|By:||Romeo Matthew Balanquit (School of Economics, University of the Philippines Diliman)|
This study presents how selection of equilibrium in a game with many equilibria can be made possible when the common knowledge assumption (CKA) is replaced by the notion of common belief. Essentially, this idea of pinning down an equilibrium by weakening the CKA is the central feature of the global game approach which introduces a natural perturbation on games with complete information. We argue that since common belief is another form of departure from the CKA, it can also obtain the results attained by the global game framework in terms of selecting an equilibrium. We provide here necessary and sufficient conditions. Following the program of weakening the CKA, we weaken the notion of common belief further to provide a less stringent and a more natural way of believing an event. We call this belief process as iterated quasi-common p-belief which is a generalization to many players of a two-person iterated p-belief. It is shown that this converges with the standard notion of common p-belief at a sufficiently large number of players. Moreover, the agreeing to disagree result in the case of beliefs (Monderer & Samet, 1989 and Neeman, 1996a) can also be given a generalized form, parameterized by the number of players.
|Keywords:||common p-belief; common knowledge assumption; global games|
The experimental ‘learning-to-forecast’ literature finds that subjects use simple linear backward-looking models when forecasting in environments with little to no inout the economic framework. We study the formation of expectations in a laboratory economy of monopolistic firms and labour unions with almost complete knowledge of the model. We observe simple backward-looking rules, but also a considerable share of model-based expectations using information on the economic structure. At least for some subjects, expectations are informed by theory. As in the previous literature, we find individual prediction rules to be heterogeneous.
|By:||Bryan S. Graham|
Social and economic networks are ubiquitous, serving as contexts for job search, technology diffusion, the accumulation of human capital and even the formulation of norms and values. The systematic empirical study of network formation – the process by which agents form, maintain and dissolve links – within economics is recent, is associated with extraordinarily challenging modeling and identification issues, and is an area of exciting new developments, with many open questions. This article reviews prominent research on the empirical analysis of network formation, with an emphasis on contributions made by economists.
|JEL:||C23 C25 D85|
==noted by yinung==
生產落後期的例子: 挖礦 => 金屬生產
… An important aspect of mining is the lag between the time the decision to increase or decrease production
is made and the time the decision actually takes effect in the market. It takes several years for a planned new mine to start producing, …
Numerical Examples 1. l=落後期變長>=4, 價格波動變成發散
Numerical Examples 2. m=預期價格期數變長, 價格波動變成愈穩定
註: m =0 是典型 cobweb 理論, 即只用當期價格, 預測下一期價格
Numerical Examples 3. c= s/d =供給彈性/需求彈性, c 供需彈性比愈大, 價格波動愈不穩定
The classical cobweb theorem is extended to include production lags and price forecasts. Price forecasting based on a longer period has a stabilizing effect on prices. Longer production lags do not necessarily lead to unstable prices; very long lags lead to cycles of constant amplitude. The classical cobweb requires elasticity of demand to be greater than that of supply; this is not necessarily the case in a more general setting. Random shocks are also considered.
* Chiarella (1988)studies a system where expected prices follow adaptive expectations, when the demand curve is linear, while the supply curve is non-linear…[The] paper shows that the system is either (1) stable, (2) unstable but cyclical, or (3) chaotic.
* Chiarella and He (2004). That paper studies the cobweb model from a slightly different point of view (in particular, the supply curve is a specific S-shaped function),
Backward induction is a widely accepted principle for predicting behavior in sequential games. In the classic example of the “centipede game,” however, players frequently violate this principle. An alternative is a “dynamic level-k” model, where players choose a rule from a rule hierarchy. The rule hierarchy is iteratively defined such that the level-k rule is a best response to the level-(k-1) rule, and the level-∞ rule corresponds to backward induction. Players choose rules based on their best guesses of others’ rules and use historical plays to improve their guesses. The model captures two systematic violations of backward induction in centipede games, limited induction and repetition unraveling. Because the dynamic level-k model always converges to backward induction over repetition, the former can be considered to be a tracing procedure for the latter. We also examine the generalizability of the dynamic level-k model by applying it to explain systematic violations of backward induction in sequential bargaining games. We show that the same model is capable of capturing these violations in two separate bargaining experiments.
