Journal of Economic theory Impact Factor

August 16, 2015
And economic theory
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    ABSTRACT: We establish that general discounted stochastic games with state transitions that are absolutely continuous with respect to a fixed, atomless measure admit stationary semi-Markov perfect equilibria, i.e., equilibria in which each player's action depends only on the current state and on the previous state and action profile. This resolves an open existence question stemming from an error in the proof of Theorem 4 of Chakrabarti (1999). Moreover, the result follows from “un-correlating” Nowak and Raghavan's (1992) stationary correlated equilibrium, establishing that there is no need to resort to additional, unmodeled state variables.
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    ABSTRACT: This paper studies the dynamics of interethnic attitudes, focusing on the role played by the network of social influences, to which agents are exposed. A cultural evolution framework is introduced, where attitudes are modeled as continuous cultural traits transmitted intergenerationally. Oblique (out of family) socialization is modeled as a network of influences, which are represented by a row stochastic matrix. Properties of the dynamics are also examined. The main result states that any time independent oblique socialization matrix ensures convergence. In particular, I find that while the vertical (parental) socialization has the role of ensuring convergence without influencing the kind of steady state reached, the structure of the oblique socialization matrix does not affect convergence properties. However, it determines the class of the steady state, which is observed at the end of the dynamic. Specific oblique socialization mechanisms and steady states relevant for interethnic issues are then introduced showing how this model links them together. A method to potentially link any oblique socialization mechanism to a consequential steady state class is then proposed. Finally, data from the US areconsidered to show how it is possible to infer properties of the oblique socialization network.
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    ABSTRACT: This paper presents a strategic model of risk-taking behavior in contests. Formally, we analyze an n-player winner-take-all contest in which each player decides when to stop a privately observed Brownian motion with drift. A player whose process reaches zero has to stop. The player with the highest stopping point wins. Unlike the explicit cost for a higher stopping time in a war of attrition, here, higher stopping times are riskier, because players can go bankrupt. We derive a closed-form solution of a Nash equilibrium outcome. In equilibrium, highest expected losses occur at an intermediate negative value of the drift.
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    ABSTRACT: We propose a framework of consistent finite-order priors to facilitate the incorporation of higher-order uncertainties into Bayesian game analysis, without invoking the concept of a universal type space. Several recent models, which give rise to stunning results with higher-order uncertainties, turn out to operate with certain consistent order-2 priors. We introduce canonical representations of consistent finite-order priors, which we apply to establish a criterion for determining the orders of strategically relevant beliefs for abstract Harsanyi type spaces. We derive finite-order projections of type spaces and discuss convergence of BNEs based on them as the projection order increases. Finally, we introduce finite-order total variation distances between priors, which are suitable for analyzing the issues on equilibrium continuity and robustness. We revisit recent advancements of Bayesian game theory and develop new insights based on our framework.
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    ABSTRACT: This paper studies the phenomenon of early hiring in entry-level labor markets affected by social networks. We offer a model in which information is revealed over time. At first, workers have noisy information about their own ability. The early information is ‘soft’ and non-verifiable, and workers can convey the information credibly only to firms that are connected to them. Later on, ‘hard’ accurate verifiable information becomes available. We characterize the effects of changes to the network structure on the unraveling of the market towards early hiring. Moreover, we show that an efficient design of the matching procedure can prevent unraveling.
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    ABSTRACT: We consider a signaling model where the sender's continuation value after signaling depends on his type, for instance because the receiver is able to update his posterior. As a leading example, we introduce Bayesian learning in a variety of environments ranging from simple two-period to con- tinuous time models with stochastic production. Signaling equilibria present two major departures from those obtained in models without learning. First, new mixed-strategy equilibria involving multiple pooling are possible. Second, pooling equilibria can survive the Intuitive Criterion when learning is efficient enough.
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    ABSTRACT: In a premium auction, the seller offers some “payback”, called premium, to a set of high bidders at the end of the auction. This paper investigates how the performance of such premium tactics is related to the bidders’ risk preferences. We analyze a two-stage English premium auction model with symmetric interdependent values, in which the bidders may be risk averse or risk preferring. Upon establishing the existence and uniqueness of a symmetric equilibrium, we show that the premium causes the expected revenue to increase in the bidders’ risk tolerance. A “net-premium effect” is key to this result.
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    ABSTRACT: We provide necessary and sufficient conditions on an individual's expected utility function under which any zero-mean idiosyncratic risk increases cautiousness (the derivative of the reciprocal of the absolute risk aversion), which is the key determinant for this individual's demand for options and portfolio insurance.

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