|By:||Aurora García-Gallego (University Jaume I, LEE & Department of Economics)
Penelope Hernández-Rojas (University of Valencia, ERI-CES & Department of Economics Analysis)
Amalia Rodrigo-González (University of Valencia, Department of Corporate Finance)
The theoretical communication model by Gossner et al. (2006) (GHN henceforth) based on the matching pennies game has recently been implemented by García-Gallego et al. (2013) (GHR henceforth) in the lab, emphasizing the transmission of information among players with aligned incentives. The present work contributes to characterize the optimal structure of the equilibrium strategies or the set up under consideration. Also, we establish the length of the sequence of the experimental game for which the players’ optimal strategy is the majority rule, considering a minimal length of 3. Finally, we aim at testing the model by GHN (2006). Experimental findings give! support to the theoretical results in GHN (2006).
|Keywords:||experiments, coordination, cheap-talk, efficiency|
|JEL:||D8 C91 C73|
|By:||James Bland (Department of Economics, Purdue University)
Nikos Nikiforakis (Max Planck Institute for Research on Collective Goods, Bonn)
When agents face coordination problems their choices often impose externalities on third parties. We investigate whether such externalities can affect equilibrium selection in a series of one-shot coordination games varying the size and the sign of the externality. We find that third-party externalities have a limited effect on decisions. A large majority of participants in the experiment are willing to take an action that increases their income slightly, even if doing so causes substantial inequalities and reductions in overall efficiency. Individuals revealed to be other-regarding in a non-strategic allocation task often behave as-if selfish when trying to coordinate.
|Keywords:||social preferences, efficiency, externalities, tacit coordination, equilibrium selection, efficiency.|
|JEL:||D63 D01 D62 C90 D03|
==notes by yinung==
|By:||Aurora García-Gallego (LEE & Department of Economics, Universitat Jaume I, Castellón, Spain)
Penélope Hernández-Rojas (ERI-CES & Department of Economic Analysis, University of Valencia, Spain)
Amalia Rodrigo-González (Department of Business Finance, University of Valencia, Spain)
Based on Gossner, Hernández and Neyman’s (2006) 3-player game (hereafter GHN) we analyze communication efficiency in the lab. In that game, player 1 represents random nature an i.i.d. procedure, player 2 is a fully informed player (wiser), and player 3 is the less informed player (agent). The game is repeated and players 2 and 3 get 1 if both actions match nature’s actions and 0 otherwise. We propose an experiment following this game. We implement two treatments: one without chat (NC) and one with chat (C). In the treatment with chat, players may first send messages to each other through an online chat application, and then play the game. After the chat time, only the wiser player has perfect information on the realized (random) sequence played by nature. The players then play the finitely repeated binary game. In treatment NC, subjects just play the game. In the experiment we observed endogenous communication treatment NC as well as exogenous in treatment C, both of which result in higher payoffs. Furthermore, when explicit communication is possible we observe a chat effect which can be interpreted as a higher level of efficiency in communication. Strategies used by subjects are in line with GHN strategies.
|Keywords:||communication, transmission of information, efficiency, experiments|
Robin Greenwood and Andrei Shleifer (2013) “Expectations of Returns and Expected Returns." NBER Working Paper No. 18686, January 2013, JEL No. G02,G12,G14. [PDF]
We analyze time-series of investor expectations of future stock market returns from six data sources between 1963 and 2011. The six measures of expectations are highly positively correlated with each other, as well as with past stock returns and with the level of the stock market. However, investor expectations are strongly negatively correlated with model-based expected returns. We reconcile the evidence by calibrating a simple behavioral model, in which fundamental traders require a premium to accommodate expectations shocks from extrapolative traders, but markets are not efficient.
Hidden Information, Bargaining Power, And Efficiency: An Experiment
|By:||Antonio Cabrales (Departamento de Economía – Universidad Carlos III de Madrid)
Gary Charness (Department of Economics, University of California – University of California, Santa Barbara)
Marie-Claire Villeval (GATE Lyon Saint-Etienne – Groupe d’analyse et de théorie économique – CNRS : UMR5824 – Université Lumière – Lyon II – École Normale Supérieure de Lyon)
We devise an experiment to explore the effect of different degrees of bargaining power on the design and the selection of contracts in a hidden-information context. In our benchmark case, each principal is matched with one agent of unknown type. In our second treatment, a principal can select one of three agents, while in a third treatment an agent may choose between the contract menus offered by two principals. We first show theoretically how different ratios of principals and agents affect outcomes and efficiency. Informational asymmetries generate inefficiency. In an environment where principals compete against each other to hire agents, these inefficiencies may disappear, but they are insensitive to the number of principals. In contrast, when agents compete to be hired, efficiency improves dramatically, and it increases in the relative number of agents because competition reduces the agents’ informational monopoly power. However, this environment also generates a high inequality level and is characterized by multiple equilibria. In general, there is a fairly high degree of correspondence between the theoretical predictions and the contract menus actually chosen in each treatment. There is, however, a tendency to choose more ‘generous’ (and more efficient) contract menus over time. We find that competition leads to a substantially higher probability of trade, and that, overall, competition between agents generates the most efficient outcomes.
|Keywords:||experiment; hidden information; bargaining power; competition; efficiency|
Thomas E. Copeland and Daniel Friedman “Partial Revelation of Information in Experimental Asset Markets." Journal of Finance, Vol. 46, No. 1 (Mar., 1991), pp. 265-295.
We develop a model of market efficiency assuming private information is partially revealed to uninformed traders via the behavior of those who are informed. This partial revelation of information (PRE) model is tested in fourteen computerized double auction laboratory markets. It explains the market value and allocation of purchased information, and asset allocations, better than either a fully revealing information model (FRE strong-form efficiency) or a nonrevealing expectations model; but it takes second place to FRE in explaining asset prices. We conjecture that refined versions of PRE may provide insight into “technical analysis" and minibubbles in securities markets.
Charles R. Plott and Shyam Sunder “Efficiency of Experimental Security Markets with Insider Information: An Application of Rational-Expectations Models." The Journal of Political Economy, Vol. 90, No. 4 (Aug., 1982), pp. 663-698.
Stable URL: http://www.jstor.org/stable/1831348
The study reports on the ability of competing models of market information integration and dissemination to explain the behavior of simple laboratory markets for a one-period security. Returns to the security depended upon a randomly drawn state of nature. Some agents (insiders), whose identity was unknown to other agents, knew the state before the markets opened. With replication of market conditions the predictions of a fully revealing rational-expectations model are relatively accurate. Prices adjusted immediately to near rational-expectations prices; profits of insiders were virtually indistinguishable from noninsiders; and efficiency levels converged to near 100 percent.