- Camerer, C. and Ho, T-H “Behavioral Game Theory Experiments and Modeling," In Handbook of Game Theory, Forthcoming. PDF File provided by berkeley
- Ho, T-H. “Individual Learning in Games," Blume, L. and Durlauf, S. (eds.) The New Palgrave Dictionary of Economics: Design of Experiments and Behavioral Economics, Palgrave Macmillian, 2008. PDF File
- Camerer, C. Ho, T-H. and Chong,J-K. “Models of Thinking, Learning, and Teaching in Games," The American Economic Review Papers and Proceedings, 93: 2 (2003), 192-195. PDF File
- Camerer, C., Ho, T-H, and Chong, J-K. “Behavioral Game Theory: Thinking, Learning and Teaching," Paper Presented at the Nobel Prize Symposium (Dec 2001). PDF File
- 這篇和選美賽局 beauty contest 有關
Ho, T-H., Camerer, C., and Weigelt, K., “Iterated Dominance and Iterated Best Response in Experimental P-Beauty Contests," The American Economic Review, 88 (1998), 947-969. PDF File
- Ho, T-H. and Weigelt, K., “Task Complexity, Equilibrium Selection, and Learning: An Experimental Study," Management Science, 42 (1996), 659-679. PDF File
- Ho, T-H. and K. Weigelt, “Trust Building Among Strangers," Management Science , 51: 4, pp. 1-12, 2005. [Lead Article] [Finalist, John D. C. Little Best Paper Award]. PDF File
Markus Nöth, and Martin Weber (2002) “Information Aggregation with Random Ordering: Cascades and Overconfidence." The Economic Journal, Volume 113, Issue 484, pages 166–189, January 2003. DOI: 10.1111/1468-0297.00091.
In economic models, it is usually assumed that agents aggregate their private information with all available public information correctly and completely. In this experiment, we identify subjects’ updating procedures and analyse the consequences for the aggregation process. Decisions can be based on private information with known quality and on the observed decisions of other participants. In this setting with random ordering, information cascades are observable and agents’ overconfidence has a positive effect on avoiding a non-revealing aggregation process. However, overconfidence reduces welfare in general.
Trading at prices above the fundamental value of an asset, i.e. a bubble, has been verified and replicated in laboratory asset markets for the past seven years. To date, only common group experience provides minimal conditions for common investor sentiment and trading at fundamental value. Rational expectations models do not predict the bubble and crash phenomena found in these experimental markets; such models yield only equilibrium predictions and do not articulate a dynamic process that converges to fundamental value with experience. The dynamic models proposed by Caginalp et al. do an excellent job of predicting price patterns after calibration with a previous experimental bubble, given the initial conditions for a new bubble and its controlled fundamental value. Several extensions of this basic laboratory asset market have recently been undertaken which allow for margin buying, short selling, futures contracting, limit price change rules and a host of other changes that could effect price formation in these assets markets. This paper reviews the results of 72 laboratory asset market experiments which include experimental treatments for dampening bubbles that are suggested by rational expectations theory or popular policy prescriptions.
Shleifer, Andrei. 2012. “Psychologists at the Gate: A Review of Daniel Kahneman’s Thinking, Fast and Slow." Journal of Economic Literature, 50(4): 1080-91. link to AEAWeb;
==Notes by yinung==
這篇文章回顧 Daniel Kahneman 的書 “Thinking, Fast and Slow”
… because the book mentions few economic applications, I will describe some of the economic research that has been substantially infuenced by this work.
作者認為 Kahneman and Tversky 影響最大者在於 財務學 (或稱行為財務) … this work. My feeling is that the most profound infuence of Kahneman and Tversky’s work on economics has been in fnance, on what has now become the field of behavioral finance…
…two common objections to the introduction of psychology into economics,…
… economists should focus on “first order things”rather than quirks （quirk 這個字原意是）.
1. 反例1，人們花太多錢在保險，只為了很小的可能損失 (這可不是特殊現象)，
individuals pay large multiples of actuarially fair value to buy insurance against small losses, as well as to reduce their deductibles (Sydnor 2010).
2. 反例2，廣告 （？？還沒看懂）
the standard economic view that persuasion is conveyance of information seems to run into a rather basic problem that advertising is typically emotional, associative, and misleading— yet nonetheless effective (Bertrand et al. 2010; DellaVigna and Gentzkow 2010; Mullainathan, Schwartzstein, and Shleifer 2008).
3. 反例3，財務理論說，投資者應選 low-cast index fund, 但事實上大部份人卻是選 high-cost actively managed funds
B. 市場力量可消除心理因素對價格和分配之影響 （價格和效率）
… market forces eliminate the influence of psychological factors on prices and allocations.
1. 反例，Real-world arbitrage is costly and risky, and hence limited, … Dozens of empirical studies confirm that, even in markets with relatively inexpensive arbitrage, identical, or nearly identical, securities trade at different prices. With costlier arbitrage, pricing is even less efficient.
2. 市場參與者大多不理性，即是有專家之協助 （專家的動機通常值得懷疑，見(Chalmers and Reuter 2012; Gennaioli,
Shleifer, and Vishny 2012)）
Market forces often work to strengthen, rather than to eliminate, the influence of psychology.
