentiated product market. We find that private leadership is better than public leadership from a social welfare perspective if the private firm is domestic, regardless of the degree of product differentiation. Nevertheless, the public leadership equilibrium is risk-dominant, and it is thus robust if the degree of product differentiation is high. We also find that regardless of the degree of product differentiation, the public leadership equilibrium is risk-dominant if the private firm is foreign. These results may explain the recent revival of public financial institutions in Japan. |
| Keywords: | public financial institutions, differentiated products, risk dominance, Stackelberg |
| JEL: | H42 L13 |
| Date: | 2014–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:56539&r=mic |