Abstract In modeling game and decision theory situations, it has been usual to start by considering Ω, the set of conceivable states of the world. I wish to propose a more fundamental view. I do not assume that the agent knows Ω. Instead the agent is assumed to derive for herself a representation of the universe. Given her knowledge and her ability to reason about it the agent deduces a set of conceivable states of the world and a set of possible states of the world. The epistemic model considered in this paper uses a propositional framework. The model distinguishes between the knowledge of the existence of a proposition, which I call awareness, and the knowledge of the truth or the falsity of the proposition. Depending upon whether one assumes that the agent is aware or not of all the propositions, she will or will not have a “complete model” of the world. When the agent is not aware of all the propositions, the states of the world and the possibility correspondence imaginable by her are coarser than the modeler's. The agent has an incomplete knowledge of both the states of the world and the information structure. In addition, I extend the model with “incompleteness” to a dynamic setting. Under the assumption that the agent's knowledge is non-decreasing over time, I show that the set of states of the world conceivable by the agent and her possibility correspondence get finer over time.
{"title":"Do I Know Ω? An Axiomatic Model of Awareness and Knowledge","authors":"C. Pires","doi":"10.1515/bejte-2018-0177","DOIUrl":"https://doi.org/10.1515/bejte-2018-0177","url":null,"abstract":"Abstract In modeling game and decision theory situations, it has been usual to start by considering Ω, the set of conceivable states of the world. I wish to propose a more fundamental view. I do not assume that the agent knows Ω. Instead the agent is assumed to derive for herself a representation of the universe. Given her knowledge and her ability to reason about it the agent deduces a set of conceivable states of the world and a set of possible states of the world. The epistemic model considered in this paper uses a propositional framework. The model distinguishes between the knowledge of the existence of a proposition, which I call awareness, and the knowledge of the truth or the falsity of the proposition. Depending upon whether one assumes that the agent is aware or not of all the propositions, she will or will not have a “complete model” of the world. When the agent is not aware of all the propositions, the states of the world and the possibility correspondence imaginable by her are coarser than the modeler's. The agent has an incomplete knowledge of both the states of the world and the information structure. In addition, I extend the model with “incompleteness” to a dynamic setting. Under the assumption that the agent's knowledge is non-decreasing over time, I show that the set of states of the world conceivable by the agent and her possibility correspondence get finer over time.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"21 1","pages":"395 - 432"},"PeriodicalIF":0.4,"publicationDate":"2020-05-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/bejte-2018-0177","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48468561","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
E. Karni, Quitz'e Valenzuela-Stookey, Marie-Louise Vierø
Abstract This paper studies an environment in which a decision maker choosing between acts may initially be unaware of certain consequences. We follow the approach of Karni and Vierø (2013) to modeling increasing awareness, which allows for the decision maker's state space to expand as she becomes aware of new possible consequences. We generalize the main result in Karni and Vierø (2013) by allowing the discovery of new consequences to nullify some states that were non-null before the discovery. We also provide alternative assumptions which strengthen the predictions of the belief updating model.
{"title":"Reverse Bayesianism: A Generalization","authors":"E. Karni, Quitz'e Valenzuela-Stookey, Marie-Louise Vierø","doi":"10.1515/BEJTE-2018-0176","DOIUrl":"https://doi.org/10.1515/BEJTE-2018-0176","url":null,"abstract":"Abstract This paper studies an environment in which a decision maker choosing between acts may initially be unaware of certain consequences. We follow the approach of Karni and Vierø (2013) to modeling increasing awareness, which allows for the decision maker's state space to expand as she becomes aware of new possible consequences. We generalize the main result in Karni and Vierø (2013) by allowing the discovery of new consequences to nullify some states that were non-null before the discovery. We also provide alternative assumptions which strengthen the predictions of the belief updating model.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"21 1","pages":"557 - 569"},"PeriodicalIF":0.4,"publicationDate":"2020-05-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/BEJTE-2018-0176","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47015246","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract The ability of markets to aggregate information through prices is examined in a dynamic environment with unawareness. We find that if all traders are able to minimally update their awareness when they observe a price that is counterfactual to their private information, they will eventually reach an agreement, thus generalising the result of Geanakoplos and Polemarchakis (1982). Moreover, if the traded security is separable, then agreement is on the correct price and there is information aggregation, thus generalizing the result of Ostrovsky (2012) for non-strategic traders. We find that a trader increases her awareness if and only if she is able to become aware of something that other traders are already aware of and, under a mild condition, never becomes aware of anything more. In other words, agreement is more the result of understanding each other, rather than being unboundedly sophisticated.
