nep-mic New Economics Papers
on Microeconomics
Issue of 2018‒12‒24
sixteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Political Awareness, Microtargeting of Voters, and Negative Electoral Campaigning By Burkhard Schipper; Hee Yeul Woo
  2. Expectations-Based Loss Aversion in Common-Value Auctions: Extensive vs. Intensive Risk By Benjamin Balzer; Antonio Rosato
  3. Kuhn's Theorem for Extensive Games with Unawareness By Burkhard Schipper
  4. Nash Implementation in Production Economies with Unequal Skills: A Characterization By Naoki Yoshihara; Akira Yamada
  5. Strategic Teaching and Learning in Games By Burkhard Schipper
  6. Generalising Conflict Networks By Cortes-Corrales, Sebastián; Gorny, Paul M.
  7. Comprehensive Rationalizability By Burkhard Schipper; Martin Meier; Aviad Heifetz
  8. Qualitative analysis of common belief of rationality in strategic-form games By Giacomo Bonanno; Elias Tsakas
  9. Attention please! By Olivier Gossner; Jakub Steiner; Colin Stewart
  10. Information Nudges and Self-Control By Mariotti, Thomas; Schweizer, Nikolaus; Szech, Nora; von Wangenheim, Jonas
  11. Who Lobbies Whom? Special Interests and Hired Guns By Christopher J. Ellis; Thomas Groll
  12. Equitable Voting Rules By Bartholdi, Laurent; Hann-Caruthers, Wade; Josyula, Maya; Tamuz, Omer; Yariv, Leeat
  13. A characterization of lexicographic preferences By Goswami, Mridu Prabal; Mitra, Manipushpak; Sen, Debapriya
  14. Organizational Equilibrium with Capital By Bassetto, Marco; Huo, Zhen; Rios-Rull, Jose-Victor
  15. Dynamic Programming with Recursive Preferences: Optimality and Applications By Guanlong Ren; John Stachurski
  16. A Model of Competing Narratives By Eliaz, Kfir; Spiegler, Ran

  1. By: Burkhard Schipper; Hee Yeul Woo (Department of Economics, University of California Davis)
    Abstract: We study the informational effectiveness of electoral campaigns. Voters may not think about all political issues and have incomplete information with regard to political positions of candidates. Nevertheless, we show that if candidates are allowed to microtarget voters with messages then election outcomes are as if voters have full awareness of political issues and complete information about candidate's political positions. Political competition is paramount for overcoming the voter's limited awareness of political issues but unnecessary for overcoming just uncertainty about candidates' political positions. Our positive results break down if microtargeting is not allowed or voters lack political reasoning abilities. Yet, in such cases, negative campaigning comes to rescue.
    Keywords: Electoral competition, campaign advertising, multidimensional policy space, microtargeting, dog-whistle politics, negative campaigning, persuasion games, unawareness
    JEL: C72 D72 D82 P16
    Date: 2017–05–01
  2. By: Benjamin Balzer (Economics Discipline Group, University of Technology Sydney); Antonio Rosato (Economics Discipline Group, University of Technology Sydney)
    Abstract: We analyze the behavior of expectations-based loss-averse bidders in frist-price and second-price common-value auctions. Highlighting the distinction between the uncertainty bidders face over whether they win the auction (extensive risk) and that over the value of the prize conditional on winning (intensive risk), we show that loss-averse bidders react differently to these different kinds of risk. In particular, the intensive risk pushes bidders to behave less aggressively in a common-value environment compared to one with private values. Yet, despite this "precautionary biddinging" effect, in equilibrium bidders can be exposed to the "winner's curse". We consider two alternative specifcations for how bidders assess outcomes as either gains or losses. Under narrow bracketing, bidders experience gains and losses separately over whether they receive the prize and how much they pay. Under broad bracketing, instead, bidders assess gains and losses over their net surplus. With narrow bracketing, first-price auctions expose bidders to less intensive risk and yield a higher expected revenue than second-price auctions, while the opposite result might hold with broad bracketing.
    Keywords: Reference-Dependent Preferences; Loss Aversion; Common-Value Auctions; Winner?s Curse
    JEL: D03 D44 D81 D82
    Date: 2018–10–18
  3. By: Burkhard Schipper (Department of Economics, University of California Davis)
    Abstract: We extend Kuhn's Theorem to extensive games with unawareness. This extension is not entirely obvious: First, extensive games with non-trivial unawareness involve a forest of partially ordered game trees rather than just one game tree. An information set at a history in one tree may consist of histories in a less expressive tree. Consequently, perfect recall takes a more complicated form as players may also become aware of new actions during the play. Second, strategies can only be partially an object of ex-ante choice in games with unawareness. Finally, histories that a player may expect to reach with a strategy profile may not be the histories that actually occur with this strategy profile, requiring us to define appropriate notions of equivalence of strategies.
    Keywords: perfect recall, mixed strategy, behavior strategy, unawareness.
