This paper investigates the determinants of cost-(in)effective giving to public goods. We conduct a pre-registered experiment to elucidate how factors at the institutional and individual levels shape individual contributions and the cost-effectiveness of those contributions in a novel public good game. In particular, we examine the role of consequential uncertainty over the value of public good contributions (institutional level) as well as individual characteristics like risk and ambiguity attitudes, giving type, and demographics (individual level). We find cost-ineffective contributions in all (...) institutions, but total contribution levels and the degree of cost-ineffectiveness are similar across institutions. Meanwhile, cost-effectiveness varies by giving type—which is a novel result that is consistent with hypotheses we generate from theory—but other individual characteristics have little influence on the cost-effectiveness of contributions. Our work has important positive and normative implications for charitable giving and public good provision in the real world, and it is particularly germane to emerging online crowdfunding and patronage platforms that confront users with a multitude of competing opportunities for giving. (shrink)

The principle of differential marginality (Casajus in Theory and Decis 71(2):163-–174) for cooperative games is a very appealing property that requires equal productivity differentials to translate into equal payoff differentials. In this paper we apply this property to axiomatic characterizations of values. We show that differential marginality implies additivity and symmetry under certain conditions. Based on this result, we propose new characterizations of the equal division and the equal surplus division values. Finally, we characterize two classes of convex combinations of (...) values, i.e., α\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$\alpha$$\end{document}-egalitarian Shapley values and α\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$\alpha$$\end{document}-equal surplus division values, by employing differential marginality and establishing the uniqueness of these values on inessential games. (shrink)

Discrete choice experiments (DCE) are often used to elicit preferences, for instance, in health preference research. However, DCEs only provide binary responses, whilst real-life choices are made with varying degrees of conviction. We aimed to verify whether eliciting self-reported convictions on a 0–100 scale adds meaningful information to the binary choice. Eighty three respondents stated their preferences for health states using DCE and the time trade-off method (TTO). In TTO, utility ranges were also elicited to account for preference imprecision. We (...) verified the properties of the conviction across three areas: (1) response to various choice task modifications (e.g. dominance, increase in complexity, distance from the status quo) and association with rationality violations (e.g. intransitivity); (2) association with test–retest results; (3) relation to the utility difference and imprecision estimated in TTO. Regarding (1), conviction increased in choice tasks with lower complexity, larger relative attractiveness, and lower distance to the status quo. Regarding (2), choices made with above-median conviction were sustained in 90% of the cases, compared to 68% for below-median conviction. Regarding (3), the conviction increases with utility difference and it decreases with utility imprecision; overconfidence seems to prevail: non-zero conviction is reported even for identical utilities. Self-reported conviction in DCE is associated in an intuitive way with the observed choices. It may, therefore, be useful in explaining or predicting behaviour or bridging the gap between the results of various elicitation tasks. (shrink)

This paper considers a one-stage Cournot duopoly of R&D. We characterize the Nash equilibrium of the one-stage game and provide a comparison with the two-stage version of the same Cournot model of R&D/product market competition. We look at R&D expenditures, profits, output and welfare. Under perfect symmetry, the one-stage model always leads to higher profits when the spillover parameter is not equal to 1/2. Moreover, the one-stage model implies more R&D expenditure and higher welfare if and only if the spillover (...) parameter is greater than 1/2. The insights are robust to an n -firm generalization, but the differences between the one-stage game and the two-stage game disappear as the market becomes perfectly competitive. (shrink)

An important appeal of strategy-proofness is the robustness that it implies. Under a strategy-proof voting rule, every individual has an optimal strategy independently of the behavior of all other voters, namely truth-telling. In particular, optimal play is robust with respect to the beliefs voters may have about the type and the behavior of the other voters. Following Blin and Satterthwaite (Economet J Economet Soc 45(4):881–888, 1977), we call this logically weaker property “belief-independence.” In this paper, we give a number of (...) examples of voting rules that are belief-independent but not strategy-proof. However, we also show that belief-independence implies strategy-proofness under a few natural additional conditions. The notion of belief-independence naturally leads to a the strengthening of strategy-proofness to “robust” strategy-proofness which requires that no voter whose true preference may come from a restricted domain can benefit by submitting any unrestricted preference ordering given any unrestricted preference profile for all other voters. There are examples of strategy-proof voting rules (on a restricted domain) that are not robustly strategy-proof, but under natural additional conditions the two properties are shown to be equivalent. (shrink)