List 研究棒球卡交易，發現專家沒有 endowment effects, 支持了此一觀點。
兩個思考體系 （two systems)
System 1: 直覺、自動、非意識性、容易 （intuitive, automatic, unconscious, and effortles）；快速反應，透過聯想、組合
System 2: 具意識性、緩慢、受控制 …但不容易 （conscious, slow, controlled, deliberate, effortful, statistical, suspicious, and lazy (costly to use)）；這是經濟學家認為的思考
Heuristics and Biases
Anchoring effects: 對未知的問題，容易受到前置性的影響 （擲俄羅斯輪盤，看到數字後，猜非洲國家佔聯合國之比例…, 看到輪盤數字小者猜小， 看到數字大者猜大)
… respondents receive all the information they need, but nonetheless do not use it correctly.
人類注意和聯想到的資訊，並非皆是在最佳決策中所需要的… 系統 1 的思考是自動反應，而非最佳化： 選擇性認知與記憶之決策行為（highly selective perception and memory … before we make decisions and choice)
… the fundamental feature of System 1 is that what our attention is drawn to, what we focus on, and what we recall is not always what is most necessary or needed for optimal decision making.
The publication of Daniel Kahneman’s book, Thinking, Fast and Slow, is a major intellectual event. The book summarizes, but also integrates, the research that Kahneman has done over the past forty years, beginning with his path-breaking work with the late Amos Tversky. The broad theme of this research is that human beings are intuitive thinkers and that human intuition is imperfect, with the result that judgments and choices often deviate substantially from the predictions of normative statistical and economic models. In this review, I discuss some broad ideas and themes of the book, describe some economic applications, and suggest future directions for research that the book points to, especially in decision theory. (JEL A12, D03, D80, D87)
有關 prospect theory
- Barberis, Nicholas. Forthcoming. “Thirty Years of Prospect Theory in Economics.” Journal of Economic Perspectives.
- Bordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer. 2012b. “Salience in Experimental Tests of the Endowment Effect.” American Economic Review 102 (3): 47–52.
- Bordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer. 2012c. “Salience Theory of Choice Under Risk.” Quarterly Journal of Economics 127 (3): 1243–85.
- Hart, Oliver, and John Moore. 2008. “Contracts as Reference Points.” Quarterly Journal of Economics 123 (1): 1–48.
- Koszegi, Botond, and Matthew Rabin. 2006. “A Model of Reference-Dependent Preferences.” Quarterly Journal of Economics 121 (4): 1133–65.
- *List, John A. 2003. “Does Market Experience Eliminate Market Anomalies?” Quarterly Journal of Economics 118 (1): 41–71.
- Pope, Devin G., and Maurice E. Schweitzer. 2011. “Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes.” American Economic Review 101 (1): 129–57.
- Barberis, Nicholas, and Ming Huang. 2008. “Stocks as Lotteries: The Implications of Probability Weighting for Security Prices.” American Economic Review 98 (5): 2066–2100.
- Barberis, Nicholas, Andrei Shleifer, and Robert W. Vishny. 1998. “A Model of Investor Sentiment.” Journal of Financial Economics 49 (3): 307–43.
- Benartzi, Shlomo, and Richard H. Thaler. 1995. “Myopic Loss Aversion and the Equity Premium Puzzle.” Quarterly Journal of Economics 110 (1): 73–92.
- De Bondt, Werner F. M., and Richard H. Thaler. 1985. “Does the Stock Market Overreact?” Journal of Finance 40 (3): 793–805.
- Frazzini, Andrea, and Owen A. Lamont. 2008. “Dumb Money: Mutual Fund Flows and the Cross-Section of Stock Returns.” Journal of Financial Economics 88 (2): 299–322.
- Lakonishok, Josef, Andrei Shleifer, and Robert W. Vishny. 1994. “Contrarian Investment, Extrapolation, and Risk.” Journal of Finance 49 (5): 1541–78.
- Sydnor, Justin. 2010. “(Over)insuring Modest Risks.” American Economic Journal: Applied Economics 2 (4): 177–99.
- Gennaioli, Nicola, and Andrei Shleifer. 2010. “What Comes to Mind.” Quarterly Journal of Economics 125 (4): 1399–1433.
- House money effects
Thaler, Richard H., and Eric J. Johnson. 1990. “Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice.” Management Science 36 (6): 643–60.
Tversky, Amos, and Daniel Kahneman. 1981. “The Framing of Decisions and the Psychology of Choice.” Science 211 (4481): 453–58.
Notes by yinung
終於找到文獻回顧了! (哈, 其實以前已經找過了,… 人的記憶力真的很脆弱…)
an assessment of the micro-assumptions underlying macroeconomic models,
a better understanding of the dynamics of expectations which play a critical role in macroeconomic models,
a means of resolving equilibrium selection (coordination) problems in environments with multiple equilibria,
validation of macroeconomic model predictions for which field data are not available and
the impact of various macroeconomic policy interventions on individual behavior.
