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We study the Lagos and Wright (2005) model of monetary exchange in the laboratory. With a finite population of sufficiently patient agents, this model has a unique monetary equilibrium and a continuum of non-monetary gift exchange equilibria, some of which Pareto dominate the monetary equilibrium. We find that subjects avoid the gift exchange equilibria in favor of the monetary equilibrium. We also study versions of the model without money where all equilibria involve non-monetary gift exchange. We find that welfare is higher in the model with money than without money, suggesting that money plays a role as an efficiency enhancing coordination device. ( JEL C92, D12, E40, Z13)

We prove a "no-speculative-trade'' theorem under unawareness for the infinite case. This generalizes the result for the finite case by Heifetz, Meier, and Schipper (2013).

We introduce a criterion for robustness to strategic uncertainty in games with continuum strategy sets. We model a player's uncertainty about another player's strategy as an atomless probability distribution over that player's strategy set. We call a strategy profile robust to strategic uncertainty if it is the limit, as uncertainty vanishes, of some sequence of strategy profiles in which every player's strategy is optimal under his or her uncertainty about the others. When payoff functions are continuous we show that our criterion is a refinement of Nash equilibrium and we also give sufficient conditions for existence of a robust strategy profile. In addition, we apply the criterion to Bertrand games with convex costs, a class of games with discontinuous payoff functions and a continuum of Nash equilibria. We show that it then selects a unique Nash equilibrium, in agreement with some recent experimental findings.

We propose two characteristics of players' beliefs and study their role in shaping the set of rationalizable strategy profiles in games with incomplete information. The first characteristic, type-sensitivity, is related to how informative a player thinks his type is. The second characteristic, optimism, is related to how "favorable" a player expects the outcome of the game to be. The paper has two main results: the first result provides an upper bound on the size of the set of rationalizable strategy profiles, the second gives a lower bound on the change of location of this set. These bounds have explicit and relatively simple expressions that feature type-sensitivity, optimism, and properties of the payoffs. Our results generalize and clarify the well-known uniqueness result of global games (Carlsson and van Damme (1993)). They imply new uniqueness results and allow to study rationalizability in new environments. We provide applications to supermodular mechanism design (Mathevet (2010)) and non-Bayesian updating (Epstein (2006)).

We build a workable game of common-property resource extraction under rational Bayesian learning about the reproduction prospects of a resource. We focus on Markov-perfect strate- gies under truthful revelation of beliefs. For reasonable initial conditions, exogenously shif- ting the prior beliefs of one player towards more pressimism about the potential of natural resources to reproduce, can create anti-conservation incentives. The single player whose be- liefs have been shifted towards mor pessimism exhibits higher exploitation rate than before. In response, all other players reduce their exploitation rates in order to conserve the resource. However, the overall conservation incentive is weak, making the aggregate exploitation rate higher than before the pessimistic shift in beliefs of that single player. Due to this weakness in strategic conservation responses, if the number of players is relatively small, then in cases with common priors, jointly shifting all players beliefs more pessimism exacerbates the commons problem. renewable resources,resource exploitation, non-cooperative dynamic games, Bayesian learning, stochstic games, commons, rational learning, uncertainty, beliefs

Two groups of voters of known sizes disagree over a single binary decision to be taken by simple majority. Individuals have different, privately observed intensities of preferences and before voting can buy or sell votes among themselves for money. We study the implication of such trading for outcomes and welfare when trades are coordinated by the two group leaders and when they take place anonymously in a competitive market. The theory has strong predictions. In both cases, trading falls short of full efficiency, but for opposite reasons: with group leaders, the minority wins too rarely; with market trades, the minority wins too often. As a result, with group leaders, vote trading improves over no-trade; with market trades, vote trading can be welfare reducing. Although the experimental data show evidence of overpricing,these predictions are satisfied by all experimental sessions.

