nep-mic New Economics Papers
on Microeconomics
Issue of 2016‒01‒29
ten papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Information Design, Bayesian Persuasion and Bayes Correlated Equilibrium By Dirk Bergemann; Stephen Morris
  2. Differences of Opinions By Aliprantis, Dionissi
  3. Reason-based choice and context-dependence: An explanatory framework By Franz Dietrich; Christian List
  4. Aggregation theory and the relevance of some issues to others By Franz Dietrich
  5. A revealed preference theory of monotone choice and strategic complementarity By Koji Shirai
  6. Financial contracting with enforcement externalities By Drozd, Lukasz A.; Serrano-Padial, Ricardo
  7. Strategy-proof location of public facilities By Jorge Alcalde Unzu; Marc Vorsatz
  8. Belief revision generalized: A joint characterization of Bayes' and Je¤rey's rules By Franz Dietrich; Christian List; Richard Bradley
  9. General Equilibrium and Recession Phenomenon By Nicholas S. Gonchar; Wolodymyr H. Kozyrski; Anatol S. Zhokhin
  10. Fair solutions to the random assignment problem By Christian Basteck

  1. By: Dirk Bergemann (Cowles Foundation, Yale University); Stephen Morris
    Abstract: A set of players have preferences over a set of outcomes. We consider the problem of an "information designer" who can choose an information structure for the players to serve his ends, but has no ability to change the mechanism (or force the players to make particular action choices). We describe a unifying perspective for information design. We consider a simple example of Bayesian persuasion with both an uninformed and informed receiver. We extend information design to many players and relate it to the literature on incomplete information correlated equilibrium.
    Keywords: Information design, Bayesian persuasion, Bayes correlated equilibrium, Information structure
    JEL: C72 D82 D83
    Date: 2016–01
  2. By: Aliprantis, Dionissi (Federal Reserve Bank of Cleveland)
    Abstract: This paper presents a generalization of the DeGroot learning rule in which social learning can lead to polarization, even for connected networks. I first develop a model of biased assimilation in which the utility an agent receives from past decisions depends on current beliefs when uncertainty is slow to resolve. I use this model to motivate key features of an agent’s optimization problem subject to scarce private information, which forces the agent to extrapolate using social information. Even when the agent extrapolates under “scientific” assumptions and all individuals in the network process and report their private signals in an unbiased way, the possibility of biased processing or reporting leads agents to process social signals differently depending on the sender. The resulting solution to the agent’s problem is a heterogeneous confidence learning rule that is distinct from bounded confidence learning rules in that the agent may actually move her beliefs away from, and not only discard, signals from untrustworthy senders.
    Keywords: Biased Assimilation; Social Learning; Network; DeGroot Learning Rule; Bounded Confidence; Heterogeneous Confidence; Self-Affirmation;
    JEL: D83
    Date: 2016–01–20
  3. By: Franz Dietrich (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Christian List (LSE - London School of Economics)
    Abstract: We introduce a "reason-based" framework for explaining and predicting individual choices. The key idea is that a decision-maker focuses on some but not all properties of the options and chooses an option whose "motivationally salient" properties he/she most prefers. Reason-based explanations can capture two kinds of context-dependent choice: (i) the motivationally salient properties may vary across choice contexts, and (ii) they may include "context-related" properties, not just "intrinsic" properties of the options. Our framework allows us to explain boundedly rational and sophisticated choice behaviour. Since properties can be recombined in new ways, it also offers resources for predicting choices in unobserved contexts.
    Keywords: Rational choice,reasons,context-dependence,bounded and sophisticated rationality,prediction of choice
    Date: 2016
  4. By: Franz Dietrich (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: I propose a relevance-based independence axiom on how to aggregate individual yes/no judgments on given propositions into collective judgments: the collective judgment on a proposition depends only on people's judgments on propositions which are relevant to that proposition. This axiom contrasts with the classical independence axiom: the collective judgment on a proposition depends only on people's judgments on the same proposition. I generalize the premise-based rule and the sequential-priority rule to an arbitrary priority order of the propositions, instead of a dichotomous premise/conclusion order resp. a linear priority order. I prove four impossibility theorems on relevance-based aggregation. One theorem simultaneously generalizes Arrow's Theorem (in its general and indifference-free versions) and the well-known Arrow-like theorem in judgment aggregation.
    Keywords: judgment aggregation,generalized Arrow theorem,generalized premise-based and sequential-priority rules,priority graph,aggregation of non-binary evalua-tions
    Date: 2015
  5. By: Koji Shirai (School of Economics, Kwansei Gakuin University)
    Abstract: We develop revealed preference characterizations of (1) monotone choice in the context of individual decision making and (2) strategic complementarity in the context of simultaneous games. We first consider the case where the observer has access to panel data and then extend the analysis to the case where data sets are cross sectional and preferences heterogenous. Lastly, we apply our techniques to investigate the possibility of spousal influence in smoking decisions.
