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- Asymptotic size (6)
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- Robust implementation (4)
- Size correction (4)
- B < n bootstrap (3)
- Ex post equilibrium (3)
- Strategic market games (3)
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- Subsample test (3)
- Virtual implementation (3)
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- Bias reduction (2)
- Boom (2)
- Bubble (2)
- Confidence set (2)
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- Cyclical monotonicity (2)
- Endogenous risk perception (2)
- Ex-post incentive compatibility (2)
- Exact size (2)
- General equilibrium (2)
- Home prices (2)
- Hybrid test (2)
- Indirect inference (2)
- Insurance (2)
- Laboratory experiments (2)
Articles 1 - 30 of 45
Full-Text Articles in Economics
Affective Decision Making: A Behavioral Theory Of Choice, Anat Bracha, Donald J. Brown
Affective Decision Making: A Behavioral Theory Of Choice, Anat Bracha, Donald J. Brown
Cowles Foundation Discussion Papers
Affective decision-making is a strategic model of choice under risk and uncertainty where we posit two cognitive processes — the “rational” and the “emotional” process. Observed choice is the result of equilibirum in this intrapersonal game. As an example, we present applications of affective decision-making in insurance markets, where the risk perceptions of consumers are endogenous. We then derive the axiomatic foundation of affective decision making, and show that, although beliefs are endogenous, not every pattern of behavior is possible under affective decision making.
Affective Decision Making: A Behavioral Theory Of Choice, Anat Bracha, Donald J. Brown
Affective Decision Making: A Behavioral Theory Of Choice, Anat Bracha, Donald J. Brown
Cowles Foundation Discussion Papers
Affective decision-making (ADM) is a refutable and predictive theory of individual choice under risk and uncertainty. It generalizes expected utility theory by positing the existence of two cognitive processes — the “rational” and the “emotional” process. Observed choice is the result of their simultaneous interaction. We present a model of affective choice in insurance markets, where risk perceptions are endogenous.
Inference For Parameters Defined By Moment Inequalities Using Generalized Moment Selection, Donald W.K. Andrews, Patrik Guggenberger
Inference For Parameters Defined By Moment Inequalities Using Generalized Moment Selection, Donald W.K. Andrews, Patrik Guggenberger
Cowles Foundation Discussion Papers
The topic of this paper is inference in models in which parameters are defined by moment inequalities and/or equalities. The parameters may or may not be identified. This paper introduces a new class of confidence sets and tests based on generalized moment selection (GMS). GMS procedures are shown to have correct asymptotic size in a uniform sense and are shown not to be asymptotically conservative. The power of GMS tests is compared to that of subsampling, m out of n bootstrap, and “plug-in asymptotic” (PA) tests. The latter three procedures are the only general procedures in the literature that have …
Low Interest Rates And High Asset Prices: An Interpretation In Terms Of Changing Popular Models, Robert J. Shiller
Low Interest Rates And High Asset Prices: An Interpretation In Terms Of Changing Popular Models, Robert J. Shiller
Cowles Foundation Discussion Papers
There has been a widespread perception in the past few years that long-term asset prices are generally high because monetary authorities have effectively kept long-term interest rates, which the market uses to discount cash flows, low. This perception is not accurate. Long-term interest rates have not been especially low. What has changed to produce high asset prices appears instead to be changes in popular economic models that people actually rely on when valuing assets. The public has mostly forgotten the concept of “real interest rate.” Money illusion appears to be an important factor to consider.
