On transparency in organizations

Non-transparency both in the form of incomplete information disclosure and in the form of coarse feedback disclosure is optimal in virtual all organizational arrangements of interest. Speci�cally, in moral hazard interactions, some form of non-transparency is always desirable, as soon as the dimensionality of the problem exceeds the dimensionality of the action spaces of the various agents

Social learning with coarse inference

We study social learning by boundedly rational agents. Agents take a decision in sequence, after observing their predecessors and a private signal. They are unable to understand their predecessors’ decisions in their finest details: they only understand the relation between the aggregate distribution of actions and the state of nature. We show that, in a continuous action space, compared to the rational case, agents put more weight on early signals. Despite this behavioral bias, beliefs converge to the truth. In a discrete action space, instead, convergence to the truth does not occur even if agents receive signals of unbounded precisions

Inefficiencies in bargaining - departing from Akerlof and Myerson-Satterthwaite

We consider bargaining problems in which parties have access to outside options. The size of the pie is commonly known and each party privately knows the realization of her outside option. Parties are assumed to have a veto right, which allows them to obtain at least their outside option payoff in any event. Besides, agents can receive no subsidy ex post. We show that inefficiencies are inevitable for virtually all distributions of outside options, as long as the size of the surplus generated by the agreement is uncertain and may be arbitrarily small for all realizations of either party’s outside option. Our inefficiency result holds true whatever the degree of correlation between the distributions of outside options, and even if it is known for sure that an agreement is beneficial. The same insights apply to the bargaining between a buyer and a seller privately informed of their valuations and to public good problems among agents privately informed of their willingness to pay

The European UTMS/IMT2000 license auctions

We survey the recent European UMTS license auctions and compare their outcomes with the predictions of a simple model that emphasizes future market structure as a main determinant of valuations for licenses. Since the main goal of most spectrum allocation procedures is economic efficiency, and since consumers (who are affected by the ensuing market structure) do not participate at the auction stage, good designs must alleviate the asymmetry among incumbents and potential entrants by actively encouraging entry

Towards a theory of deception

This paper proposes an equilibrium approach to belief manipulation and deception in which agents only have coarse knowledge of their opponent�s strategy. Equilibrium requires the coarse knowledge available to agents to be correct, and the inferences and optimizations to be made on the basis of the simplest theories compatible with the available knowledge. The approach can be viewed as formalizing into a game theoretic setting a well documented bias in social psychology, the Fundamental Attribution Er- ror. It is applied to a bargaining problem, thereby revealing a deceptive tactic that is hard to explain in the full rationality paradigm

Valuation equilibrium

We introduce a new solution concept for games in extensive form with perfect information, valuation equilibrium, which is based on a partition of each player's moves into similarity classes. A valuation of a player'is a real-valued function on the set of her similarity classes. In this equilibrium each player's strategy is optimal in the sense that at each of her nodes, a player chooses a move that belongs to a class with maximum valuation. The valuation of each player is consistent with the strategy profile in the sense that the valuation of a similarity class is the player's expected payoff, given that the path (induced by the strategy profile) intersects the similarity class. The solution concept is applied to decision problems and multi-player extensive form games. It is contrasted with existing solution concepts. The valuation approach is next applied to stopping games, in which non-terminal moves form a single similarity class, and we note that the behaviors obtained echo some biases observed experimentally. Finally, we tentatively suggest a way of endogenizing the similarity partitions in which moves are categorized according to how well they perform relative to the expected equilibrium value, interpreted as the aspiration level

Public statistics and private experience: varying feedback information in a take or pass game

We study how subjects in an experiment use different forms of public information about their opponents’ past behaviour. In the absence of public information, subjects appear to use rather detailed statistics summarizing their private experiences. If they have additional public information, they make use of this information even if it is less precise than their own private statistics–except for very high stakes. Making public information more precise has two consequences: It is also used when the stakes are very high and it reduces the number of subjects who ignore any information–public and private. That is, precise public information crowds in the use of own information. Finally, our results shed some light on unravelling in centipede games

A note of revenue maximization and efficiency in multi-object auctions

Combining the result of Palfrey (1983) about the role of bundling and the revenue equivalence theorem, this note shows that there is a conflict between revenue maximization and efficiency in multi-object auctions even with symmetric bidders