    JEL: C72 D83
    Date: 2017–11–01
  4. By: Naoki Yoshihara (School of Management, Kochi University of Technology); Akira Yamada (Sapporo University)
    Abstract: The present study examines production economies with unequal labor skills, where the planner is ignorant of the set of feasible allocations in advance of production. In particular, we characterize Nash implementation by canonical mechanisms by means of Maskin monotonicity and a new axiom, non-manipulability of unused skills (NUS), where the latter represents a weak independence property with respect to changes in skills. Following these characterizations, we show that some Maskin monotonic social choice correspondences are not implementable if information about individual skills is absent.
    Keywords: Unequal labor skills, Nash implementation, Canonical mechanisms, Non-manipulability of unused skills
    JEL: C72 D51 D78 D82
    Date: 2018–12
  5. By: Burkhard Schipper (Department of Economics, University of California Davis)
    Abstract: It is known that there are uncoupled learning heuristics leading to Nash equilibrium in all finite games. Why should players use such learning heuristics and where could they come from? We show that there is no uncoupled learning heuristic leading to Nash equilibrium in all finite games that a player has an incentive to adopt, that would be evolutionary stable or that could "learn itself". Rather, a player has an incentive to strategically teach such a learning opponent in order to secure at least the Stackelberg leader payoff. The impossibility result remains intact when restricted to the classes of generic games, two-player games, potential games, games with strategic complements or 2 x 2 games, in which learning is known to be "nice". More generally, it also applies to uncoupled learning heuristics leading to correlated equilibria, rationalizable outcomes, iterated admissible outcomes, or minimal curb sets. A possibility result restricted to "strategically trivial" games fails if some generic games outside this class are considered as well.
    Keywords: Learning in games, Interactive learning, Higher-order learning
    JEL: C72 C73
    Date: 2017–05–01
  6. By: Cortes-Corrales, Sebastián; Gorny, Paul M.
    Abstract: We investigate the behaviour of agents in bilateral contests within arbitrary network structures when valuations and efficiencies are heterogenous. These parameters are interpreted as measures of strength. We provide conditions for when unique, pure strategy equilibria exist. When a player starts attacking one player more strongly, others join in on fighting the victim. Different efficiencies in fighting make players fight those of similar strength. Centrality of a player (having more enemies) makes a player weaker and her opponents are more likely to attack with more effort.
    Keywords: Contest, conflict, networks, games on networks
    JEL: C72 D74 D85
    Date: 2018–11–13
  7. By: Burkhard Schipper; Martin Meier; Aviad Heifetz (Department of Economics, University of California Davis)
    Abstract: We present a new solution concept for strategic games called comprehensive rationalizability that embodies "common cautious belief in rationality" based on a sound epistemic characterization in a universal type space. It refines rationalizability, but it neither refines nor is refined by iterated admissibility. Nevertheless, it coincides with iterated admissibility in many relevant economic applications.
    Keywords: Common assumption of rationality, common belief in rationality, iterated admissibility, rationalizability, lexicographic belief systems
    JEL: C72
    Date: 2017–05–01
  8. By: Giacomo Bonanno; Elias Tsakas (Department of Economics, University of California Davis)
    Abstract: We study common belief of rationality in strategic-form games with ordinal utilities, employing a model of qualitative beliefs. We characterize the three main solution concepts for such games, viz., Iterated Deletion of Strictly Dominated Strategies (IDSDS), Iterated Deletion of Boergers-dominated Strategies (IDBS) and Iterated Deletion of Inferior Strategy Profiles (IDIP), by means of gradually restrictive properties imposed on the models of qualitative beliefs. As a corollary, we prove that IDIP refines IDBS, which refines IDSDS.
    Keywords: Qualitative likelihood relation, ordinal payoffs, common belief of rationality, iterative deletion procedures
    JEL: C7
    Date: 2017–05–11
  9. By: Olivier Gossner; Jakub Steiner; Colin Stewart
    Abstract: We study the impact of manipulating the attention of a decision-maker who learns sequentially about a number of items before making a choice. Under natural assumptions on the decision-maker's strategy, forcing attention toward one item increases its likelihood of being chosen.
    Keywords: Sequential sampling, marketing, persuasion, attention allocation
    JEL: D8 D91
    Date: 2018–11
  10. By: Mariotti, Thomas; Schweizer, Nikolaus; Szech, Nora; von Wangenheim, Jonas
    Abstract: We study the optimal design of information nudges for present-biased consumers who have to make sequential consumption decisions without exact prior knowledge of their long-term consequences. For arbitrary distributions of risk, there exists a consumer-optimal information nudge that is of cutoff type, recommending consumption or abstinence according to the magnitude of the risk. Under a stronger bias for the present, the target group receiving a credible signal to abstain must be tightened. We compare this nudge with those favored by a health authority or a lobbyist. When some consumers are more strongly present-biased than others, a traffic-light nudge is optimal.
