A sufficient condition for all-or-nothing information supply in price discrimination

This paper provides a sufficient condition under which the optimal policy of a monopolistic seller who is considering the tradeoff between price discrimination and information disclosure is at one of two extremes: either buyers are given access to all the available information, or the seller makes no disclosure at all.Comparative statics, supermodular functions, lattice programming.

The power of diversity over large solution spaces

We consider a team of agents with limited problem-solving ability facing a disjunctive task over a large solution space. We provide sufficient conditions for the following four statements. First, two heads are better than one: a team of two agents will solve the problem even if neither agent alone would be able to. Second, teaming up does not guarantee success: if the agents are not sufficiently creative, even a team of arbitrary size may fail to solve the problem. Third, "defendit numerus": when the agent's problem-solving ability is adversely affected by the complexity of the solution space, the solution of the problem requires only a mild increase in the size of the team. Fourth, groupthink impairs the power of diversity: if agents' abilities are positively correlated, a larger team is necessary to solve the problem.Problem-solving; Bounded rationality; Theory of teams; Groupthink

Fundamentalists Clashing over the Book: A Study of Order-Driven Stock Markets

Agent-based models of market dynamics must strike a compromise between the structural assumptions that represent the trading mechanism and the behavioral assumptions that describe the rules by which traders take their decisions. We present a structurally detailed model of an order- driven stock market and show that a minimal set of behavioral assumptions suffices to generate a leptokurtic distribution of short- term log-returns. This result backs up the conjecture that the emergence of some statistical properties of financial time series is due to the microstructure of stock markets.price dynamics, statistical properties of returns, behavioral and structural assumptions, agent-based simulations

Zero-Intelligence Trading without Resampling

This paper studies the consequences of removing the resampling assumption from the zero-intelligence trading model in Gode and Sunder (1993). We obtain three results. First, individual rationality is no longer sufficient to attain allocative effciency in a continuous double auction; hence, the rules of the market matter. Second, the allocative effciency of the continuous double auction is higher than for other sequential protocols both with or without resampling. Third, compared to zero intelligence, the effect of learning on allocative effciency is sharply positive without resampling and mildly negative with resampling.

The Pearson system of utility functions

This paper describes a parametric family of utility functions for decision analysis. The parameterization is obtained by embedding the HARA class in a four-parameter representation for the risk aversion function. The resulting utility functions have only four shapes: concave, convex, S-shaped, and reverse S-shaped. This makes the family suited for both expected utility and prospect theory. We also describe an alternative technique to estimate the four parameters from elicited utilities, which is simpler and easier to implement than standard fitting by minimization of the mean quadratic error.coefficient of risk aversion, elicitation of preferences under risk, expected utility, HARA utility functions, Pearson system of distributions, prospect theory, probability weighting function, target- based decisions.

Simple Market Protocols for Efficient Risk Sharing

This paper studies the performance of four market protocols with egard to allocative efficiency and other performance criteria such as volume or volatility. We examine batch auctions, continuous double auctions, specialist dealerships, and a hybrid of these last two. All protocols are practically implementable because the messages that traders need to use are simple. We test the protocols by running (computerized) experiments in an environment that controls for tradersÕ behavior and rules out any informational effect. We find that all protocols generically converge to the efficient allocation in finite time. An extended comparison over other performance criteria produces no clear winner, but the presence of a specialist is associated with the best all-round performance.market microstructure, allocative efficiency, comparison of market institutions, performance criteria.

Tilting the Supply Schedule to Enhance Competition in Uniform- Price Auctions

Uniform-price auctions of a divisible good in fixed supply admit underpricing equilibria, where bidders submit high inframarginal bids to prevent competition on prices. The seller can obstruct this behavior by tilting her supply schedule and making the amount of divisible good on offer change endogenously with its (uniform) price. Precommitting to an increasing supply curve is a strategic instrument to reward aggressive bidding and enhance expected revenue. A fixed supply may not be optimal even when accounting for the cost to the seller of issuing a quantity different from her target supply.uniform-price auction, divisible good, strategic role of the seller, endogenous supply, Treasury and IPO auctions.

Which market protocols facilitate fair trading?

We study the performance of four market protocols with regard to their ability to equitably distribute the gains from trade among two groups of participants in an exchange economy. We test the protocols by running (computerized) experiments. Assuming Walrasian tatonemment as benchmark, there is a clear-cut ranking from best to worst: batch auction, nondiscretionary dealership, the hybridization of a dealership and a continuous double auction, and finally the pure continuous double auction.allocative efficiency, allocative fairness, allocative neutrality, comparison of market institutions, market microstructure, performance criteria.

Simple market protocols for efficient risk sharing

This paper studies the performance of four market protocols with regard to allocative efficiency and other performance criteria such as volume or volatility. We examine batch auctions, continuous double auctions, specialist dealerships, and a hybrid of these last two. All protocols are practically implementable because the space of messages for traders is simple. We test the protocols by running (computerized) experiments in an environment that controls for traders’ behavior and rules out any informational effect. We find that all protocols generically converge to the efficient allocation in finite time. An extended comparison over other performance criteria produces no clear winner, but the presence of a specialist is clearly associated with the best all-round performance.market microstructure, allocative efficiency, comparison of market institutions, agent-based simulations.