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- Asymptotic size (5)
- Confidence set (5)
- Higher-order preference hierarchy (4)
- Interdependent preferences (4)
- Strategic distinguishability (4)
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- Asymptotic power (3)
- Collateral (3)
- Conditional moment inequalities (3)
- Endogenous leverage (3)
- Generalized moment selection (3)
- Leverage (3)
- Mechanism design (3)
- Moment inequalities (3)
- Universal type space (3)
- Volatility smile (3)
- Weak identification (3)
- Advertising (2)
- Asymptotic normality (2)
- Bargaining (2)
- Changing private information (2)
- Clustered volatility (2)
- Cramér-von Mises (2)
- Crash (2)
- Dynamic auctions and mechanisms (2)
- Estimator (2)
- Fat tails (2)
- First price auction (2)
- Identification (2)
- Incentive compatibility (2)
- Information revelation (2)
Articles 1 - 30 of 47
Full-Text Articles in Economics
Mechanism Design With Limited Information: The Case Of Nonlinear Pricing, Dirk Bergemann, Ji Shen, Yun Xu, Edmund M. Yeh
Mechanism Design With Limited Information: The Case Of Nonlinear Pricing, Dirk Bergemann, Ji Shen, Yun Xu, Edmund M. Yeh
Cowles Foundation Discussion Papers
We analyze the canonical nonlinear pricing model with limited information. A seller offers a menu with a finite number of choices to a continuum of buyers with a continuum of possible valuations. By revealing an underlying connection to quantization theory, we derive the optimal finite menu for the socially efficient and the revenue-maximizing mechanism. In both cases, we provide an estimate of the loss resulting from the usage of a finite n-class menu. We show that the losses converge to zero at a rate proportional to 1/n2 asn becomes large.
Revealed Preferences For Risk And Ambiguity, Donald J. Brown, Chandra Erdman, Kirsten Ling, Laurie Santos
Revealed Preferences For Risk And Ambiguity, Donald J. Brown, Chandra Erdman, Kirsten Ling, Laurie Santos
Cowles Foundation Discussion Papers
We replicate the essentials of the Huettel et al. (2006) experiment on choice under uncertainty with 30 Yale undergraduates, where subjects make 200 pair-wise choices between risky and ambiguous lotteries. Inferences about the independence of economic preferences for risk and ambiguity are derived from estimation of a mixed logit model, where the choice probabilities are functions of two random effects: the proxies for risk-aversion and ambiguity-aversion. [Our principal empirical finding is that we cannot reject the null hypothesis that risk and ambiguity are independent in economic choice under uncertainty. This finding is consistent with the hypothesized independence of the neural …
Estimation And Inference With Weak, Semi-Strong, And Strong Identification, Donald W.K. Andrews, Xu Cheng
Estimation And Inference With Weak, Semi-Strong, And Strong Identification, Donald W.K. Andrews, Xu Cheng
Cowles Foundation Discussion Papers
This paper analyzes the properties of standard estimators, tests, and confidence sets (CS’s) in a class of models in which the parameters are unidentified or weakly identified in some parts of the parameter space. The paper also introduces methods to make the tests and CS’s robust to such identification problems. The results apply to a class of extremum estimators and corresponding tests and CS’s, including maximum likelihood (ML), least squares (LS), quantile, generalized method of moments (GMM), generalized empirical likelihood (GEL), minimum distance (MD), and semi-parametric estimators. The consistency/lack-of-consistency and asymptotic distributions of the estimators are established under a full …
Interdependent Preferences And Strategic Distinguishability, Dirk Bergemann, Stephen Morris, Satoru Takahashi
Interdependent Preferences And Strategic Distinguishability, Dirk Bergemann, Stephen Morris, Satoru Takahashi
Cowles Foundation Discussion Papers
A universal type space of interdependent expected utility preference types is constructed from higher-order preference hierarchies describing (i) an agent’s (unconditional) preferences over a lottery space; (ii) the agent’s preference over Anscombe-Aumann acts conditional on the unconditional preferences; and so on. Two types are said to be strategically indistinguishable if they have an equilibrium action in common in any mechanism that they play. We show that two types are strategically indistinguishable if and only if they have the same preference hierarchy. We examine how this result extends to alternative solution concepts and strategic relations between types.
Interdependent Preferences And Strategic Distinguishability, Dirk Bergemann, Stephen Morris, Satoru Takahashi
Interdependent Preferences And Strategic Distinguishability, Dirk Bergemann, Stephen Morris, Satoru Takahashi
Cowles Foundation Discussion Papers
A universal type space of interdependent expected utility preference types is constructed from higher-order preference hierarchies describing (i) an agent’s (unconditional) preferences over a lottery space; (ii) the agent’s preference over Anscombe-Aumann acts conditional on the unconditional preferences; and so on. Two types are said to be strategically indistinguishable if they have an equilibrium action in common in any mechanism that they play. We show that two types are strategically indistinguishable if and only if they have the same preference hierarchy. We examine how this result extends to alternative solution concepts and strategic relations between types.
