Price distortions and public information: theory, experiments and simulations

This paper studies the effects on the asset price of the introduction of a public signal in the presence of asymmetric private information in a decentralized market. We introduce an artificial market model populated by boundedly rational agents with heterogeneous levels of reasoning: sophisticated and naive traders. The model captures the main impacts of public information analyzed in the laboratory experiments reported by Ruiz-Buforn et al. (2019). Public information, when correct, coordinates market activity, improving price convergence to the fundamentals. By contrast, unwarranted public information pushes prices away from fundamentals. This strong influence of public information on prices is primarily driven by its common knowledge property

Consumption experience, choice experience and the endowment effect

We report experiments investigating how experience influences the endowment effect. Our experiments feature endowments which are bundles of unfamiliar consumption goods. We examine how a subject’s willingness to swap items from their endowment is influenced by prior experiences of tasting the goods in question and by prior experiences of choosing between them. We do not find a statistically significant endowment effect in our baseline treatment and, because of this, we are unable to test for an effect of consumption experience. We do find an endowment effect when the endowment is acquired in two instalments and, in this setting, we find some evidence that choice experience increases trading. In a follow up experiment, we find evidence that the absence of an endowment effect in our baseline treatment is due to subjects being more willing to swap when they do not have to give up the last unit of their endowment

An Experiment on Prediction Markets in Science

Prediction markets are powerful forecasting tools. They have the potential to aggregate private information, to generate and disseminate a consensus among the market participants, and to provide incentives for information acquisition. These market functionalities can be very valuable for scientific research. Here, we report an experiment that examines the compatibility of prediction markets with the current practice of scientific publication. We investigated three settings. In the first setting, different pieces of information were disclosed to the public during the experiment. In the second setting, participants received private information. In the third setting, each piece of information was private at first, but was subsequently disclosed to the public. An automated, subsidizing market maker provided additional incentives for trading and mitigated liquidity problems. We find that the third setting combines the advantages of the first and second settings. Market performance was as good as in the setting with public information, and better than in the setting with private information. In contrast to the first setting, participants could benefit from information advantages. Thus the publication of information does not detract from the functionality of prediction markets. We conclude that for integrating prediction markets into the practice of scientific research it is of advantage to use subsidizing market makers, and to keep markets aligned with current publication practice

Helping in humans and other animals: a fruitful interdisciplinary dialogue.

Humans are arguably unique in the extent and scale of cooperation with unrelated individuals. While pairwise interactions among non-relatives occur in some non-human species, there is scant evidence of the large-scale, often unconditional prosociality that characterizes human social behaviour. Consequently, one may ask whether research on cooperation in humans can offer general insights to researchers working on similar questions in non-human species, and whether research on humans should be published in biology journals. We contend that the answer to both of these questions is yes. Most importantly, social behaviour in humans and other species operates under the same evolutionary framework. Moreover, we highlight how an open dialogue between different fields can inspire studies on humans and non-human species, leading to novel approaches and insights. Biology journals should encourage these discussions rather than drawing artificial boundaries between disciplines. Shared current and future challenges are to study helping in ecologically relevant contexts in order to correctly interpret how payoff matrices translate into inclusive fitness, and to integrate mechanisms into the hitherto largely functional theory. We can and should study human cooperation within a comparative framework in order to gain a full understanding of the evolution of helping

Divergent platforms

Models of electoral competition between two opportunistic, office-motivated parties typically predict that both parties become indistinguishable in equilibrium. I show that this strong connection between the office motivation of parties and their equilibrium choice of identical platforms depends on two—possibly false—assumptions: (1) Issue spaces are uni-dimensional and (2) Parties are unitary actors whose preferences can be represented by expected utilities. I provide an example of a two-party model in which parties offer substantially different equilibrium platforms even though no exogenous differences between parties are assumed. In this example, some voters’ preferences over the 2-dimensional issue space exhibit non-convexities and parties evaluate their actions with respect to a set of beliefs on the electorate

Are groups more rational than individuals? A review of interactive decision making in groups

Many decisions are interactive; the outcome of one party depends not only on its decisions or on acts of nature but also on the decisions of others. In the present article, we review the literature on decision making made by groups of the past 25 years. Researchers have compared the strategic behavior of groups and individuals in many games: prisoner's dilemma, dictator, ultimatum, trust, centipede and principal-agent games, among others. Our review suggests that results are quite consistent in revealing that groups behave closer to the game-theoretical assumption of rationality and selfishness than individuals. We conclude by discussing future research avenues in this area