This study examines the stability of trust and explores whether it differs across men and women using a panel dataset. Data were first collected in 2008 and later in 2019, from 1056 male and 1113 female respondents in the Netherlands. The analysis results suggest that trust is significantly correlated over time, irrespective of gender. Similarly, the subgroup analysis restricted to respondents with low levels of trust in 2008 showed a significant correlation between trust measured in 2008 and that measured in (...) 2019. Further, this study analyzes whether the correlation decays with time by comparing the correlation between trust in 2008 and 2019 with the correlation between trust in 2008 and 2013. The analysis reveals a significant decay in the correlation with time, and this decay is driven by men. A closer look shows that older men (with age ≥ median value) primarily caused this decay in correlation. These findings provide evidence of the interaction between gender and the stability of trust. (shrink)

Debreu (American Economic Review 50:186–188, 1960) famously criticized Luce (Individual choice behavior, Wiley, New York, 1959) choice model with what became known as the red-bus blue-bus example: if a choice set contains two distinct alternatives C (car) and B (blue bus) then adding a third alternative A (red bus) that is essentially identical to B does not affect the choice probability of C but reduces the choice probability of B by half. Debreu’s critique highlights the existence of substitution effects violating (...) the principle of independence from irrelevant alternatives—the cornerstone of Luce (Individual choice behavior, Wiley, New York, 1959) choice model. This paper weakens this principle to construct a model of probabilistic choice satisfying Debreu’s critique. (shrink)

The model of incomplete cooperative games incorporates uncertainty into the classical model of cooperative games by considering a partial characteristic function. Thus the values for some of the coalitions are not known. The main focus of this paper is 1-convexity under this framework. We are interested in two heavily intertwined questions. First, given an incomplete game, how can we fill in the missing values to obtain a complete 1-convex game? Second, how to determine in a rational, fair, and efficient way (...) the payoffs of players based only on the known values of coalitions? We illustrate the analysis with two classes of incomplete games—minimal incomplete games and incomplete games with defined upper vector. To answer the first question, for both classes, we provide a description of the set of 1-convex extensions in terms of its extreme points and extreme rays. Based on the description of the set of 1-convex extensions, we introduce generalisations of three solution concepts for complete games, namely the τ\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$\tau $$\end{document}-value, the Shapley value and the nucleolus. For minimal incomplete games, we show that all of the generalised values coincide. We call it the average value and provide different axiomatisations. For incomplete games with defined upper vector, we show that the generalised values do not coincide in general. This highlights the importance and also the difficulty of considering more general classes of incomplete games. (shrink)

Committee protocols typically involve a deliberation stage in which members try to influence and convince other regarding the “right” decision. Beyond information exchange, such deliberations also aim to affect the preferences and the votes of other members. Using a model of social influence, we demonstrate how deliberation procedures affect the voting outcome and how different protocols of consultation by committees’ chairs may affect their decisions. We then analyze the ability of a “designer” to control the deliberation protocol and to manipulate (...) the deliberation procedure to increase the probability that the outcome he favors will be selected. (shrink)

Using a standard trust game, we elicit trust and reciprocity measures in a representative sample of adult players in Montevideo, the capital city of Uruguay, a country that received a sizeable influx of Venezuelan and Cuban migrants, has lower internal disparities than other Latin American countries and exhibits relatively better levels of tolerance towards migrants. We find no statistically significant differences in trust levels of Uruguayans towards countrymen versus migrants and mixed results regarding reciprocity, with migrants exhibiting a flatter response (...) to trust than their local counterparts. (shrink)

Applying the solutions defined in the axiomatic bargaining theory to actual bargaining problems is a challenge when the problem is not described by its Utility Possibility Set (UPS) but as a social choice environment specifying the set of alternatives and utility profile underlying the UPS. It requires computing the UPS, which is an operational challenge, and then identifying at least one alternative that actually achieves the bargained solution’s outcome. We introduce the axioms of Independence of Non-Strongly-Efficient Alternatives (resp. Weakly) and (...) Independence of Redundant Alternatives. A solution satisfying these axioms can be applied to a simplified problem based on any reduced set of alternatives generating the strong (resp. weak) Pareto frontier of the initial problem, without changing the outcome, making the application of bargaining solutions to actual problems easier. We compare our axioms to usual independence axioms, and discuss their consistency with usual bargaining solutions. Then, we introduce monotonicity conditions corresponding to the existence of an interest group, i.e., agents ranking the alternatives in the same order. For such monotonic social choice environments, we provide a parameterized family of alternatives that generates the Pareto frontier of the bargaining problem, in line with our previous results. Our analysis illustrates that an axiomatic approach can be useful to foster the application of bargaining solutions, in complement to usual computational methods. (shrink)

