nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒06‒19
twenty-six papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Lemonade from Lemons: Information Design and Adverse Selection By Navin Kartik; Weijie Zhong
  2. Sparking curiosity or tipping the scales? Targeted advertising with consumer learning By Andrei Matveenko; Egor Starkov
  3. Fair Price Discrimination By Siddhartha Banerjee; Kamesh Munagala; Yiheng Shen; Kangning Wang
  4. The Market for Ethical Goods By Martin Peitz; Susumu Sato
  5. Multi-Unit Auctions with Uncertain Supply and Single-Unit Demand By Anderson, Edward; Holmberg, Pär
  6. Robust Auction Design with Support Information By Jerry Anunrojwong; Santiago R. Balseiro; Omar Besbes
  7. Trade among moral agents with information asymmetries By José Ignacio Rivero Wildemauwe
  8. Information, market power and welfare By Lou, Youcheng; Rahi, Rohit
  9. On the Limit Points of an Infinitely Repeated Rational Expectations Equilibrium By Marialaura Pesce; Niccolo Urbinati; Nicholas C. Yannelis
  10. Strategy-proof preference aggregation and the anonymity-neutrality tradeoff By Stergios Athanasoglou; Somouaoga Bonkoungou; Lars Ehlers
  11. A Theory of Auditability for Allocation and Social Choice Mechanisms By Aram Grigoryan; Markus M\"oller
  12. The Social Equilibrium of Relational Arrangements By Parikshit Ghosh; Debraj Ray
  13. Group knowledge and individual introspection By Michele Crescenzi
  14. Strategic flip-flopping in political competition By Ga\"etan Fournier; Alberto Grillo; Yevgeny Tsodikovich
  15. Coordination on networks with farsighted and myopic agents By Ana Mauleon; Simon Schopohl; Akylai Taalaibekova; Vincent Vannetelbosch
  16. On the constrained efficiency of strategy-proof random assignment By Basteck, Christian; Ehlers, Lars H.
  17. A Model of Influencer Economy By Lin William Cong; Siguang Li
  18. Dynamic Preference Foundations of Expected Exponentially-Discounted Utility By Craig S. Webb
  19. Targeting in networks under costly agreements By Mohamed Belhaj; Frédéric Deroïan; Shahir Safi
  20. Decentralization in Non-Convex Economies with Externalities By Maria Gabriella Graziano; Marialaura Pesce; Vincenzo Platino
  21. Complete Conditional Type Structures By Nicodemo De Vito
  22. Subjective Expected Utility Through Stochastic Independence By Michel Grabisch; Benjamin Monet; Vassili Vergopoulos
  23. On rational choice from lists of sets By Gleb Koshevoy; Ernesto Savaglio
  24. Online Learning in a Creator Economy By Banghua Zhu; Sai Praneeth Karimireddy; Jiantao Jiao; Michael I. Jordan
  25. A Survey on Drip Pricing and Other False Advertising By Rhodes, Andrew
  26. The Indoctrination Game By Lotem Ikan; David Lagziel

  1. By: Navin Kartik; Weijie Zhong
    Abstract: A seller posts a price for a single object. The seller's and buyer's values may be interdependent. We characterize the set of payoff vectors across all information structures. Simple feasibility and individual-rationality constraints identify the payoff set. The buyer can obtain the entire surplus; often, other mechanisms cannot enlarge the payoff set. We also study payoffs when the buyer is more informed than the seller, and when the buyer is fully informed. All three payoff sets coincide (only) in notable special cases -- in particular, when there is complete breakdown in a ``lemons market'' with an uninformed seller and fully-informed buyer.
    Date: 2023–05
  2. By: Andrei Matveenko; Egor Starkov
    Abstract: This paper argues, in the context of targeted advertising, that receivers’ ability to independently acquire information has a non-trivial impact on the sender’s optimal disclosure strategy. In our model, a monopolist has an opportunity to launch an advertising campaign and chooses a targeting strategy – which consumers to send its advertisement to. The consumers are uncertain about and heterogeneous in their valuations of the product, and can engage in costly learning about their true valuations. We discover that the firm generally prefers to target consumers who are either indifferent between ignoring and investigating the product, or between investigating and buying it unconditionally. If the firm is uncertain about the consumer appeal of its product, it targets these two distinct groups of consumers simultaneously but may ignore all consumers in between.