Pricing Without Priors, Dirk Bergemann, Karl Schlag
Pricing Without Priors, Dirk Bergemann, Karl Schlag
Cowles Foundation Discussion Papers
We consider the problem of pricing a single object when the seller has only minimal information about the true valuation of the buyer. Specifically, the seller only knows the support of the possible valuations and has no further distributional information. The seller is solving this choice problem under uncertainty by minimizing her regret. The pricing policy hedges against uncertainty by randomizing over a range of prices. The support of the pricing policy is bounded away from zero. Buyers with low valuations cannot generate substantial regret and are priced out of the market. We generalize the pricing policy without priors to …
On Rate Optimality For Ill-Posed Inverse Problems In Econometrics, Xiaohong Chen, Markus Reiss
On Rate Optimality For Ill-Posed Inverse Problems In Econometrics, Xiaohong Chen, Markus Reiss
Cowles Foundation Discussion Papers
In this paper, we clarify the relations between the existing sets of regularity conditions for convergence rates of nonparametric indirect regression (NPIR) and nonparametric instrumental variables (NPIV) regression models. We establish minimax risk lower bounds in mean integrated squared error loss for the NPIR and the NPIV models under two basic regularity conditions that allow for both mildly ill-posed and severely ill-posed cases. We show that both a simple projection estimator for the NPIR model, and a sieve minimum distance estimator for the NPIV model, can achieve the minimax risk lower bounds, and are rate-optimal uniformly over a large class …
Belief Free Incomplete Information Games, Dirk Bergemann, Stephen Morris
Belief Free Incomplete Information Games, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
We consider the following belief free solution concepts for games with incomplete information: (i) incomplete information rationalizability, (ii) incomplete information correlated equilibrium and (iii) ex post equilibrium. We present epistemic foundations for these solution concepts and establish relationships between them. The properties of these solution concepts are further developed in supermodular games and potential games.
Collective Reputation, Professional Regulation And Franchising, Robert Evans, Timothy W. Guinnane
Collective Reputation, Professional Regulation And Franchising, Robert Evans, Timothy W. Guinnane
Cowles Foundation Discussion Papers
Collective reputation and its associated free-rider problem have been invoked to justify state licensing of professions and to explain the incidence of franchising. We examine the conditions under which it is possible to create a Pareto-improving collective reputation among groups of heterogeneous producers. If the regulator or franchisor cannot credibly commit to high quality then a common reputation can be created only if the groups are not too different and if marginal cost is declining. High cost groups benefit most from forming a common regime.
The Role Of The Common Prior In Robust Implementation, Dirk Bergemann, Stephen Morris
The Role Of The Common Prior In Robust Implementation, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
We consider the role of the common prior for robust implementation in an environment with interdependent values. Specifically, we investigate a model of public good provision which allows for negative and positive informational externalities. In the corresponding direct mechanism, the agents’ reporting strategies are strategic complements with negative informational externalities and strategic substitutes with positive informational externalities. We derive the necessary and sufficient conditions for robust implementation in common prior type spaces and contrast this with our earlier results without the common prior. In the case of strategic complements the necessary and sufficient conditions for robust implementation do not depend …
Understanding Recent Trends In House Prices And Home Ownership, Robert J. Shiller
Understanding Recent Trends In House Prices And Home Ownership, Robert J. Shiller
Cowles Foundation Discussion Papers
This paper looks at a broad array of evidence concerning the recent boom in home prices, and considers what this means for future home prices and the economy. It does not appear possible to explain the boom in terms of fundamentals such as rents or construction costs. A psychological theory, that represents the boom as taking place because of a feedback mechanism or social epidemic that encourages a view of housing as an important investment opportunity, fits the evidence better. Three case studies of past booms are considered for comparison: the US housing boom of 1950, the US farmland boom …
Probabilistic Sophistication And Stochastic Monotonicity In The Savage Framework, Simon Grant, Hatice Ozsoy, Ben Polak
Probabilistic Sophistication And Stochastic Monotonicity In The Savage Framework, Simon Grant, Hatice Ozsoy, Ben Polak
Cowles Foundation Discussion Papers
Machina and Schmeidler (1992) show that probabilistic sophistication can be obtained in a Savage setting without imposing expected utility by dropping Savage’s axiom P2 (sure-thing principle) and strengthening his axiom P4 (weak comparative probability). Their stronger axiom, however, embodies a degree of separability analogous to P2. In this note, we obtain probabilistic sophistication using Savage’s original axiom P4 and a weaker analog of Savage’s P2.