{"title":"Updating Awareness and Information Aggregation","authors":"Spyros Galanis, Stelios Kotronis","doi":"10.2139/ssrn.3305415","DOIUrl":"https://doi.org/10.2139/ssrn.3305415","url":null,"abstract":"Abstract The ability of markets to aggregate information through prices is examined in a dynamic environment with unawareness. We find that if all traders are able to minimally update their awareness when they observe a price that is counterfactual to their private information, they will eventually reach an agreement, thus generalising the result of Geanakoplos and Polemarchakis (1982). Moreover, if the traded security is separable, then agreement is on the correct price and there is information aggregation, thus generalizing the result of Ostrovsky (2012) for non-strategic traders. We find that a trader increases her awareness if and only if she is able to become aware of something that other traders are already aware of and, under a mild condition, never becomes aware of anything more. In other words, agreement is more the result of understanding each other, rather than being unboundedly sophisticated.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"21 1","pages":"613 - 635"},"PeriodicalIF":0.4,"publicationDate":"2020-05-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47749851","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates theoretically and experimentally the social benefits and cost to have an endogenous punishment-enforcing authority in public goods game. An authority is chosen among members of a society via an imperfectly discriminating contest prior to a public goods game. Once chosen the authority has a large degree of discretion to inflict punishment. Our theoretical result shows that an efficiency gain from having the endogenous authority always comes with a social cost from competing for being the authority. The larger the society is, however, the bigger the efficiency gain and the smaller the rent dissipation. The completely efficient outcome can be approximated as the size of society tends to infinity. The experimental results confirm that the presence of endogenous authority for a given group size increases the public goods contributions and the efficiency gain is significantly bigger in a larger group.
{"title":"Endogenous Authority and Enforcement in Public Goods Games","authors":"Lim Wooyoung, Z. Jipeng","doi":"10.1515/BEJTE-2019-0057","DOIUrl":"https://doi.org/10.1515/BEJTE-2019-0057","url":null,"abstract":"This paper investigates theoretically and experimentally the social benefits and cost to have an endogenous punishment-enforcing authority in public goods game. An authority is chosen among members of a society via an imperfectly discriminating contest prior to a public goods game. Once chosen the authority has a large degree of discretion to inflict punishment. Our theoretical result shows that an efficiency gain from having the endogenous authority always comes with a social cost from competing for being the authority. The larger the society is, however, the bigger the efficiency gain and the smaller the rent dissipation. The completely efficient outcome can be approximated as the size of society tends to infinity. The experimental results confirm that the presence of endogenous authority for a given group size increases the public goods contributions and the efficiency gain is significantly bigger in a larger group.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"20 1","pages":"1-22"},"PeriodicalIF":0.4,"publicationDate":"2020-03-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/BEJTE-2019-0057","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67197515","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract In an environment in which a buyer and a seller make ex-ante investments, competition among sellers can solve the hold-up problem without the design of ex-ante contracts but, in the case of low levels of competition, this may lead to inefficient investments. This paper shows that a seller invests efficiently when each seller offers latent contracts designed to exclude any other seller from trade (i. e. most intense competition). Because competition among sellers allows the buyer to appropriate part of the gains from his investment, the hold-up problem vanishes for most of the buyer’s investment costs. However, the seller appropriates more than his marginal contribution to the gains from trade, and over-invests, when a group of sellers does not offer latent contracts (under less intense competition). Therefore, efficient investments can only be implemented when competition is at its most intense.
{"title":"Competition with Nonexclusive Contracts: Tackling the Hold-Up Problem","authors":"Guillem Roig","doi":"10.1515/bejte-2018-0190","DOIUrl":"https://doi.org/10.1515/bejte-2018-0190","url":null,"abstract":"Abstract In an environment in which a buyer and a seller make ex-ante investments, competition among sellers can solve the hold-up problem without the design of ex-ante contracts but, in the case of low levels of competition, this may lead to inefficient investments. This paper shows that a seller invests efficiently when each seller offers latent contracts designed to exclude any other seller from trade (i. e. most intense competition). Because competition among sellers allows the buyer to appropriate part of the gains from his investment, the hold-up problem vanishes for most of the buyer’s investment costs. However, the seller appropriates more than his marginal contribution to the gains from trade, and over-invests, when a group of sellers does not offer latent contracts (under less intense competition). Therefore, efficient investments can only be implemented when competition is at its most intense.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":" ","pages":""},"PeriodicalIF":0.4,"publicationDate":"2020-03-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/bejte-2018-0190","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48857322","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I develop a model of inequality aversion and public goods that allows the marginal rate of substitution to be variable. As a theoretical foundation, utility function of the standard public goods model is nested in the Fehr-Schmidt model. An individual’s contribution function for a public good is derived by solving the problem of kinky preference and examining both interior and corner solutions. Results show that the derived contribution function is not monotonic with respect to the other individual’s provision. Thus, the model can be used to explain empirical evidence for the effect of social comparison on public-good provision.