    Keywords: advertising, targeting, rational inattention, costly disclosure
    JEL: D83 L15 M37
    Date: 2023–05
  3. By: Siddhartha Banerjee; Kamesh Munagala; Yiheng Shen; Kangning Wang
    Abstract: A seller is pricing identical copies of a good to a stream of unit-demand buyers. Each buyer has a value on the good as his private information. The seller only knows the empirical value distribution of the buyer population and chooses the revenue-optimal price. We consider a widely studied third-degree price discrimination model where an information intermediary with perfect knowledge of the arriving buyer's value sends a signal to the seller, hence changing the seller's posterior and inducing the seller to set a personalized posted price. Prior work of Bergemann, Brooks, and Morris (American Economic Review, 2015) has shown the existence of a signaling scheme that preserves seller revenue, while always selling the item, hence maximizing consumer surplus. In a departure from prior work, we ask whether the consumer surplus generated is fairly distributed among buyers with different values. To this end, we aim to maximize welfare functions that reward more balanced surplus allocations. Our main result is the surprising existence of a novel signaling scheme that simultaneously $8$-approximates all welfare functions that are non-negative, monotonically increasing, symmetric, and concave, compared with any other signaling scheme. Classical examples of such welfare functions include the utilitarian social welfare, the Nash welfare, and the max-min welfare. Such a guarantee cannot be given by any consumer-surplus-maximizing scheme -- which are the ones typically studied in the literature. In addition, our scheme is socially efficient, and has the fairness property that buyers with higher values enjoy higher expected surplus, which is not always the case for existing schemes.
    Date: 2023–05
  4. By: Martin Peitz; Susumu Sato
    Abstract: We propose a tractable model of asymmetric platform oligopoly. Users from two distinct groups who are subject to within-group and cross-group network effects decide which platform to join. We characterize the equilibrium when platforms manage user access by setting participation fees. We explore the effects of platform entry, change of incumbent platforms’ quality under free entry, and partial compatibility on market outcomes. We show how the analysis can be extended to partial user participation and zero fees for one of the user groups.
    Keywords: oligopoly theory; aggregative games; network effects; two-sided markets; two-sided single-homing; free entry; compatibility
    JEL: L13 L41 D43
    Date: 2023–05
  5. By: Anderson, Edward (University of Sydney Business School, Australia, and Imperial College Business School); Holmberg, Pär (Research Institute of Industrial Economics (IFN))
    Abstract: We study multi-unit auctions where bidders have single-unit demand and asymmetric information. For symmetric equilibria, we identify circumstances where uniform-pricing is better for the auctioneer than pay-as-bid pricing, and where transparency improves the revenue of the auctioneer. An issue with the uniform-price auction is that seemingly collusive equilibria can exist. We show that such outcomes are less likely if the traded volume of the auctioneer is uncertain. But if bidders are asymmetric ex-ante, then both a price floor and a price cap are normally needed to get a unique equilibrium, which is well behaved.
