Nash Codes for Noisy Channels

This paper studies the stability of communication protocols that deal with transmission errors. We consider a coordination game between an informed sender and an uninformed decision maker, the receiver, who communicate over a noisy channel. The sender's strategy, called a code, maps states of nature to signals. The receiver's best response is to decode the received channel output as the state with highest expected receiver payoff. Given this decoding, an equilibrium or "Nash code" results if the sender encodes every state as prescribed. We show two theorems that give sufficient conditions for Nash codes. First, a receiver-optimal code defines a Nash code. A second, more surprising observation holds for communication over a binary channel which is used independently a number of times, a basic model of information transmission: Under a minimal "monotonicity" requirement for breaking ties when decoding, which holds generically, EVERY code is a Nash code.Comment: More general main Theorem 6.5 with better proof. New examples and introductio

Asymmetric loss utility: an analysis of decision under risk

This paper develops a utility model for evaluating lotteries. In estimating utility, risk averse people use an asymmetric loss function. Expected utility is seen as a special case that is a good approximation of the general case in some cases. The model resolves several paradoxes and makes easily falsifiable predictions. When used in hypothesis testing, the model allows researchers to directly specify their attitudes toward risk. The model is advantageous for two reasons. First, it is based on established principles of probability; second, it resolves several well- known paradoxes.choice under uncertainty, non-expected utility theory, risk aversion, Allais paradox, Ellsberg paradox, St. Petersburg paradox, Equity Premium Puzzle, decision theory

Limiting political discretion and international environmental policy coordination with active lobbying

We address two concerns: trade liberalisation may lead to a race-to-the bottom in environmental standards; supra-national agencies, who might overcome this, may be captured by special interest groups. This raises two sets of choices: whether to set environmental policy at the national or supra-national level, and whether to limit political discretion by agencies. In Johal and Ulph (2001a) we showed that policy should always be set at the supra- national level, whether or not political discretion was limited, and that it would never pay to limit political discretion at the supra-national level unless it was also limited at the national level. In that paper there were exogenous probabilities of agencies being captured by one group or another. In this paper the probabilities of capture depend on the lobbying efforts of interest groups. We show that the results of Johal and Ulph (2001a) are robust to the introduction of active lobbying. Keywords; strategic environmental policy, international policy coordination, supra-national agencies, special interest groups, lobbying, limiting political discretion, constitutional choices JEL classification: D72, F02, F12, F18, Q28

Gifts as Economic Signals and Social Symbols

Gift-giving has often puzzled economists, especially because efficient gifts-like cash or giving exactly what a person asks for-seem crass or inappropriate. It is shown in a formal game-theoretic model that gifts serve as "signals" of a person's intentions about future investment in a relationship, and inefficient gifts can be better signals. Other explanations for the inefficiency of gift giving are advanced, and some stylized facts about gift-giving practices are described (many of which are consistent with the signaling view of gifts)

On the Equivalence of Bayesian and Dominant Strategy Implementation

We consider a standard social choice environment with linear utilities and independent, one-dimensional, private types. We prove that for any Bayesian incentive compatible mechanism there exists an equivalent dominant strategy incentive compatible mechanism that delivers the same interim expected utilities for all agents and the same ex ante expected social surplus. The short proof is based on an extension of an elegant result due to Gutmann et al. (Annals of Probability, 1991). We also show that the equivalence between Bayesian and dominant strategy implementation generally breaks down when the main assumptions underlying the social choice model are relaxed, or when the equivalence concept is strengthened to apply to interim expected allocations.Bayesian Implementation, Dominant Strategy Implementation, Equivalence

Fair social decision under uncertainty and belief disagreements

This paper aims to address two issues related to simultaneous aggregation of utilities and beliefs. The first one is related to how to integrate both inequality and uncertainty considerations into social decision making. The second one is related to how social decision should take disagreements in beliefs into account. To accomplish this, whereas individuals are assumed to abide by Savage model’s of subjective expected utility, society is assumed to prescribe, either to each individual when the ex ante individual well-being is favored or to itself when the ex post individual well-being is favored, acting in accordance with the maximin expected utility theory of Gilboa and Schmeidler (J Math Econ 18:141–153, 1989). Furthermore, it adapts an ex ante Pareto-type condition proposed by Gayer et al. (J Legal Stud 43:151–171, 2014), which says that a prospect Pareto dominates another one if the former gives a higher expected utility than the latter one, for each individual, for all individuals’ beliefs. In the context where the ex ante individual welfare is favored, our ex ante Pareto-type condition is shown to be equivalent to social utility taking the form of a MaxMinMin social welfare function, as well as to the individual set of priors being contained within the range of individual beliefs. However, when the ex post individual welfare is favored, the same Pareto-type condition is shown to be equivalent to social utility taking the form of a MaxMinMin social welfare function, as well as to the social set of priors containing only weighted averages of individual beliefs

Intertemporal choice and consumption mobility

The theory of intertemporal consumption choice makes sharp predictions about the evolution of the entire distribution of household consumption, not just about its conditional mean. In the paper, we study the empirical transition matrix of consumption using a panel drawn from the Bank of Italy Survey of Household Income and Wealth. We estimate the parameters that minimize the distance between the empirical and the theoretical transition matrix of the consumption distribution. The transition matrix generated by our estimates matches remarkably well the empirical matrix, both in the aggregate and in samples stratified by education. Our estimates strongly reject the consumption insurance model and suggest that households smooth income shocks to a lesser extent than implied by the permanent income hypothesis. Klassifikation: D52, D91, I3