The aim of this paper is to propose a preferences representation model where ambiguity attitudes can be exogenous events or past experience-dependent. We adapt the Recursive Smooth Ambiguity model proposed by Klibanoff (Journal of Economic Theory 144:930-976, 2009) by introducing past experience described by a sequence of neutral events occurring up to the moment of the decision. These neutral events do not provide any information on the true process, but are likely to strengthen or weaken the decision-maker’s ambiguity aversion degree (...) by modifying emotions. Our model can explain some observed behaviors and market inefficiencies. We propose two illustrations. First, we provide a behavioral explanation for the decrease in influenza vaccination in France that followed the H1N1 crisis in 2009–2010. Second, we contribute to the broad literature on the annuity puzzle by introducing the impact of emotions on ambiguity attitudes. (shrink)

We exploit the properties of homogeneous functions to characterize the symmetric pure-strategy Nash equilibria of n-player symmetric games in which each player’s revenue function is not homogeneous but it can be decomposed into the sum of homogeneous functions with different degrees of homogeneity. Our results aim to provide a pathway for an easy computation of symmetric equilibria for this type of games. We discuss our results in a Cournot game, a contest game, and a public good game.

For decades, discrete choice modelling was practically dominated by only two models: multinomial probit and logit. This paper presents a novel alternative—harmonic choice model. It is qualitatively similar to multinomial probit and logit: if one choice alternative greatly exceeds all (falls below at least one of) other alternatives in terms of utility then it is chosen with probability close to one (zero). Compared to probit and logit, the new model has relatively flat tails and it is steeper in the neighborhood (...) of zero (when all alternatives yield the same utility and the decision maker chooses among them at random). (shrink)

We study envy-free allocations in a many-to-many matching model with contracts in which agents on one side of the market (doctors) are endowed with substitutable choice functions and agents on the other side of the market (hospitals) are endowed with responsive preferences. Envy-freeness is a weakening of stability that allows blocking contracts involving a hospital with a vacant position and a doctor that does not envy any of the doctors that the hospital currently employs. We show that the set of (...) envy-free allocations has a lattice structure. Furthermore, we define a Tarski operator on this lattice and use it to model a vacancy chain dynamic process by which, starting from any envy-free allocation, a stable one is reached. (shrink)

While game theory has been transformative for decision making, the assumptions made can be overly restrictive in certain instances. In this work, we investigate some of the underlying assumptions of rationality, such as mutual consistency and best response, and consider ways to relax these assumptions using concepts from level-k reasoning and quantal response equilibrium (QRE) respectively. Specifically, we propose an information-theoretic two-parameter model called the quantal hierarchy model, which can relax both mutual consistency and best response while still approximating level-k, (...) QRE, or typical Nash equilibrium behavior in the limiting cases. The model is based on a recursive form of the variational free energy principle, representing higher-order reasoning as (pseudo) sequential decision-making in extensive-form game tree. This representation enables us to treat simultaneous games in a similar manner to sequential games, where reasoning resources deplete throughout the game-tree. Bounds in player processing abilities are captured as information costs, where future branches of reasoning are discounted, implying a hierarchy of players where lower-level players have fewer processing resources. We demonstrate the effectiveness of the quantal hierarchy model in several canonical economic games, both simultaneous and sequential, using out-of-sample modelling. (shrink)

We report the results of an experimental test of whether preaching the normative appeal of the sure-thing principle leads decision-makers to make choices that satisfy it. We use Allais-type decision problems to observe the incentive-compatible choices of 147 subjects, which either violate the sure-thing principle or adhere to it. Subjects are presented with normative arguments that support the counterfactual behaviour and then repeat their decisions. We observe violations of the sure-thing principle are robust to its normative justification. This result replicates (...) a famous small-sample observation using hypothetical tasks that was published by Paul Slovic and Amos Tversky almost half a century ago. We argue that this finding is as relevant now as it was then and that their design can be usefully applied to address contemporary issues in behavioural economics. (shrink)

We characterize general constraints under which rational choices are characterized by asymmetric revealed preferences. A key feature of our main characterization result is expressed by the leveling axiom. We also consider the special case of a law-abiding decision maker who chooses optimally among legal options. We show that the law does not necessarily satisfy the leveling axiom and, therefore, transitivity adds empirical content to law-abiding choices.