{"title":"A Model of Inequality Aversion and Private Provision of Public Goods","authors":"Yokoo Hide-Fumi","doi":"10.1515/BEJTE-2019-0066","DOIUrl":"https://doi.org/10.1515/BEJTE-2019-0066","url":null,"abstract":"I develop a model of inequality aversion and public goods that allows the marginal rate of substitution to be variable. As a theoretical foundation, utility function of the standard public goods model is nested in the Fehr-Schmidt model. An individual’s contribution function for a public good is derived by solving the problem of kinky preference and examining both interior and corner solutions. Results show that the derived contribution function is not monotonic with respect to the other individual’s provision. Thus, the model can be used to explain empirical evidence for the effect of social comparison on public-good provision.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"20 1","pages":"1-5"},"PeriodicalIF":0.4,"publicationDate":"2020-03-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/BEJTE-2019-0066","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67197573","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract This paper studies different welfare-enhancing roles that fiat money can have. To do so, we consider an indivisible monetary framework where agents are randomly and bilaterally matched, while the government has weak enforcement powers. Within this environment, we analyze state contingent monetary policies and characterize the resulting equilibria under different government record-keeping technologies. We show that a threat of injecting fiat money, conditional on private actions, can improve allocations and achieve efficiency. This type of state contingent policy is effective even when the government cannot observe any private trades and agents can only communicate with the government through cheap talk. In all these equilibria fiat money and self-enforcing credit are complements in the off equilibrium. Finally, this type of equilibria can also emerge even when the injection of fiat money is not a public signal.
{"title":"Fiat Money as a Public Signal, Medium of Exchange, and Punishment","authors":"P. GOMIS‐PORQUERAS, Ching-jen Sun","doi":"10.1515/bejte-2019-0098","DOIUrl":"https://doi.org/10.1515/bejte-2019-0098","url":null,"abstract":"Abstract This paper studies different welfare-enhancing roles that fiat money can have. To do so, we consider an indivisible monetary framework where agents are randomly and bilaterally matched, while the government has weak enforcement powers. Within this environment, we analyze state contingent monetary policies and characterize the resulting equilibria under different government record-keeping technologies. We show that a threat of injecting fiat money, conditional on private actions, can improve allocations and achieve efficiency. This type of state contingent policy is effective even when the government cannot observe any private trades and agents can only communicate with the government through cheap talk. In all these equilibria fiat money and self-enforcing credit are complements in the off equilibrium. Finally, this type of equilibria can also emerge even when the injection of fiat money is not a public signal.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":" ","pages":""},"PeriodicalIF":0.4,"publicationDate":"2020-02-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/bejte-2019-0098","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45212050","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract This paper studies the equilibria of contribution games with commitment and with cheap talk under incomplete information. When agents contribute to a club good, we find that with commitment, high types contribute early to induce low types to contribute in later rounds. With cheap talk, low types signal to contribute early but may drop out later if they find the total contributions are low. When there are sufficiently many rounds, we construct a cheap talk equilibrium that implements the ex-post efficient and ex-post individually rational allocation. In contrast, every equilibrium of the commitment game is inefficient. When the good is a public good, the cheap-talk game admits no informative equilibria. In this case, the equilibria of the commitment game may be more efficient.