    Keywords: Multi-unit auction; Single-unit demand; Uniform pricing; Pay-as-bid; Asymmetric information; Publicity effect
    JEL: C72 D44 D82
    Date: 2023–05–09
  6. By: Jerry Anunrojwong; Santiago R. Balseiro; Omar Besbes
    Abstract: A seller wants to sell an item to $n$ buyers. The buyer valuations are drawn i.i.d. from a distribution, but the seller does not know this distribution; the seller only knows the support $[a, b]$. To be robust against the lack of knowledge of the environment and buyers' behavior, the seller optimizes over DSIC mechanisms, and measures the worst-case performance relative to an oracle with complete knowledge of buyers' valuations. Our analysis encompasses both the regret and the ratio objectives. For these objectives, we derive an optimal mechanism in closed form as a function of the support and the number of buyers $n$. Our analysis reveals three regimes of support information and a new class of robust mechanisms. i.) With "low" support information, the optimal mechanism is a second-price auction (SPA) with a random reserve, a focal class in the earlier literature. ii.) With "high" support information, we show that second-price auctions are strictly suboptimal, and an optimal mechanism belongs to a novel class of mechanisms we introduce, which we call $\textbf{pooling auctions}$ (POOL); whenever the highest value is above a threshold, the mechanism still allocates to the highest bidder, but otherwise the mechanism allocates to a uniformly random buyer, i.e., pools low types. iii.) With "moderate" support information, a randomization between SPA and POOL is optimal. We also characterize optimal mechanisms within nested central subclasses of mechanisms: standard mechanisms (only allocate to the highest bidder), SPA with random reserve, and SPA with no reserve. We show strict separations across classes, implying that deviating from standard mechanisms is necessary for robustness. Lastly, we show that the same results hold under other distribution classes that capture "positive dependence" (mixture of i.i.d., exchangeable and affiliated), as well as i.i.d. regular distributions.
    Date: 2023–05
  7. By: José Ignacio Rivero Wildemauwe (Université de Cergy-Pontoise, THEMA)
    Abstract: This research builds an integrated chain of models to compute the economic costs of population Two agents trade an item in a simultaneous offer setting, where the exchange takes place if and only if the buyer’s bid price weakly exceeds the seller’s ask price. Each agent is randomly assigned the buyer or seller role. Both agents are characterized by a certain degree of Kantian morality, whereby they pick their bidding strategy behind a veil of ignorance, taking into account how the outcome would be affected if their trading partner were adopting their strategy. I consider two variants with asymmetric information, respectively allowing buyers to have private information about their valuation or sellers to be privately informed about the item’s quality. I show that when all trades are socially desirable, even the slightest degree of morality guarantees that the outcome is fully efficient. In turn, when quality is uncertain and some exchanges are socially undesirable, full efficiency is only achieved with sufficiently high moral standards. Moral concerns also ensure equal ex-ante treatment of the two agents in equilibrium. Finally, I show that if agents are altruistic rather than moral, inefficiencies persist even with a substantial degree of altruism.
    Keywords: bilateral trade; altruism; homo moralis.
    JEL: D03 D82 D91 C78
    Date: 2023
  8. By: Lou, Youcheng; Rahi, Rohit
    Abstract: We study a financial market in which agents with interdependent values bid for a risky asset. Some agents are privately informed of their own value for the asset while others seek to infer it from the equilibrium price. Due to adverse selection, uninformed agents are less willing than the informed to provide liquidity, and engage in greater bid shading when prices are more informative. While increased participation by informed agents leads to perfect competition in the limit, the market remains illiquid to some degree even with free entry of uninformed traders. The incentive to produce information is increasing in market size and is maximal in a perfectly competitive economy. Price informativeness, on the other hand, is independent of market size. Curtailing information production by one group can reduce adverse selection, and improve liquidity and welfare for all agents.
    Keywords: double auction; interdependent values; market power; adverse selection; information acquisition; welfare
    JEL: D82 G14
    Date: 2021–09–13
  9. By: Marialaura Pesce (Università di Napoli Federico II and CSEF); Niccolo Urbinati (Università Ca Foscari Venezia); Nicholas C. Yannelis (The University of Iowa)
    Abstract: We show that a symmetric information Rational Expectations Equilibrium (REE) exists universally (and not generically), it is Pareto efficient and obviously incentive compatible. Agents, in a repeated economy framework, can reach a symmetric information REE (i.e., an efficient and incentive compatible equilibrium outcome) by observing the past asymmetric REE and also by updating their private information. We also prove the converse result, i.e., given a symmetric information REE, we can construct a sequence of approximate asymmetric REE allocations that converges to the symmetric information REE. The approximate REE can be interpreted as the mistakes that agents make due to bounded rationality, nonetheless, in the limit an exact symmetric information REE is reached. In view of the above results, the symmetric information REE provides a rationalization for the asymmetric one.
