Market Information and the Elite law Firm

As a subcategory of contract negotiations, corporate transactions present information problems that have not been fully analyzed. In particular, the literature does not address the possibility that parties may simply be unaware of value-increasing transaction terms or their outside option. Such unawareness can arise even for transactions that attract many competing parties, if the bargaining process is such that (1) the price terms are negotiated and fixed prior to the non-price terms, contrary to the standard assumption; and (2) some of the non-price terms remain private for some period of time. A simple bargaining model shows that, when such unawareness is reasonably probable, each transaction party will maximize its expected payoff by acquiring current market information about non-price transaction terms. Because they have unique access to it, law firms with a significant share of transactional advisory work play an important role in aggregating and selling such market information. The implication is that, absent shocks to transactional practice, the volume advantage of high-market-share law firms should be self-perpetuating. This result is consistent with the observation that the legal advisory market for major corporate transactions is highly concentrated, and that the top firms earn substantial and persistent rents

Unawareness, Beliefs and Games

We define a generalized state-space model with interactive unawareness and probabilistic beliefs. Such models are desirable for many potential applications of asymmetric unawareness. We develop Bayesian games with unawareness, define equilibrium, and prove existence. We show how equilibria are extended naturally from lower to higher awareness levels and restricted from higher to lower awareness levels. We use our unawareness belief structure to show that the common prior assumption is too weak to rule out speculative trade in all states. Yet, we prove a generalized “No-trade” theorem according to which there can not be common certainty of strict preference to trade. Moreover, we show a generalization of the “No-agreeing-to-disagree” theorem

Quantum Penny Flip game with unawareness

Games with unawareness model strategic situations in which players' perceptions about the game are limited. They take into account the fact that the players may be unaware of some of the strategies available to them or their opponents as well as the players may have a restricted view about the number of players participating in the game. The aim of the research is to introduce this notion into theory of quantum games. We shall focus on PQ Penny Flip game introduced by D. Meyer. We shall formalize the previous results and consider other cases of unawareness in the game

A Canonical Model for Interactive Unawareness

Heifetz, Meier and Schipper (2005) introduced a generalized state-space model that allows for non-trivial unawareness among several individuals and strong properties of knowledge. We show that this generalized state-space model arises naturally if states consist of maximally consistent sets of formulas in an appropriate logical formulation

Protecting the Protected Group: Circumventing Harmful Fairness

Machine Learning (ML) algorithms shape our lives. Banks use them to determine if we are good borrowers; IT companies delegate them recruitment decisions; police apply ML for crime-prediction, and judges base their verdicts on ML. However, real-world examples show that such automated decisions tend to discriminate against protected groups. This potential discrimination generated a huge hype both in media and in the research community. Quite a few formal notions of fairness were proposed, which take a form of constraints a "fair" algorithm must satisfy. We focus on scenarios where fairness is imposed on a self-interested party (e.g., a bank that maximizes its revenue). We find that the disadvantaged protected group can be worse off after imposing a fairness constraint. We introduce a family of \textit{Welfare-Equalizing} fairness constraints that equalize per-capita welfare of protected groups, and include \textit{Demographic Parity} and \textit{Equal Opportunity} as particular cases. In this family, we characterize conditions under which the fairness constraint helps the disadvantaged group. We also characterize the structure of the optimal \textit{Welfare-Equalizing} classifier for the self-interested party, and provide an algorithm to compute it. Overall, our \textit{Welfare-Equalizing} fairness approach provides a unified framework for discussing fairness in classification in the presence of a self-interested party.Comment: Published in AAAI 202

Unawareness, Beliefs, and Speculative Trade

We define a generalized state-space model with interactive unawareness and probabilistic beliefs. Such models are desirable for potential applications of asymmetric unawareness. Applying our unawareness belief structures, we show that the common prior assumption is too weak to rule out speculative trade in all states. Yet, we prove a generalized "No-speculative-trade" theorem according to which there can not be common certainty of strict preference to trade. Moreover, we prove a generalization of the "No-agreeing-to-disagree" theorem. Finally, we show the existence of a universal unawareness belief type space.Unawareness, awareness, common prior, agreement, speculative trade, universal type-space, interactive epistemology, inattention

Unawareness, Beliefs and Games

We define a generalized state-space model with interactive unawareness and probabilistic beliefs. Such models are desirable for many potential applications of asymmetric unawareness. We develop Bayesian games with unawareness, define equilibrium, and prove existence. We show how equilibria are extended naturally from lower to higher awareness levels and restricted from higher to lower awareness levels. We use our unawareness belief structure to show that the common prior assumption is too weak to rule out speculative trade in all states. Yet, we prove a generalized ``No-trade'' theorem according to which there can not be common certainty of strict preference to trade. Moreover, we show a generalization of the ``No-agreeing-to-disagree'' theorem.unawareness, awareness, type-space, Bayesian games, incomplete information, equilibrium, common prior, agreement, speculative trade, interactive epistemology

Decision Making with Imperfect Knowledge of the State Space

We conduct an experiment to study how imperfect knowledge of the state space affects subsequent choices under uncertainty with perfect knowledge of the state space. Participants in our experiment choose between a sure outcome and a lottery in 32 periods. All treatments are exactly identical in periods 17 to 32 but differ in periods 1 to 16. In the early periods of the “Risk Treatment” there is perfect information about the lottery; in the “Ambiguity Treatment” participants perfectly know the outcome space but not the associated probabilities; in the “Unawareness Treatment” participants have imperfect knowledge about both outcomes and probabilities. All three treatments induce strong behavioural differences in periods 17 to 32. In particular participants who have been exposed to an environment with very imperfect knowledge of the state space subsequently choose lotteries with high (low) variance less (more) often compared to other participants. Estimating individual risk attitudes from choices in periods 17 to 32 we find that the distribution of risk attitude parameters across our treatments can be ranked in terms of first order stochastic dominance. Our results show how exposure to different degrees of uncertainty can have long-lasting effects on individuals’ risk-taking behaviour.microeconomics ;

A reasoning approach to introspection and unawareness

We introduce and study a unified reasoning process which allows to represent the beliefs of both a fully rational agent and of an unaware one. This reasoning process provides natural properties to introspection and unawareness. The corresponding model for the rational or boundedly rational agents is both easy to describe and to work with, and the agent’s full system of beliefs has natural descriptions using a reduced number of parameters.Economics (Jel: A)