    Keywords: monotone comparative statics, single crossing di↵erences, interval dominance, supermodular games, lattices
    JEL: C6 C7 D7
    Date: 2015–12
  6. By: Drozd, Lukasz A. (Federal Reserve Bank of Philadelphia); Serrano-Padial, Ricardo (Drexel University)
    Abstract: Contract enforceability in financial markets often depends on the aggregate actions of agents. For example, high default rates in credit markets can delay legal enforcement or reduce the value of collateral, incentivizing even more defaults and potentially affecting credit supply. We develop a theory of credit provision in which enforceability of individual contracts is linked to aggregate behavior. The central element behind this link is enforcement capacity, which is endogenously determined by investments in enforcement infrastructure. Our paper sheds new light on the emergence of credit crunches and the relationship between enforcement infrastructure, economic growth, and political economy distortions.
    Keywords: Enforcement; Credit rationing; Costly state verification; State capacity; Financial accelerator; Credit crunch; Global games; Heterogeneity
    JEL: D82 D84 D86 G21 O16 O17 O43
    Date: 2016–01–20
  7. By: Jorge Alcalde Unzu (Departamento de Economía-UPNA); Marc Vorsatz
    Abstract: Agents frequently have di fferent opinions on where to locate a public facility. While some agents consider the facility a good and prefer to have it nearby, others dislike it and would like to see it built far away from their own locations. To aggregate agents' preferences in these situations, we propose a new preference domain according to which each agent is allowed to have single-peaked or single-dipped preferences on the location of the facility, but in such a way that the peak or dip is situated in her own location. We characterize all strategy-proof rules in this general framework and show that they are also group strategy-proof. Finally, we characterize for some focal cases the rules that additionally satisfy Pareto efficiency.
    Keywords: Single-peaked preferences, single-dipped preferences, social choice rule, strategy-proofness, Pareto efficiency.
    Date: 2015
  8. By: Franz Dietrich (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Christian List (LSE - London School of Economics); Richard Bradley (LSE - London School of Economics)
    Abstract: We present a general framework for representing belief-revision rules and use it to characterize Bayes' rule as a classical example and Jeffrey's rule as a non-classical one. In Je¤rey's rule, the input to a belief revision is not simply the information that some event has occurred, as in Bayes' rule, but a new assignment of probabilities to some events. Despite their differences, Bayes' and Je¤rey's rules can be characterized in terms of the same axioms: responsiveness, which requires that revised beliefs incorporate what has been learnt, and conservativeness, which requires that beliefs on which the learnt input is 'silent' do not change. To illustrate the use of non-Bayesian belief revision in economic theory, we sketch a simple decision-theoretic application.
    Keywords: Belief revision,subjective probability,Bayes's rule,Je¤rey's rule,axio-matic foundations,fine-grained versus coarse-grained beliefs,unawareness
    Date: 2016
  9. By: Nicholas S. Gonchar; Wolodymyr H. Kozyrski; Anatol S. Zhokhin
    Abstract: The theorems we proved describe the structure of economic equilibrium in the exchange economy model. We have studied the structure of property vectors under given structure of demand vectors at which given price vector is equilibrium one. On this ground, we describe the general structure of the equilibrium state and give characteristic of equilibrium state describing economic recession. The theory developed is applied to explain the state of the economy in some European countries.
    Date: 2016–01
  10. By: Christian Basteck (Technische Universitaet Berlin)
    Abstract: We study the problem of assigning indivisible goods to individuals where each is to receive one good. To guarantee fairness in the absence of monetary compensation, we consider random assignments that individuals evaluate according to first order stochastic dominance (sd). In particular, we find that solutions that guarantee sd-no-envy (e.g. the Probabilistic Serial) are incompatible even with the weak sd-core from equal division. Solutions on the other hand that produce assignments in the strong sd-core from equal division (e.g. Hylland and Zeckhauser’s Walrasian Equilibria from Equal Incomes) are incompatible with the strong sd-equal-division-lower-bound. As an alternative, we present a solution, based on Walrasian equilibria, that is sd-efficient, in the weak sd-core from equal division and satisfies the strong sd-equal-division-lower-bound.
    Keywords: Probabilistic Serial; Sd-efficiency; Sd-envy-free; Sd-core from equal division; Sd-equal-division-lower-bound
    JEL: C70 D63
    Date: 2016–01–21

This nep-mic issue is ©2016 by Jing-Yuan Chiou. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.