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on Microeconomics |
| By: | Itai Arieli; Ronen Gradwohl; Rann Smorodinsky |
| Abstract: | We study the robustness of cheap-talk equilibria to infinitesimal private information of the receiver in a model with a binary state-space and state-independent sender-preferences. We show that the sender-optimal equilibrium is robust if and only if this equilibrium either reveals no information to the receiver or fully reveals one of the states with positive probability. We then characterize the actions that can be played with positive probability in any robust equilibrium. Finally, we fully characterize the optimal sender-utility under binary receiver's private information, and provide bounds for the optimal sender-utility under general private information. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.00281&r=mic |
| By: | Phoebe Koundouri; Nikitas Pittis (University of Piraeus, Greece); Panagiotis Samartzis |
| Abstract: | This paper analyzes the root cause of Ellsberg-type choices. This class of problems shares the feature that at the time of the decision, t=m, the decision maker (DM) possesses partial information about the events/propositions of interest: DM knows the objective probabilities of some sub-class only, whereas she is uninformed about the probabilities of the complement of this subclass. As a result, DM may slip into the state of 'comparative ignorance' (see Heath and Tversky 1991 and Fox and Tversky 1995). Under this state, DM is likely to exhibit 'ambiguity aversion' (AA) for the events for which she does not have any information relative to those for which she does. AA, in turn, results in DM having non-coherent beliefs, that is, her prior probability function is not additive. A possible way to mitigate AA is to motivate DM to form her prior in a state of 'uniform ignorance'. This may be accomplished by inviting DM to bring herself to the hypothetical time t=0, in the context of which the information was still a contingency, and trace her "counterfactual prior back then". Under uniform ignorance, DM may adhere to the 'Principle of Indifference', thus identifying the prior counterfactual probability with the uniform distribution. Once this probability is elicited, DM can embody the existing information into her current, actual set of beliefs by means of Bayesian Conditionalization. In this case, we show that this set of beliefs is additive. |
| Keywords: | counterfactual priors, ambiguity, ellsberg paradox |
| JEL: | C44 D81 D83 D89 |
| Date: | 2023–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:aue:wpaper:2307&r=mic |
| By: | Daniil Larionov |
| Abstract: | I consider a repeated auction setting with colluding buyers and a seller who adjusts reserve prices over time without long-term commitment. To model the seller’s concern for collusion, I introduce a new equilibrium concept: collusive public perfect equilibrium (cPPE). For every strategy of the seller I define the corresponding “buyer-game†in which the seller is replaced by Nature who chooses the reserve prices for the buyers in accordance with the seller’s strategy. A public perfect equilibrium is collusive if the buyers cannot achieve a higher symmetric public perfect equilibrium payoff in the corresponding buyer-game. In a setting with symmetric buyers with private binary iid valuations and publicly revealed bids, I find a collusive public perfect equilibrium that allows the seller to extract the entire surplus from the buyers in the limit as the discount factor goes to 1. I therefore show that a patient, non-committed seller can effectively fight collusion even when she can only set reserve prices and has to satisfy stringent public disclosure requirements. |
| Keywords: | Repeated Auctions, Auction Design, Collusion, Full Surplus Extraction |
| JEL: | D44 D47 C73 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_392&r=mic |
| By: | Ronen Gradwohl; Moshe Tennenholtz |
| Abstract: | We study the costs and benefits of selling data to a competitor. Although selling all consumers' data may decrease total firm profits, there exist other selling mechanisms -- in which only some consumers' data is sold -- that render both firms better off. We identify the profit-maximizing mechanism, and show that the benefit to firms comes at a cost to consumers. We then construct Pareto-improving mechanisms, in which each consumers' welfare, as well as both firms' profits, increase. Finally, we show that consumer opt-in can serve as an instrument to induce firms to choose a Pareto-improving mechanism over a profit-maximizing one. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.00285&r=mic |
| By: | Guillouet, Louise; Martimort, David |