In intergroup contests a manager advises and motivates her group’s members. Her rewards often depend on the subsequent contest expenditure of the members. I test whether such incentives undermine the credibility and effectiveness of a manager’s efforts. In the different experimental treatments the managers either benefit from very high or low expenditure or get a predetermined payment. The results show that different management incentives shape the expenditure of the group members even if managers have an advisory role only. However, group members follow recommendations more closely if management compensation is not linked to contest expenditures.

Newman’s (1959, Operations Research, 7, 557–560) solution for a variant of poker with continuous hand spaces and an unlimited bet size is modified to incorporate sequential rationality.

Demichelis and Weibull (2008) show that adding lexicographic lying costs to coordination games with cheap talk yields a sharp prediction: only the efficient outcome is evolutionarily stable. I show that this result is caused by the discontinuity of preferences rather than by small lying costs per se. Finally, I discuss why discontinuity may not be an appealing assumption in evolutionary models. (JEL C72, C73, Z13)

This paper investigates endogenous timing in a mixed duopoly consisting of a profit-maximising firm and a joint-stock firm. There are two stages and the firms simultaneously and independently announce in which stage they will offer lifetime employment as a strategic commitment. If both firms decide to offer lifetime employment in the same stage, a simultaneous commitment game occurs, whereas if both firms choose different stages, a sequential commitment game arises. At the end of the game, each firm simultaneously and independently chooses its actual output. The paper presents the equilibrium of the endogenous-timing mixed duopoly model.

The main contribution of this paper is to introduce a funding liquidity component `a la Morris and Shin (2009) in a stresstesting framework. As a result, funding liquidity risk arises as an endogenous outcome of the interactions between market liquidity and solvency risks, and banks’ liquidity profiles. We perform a calibration exercise that highlights the vulnerability of leveraged institutions to the combination of low cash holdings and the prevalence of short-term debt, a key feature of the 2008 credit crisis. We also analyze the trade-offs between higher capital ratios, more liquid assets, and/or less short-term liabilities in reducing systemic risk.

This paper studies how incentives are affected by intention-based reciprocity preferences when the principal hires many agents. Our results describe the set of agents’ sensitivities to reciprocity required to sustain a given strategy profile. We also show that hiring reciprocal agents to implement a first- or a second-best contract will always benefit the principal if the strategy profile is symmetric. Instead, when the profile (first or second best) is asymmetric the principal’s interest might be better served by self-interested agents. We conclude the paper by clarifying when symmetric profiles are most likely to arise.

We consider a war of attrition with stochastic deadlines in which the players can learn about the state that determines their payoffs at deadline. We study how the players' incentives to acquire information depend on the (un)verifiability of information and what implications these incentives have for efficiency in information acquisition. We show that unverifiability creates distortions (strategic delay or information duplication) after a player's information acquisition, but encourages the players' information acquisition (less delay in information acquisition). We demonstrate that in our model, these two effects cancel each other out and, therefore, the players' expected payoffs in symmetric equilibrium are identical whether information is verifiable or not. We also show that shortening deadlines may prolong the conflict.

In a democracy where the median income is substantially less than the average, why does the poor majority not implement a significant level of redistribution? Despite fears that democracy would empower the poor majority to such ends, constituents of below average income have a mixed record of utilizing democracy to ameliorate economic inequality in the United States. How do we understand this puzzle? Why does the poor majority not maintain a constant level of redistribution in a democracy? In this paper, I provide a game theoretic answer based on historical research, which is in accord with the broad trend in both policy and economic inequality in the United States.