An Economy With Personal Currency: Theory And Experimental Evidence, Martin Angerer, Juergen Huber, Martin Shubik, Shyam Sunder
An Economy With Personal Currency: Theory And Experimental Evidence, Martin Angerer, Juergen Huber, Martin Shubik, Shyam Sunder
Cowles Foundation Discussion Papers
Is personal currency issued by participants sufficient to operate an economy efficiently, with no outside or government money? Sahi and Yao (1989) and Sorin (1996) constructed a strategic market game to prove that this is possible. We conduct an experimental game in which each agent issues her personal IOUs, and a costless efficient clearinghouse adjusts the exchange rates among them so the markets always clear. The results suggest that if the information system and clearing are so good as to preclude moral hazard, any form of information asymmetry, and need for trust, the economy operates efficiently at any price level …
Three Minimal Market Institutions With Human And Algorithmic Agents: Theory And Experimental Evidence, Juergen Huber, Martin Shubik, Shyam Sunder
Three Minimal Market Institutions With Human And Algorithmic Agents: Theory And Experimental Evidence, Juergen Huber, Martin Shubik, Shyam Sunder
Cowles Foundation Discussion Papers
We define and examine the performance of three minimal strategic market games (sell-all, buy-sell, and double auction) in laboratory relative to the predictions of theory. Unlike open or partial equilibrium settings of most other experiments, these closed exchange economies have limited amounts of cash to facilitate transactions and include feedback. General equilibrium theory, since it abstracts away from market mechanisms and has no role for money or credit, makes no predictions about how the paths of convergence to the competitive equilibrium may differ across alternative mechanisms. Introduction of markets and money as carriers of process creates the possibility of motion. …
Three Minimal Market Institutions With Human And Algorithmic Agents: Theory And Experimental Evidence, Juergen Huber, Martin Shubik, Shyam Sunder
Three Minimal Market Institutions With Human And Algorithmic Agents: Theory And Experimental Evidence, Juergen Huber, Martin Shubik, Shyam Sunder
Cowles Foundation Discussion Papers
We define and examine three minimal market games (sell-all, buy-sell, and double auction) in the laboratory relative to the predictions of theory. These closed exchange economies have some cash to facilitate transactions, and include feedback. The experiment reveals that (1) the competitive general equilibrium (CGE) and non-cooperative (NCE) models are reasonable anchors to locate most but not all the observed outcomes of the three market mechanisms; (2) outcomes tend to get closer to CGE predictions as the number of players increases; (3) prices and allocations in double auctions deviate persistently from CGE predictions; (4) the outcome paths across the three …
Reputation Effects And Equilibrium Degeneracy In Continuous-Time Games, Eduardo Faingold, Yuliy Sannikov
Reputation Effects And Equilibrium Degeneracy In Continuous-Time Games, Eduardo Faingold, Yuliy Sannikov
Cowles Foundation Discussion Papers
We study a class of continuous-time reputation games between a large player and a population of small players in which the actions of the large player are imperfectly observable. The large player is either a normal type, who behaves strategically, or a behavioral type, who is committed to playing a certain strategy. We provide a complete characterization of the set of sequential equilibrium payoffs of the large player using an ordinary differential equation. In addition, we identify a sufficient condition for the sequential equilibrium to be unique and Markovian in the small players’ posterior belief. An implication of our characterization …
Alfred Marshall's Cardinal Theory Of Value: The Strong Law Of Demand, Donald J. Brown, Caterina Calsamiglia
Alfred Marshall's Cardinal Theory Of Value: The Strong Law Of Demand, Donald J. Brown, Caterina Calsamiglia
Cowles Foundation Discussion Papers
We show that all the fundamental properties of competitive equilibrium in Marshall’s cardinal theory of value, as presented in Note XXI of the mathematical appendix to his Principles of Economics (1890), derive from the Strong Law of Demand. That is, existence, uniqueness, optimality, and global stability of equilibrium prices with respect to tatonnement price adjustment follow from the cyclical monotonicity of the market demand function in the Marshallian general equilibrium model.