    Keywords: information design; Information Nudges; Present-Biased Preferences; Self-Control
    JEL: C73 D82
    Date: 2018–11
  11. By: Christopher J. Ellis; Thomas Groll
    Abstract: We model which special interest groups lobby which policymakers directly, and which employ for-profit intermediaries. We show that special interests affected by policy issues that frequently receive high political salience lobby policymakers directly, while those that rarely receive high political salience must employ “hired guns.” This follows from the availability of repeated agency contracts between policymakers and special interests. Special interests that lobby on issues that frequently experience high political salience may be incentivized to truthfully reveal private, policy relevant, information to policymakers via the promise of a high probability future political access. For-profit intermediaries are always in the “informational lobbying market” and can be easily incentivized by policymakers to truthfully reveal private information. We also show that “insecure” policymakers, those in vulnerable seats, tend to be lobbied by professional intermediaries. Also, policymakers that are more time constrained tend to rely more on professional intermediaries for policy relevant information.
    Keywords: informational lobbying, constrained access, intermediaries, financial contributions
    JEL: D72 D78 D83
    Date: 2018
  12. By: Bartholdi, Laurent; Hann-Caruthers, Wade; Josyula, Maya; Tamuz, Omer; Yariv, Leeat
    Abstract: A celebrated result in social choice is May's Theorem (May, 1952), providing the foundation for majority rule. May's crucial assumption of symmetry, often thought of as a procedural equity requirement, is violated by many choice procedures that grant voters identical roles. We show that a modification of May's symmetry assumption allows for a far richer set of rules that still treat voters equally, but have minimal winning coalitions comprising a vanishing fraction of the population. We conclude that procedural fairness can coexist with the empowerment of a small minority of individuals. Methodologically, we introduce techniques from discrete mathematics and illustrate their usefulness for the analysis of social choice questions.
    Keywords: equity; Finite Groups; May's Theorem; Social Choice; Voting rules
    JEL: C60 D71 D72
    Date: 2018–11
  13. By: Goswami, Mridu Prabal; Mitra, Manipushpak; Sen, Debapriya
    Abstract: This paper characterizes lexicographic preferences over alternatives that are identified by a finite number of attributes. We say two alternatives are 'totally different' if they are different with respect to every attribute. Our characterization is based on two key concepts: a weaker notion of continuity called 'mild continuity' (strict preference order between any two totally different alternatives is preserved around their small neighborhoods) and an 'unhappy set' (any alternative outside the set is preferred to all alternatives inside).
    Keywords: lexicographic preference; mild continuity; unhappy set; inclusion of marginally improved alternatives; preference nonreversibility
    JEL: C00 D01
    Date: 2018–12–14
  14. By: Bassetto, Marco (Federal Reserve Bank of Chicago); Huo, Zhen (Yale University); Rios-Rull, Jose-Victor (University of Pennsylvania)
    Abstract: This paper proposes a new equilibrium concept - organizational equilibrium - for models with state variables that have a time inconsistency problem. The key elements of this equilibrium concept are: (1) agents are allowed to ignore the history and restart the equilibrium; (2) agents can wait for future agents to start the equilibrium. We apply this equilibrium concept to a quasi-geometric discounting growth model and to a problem of optimal dynamic fiscal policy. We find that the allocation gradually transits from that implied by its Markov perfect equilibrium towards that implied by the solution under commitment, but stopping short of the Ramsey outcome. The feature that the time inconsistency problem is resolved slowly over time rationalizes the notion that good will is valuable but has to be built gradually.
    Keywords: Capital; fiscal policy; Markov equilibrium; Quasi-geometry
    JEL: C62 E22 E62
    Date: 2018–11–30
  15. By: Guanlong Ren; John Stachurski
    Abstract: This paper provides an alternative approach to the theory of dynamic programming, designed to accommodate the recursive preference specifications commonly used in modern economic analysis while still supporting traditional additively separable rewards. The approach exploits the theory of monotone convex operators, which turns out to be well suited to dynamic maximization. The intuition is that convexity is preserved under maximization, so convexity properties found in preferences extend naturally to the Bellman operator.
    Date: 2018–12
  16. By: Eliaz, Kfir; Spiegler, Ran
    Abstract: We formalize the argument that political disagreements can be traced to a "clash of narratives". Drawing on the "Bayesian Networks" literature, we model a narrative as a causal model that maps actions into consequences, weaving a selection of other random variables into the story. An equilibrium is defined as a probability distribution over narrative-policy pairs that maximizes a representative agent's anticipatory utility, capturing the idea that public opinion favors hopeful narratives. Our equilibrium analysis sheds light on the structure of prevailing narratives, the variables they involve, the policies they sustain and their contribution to political polarization.
    Keywords: Anticipatory Utility; model misspecification; narratives; Polarization; Political Competition
    Date: 2018–11

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