SESSION 1
David Pérez-Castrillo (Autonomous University of Barcelona)
“The proportional ordinal Shapley solution for pure exchange economies” (with Chaoran Sun)
Abstract: We define the proportional ordinal Shapley (the POSh) solution, an ordinal concept for pure exchange economies in the spirit of the Shapley value. Our construction is inspired by Hart and Mas-Colell’s (1989) characterization of the Shapley value with the aid of a potential function. The POSh exists and is unique and essentially single-valued for a fairly general class of economies. It satisfies individual rationality, anonymity, and properties similar to the null-player and null-player out properties in transferable utility games. The POSh is immune to agents’ manipulation of their initial endowments: It is not D-manipulable and does not suffer from the transfer paradox. Moreover, we characterize the POSh through a Harsanyi’s (1959) system of dividends and, when agents’ preferences are homothetic, through a weighted balanced contributions property `a la Myerson (1980).
SESSION 2
Nagore Iriberri (Universidad del País Vasco)
“Naivete and Sophistication in Initial and Repeated Play in Games” (with Bernando García-Pola)
Abstract: Compared to more sophisticated equilibrium theory, naive, non-equilibrium behavioral rules often better describe individuals’ initial play in games. Additionally, in repeated play in games, when individuals have the opportunity to learn about their opponents’ past behavior, learning models of different sophistication levels are successful in explaining how individuals modify their behavior in response to the provided information. How do subjects following different behavioral rules in initial play modify their behavior after learning about past behavior? This study links both initial and repeated play in games by analyzing elicited behavior in 3 × 3 normal-form games using a within-subject laboratory design. We classify individuals into different behavioral rules in both initial and repeated play and test whether and/or how strategic naivete and sophistication in initial play correlate with naivete and sophistication in repeated play. We find no evidence of a positive correlation between naivete and sophistication in initial and repeated play.
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Adam Sanjurjo (Universidad de Alicante)
“The Role of Memory in Search and Choice”
Abstract: I introduce a simple model of memory load in multiple attribute search and prove which types of search behavior require the least amount of memory load. The model is easily implementable and tracks choice error rates in the lab. The results on minimum memory load search can be used to explain a variety of empirical patterns, and have important implications for modeling search behavior and performing choice welfare analysis.
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Rosemarie Nagel (ICREA-Universitat Pompeu Fabra- Barcelona GSE)
“Iterated Reasoning and Efficiency Heuristics, and a Behavioral Taxonomy of 2×2 Games” (with Jens Schmidt and Davide Marchiori)
Abstract: The outcomes from strategic decision-making (such as market entry or technology adoption) depend on structural features of situations and types of players involved. Even in identical situations, players differ in their perceptions of situations, goals, and strategic sophistication. Informed by behavioral and experimental economics, we present two heuristic player types under strategic uncertainty in new situations, exemplified within the simplest class of games, two players–two actions (2×2) games, e.g., Prisoner’s dilemma or Entry games. One type anticipates others’ behavior and (iteratedly) best-replies to beliefs (called iterated reasoning heuristic), while the other is guided by goals, e.g., equality or social optimum, ignoring procedural details, such as others’ reasoning (called efficiency heuristic). To understand the implications of structure and player types, we develop a behavioral system of 2×2 games. Due to the fundamental differences of the two types, the large set of 2×2 games collapses to four distinct classes for efficiency types and five, albeit different ones, for iterated reasoning, and to 14 in a joint system based on (behavioral) game-theoretic features. Thus, advanced knowledge of players’ strategic capabilities or goals considerably simplifies the strategic analysis by inducing a categorization of games. Furthermore, we predict differences in the heterogeneity of behavior and outcomes, depending on player types and structure. We also discuss extensions of these situations and how heuristics may help managers gauge and respond to others’ thinking better.
SESSION 3
Silvia Martinez-Gorricho (Universidad Católica de la Santísima Concepción)
“Testing under Information Manipulation” (with Carlos Oyarzun)
Abstract: A decision-maker commits to a standard of evidence to discourage low-type agents and encourage high-type agents to improve their signal distribution. If the effect of commitment on low-type agents dominates its effect on high-type agents, optimal commitment standards are confirmative: for large priors that the agent’s type is low, the optimal standard is harsh; i.e., it requires more favorable evidence than ex-post optimal tests to choose the agent’s preferred action. Similarly, for large priors that the agent’s type is high, the optimal standard is soft. If the effect of commitment on high-type agents dominates its effect on low-type agents, these results reverse and optimal commitment standards are conservative (cf. Li (2001)). Commitment is Pareto improving for some priors. A revelation mechanism Pareto dominates commitment for large priors that the type is low, and is generically preferred by the decision-maker over simple commitment to a standard.
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Friederike Mengel (The University of Essex):
“Non-Bayesian Statistical Discrimimination” (with Pol Campos Mercade)
Abstract: Models of statistical discrimination typically assume that employers make rational inference from (education) signals. However, there is a large amount of evidence showing that most people do not update their beliefs rationally. We use a model and two experiments to show that employers who are conservative, in the sense of signal neglect, discriminate more against disadvantaged groups than Bayesian employers. We find that such non-Bayesian or “irrational” statistical discrimination deters high-ability workers from disadvantaged groups from pursuing education, further exacerbating initial group inequalities. Excess discrimination caused by employer conservatism is especially important when signals are very informative. Out of the overall hiring gap in our data, around 40\% can be attributed to rational statistical discrimination, a further 40\% is due to irrational statistical discrimination, and the remaining 20\% is unexplained or potentially taste-based.