Investment Incentives Under Emission Trading: An Experimental Study

This paper presents the results of an experimental investigation on incentives to adopt advanced abatement technology under emissions trading. Our experimental design mimics an industry with small asymmetric polluting firms regulated by different schemes of tradable permits. We consider three allocation/auction policies: auctioning off (costly) permits through an ascending clock auction, grandfathering permits with re-allocation through a single-unit double auction, and grandfathering with re-allocation through an ascending clock auction. Our results confirm both dynamic and static theoretical equivalence of auctioning and grandfathering. We nevertheless find that although the market institution used to reallocate permits does not impact the dynamic efficiency from investment, it affects the static efficiency from permit trading

Pleasure in decision-making situations

BACKGROUND: This study explores the role of pleasure in decision making. RESULTS: In Experiment 1, 12 subjects were presented with a questionnaire containing 46 items taken from the literature. Twenty-three items described a situation where a decision should be made and ended with a suggested solution. The other items served as filler items. The subjects were requested not to make a decision but to rate the pleasure or displeasure they experienced when reading the situation described in the item. The subjects' ratings were then compared to the decisions on the same situations made by the other subjects of the studies published by other workers. The ratings of pleasure/displeasure given by our subjects correlated significantly with the choices published by other authors. This result satisfies a necessary condition for pleasure to be the key of the decision making process in theoretical situations. In Experiment 2, a new group of 12 subjects rated their experience of pleasure/displeasure when reading various versions of 50 situations taken from daily life where an ethical decision had to be made (Questionnaire I) including 200 items. This was followed by a multiple-choice test with the 50 situations (Questionnaire II) using the same 200 items and offering the various behaviors. Subjects tended to choose ethical and unethical responses corresponding to their highest pleasure rating within each problem. In all cases the subjects' behavior was higher than chance level, and thus, followed the trend to maximize pleasure. In Experiment 3, 12 subjects reading 50 mathematical short problems followed by correct and incorrect versions of the answer to the problem (Questionnaire III), including 200 items. This was followed by a multiple-choice mathematical test with the 50 problems (Questionnaire IV) using the same 200 items and offering the correct and incorrect answers. In questionnaire IV, subjects tended to choose correct as well as incorrect responses corresponding to their highest hedonic rating within each problem. In all cases the subjects' behavior was higher than chance level, and thus, followed the trend to maximize pleasure. CONCLUSIONS: The results of the three experiments support the hypothesis according to which decisions are made in the hedonic dimension of conscious experience

Rational exaggeration and counter-exaggeration in information aggregation games

We study an information aggregation game in which each of a finite collection of “senders” receives a private signal and submits a report to the center, who then makes a decision based on the average of these reports. The integration of three features distinguishes our framework from the related literature: players’ reports are aggregated by a mechanistic averaging rule, their strategy sets are intervals rather than binary choices, and they are ex ante heterogeneous. In this setting, players engage in a “tug-of-war,” as they exaggerate and counter-exaggerate in order to manipulate the center’s decision. While incentives to exaggerate have been studied extensively, the phenomenon of counter-exaggeration is less well understood. Our main results are as follows. First, the cycle of counter-exaggeration can be broken only by the imposition of exogenous bounds on the space of admissible sender reports. Second, in the unique pure-strategy equilibrium, all but at most one player is constrained with positive probability by one of the report bounds. Our third and fourth results hold for a class of “anchored” games. We show that if the report space is strictly contained in the signal space, then welfare is increasing in the size of the report space, but if the containment relation is reversed, welfare is independent of the size of the space. Finally, the equilibrium performance of our heterogeneous players can be unambiguously ranked: a player’s equilibrium payoff is inversely related to the probability that her exaggeration will be thwarted by the report bounds

Children Base Their Investment on Calculated Pay-Off

To investigate the rise of economic abilities during development we studied children aged between 3 and 10 in an exchange situation requiring them to calculate their investment based on different offers. One experimenter gave back a reward twice the amount given by the children, and a second always gave back the same quantity regardless of the amount received. To maximize pay-offs children had to invest a maximal amount with the first, and a minimal amount with the second. About one third of the 5-year-olds and most 7- and 10-year-olds were able to adjust their investment according to the partner, while all 3-year-olds failed. Such performances should be related to the rise of cognitive and social skills after 4 years