We study the effect of transparency of individual votes in committees where members are heterogeneous in competence and bias, they are career-concerned, and they can abstain. We show that public voting attenuates the biases of competent members and secret voting attenuates the biases of incompetent members. Public voting leads to better decisions when the magnitude of the bias is large, while secret voting performs better otherwise. We present novel experimental evidence consistent with our theory.
Intervention often does not lead to peace, but rather to prolonged con ict. Indeed, we document that it is an important source of prolonged con icts. We introduce a theoretical model of the balance of power to explain why this should be the case and to analyze how peace can be achieved: either a cold peace between hostile neighbors or the peace of the strong dominating the weak. Nonintervention generally leads to peace after defeat of the weak. Cold peace can be achieved with su ciently strong outside intervention. The latter is thus optimal if the goal of policy is to prevent the strong from dominating the weak. JEL Classi cation Numbers: D74 (Con ict Resolution), C73 (Evolutionary Games), D02 (Institutions)
This paper suggests a novel way to import the approach of axiomatic theories of individual choice into strategic settings, focusing on the class of symmetric 2 2 games, and demonstrates the benets of this approach. We propose both a tractable behavioral model as well as axioms applied to the behavior of the collection of players across games. A representation theorem establishes these axioms as the precise behavioral content of the model, and that the model’s parameters are (essentially) uniquely identied from behavior. The behavioral model features magical thinking: players behave as if their expectations about their opponents’ behavior vary with their own choices. The model provides a unied view of documented behavior in a range of often-studied games, such as the Prisoners’ Dilemma, the Battle of the Sexes, Hawk-Dove, and the Stag Hunt, and also generates novel predictions across games.
Recent theories (Rabin, 2002; Rabin and Vayanos, 2010) propose that both the Gambler’s Fallacy and the Hot Hand Fallacy are driven by Representativeness Bias, also known as the Law of Small Numbers (Tversky and Kahneman, 1971). The Lucky Store Effect (Guryan and Kearney, 2008), in which the popularity of a lottery retailer surges after selling a winning ticket, bears an intuitive similarity to the Hot Hand Fallacy in terms of the belief that ‘previous winners will win again’, yet has been previously thought of as irreconcilable with Representativeness Bias. This paper develops theory and empirical evidence on this issue. We extend the Law of Small Numbers model of Rabin (2002), to the context where a decision-maker chooses among different lottery ticket stores after observing a history of prior outcomes. We show the conditions under which the decision-maker tends to believe that the store which has won previously has a higher chance of winning again, even if this event has only occurred once before. We then provide new empirical evidence on the Lucky Store Effect and Gambler’s Fallacy, from a large peer-to-peer online lottery marketplace for the Chinese national lottery. We find that lottery players exhibit Gambler’s Fallacy beliefs when picking lottery numbers, while believing in Lucky Stores when choosing which online lottery store to purchase their tickets from, which is consistent with the result in our model that decision-makers will tend to believe in the Lucky Store Effect when the perceived uncertainty about true probabilities is greater.
This paper shows that asynchronicity of moves can lead to a unique prediction in coordination games, in an infinite-horizon setting, under certain conditions on off-equilibrium payoffs. In two-player games we derive necessary and sufficient conditions for play ultimately being absorbed in the Pareto dominant Nash equilibrium of the stage game, for every Markov perfect equilibrium. For players patient enough, the condition is that the Pareto dominant Nash equilibrium is also risk dominant, but for lower levels of patience the condition departs from simple riskdominance. For general n-player symmetric games with patient players, we show that a necessary and sufficient condition for the Pareto dominant Nash equilibrium to be the unique limit outcome in all symmetric Markov perfect equilibrium is a particular generalization of risk-dominance for more than two players. We provide extensions to the unique selection results to all subgame perfect Nash equilibria, and to coordination games in which different players prefer different Nash equilibria of the stage game.
This chapter examines the basic model of the law and economics of litigation. Because the Rules of Civil Procedure and the Economics of the Litigation/Settlement decision are covered in separate chapters of this volume, this chapter will focus on private civil litigation, in particular the litigation value of a lawsuit and the incentives generated for filing a suit. The chapter begins with the simple one-stage single plaintiff/single defendant investment model of litigation, and sets out the conditions for filing, default, settlement, and litigation. The analysis then examines the effects of litigation cost and fee‐shifting as well as the effects of percentage contingency fee arrangements within the standard one‐stage model.The model is then modified to take into account sequencing and option value. We show how litigation with multiple stages and the revelation of information alter the investment value of litigation, as well as the effects of litigation reform proposals such as fee‐shifting. Finally, the chapter discusses third party or external effects. We examine how these additional complications affect the outcome of litigation, the viability of a lawsuit and the predictions of the standard model of litigation.This chapter is not intended to be a comprehensive overview of economic analyses of litigation and civil procedure (See Cooter & Rubinfeld (1989), Kobayashi & Parker (2000), Spier (2007)). Rather, this aim of this chapter is to set out the basic mechanics of the law and economics of private civil litigation, and examine how a more robust examination of sequential decision‐making in litigation alters some of the basic predictions of the simple model.