Normative-based distributional comparisons across countries and over time build upon the assumption that individuals are selfish. However, there is a consolidated evidence that individuals also care about what others have. In this paper, we propose a framework for comparing and ranking distributions that includes non-individualistic possibilities. Specifically, we consider ranking criteria that account, in one case, for the feeling of compassion and, in the other case, for the feeling of envy. These feelings are generated respectively by those having lower resources (...) and those having higher resources. We illustrate our framework using CNEF data for Australia, Korea, Germany, Switzerland, and the US and show that accounting for the presence of compassion and envy might lead to different welfare rankings. (shrink)

This article addresses the value of information that affects the ambiguity faced by a decision maker. Our analysis is applied to the case of a farmer whose production can be damaged by a pest attack with unknown probability, this damage being reduced if the farmer decides to use a pesticide. Early warning systems have precisely been implemented in many countries to help farmers avoid inappropriate decisions in terms of pesticide use. We investigate, both theoretically and experimentally, how farmers value these (...) systems. We propose a two-state self-insurance model in which an α\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$\alpha$$\end{document}-MaxMin Expected Utility farmer may use pesticides that reduce the loss in the accident state while incurring a cost in both states. Her decision to self-insure or not depends on risk and ambiguity attitudes. We compile and compare the value of two types of information leading to a reduction of ambiguity and analyze their properties with respect to ambiguity attitude. Both types of information are valued positively if the farmer is ambiguity averse. We conduct a framed field experiment in which farmers and agricultural students have to decide whether or not to apply pesticides depending on risk, ambiguity and the associated monetary gains resulting from pesticide cost. The experimental findings support the theory. The average value of information among all participants is between €0.9/ha and €3.3/ha depending on the information gain. (shrink)

There is a plurality of formal constraints for aggregating probabilities of a group of individuals. Different constraints characterise different families of aggregation rules. In this paper, we focus on the families of linear and geometric opinion pooling rules which consist in linear, respectively, geometric weighted averaging of the individuals’ probabilities. For these families, it is debated which weights exactly are to be chosen. By applying the results of the theory of meta-induction, we want to provide a general rationale, namely, optimality, (...) for choosing the weights in a success-based way by scoring rules. A major argument put forward against weighting by scoring is that these weights heavily depend on the chosen scoring rule. However, as we will show, the main condition for the optimality of meta-inductive weights is so general that it holds under most standard scoring rules, more precisely under all scoring rules that are based on a convex loss function. Therefore, whereas the exact choice of a scoring rule for weighted probability aggregation might depend on the respective purpose of such an aggregation, the epistemic rationale behind such a choice is generally valid. (shrink)

This paper generalizes the simple regret model by Bell in Operations Research 30(5), 961-981 and Loomes and Sugden in The Economic Journal 92(368), 805-824 to cope with the situation in which decision outcomes are multi-attributed. We propose a model that combines the simple regret model for ex ante preferences and the additive difference representation for ex post preferences. We first present a necessary and sufficient axiomatization of our model in Savage’s framework. The proposed model is composed of three types of (...) functions. One is a value function for each attribute. The others are attribute-dependent and holistic regret-rejoicing functions that capture trade-offs among value-differences of chosen and forgone outcomes for each attribute and among all attributes, respectively. We then provide constructive procedures for those functions and methods for consistency checks of the procedures. We, finally, conduct an experiment to estimate those functions in the two attributes case by means of the constructive procedure and give an application of the model and our findings. (shrink)

The precautionary principle justifies postponing the implementation of development projects to await better information about their environmental impacts. But if implementation capacity is congestible, as is often the case in practical settings, a postponed project may have to vie for implementation priority with projects that arrive later. Limitations of implementation capacity create two risks. First, it may sometimes not make sense to go back to a postponed project, even if it is later revealed to be a good one. Second, the (...) planner may find it worthwhile to go back to it, but at the expense of undesirable delay of subsequent projects. We consider a planner facing a sequence of projects that vary stochastically in their (1) importance and (2) improvability, but knowing that implementation capacity is congestible. The scope for congestion implies a ‘bonus’ for earlier-than-otherwise decisions, in common parlance ‘keeping the desk clear’, which works against the well-understood option value that encourages postponement. The optimal decision rule depends upon the stochastic environment whereby future projects are generated, in ways that are not obvious. The value of the bonus is increasing in the expected importance of future projects but decreasing in their expected improvability. Higher variability of the importance of projects, in the sense of mean-preserving spread, increases the size of the bonus, but variability in their improvability has a generally ambiguous impact. We characterize the adjusted decision rule and note its implications for the conduct of cost-benefit informed policy. (shrink)

