nep-mic New Economics Papers
on Microeconomics
Issue of 2019‒12‒02
twelve papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Communication with Forgetful Liars By Philippe Jehiel
  2. Posterior Probabilities: Dominance and Optimism By Sergiu Hart; Yosef Rinott
  3. Optimal Search and Awareness Expansion By Greminger, Rafael
  4. Weak Monotone Comparative Statics By Yeon-Koo Che; Jinwoo Kim; Fuhito Kojima
  5. Selective Sampling with Information-Storage Constraints By Philippe Jehiel; Jakub Steiner
  6. Taxes and Turnout By Bierbrauer, Felix; Tsyvinski, Aleh; Werquin, Nicolas
  7. Bargaining with Independence of Higher or Irrelevant Claims By Josune Albizuri, M.; Dietzenbacher, Bas; Zarzuelo, J.
  8. Confirmation Bias in Social Networks By Marcos Fernandes
  9. Robust Reserve Pricing in Auctions under Mean Constraints By Ethan Che
  10. Asymmetric majority pillage games By Kerber, Manfred; Rowat, Colin; Yoshihara, Naoki
  11. Market Allocations under Ambiguity: A Survey By Antoine Billot; Sujoy Mukerji; Jean-Marc Tallon
  12. Coordinated Shirking By Tenev, Nicholas

  1. By: Philippe Jehiel (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, UCL - University College of London [London])
    Abstract: I consider multi-round cheap talk communication environments in which, after a lie, the informed party has no memory of the content of the lie. I characterize the equilibria with forgetful liars in such settings assuming that a liar.s expectation about his past lie coincides with the equilibrium distribution of lies aggregated over all possible realizations of the states. The approach is used to shed light on when the full truth is almost surely elicited, when multiple lies can arise in equilibrium, and when inconsistencies trigger harmful consequences.
    Keywords: forgetful liars,lie detection,analogy-based expectations,cheap talk
    Date: 2019–07
  2. By: Sergiu Hart; Yosef Rinott
    Abstract: The Bayesian posterior probability of the true state is stochastically dominated by that same posterior under the probability law of the true state. This generalizes to notions of "optimism" about posterior probabilities.
    Date: 2019–11
  3. By: Greminger, Rafael (Tilburg University, Center For Economic Research)
    Abstract: This paper introduces a search problem where a consumer has to first become aware of an alternative, before being able to search it. Initially, the consumer is aware of only a few alternatives. During search, the consumer sequentially decides between searching alternatives he is already aware of and expanding awareness to discover more products. I show that the optimal policy for this search problem is fully characterized by simple reservation values. Moreover, I prove that the purchase outcome of a consumer optimally solving the search problem is equivalent to the consumer simply choosing the product offering the largest value on a predetermined index.
    Keywords: sequential search; limited awareness; information aquisition
    JEL: D83
    Date: 2019
  4. By: Yeon-Koo Che; Jinwoo Kim; Fuhito Kojima
    Abstract: We develop a theory of monotone comparative statics based on weak set order, or in short weak monotone comparative statics, and identify the enabling conditions in the context of individual choices, Pareto optimal choices for a coalition of agents, and Nash equilibria of games. Compared with the existing theory based on strong set order, the conditions for weak monotone comparative statics are weaker, sometimes considerably, in terms of the structure of the choice environment and underlying preferences of agents. We apply the theory to establish existence and monotone comparative statics of Nash equilibria in games with strategic complementarities and of stable many-to-one matchings in two-sided matching problems, allowing for general preferences that accommodate indifferences and incomplete preferences.
    Date: 2019–11
  5. By: Philippe Jehiel (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, UCL - Department of Medical Physics and Biomedical Engineering - UCL - University College of London [London]); Jakub Steiner (UZH - University of Zürich [Zürich], CERGE-EI - Charles University [Prague])
    Abstract: A memoryless agent can acquire arbitrarily many signals. After each signal observation, she either terminates and chooses an action, or she discards her observation and draws a new signal. By conditioning the probability of termination on the information collected, she controls the correlation between the payo_ state and her terminal action. We provide an optimality condition for the emerging stochastic choice. The condition highlights the bene_ts of selective memory applied to the extracted signals. Implications|obtained in a simple class of binary problems| include (i) confirmation bias, (ii) speed-accuracy complementarity, (iii) overweighting of rare events, and (iv) salience effect.
    Keywords: bounded rationality,information processing,stochastic choice,confirmation bias,speed-accuracy complementarity,probability weighting,salience
    Date: 2019–07
  6. By: Bierbrauer, Felix; Tsyvinski, Aleh; Werquin, Nicolas
    Abstract: We develop a model of political competition with endogenous platform choices of parties and endogenous turnout. A main finding is that a party that is leading in the polls has an incentive to cater primarily to the core voters of the opposing party. A party that is lagging behind, by contrast, has an incentive to cater to its own base. We analyze the implications for redistributive taxation and characterize the political weights that competing parties assign to voters with different incomes. Finally, we relate the comparative statics predictions of our model to the asymmetric demobilization strategy in the German elections in the era of Merkel.
