nep-mic New Economics Papers
on Microeconomics
Issue of 2014‒10‒17
five papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. A Model of Modeling By Itzhak Gilboa; Andrew Postlewaite; Larry Samuelson; David Schmeidler
  2. Quality Provision in the Presence of a Biased Intermediary By Alexandre de Cornière; Greg Taylor
  3. On Repeated Games with Imperfect Public Monitoring: Characterization of Continuation Payoff Processes By Mathias Staudigl
  4. Consumer Learning on Social Networks and Retailer Digital Platform Strategies Access By Zheyin (Jane) Gu; Yunchuan Liu
  5. Transparency in Public Life. A Quantum Cognition Perspective By Ariane Lambert-Mogiliansky; François Dubois

  1. By: Itzhak Gilboa (Tel-Aviv University; HEC, Paris; Cowles Foundation, Yale University); Andrew Postlewaite (Dept. of Economics, University of Pennsylvania); Larry Samuelson (Cowles Foundation, Yale University); David Schmeidler
    Abstract: We propose a formal model of scientific modeling, geared to applications of decision theory and game theory. The model highlights the freedom that modelers have in conceptualizing social phenomena using general paradigms in these fields. It may shed some light on the distinctions between (i) refutation of a theory and a paradigm, (ii) notions of rationality, (iii) modes of application of decision models, and (iv) roles of economics as an academic discipline. Moreover, the model suggests that all four distinctions have some common features that are captured by the model.
    Keywords: Methodology, Models, Economic modeling
    JEL: B40 B41
    Date: 2014–09
  2. By: Alexandre de Cornière (Department of Economics and Nuffield College, University of Oxford, 1 New Road, Oxford OX1 1NF); Greg Taylor (Oxford Internet Institute, University of Oxford, 1 St Giles, Oxford OX1 3JS)
    Abstract: In many industries, consumers rely on recommendations by an intermediary when choosing between competing products. In this paper, we look at how the existence of contracts between firms and intermediaries affects the quality of the advice received by consumers, and firms' incentives to invest in improving the quality of their products. We consider a model with one intermediary and two firms who decide how much to invest. Under a variety of contractual environments (vertical integration, ex post endorsement) we show that, even though the intermediary tends to endorse the best firm, contractual endorsement distorts firms' incentives to invest. Quality can then decrease or increase compared to an objective benchmark. We contrast our approach to a setup with fixed qualities and endogenous prices, under which contractual endorsement hurts consumers.
    Keywords: intermediary, quality, bias
    JEL: L1 L4 L86
    Date: 2014–09
  3. By: Mathias Staudigl (Center for Mathematical Economics, Bielefeld University)
    Abstract: This note contains complementary information to the paper Staudigl and Steg (2014). We present a martingale characterization of continuation payoff processes in a class of repeated games with imperfect public monitoring. Our martingale approach allows us to work out a clear connection between the discrete time and continuous time payoff processes. A general proof of convergence is the open issue in this literature, and I strongly belief that the characterization result reported here is the key to solve this problem.
    Keywords: repeated games, public perfect equilibrium, martingale representation
    Date: 2014–09
  4. By: Zheyin (Jane) Gu (University of Connecticut, School of Business, Marketing Department, 2100 Hillside Rd, Unit 1041, Storrs, CT, 06269.); Yunchuan Liu (University of Illinois, Urbana-Champaign, 415 Wohlers Hall, 1206 South Sixth Street, Champaign, IL, 61820, (217) 244-2749)
    Abstract: We model consumer social networks as information collection media and examine two major issues: first, how consumers construct product fit signals based on product feedbacks collected from their social connections to assist with their purchase decisions, and second, how a retailer can benefit from setting up a digital platform and helping consumers collect more product feedbacks on social networks. Our analysis identifies two important structure features of consumer social networks that affect the outcome of consumer social learning: social group inter-connectivity and overall social connectivity. In particular, when the consumer social network is not well-connected, characterized by low social group inter-connectivity and low overall social connectivity, with more product feedbacks collected on social networks consumers are more likely to form informative prior beliefs about which product has a good fit. In contrast, when the consumer social network is well-connected, characterized by either high social group inter-connectivity or high overall social connectivity, more product feedbacks collected on social networks are more likely to constitute uninformative product fit signals and leave consumers uncertain about which product has a good fit. Furthermore, our analysis shows that a retailer's incentive to set up a digital platform and help consumers collect more product feedbacks on social networks depends on the supplier market structure as well as the structure of consumer social networks. In particular, a big retailer that carries horizontally differentiated products offered by competing manufacturers has incentive to facilitate consumer social learning on well-connected social networks and when without retailer assistance consumers still collect product feedbacks from a good number of social connections. The big retailer's activity of facilitating consumer social learning can also enhance total channel surplus. In contrast, a small retailer that carries product(s) offered by a single manufacturer has incentive to facilitate consumer social learning only on social networks that are not well-connected and when without retailer assistance consumers only collect a small number of social feedbacks. And the total channel efficiency suffers when the small retailer withholds from facilitating consumer social learning. Our result highlights the unique motive of big retailers to embrace the digital era when internet, mobile networks, and social media have profoundly changed consumers' shopping habits as well as the unique contribution big retailers bring in channel efficiency through their efforts of facilitating consumer social learning.
    Keywords: Consumer Social Learning, Social Networks, Retailing, Game Theory
    JEL: M31
    Date: 2014–09
  5. By: Ariane Lambert-Mogiliansky (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), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); François Dubois (LM-Orsay - Laboratoire de Mathématiques d'Orsay - CNRS : UMR8628 - Université Paris XI - Paris Sud, CNAM Ile de France - Conservatoire National des Arts et Métiers - Conservatoire National des Arts et Métiers [CNAM])
    Abstract: In this paper we investigate the implications of assuming that citizens are cognitively constrained for transparency in public life. We model cognitive limitations as reflecting a quantum property of people's mental representations of the world. There exists a multiplicity of incompatible (Bohr) complementary mental representations of a situation. As a consequence the framing of information plays a crucial role. We show that additional information can be detrimental to a quantum cognitively constrained agent: he may become more confused.
    Keywords: Learning ; Quantum cognition ; Transparency
    Date: 2014–09

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