This paper proposes a multi-prize “reverse” nested lottery contest model, which can be viewed as the “mirror image” of the conventional nested lottery contest of Clark and Riis (1996a) . The reverse-lottery contest model determines winners by selecting losers based on contestants’ one-shot effort through a hypothetical sequence of lotteries. We provide a microfoundation for the reverse-lottery contest from a perspective of (simultaneous) noisy performance ranking and establish that the model is underpinned by a unique performance evaluation rule. We further demonstrate that the noisy-ranking model can be interpreted intuitively as a “worst-shot” contest, in which contestants’ performances are evaluated based on their most severe mistakes. The reverse-lottery contest model thus depicts a great variety of widely observed competitive activities of this nature. A handy closed-form solution for a symmetric equilibrium of the reverse-lottery contest is obtained. We show that the winner-take-all principle continues to hold in reverse-lottery contests. Moreover, we find that a reverse-lottery contest elicits more effort than a conventional lottery contest whenever the prizes available to contestants are relatively scarce.

We provide the second mover in a trust game and a moonlighting game with an excuse for not reciprocating. While this type of manipulation has been shown to strongly reduce giving in the dictator game, we find that the availability of the excuse has no effect on the incidence of reciprocal behavior in these games. Our results cast doubt on the generalizability of previous dictator game findings and suggest that image concerns are not a key driver of reciprocal behavior. (JEL C72, D64, Z13)

Vendettas occur in many real-world settings where rivals compete for a prize, e.g., winning a competitive promotion or retaining a job, by engaging in aggressive, retaliatory behavior. We present a benchmark experiment where two players have an initial probability of winning a prize. Retaliatory vendettas occur and lead subjects to the worst possible outcomes in 2/3 of cases, counter to self-interest predictions, with large inefficiencies even in the absence of any immediate gain from aggression. Negative emotions are important and interact with the economic setting to produce large social inefficiencies. Allowing cooling off periods reduces aggression. (JEL C72, D74)

In this paper we analyse the horizontal merger of companies in an already concentrated industry. The participants in mergers are obliged to submit notification to the Competition Commission but they also have the option of rejecting the merger. At the time of the notification submission the participants do not know whether the Commission is strong or weak, and they can complain to the Court if the Commission prohibits the merger. We model the strategic interaction between Participants and Commission in a dynamic game of incomplete information and determine weak perfect Bayesian equilibria. The main finding of our paper is that Participants will base their decision to submit notification on their belief in a weak Commission decision and will almost completely ignore the possibility of a strong Commission decision. We also provide a detailed examination of one case from Serbian regulatory practice, which coincides with the results of our game theoretical model.

"We analyze the incidence and welfare effects of unit sales taxes in experimental monopoly and Bertrand markets. We find, in line with economic theory, that firms with no market power are able to shift a high share of a tax burden on to consumers, independent of whether buyers are automated or human players. In monopoly markets, a monopolist bears a large share of the burden of a tax increase. With human buyers, however, this share is smaller than with automated buyers as the presence of human buyers constrains the pricing behavior of a monopolist." (author's abstract) "Dieser Artikel untersucht Inzidenz- und Wohlfahrtseffekte einer Mengensteuer in experimentellen Monopol- und Bertrand-Märkten. Im Einklang mit der ökonomischen Theorie sind Firmen ohne Marktmacht in der Lage, einen großen Anteil der Last einer Steuererhöhung an die Konsumenten weiterzugeben. Dies gilt unabhängig davon, ob die Käufer simuliert sind oder die Kaufentscheidungen durch reale Käufer getroffen werden. In Monopolmärkten trägt der Monopolist einen großen Anteil der Last einer Steuererhöhung. Werden die Kaufentscheidungen durch reale Käufer getroffen, ist dieser Anteil jedoch kleiner als mit simulierten Käufern, da reale Käufer im Experiment das Preissetzungsverhalten des Monopolisten einschränken." (Autorenreferat)

We study both theoretically and experimentally the set of Nash equilibria of a classical one-dimensional election game with two candidates. These candidates are interested in power and ideology, but their weights on these two motives are not necessarily identical. Apart from obtaining the well known median voter result and the two-sided policy differentiation outcome, the paper uncovers the existence of two new equilibrium configurations, called ‘one-sided’ and ‘probabilistic’ policy differentiation, respectively. Our analysis shows how these equilibrium configurations depend on the relative interests in power (resp., ideology) and the uncertainty about votersʼ preferences. The theoretical predictions are supported by the data collected from a laboratory experiment, as we observe convergence to the Nash equilibrium values at the aggregate as well as at the individual levels in all treatments, and the comparative statics effects across treatments are as predicted by the theory.

