Competitive Equilibrium in Markets for Votes

We develop a competitive equilibrium theory of a market for votes. Before voting on a binary issue, individuals may buy and sell their votes with each other. We definne ex ante vote-trading equilibrium, identify weak sufficient conditions for existence, and construct one such equilibrium. We show that this equilibrium must always result in dictatorship and the market generates welfare losses, relative to simple majority voting, if the committee is large enough. We test the theoretical implications by implementing a competitive vote market in the laboratory using a continuous open-book multi-unit double auction

The Power of Sunspots: An Experimental Analysis

We present an experiment in which extrinsic information (signals) may generate sunspot equilibria. The underlying coordination game has a unique symmetric non-sunspot equilibrium, which is also risk-dominant. Other equilibria can be ordered according to risk dominance. We compare treatments with different salient, but extrinsic signals. By increasing the precision of private signals, we manipulate the available public information, which allows us to measure the force of extrinsic signals. We also vary the number of signals and combine public and private signals, allowing us to see how subjects aggregate available (and possibly irrelevant) information. Results indicate that sunspot equilibria emerge naturally if there are salient (but extrinsic) public signals. However, salient private signals of high precision may also cause sunspot-driven behavior, even though this is no equilibrium. The higher the precision of signals and the easier they can be aggregated, the more powerful they are in dragging behavior away from the risk-dominant to risk-dominated strategies. Sunspot-driven behavior may lead to welfare losses and exert negative externalities on agents, who do not receive extrinsic signals.coordination games, strategic uncertainty, sunspot equilibria, irrelevant information

Designing contests between heterogeneous contestants: An experimental study of tie-breaks and bid-caps in all-pay auctions

A well-known theoretical result in the contest literature is that greater heterogeneity decreases investments of contestants because of the “discouragement effect.” Levelling the playing field by favouring weaker contestants through strict bid-caps and favourable tie-breaking rules can reduce discouragement and increase the designer\u27s revenue. We test these predictions in a laboratory experiment. Our data confirm that placing bid-caps and using favourable tie-breaking rules significantly diminishes discouragement of weaker contestants. However, its impact on revenues is muted by the fact that the encouragement of weaker contestants is offset by stronger contestants competing less aggressively, even when not predicted by theory. We discuss deviations from the Nash predictions in light of different behavioural approaches

Designing contests between heterogeneous contestants: An experimental study of tie-breaks and bid-caps in all-pay auctions

A well-known theoretical result in the contest literature is that greater heterogeneity decreases performance of contestants because of the “discouragement effect.” Leveling the playing field by favoring weaker contestants through bid-caps and favorable tie-breaking rules can reduce the discouragement effect and increase the designer’s revenue. We test these predictions in an experiment. Our data show that indeed, strengthening weaker contestants through tie-breaks and bid-caps significantly diminishes the iscouragement effect. Bid-caps can also improve revenue. Most deviations from Nash equilibrium can be explained by the level-k model of reasoning

A simple mechanism for resolving conflict

In Conflict Resolution situations where two parties with opposed preferences need to make a number of decisions simultaneously,we propose a simple mechanism that endows agents with a certain number of votes that can be distributed freely across issues. Its novelty, and appeal, is that it allows voters to express the intensity of their preferences in a simple manner and with no use of monetary transfers; it allows agents to trade off their voting power across issues and extract gains from differences in the intensities of their preferences. The appealing properties of such a mechanism may be negated by strategic interactions among individuals. In this paper we test its properties using controlled laboratory experiments. We observe that equilibrium play increases over time and truthful/honest play decreases over time. Subjects reach the welfare predicted by the theory. The latter result holds even when their behaviour is far from equilibrium. The fact that deviations from equilibrium do not do much damage to its welfare properties is a further argument in favour of the use of this mechanism in the real world

The Power of Sunspots

We present an experiment in which extrinsic information (signals) may generate sunspot equilibria. The underlying coordination game has a unique symmetric non-sunspot equilibrium, which is also risk-dominant. Other equilibria can be ordered according to risk dominance. We compare treatments with different salient, but extrinsic signals. By increasing the precision of private signals, we manipulate the available public information, which allows us to measure the force of extrinsic signals. We also vary the number of signals and combine public and private signals, allowing us to see how subjects aggregate available (and possibly irrelevant) information. Results indicate that sunspot equilibria emerge naturally if there are salient (but extrinsic) public signals. However, salient private signals of high precision may also cause sunspot-driven behavior, even though this is no equilibrium. The higher the precision of signals and the easier they can be aggregated, the more powerful they are in dragging behavior away from the risk-dominant to risk-dominated strategies. Sunspot-driven behavior may lead to welfare losses and exert negative externalities on agents, who do not receive extrinsic signals

Pure strategy Nash equilibria in non-zero sum Colonel Blotto games

We analyse a Colonel Blotto game in which opposing parties have differing relative intensities (i.e. the game is non-zero sum). We characterize the colonels. Payoffs that sustain a pure strategy equilibrium and present an algorithm that reaches the equilibrium actions (when they exist). Finally we show that the set of games with a pure strategy equilibria is non-empty