The evolution of repo contracting conventions in the 1980s

Contracting conventions for repurchase agreements, or repos, changed significantly in the 1980s. The growth of the repo market, new uses for repos, and the emergence of new and previously unappreciated risks prompted market participants to revise their contracting conventions. This article describes the evolution of the conventions during that period, focusing on three key developments: the recognition of accrued interest on repo securities, a change in the application of federal bankruptcy law to repos, and the accelerated growth of a new form of repo-tri-party repo. The author argues that the emergence of tri-party repo owed to the efforts of individual market participants acting in their own economic self-interest. By comparison, recognition of accrued interest and the change in bankruptcy law were effected, respectively, by participants taking collective action and seeking legislative relief because uncoordinated, individual solutions would have been more costly. These developments offer important insights into how markets operate: contracting conventions that are efficient in one market environment may have to be revised when the environment changes, and institutional arrangements can change in any number of ways.Repurchase agreements ; Contracts

Frames, reasoning, and the emergence of conventions

AbstractThis paper examines the perceptual and reasoning processes that underpin regularities in behaviour. A distinction is made between situations as they are, or as described by an omniscient external observer, and situations as agents see or frame them. Different frames can stem from differences in culture, experience and personality, as well as from other context-specific factors. Drawing upon David Lewis's Convention (1969), I show that consistency between reasoning and experience does not preclude individuals from understanding the same state of affairs differently, and that agents' beliefs about others' beliefs may well be wrong. As a result, cases may occur in which conventions are sustained by false but mutually consistent and self-confirming beliefs

Strategic Interaction and Conventions

The scope of the paper is to review the literature that employs coordination games to study social norms and conventions from the viewpoint of game theory and cognitive psychology. We claim that those two alternative approaches are complementary, as they provide different insights to explain how people converge to a unique system of self-fulfilling expectations in presence of multiple, equally viable, conventions. While game theory explains the emergence of conventions relying on efficiency and risk considerations, the psychological view is more concerned with frame and labeling effects. The interaction between these alternative (and, sometimes, competing) effects leads to the result that coordination failures may well occur and, even when coordination takes place, there is no guarantee that the convention eventually established will be the most efficient.Behavioral Game Theory, conventions, social norms

Constructing Social Systems through Computer-Mediated Communication

The question whether computer-mediated communication can support the formation of genuine social systems is addressed in this paper. Our hypothesis, that technology creates new forms of social systems beyond real-life milieus, includes the idea that the technology itself may influence how social binding emerges within on-line environments. In real-life communities, a precondition for social coherence is the existence of social conventions. By observing interaction in virtual environments, we found the use of a range of social conventions. These results were analyzed to determine how the use and emergence of conventions might be influenced by the technology. One factor contributing to the coherence of on-line social systems, but not the only one, appears to be the degree of social presence mediated by the technology. We suggest that social systems can emerge by computer-mediated communication and are shaped by the media of the specific environment

Instantaneous conventions : the emergence of flexible communicative signals

Humans can communicate even with few existing conventions in common (e.g., when they lack a shared language). We explored what makes this phenomenon possible with a nonlinguistic experimental task requiring participants to coordinate towards a common goal. We observed participants creating new communicative conventions using the most minimal possible signals. These conventions, furthermore, changed trial-by-trial in response to shared environmental and task constraints. Strikingly, as a result, signals of the same form were able to successfully convey contradictory messages from trial to trial. Such behavior implicates what we term "joint inference," in which social interactants are inferring, in the moment, the most sensible communicative convention in light of their common ground. Joint inference may help to elucidate how communicative conventions emerge “instantaneously,” and how they are modified and reshaped into the elaborate systems of conventions involved in human communication, including natural languages

Inequity and Inequality in the Emergence of Conventions

Many societies have state norms of equity---that those who make symmetric social contributions deserve symmetric rewards. Despite this, there are widespread patterns of social inequity, especially along gender and racial lines. It is often the case that members of certain social groups receive greater rewards per contribution than others. In this paper, we draw on evolutionary game theory to show that the emergence of this sort of inequitable convention is far from surprising. In simple cultural evolutionary models, inequity is much more likely to emerge than equity, despite the presence of stable, equitable outcomes that groups might instead learn. As we outline, social groups provide a way to break symmetry between actors in determining both contributions and rewards in joint projects

Strategic Interaction and Conventions

The scope of the paper is the literature that employs coordination games to study social norms and conventions from the viewpoint of game theory and cognitive psychology. We claim that those two alternative approaches are complementary, as they provide different insights to explain how people converge to a unique system of self-fulfilling expectations in presence of multiple, equally viable, conventions. While game theory explains the emergence of conventions relying on efficiency and risk considerations, the psychological view is more concerned with frame and labeling effects. The interaction between these alternative (and, sometimes, competing) effects leads to the result that coordination failures may well occur and, even when coordination takes place, there is no guarantee that the convention eventually established will be the most efficient.conventions, social norms, behavioral game theory

Inequity and Inequality in the Emergence of Conventions

Many societies have state norms of equity---that those who make symmetric social contributions deserve symmetric rewards. Despite this, there are widespread patterns of social inequity, especially along gender and racial lines. It is often the case that members of certain social groups receive greater rewards per contribution than others. In this paper, we draw on evolutionary game theory to show that the emergence of this sort of inequitable convention is far from surprising. In simple cultural evolutionary models, inequity is much more likely to emerge than equity, despite the presence of stable, equitable outcomes that groups might instead learn. As we outline, social groups provide a way to break symmetry between actors in determining both contributions and rewards in joint projects

Game Theoretic Models as a Framework for Analysis: The Case of Coordination Conventions

This paper examines game theoretic models of coordination conventions. Firstly, the paper shows that static models of coordination cannot explain the emergence of coordination conventions. The best interpretation of these models is that they study the conditions under which coordination is possible. The examination of these conditions suggests that history and existing institutions are important in the process of emergence of institutions. Secondly, an examination of dynamic models of coordination conventions reveals that some of these models explicate some of the ways in which coordination may be brought about in the model world. Nevertheless, consideration of these models fortifies the point that history and existing institutions are crucial for explaining the emergence of conventions in the real world. Based on these observations, the paper suggests that game theory as a framework of analysis is the best possible interpretation of game theoretic models of coordination conventions.Game Theory; Coordination; Convention

Topology and Memory Effect on Convention Emergence

Abstract—Social conventions are useful self-sustaining proto-cols for groups to coordinate behavior without a centralized entity enforcing coordination. We perform an in-depth study of different network structures, to compare and evaluate the effects of different network topologies on the success and rate of emergence of social conventions. While others have investigated memory for learning algorithms, the effects of memory or history of past activities on the reward received by interacting agents have not been adequately investigated. We propose a reward metric that takes into consideration the past action choices of the interacting agents. The research question to be answered is what effect does the history based reward function and the learning approach have on convergence time to conventions in different topologies. We experimentally investigate the effects of history size, agent population size and neighborhood size or the emergence of social conventions. I