Dynamic Marginal Contribution Mechanism, Dirk Bergemann, Juuso Välimäki
Dynamic Marginal Contribution Mechanism, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
We consider truthful implementation of the socially efficient allocation in a dynamic private value environment in which agents receive private information over time. We propose a suitable generalization of the Vickrey-Clarke-Groves mechanism, based on the marginal contribution of each agent. In the marginal contribution mechanism, the ex post incentive and ex post participations constraints are satisfied for all agents after all histories. It is the unique mechanism satisfying ex post incentive, ex post participation and efficient exit conditions. We develop the marginal contribution mechanism in detail for a sequential auction of a single object in which each bidders learn over …
Information Acquisition In Interdependent Value Auctions, Dirk Bergemann, Xianwen Shi, Juuso Välimäki
Information Acquisition In Interdependent Value Auctions, Dirk Bergemann, Xianwen Shi, Juuso Välimäki
Cowles Foundation Discussion Papers
We consider an auction environment with interdependent values. Each bidder can learn her payoff type through costly information acquisition. We contrast the socially optimal decision to acquire information with the equilibrium solution in which each agent has to privately bear the cost of information acquisition. In the context of the generalized Vickrey-Clarke-Groves mechanism, we establish that the equilibrium level exceeds the socially optimal level of information with positive interdependence. The individual decisions to acquire information are strategic substitutes. The difference between the equilibrium and the efficient level of information acquisition is increasing in the interdependence of the bidders’ valuations and …
United States Courts And The Optimal Deterrence Of International Cartels: A Welfarist Perspective On Empagran, Alan O. Sykes
United States Courts And The Optimal Deterrence Of International Cartels: A Welfarist Perspective On Empagran, Alan O. Sykes
Cowles Foundation Discussion Papers
E. Hoffmann-La Roche Ltd. v. Empagran S.A. concerned a private antitrust suit for damages against a global vitamins cartel. The central issue in the litigation was whether foreign plaintiffs injured by the cartel’s conduct abroad could bring suit in U.S. court, an issue that was ultimately resolved in the negative. We take a welfarist perspective on this issue and inquire whether optimal deterrence requires U.S. courts to take subject matter jurisdiction under U.S. law for claims such as those in Empagran. Our analysis considers, in particular, the arguments of various economist amici in favor of jurisdiction and arguments of the …
Marshall's Theory Of Value And The Strong Law Of Demand, Caterina Calsamiglia
Marshall's Theory Of Value And The Strong Law Of Demand, Caterina Calsamiglia
Cowles Foundation Discussion Papers
We show that all the fundamental properties of competitive equilibrium in Marshall’s theory of value, as presented in Note XXI of the mathematical appendix to his Principles of Economics (1890), derive from the Strong Law of Demand. This is, existence, uniqueness, optimality, global stability of equilibrium prices with respect to tantonnement price adjustment and refutability follow from the cyclical monotonicity of the market demand function in the Marshallian general equilibrium model.
The Basic Public Finance Of Public-Private Partnerships, Eduardo Engel, Ronald Fischer, Alexander Galetovic
The Basic Public Finance Of Public-Private Partnerships, Eduardo Engel, Ronald Fischer, Alexander Galetovic
Cowles Foundation Discussion Papers
Public-private partnerships (PPPs) have been justified because they release public funds or save on distortionary taxes. However, the resources saved by a government that does not finance the upfront investment are offset by giving up future revenue flows to the concessionaire. If a PPP can be justified on efficiency grounds, the PPP contract that optimally balances demand risk, userfee distortions and the opportunity cost of public funds has a minimum revenue guarantee and a revenue cap. The optimal contract can be implemented via a competitive auction with reasonable informational requirements. The optimal revenue guarantees, revenue sharing agreements and auction mechanisms …
Validity Of Subsampling And ‘Plug-In Asymptotic’ Inference For Parameters Defined By Moment Inequalities, Donald W.K. Andrews, Patrik Guggenberger
Validity Of Subsampling And ‘Plug-In Asymptotic’ Inference For Parameters Defined By Moment Inequalities, Donald W.K. Andrews, Patrik Guggenberger
Cowles Foundation Discussion Papers
This paper considers inference for parameters defined by moment inequalities and equalities. The parameters need not be identified. For a specified class of test statistics, this paper establishes the uniform asymptotic validity of subsampling, m out of n bootstrap, and “plug-in asymptotic” tests and confidence intervals for such parameters. Establishing uniform asymptotic validity is crucial in moment inequality problems because the test statistics of interest have discontinuities in their pointwise asymptotic distributions. The size results are quite general because they hold without specifying the particular form of the moment conditions — only 2 + δ moments finite are required. The …
Long Run Covariance Matrices For Fractionally Integrated Processes, Peter C.B. Phillips, Chang Sik Kim
Long Run Covariance Matrices For Fractionally Integrated Processes, Peter C.B. Phillips, Chang Sik Kim
Cowles Foundation Discussion Papers
An asymptotic expansion is given for the autocovariance matrix of a vector of stationary long-memory processes with memory parameters d satisfying 0 < d < 1/2. The theory is then applied to deliver formulae for the long run covariance matrices of multivariate time series with long memory.