We present a new axiomatization of the classical discounted expected utility model, which is primarily used as a decision model for consumption streams under risk. This new axiomatization characterizes discounted expected utility as a model that satisfies natural extensions of standard axioms as in the one-period case and two additional axioms. The first axiom is a weak form of time separability. It only requires that the choice between certain constant consumption streams and lotteries should be made by just taking into (...) account the time periods where the consumption is different. The second axiom, the time–probability equivalence, requires that risk and time preferences basically work in the same way. Moreover, we prove that preferences satisfying the natural extensions of the standard axioms as well as the first axiom can be represented in a simple form relying on three functions linked to the risk or time preferences in simple situations. Finally, we illustrate that several examples that are not fully time separable satisfy all our axioms except for the time–probability equivalence. (shrink)

This paper constructs a simple model of decision-making that accounts for the paradoxes of Ellsberg and Machina. It does so by representing decision makers’ beliefs on the vector space $${\mathbb{R}}\times {\mathbb{R}}$$ R × R and by providing a reasonable decision rule with axiomatic foundations. Moreover, the model allows for a characterization that clearly distinguishes between the two paradoxes. The interesting feature of the paper is that the ‘resolution’ of the paradoxes is along the lines suggested by the eponymous authors themselves. (...) This is to say, the decision rule derived from the axioms corresponds to Ellsberg’s own rule in the narrow set of circumstances that he explored, and the decision rule embodies Machina’s injunction that we treat choice under uncertainty in a similar manner to the way we treat standard consumer theory. That the paper cleaves to the advice of both authors is a little surprising given that it utilizes a two-dimensional vector space that neither author deployed. (shrink)

The degrees of belief of rational agents should be guided by the evidence available to them. This paper takes as a starting point the view—argued elsewhere—that the formal model best able to capture this idea is one that represents degrees of belief using Dempster–Shafer belief functions. However degrees of belief should not only respect evidence: they also guide decision and action. Whatever formal model of degrees of belief we adopt, we need a decision theory that works with it: that takes (...) as input degrees of belief so represented. The task of this paper is to develop such a decision theory for the belief function model of degrees of belief. This is not the first paper to attempt that task, but compared to the existing literature it takes a more abstract route to its destination, via a consideration of the very idea of rational decision making in light of one’s beliefs and desires. After presenting the new decision theory and comparing it to existing views, the paper goes on to consider diachronic decision situations. (shrink)

Afacan (Games and Economic Behavior 110: 71-89, 2018) introduces an object allocation with random priorities problem. He proposes the constrained probabilistic serial (CPS) mechanism. This study, for the first time in the literature, provides axiomatic characterizations of CPS. The first result characterizes it via non-wastefulness, claimwise stability, constrained ordinal fairness, and surplus invariance to truncations. The other axiomatizes CPS via constrained stochastic efficiency, claimwise stability, and constrained ordinal fairness. The independence of the axioms is provided.

In this paper, we use the risk apportionment technique of Eeckhoudt, Rey and Schlesinger (2007) to study higher order risk preferences for others’ health as well as ex-ante and ex-post inequality preferences for social risky distributions, and their interaction. In an experiment on a sample of university students acting as impartial spectators, we observe risk aversion towards social health losses and a dislike of ex-ante inequality. In addition, evidence for ex-post inequality seeking is much weaker than evidence for ex-ante inequality (...) aversion. Because ex-ante inequality aversion is unrelated to risk aversion, we conclude that simple forms of utilitarianism are not relevant for individual judgment of social risk over health. Last, our investigation of precautionary distribution, which would occur when one particular group in the society suffers from background health risk, shows substantial polarization of preferences. (shrink)

We report the results of an experiment on how individual risk taking clusters together when subjects are informed of peers’ previous risk taking decisions. Subjects are asked how much of their endowment they wish to allocate in a lottery in which there is a 50% chance the amount they invest will be tripled and a 50% chance their investment will be lost. We use a 2 × 2 factorial design varying: (i) whether the subjects initially observed high or low investment (...) social anchors, (ii) whether information about the investment decisions of other subjects in their social group is provided. We find strong evidence that individuals' risk taking decisions are malleable to that of their peers, which in turn leads to social clustering of risk taking. Social anchors shape initial risk taking, with mean investment then converging to a high level across treatments. (shrink)

Using a laboratory experiment, we examine whether voluntary sanctions induce subjects to coordinate more efficiently in a repeated minimum-effort game. While most groups first experience Pareto inferior coordination in a baseline treatment, the level of effort increases substantially once ex post sanctioning opportunities are introduced, that is, when one can assign costly punishment points to other group members to reduce their payoffs. We compare the effect of this voluntary punishment possibility with the effect of ex post costless communication, which in (...) contrast to the punishment treatment increases efforts only temporarily and fails to bring the players to higher payoff equilibria permanently. Our results indicate that decentralized sanctions can play an important role as a coordination device in Pareto-ranked coordination settings. They also suggest that the motivations behind voluntary sanctions may be more general than usually put forth in the literature on cooperation games. (shrink)