We use an agent-based model to investigate the interdependent dynamics between individual agency and emergent socioeconomic structure, leading to institutional change in a generic way. Our model simulates the emergence and exit of institutional units, understood as generic governed social structures. We show how endogenized trust and exogenously given leader authority influences institutional change, i.e., diversity in institutional life-cycles. It turns out that these governed institutions (de)structure in cyclical patterns dependent on the overall evolution of trust in the artificial society, while at the same time, influencing this evolution by supporting social learning. Simulation results indicate three scenarios of institutional life-cycles. Institutions may, (1) build up very fast and freeze the artificial society in a stable but fearful pattern (ordered system); (2) exist only for a short time, leading to a very trusty society (highly fluctuating system); and (3) structure in cyclical patterns over time and support social learning due to cumulative causation of societal trust (complex system).

A recurring puzzle to many academics and some policymakers is why impact evaluations, which have become something of a cottage industry in the development field, have so little impact on actual policymaking. In this paper, I study the impact of impact evaluations. I show, in a simple Bayesian framework embedded within a standard contest success function-based model of competition amongst anti-evaluation policymakers, Bayesian policymakers, and frequentist evaluators, that the likelihood of a program being cancelled is a decreasing function both of the impact estimated by the evaluation and of the prior on whose basis the program was approved to begin with. Moreover, the probability of cancellation is a decreasing function of the effectiveness of the influence exerted by frequentist evaluators. Since the latter?s effectiveness in terms of lobbying in favor of their findings in the real world is likely to be close to zero, the likelihood of cancelling a program that was approved in the first place, despite its suffering a highly negative evaluation, is extremely low. The model thus provides one possible explanation for why impact evaluations have so little impact in the realm of decisionmaking, and why they have contributed so little to evidence-based policymaking. JEL Classification: O12, D04, D72, C11, C21, C72

The paper presents an evolutionary model, based on the assumption that agents may revise their current strategies if they previously failed to attain the maximum level of potential payoffs. We offer three versions of this reflexive mechanism, each one of which describes a distinct type: spontaneous agents, rigid players, and ‘satisficers’. We use simulations to examine the performance of these types. Agents who change their strategies relatively easily tend to perform better in coordination games, but antagonistic games generally lead to more favorable outcomes if the individuals only change their strategies when disappointment from previous rounds surpasses some predefined threshold.

We establish that nonlinear vertical contracts can allow an incumbent to exclude an upstream rival in a setting that does not rely on the exclusivity of the incumbent's contracts with downstream firms or any limits on distribution channels available to the incumbent or rival. The optimal contract we describe is a threepart quantity discounting contract that involves the payment of an allowance to a downstream distributor and a marginal wholesale price below the incumbent's marginal cost for sufficiently large quantities. The optimal contract is robust to allowing parties to renegotiate contracts in case of entry.

This paper reexamines the work of Kempf and Rota-Graziosi (J. Pub. Econ. 94: 768-776, 2010), which shows that leadership by the small region is the risk dominant equilibrium under the endogenous timing game. They obtained this result in a model where the asymmetry among regions translates into different gradients of the demand for capital but identical vertical intercepts. In this paper, we simply reverse the form of asymmetry by considering different vertical intercepts but identical gradients. The reason is that market power is typically related to the intercept and not to the slope of the demand function. We then show that leadership by the large region becomes the risk dominant equilibrium and can even become Pareto superior.

