nep-mic New Economics Papers
on Microeconomics
Issue of 2015‒04‒02
seven papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Monotonic Aggregation of Preferences and the Rationalization of Choice Functions By Jerry R. Green; Daniel Hojman
  2. Anticipations and Endogenous Present Bias By Simone Galperti; Bruno Strulovici
  3. Dynamic Directed Search By Gabriele Camera; Jaehong Kim
  4. The strategic dis/advantage of voting early By Eddie Dekel; Michele Piccione
  5. Dynamic Games with Almost Perfect Information By Wei He; Yeneng Sun
  6. Price Revelation and Existence of Financial Equilibrium with Incomplete Markets and Private Beliefs By Lionel de BOISDEFFRE
  7. Dropping Rational Expectations By Lionel de BOISDEFFRE

  1. By: Jerry R. Green; Daniel Hojman
    Abstract: We consider a decision maker that holds multiple preferences simultaneously, each with different strengths described by a probability distribution. Faced with a subset of available alternatives, the preferences held by the individual can be in conflict. Choice results from an aggregation of these preferences. We assume that the aggregation method is monotonic: improvements in the position of alternative x cannot displace x if it were originally the choice. We show that choices made in this manner can be represented by context-dependent utility functions that are monotonic with respect to a measure of the strength of each alternative among those available. Using this representation we show that any generic monotonic rule can generate an arbitrary choice function as we vary the distribution of preferences. Domain restrictions on the set of preferences (e.g. dual motivation models) or consistency restrictions on the aggregator across choice sets reduce the set of admissible behaviors. Applications to positive models of individual decision making with context effects and social choice are discussed.
    Date: 2015–03
  2. By: Simone Galperti; Bruno Strulovici
    Keywords: Anticipation, Cognitive Skill, Discounting, Human Capital, Impatience, Present Bias, Time Preference shocks, risk aversion. JEL Classification: D01, D03, D90, D91
    Date: 2015–03–26
  3. By: Gabriele Camera (Chapman University, University of Basel); Jaehong Kim (Chapman University)
    Abstract: The directed search model (Peters, 1984) is static; its dynamic extensions typically restrict strategies, often assuming price or match commitments. We lift such restrictions to study equilibrium when search can be directed over time, without constraints and at no cost. In equilibrium trade frictions arise endogenously, and price commitments, if they do exist, are self-enforcing. In contrast to the typical model, there exists a continuum of equilibria that exhibit trade frictions. These equilibria support any price above the static price, including monopoly pricing in arbitrarily large markets. Dispersion in posted prices can naturally arise as temporary or permanent phenomenon despite the absence of pre-existing heterogeneity.
    Keywords: frictions, matching, price dispersion, search
    JEL: C70 D39 D49 E39
    Date: 2015
  4. By: Eddie Dekel; Michele Piccione
    Abstract: Under sequential voting, voting late enables conditioning on which candidates are viable, while voting early can influence the field of candidates. But the latter effect can be harmful: shrinking the field increases not only the likelihood that future voters vote for one's favorite candidate, but also that they vote for an opponent. Specifically, if one's favorite candidate is significantly better than all others then early voting is disadvantageous and all equilibria are equivalent to simultaneous voting. Conversely, when some other candidate is almost as good then any Markov, symmetric, anonymous equilibrium involves sequential voting (and differs from simultaneous voting).
    JEL: D72
    Date: 2014–11
  5. By: Wei He; Yeneng Sun
    Abstract: This paper aims to solve two fundamental problems on finite or infinite horizon dynamic games with perfect or almost perfect information. Under some mild conditions, we prove (1) the existence of subgame-perfect equilibria in general dynamic games with almost perfect information, and (2) the existence of pure-strategy subgame-perfect equilibria in perfect-information dynamic games with uncertainty. Our results go beyond previous works on continuous dynamic games in the sense that public randomization and the continuity requirement on the state variables are not needed. As an illustrative application, a dynamic stochastic oligopoly market with intertemporally dependent payoffs is considered.
    Date: 2015–03
  6. By: Lionel de BOISDEFFRE
    Abstract: We consider a pure exchange financial economy, where rational agents, possibly asymmetrically informed, forecast prices privately, with no model of how they are determined. Therefore, agents face both 'exogenous uncertainty', on the future state of nature, and 'endogenous uncertainty', on the future price. At a sequential equilibrium, all consumers expect the 'true' price as a possible outcome and elect optimal strategies at the first period, which clear on all markets, ex post. The paper's purpose is twofold. First, it defines no-arbitrage prices, which comprise all equilibrium prices, and displays their revealing properties. Second, it shows, under mild conditions, that a sequential equilibrium always exists in this model, whatever agents' prior beliefs or the financial structure. This outcome suggests that standard existence problems, which followed Hart (1975) and Radner (1979), stem from the rational expectation and perfect foresight assumptions of the classical model.
    Date: 2015–03
  7. By: Lionel de BOISDEFFRE
    Abstract: In [4], we proposed a general equilibrium model, with incomplete financial markets and asymmetric information, where agents forecasted prices privately without rational expectations. Consistently, they anticipated idiosyncratic sets of future prices, and elected probability laws on these sets, that we called beliefs. Under mild conditions, and differently from Hart [1975] and Radner [1979], equilibrium always existed in this model, as long as agents' anticipations precluded arbitrage. The joint determination of equilibrium prices and beliefs is traditionally seen as a rational expectations' problem. Hereafter, we suggest it may be otherwise. We propose to show that agents, whose prior anticipation sets yield an arbitrage, may update their expectations from observing trade opportunities on financial markets. With no price to be observed, they eventually infer smaller arbitrage-free anticipation sets, which cannot be narrowed down any further. Once these sets are inferred, equilibrium prices may change if agents change their beliefs, but they will convey the same information.
    Date: 2015–03

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