Identifying Finite Mixtures In Econometric Models, Marc Henry, Yuichi Kitamura, Bernard Salanié
Identifying Finite Mixtures In Econometric Models, Marc Henry, Yuichi Kitamura, Bernard Salanié
Cowles Foundation Discussion Papers
We consider partial identification of finite mixture models in the presence of an observable source of variation in the mixture weights that leaves component distributions unchanged, as is the case in large classes of econometric models. We first show that when the number J of component distributions is known a priori, the family of mixture models compatible with the data is a subset of a J ( J – 1)-dimensional space. When the outcome variable is continuous, this subset is defined by linear constraints which we characterize exactly. Our identifying assumption has testable implications which we spell out for J …
Semiparametric Estimation In Time Series Of Simultaneous Equations, Jiti Gao, Peter C.B. Phillips
Semiparametric Estimation In Time Series Of Simultaneous Equations, Jiti Gao, Peter C.B. Phillips
Cowles Foundation Discussion Papers
A system of vector semiparametric nonlinear time series models is studied with possible dependence structures and nonstationarities in the parametric and nonparametric components. The parametric regressors may be endogenous while the nonparametric regressors are strictly exogenous and represent trends. The parametric regressors may be stationary or nonstationary and the nonparametric regressors are nonstationary time series. This framework allows for the nonparametric treatment of stochastic trends and subsumes many practical cases. Semiparametric least squares (SLS) estimation is considered and its asymptotic properties are derived. Due to endogeneity in the parametric regressors, SLS is generally inconsistent for the parametric component and a …
Interdependent Preferences And Strategic Distinguishability, Dirk Bergemann, Stephen Morris, Satoru Takahashi
Interdependent Preferences And Strategic Distinguishability, Dirk Bergemann, Stephen Morris, Satoru Takahashi
Cowles Foundation Discussion Papers
We identify a universal type space of possible interdependent (expected utility) preferences of a group of agents satisfying two criteria. First, a type consists of a “detail free” description, in a natural language, of the agents’ interdependent preferences. Second, distinct types in the universal type space must be “strategically distinguishable” in the sense that there must exist a mechanism where those types are guaranteed to behave differently in equilibrium. Our results generalize and unify results of Abreu and Matsushima (1992b) (who characterized strategic distinguishability on fixed finite type spaces) and Dekel, Fudenberg, and Morris (2006), (2007) (who characterized strategic distinguishability …
Dating The Timeline Of Financial Bubbles During The Subprime Crisis, Peter C.B. Phillips, Jun Yu
Dating The Timeline Of Financial Bubbles During The Subprime Crisis, Peter C.B. Phillips, Jun Yu
Cowles Foundation Discussion Papers
A new recursive regression methodology is introduced to analyze the bubble characteristics of various financial time series during the subprime crisis. The methods modify a technique proposed in Phillips, Wu and Yu (2010) and provide a technology for identifying bubble behavior and consistent dating of their origination and collapse. The tests also serve as an early warning diagnostic of bubble activity. Seven relevant financial series are investigated, including three financial assets (the Nasdaq index, home price index and asset-backed commercial paper), two commodities (the crude oil price and platinum price), one bond rate (Baa), and one exchange rate (Pound/USD). Statistically …
Nonlinear Cointegrating Regression Under Weak Identification, Xiaoxia Shi, Peter C.B. Phillips
Nonlinear Cointegrating Regression Under Weak Identification, Xiaoxia Shi, Peter C.B. Phillips
Cowles Foundation Discussion Papers
An asymptotic theory is developed for a weakly identified cointegrating regression model in which the regressor is a nonlinear transformation of an integrated process. Weak identification arises from the presence of a loading coefficient for the nonlinear function that may be close to zero. In that case, standard nonlinear cointegrating limit theory does not provide good approximations to the finite sample distributions of nonlinear least squares estimators, resulting in potentially misleading inference. A new local limit theory is developed that approximates the finite sample distributions of the estimators uniformly well irrespective of the strength of the identification. An important technical …
The Mysteries Of Trend, Peter C.B. Phillips
The Mysteries Of Trend, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Trends are ubiquitous in economic discourse, play a role in much economic theory, and have been intensively studied in econometrics over the last three decades. Yet the empirical economist, forecaster, and policy maker have little guidance from theory about the source and nature of trend behavior, even less guidance about practical formulations, and are heavily reliant on a limited class of stochastic trend, deterministic drift, and structural break models to use in applications. A vast econometric literature has emerged but the nature of trend remains elusive. In spite of being the dominant characteristic in much economic data, having a role …
Interdependent Preferences And Strategic Distinguishability, Dirk Bergemann, Stephen Morris, Satoru Takahashi
Interdependent Preferences And Strategic Distinguishability, Dirk Bergemann, Stephen Morris, Satoru Takahashi
Cowles Foundation Discussion Papers
