Rational play in games: A behavioral approach

We argue in favor of a departure from the standard equilibrium approach in game theory in favor of the less ambitious goal of describing only the actual behavior of rational players. We investigate the notion of rationality in behavioral models of extensive-form games (allowing for imperfect information), where a state is described in terms of a play of the game instead of a strategy profile. The players' beliefs are specified only at reached decision histories and are modeled as pre-choice beliefs, allowing us to carry out the analysis without the need for (objective or subjective) counterfactuals. The analysis is close in spirit to the literature on self-confirming equilibrium, but it does..

Microeconomics

Strategy-proofness of the unanimity with status-quo rule over restricted domains

In this paper we provide a complete characterization of preference domains on which the Unanimity with Status-quo rule is strategy-proof. Further, we introduce a notion of "conflicting preference domains" and show that the Unanimity with Status- quo rule defined over these domains is strategy-proof.

Microeconomics

Perverse Ethical Concerns: Online Platforms and Offline Conflicts

We study a model where many citizens learn a hidden state individually on an online platform. The platform slants news and imperfectly filters misinformation, triggering conflicts about the state among the citizens. We show that a platform that faces an ethical concern to internalize conflict costs could perversely aggravate conflicts. This cautionary observation highlights that societal efforts to mitigate conflicts, such as investments in ethical algorithms, public awareness campaigns, and government policies, are effective if and only if their implementations are sufficiently aggressive.

Microeconomics

Assortative Matching with Externalities and Farsighted Agents

We consider a one-to-one assortative matching problem in which matched pairs compete for a prize. With such externalities, the standard solution concept, pairwise stable matching, may not exist. In this paper, we consider farsighted agents and analyze the largest consistent set (LCS) of Chwe (1994). Despite the assortative structure of the problem, LCS tend to be large with the standard effectiveness functions: LCS can be the set of all matchings, including an empty matching with no matched pair. By modifying the effectiveness function motivated by Knuth (1976), LCS becomes a singleton of the positive assortative matching. Our results suggest that the choice of effectiveness function can sig..

Microeconomics

Stability in Matching with Externalities: Pairs Competition and Oligopolistic Joint Ventures

This paper presents one-to-one matching and assignment problems with externalities across pairs such as pairs figure skating competition and joint ventures in oligopolistic markets. In these models, players care not only about their partners but also which and how many rival pairs are formed. Thus, it is important for a deviating pair to know which matching will realize after it deviates from a matching (an effectiveness function) in order to define pairwise stable matching. Using a natural effectiveness function for such environments, we show that the assortative matching is pairwise stable. We discuss two generalizations of our model including intrinsic preferences on partners and pair-spe..

Microeconomics

Fuzzy Arrovian Theorems when preferences are complete

In this paper we study the aggregation of fuzzy preferences on non-necessarily finite societies. We characterize in terms of possibility and impossibility a family of models of complete preferences in which the transitivity is defined for any t-norm. For that purpose, we have described each model by means of some crisp binary relations and we have applied the results obtained by Kirman and Sondermann.

Microeconomics

Marginal Productivity and Coalition Formation with Distributive Norms

This paper analyzes coalition formation under constant, decreasing, and increasing marginal productivity when the total surplus jointly produced by individuals with heterogeneous abilities can only be distributed to its members in egalitarian or meritocratic ways. When marginal productivity is decreasing or constant, the results are simple, as no coalition with multiple members is included in a stable coalition structure when marginal productivity is decreasing, whereas individuals are indifferent to which meritocratic coalition they belong, including singletons, in the case of constant marginal productivity. In contrast, if marginal productivity is increasing, stable structures differ consi..

Microeconomics

Obvious Manipulability of Voting Rules

The Gibbard-Satterthwaite theorem states that no unanimous and non-dictatorial voting rule is strategyproof. We revisit voting rules and consider a weaker notion of strategyproofness called not obvious manipulability that was proposed by Troyan and Morrill (2020). We identify several classes of voting rules that satisfy this notion. We also show that several voting rules including k-approval fail to satisfy this property. We characterize conditions under which voting rules are obviously manipulable. One of our insights is that certain rules are obviously manipulable when the number of alternatives is relatively large compared to the number of voters. In contrast to the Gibbard-Satterthwaite ..

Microeconomics

Approximately Efficient Bilateral Trade

We study bilateral trade between two strategic agents. The celebrated result of Myerson and Satterthwaite states that in general, no incentive-compatible, individually rational and weakly budget balanced mechanism can be efficient. I.e., no mechanism with these properties can guarantee a trade whenever buyer value exceeds seller cost. Given this, a natural question is whether there exists a mechanism with these properties that guarantees a constant fraction of the first-best gains-from-trade, namely a constant fraction of the gains-from-trade attainable whenever buyer's value weakly exceeds seller's cost. In this work, we positively resolve this long-standing open question on constant-factor..