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Francisco Silva (Pontificia Universidad Católica de Chile):
“Assignment mechanisms with public preferences and independent types”
Abstract: The literature on delegation considers the problem of an uninformed decision maker and an informed but biased agent. I extend that analyis to the case of multiple agents under two assumptions: independent private information and public preferences. In the optimal mechanism, agents assign points to the various alternatives, which then get mapped into scores, so that the alternative with the largest score wins. Each alternativeís score is the sum of points received plus an extra term that is larger when the agents who have a strong preference for that alternative assign points to the alternatives they like less.
SESSION 4
Antonio Cabrales (Universidad Carlos III de Madrid)
“Network Formation and Heterogeneous Risks” (with Piero Gottardi)
Abstract: We study a new model to study the effect of contract externalities that arise through shock transmission. We model a financial network where good firms enjoy direct and indirect benefits from linking with one another. Bad risks benefit from having a connection with a good firm, but they are a cost to both direct and indirect connections. In efficient networks the good risks should form large connected components with very few bad risks attached. The equilibrium networks, on the other hand, have many more bad risks attached, they are core-periphery structures, and components are also smaller than the efficient ones. We also study extensions with heterogenous “bad risks,” with diversity in the costs to good risk firms of linking with bad risks, and with incomplete information.
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Miguel Sánchez Villalba (Universidad de Concepción)
“Entry in Generalized Beauty Contests” (with Silvia Martinez-Gorricho)
Abstract: In a Generalized Beauty Contest (GBC) players face a trade-off between following their selfish concerns and conforming to the norm in the community, and so GBCs appropriately model relevant economic situations like joining a social network, participating in the primaries of a political party, or the choice of research topics by academics, among others. We depart from the literature -that implicitly assumes that everyone plays the game and thus that the “community” equals the whole economy- by providing players with an outside option that reduces the GBC’s “attractiveness”. We thus study the size, composition and the “social norm” that emerge in the resulting community, and find that they are endogenously and simultaneously co-determined with the players’ entry choices. We show that universal communities -in which everyone joins the GBC- can be supported in equilibrium only if the attractiveness of the game is relatively high; otherwise, we observe nonuniversal communities in equilibrium. We find that there may be multiple equilibria, each indexed by its associated social norm, and that -when attractiveness is arbitrarily low- equilibrium social norms are univocally associated with the extrema of the density probability distribution of types in the economy. Attractiveness affects (does not affect) the size and composition of non-universal (universal) communities. Thus, an increase in the attractiveness of a stable non-universal community leads to an increase in its size, and its social norm goes up (down) when the distribution of types is locally skewed to the right (left). Further, contrary to the universal case, an increase in attractiveness may not be Pareto-improving for a non-universal community. Indeed, for some parameter values, the community can both grow larger due to the entry of some new members and, simultaneously, lead to the exit of some others.
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Matthew O. Jackson (Stanford University)
SESSION 5
Mira Frick (Yale University)
“Learning Efficiency of Multi-agent Information Structures” (with Ryota Iijima and Yuhta Ishii).
Abstract: We study settings in which, prior to playing an incomplete information game, players observe many draws of private signals about the state from some information structure. Signals are i.i.d. across draws, but may display arbitrary correlation across players. For each information structure, we define a simple learning efficiency index, which only considers the statistical distance between the worst-informed player’s marginal signal distributions in different states. We show, first, that this index characterizes the speed of common learning (Cripps, Ely, Mailath, and Samuelson, 2008): In particular, the speed at which players achieve approximate common knowledge of the state coincides with the slowest player’s speed of individual learning, and does not depend on the correlation across players’ signals. Second, we build on this characterization to provide a ranking over information structures: We show that, with sufficiently many signal draws, information structures with a higher learning efficiency index lead to better equilibrium outcomes, robustly for a rich class of games and objective functions that are “aligned at certainty.” We discuss implications of our results for constrained information design in games and for the question when information structures are complements vs. substitutes.
SESSION 6
Carlos Oyarzun (The University of Queensland)
“Contagion Management through Information Disclosure” (with Jonas Hedlund and Allan Hernández-Chanto)
Abstract: We analyze information disclosure as a policy instrument for contagion management in decentralized environments. A benevolent planner (e.g., the government) tests a fraction of the population to learn the infection rate. Individuals meet randomly and exert vigilance effort. Efforts factor in a passage function to probabilistically reduce contagion. We analyze the information disclosure policy that maximizes society’s expected welfare. When efforts are strategic substitutes, we provide sufficient conditions and necessary conditions for full disclosure to be optimal. When efforts are strategic complements, pooling intermediate infection rates is optimal whenever individuals’ equilibrium effort jumps from no-effort (inaction) to full-effort (frenzy).
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Li Hao (The University of British Columbia)
“Stochastic Sequential Screening” (with Xianwen Shi)
Abstract: We study when and how randomization can help improve the seller’s revenue in the sequential screening setting. Using a model with discrete ex ante types and a continuum of ex post valuations, we demonstrate why the standard approach based on solving a relaxed problem that keeps only local downward incentive compatibility constraints often fails and show how randomization is needed to realize the full potential of sequential screening. Under a strengthening of first-order stochastic dominance ordering on the valuation distribution functions of ex ante types, we introduce and solve a modified relaxed problem by retaining all local incentive compatibility constraints, provide necessary and sufficient conditions for optimal mechanisms to be stochastic, and characterize optimal stochastic contracts. Our analysis mostly focuses on the case of three ex ante types, but our methodology of solving the modified problem can be extended to any finite number of ex ante types.