    Keywords: Learning, Rational expectations equilibrium, Asymmetric information, Stability.
    Date: 2023–06–01
  10. By: Stergios Athanasoglou; Somouaoga Bonkoungou; Lars Ehlers
    Abstract: Consider a setting in which individual strict preferences need to be aggregated into a social strict preference relation. For two alternatives and an odd number of agents, it follows from May's Theorem that the majority aggregation rule is the only one satisfying anonymity, neutrality and strategy-proofness (SP). For more than two alternatives, anonymity and neutrality are incompatible for many instances and we explore this tradeoff for strategy-proof rules. The notion of SP that we employ is Kemeny-SP (K-SP), which is based on the Kemeny distance between social orderings and strengthens previously used concepts in an intuitive manner. Dropping anonymity and keeping neutrality, we identify and analyze the first known nontrivial family of K-SP rules, namely semi-dictator rules. For two agents, semi-dictator rules are characterized by local unanimity, neutrality and K-SP. For an arbitrary number of agents, we generalize semi-dictator rules to allow for committees and show that they retain their desirable properties. Dropping neutrality and keeping anonymity, we establish possibility results for three alternatives. We provide a computer-aided solution to the existence of a locally unanimous, anonymous and K-SP rule for two agents and four alternatives. Finally, we show that there is no K-SP and anonymous rule which always chooses one of the agents' preferences.
    Keywords: Preference aggregation, strategy-proofness, anonymity, neutrality, Kemeny distance, semi-dictator rule
    JEL: D71 C70
    Date: 2023–04
  11. By: Aram Grigoryan; Markus M\"oller
    Abstract: In centralized market mechanisms individuals may not fully observe other participants' type reports. Hence, the mechanism designer may deviate from the promised mechanism without the individuals being able to detect these deviations. In this paper, we develop a general theory of auditability for allocation and social choice problems. We find a stark contrast between the auditabilities of prominent mechanisms: the Immediate Acceptance mechanism is maximally auditable, in a sense that any deviation can always be detected by just two individuals, whereas, on the other extreme, the Deferred Acceptance mechanism is minimally auditable, in a sense that some deviations may go undetected unless some individuals possess full information about everyone's reports. There is a similar contrast between the first-price and the second-price auction mechanisms. Additionally, we give a simple characterization of the majority voting mechanism for social choice problems, and we evaluate the auditability of reserves mechanisms for choice with affirmative action.
    Date: 2023–05
  12. By: Parikshit Ghosh (Department of Economics, Delhi School of Economics); Debraj Ray (New York University and University of Warwick)
    Abstract: The enforcement of relational contracts is especially challenging in anonymous environments when there are opportunities to start new partnerships after a transgression. Building on Ghosh and Ray (1996), we study norms within bilateral partnerships that exhibit gradually increasing cooperation, thus serving to deter deviations. However, socially beneficial gradualism may be undermined by partners renegotiating to greater cooperation from the outset. We show that incomplete information regarding partner patience ameliorates this tension even as it adds to the anonymity of the environment. Specifically, gradualism is now bilaterally desirable, and has the social by-product of maintaining individual cooperation. We also study a one-sided version of this problem in which only one of the partners exhibits moral hazard, and offer tentative thoughts on generalizing the theory to environments with richer gradations of incomplete information. JEL Classification: C73, D85, D86. Key Words: relational contracts, social norms, gradualism, trust-building, dynamic games.
    Date: 2023–05
  13. By: Michele Crescenzi
    Abstract: I study distributed knowledge, which is what a group of privately informed agents can possibly know if they communicate freely with one another. Contrary to the extant literature, I study differently introspective agents. Three categories of agents are considered: non-introspective, positively introspective, and fully introspective. When a non-introspective agent knows something, she may fail to know that she knows it. On the contrary, when a fully introspective agent knows something, she always knows that she knows it. A fully introspective agent is positively introspective and, when she does not know something, she also knows that she does not know it. I give two equivalent characterizations of distributed knowledge: one in terms of knowledge operators and the other in terms of possibility relations, i.e., binary relations. I study distributed knowledge by modelling explicitly the communication and inference making process behind it. I show that there are two significantly different cases to consider. In the first, distributed knowledge is driven by the group member who is sophisticated enough to replicate all the inferences that anyone else in the group can make. In the second case, no member is sophisticated enough to replicate what anyone else in the group can infer. As a result, distributed knowledge is determined by a two-person subgroup who can jointly replicate what others infer. The latter case depicts a wisdom-of-the-crowd effect, in which the group knows more than what any of its members could possibly know by having access to all the information available within the group.