Microeconomics

Too much trade: the hidden problem of adverse selection

Adverse selection famously leads to the crowding out of socially benecial trades. We show that even more trades may be simultaneously crowded in. The reason is that, in the absence of complete unravelling, \lemons" fetch more under adverse selection. It is demonstrated how these \bad" trades occur in insurance, credit and used-car markets, and some policy implications are discussed.

Microeconomics

Clubs and Networks

A recurring theme in the study of society is the concentration of influence and power that is driven through unequal membership of groups and associations. In some instances these bodies constitute a small world while in others they are fragmented into distinct cliques. This paper presents a new model of clubs and networks to understand the sources of individual marginalization and the origins of different club networks. In our model, individuals seek to become members of clubs while clubs wish to have members. Club value is increasing in its size and in the strength of ties with other clubs. We show that a stable membership profile exhibits marginalization of individuals and that this is ge..

Microeconomics

Effects of Vertical Integration on Internet Service Providers' Zero-rating Choice

This study investigates the effects of vertical integration between an Internet service provider (ISP) and a content provider (CP) on the ISP's zero-rating choice and social welfare. We develop a simple model where a monopolistic ISP delivers content from two CPs to a representative consumer. The ISP can offer zero-rating contracts to one or two CPs, allowing the consumer to use zero-rated content without consuming monthly data usage. We investigate how the integration between the ISP and a CP impacts the ISP's zero-rating choice and social welfare. Our findings are as follows. First, the vertically integrated ISP may zero-rate the unaffiliated CP exclusively when the CPs' profitability is l..

Microeconomics

Keeping the Agents in the Dark: Private Disclosures in Competing Mechanisms

We study games in which several principals contract with several privately-informed agents. We show that enabling the principals to engage in contractible private disclosures {by sending private signals to the agents about how the mechanisms will respond to the agents' messages { can significantly affect the predictions of such games. Our first result shows that private disclosures may generate equilibrium outcomes that cannot be supported in any game without private disclosures, no matter the richness of the message spaces and the availability of public randomizing devices. The result thus challenges the canonicity of the universal mechanisms of Epstein and Peters (1999). Our second result ..

Microeconomics

Minimax regret with imperfect ex-post knowledge of the state

We consider decision problems under complete ignorance and extend the minimax regret principle to situations where, after taking an action, the decision maker does not necessarily learn the state of the world. For example, if the decision maker only learns what the outcome is, then all she knows is that the actual state is one of the possibly several states that yield the observed outcome under the chosen action. We refer to this situation as imperfect ex-post information. We also extend the framework to encompass the possibility of less than the extreme pessimism that characterizes the minimax regret criterion.

Microeconomics

Getting auctions for transportation capacity to roll

An auction of transport capacity can only roll forward if competitive bidders show up at the start. To characterize bidding behavior, we develop a model with a single incumbent potentially in competition with a single challenger; should the challenger obtain slots, the two firms will engage post-auction in capacity con-strained price competition. We show how the auction structure, that is, whether the slots are auctioned one at a time, and if not, how they are packaged affects the outcome. Our key finding is that the division of the available slots into tranches can significantly affect the outcome of the auction. Absent any set-asides, a single auc-tion for all the slots will almost ce..

Microeconomics

Public-Good Provision with Macro Uncertainty about Preferences: Efficiency, Budget Balance, and Robustness

The paper studies efficient public-good provision in a model with private values whose distribution depends on a macro shock; conditionally on this shock, values are independent and identically distributed. A generalization of the Bayesian mechanism of d'Aspremont and Gérard-Varet is shown to implement an efficient provision rule with budget balance. However, first-best implementation and budget balance are incompatible with a reqruirement of weak robustness whereby incentive compatibility of the mechanism is independent of the stochastic specification within the class of specifications defined by the structure of the model. Budget imbalances with robust implementation are small if there ar..

Microeconomics

Social Choice in Large Populations with Single-Peaked Preferences

Anonymous social choice function for a large atomless population maps cross-section distributions of preferences into outcomes. Because any one individual is too insignificant to a¤ect these distributions, every anonymous social choice function is individually strategy-proof. However, not every anonymous social choice function is group strategy-proof. If the set of outcomes is linearly ordered and participants have single-peaked preferences, an anonymous social choice function is group strategy-proof if and only if it can be implemented by a mechanism involving binary votes between neighbouring outcomes with nondecreasing thresholds for "moving higher up". Such a mechanism can be interprete..

Microeconomics

Expert-based Knowledge: Communicating over Scientific Models

Scientific models structure our perception of reality. This paper studies how we choose among them under expert advise. Scientific models are formalised as probability distributions over possible scenarios. An expert is assumed to know the most likely model and seeks to communicate it to a decision maker, but cannot prove it. As a result, communication is a cheap talk game over models. The decision maker is in a situation of model-uncertainty and is ambiguity sensitive. I show that information transmission depends on the strategic misalignment of players and, unlike similar models in the literature, a form of consensus among scientific models. When science is divided, there is an asymmetry i..

