nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒01‒30
ten papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Selective Memory of a Psychological Agent By Jeanne Hagenbach; Frédéric Koessler
  2. Stealth Startups, Clauses, and Add-ons: A Model of Strategic Obfuscation By Monte, Daniel; Linhares, Luis Henrique
  3. Interim Rationalizable (and Bayes-Nash) Implementation of Functions: A full Characterization By R Jain; M Lombardi
  4. Naked Exclusion with Heterogeneous Buyers By Ying Chen; Jan Zapal
  5. Confirmation Bias in Social Networks By Marcos Ross Fernandes
  6. A Common-Value Auction with State-Dependent Participation By Stephan Lauermann; Asher Wolinsky
  7. Na?ve Learning in Social Networks with Fake News: Bots as a Singularity By Saeed Badri; Bernd Heidergott; Ines Lindner
  8. Sequential Sampling Beyond Decisions? A Normative Model of Decision Confidence By Rastislav Rehak
  9. Regret theory, Allais' Paradox, and Savage's omelet By Vardan G. Bardakhchyan; Armen E. Allahverdyan
  10. Why Are All Communist Countries Dictatorial? By C.Y. Cyrus Chu; Meng-Yu Liang

  1. By: Jeanne Hagenbach (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Frédéric Koessler (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We consider a single psychological agent whose utility depends on his action, the state of the world, and the belief that he holds about that state. The agent is initially informed about the state and decides whether to memorize it, otherwise he has no recall. We model the memorization process by a multi-self game in which the privately informed first self voluntarily discloses information to the second self, who has identical preferences and acts upon the disclosed information. We identify broad categories of psychological utility functions for which there exists an equilibrium in which every state is voluntarily memorized. In contrast, if there are exogenous failures in the memorization process, then the agent memorizes states selectively. In this case, we characterize the partially informative equilibria for common classes of psychological utilities. If the material cost of forgetting is low, then the agent only memorizes good enough news. Otherwise, only extreme news are voluntarily memorized.
    Keywords: Multi-self game, Disclosure games, Imperfect recall, Selective memory, Motivated beliefs, Psychological games, Anticipatory utility
    Date: 2021–02
  2. By: Monte, Daniel; Linhares, Luis Henrique
    Abstract: Obfuscation is ubiquitous and often intentional. We consider an uninformed Principal who chooses how costly it will be for the Agent to obtain and process new information. Thus, obfuscation and transparency are endogenous to the problem at hand. Using a rational inattention framework, we study the Principal's optimal induced cost of processing information and examine necessary and sufficient conditions for obfuscation. We characterize the Principal's optimal obfuscation for the class of state independent preferences. We apply our model to examples such as stealth startups, companies with unnecessarily complicated contracts, and firms whose products have varying features that disguise add-ons.
    Keywords: stealth startups, information design, rational inattention
    JEL: D0 D8
    Date: 2023–01–09
  3. By: R Jain (Institute of Economics, Academia Sinica, Taipei, Taiwan); M Lombardi (University of Liverpool Management School)
    Abstract: Interim Rationalizable Monotonicity, due to Oury and Tercieux (2012), fullycharacterizes the class of social choice functions that are implementable in in-terim correlated rationalizable (and Bayes-Nash equilibrium) strategies.
    JEL: C79 D82
    Date: 2022–05
  4. By: Ying Chen; Jan Zapal
    Abstract: We investigate the effects of buyer heterogeneity in a market in which an incumbent firm prevents entry when it signs enough exclusionary contracts with buyers. With heterogeneous buyers several well-known results in exclusionary contracting with homogenous buyers are overturned and novel ones emerge. First, inefficient equilibria exist in which exclusionary contracts are signed but entry still occurs, and the loss of consumer surplus falls on small buyers. Second, sequential contracting may be more pro-competitive than simultaneous contracting in the sense that entry occurs under sequential but not simultaneous contracting. When this happens, sequential Pareto dominates simultaneous contracting.
    Keywords: contracting with externalities; exclusionary contracts; buyer heterogeneity; pro-competitive; anti-competitive; sequential vs simultaneous contracting;
    JEL: C78 D21 L12 L42
    Date: 2022–11
  5. By: Marcos Ross Fernandes
    Abstract: In this study, I propose a theoretical social learning model to investigate how confirmation bias affects opinions when agents exchange information over a social network. Hence, besides exchanging opinions with friends, agents observe a public sequence of potentially ambiguous signals and interpret it according to a rule that includes confirmation bias. First, this study shows that regardless of level of ambiguity both for people or networked society, only two types of opinions can be formed, and both are biased. However, one opinion type is less biased than the other depending on the state of the world. The size of both biases depends on the ambiguity level and relative magnitude of the state and confirmation biases. Hence, long-run learning is not attained even when people impartially interpret ambiguity. Finally, analytically confirming the probability of emergence of the less-biased consensus when people are connected and have different priors is difficult. Hence, I used simulations to analyze its determinants and found three main results: i) some network topologies are more conducive to consensus efficiency, ii) some degree of partisanship enhances consensus efficiency even under confirmation bias and iii) open-mindedness (i.e. when partisans agree to exchange opinions with opposing partisans) might inhibit efficiency in some cases.