We investigate the implications of egalitarian equivalence (Pazner and Schmeidler in Q J Econ 92:671–687, 1978) together with queue efficiency and strategyproofness in the context of queueing problems. We completely characterize the class of mechanisms satisfying the three requirements. Though there is no mechanism in this class satisfying budget balance, feasible mechanisms exist and we characterize the set of all such mechanisms. We also show that it is impossible to find a mechanism satisfying queue efficiency, egalitarian equivalence, and a stronger notion of strategyproofness called weak group strategyproofness. In addition, we show that generically there is no mechanism satisfying both egalitarian equivalence and no-envy.

Three models of a monetary economy are considered, in order to show the effects of a gold demonetization: the first with a gold money, the second with demonetized gold but no central bank, and the third with demonetized gold, but with a central bank. The distinctions between ownership and control are discussed. Our results show a gain in efficiency (in the case of “enough money”) when a switch is made from a durable commodity money to a fiat money. This is due to players being able to enjoy both the full service value of gold and transactions value of money—something that cannot be done in the original model with gold money. When we further add in the central bank, there is a somewhat further efficiency gain in the case of “not enough money”. We close the paper with a discussion of the usefulness of central banks.

SummaryIn this paper, we reconstruct the main developments of the theory of noncooperative oligopoly in general equilibrium, by focusing on the analysis of three prototypical models for pure exchange economies: the model of Cournot-Walras equilibrium of Codognato and Gabszewicz (1991); the model of Cournot-Nash equilibrium originally proposed by Lloyd S. Shapley and known as window model; the model of Cournot-Walras equilibrium of Busetto et al. (2008). We establish, in a systematic way, the relationship between the three notions of equilibrium proposed in these models and the notion of Walras equilibrium. Then, we investigate the relationships among those three notions of equilibrium.

Fourniture volontaire d’un bien public dans un jeu strategique de marcheL’objectif de cet article est d’etudier la compatibilite entre la mise a disposition volontaire d’un bien public et les comportements strategiques des consommateurs sur un marche avec des biens prives. Nous etudions l’existence d’un equilibre pour lequel la fourniture du bien public est realisee de maniere privee dans un modele avec interactions strategiques entre un nombre fini d’agents. Le mecanisme de fourniture du bien public s’inspire du modele de Bergstrom, Blume et Varian (1986), et le mecanisme d’echange pour les biens prives releve des jeux de marche avec transactions blanches de Dubey et Shubik (1986). L’apport de cet article reside dans une demonstration d’existence d’un point d’equilibre en strategies pures pour un nombre fini d’agents. Dans la mesure ou les equilibres triviaux sont possibles, cet equilibre est construit comme la limite de sequences d’equilibres du jeu perturbe.Classification JEL : C72, D43, H41.

We analyze the space of deterministic, dominant-strategy incentive compatible, individually rational and Pareto optimal combinatorial auctions. We examine a model with multidimensional types, nonidentical items, private values and quasilinear preferences for the players with one relaxation, the players are subject to publicly-known budget constraints. We show that the space includes dictatorial mechanisms and that if dictatorial mechanisms are ruled out by a natural anonymity property, then an impossibility of design is revealed. The same impossibility naturally extends to other abstract mechanisms with an arbitrary outcome set if one maintains the original assumptions of players with quasilinear utilities, public budgets and nonnegative prices.

We develop a tractable model of competition among motivated MFIs. We find that equilibria may or may not involve double-dipping (and consequently default), with there being double-dipping whenever the MFIs are very profit-oriented. Moreover, in an equilibrium with double-dipping, borrowers who double-dip are actually worse off compared to those who do not. Further, for intermediate levels of motivation, there can be multiple equilibria, with a double-dipping equilibrium co-existing with a no default equilibrium. Interestingly, an increase in MFI competition can lower efficiency, as well as increase the extent of double-dipping and default. Further, the interest rates may go either way, with the interest rate likely to increase if the MFIs are very motivated.