1) 總體經濟之個體基礎評估 (to be done)
主題例如: intertemporal consumption and savings decisions, inflation and unemployment, economic growth, bank runs, monetary exchange, monetary or fiscal policy
本文主要內容 (to be done)
2. Dynamic, Intertemporal Optimization
Optimal Consumption/Savings Decisions, Exponential discounting and infinite horizons
3. Coordination Problems
Poverty Traps, Bank Runs, Resolving Coordination Problems: Sunspots, Resolving Coordination Problems: The Global Game Approach
4. Sectoral Macroeconomics
5. Macroeconomic Policies
Ricardian equivalence, Commitment versus discretion, Monetary policy decision-making, Fiscal and tax policies, Exponential or Hyperbolic Discounting, Expectation Formation,
Contingent weighting. JEL classification codes: C9; C72. Article Outline. • References.
Journal of Economic Behavior Organisation ELSEVIER Vol. …
Receiver has about the size of the pie on both the Sender’s offers and the Receiver’s replies.
For this purpose, we designed a between-subject ultimatum game experiment with three …
of Receiver’s uncertainty about the … A recent experiment by Eckel and Grossman (1992) uncovered
gender differences in a variant of the ultimatum game with complete …
are accepted. … In addition to giving responders outside options, our experiment deviates from the
traditional ultimatum game by incorporating two-sided imperfect information. …
to … used a ‘continuum’ of cake sizes4 to study the effects of the amount of uncertainty. … In the
experiment of Mitzkewitz and Nagal both amounts were equal, namely 2. ( Royal Economic …
inactive third player is present. The proposerXsuggests an allocation (x, y, z) on how to
divide a cake betweenX, Y, andZ. A messagemthat (partially) reveals this proposal is sent …
incredible threats about future actions are considered cheap talk and do not impact
outcomes. In practice, however, this type of talk is often an integral part of bargaining. This …
the case of acceptance, divide this amount by playing an ultimatum game. The first offer has
to be accepted by the second proposer. Only the first proposer knew the true cake size …
absolute and comparative payoffs in social decision making. In two experimental studies, we
compared offers in Ultimatum games with offers in Dictator games. Results suggest that …
ultimatum and dictator game as well as the two games in which a veto (non-acceptance) of
the responder implies that only one of the two players does not receive the proposed …
absolute and comparative payoffs in social decision making. In two experimental studies, we
compared offers in Ultimatum games with offers in Dictator games. Results suggest that …
amount which has to be distributed. In the games studied here the proposer always learns
the outcome of the chance move whereas the responder only knows the priors. The …
On perceptions of fairness: The role of valuations, outside options, and information in ultimatum bargaining games
payoffs, outside options, and different information states. Fairness perceptions were
dependent on treatment conditions. Specifically, when proposers had higher chip values, …
accepting or rejecting. Unconditional veto power leads to acceptances, although proposers
are significantly greedier than in standard ultimatum games, and this is anticipated by …
tested developmental differences between altruistic and strategic motivations in fairness
considerations using a version of the UG with hidden conditions. Participants were …
of the proposer, which are repeated against changing opponents. The games have the
same subgame equilibrium outcome as its complete information version. A proposer has …
(‘What would happen in an ultimatum game with c = $1000, or $100,000? None of us have
the research funds to run this experiment, so we can only guess. …
by all kinds of factors: the wording of the instructions, the identity of the experimenters, whether
the experiment is thought to be “economics" or “psychology," and so forth. …
to their acceptance decisions as player 2. … Econometrica, 17 (1948), pp. 101–104. Stone, 1958
JJ Stone, An experiment in bargaining games. Econometrica, 26 (1958), pp. …
Research, Germany) Report No. 9317.
R. and B. Schwarze, 1982, An experimental analysis of ultimatum bargaining, Journal
of Economic Behavior and Organization, 3, 367-388.
Giith, W.Tietz, R., 1990, Ultimatum bargaining behavior: A survey and comparison of experimental results,
Journal of Economic Psychology, 11,417449.
enough nearly no attempt has been made to investigate the so-called ultimatum bargaining
behavior experimentally. The special property of ultimatum bargaining games is that on …
of money in the following way: first, player 1 determines his demand which player 2 can then
either accept or induce conflict, ie player 2 faces the ultimatum either to accept player 1’s …
author was actively involved. The basic game situation is either the ultimatum game or
multiperiod-ultimatum bargaining. We outline a behavioral theory of ultimatum bargaining …
strategy method, in which a responder makes conditional decisions for each possible
information set, leads to different experimental results than does the more standard direct- …