    Date: 2023–05
  14. By: Ga\"etan Fournier; Alberto Grillo; Yevgeny Tsodikovich
    Abstract: We study candidates' positioning when adjustments are possible in response to new information about voters' preferences. Re-positioning allows candidates to get closer to the median voter but is costly both financially and electorally. We examine the occurrence and the direction of the adjustments depending on the ex-ante positions and the new information. In the unique subgame perfect equilibrium, candidates anticipate the possibility to adjust in response to future information and diverge ex-ante in order to secure a cost-less victory when the new information is favorable.
    Date: 2023–05
  15. By: Ana Mauleon (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain = Catholic University of Louvain); Simon Schopohl (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain = Catholic University of Louvain); Akylai Taalaibekova (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Vincent Vannetelbosch (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain = Catholic University of Louvain)
    Abstract: We study a coordination game on a fixed connected network where players have to choose between two projects. Some players are moderate (i.e. they are ex-ante indifferent between both projects) while others are stubborn (i.e. they always choose the same project). Benefits for moderate players are increasing in the number of neighbors who choose the same project. In addition, players are either farsighted or myopic. Farsighted players anticipate the reactions of others while myopic players do not. We show that, when all players are farsighted, full coordination among the moderate players is reached except if there are stubborn players for both projects. When the population is mixed, the set of stable strategy profiles is a refinement of the set of Nash equilibrium strategy profiles. In fact, turning myopic players into farsighted ones eliminates gradually the inefficient Nash equilibria. Finally, we consider a social planner who can improve coordination by means of two policy instruments: adding links to the network (socialization) and/or turning myopic players into farsighted ones (education).
    Keywords: Networks, Coordination problems, Stubborn players, Farsighted players, Stability
    Date: 2022
  16. By: Basteck, Christian; Ehlers, Lars H.
    Abstract: We study the random assignment of indivisible objects among a set of agents with strict preferences. Random Serial Dictatorship is known to be only ex-post efficient and there exist mechanisms which Pareto-dominate it ex ante. However, we show that there is no mechanism that is likewise (i) strategy-proof and (ii) boundedly invariant, and that Paretodominates Random Serial Dictatorship. Moreover, the same holds for all mechanisms that are ex-post efficient, strategy-proof, and boundedly invariant: no such mechanism is dominated by any other mechanism that is likewise strategy-proof and boundedly invariant.
    Keywords: random assignment, strategy-proofness, ex-post efficiency, bounded invariance
    JEL: D63 D70
    Date: 2023
  17. By: Lin William Cong; Siguang Li
    Abstract: With the rise of social media and streaming platforms, firms and brand-owners increasingly depend on influencers to attract consumers, who care about both common product quality and consumer-influencer interaction. Sellers thus compete in both influencer and product markets. As outreach and distribution technologies improve, influencer payoffs and income inequality change non-monotonically. More powerful influencers sell better-quality products, but pluralism in style mitigates market concentration by effectively differentiating consumer experience. Influencer style dispersion substitutes horizontal product differentiation but serves as either complement (small dispersion) or substitute (large dispersion) to vertical product differentiation. The assortative matching between sellers and influencers remains under endogenous influence-building, with the maximal differentiation principle recovered in the limit of costless style acquisition. Meanwhile, influencers may under-invest in consumer outreach to avoid exacerbating price competition. Finally, while requiring balanced seller-influencer matching can encourage seller competition, uni-directional exclusivity can improve welfare for sufficiently differentiated products and uncrowded influencer markets.