We study the strategic interactions within testing in a model of political agency. A principal decides between convicting and acquitting an agent of unknown innocence based on a noisy signal that is manipulable by the agent’s unobserved actions. We identify conditions under which the principal sets a threshold conviction strategy in the form of “beyond a reasonable doubt.” We show that, in spite of strategic concerns, the amount of information that a principal can glean from the test is entirely determined (...) by the threshold; in equilibrium, the threshold is set where the signal realization conveys just enough information to validate a conviction. As such, the game of testing is analytically equivalent to the principal’s statistical inference problem. We next examine how exogenous shocks on preference parameters affect the principal’s equilibrium threshold and welfare. In general, the principal benefits from being better at distinguishing types; whether she should increase or decrease the threshold depends crucially on whether the agent’s distribution of signals varies with types in the absence of manipulation. (shrink)

Problems of cooperation have often been simplified as the choice between defection and cooperation, although in many empirical situations it is also possible to walk away from the interaction. We present the results of two lab-in-the-field experiments with a diverse pool of subjects who play optional and compulsory public goods games both with and without punishment. We find that the most important institution to foster cooperation is punishment, which is more effective in a compulsory game. In contrast to Rand and (...) Nowak (Nat Commun 2(1):1–7, 2011), we find that loners are not responsible for anti-social punishment, which is mostly imputable to low-contributors (free-riders). Loners neither totally free-ride nor they significantly punish cooperators (or other types of players): they simply avoid all forms of participation whenever possible. (shrink)

The first-order condition of the Nash bargaining solution equates the ratio of utilities to the ratio of marginal utilities. It turns out that this common ratio plays a role in determining whether the Nash solution, roughly speaking, is “more utilitarian” or “more egalitarian.” More specifically, I propose a sense of proximity to utilitarianism and/or egalitarianism according to which, in bargaining problems with distinct utilitarian and egalitarian points, the Nash solution is closer to utilitarianism if the aforementioned ratio is smaller than (...) one, and closer to egalitarianism if that ratio is greater than one. (shrink)

This paper explores the concept of a social evaluation functional in the case of an arbitrary set of alternatives. In the first part, a characterization of projective social evaluations functionals is shown whenever the common restricted domain is the set of all bounded utility functions equipped with the supremum norm topology. The result makes a crucial use, among others, of a continuity axiom. In the second part, a comparison meaningful property is introduced for a social evaluation functional which allows us (...) for obtaining a more general result with no continuity requirements. Finally, an impossibility theorem, which is reminiscent of that is obtained by Chichilnisky in (Q J Econ 97:337–352, 1982) but without using topological conditions, is offered. (shrink)

In 1981, the property of self-supporting preferences was shown to be a sufficient condition to circumvent Sen’s famous impossibility result on Paretian liberalism. A similar condition was proposed by Dougherty and Edward in a very recent issue of this journal. The present comment sheds light on the logical connection between these two findings.

We propose a solution concept for games that are played among players with present-biased preferences that are possibly naive about their own, or about their opponent’s future time inconsistency. Our perception-perfect outcome essentially requires each player to take an action consistent with the subgame perfect equilibrium, given her perceptions concerning future types, and under the assumption that other present and future players have the same perceptions. Applications include a common pool problem and Rubinstein bargaining. When players are naive about their (...) own time inconsistency and sophisticated about their opponent’s, the common pool problem is exacerbated, and Rubinstein bargaining breaks down completely. (shrink)

We introduce possibilistic beliefs into strategic games, describing a player’s belief about his opponents’ strategies as the set of their strategies he regards as possible. We formulate possibilistic strategic games where each player has preferences over his own strategies conditional on his possibilistic belief about his opponents’ strategies. We define several solution concepts for possibilistic strategic games such as (strict) equilibria, rationalizable sets, iterated elimination of never-best responses, and iterated elimination of strictly dominated strategies, and we study their properties and (...) relationships. We develop a class of possibilistic strategic games called possibilistic supermodular games to relate supermodular games to possibilistic strategic games. Lastly, we discuss a direction of extending our possibilistic framework to games with incomplete information. (shrink)