| Abstract: | A decision-maker enjoys surplus from his current action but faces the possibility of an irreversible catastrophe, an event that follows a non-homogeneous Poisson process with a rate that depends on the stock of past actions. Passed a tipping point, the probability of a disaster increases. Only the distribution of possible values of the tipping point is known. For such a context that entails irreversibility, uncertainty and limited information, the Precautionary Principle, viewed as a constitutional commitment to an action plan, has repeatedly been invoked to guide decision-making. Although the optimal feedback rule should a priori determine actions in terms of both the stock of past actions and the current beliefs on whether the tipping point has been passed or not, an incomplete Stock-Markov feedback rule that only depends on stock suffices to implement the optimum. In such a Stock-Markov Equilibrium, the decision-maker conjectures that future selves stick to the same Stock-Markov feedback rule in the future, and observes deviations by previous selves if any. When deviations are non-observable and future selves have no evidence on how beliefs should change, equilibrium actions remain too low and beliefs are sticky. A commitment to ban actions below the equilibrium Stock-Markov feedback rule with observable deviations prevents such opportunistic deviations and restores the optimal trajectory. |
| Keywords: | Precautionary Principle; Regulation; Environmental Risk; Tipping Point; Uncertainty |
| JEL: | D83 Q55 |
| Date: | 2023–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:127911&r=mic |
| By: | Reuben Bearman |
| Abstract: | If in a signaling game the receiver expects to gain no information by monitoring the signal of the sender, then when a cost to monitor is implemented he will never pay that cost regardless of his off-path beliefs. This is the argument of a recent paper by T. Denti (2021). However, which pooling equilibrium does a receiver anticipate to gain no information through monitoring? This paper seeks to prove that given a sufficiently small cost to monitor any pooling equilibrium with a non-zero index will survive close to the original equilibrium. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.01116&r=mic |
| By: | Dertwinkel-Kalt, Markus; Wey, Christian |
| Abstract: | We present a model to explain why a manufacturer may impose a minimum resale price (min RPM) in a successive monopoly setting. Our argument relies on the retailer having non-contractible choice variables, which could represent the price of a substitute good and/or the effort the retailer exerts for service provision or advertising. Our explanation for a min RPM is empirically distinguishable from alternative justifications for a min RPM that rely, for instance, on retailer competition and service free riding among retailers. Whether a min RPM benefits or harms consumers depends on-as we show-why a min RPM is implemented: if the goal is to soften competition with the substitute product, it tends to harm consumers, and if the goal is to secure service provision, it tends to benefit consumers. |
| Keywords: | Resale Price Maintenance, Vertical Restraints, Cost Pass-Through, Retailing |
| JEL: | L12 L41 D42 K21 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:395&r=mic |
| By: | David K Levine; Andrea Mattozzi; Salvatore Modica |
| Date: | 2023–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:786969000000001811&r=mic |
| By: | Yiling Chen; Tao Lin |
| Abstract: | The classic Bayesian persuasion model assumes a Bayesian and best-responding receiver. We study a relaxation of the Bayesian persuasion model where the receiver can approximately best respond to the sender's signaling scheme. We show that, under natural assumptions, (1) the sender can find a signaling scheme that guarantees itself an expected utility almost as good as its optimal utility in the classic model, no matter what approximately best-responding strategy the receiver uses; (2) on the other hand, there is no signaling scheme that gives the sender much more utility than its optimal utility in the classic model, even if the receiver uses the approximately best-responding strategy that is best for the sender. Together, (1) and (2) imply that the approximately best-responding behavior of the receiver does not affect the sender's maximal achievable utility a lot in the Bayesian persuasion problem. The proofs of both results rely on the idea of robustification of a Bayesian persuasion scheme: given a pair of the sender's signaling scheme and the receiver's strategy, we can construct another signaling scheme such that the receiver prefers to use that strategy in the new scheme more than in the original scheme, and the two schemes give the sender similar utilities. As an application of our main result (1), we show that, in a repeated Bayesian persuasion model where the receiver learns to respond to the sender by some algorithms, the sender can do almost as well as in the classic model. Interestingly, unlike (2), with a learning receiver the sender can sometimes do much better than in the classic model. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.03719&r=mic |