    JEL: L11 L20 L51 M31 M37
    Date: 2023–05
  18. By: Craig S. Webb
    Abstract: Expected exponentially-discounted utility (EEDU) is the standard model of choice over risk and time in economics. This paper considers the dynamic preference foundations of EEDU in the timed risks framework. We first provide dynamic preference foundations for a time-invariant expected utility representation. The new axioms for this are called foregone-risk independence and strong time invariance. This class of dynamic preferences includes EEDU as a special case. If foregone-risk independence is strengthened to a new condition called conditional consistency, then an EEDU representation results. Alternative approaches for extending exponential discounting axioms to risk are considered, resulting in five new preference foundations of EEDU.
    Date: 2023–05
  19. By: Mohamed Belhaj (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Frédéric Deroïan (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Shahir Safi (Concordia University [Montreal])
    Abstract: We consider agents organized in an undirected network of local complementarities. A principal with a fixed budget offers costly bilateral contracts in order to increase the sum of agents' effort. We study contracts rewarding effort exceeding the effort made in the absence of the principal. First, targeting a subgroup of the whole society becomes optimal under substantial contracting costs, which significantly increases the computational complexity of the principal's problem. In particular, under sufficiently low intensity of complementarities, a correspondence is established between optimal targeting and an NP-hard problem. Second, for any intensities of complementarities, the optimal unit returns offered to all targeted agents are positive for all contracting costs and in general heterogeneous, even though networks are undirected. Yet, heterogeneity never leads to negative returns, which implies that, with these linear payment schemes, coordination is never an issue for the principal.
    Keywords: Networked synergies, Optimal targeting, Linear scheme
    Date: 2023–07
  20. By: Maria Gabriella Graziano (Università di Napoli Federico II and CSEF); Marialaura Pesce (Università di Napoli Federico II and CSEF); Vincenzo Platino (University of Naples Federico II and CSEF.)
    Abstract: We consider a pure exchange economy with externalities. Individual preferences are affected by the consumption of all other agents in the economy, and to each agent i is exogenously associated a nonempty set Ai, representing the individuals agent i cares about.We adopt a cooperative approach to equilibrium analysis, allowing each individual to cooperate with others and to form coalitions. Following Vasil’ev (2016), Husseinov (1994) and Graziano (2001), we study a notion of generalized fuzzy core and show that, in the case of non-convex preferences, the set of coalitions can be enlarged in such a way that a core allocation can be supported as an A-equilibrium by some price system. In the second part of the paper, we consider an economy with Arrowian markets for consumption externalities. For an appropriate definition of generalized fuzzy core, we show that a core allocation can be decentralized as an Information equilibrium in terms of personalized and market prices.
    Keywords: Exchange economy, interdependent preferences, markets for externalities, generalized fuzzy core.
    JEL: C71 D51 D62
    Date: 2023–06–02
  21. By: Nicodemo De Vito
    Abstract: Hierarchies of conditional beliefs (Battigalli and Siniscalchi 1999) play a central role for the epistemic analysis of solution concepts in sequential games. They are practically modelled by type structures, which allow the analyst to represent the players' hierarchies without specifying an infinite sequence of conditional beliefs. Here, we study type structures that satisfy a "richness" property, called completeness. This property is defined on the type structure alone, without explicit reference to hierarchies of beliefs or other type structures. We provide sufficient conditions under which a complete type structure represents all hierarchies of conditional beliefs. In particular, we present an extension of the main result in Friedenberg (2010) to type structures with conditional beliefs. KEYWORDS: Conditional probability systems, hierarchies of beliefs, type structures, completeness, terminality. JEL: C72, D80
    Date: 2023–05
  22. By: Michel Grabisch (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, 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); Benjamin Monet (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Vassili Vergopoulos (LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - Université Paris-Panthéon-Assas)
    Abstract: This paper studies decision-making in the face of two stochastically independent sources of uncertainty. It characterizes axiomatically a Subjective Expected Utility representation of preferences where subjective beliefs consist of a product probability measure. The two key axioms in this characterization both involve some behavioral notions of stochastic independence. Our result can be understood as a purely subjective version of the Anscombe and Aumann (1963) theorem that avoids the controversial use of exogenous probabilities by appealing to stochastic independence. We also obtain an extension to Choquet Expected Utility representations.