    Keywords: Political competition, Income Taxation, Turnout.
    JEL: D72 D82 H21
    Date: 2019–11
  7. By: Josune Albizuri, M.; Dietzenbacher, Bas (Tilburg University, Center For Economic Research); Zarzuelo, J.
    Abstract: This paper studies independence of higher claims and independence of irrelevant claims on the domain of bargaining problems with claims. Independence of higher claims requires that the payoff of an agent does not depend on the higher claim of another agent. Independence of irrelevant claims states that the payoffs should not change when the claims decrease but remain higher than the payoffs. Interestingly, in conjunction with standard axioms from bargaining theory, these properties characterize a new constrained Nash solution, a constrained Kalai-Smorodinsky solution, and a constrained Kalai solution.
    Keywords: bargaining with claims; independence of higher claims; independence of irrelevant claims; constrained Nash solution; constrained Kalai-Smorodingsky solution
    JEL: C78 D74
    Date: 2019
  8. By: Marcos Fernandes
    Abstract: I propose a social learning model that investigates how confimatory bias affects public opinion when agents exchange information over a social network. For that, besides exchanging opinions with friends, individuals observe a public sequence of potentially ambiguous signals and they interpret it according to a rule that accounts for confirmation bias. I first show that, regardless the level of ambiguity and both in the case of a single individual or of a networked society, only two types of opinions might be formed and both are biased. One opinion type, however, is necessarily less biased (more efficient) than the other depending on the state of the world. The size of both biases depends on the ambiguity level and the relative magnitude of the state and confirmatory biases. In this context, long-run learning is not attained even when individuals interpret ambiguity impartially. Finally, since it is not trivial to ascertain analytically the probability of emergence of the efficient consensus when individuals are connected through a social network and have different priors, I use simulations to analyze its determinants. Three main results derived from this exercise are that, in expected terms, i) some network topologies are more conducive to consensus efficiency, ii) some degree of partisanship enhances consensus efficiency even under confirmatory bias and iii) open-mindedness, i.e. when partisans agree to exchange opinions with other partisans with polar opposite beliefs, might harm efficiency in some cases.
    Date: 2019
  9. By: Ethan Che
    Abstract: We study a seller who sets a reserve price in a second price auction with uncertainty over the joint distribution of bidders' valuations. The seller only knows the mean of the marginal distribution of each bidder's valuation and the range, and an adversarial nature chooses the worst-case distribution within this ambiguity set. We use a dual characterization to solve for this distribution. We find that the seller's optimal reserve price tends to be low and converges to zero in probability as the number of bidders increases.
    Date: 2019–11
  10. By: Kerber, Manfred; Rowat, Colin; Yoshihara, Naoki
    Abstract: This paper studies pillage games (Jordan in J Econ Theory 131.1:26-44, 2006, “Pillage and property”), which are well suited to modelling unstructured power contests. To enable empirical test of pillage games’ predictions, it relaxes a symmetry assumption that agents’ intrinsic contributions to a coalition’s power is identical. In the three-agent game studied: (i) only eight configurations are possible for the core, which contains at most six allocations; (ii) for each core configuration, the stable set is either unique or fails to exist; (iii) the linear power function creates a tension between a stable set’s existence and the interiority of its allocations, so that only special cases contain strictly interior allocations. Our analysis suggests that non-linear power functions may offer better empirical tests of pillage game theory.
    Keywords: power contests, core, stable sets
    JEL: C71 D51 P14
    Date: 2019–11
  11. By: Antoine Billot (Lemma, Université Panthéon-Assas); Sujoy Mukerji (Queen Mary University of London); Jean-Marc Tallon (Paris School of Economics, CNRS)
    Abstract: We review some of the (theoretical) economic implications of David Schmeidler's models of decision under uncertainty (Choquet expected utility and maxmin expected utility) in competitive market settings. We start with the portfolio inertia result of Dow and Werlang (1992), show how it does or does not generalize in an equilibrium setting. We further explore the equilibrium implications (indeterminacies, non revelation of information) of these decision models. A section is then devoted to the studies of Pareto optimal arrangements under these models. We conclude with a discussion of experimental evidence for these models that relate, in particular, to the implications for market behaviour discussed in the preceding sections.
    Keywords: Choquet Expected Utility; Maxmin Expected Utility; No-trade; Risk Sharing; Indeterminacy; Experimental evidence
    JEL: D81
    Date: 2019–10–24
  12. By: Tenev, Nicholas
    Abstract: In the financial crisis of 2008, losses on popular new securitized products far exceeded predictions. This paper studies this episode with a model of technology adoption: a principal tries to induce costly effort from a group of agents charged with vetting new technology. The principal is unwilling to simultaneously punish large groups of agents, so they shirk when coordination is possible. Widely applicable technology expands productive possibilities but also provides an opportunity for coordinated shirking, and can thus lead to widespread production failure. Furthermore, even agents who learn that they are using flawed technology may continue to do so.
    Date: 2018–11–29

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