    Keywords: Social Networks; Social Learning; Misinformation; Confirmation Bias
    JEL: C11 D83 D85
    Date: 2023–01–09
  6. By: Stephan Lauermann (University of Bonn, Department of Economics); Asher Wolinsky (Northwestern University, Department of Economics)
    Abstract: This paper analyzes a common-value, first-price auction with state-dependent participation. The number of bidders, which is unobservable to them, depends on the true value. For participation patterns with many bidders in each state, the bidding equilibrium may be of a “pooling” type – with high probability, the winning bid is the same across states and is below the ex-ante expected value – or of a “partially revealing“ type – with no significant atoms in the winning bid distribution and an expected winning bid increasing in the true value. Which of these forms will arise is determined by the likelihood ratio at the top of the signal distribution and the participation across states. We fully characterize this relation and show how the participation pattern determines the extent of information aggregation by the price.
    Date: 2021–07
  7. By: Saeed Badri (Vrije Universiteit Amsterdam); Bernd Heidergott (Vrije Universiteit Amsterdam); Ines Lindner (Vrije Universiteit Amsterdam)
    Abstract: We study the impact of bots on social learning in a social network setting. Regular agents receive independent noisy signals about the true value of a variable and then communicate in a network. They na¨?vely update beliefs by repeatedly taking weighted averages of neighbors’ opinions. Bots are agents in the network that spread fake news by disseminating biased information. Our main contributions are threefold. (1) We show that the consensus of the network is a mapping of the interaction rate between the agents and bots and is discontinuous at zero mass of bots. This implies that even a comparatively “infinitesimal” small number of bots still has a sizeable impact on the consensus and hence represents an obstruction to the “wisdom of crowds”. (2) We prove that the consensus gap induced by the marginal presence of bots depends neither on the agent network or bot layout nor on the assumed connection structure between agents and bots. (3) We show that before the ultimate (and bot-infected) consensus is reached, the network passes through a quasi-stationary phase which has the potential to mitigate the harmful impact of bots.
    Keywords: Fake news, Misinformation, Social networks, Social Media, Wisdom of Crowds
    JEL: D83 D85 Z13
    Date: 2022–12–22
  8. By: Rastislav Rehak
    Abstract: We study informational dissociations between decisions and decision confidence. We explore the consequences of a dual-system model: the decision system and confidence system have distinct goals, but share access to a source of noisy and costly information about a decision-relevant variable. The decision system aims to maximize utility while the confidence system monitors the decision system and aims to provide good feedback about the correctness of the decision. In line with existing experimental evidence showing the importance of post-decisional information in confidence formation, we allow the confidence system to accumulate information after the decision. We aim to base the post-decisional stage (used in descriptive models of confidence) in the optimal learning theory. However, we find that it is not always optimal to engage in the second stage, even for a given individual in a given decision environment. In particular, there is scope for post-decisional information acquisition only for relatively fast decisions. Hence, a strict distinction between one-stage and two-stage theories of decision confidence may be misleading because both may manifest themselves under one underlying mechanism in a non-trivial manner.
    Keywords: decision; confidence; sequential sampling; optimal stopping;
    JEL: C11 C41 C44 D11 D83 D91
    Date: 2022–11
  9. By: Vardan G. Bardakhchyan; Armen E. Allahverdyan
    Abstract: We study a sufficiently general regret criterion for choosing between two probabilistic lotteries. For independent lotteries, the criterion is consistent with stochastic dominance and can be made transitive by a unique choice of the regret function. Together with additional (and intuitively meaningful) super-additivity property, the regret criterion resolves the Allais' paradox including the cases were the paradox disappears, and the choices agree with the expected utility. This superadditivity property is also employed for establishing consistency between regret and stochastic dominance for dependent lotteries. Furthermore, we demonstrate how the regret criterion can be used in Savage's omelet, a classical decision problem in which the lottery outcomes are not fully resolved. The expected utility cannot be used in such situations, as it discards important aspects of lotteries.
    Date: 2023–01
  10. By: C.Y. Cyrus Chu (Institute of Economics, Academia Sinica, Taipei, Taiwan); Meng-Yu Liang (Institute of Economics, Academia Sinica, Taipei, Taiwan)
    Abstract: Suppose that people in a capitalist society order policies mainly by comparing their wealth changes induced by various policies. We show that property prices play the role of aligning individual preferences, which naturally modifies the axiom of universal domain of the social decision function. Under reasonable and testable assumptions, we prove that this alignment effect eliminates the possibility of Condorcet Cycles (Condorce 1785) and warrants the transitivity of the majority voting mechanism. Taking away private property will reinstitute Condorcet Cycles, returning the inescapable conclusion of a dictatorial social decision rule, as claimed by Arrow (1951). Our result provides partial support to the practices of voting eligibility tests implemented in many democratic countries.
    Date: 2022–06

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