Informational Substitutes

We propose definitions of substitutes and complements for pieces of information ("signals") in the context of a decision or optimization problem, with game-theoretic and algorithmic applications. In a game-theoretic context, substitutes capture diminishing marginal value of information to a rational decision maker. We use the definitions to address the question of how and when information is aggregated in prediction markets. Substitutes characterize "best-possible" equilibria with immediate information aggregation, while complements characterize "worst-possible", delayed aggregation. Game-theoretic applications also include settings such as crowdsourcing contests and Q\&A forums. In an algorithmic context, where substitutes capture diminishing marginal improvement of information to an optimization problem, substitutes imply efficient approximation algorithms for a very general class of (adaptive) information acquisition problems. In tandem with these broad applications, we examine the structure and design of informational substitutes and complements. They have equivalent, intuitive definitions from disparate perspectives: submodularity, geometry, and information theory. We also consider the design of scoring rules or optimization problems so as to encourage substitutability or complementarity, with positive and negative results. Taken as a whole, the results give some evidence that, in parallel with substitutable items, informational substitutes play a natural conceptual and formal role in game theory and algorithms.Comment: Full version of FOCS 2016 paper. Single-column, 61 pages (48 main text, 13 references and appendix

Information Acquisition in Interdependent Value Auctions

We consider an auction environment with interdependent values. Each bidder can learn her payoff type through costly information acquisition. We contrast the socially optimal decision to acquire information with the equilibrium solution in which each agent has to privately bear the cost of information acquisition. In the context of the generalized Vickrey-Clarke-Groves mechanism, we establish that the equilibrium level exceeds the socially optimal level of information with positive interdependence. The individual decisions to acquire information are strategic substitutes. The difference between the equilibrium and the efficient level of information acquisition is increasing in the interdependence of the bidders' valuations and decreasing in the number of informed bidders.Vickrey-Clarke-Groves Mechanism, Information Acquisition, Strategic Substitutes, Informational Efficiency

The Role of the Common Prior in Robust Implementation

We consider the role of the common prior for robust implementation in an environment with interdependent values. Specifically, we investigate a model of public good provision which allows for negative and positive informational externalities. In the corresponding direct mechanism, the agents’ reporting strategies are strategic complements with negative informational externalities and strategic substitutes with positive informational externalities. We derive the necessary and sufficient conditions for robust implementation in common prior type spaces and contrast this with our earlier results without the common prior. In the case of strategic complements the necessary and sufficient conditions for robust implementation do not depend on the existence of a common prior. In contrast, with strategic substitutes, the implementation conditions are much weaker under the common prior assumption

Endogenous Public Information and Welfare

This paper performs a welfare analysis of economies with private information when public information is endogenously generated and agents can condition on noisy public statistics in the rational expectations tradition. Equilibrium is not (restricted) efficient even when feasible allocations share similar properties to the market context (e.g., linear in information). The reason is that the market in general does not internalize the informational externality when public statistics (e.g., prices) convey information and does not balance optimally non-fundamental volatility and the dispersion of actions. Under strategic substitutability, equilibrium prices will tend to convey too little information when the “informational” role of prices prevails over its “index of scarcity” role and too much information in the opposite case. Under strategic complementarity, prices always convey too little information. The welfare loss at the market solution may be increasing in the precision of private information. These results extend to the internal efficiency benchmark (accounting only for the collective welfare of the active players). Received results—on the relative weights placed by agents on private and public information, when the latter is exogenous—may be overturned.information externality, strategic complementarity and substitutability, asymmetric information, excess volatility, team solution, rational expectations, behavioral traders

Enabling Tipping Dynamics in Food System Transformation: How Information and Experience with Novel Meat Substitutes Can Create Positive Political Feedbacks

The food system causes more than a third of the global anthropogenic greenhouse gas emissions, of which half are from livestock. Shifting towards plant-based diets could significantly reduce deforestation, protect biodiversity, and contribute to achieving the Paris climate targets. Yet, deep-rooted eating habits, pleasure, cultural status symbols, and personal freedom are just a few of many bottlenecks to reduce meat consumption. Here, we argue that technological innovation in meat substitutes, if successfully combined with effective informational triggers for behavioral changes, can foster positive political feedbacks to transform the food system. We are particularly interested in assessing the effects of such triggers on accelerating people's reduction of meat consumption and increasing public support for respective food policies. Using advanced machine learning and survey experiments with citizens (N= 2590) in China and the US, the globally largest meat markets, we find that personal experience with new plant-based meat substitutes strongly predicts individuals' intentions to reduce their meat consumption, eat more substitutes, and support public policies that catalyze a transition to more plant-based diets. We also find that in both countries information about the benefits of plant-based diets can increase citizens' behavioral change intentions and policy support. In China, emphasizing social norms in favor of plant-based diets has particularly strong effects on policy support. In the US, prior experience with innovative meat substitutes potentially can boost the positive effects of informational campaigns on public support for meat reduction policies. Overall, the results offer promising implications for a policy sequencing strategy to create positive political feedbacks and enable socio-technical tipping dynamics for food system transformation by fostering innovation in and experience with meat substitutes and highlighting the co-benefits of plant-based diets

Liquidity preference as rational behaviour under uncertainty

An important concern of macroeconomic analysis is how interest rates affect the cash balance demanded at a certain level of nominal income. In fact, the interest-rate- elasticity of the liquidity demand determines the effectiveness of monetary policy, which is useless under absolute liquidity preference, i.e. when the money demand is perfectly elastic. An actuarial approach is developed in this paper for dealing with random income. Assuming investors face liquidity constraints, a level of surplus exists which maximises expected value. Moreover, the optimal liquidity demand is expressed as a Value at Risk and the comonotonic dependence structure determines the amount of money demanded by the economy. As a consequence, the interest-rate-elasticity depends on the kind of risks and expectations. The more unstable the economy, the greater the interest-rate-elasticity of the money demand. Moreover, part of the adjustment to reestablish the short-run monetary equilibrium may be performed through volatility shocks.Money demand; Monetary policy; Economic capital; Distorted risk principle; Value-at-Risk

Why do firms borrow on a short-term basis ? Evidence from European countries

This paper investigates empirically the use of short-term bank loans by firms. We face two analytical frameworks. According to the corporate finance theory, short-term and long-term ebts are substitutes, while in the credit channel literature they are distinct and complementary vehicles. We estimate a model that explains the level of short-term bank debt, using panel data from the BACH database for six European countries (1989-2003). Our results indicate that the two types of bank loans are complements. They show that short-term bank debt should be analysed as a specific vehicle that finances current assets, as in the credit channel literature.corporate short-term debt, debt maturity structure, credit channel