Parents in several cultures ‘discipline’ their daughters to inculcate the supposedly feminine virtues and improve their prospects in the marriage market. This process invariably involves imposing restrictions on their behavior, movement, and social relations. We refer to such practices as pre-marital confinement and provide a unified game-theoretic framework which encompasses the different arguments that have been advanced by social scientists to explain pre-marital confinement. The proposed framework views confinement by parents as an intrinsically valueless or valuable signal of some unobservable characteristic of their daughters which is valued by men in the marriage market. We focus on identifying the conditions that lead to a societal norm of confinement. We also show that, behind a veil of ignorance where gender is unknown, agents will choose to prohibit rather than permit confinement if it is intrinsically valueless and the parameters characterizing the society are such that the ex-post equilibrium would involve pooling.

This paper examines many-player many-action global games with multidimensional state parameters. It establishes that the notion of noise-independent selection introduced by Frankel, Morris and Pauzner [D. Frankel, S. Morris, A. Pauzner, Equilibrium selection in global games with strategic complementarities, J. Econ. Theory 108 (2003) 1–44] for one-dimensional global games is robust when the setting is extended to the one proposed by Carlsson and Van Damme [H. Carlsson, E. Van Damme, Global games and Equilibrium selection, Econometrica 61 (1993) 989–1018]. More precisely, our main result states that if an action profile of some complete information game is noise-independently selected in one-dimensional global games, then it is also noise-independently selected in all multidimensional global games.

The class of “stable games”, introduced by Hofbauer and Sandholm in 2009, has the attractive property of admitting global convergence to equilibria under many evolutionary dynamics. We show that stable games can be identified as a special case of the feedback-system-theoretic notion of a “passive” dynamical system. Motivated by this observation, we develop a notion of passivity for evolutionary dynamics that complements the definition of the class of stable games. Since interconnections of passive dynamical systems exhibit stable behavior, we can make conclusions about passive evolutionary dynamics coupled with stable games. We show how established evolutionary dynamics qualify as passive dynamical systems. Moreover, we exploit the flexibility of the definition of passive dynamical systems to analyze generalizations of stable games and evolutionary dynamics that include forecasting heuristics as well as certain games with memory.

Although many individual route choice models have been proposed to incorporate travel time variability as a decision factor, they are typically still deterministic in the sense that the optimal strategy requires choosing one particular route that maximizes utility. In contrast, this study introduces an individual route choice model where choosing a portfolio of routes instead of a single route is the best strategy for a rational traveler who cares about both journey time and lateness when facing stochastic network conditions. The proposed model is compared with UE and SUE models and the difference in both behavioral foundation and model characteristics is highlighted. A numerical example is introduced to demonstrate how such model can be used in traffic assignment problem. The model is then tested with GPS data collected in metropolitan Minneapolis–St. Paul, Minnesota. Our data suggest there is no single dominant route (defined here as a route with the shortest travel time for a 15 day period) in 18% of cases when links travel times are correlated. This paper demonstrates that choosing a portfolio of routes could be the rational choice of a traveler who wants to optimize route decisions under variability.

Noting that a full characterization of Nash-implementation is given using a canonical-mechanism and Maskin’s theorem (Maskin, 1999) is shown using a mechanism with Saijo’s type of strategy space reduction (Saijo, 1988), this paper fully characterizes the class of Nashimplementable social choice correspondences (SCCs) by mechanisms endowed with Saijo’s message space specification - s-mechanisms. This class of SCCs is further shown to be equivalent to the class of Nashimplementable SCCs, though any further ‘strategy space reduction’ mechanism breaks this equivalent relationship down.

This paper presents a strategic model of risk-taking behavior in contests. Formally, we analyze an n-player winner-take-all contest in which each player decides when to stop a privately observed Brownian Motion with drift. A player whose process reaches zero has to stop. The player with the highest stopping point wins. Contrary to the explicit cost for a higher stopping time in a war of attrition, here, higher stopping times are riskier, because players can go bankrupt. We derive a closed-form solution of the unique Nash equilibrium outcome of the game. In equilibrium, the trade-off between risk and reward causes a non-monotonicity: highest expected losses occur if the process decreases only slightly in expectation.

