Quantum Cournot equilibrium for the Hotelling-Smithies model of product choice

This paper demonstrates the quantization of a spatial Cournot duopoly model with product choice, a two stage game focusing on non-cooperation in locations and quantities. With quantization, the players can access a continuous set of strategies, using continuous variable quantum mechanical approach. The presence of quantum entanglement in the initial state identifies a quantity equilibrium for every location pair choice with any transport cost. Also higher profit is obtained by the firms at Nash equilibrium. Adoption of quantum strategies rewards us by the existence of a larger quantum strategic space at equilibrium.Comment: 13 pages, 6 tables, 8 figure

Prospect theory and tax evasion: a reconsideration of the Yitzhaki puzzle

The standard expected utility (EUT) model of tax evasion predicts that evasion is decreasing in the marginal tax rate (the Yitzhaki puzzle). Recent literature shows cases in which incorporating prospect theory (PT) does and does not overturn the Puzzle. In a general environment that nests both PT and EUT preferences, we provide a detailed study of how the elements of PT affect the Puzzle. PT does not always reverse the Puzzle, hence we give and interpret conditions for when it does and does not. When allowing for stigma and/or variable audit probability, PT reverses the Puzzle in the same way and with the same limitations as does EUT, if equally augmented

Team reasoning and the rational choice of payoff-dominant outcomes in games

Standard game theory cannot explain the selection of payoff-dominant outcomes that are best for all players in common-interest games. Theories of team reasoning can explain why such mutualistic cooperation is rational. They propose that teams can be agents and that individuals in teams can adopt a distinctive mode of reasoning that enables them to do their part in achieving Pareto-dominant outcomes. We show that it can be rational to play payoff-dominant outcomes, given that an agent group identifies. We compare team reasoning to other theories that have been proposed to explain how people can achieve payoff-dominant outcomes, especially with respect to rationality. Some authors have hoped that it would be possible to develop an argument that it is rational to group identify. We identify some large—probably insuperable—problems with this project and sketch some more promising approaches, whereby the normativity of group identification rests on morality

Central Bank Independence and the `Free Lunch Puzzle': A New Perspective

A new perspective is provided on a puzzle that has emerged from the empirical lit- erature suggesting that government-independent central banks provide a `free lunch': lower in°ation is apparently achieved at no cost in terms of greater output variance. We assess the various explanations provided by the theoretical literature. After revis- iting the free lunch puzzle and con¯rming the empirical importance of open-economy effects, we develop a Rogoff-style delegation model that combines the latter with po- litical monetary cycle e®ects. We show that if all countries delegate monetary policy to government independent banks, as economies become more integrated then a low inflation, higher output variance trade-off re-emerges

Monetary Policy and Reputational Equilibria: A Resolution of the Non-Uniqueness Problem

This paper provides a resolution of the non-uniqueness of reputational equilibria in the Barro-Gordon monetary policy game. We introduce a `chisel-proof' credibility condition which ensures that in response to a small deviation from the low inflation rate by the central bank, it never pays for the private sector to acquiesce. This condition, which amounts to a refinement of the subgame perfect equilibrium, endogenizes the punishment length of the private sector's trigger strategy. The result is that a unique low-inflation outcome can be enforced as a sub-game perfect and credible non-cooperative equilibrium. A combination of discount factors close to unity for both players and short-wage contracts is the desirable combination to drive the best enforceable inflation outcome towards the ideal zero rate.Credibility; Monetary Policy; Multiple Equilibria; Reputational Equilibria

Independent but Accountable: Walsh Contracts and the Credibility Problem

Walsh (1995) addresses the government-central bank principal-agent problem where there exists a severe information extraction problem. This is solved by a ‘Walsh contract’ which links the income of the central bank to observed macroeconomic variables, output and inflation. The contract does not solve the time-inconsistency problem, however. There will be circumstances where a renegotiation of the contract benefits all parties involved and non-renegotiation-proofness destroys its credibility as a commitment device. But the contract’s strength is that renegotiation can be very visible and this facilitates a reputational solution to the problem, set out in this paper.Central Bank Contract; Credibility; Renegotiation; Reputation

Rationality in Economics: Theory and Evidence

We examine the various senses in which economist use the term “rationality” and then outline some of the commonly drawn implications and auxiliary assumptions. Finally, we confront the implications with the empirical evidence, drawing on the insights from the exciting new field of behavioral economics.</div

Quantum Decision Theory and the Ellsberg Paradox

We formulate a simple quantum decision model of the Ellsberg paradox. We report the results of an experiment we performed to test the matching probabilities predicted by this model using an incentive compatible method. We find that the theoretical predictions of the model are in conformity with our experimental results. We compare the predictions of our quantum model with those of probably the most successful non-quantum model of ambiguity, namely, the source dependent model. The predictions of our quantum model are not statistically significantly different from those of the source dependent model. The source dependent model requires the specification of probability weighting functions in order to fit the evidence. On the other hand, our quantum model makes no recourse to probability weighting functions. This suggests that much of what is normally attributed to probability weighting may actually be due to quantum probability.</p