    Keywords: subjective probability, expected utility, stochastic independence, subjective independence, capacity, Choquet expectation.
    Date: 2023
  23. By: Gleb Koshevoy; Ernesto Savaglio
    Abstract: We analyze the rationality of a Decision Maker (DM) who chooses from lists of sets of alternatives. A new class of choice functions, representing the DM's choice-behavior, and a new rationality axiom are proposed and studied. We show that a property, that we call No-Regret suggests that alternatives disregarded as of no interest for the DM be ignored, is a rationality criterion that encompasses some compelling postulates of the classical choice model and extends them to the proposed general framework of choice from lists of sets of alternatives.
    Keywords: Choice from lists of sets, No-regret, Outcast, Heritage, Path-independence.
    JEL: D01
    Date: 2023–03
  24. By: Banghua Zhu; Sai Praneeth Karimireddy; Jiantao Jiao; Michael I. Jordan
    Abstract: The creator economy has revolutionized the way individuals can profit through online platforms. In this paper, we initiate the study of online learning in the creator economy by modeling the creator economy as a three-party game between the users, platform, and content creators, with the platform interacting with the content creator under a principal-agent model through contracts to encourage better content. Additionally, the platform interacts with the users to recommend new content, receive an evaluation, and ultimately profit from the content, which can be modeled as a recommender system. Our study aims to explore how the platform can jointly optimize the contract and recommender system to maximize the utility in an online learning fashion. We primarily analyze and compare two families of contracts: return-based contracts and feature-based contracts. Return-based contracts pay the content creator a fraction of the reward the platform gains. In contrast, feature-based contracts pay the content creator based on the quality or features of the content, regardless of the reward the platform receives. We show that under smoothness assumptions, the joint optimization of return-based contracts and recommendation policy provides a regret $\Theta(T^{2/3})$. For the feature-based contract, we introduce a definition of intrinsic dimension $d$ to characterize the hardness of learning the contract and provide an upper bound on the regret $\mathcal{O}(T^{(d+1)/(d+2)})$. The upper bound is tight for the linear family.
    Date: 2023–05
  25. By: Rhodes, Andrew
    Abstract: Drip pricing arises when a firm initially advertises a low price, then reveals additional fees as the consumer advances through the purchase process. We give examples of firms that have been pursued for engaging in drip pricing. We summarize theoretical papers on the topic, emphasizing the importance of whether drip prices are optional or mandatory, as well as the degree of consumer sophistication. We also discuss empirical papers which examine how consumers respond to drip pricing, and which examine how the ability to do drip pricing affects firm profitability. False advertising arises when firms make false claims about the “quality” of their product, which in turn cause consumers to pay more than they otherwise might. We give examples of firms that have been pursued for making such false claims. We summarize theoretical papers on the topic, emphasizing that it may not be optimal for consumers or society to impose very large fines for false advertising. For example, we argue this can be true when consumers are sophisticated and the market is relatively healthy. We also discuss empirical evidence which shows that false advertising can affect consumers’ purchase behavior, and that firms are more likely to use it when the returns are higher.
    Keywords: Drip pricing, Add-ons; Obfuscation, Deception; False Advertising, Regulation
    Date: 2023–05
  26. By: Lotem Ikan; David Lagziel
    Abstract: The indoctrination game is a complete-information contest over public opinion. The players exert costly effort to manifest their private opinions in public in order to control the discussion, so that the governing opinion is similar to theirs. Our analysis provides a theoretical foundation for the silent majority and vocal minority phenomena, i.e., we show that all moderate opinions remain mute in equilibrium while allowing extremists full control of the discussion. Moreover, we prove that elevated exposure to others' opinions increases the observed polarization among individuals. Using these results, we formulate a new social-learning framework, referred to as an indoctrination process.
    Date: 2023–05

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