Exact Distribution Theory In Structural Estimation With An Identity, Peter C.B. Phillips
Exact Distribution Theory In Structural Estimation With An Identity, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Some exact distribution theory is developed for structural equation models with and without identities. The theory includes LIML, IV and OLS. We relate the new results to earlier studies in the literature, including the pioneering work of Bergstrom (1962). General IV exact distribution formulae for a structural equation model without an identity are shown to apply also to models with an identity by specializing along a certain asymptotic parameter sequence. Some of the new exact results are obtained by means of a uniform asymptotic expansion. An interesting consequence of the new theory is that the uniform asymptotic approximation provides the …
Limit Theory For Explosively Cointegrated Systems, Peter C.B. Phillips, Tassos Magdalinos
Limit Theory For Explosively Cointegrated Systems, Peter C.B. Phillips, Tassos Magdalinos
Cowles Foundation Discussion Papers
A limit theory is developed for multivariate regression in an explosive cointegrated system. The asymptotic behavior of the least squares estimator of the cointegrating coefficients is found to depend upon the precise relationship between the explosive regressors. When the eigenvalues of the autoregressive matrix are distinct, the centered least squares estimator has an exponential rate of convergence and a mixed normal limit distribution. No central limit theory is applicable here and Gaussian innovations are assumed. On the other hand, when some regressors exhibit common explosive behavior, a different mixed normal limiting distribution is derived with rate of convergence reduced to …
Strategic Distinguishability And Robust Virtual Implementation, Dirk Bergemann, Stephen Morris
Strategic Distinguishability And Robust Virtual Implementation, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
In a general interdependent preference environment, we characterize when two payoff types can be distinguished by their rationalizable strategic choices without any prior knowledge of their beliefs and higher order beliefs. We show that two types are strategically distinguishable if and only if they satisfy a separability condition. The separability condition for each agent essentially requires that there is not too much interdependence in preferences across agents. A social choice function — mapping payoff type profiles to outcomes — can be robustly virtually implemented if there exists a mechanism such that every equilibrium on every type space achieves an outcome …
Strategic Distinguishability With An Application To Robust Virtual Implementation, Dirk Bergemann, Stephen Morris
Strategic Distinguishability With An Application To Robust Virtual Implementation, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
In a general interdependent preference environment, we characterize when two payoff types can be distinguished by their rationalizable strategic choices without any prior knowledge of their beliefs and higher order beliefs. We show that two types are strategically distinguishable if and only if they satisfy a separability condition. The separability condition for each agent essentially requires that there is not too much interdependence in preferences across agents. A social choice function — mapping payoff type profiles to outcomes — can be robustly virtually implemented if there exists a mechanism such that every equilibrium on every type space achieves an outcome …
Robust Virtual Implementation, Dirk Bergemann, Stephen Morris
Robust Virtual Implementation, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
In a general interdependent preference environment, we characterize when two payoff types can be distinguished by their rationalizable strategic choices without any prior knowledge of their beliefs and higher order beliefs. We show that two payoff types are strategically distinguishable if and only if they satisfy a separability condition. The separability condition for each agent essentially requires that there is not too much interdependence in preferences across agents. A social choice function — mapping payoff type profiles to outcomes — can be robustly virtually implemented if there exists a mechanism such that every equilibrium on every type space achieves an …
Historic Turning Points In Real Estate, Robert J. Shiller
Historic Turning Points In Real Estate, Robert J. Shiller
Cowles Foundation Discussion Papers
This paper looks for markers of ends of real estate booms or busts. The changes in market psychology and related indicators that occurred at real estate market turning points in the United States since the 1980s are compared with changes at turning points in the more distant past. In all these episodes changes in an atmosphere of optimism about the future course of home prices, changes in public interpretation of the boom, as well as evidence of supply response to the high prices of a boom, are noted.
Tilted Nonparametric Estimation Of Volatility Functions With Empirical Applications, Peter C.B. Phillips, Ke-Li Xu
Tilted Nonparametric Estimation Of Volatility Functions With Empirical Applications, Peter C.B. Phillips, Ke-Li Xu
Cowles Foundation Discussion Papers
This paper proposes a novel positive nonparametric estimator of the conditional variance function without reliance on logarithmic or other transformations. The estimator is based on an empirical likelihood modification of conventional local level nonparametric regression applied to squared mean regression residuals. The estimator is shown to be asymptotically equivalent to the local linear estimator in the case of unbounded support but, unlike that estimator, is restricted to be non-negative in finite samples. It is fully adaptive to the unknown conditional mean function. Simulations are conducted to evaluate the finite sample performance of the estimator. Two empirical applications are reported. One …