The Strange Case of Privacy in Equilibrium Models

We study how privacy technologies affect user and advertiser behavior in a simple economic model of targeted advertising. In our model, a consumer first decides whether or not to buy a good, and then an advertiser chooses an advertisement to show the consumer. The consumer's value for the good is correlated with her type, which determines which ad the advertiser would prefer to show to her---and hence, the advertiser would like to use information about the consumer's purchase decision to target the ad that he shows. In our model, the advertiser is given only a differentially private signal about the consumer's behavior---which can range from no signal at all to a perfect signal, as we vary the differential privacy parameter. This allows us to study equilibrium behavior as a function of the level of privacy provided to the consumer. We show that this behavior can be highly counter-intuitive, and that the effect of adding privacy in equilibrium can be completely different from what we would expect if we ignored equilibrium incentives. Specifically, we show that increasing the level of privacy can actually increase the amount of information about the consumer's type contained in the signal the advertiser receives, lead to decreased utility for the consumer, and increased profit for the advertiser, and that generally these quantities can be non-monotonic and even discontinuous in the privacy level of the signal

A behavioural finance model of the exchange rate with many forecasting rules.

Model; Working; Learning; Exchange; Finance;

Belief-Invariant and Quantum Equilibria in Games of Incomplete Information

Drawing on ideas from game theory and quantum physics, we investigate nonlocal correlations from the point of view of equilibria in games of incomplete information. These equilibria can be classified in decreasing power as general communication equilibria, belief-invariant equilibria and correlated equilibria, all of which contain the familiar Nash equilibria. The notion of belief-invariant equilibrium has appeared in game theory before, in the 1990s. However, the class of non-signalling correlations associated to belief-invariance arose naturally already in the 1980s in the foundations of quantum mechanics. Here, we explain and unify these two origins of the idea and study the above classes of equilibria, and furthermore quantum correlated equilibria, using tools from quantum information but the language of game theory. We present a general framework of belief-invariant communication equilibria, which contains (quantum) correlated equilibria as special cases. It also contains the theory of Bell inequalities, a question of intense interest in quantum mechanics, and quantum games where players have conflicting interests, a recent topic in physics. We then use our framework to show new results related to social welfare. Namely, we exhibit a game where belief-invariance is socially better than correlated equilibria, and one where all non-belief-invariant equilibria are socially suboptimal. Then, we show that in some cases optimal social welfare is achieved by quantum correlations, which do not need an informed mediator to be implemented. Furthermore, we illustrate potential practical applications: for instance, situations where competing companies can correlate without exposing their trade secrets, or where privacy-preserving advice reduces congestion in a network. Along the way, we highlight open questions on the interplay between quantum information, cryptography, and game theory

Urban Multifunctional Land Use and Externalities

A recent planning devise aimed at dealing with land scarcity is the propagation of multifunctional land use. Multifunctional land use can generally be defined as the combination of different socio-economic functions in the same area. The goal of Multifunctional Land Use (as a planning concept), just like New Urbanism, Smart Growth and the Compact City Concept, is to save scarce space by intensifying the use of space. Before we can assess the social desirability of multifunctional land use projects, we need to answer the question as to why various activities cluster in space, and what types of synergy might arise from such clustering. We do so by addressing multifunctional land use as an empirical phenomenon instead of a planning concept. Although multifunctional land use encompasses more than the clustering of economic activities, for example also the allocation of land use claims made by housing, transport, water, recreation and nature, in this paper we focus on the economic effects of the clustering of economic activities. We do so by focusing on the concept of agglomeration economies in general and ‘returns to diversity’ in particular. By means of a simple spatial-economic model we show the spatial equilibrium impacts of the existence of multifunctional land use. The model investigates market failures that may hamper the spontaneous emergence of optimal activity mixes in spatial clusters, and addresses the question of whether private monopolistic development of multifunctional sites would by-pass such market failures. Keywords: Agglomeration, competitive advantage, economies of scale, economies of diversity, multifunctional land use.

What Makes Complex Systems Complex?

This paper explores some of the factors that make complex systems complex. We first examine the history of complex systems. It was Aristotle’s insight that how elements are joined together helps determine the properties of the resulting whole. We find (a) that scientific reductionism does not provide a sufficient explanation; (b) that to understand complex systems, one must identify and trace energy flows; and (c) that disproportionate causality, including global tipping points, are all around us. Disproportionate causality results from the wide availability of energy stores. We discuss three categories of emergent phenomena—static, dynamic, and adaptive—and recommend retiring the term emergent, except perhaps as a synonym for creative. Finally, we find that virtually all communication is stigmergic

Knowledge of individual histories and optimal payment arrangements.

This article reviews recent work that generalizes a random matching model of money to permit there to be a mix of transactions: some accomplished through the use of tangible media of exchange and the rest through some form of credit. The generalizations are accomplished by specifying assumptions about common knowledge of individual histories that are intermediate between no common knowledge and complete common knowledge. One of the specifications permits a simple representation of the sense in which more common knowledge is beneficial. The other permits a comparison between using outside money and using inside money as a medium of exchange.Money ; Credit