In this paper, we analyse higher-order risky choices by the representative cumulative prospect theory (CPT) decision maker from three alternative reference points. These are the status quo, average payout and maxmin. The choice tasks we consider in our analysis include binary risks, and are the ones employed in the experimental literature on higher order risk preferences. We demonstrate that the choices made by the representative subject depend on the reference point. If the reference point is the status quo and the (...) lottery choices exhibit symmetric risk, we demonstrate that there is no third order reflection effect of lottery choices but there is a fourth order reflection effect. When the average payout is the reference point, we demonstrate that any third or fourth order lottery choice is possible dependent upon the lottery payoffs. However, under the assumption of maxmin reference point, the risky choices are prudent and temperate. In addition to these results, our analysis reveals that the representative CPT subject can choose combinations of second with third and fourth order risky options that differ from those in other major models of decision under risk. We contrast our theoretical predictions with the empirical results reported in the literature on higher order risk preferences and are able to reconcile some conflicting experimental evidence. (shrink)

This paper provides evidence for the following novel insights: (1) People’s economic decisions depend on their psychological motives, which are shaped predictably by the social context. (2) In particular, the social context influences people’s other-regarding preferences, their beliefs and their perceptions. (3) The influence of the social context on psychological motives can be measured experimentally by priming two antagonistic motives—care and anger—in one player towards another by means of an observance or a violation of a fairness norm. Using a mediation (...) approach, we find that the care motive leads to higher levels of cooperation which are driven by more optimistic beliefs, a different perception of the game as well as by a shift towards more pro-social preferences. (shrink)

We study a multilateral bargaining problem, where the buyer intends to purchase a subset of available items, each owned by a seller. The subset purchased must satisfy a notion of contiguity, which is modeled using graphs. The graph theoretic approach allows us to study different degrees of complementarity and substitutability between items. It also allows us to examine how degrees of complementarity and substitutability affect the share of surplus obtained by the buyer in the equilibrium of the bargaining game. We (...) characterize necessary and sufficient conditions on the graphs for the buyer to extract full surplus in subgame perfect equilibrium. When the conditions are not met, we provide upper bounds on the equilibrium surplus share of the buyer. (shrink)

We consider two scenarios of the Hotelling–Downs model of spatial competition. This setting has typically been explored using pure Nash equilibrium, but this paper uses point rationalizability (Bernheim, Econometrica J Economet Soc 52(4):1007–1028, 1984) instead. Pure Nash equilibrium imposes a correct beliefs assumption, which may rule out perfectly reasonable choices in a game. Point rationalizability does not have this correct beliefs assumption, which makes this solution concept more natural and permissive. The first scenario is the original Hotelling–Downs model with an (...) arbitrary number of agents. Eaton and Lipsey (Rev Econ Stud 42(1):27–49, 1975) used pure Nash equilibrium as their solution concept for this setting. They showed that with three agents, there does not exist a pure Nash equilibrium. We characterize the set of point rationalizable choices for any number of agents and show that as the number of agents increases, the set of point rationalizable choices increases as well. In the second scenario, agents have limited attraction intervals (Feldman et al. Variations on the Hotelling–Downs model. In: Thirtieth AAAI Conference on Artificial Intelligence, pp 496–501, 2016). We show that the set of point rationalizable choices does not depend on the number of agents, apart from this number being odd or even. Furthermore, the set of point rationalizable choices shrinks as the attraction interval increases. (shrink)

There exists psychological evidence that consumers do not consider all available items in the market, which can lead to the “more-is-less” effect, a phenomenon where having more options causes a welfare reduction (Llears et al. in J Econ Theory 170:70–85, 2017). Under this more-is-less effect, we face a dilemma that adding new opportunities may both improve and worsen individual well-being. This study proposes a hypothesis that “more is always better,” which implies that adding new opportunities cannot worsen individual well-being, is (...) a bias to which moral heuristics leads. A satisfactory resolution of this dilemma is act-consequentialism over menus, which is an ex-post and third-party evaluation of opportunity sets. We provide an axiomatic foundation for act-consequentialism over menus and apply it to policymakers’ menu-providing policies. (shrink)

This paper theoretically and experimentally investigates the behavior of asymmetric players in guessing games. The asymmetry is created by introducing r>1\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$r>1$$\end{document} replicas of one of the players. Two-player and restricted N-player cases are examined in detail. Based on the model parameters, the equilibrium is either unique in which all players choose zero or mixed in which the weak player (r=1\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$r=1$$\end{document}) imitates the strong (...) player (r>1\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$r>1$$\end{document}). A series of experiments involving two and three-player repeated guessing games with unique equilibrium is conducted. We find that equilibrium behavior is observed less frequently and overall choices are farther from the equilibrium in two-player asymmetric games in contrast to symmetric games, but this is not the case in three-player games. Convergence towards equilibrium exists in all cases but asymmetry slows down the speed of convergence to the equilibrium in two, but not in three-player games. Furthermore, the strong players have a slight earning advantage over the weak players, and asymmetry increases the discrepancy in choices (defined as the squared distance of choices from the winning number) in both games. (shrink)

In the spirit of Von Neumann and Morgenstern (Theory of games and economic behavior, Princeton University Press, Princeton, 1944), we introduce a notion of network stability. We study the structure of stable economic networks and their associated stable payoff allocations by analyzing the conditions under which complete networks and star networks (both with desirable property of inclusiveness) are stable. We also address conditions for existence and uniqueness of stable set of networks.

