I introduce and study a nested search problem modeled as a tree structure that generalizes Weitzman (1979) in two ways: (1) search progresses incrementally, reflecting real-life scenarios where agents gradually acquire information about the prizes; and (2) the realization of prizes can be correlated, capturing similarities among them. I derive the optimal policy, which takes the form of an index solution. I apply this result to study monopolistic competition in a market with two stages of product inspection. My application illustrates that regulations on drip pricing lower equilibrium price and raise consumer surplus.
A fundamental challenge for modern economics is to understand what happens when actors in an economy are replaced with algorithms. Like rationality has enabled understanding of outcomes of classical economic actors, no-regret can enable the understanding of outcomes of algorithmic actors. This review article covers the classical computer science literature on no-regret algorithms to provide a foundation for an overview of the latest economics research on no-regret algorithms, focusing on the emerging topics of manipulation, statistical inference, and algorithmic collusion.
The code that was used in Erdil & Ergin (2008, AER) to compute stable improvement cycles sometimes generated unstable matchings. I identify the minor bug in their code that caused this issue, and I present a corrected implementation. While the general insights from the computational experiments obtained by Erdil & Ergin (2008) persist, the true fraction of improving students is slightly smaller than reported, while their average improvement in rank is larger than reported. All theoretical findings in Erdil & Ergin (2008) are unaffected.
Achieving incentive compatibility under informational decentralization is impossible within the class of direct and revelation-equivalent mechanisms typically studied in economics and computer science. We show that these impossibility results are conditional by identifying a narrow class of non-revelation-equivalent mechanisms that sustain enforcement by inferring preferences indirectly through parallel, uncorrelatable games.
In this paper, we study the public procurement market through the lens of game theory by modeling it as a strategic game with discontinuous and non-quasiconcave payoffs. We first show that the game admits no Nash equilibrium in pure strategies. We then analyze the two-player case and derive two explicit mixed-strategy equilibria for the symmetric game and for the weighted $(p,1-p)$ formulation. Finally, we study the existence of a symmetric mixed strategies Nash equilibrium in the general $N$-player case by applying the diagonal disjoint payoff matching condition.
This paper introduces a prior-free framework for information design based on partial identification and applies it to robust causal inference. The decision maker observes the distribution of signals generated by an information structure and ranks alternatives by their worst-case payoff over the state distributions consistent with those signals. We characterize the set of robustly implementable actions and show that each can be implemented by an information structure that withholds at most one dimension of information from the decision maker. In the potential outcomes model, every treatment is implementable via an experiment that is almost fully informative.
This paper provides a unified approach to characterize the set of all feasible signals subject to privacy constraints. The Blackwell frontier of feasible signals can be decomposed into minimum informative signals achieving the Blackwell frontier of privacy variables, and conditionally privacy-preserving signals. A complete characterization of the minimum informative signals is then provided. We apply the framework to ex-post privacy (including differential and inferential privacy) and to constraints on posterior means of arbitrary statistics.
This paper models voters who invest effort to determine whether a particular claim relevant to their voting choices is correct. If a voter succeeds in determining whether the claim is correct, this information is shared via a social network. I show that increased connectivity makes voters more informed about basic facts, but less informed about complicated issues. At the same time, polarization makes voters less informed overall.
We obtain a full characterization of consistency with respect to higher-order stochastic dominance within the rank-dependent utility model. Different from the results in the literature, we do not assume any condition on the utility functions and the probability weighting functions, such as differentiability or continuity. It turns out that the level of generality that we offer leads to models that do not have a continuous probability weighting function and yet they satisfy prudence. In particular, the corresponding probability weighting function can only have a jump at 1, and must be linear on [0,1).
I model a rational agent who experiences endogenous deadline pressure in the face of a fixed future deadline. The agent holds a resource stock, and opportunities to spend resources arise randomly according to a Poisson process. When the deadline is far away, the agent smooths consumption, but as the deadline approaches, the agent prioritizes current spending because of uncertainty about the future. The combination of concave utility and the agent's liquidity induces correlation aversion. Connecting the agent's risk and time preference is intuitive and leads to a model of procrastination where the agent overestimates their desire to spend resources.
We study the robust regulation of contracts in moral hazard problems. A firm offers a contract to incentivise a worker protected by limited liability. A regulator restricts the set of permissible contracts to (i) improve efficiency and (ii) protect the worker. The regulator faces uncertainty about both the worker's actions and the firm's production cost, and evaluates regulations based on their worst-case regret. The regret-minimising regulation mandates a minimum piece rate compensation for the worker. This rule simultaneously guarantees a fair share for the worker and preserves enough contractual flexibility to provide incentives.
This paper proposes a new approach to power in Game Theory. Cooperation and conflict are simulated with a mechanism of payoff alteration, called F-game. Using convex combinations of preferences, an F-game can measure players' attitude to cooperate. We can then define actual and potential power as special relations between different states of the system.
The evolution of the regional system of cooperation for peace and security in Africa led to the formation of institutionalized methods and forms of cooperation within the framework of regional international organizations (Organization of African Unity, African Union) and the creation of the African Peace and Security Architecture. One of the important forms of activity within it became peacekeeping operations. Maintenance, building and peace enforcement missions have become part of the strategy to shape the international environment in which security is a prerequisite for the smooth implementation of development goals. African international forces heretofore have participated in stabilization operations in countries such as Chad, Rwanda, Burundi, the Comoros, Sudan, Somalia and the Central African Republic.
I explain how faculty members could exploit a method to allocate travel funds and how to use game theory to design a method that cannot be manipulated.
In this note, we prove the existence of an equilibrium concept, dubbed conditional strategy equilibrium, for non-cooperative games in which a strategy of a player is a function from the other players' actions to her own actions. We study the properties of efficiency and coalition-proofness of the conditional strategy equilibrium in $n$-person games.
This paper demonstrates the additive and multiplicative version of a long-run law of unexpected shocks for any economic variable. We derive these long-run laws by the martingale theory without relying on the stationary and ergodic conditions. We apply these long-run laws to asset return, risk-adjusted asset return, and the pricing kernel process and derive new asset pricing implications. Moreover, we introduce several dynamic long-term measures on the pricing kernel process, which relies on the sample data of asset return. Finally, we use these long-term measures to diagnose leading asset pricing models.
We develop a method using parameterized linear equations to define trading mechanisms in market design models. Our method adeptly addresses challenges arising from factors such as complex endowments or coarse priorities, while offering flexibility to incorporate fairness concerns through the selection of equation parameters. Applying this method to models including fractional endowment exchange, priority-based allocation, and house allocation with existing tenants, we obtain new mechanisms that are both efficient and fair in these models.
We offer a search-theoretic model of statistical discrimination, in which firms treat identical groups unequally based on their occupational choices. The model admits symmetric equilibria in which the group characteristic is ignored, but also asymmetric equilibria in which a group is statistically discriminated against, even when symmetric equilibria are unique. Moreover, a robust possibility is that symmetric equilibria become unstable when the group characteristic is introduced. Unlike most previous literature, our model can justify affirmative action since it eliminates asymmetric equilibria without distorting incentives.
We study the relationship between invariant transformations on extensive game structures and backward dominance procedure (BD), a generalization of the classical backward induction introduced in Perea (2014). We show that behavioral equivalence with unambiguous orderings of information sets, a critical property that guarantees BD's applicability, can be characterized by the classical Coalescing and a modified Interchange/Simultanizing in Battigalli et al. (2020). We also give conditions on transformations that improve BD's efficiency. In addition, we discuss the relationship between transformations and Bonanno (2014)'s generalized backward induction.