We present an extension to any finite complete information game with two players. In the extension, players are allowed to communicate directly and, additionally, send private messages to a simple, detail-free mediator, which, in turn, makes public announcements as a deterministic function of the private messages. The extension captures situations in which people engage in face-to-face communication and can observe the opponent's face during the conversation before choosing actions in some underlying game. We prove that the set of Nash equilibrium payoffs of the extended game approximately coincides with the set of correlated equilibrium payoffs of any underlying game.

In numerous economic scenarios, contracting parties may not have a clear picture of all the relevant aspects. A contracting party may be unaware of what she and/or others are entitled to determine. Therefore, she may reject a contract that is too good to be true. Further, a contracting party may actively exert cognitive effort before signing a contract, so as to avoid being trapped into the contractual agreement ex post. In this paper, we propose a general framework to investigate these strategic interactions with unawareness, reasoning and cognition and intend to unify the solution concepts in the contracting context with unawareness. We build our conceptual framework upon the classical principal-agent relationship and compare the behaviors under various degrees of the unaware agent’s sophistication.

One key problem regarding the external validity of laboratory experiments is their duration: while economic interactions out in the field are often lengthy processes, typical lab experiments only last for an hour or two. To address this problem for the case of both symmetric and asymmetric Cournot duopoly, we conduct internet treatments lasting more than a month. Subjects make the same number of decisions as in the short-term counterparts, but they decide once a day. We compare these treatments to corresponding standard laboratory treatments and also to short-term internet treatments lasting one hour. We do not observe differences in behavior between the short- and long-term in the symmetric treatments, and only a small difference in the asymmetric treatments. We overall conclude that behavior is not considerably different between the short- and long-term.

Demands and concessions in a multi-stage bargaining process are shaped by the probabilities that each side will prevail in an impasse. Standard game-theoretic predictions are quite sharp: demands are pushed to the precipice with nothing left on the table, but there is no conflict regardless of the degree of power asymmetry. Indeed, there is no delay in reaching an agreement that incorporates the (unrealized) costs of delay and conflict. A laboratory experiment has been used to investigate the effects of power asymmetries on conflict rates in a two-stage bargaining game that is (if necessary) followed by conflict with a random outcome. Observed demands at each stage are significantly correlated with power, as measured by the probability of winning in the event of disagreement. Demand patterns, however, are flatter than theoretical predictions, and conflict occurs in a significant proportion of the interactions, regardless of the degree of the power asymmetry. To address these deviations from the standard game-theoretic predictions, we also estimated a logit quantal response model, which generated the qualitative patterns that are observed in the data. This one-parameter generalization of the Nash equilibrium permits a deconstruction of the strategic incentives that cause demands to be less responsive to power asymmetries than Nash predictions.

While strong social ties help individuals cope with missing institutions, trade is essentially limited to those who are part of the social network. We examine what makes the decision to trust a stranger different from the decision to trust a member of a given social network (a friend), by comparing the determinants of these two decisions for the same individual. We implement a binary trust game with hidden action in a lab-in-the-field experiment with residents of an informal housing area in Cairo. Our results show that trust is higher among friends than among strangers and that higher trust among friends is related to the principal's belief of trustworthiness. However, on average a principal underestimates her friend's trustworthiness leading to inefficient outcomes. Our findings suggest that even within a social network, trade may often be limited to exchanges with few information asymmetries.

Stochastic learning models provide sharp predictions about equilibrium selection when the noise level of the learning process is taken to zero. The difficulty is that, when the noise is extremely small, it can take an extremely long time for a large population to reach the stochastically stable equilibrium. An important exception arises when players interact locally in small close-knit groups; in this case convergence can be rapid for small noise and an arbitrarily large population. We show that a similar result holds when the population is fully mixed and there is no local interaction. Selection is sharp and convergence is fast when the noise level is 'fairly' small but not extremely small.