In the theoretical description of prospect theory, distinct sets of parameters can control the curvature of the value function and the shape of the probability weighting function. There is one for the gain domain and one for the loss domain. However, in most estimations, behaviour over losses is assumed to perfectly reflect behaviour over gains, through a unique set of parameters. We examine the consequences of relaxing this simplifying assumption in the context of Tanaka et al.’s (Am Econ Rev 100(1):557–571, (...) 2010) risk-elicitation procedure based on multiple price lists. We show that subjects’ behaviour for gains is mostly reflected for losses at the aggregate and individual levels, and is consistent with the distinctive prospect theory fourfold pattern. Reflection is only partial as the mean curvature of the value function is slightly less convex for losses than it is concave for gains. These results are robust to a high-stake context. However, we demonstrate that assuming reflection can have huge consequences on loss-aversion measures. Incidentally, we also highlight the existence of a strong, negative and persistent pure loss-frame effect on elicited loss aversion. We recommend that future practitioners and modellers are particularly cautious about the loss-aversion values they obtain or use because these are especially sensitive to parametric assumptions and framing. (shrink)

The Two Envelopes Problem is a beautiful and quite confusing problem in decision theory which is ca. 35 years old and has provoked at least 150 papers directly addressing the problem and displaying a surprising variety of different responses. This paper finds decisive progress in an approach of Priest and Restall in 2003, contends that the recent papers having appeared since did not really go beyond that paper, argues further that Priest’s and Restall’s solution is still not complete, and proposes (...) a completion of their solution. If the analysis is correct, this work has the potential of laying the Two Envelopes Problem at rest. (shrink)

Research in recent years suggests that fairness concerns could mitigate hold-up problems. In this study, we report theoretical analysis and experimental evidence on an opposite possibility: that fairness concerns could also induce hold-up problems. In our setup, hold-up problems will not occur with purely self-interested agents, but theoretically could be induced by demand for distributional fairness among agents without sufficiently strong counteracting factors such as intention-based reciprocity. We observe a widespread occurrence of hold-up in our experiment. Relationship-specific investments occurred less (...) than half of the time, resulting in significant inefficiencies. Moreover, whenever a relationship-specific investment was made: (a) it was typically not reciprocated by the partner; (b) nor did the investor’s offers at the bargaining stage exhibit expectations for reciprocity. Consequently, the partner extracted all the additional expected payoff from relationship-specific investments. Further experimentation suggested that our results were driven by a fundamental lack of intention-based reciprocity in fairness concerns, rather than self-serving bias. (shrink)

Contemporary theories of deterrence place a strong emphasis on coherency between model and theory. Schelling’s contention of irrational threats for successful deterrence abandons the rationality assumption to explain how a player can deter, thereby departing from the standard game theoretic solution concepts. It is a misfit model in relation to a deterrence theory and, therefore, excluded. The article defends and remodels Schelling’s intuition by employing the level-k model. It is shown that an unsophisticated player that randomizes over its strategies brings (...) about an advantageous outcome. The model also shows that the belief that a player randomizes has the same deterrent effect, as an actual stochastic choice, like Schelling suggested. While this means Schelling’s idea can be saved, it is still problematic how we should view contributions of bounded rationality in relation to current deterrence theory. The article suggests that separating the purpose of a model in conjunction with allowing other scientific ideals than model-theory coherence permits a broader and philosophically sounder approach. (shrink)

Third-party punishment (TPP) has been shown to be an effective mechanism for maintaining human cooperation. However, it is puzzling how third-party punishment can be maintained, as punishers take on personal costs to punish defectors. Although there is evidence that punishers are preferred as partners because third-party punishment is regarded by bystanders as a costly signal of trustworthiness, other studies show that this signaling value of punishment can be severely attenuated because third-party helping is viewed as a stronger signal of trustworthiness (...) than third-party punishment. Third-party helpers donate their payoffs to victims of defection in games instead of punishing defectors as third-party punishers do. Then, under what circumstances can third-party punishment be maintained by costly signaling when helping is also present? We show that punishers are preferred over helpers by fourth-party individuals as their delegates to deter potential exploitation. This suggests that costly signaling can facilitate the maintenance of third-party punishment in partner choice with delegation interactions. (shrink)