Microeconomics

Partnership Dissolution with Cash-Constrained Agents

When partnerships come to an end, partners must find a way to efficiently reallocate the commonly owned assets to those who value them the most. This requires that the aforementioned members possess enough financial resources to buy out the others’ shares. I investigate ex post efficient partnership dissolution when agents are ex post cash constrained. I derive necessary and sufficient conditions for ex post efficient partnership dissolution with Bayesian (resp. dominant strategy) incentive compatible, interim individually rational, ex post (resp. ex ante) budget balanced and ex post cash-constrained mechanisms. Ex post efficient dissolution is more likely to be feasible when agents with l..

Microeconomics

Consumer naivete and competitive add-on pricing on platforms

We model a situation where two sellers trade vertically and horizontally differentiated goods on a platform for which they are charged a commission fee. Sellers' costs are asymmetric due to differences in the fees charged by the platform and in their costs of production. Consumers purchase either a base good, or a bundle comprising of the base good and an add-on, from one of the sellers on the platform. Consumers differ in their brand preferences, valuations of quality and in their levels of sophistication. More specifically, we assume that there is a fraction of consumers who are naive, and do not observe or consider add-on prices - possibly because they do not foresee their demand for an a..

Microeconomics

The ambiguous competitive effects of passive partial forward integration

In a two-tier industry with an upstream monopolist supplier and downstream competition with differentiated goods, we show that passive partial forward integration (PPFI) has ambiguous effects on competition and welfare. When vertical trading is conducted via linear tariffs, PPFI is pro-competitive and welfare-increasing. While under two-part tariffs, it is anti-competitive and welfare-decreasing. These hold irrespectively of the degree of product differentiation, the observability or secrecy of contract terms, the mode of downstream competition, and the distribution of bargaining power between firms.

Microeconomics

Circles of Trust: Rival Information in Social Networks

We analyze the diffusion of rival information in a social network. In our model, rational agents can share information sequentially, unconstrained by an exogenous protocol or timing. We show how to compute the set of eventually informed agents for any network, and show that it is essentially unique under altruistic preferences. The relationship between network structure and information diffusion is complex because the former shapes both the charity and confidentiality of potential senders and receivers.

Microeconomics

Unpacking the Black Box: Regulating Algorithmic Decisions

We characterize optimal oversight of algorithms in a world where an agent designs a complex prediction function but a principal is limited in the amount of information she can learn about the prediction function. We show that limiting agents to prediction functions that are simple enough to be fully transparent is inefficient as long as the bias induced by misalignment between principal's and agent's preferences is small relative to the uncertainty about the true state of the world. Algorithmic audits can improve welfare, but the gains depend on the design of the audit tools. Tools that focus on minimizing overall information loss, the focus of many post-hoc explainer tools, will generally b..

Microeconomics

Charitable giving and intermediation: a principal agent problem with hidden prices

Donations are often made through charitable intermediaries that can fund themselves from these same donations. After intermediation, only a fraction of the amount donated may reach the intended beneficiary. The price of charitable output is therefore higher after intermediation than if donors donated directly toward the end cause. At the same time, this price is hidden from donors since they cannot verify how much intermediaries pass on. We show that while donors reduce their donation in intermediation itself and also reduce their donation because they expect the price of charitable output to increase, both reactions are either fully or partly compensated by their ethical preferences for the..

Microeconomics

Information Elicitation Meets Clustering

In the setting where we want to aggregate people's subjective evaluations, plurality vote may be meaningless when a large amount of low-effort people always report "good" regardless of the true quality. "Surprisingly popular" method, picking the most surprising answer compared to the prior, handle this issue to some extent. However, it is still not fully robust to people's strategies. Here in the setting where a large number of people are asked to answer a small number of multi-choice questions (multi-task, large group), we propose an information aggregation method that is robust to people's strategies. Interestingly, this method can be seen as a rotated "surprisingly popular". It is based o..

Microeconomics

Tradeoffs in Hierarchical Voting Systems

Condorcet's jury theorem states that the correct outcome is reached in direct majority voting systems with sufficiently large electorates as long as each voter's independent probability of voting for that outcome is greater than 0.5. Yet, in situations where direct voting systems are infeasible, such as due to high implementation and infrastructure costs, hierarchical voting systems provide a reasonable alternative. We study differences in outcome precision between hierarchical and direct voting systems for varying group sizes, abstention rates, and voter competencies. Using asymptotic expansions of the derivative of the reliability function (or Banzhaf number), we first prove that indirect ..

Microeconomics

Group Identity, Social Learning and Opinion Dynamics

In this paper, we study opinion dynamics in a balanced social structure consisting of two groups. Agents learn the true state of the world naively learning from their neighbors and from an unbiased source of information. Agents want to agree with others of the same group -- in-group identity, -- but to disagree with those of the opposite group -- out-group conflict. We characterize steady state opinions, and show that agents' influence depends on their Bonacich centrality in the signed network of opinion exchange. Finally, we study the effect of group size, the weight given to unbiased information and homophily when agents in the same group are homogeneous.

Microeconomics