Information and Its Value in Zero-Sum Repeated Games

Two players play an unknown zero-sum repeated game. Before the game starts one player may receive signals, whose nature is specified by an information structure, regarding the game actually played. We characterize when one information structure is better for the maximizer than another. We also characterize those functions defined on partitions that determine the equilibrium payoff when one player is informed about the cell of the partition that contains the realized state.value of information, repeated games

Information quantity assessment : bases for managing the information resource

Thesis (M.S.)--Massachusetts Institute of Technology, Sloan School of Management, 1991.Title as it appears in the M.I.T. Graduate List, Sept. 1991: Valuing information.Includes bibliographical references (leaves 85-89).by Marhsall W. Van Alstyne.M.S

The life and work of David Fordyce, 1711-1751

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Essays on moral hazard, reputation and market structure

This thesis is comprised of three pieces of research on moral hazard, reputation and market structure. In particular, following an opening discussion of previous literature, I explore the dynamic interaction between moral hazard and market structure in two distinct game theoretic settings and empirically test a fundamental assumption of these models concerning consumer rationality. In the first Chapter, I survey the studies which shed light on some dimension of the relationship between asymmetric information and market structure and identify the gap in the literature that my research aims to fill. The mechanism of reputation has been primarily investigated in the setting of perfect competition; however, this setting is ill suited for uncovering the rich set of relations between asymmetric information and market structure. Only a handful of articles departed from the perfect competition framework and only few of those introduced strategic interaction among firms, a fundamental ingredient of my research interest. The models which do include strategic interaction have, however, ignored some important dynamics in the interaction of asymmetric information and market structure. Therefore in Chapter II, I develop a model in which market structure affects moral hazard while, in turn, moral hazard fuels market structure dynamics. The model is very general allowing for all kinds of strategic interaction among firms usually considered in the literature. I identify and analyse an important driving force -a survival contest - which has so far been overlooked. The main conclusion is that market concentration in and of itself reduces moral hazard and moral hazard drives the market towards concentration through the survival contest. The model is suitable to explain the puzzling market transformation of important industries such as banking, audit and health care. In Chapter III, I extend the model of Chapter 11 by introducing stochastic entry. First, I demonstrate that my results in the previous Chapter are robust to the entry process. Second, stochastic entry allows me to derive a non-degenerate steady state distribution which exhibits a very intuitive dynamics. Finally, although the complex nature of the dynamics prevents a detailed comparative static analysis of this distribution, it displays two well known empirical regularities. In particular, my model shows that the presence of moral hazard in and of itself produces shake-outs in the market from time to time and also correlated exit and entry rates. The reputation mechanisms in general and in the models of Chapter II and III in particular crucially depend on consumers' ability and willingness to develop an understanding of imperfect information on quality. In order to make reputation an effective disciplinary force, consumers must be strongly rational so that they read and understand imperfect quality indicators. In Chapter IV, this basic assumption on consumer rationality is tested empirically in discrete choice settings in the audit market. I find robust empirical evidence that if consumers are firms rather than individuals, they are strongly rational

Essays on information and incentives

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2013.Cataloged from PDF version of thesis.Includes bibliographical references (p. 163-168).This thesis studies problems of belief and information formation of agents, and its effect on incentive provision in problems of experimental and mechanism design. Chapter 1 is based on joint work with Arun Chandrasekhar and Horacio Larreguy. In this chapter we present the results of an experiment we conducted in rural Karnataka, India, to get evidence on how agents learn from each other's actions in the context of a social network. Theory has mostly focused on two leading models of social learning on networks: Bayesian updating and local averaging (DeGroot rules of thumb) which can yield greatly divergent behavior; individuals employing local averaging rules of thumb often double-count information and, in our context, may not exhibit convergent behavior in the long run. We study experiments in which seven individuals are placed into a network, each with full knowledge of its structure. The participants attempt to learn the underlying (binary) state of the world. Individuals receive independent, identically distributed signals about the state in the first period only; thereafter, individuals make guesses about the underlying state of the world and these guesses are transmitted to their neighbors at the beginning of the following round. We consider various environments including incomplete information Bayesian models and provide evidence that individuals are best described by DeGroot models wherein they either take simple majority of opinions in their neighborhood Chapter 2 is based on joint work with Arun Chandrasekhar, and studies how researchers should design payment schemes when making experiments on repeated games, such as the game studied in Chapter 1. It is common for researchers studying repeated and dynamic games in a lab experiment to pay participants for all rounds or a randomly chosen round. We argue that these payment schemes typically implement different set of subgame perfect equilibria (SPE) outcomes than the target game. Specifically, paying a participant for a randomly chosen round (or for all rounds with even small amounts of curvature) makes the game such that early rounds matter more to the agent, by lowering discounted future payments. In addition, we characterize the mechanics of the problems induced by these payment methods. We are able to measure the extent and shape of the distortions. We also establish that a simple payment scheme, paying participants for the last (randomly occurring) round, implements the game. The result holds for any dynamic game with time separable utility and discounting. A partial converse holds: any payment scheme implementing the SPE should generically be history and time independent and only depend on the contemporaneous decision. Chapter 3 studies a different but related problem, in which agents now have imperfect information not about some state of nature, but rather about the behavior of other players, and how this affects policy making when the planner does not know what agents expects her to do. Specifically, I study the problem of a government with low credibility, who decides to make a reform to remove ex-post time inconsistent incentives due to lack of commitment. The government has to take a policy action, but has the ability to commit to limiting its discretionary power. If the public believed the reform solved this time inconsistency problem, the policy maker could achieve complete discretion. However, if the public does not believe the reform to be successful some discretion must be sacrificed in order to induce public trust. With repeated interactions, the policy maker can build reputation about her reformed incentives. However, equilibrium reputation dynamics are extremely sensitive to assumptions about the publics beliefs, particularly after unexpected events. To overcome this limitation, I study the optimal robust policy that implements public trust for all beliefs that are consistent with common knowledge of rationality. I focus on robustness to all extensive-form rationalizable beliefs and provide a characterization. I show that the robust policy exhibits both partial and permanent reputation building along its path, as well as endogenous transitory reputation losses. In addition, I demonstrate that almost surely the policy maker eventually convinces the public she does not face a time consistency problem and she is able to do this with an exponential arrival rate. This implies that as we consider more patient policy makers, the payoff of robust policies converge to the complete information benchmark. I finally explore how further restrictions on beliefs alter optimal policy and accelerate reputation building.by Juan P. Xandri Antuña.Ph.D

