Dynamic Matching and Bargaining: The Role of Deadlines

We consider a dynamic model where traders in each period are matched randomly into pairs who then bargain about the division of a fixed surplus. When agreement is reached the traders leave the market. Traders who do not come to an agreement return next period in which they will be matched again, as long as their deadline has not expired yet. New traders enter exogenously in each period. We assume that traders within a pair know each other's deadline. We define and characterize the stationary equilibrium configurations. Traders with longer deadlines fare better than traders with short deadlines. It is shown that the heterogeneity of deadlines may cause delay. It is then shown that a centralized mechanism that controls the matching protocol, but does not interfere with the bargaining, eliminates all delay. Even though this efficient centralized mechanism is not as good for traders with long deadlines, it is shown that in a model where all traders can choose which mechanism toBargaining, Deadlines, Markets

Naked Aggression: Personality and portfolio manager performance

We provide evidence that a personality trait, aggression, has a first-order effect on group financial decision making. In a laboratory experiment on group portfolio choice, highly aggressive subjects (measured by a standard psychology test) were much more likely to recommend risky investment strategies consistent with their own personal information, regardless of the information received by other group members. Outside of this group context, aggression had no effect on subject behavior. Thus, our aggression measure appears to capture an aggressive disposition, which seeks to dominate group decisions, rather than simply reflect risk attitudes or cognitive biases

Implementation Cycles in the New Economy

The economic boom of the USA in the 1990s was remarkable in its duration, the sustained rise in equipment investment, the reduced volatility of productivity growth, and continued uncertainty about the trend growth rate. In this paper we link these phenomena using an extension of the classic model of implementation cycles due to Shleifer (1986). The key idea is that uncertainty about the trend growth rate can lead firms to bring forward the implementation of innovations, temporarily eliminating expectations-driven business cycles, because delay is risky when beliefs are not common knowledge.Implementation cycles, New Economy, multiple equilibria.

Dynamic Matching and Bargaining: The Role of Deadlines

We consider a dynamic model where traders in each period are matched randomly into pairs who then bargain about the division of a fixed surplus. When agreement is reached the traders leave the market. Traders who do not come to an agreement return next period in which they will be matched again, as long as their deadline has not expired yet. New traders enter exogenously in each period. We assume that traders within a pair know each other's deadline. We define and characterize the stationary equilibrium configurations. Traders with longer deadlines fare better than traders with short deadlines. It is shown that the heterogeneity of deadlines may cause delay. It is then shown that a centralized mechanism that controls the matching protocol, but does not interfere with the bargaining, eliminates all delay. Even though this efficient centralized mechanism is not as good for traders with long deadlines, it is shown that in a model where all traders can choose which mechanism to use, no delay will be observed

Naked Aggression: Personality and portfolio manager performance

Why do portfolio managers actively manage their stock portfolios? The finance literature suggests the importance of financial incentives, effort, information and career concerns. We suggest that personality can also be a factor. We perform an experiment with industry experts. The experiment documents that, in a group decision setting, subjects with high aggression, measured by a standard psychology test, were much more likely to deviate from market tracking. In an individual decision setting, these same subject’s behavior was not significantly affected by aggressiveness. This result suggests that, in group settings, personality, rather than cognitive biases, might be the most important source of behavioral deviations from the rational choice paradigm

Free entry does not imply zero profits

Traditional economic wisdom says that free entry in a market will drive profits down to zero. This conclusion is usually drawn under the assumption of perfect information. We assume that a priori there exists imperfect information about the profitability of the market, but that potential entrants may learn the demand curve perfectly at negligible cost by engaging in market research. Even if in equilibrium firms learn the demand perfectly, profits may be strictly positive because of insufficient entry. The mere fact that it will not become common knowledge that every entrant has perfect information about demand causes this surprising result. Belief means doubt. Knowing means certainty. Introduction to the Kabalah.Information_acquisition, entry, zero-profit_condition

Endogenous Private Information Structures

Many models in the economics literature deal with strategic situations with privately informed agents. In those models the information structure is assumed to be exogenous and common knowledge. In many applications information gathering is one of the strategic options available to agents. We formally incorporate this option into the game and the information structure will arise endogenously. We ask whether models with exogenous information structures, and the results they provide, are robust with respect to this endogenization. We show that any Nash equilibrium of the game with information acquisition induces a Nash equilibrium in the corresponding game with an exogenous structure. The same is not always true when `Nash equilibrium' is replaced by `sequential equilibrium' but we provide sufficient conditions on the structure of the game for which this is true. Moreover, we characterize the (sequential) Nash equilibria of games with an exogenous information structure that can arise as a (sequential) Nash equilibrium of a game with endogenous information acquisition,

Endogenous information structures

Many models in the economics literature deal with strategic situations with privately informed agents. In those models the information structure is assumed to be exogenous and common knowledge. We consider whether such models, and the results they produce, are robust with respect the endogenization of the information structure. The results depend on whether information acquisition is secret or private, and on whether the strategic situation involves simultaneous or sequential moves. In particular we find that only when information is secretly acquired and moves are simultaneous, the results are fully robust. When information is acquired secretly but moves are sequential additional equilibria may appear. Instead, private information acquisition may make the equilibrium set smaller.Information acquisition, private information, equilibrium

Interbank comptetition with costly screening

We analyse credit market equilibrium when banks screen loan applicants. When banks have a convex cost function of screening, a pure strategy equilibrium exists where banks optimally set interest rates at the same level as their competitors. This result complements Broecker’s (1990) analysis, where he demonstrates that no pure strategy equilibrium exists when banks have zero screening costs. In our set up we show that interest rate on loans are largely independent of marginal costs, a feature consistent with the extant empirical evidence. In equilibrium, banks make positive profits in our model in spite of the threat of entry by inactive banks. Moreover, an increase in the number of active banks increases credit risk and so does not improve credit market effciency: this point has important regulatory implications. Finally, we extend our analysis to the case where banks have differing screening abilities.Interbank Competition, Screening, Credit Risk, Adverse Selection

Be careful what you ask for: Fundraising strategies in equity crowdfunding

We use equity crowdfunding data to ask how fundraising amounts can be explained by what entrepreneurs ask for, versus what investors want to invest. The analysis exploits unique features of crowdfunding where entrepreneurs not only set investment goals, but also chose when to close their campaigns. More experienced and more educated founder teams ask for more. Their campaigns succeed more often, and they raise more money. Female teams ask for less, are equally successful, yet raise significantly less. They also wait longer before closing campaigns, suggesting they want to raise more than what they originally asked for