I use data from a previous experiment for classifying subjects based on their behavior in the trust game. Prior literature defines a “reciprocity effect” as the tendency for Second Movers to return proportions increasing in the amounts that they receive. In the data that I use, 31% of Second Movers show reciprocity effects, 31% are neutral, and 25% consistently free-ride, indicating that the aggregate reciprocity effect for the sample as a whole is attributable to a minority of the subjects.

We study Downsian competition in a Mirrleesian model of income taxation. The competing politicians may differ in competence. If politicians engage in vote-share maximization, the less competent politician's policy proposals are attractive to the minority of rich agents, whereas those of the competent politician are attractive to the majority of poor agents. The less competent politician wins with positive probability, which gives rise to a political failure in the sense of Besley and Coate (1998). Political failures are avoided if politicians maximize winning probabilities. Nevertheless, the two equilibria cannot be Pareto-ranked, the minority may be better off under vote-share maximization.

We consider Rubinstein’s two-person alternating-offer bargaining model with two-sided incomplete information. We investigate the effects of one party having relative concerns about the bargaining outcome and the delay in reaching an agreement. We find that facing an opponent with stronger relative concerns only hurts the bargainer when she is stronger than her opponent. In addition, we show that an increase of one party’s relative concerns will decrease the maximum delay in reaching an agreement.

The purpose of this paper is to study the effects of entry into the market for a single commodity in which both sellers and buyers are permitted to interact strategically. With the inclusion of an additional seller, the market is quasi-competitive: the price falls and volume of trade increases, as expected. However, contrary to the conventional wisdom, existing sellers' payoffs may increase. The conditions under which entry by new sellers raises the equilibrium payoffs of existing sellers are derived. These depend in an intuitive way on the elasticity of a strategic analog of demand and the market share of existing sellers, and encompass entirely standard economic environments. Similar results are derived relating to the entry of additional buyers and the effects of entry on both sides of the market are investigated.

Harstad and Selten's article in this forum performs a valuable service by highlighting the dominance of optimization-based models over boundedly rational models in modern microeconomics, and questioning whether optimization-based models are a better way forward than boundedly rational models. This article complements Rabin's response to Harstad and Selten, focusing on modeling strategic behavior. I consider Harstad and Selten's examples and proposed boundedly rational models in the light of modern behavioral economics and behavioral game theory, commenting on the challenges that remain and the most promising ways forward. (JEL B40, C72, D01, D03, D80)

Laboratory experiments have documented substantial heterogeneity in social preferences, but little is known about the origins of such behavior. Previous research on public goods experiments suggests that individual-level demographic and psychological variables correlate with player types. However, the key question about biological sources of variation in these preferences remains open. The aim of this study is to uncover genetic variations that influence differences in cooperative behavior. For this reason, we identify types of players within a strategic public goods experiment. We explicitly test for an association between individual variance in strategy choice and the functional promoter-region repeat of the monoamine oxidase A gene (MAOA). Our experimental findings suggest a link between MAOA and the occurrence of free-riding in females. Females with MAOA-L are less likely to behave like weak free-riders than MAOA-H carriers, whereas among males, our results did not support a significant relation between genotype and player type. Furthermore, MAOA-L female carriers contribute more than MAOA-H subjects to the public good if they know that others contribute nothing, and they showed slightly lower scores on the Machiavellianism scale. This is the first piece of evidence that genotype might predict player type within a public goods setting. It contributes to our understanding of biological drivers of economic decision-making and points to the need for further exploration.

In a Bayesian assessment, beliefs are computed from the strategy profile applying Bayes rule at positive probability information sets. A consistent assessment is the limit point of a sequence of completely mixed Bayesian assessments. We characterize the set of extensive forms for which the sets of Bayesian and consistent assessments coincide. As an illustration of the results, we characterize consistency in some multi-period games with simultaneous actions.