Essays on moral hazard, reputation and market structure

This thesis is comprised of three pieces of research on moral hazard, reputation and market structure. In particular, following an opening discussion of previous literature, I explore the dynamic interaction between moral hazard and market structure in two distinct game theoretic settings and empirically test a fundamental assumption of these models concerning consumer rationality. In the first Chapter, I survey the studies which shed light on some dimension of the relationship between asymmetric information and market structure and identify the gap in the literature that my research aims to fill. The mechanism of reputation has been primarily investigated in the setting of perfect competition; however, this setting is ill suited for uncovering the rich set of relations between asymmetric information and market structure. Only a handful of articles departed from the perfect competition framework and only few of those introduced strategic interaction among firms, a fundamental ingredient of my research interest. The models which do include strategic interaction have, however, ignored some important dynamics in the interaction of asymmetric information and market structure. Therefore in Chapter II, I develop a model in which market structure affects moral hazard while, in turn, moral hazard fuels market structure dynamics. The model is very general allowing for all kinds of strategic interaction among firms usually considered in the literature. I identify and analyse an important driving force -a survival contest - which has so far been overlooked. The main conclusion is that market concentration in and of itself reduces moral hazard and moral hazard drives the market towards concentration through the survival contest. The model is suitable to explain the puzzling market transformation of important industries such as banking, audit and health care. In Chapter III, I extend the model of Chapter 11 by introducing stochastic entry. First, I demonstrate that my results in the previous Chapter are robust to the entry process. Second, stochastic entry allows me to derive a non-degenerate steady state distribution which exhibits a very intuitive dynamics. Finally, although the complex nature of the dynamics prevents a detailed comparative static analysis of this distribution, it displays two well known empirical regularities. In particular, my model shows that the presence of moral hazard in and of itself produces shake-outs in the market from time to time and also correlated exit and entry rates. The reputation mechanisms in general and in the models of Chapter II and III in particular crucially depend on consumers' ability and willingness to develop an understanding of imperfect information on quality. In order to make reputation an effective disciplinary force, consumers must be strongly rational so that they read and understand imperfect quality indicators. In Chapter IV, this basic assumption on consumer rationality is tested empirically in discrete choice settings in the audit market. I find robust empirical evidence that if consumers are firms rather than individuals, they are strongly rational.EThOS - Electronic Theses Online ServiceUniversity of Warwick. Dept. of Economics (UoW)GBUnited Kingdo

Essays on contract theory and behavioral economics

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2009.Includes bibliographical references.This thesis is a collection of essays on contract theory and behavioral economics. Chapter 1 proposes a model of choice under risk based on imperfect memory and self-deception. The model assumes that people have preferences over their own attributes and can, to some extent, manipulate their memories. It leads to a non-expected utility representation and provides a unified explanation for several empirical regularities: non-linear probability weights, small-stakes risk aversion, regret and the competence hypothesis. It also leads to endowment and sunk cost effects. The model implies that behavior will converge to the one predicted by expected utility theory after a choice has been made a sufficiently large number of times. Chapter 2 develops a model of competition with non-exclusive contracts in a market where consumers are time-inconsistent. Non-exclusivity creates a stark asymmetry between immediate-costs goods and immediate-rewards goods. In the former, non-exclusivity does not affect the equilibrium and, when consumers are sophisticated, the efficient allocation is achieved. When consumers are partially naive, the optimal sales tax may be either positive or negative and depends on parameters that are hard to estimate. In the case of immediate-rewards goods, however, the equilibrium features marginal-cost pricing and is always Pareto inefficient. Moreover, the optimal tax does not depend on the consumers' degree of naivete and is a function of parameters that are easy to assess. Chapter 3 is based on a joint work with Aloisio Araujo and Humberto Moreira. It considers a job-market signaling model where signals convey two pieces of information.(cont.) The model is employed to study countersignalling (signals nonmonotonic in ability) and the GED exam. A result of the model is that countersignalling is more likely to occur in jobs that require a combination of skills that differs from the combination used in the schooling process. The model also produces testable implications consistent with evidence on the GED: (i) it signals both high cognitive and low noncognitive skills and (ii) it does not affect wages. Chapter 4, which is also based on joint work with Aloisio Araujo and Humberto Moreira, characterizes incentive-compatibility in models where types are multidimensional and the single-crossing condition may not hold. This characterization is used to obtain the optimal contracts in multidimensional screening as well as the equilibria in multidimensional signaling models. Then, I determine the implications of signaling and screening models when the single-crossing condition is violated. I show that the unique robust prediction of signaling is the monotonicity of transfers in (costly) actions. Any function from the space of types to the space of actions and an increasing transfer schedule can be rationalized as an equilibrium profile of many signaling models. Apart from the monotonicity of transfers in actions, I obtain an additional necessary and sufficient condition in the case of screening. In one-dimensional models, this condition states that the principal's profit as a function of the agent's type must grow at a higher rate under asymmetric information than under symmetric information.by Daniel Gottlieb.Ph.D