Getting Carried Away in Auctions as Imperfect Value Discovery

Bidders in auctions must decide whether and when to incur the cost of estimating the most they are willing to pay. This can explain why people seem to get carried away, bidding higher than they had planned before the auction and then finding they had paid more than the object was worth to them. Even when such behavior is rational, ex ante, it may be perceived as irrational if one ignores other situations in which people revise their bid ceilings upwards and are happy when that enables them to win the auction.

When Does Extra Risk Strictly Increase an Option's Value?

It is well known that risk increases the value of options. This paper makes that precise in a new way. The conventional theorem says that the value of an option does not fall if the underlying option becomes riskier in the conventional sense of the mean-preserving spread. This paper uses two new definitions of "riskier" to show that the value of an option strictly increases (a) if the underlying asset becomes "pointwise riskier," and (b) only if the underlying asset becomes "extremum riskier."

Some Common Confusions about Hyperbolic Discounting

There is much confusion over what "hyperbolic discounting" means. I argue that what matters is the use of relativistic instead of objective time, not the shape of the discount function.time inconsistency, hyperbolic discounting

Career Concerns and Ambiguity Aversion

Why do people have ambiguity aversion, preferring, a gamble with a 50% chance of success to one whose expected probability of success is 50% but where that 50% is an unbiased estimate? The answer modelled here, in the spirit of the career concerns literature, is learning: a risk-averse person does not wish observers to learn whether he is good or bad at estimating probabilities. He therefore prefers a gamble with objective probabilities.time inconsistency, hyperbolic discounting

'Getting Carried Away in Auctions as Imperfect Value Discovery'

Bidders have to decide whether and when to incur the cost of estimating their own values in auctions. This can explain why people seem to get carried away, bidding higher than they had planned before the auction and then finding they had paid more than the object was worth to them. Even when such behavior is rational, ex ante, it may be perceived as irrational if one ignores other situations in which people revise their bid ceilings upwards and are happy when that enables them to win the auction.private value, auctions, behavioral, e-bay, reservation price

A Reputation Model of Quality in North-South Trade

Countries have different comparative advantages in quality. These might be due to technological differences, or to reputation differences of the sort described in Klein & Leffler (1981). Reputation differences are particularly interesting, since good reputations are a form of “social capital” that is amenable to modelling. They can explain why firms in these industries like to export even if the foreign price is no higher than the domestic one, and why governments would like to have large “high- value” sectors.

Quality-Ensuring Profits

In the reputation model of Klein and Leffler (1981) firms refrain from cutting quality or price because if they did they would forfeit future profits. Something similar can happen even in a static setting. First, if there exist some discerning consumers who can observe quality, firms wish to retain their purchases. Second, if all consumers can sometimes but not always spot flaws, firms do not want to lose the business of those who would spot them on a given visit. Third, if the law provides a penalty for fraud, but not one so high as to to make fraud unprofitable, firms may prefer selling high quality at high prices to low quality at high prices plus some chance of punishment.reputation, product quality, moral hazard, quality-guaranteeing price

When Does Extra Risk Strictly Increase the Value of Options?

It is well known that risk increases the value of options. This paper makes that precise in a new way. The conventional theorem says that the value of an option does not fall if the underlying option becomes riskier in the conventional sense of the mean-preserving spread. This paper uses two new definitions of ``riskier'' to show that the value of an option strictly increases (a) if the underlying asset becomes ``pointwise riskier,'' and (b) only if the underlying asset becomes ``extremum riskier.''options, risk, mean-preserving spread,calls

The Objectives of Sexual Harassment Law, with Application to 1998's Ellerth, Oncale, and Faragher Decisions

Imposing liability on a company for sexual harassment by supervisors cannot be justified as promoting equality between the sexes, protection of workers, or protection of the owners of the company. Such liability might be justified to prevent breach of contract or behavior offensive to the general public-- a "civility code". The recent Supreme Court ruling in Oncale that same-sex harassment is illegal can be justified on these grounds. The ruling in Ellerth and Faragher concerning employer liability for sexual harassment by supervisors contrary to the employer's interest is less satisfactory because the Court's rule will encourage litigation and defensive bureaucratic complexity.sexual harassment, Supreme Court, mandated fringe benefits

An Economic Approach to Adultery Law

A long-term relationship such as marriage will not operate efficiently without sanctions for misconduct, of which adultery is one example. Traditional legal sanctions can be seen as different combinations of various features, differing in who initiates punishment, whether punishment is just a transfer or has real costs, who gets the transfer or pays the costs, whether the penalty is determined ex ante or ex post, whether spousal rights are alienable, and who is punished. Three typical sanctions, criminal penalties for adultery, the tort of alienation of affections, and the self-help remedy of justification are formally modelled. The penalties are then discussed in a variety of specific applications to past and present Indiana law . In fact, there is no warranty at all. And if there are blank lines after this, well that is too bad bec as you will see they are not needed nor wanted and if I have been really careful, they will disappear just like the indentations.adultery, crime, marriage, self-help