We propose nonparametric definitions of absolute and comparative naivete. These definitions leverage ex-ante choice of menu to identify predictions of future behavior and ex-post choices from menus to identify actual behavior. The definitions’ main advantage is their independence from any assumed functional form for the utility function representing behavior. An individual is sophisticated if she is indifferent between choosing from a menu ex post or committing to the actual choice from that menu ex ante. She is naive if she prefers the flexibility in the menu, reflecting a mistaken belief that she will act more virtuously than she actually will. One individual is more naive than another if she is both more optimistic about her future behavior while actually being less virtuous. In the case of Strotzian preferences, absolute naivete implies that beliefs are a convex combination of virtuous and temptation utility, while comparative naivete implies that the more naive individual’s beliefs puts relativeley more weight on her virtuous utility, while her actual behavior puts more weight on the temptation utility. In different specifications of the underlying Strotzian preferences, such as quasi-hyperbolic discounting, the definitions impose further intuitive restrictions, such as inequalities on believed and actual present-bias factors. We propose suitable definitions for random choice. Finally, we discuss the implications of general naivete for welfare and the design of commitment devices.
This paper studies the design of a recommender system for organizing social learning on a product. To improve incentives for early experimentation, the optimal design trades off fully transparent social learning by over-recommending a product (or “spamming”) to a fraction of agents in the early phase of the product cycle. Under the optimal scheme, the designer spams very little about a product right after its release but gradually increases the frequency of spamming and stops it altogether when the product is deemed sufficiently unworthy of recommendation. The optimal recommender system involves randomly triggered spamming when recommendations are public—as is often the case for product ratings—and an information “blackout” followed by a burst of spamming when agents can choose when to check in for a recommendation. Fully transparent recommendations may become optimal if a (socially-benevolent) designer does not observe the agents’ costs of experimentation.
Explanations of the role of political parties within political processes abound. Most of these explanations describe parties as a type of intermediary, in that they stand between voters and candidates and facilitate matching between the two. Parties lubricate the political process within these explanations. While we don’t dispute that parties perform intermediary services, we explain that political parties also operate as interest groups, thereby pushing political processes and agendas in particular directions. We do this by incorporating insights from Pareto’s (1935) analysis of competition among elites for power and Hayek’s (1937) analysis of fragmented and distributed knowledge.
We examine the long-run implication of two models of learning with recency bias: recursive weights and limited memory. We show that both models generate similar beliefs, and that both have a weighted universal consistency property. Using the limited memory model we are able to produce learning procedures that are both weighted universally consistent and converge with probability one to strict Nash equilibrium, the rst example of which we are aware of learning procedures that have this convergence property and also have desirable properties for the individual agents who use them. JEL Classi cation Numbers: 001,002
This paper studies optimal persuasion. A speaker must decide which arguments to present and a listener which arguments to accept. Communication is limited in that the arguments available to the speaker depend on her information. Optimality is assessed from the listener's perspective assuming that the listener can commit to a persuasion rule. I show that this seemingly simple scenario--introduced by Glazer and Rubinstein (2006)--is computationally intractable (formally, NP-hard). However under the assumption known as normality, which validates the revelation principle in mechanism design environments with evidence (Green and Laffont 1986, Bull and Watson 2007), I show that the persuasion problem reduces to a classic optimization problem, leading to a simple procedure for its solution. This procedure finds not only the optimal rule, but also the credible implementation of the optimal rule, i.e., the equilibrium of the game without commitment leading to the same outcome as the optimal rule. Normality also has qualitative consequences for the optimal rule. In particular, under normality, there always exists an optimal rule which is symmetric: i.e., ex ante equivalent evidence is treated equivalently. When normality fails, all optimal rules may be asymmetric; in other words, the listener may categorize evidence in an arbitrary manner, and base his decisions on these categories in order to influence the speaker's reporting behavior.
We study media slant in a model of job choice and voting. We de…ne slant as the relative emphasis on reporting on the dierent di- mensions of the policy space when citizens are imperfectly informed about the candidates'positions. Citizens use media reports in order to decide whom to vote for and what sort of jobs to take. We show that media favoring a candidate will put some emphasis on the policy dimension in which information potentially unfavorable to this can- didate may emerge if and only if citizens are ex ante biased against this candidate. We also show that it is better for citizens that the media favors the candidate against whom citizens are ex ante biased if and only if incentives for taking highly productive jobs are large. Balanced media, giving equal coverage to policy dimensions, may be worse than partisan media favoring either candidate.
We study set algebras with an operator (SAO) that satisfy the axioms of S5 knowledge. A necessary and sufficient condition is given for such SAOs that the knowledge operator is defined by a partition of the state space. SAOs are constructed for which the condition fails to hold. We conclude that no logic singles out the partitional SAOs among all SAOs.
This paper examines existence of Markov equilibria in the class of dynamic political games (DPGs). DPGs are dynamic games in which political institutions are endogenously determined each period. The process of change is both recursive and instrumental: the rules for political aggregation at date t+1 are decided by the rules at date t, and the resulting institutional choices do not affect payoffs or technology directly. Equilibrium existence in dynamic political games requires a resolution to a “political fixed point problem” in which a current political rule (e.g., majority voting) admits a solution only if all feasible political rules in the future admit solutions in all states. If the class of political rules is dynamically consistent, then DPGs are shown to admit political fixed points. This result is used to prove two equilibrium existence theorems, one of which implies that equilibrium strategies, public and private, are smooth functions of the economic state. We discuss practical applications that require existence of smooth equilibria.
R. J. Aumann and J. H. Dreze (2005) define a rational expectation of a game G as an expected payo of some type of Player 1 in some belief system for G in which common knowledge of rationality and common priors obtain. Our goal is to characterize the set of rational expectations in terms of the game's payo matrix. We provide such a characterization for a specific class of strategic games, which we call semi-elementary.