| By: | Itai Arieli; Yakov Babichenko; Stephan M\"uller; Farzad Pourbabaee; Omer Tamuz |
| Abstract: | In a misspecified social learning setting, agents are condescending if they perceive their peers as having private information that is of lower quality than it is in reality. Applying this to a standard sequential model, we show that outcomes improve when agents are mildly condescending. In contrast, too much condescension leads to bad outcomes, as does anti-condescension. |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2301.11237&r=mic |
| By: | Kai Hao Yang; Alexander K. Zentefis |
| Abstract: | In economies with incomplete information, laissez-faire price competition is not, in general, constrained Pareto efficient. But which market structures are? We consider an environment in which firms have private information about costs and consumers make discrete choices over goods. Surveying an expansive class of market structures, we show that the constrained efficient ones are equivalent to price competition, but with lump-sum transfers and yardstick price ceilings that depend on the prices of competing firms. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.03185&r=mic |
| By: | Heifetz, Aviad (Open University Tel Aviv); Minelli, Enrico (University of Brescia); Polemarchakis, Herakles (University of Warwick) |
| Abstract: | Purely affective interaction allows the welfare of an individual to depend on her own actions and on the profile of welfare levels of others. Under an assumption on the structure of mutual affection that we interpret as nonexplosive mutual affection, we show that equilibria of simultaneous-move affective interaction are Pareto optimal independently of whether or not an induced standard game exists. Moreover, if purely affective interaction induces a standard game, then an equilibrium profile of actions is a Nash equilibrium of the game, and this Nash equilibrium and Pareto optimal profile of strategies is locally dominan |
| Keywords: | purely affective interactions ; Pareto optimality JEL codes: D62 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1450&r=mic |
| By: | Gabriele Gratton (UNSW Business School); Barton E. Lee (UNSW Business School) |
| Abstract: | We study a model of popular demand for anti-elite populist reforms that drain the swamp: replace experienced public servants with novices that will only acquire experience with time. Voters benefit from experienced public servants because they are more effective at delivering public goods and more competent at detecting emergency threats. However, public servants’ policy preferences do not always align with those of voters. This tradeoff produces two key forces in our model: public servants’ incompetence spurs disagreement between them and voters, and their effectiveness grants them more power to dictate policy. Both of these effects fuel mistrust between voters and public servants, sometimes inducing voters to drain the swamp in cycles of anti-elite populism. We study which factors can sustain a responsive democracy or induce a technocracy. When instead populism arises, we discuss which reforms may reduce the frequency of populist cycles. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2023-02&r=mic |
| By: | Phoebe Koundouri; Nikitas Pittis (University of Piraeus, Greece); Panagiotis Samartzis |
| Abstract: | Economic rationality demands the decision maker (DM)'s degrees of beliefs to be coherent, that is to obey the rules of probability calculus. This view is usually referred to as Probabilism. Among the various justifications of Probabilism, the Dutch Book Argument (DBA) occupies a prominent place. DBA purports to show that DM's aversion to sure financial losses is sufficient to ensure that her beliefs are coherent. A tacit assumption of DBA is that DM is capable to implement a heuristic error-correction process, ECC, that yields rational beliefs. The main aim of this paper is to challenge this assumption. In order for DBA to be convincing, ECC must empower DM to detect each and every Dutch Book that may be made against her, no matter how complex this Book turns out to be. A complex Dutch book is one that requires very sophisticated calculations before its financial consequences are deduced. In the presence of complex Dutch Books, the only point that DBA makes clear is that DM has to be 'computational omnipotent' on pain of incoherence. |
| JEL: | C44 D81 D83 D89 |
| Date: | 2023–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:aue:wpaper:2306&r=mic |
| By: | Roberto Corrao; Drew Fudenberg; David K Levine |
| Date: | 2023–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:786969000000001804&r=mic |