{"title":"Should the Talk be Cheap in Contribution Games?","authors":"Jen-Wen Chang","doi":"10.1515/bejte-2019-0082","DOIUrl":"https://doi.org/10.1515/bejte-2019-0082","url":null,"abstract":"Abstract This paper studies the equilibria of contribution games with commitment and with cheap talk under incomplete information. When agents contribute to a club good, we find that with commitment, high types contribute early to induce low types to contribute in later rounds. With cheap talk, low types signal to contribute early but may drop out later if they find the total contributions are low. When there are sufficiently many rounds, we construct a cheap talk equilibrium that implements the ex-post efficient and ex-post individually rational allocation. In contrast, every equilibrium of the commitment game is inefficient. When the good is a public good, the cheap-talk game admits no informative equilibria. In this case, the equilibria of the commitment game may be more efficient.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":" ","pages":""},"PeriodicalIF":0.4,"publicationDate":"2020-02-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/bejte-2019-0082","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43379152","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract Many countries use a centralized admission system for admitting students to universities. Typically, each student reports a ranking of his preferred colleges to a planner, and the planner allocates students to colleges according to the rules of a predefined mechanism. A recurrent feature in these admission systems is that students are constrained in the number of colleges that they can rank. In addition, students normally have private preferences over colleges and are risk-averse. Hence, they face a strategic decision under uncertainty to determine their optimal reports to the planner. We characterize students’ equilibrium behavior when the planner uses a Serial Dictatorship (SD) mechanism by solving an endogenous decision problem. We show that if students are sufficiently risk-averse, their optimal strategy is to truthfully report the “portfolio of colleges” with the highest probabilities of being available. We then analyze the welfare implications of constraining student choice by stressing the differences between the so-called consideration and conditional-allocation effects.
{"title":"College Assignment Problems Under Constrained Choice, Private Preferences, and Risk Aversion","authors":"Allan Hernandez-Chanto","doi":"10.1515/bejte-2019-0002","DOIUrl":"https://doi.org/10.1515/bejte-2019-0002","url":null,"abstract":"Abstract Many countries use a centralized admission system for admitting students to universities. Typically, each student reports a ranking of his preferred colleges to a planner, and the planner allocates students to colleges according to the rules of a predefined mechanism. A recurrent feature in these admission systems is that students are constrained in the number of colleges that they can rank. In addition, students normally have private preferences over colleges and are risk-averse. Hence, they face a strategic decision under uncertainty to determine their optimal reports to the planner. We characterize students’ equilibrium behavior when the planner uses a Serial Dictatorship (SD) mechanism by solving an endogenous decision problem. We show that if students are sufficiently risk-averse, their optimal strategy is to truthfully report the “portfolio of colleges” with the highest probabilities of being available. We then analyze the welfare implications of constraining student choice by stressing the differences between the so-called consideration and conditional-allocation effects.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":" ","pages":""},"PeriodicalIF":0.4,"publicationDate":"2020-02-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/bejte-2019-0002","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45034675","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract This paper develops a model with overlapping generations to show that human capital formation can potentially attenuate factor price movements in response to fertility shocks if education spending per child is inversely related to the size of the generation subject to the fertility shock. The degree of attenuation depends on the effectiveness of education spending in producing human capital. We also find this attenuation effect concentrates generational consumption risk around the generation subject to the fertility shock. The combination of these two results suggest that there is an inverse relationship between the degree of factor price movements and lifetime consumption profiles in response to fertility shocks. Relatively larger generations will experience larger drops in lifetime consumption and relatively smaller generations will experience larger increases in lifetime consumption the less factor prices move in response to generational size. Thus, factor price smoothing does not necessarily translate into welfare smoothing across all generations.
{"title":"Education Spending, Fertility Shocks and Generational Consumption Risk","authors":"P. Emerson, Shawn D. Knabb","doi":"10.1515/bejte-2018-0134","DOIUrl":"https://doi.org/10.1515/bejte-2018-0134","url":null,"abstract":"Abstract This paper develops a model with overlapping generations to show that human capital formation can potentially attenuate factor price movements in response to fertility shocks if education spending per child is inversely related to the size of the generation subject to the fertility shock. The degree of attenuation depends on the effectiveness of education spending in producing human capital. We also find this attenuation effect concentrates generational consumption risk around the generation subject to the fertility shock. The combination of these two results suggest that there is an inverse relationship between the degree of factor price movements and lifetime consumption profiles in response to fertility shocks. Relatively larger generations will experience larger drops in lifetime consumption and relatively smaller generations will experience larger increases in lifetime consumption the less factor prices move in response to generational size. Thus, factor price smoothing does not necessarily translate into welfare smoothing across all generations.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":" ","pages":""},"PeriodicalIF":0.4,"publicationDate":"2020-02-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/bejte-2018-0134","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42181123","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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