We study agents whose expected utility preferences are interdependent for informational or psychological reasons. We characterize when two types can be “strategically distinguished” in the sense that they are guaranteed to behave differently in some finite mechanism. We show that two types are strategically distinguishable if and only if they have different hierarchies of interdependent preferences. The same characterization applies for rationalizability, equilibrium, and any interim solution concept in between. Our results generalize and unify results of Abreu and Matsushima (1992), who characterize strategic distinguishability on fixed finite type spaces, and Dekel, Fudenberg, and Morris (2006), (2007), who characterize strategic …
Mediation And Peace, Johannes Hörner, Massimo Morelli, Francesco Squintani
Mediation And Peace, Johannes Hörner, Massimo Morelli, Francesco Squintani
Cowles Foundation Discussion Papers
This paper brings mechanism design to the study of conflict resolution in international relations. We determine when and how unmediated communication and mediation reduce the ex ante probability of conflict, in a simple game where conflict is due to asymmetric information. Unmediated communication helps reducing the chance of conflict as it allows conflicting parties to reveal their types and establish type-dependent transfers to avoid conflict. Mediation improves upon unmediated communication when the intensity of conflict is high, or when asymmetric information is large. The mediator improves upon unmediated communication by not precisely reporting information to conflicting parties, and precisely, by …
Should Auctions Be Transparent?, Dirk Bergemann, Johannes Hörner
Should Auctions Be Transparent?, Dirk Bergemann, Johannes Hörner
Cowles Foundation Discussion Papers
We investigate the role of market transparency in repeated first-price auctions. We consider a setting with private and independent values across bidders. The values are assumed to be perfectly persistent over time. We analyze the first-price auction under three distinct disclosure regimes regarding the bid and award history. Of particular interest is the minimal disclosure regime, in which each bidder only learns privately whether he won or lost the auction at the end of each round. In equilibrium, the winner of the initial auction lowers his bids over time, while losers keep their bids constant, in anticipation of the winner’s …
History-Disappointment Risk Attitude, David Dillenberger, Kareen Rozen
History-Disappointment Risk Attitude, David Dillenberger, Kareen Rozen
Cowles Foundation Discussion Papers
We propose a model of history-dependent risk attitude, allowing a decision maker’s risk attitude to be affected by his history of disappointments and elations. The decision maker recursively evaluates compound risks, classifying realizations as disappointing or elating using a threshold rule. We establish equivalence between the model and two cognitive biases: risk attitudes are reinforced by experiences (one is more risk averse after disappointment than after elation) and there is a primacy effect (early outcomes have the greatest impact on risk attitude). In dynamic asset pricing, the model yields volatile, path-dependent prices.
The Value Of Luminosity Data As A Proxy For Economic Statistics, Xi Chen, William D. Nordhaus
The Value Of Luminosity Data As A Proxy For Economic Statistics, Xi Chen, William D. Nordhaus
Cowles Foundation Discussion Papers
One of the pervasive issues in social and environmental research has been to improve the quality of socioeconomic data in developing countries. Because of the shortcoming of standard data sources, the present study examines luminosity (measures of nighttime lights) as a proxy for standard measures of output. The paper compares output and luminosity at the country levels and at the 1° x 1° grid-cell levels for the period 1992-2008. The results are that luminosity has very little value added for countries with high-quality statistical systems. However, it may be useful for countries with the lowest statistical grades, particularly for war-torn …
Should Auctions Be Transparent?, Dirk Bergemann, Johannes Hörner
Should Auctions Be Transparent?, Dirk Bergemann, Johannes Hörner
Cowles Foundation Discussion Papers
We investigate the role of market transparency in repeated first-price auctions. We consider a setting with independent private and persistent values. We analyze three distinct disclosure regimes regarding the bid and award history. In the minimal disclosure regime each bidder only learns privately whether he won or lost the auction. In equilibrium the allocation is efficient and the minimal disclosure regime does not give rise to pooling equilibria. In contrast, in disclosure settings where either all or only the winner’s bids are public, an inefficient pooling equilibrium with low revenues exists.
Should Auctions Be Transparent?, Dirk Bergemann, Johannes Hörner
Should Auctions Be Transparent?, Dirk Bergemann, Johannes Hörner
Cowles Foundation Discussion Papers
We investigate the role of market transparency in repeated first-price auctions. We consider a setting with independent private and persistent values. We analyze three distinct disclosure regimes regarding the bid and award history. In the minimal disclosure regime each bidder only learns privately whether he won or lost the auction. In equilibrium the allocation is efficient and the minimal disclosure regime does not give rise to pooling equilibria. In contrast, in disclosure settings where either all or only the winner’s bids are public, an inefficient pooling equilibrium with low revenues exists.
Why Does Bad News Increase Volatility And Decrease Leverage?, Ana Fostel, John Geanakoplos
Why Does Bad News Increase Volatility And Decrease Leverage?, Ana Fostel, John Geanakoplos
Cowles Foundation Discussion Papers
A recent literature shows how an increase in volatility reduces leverage. However, in order to explain pro-cyclical leverage it assumes that bad news increases volatility, that is, it assumes an inverse relationship between first and second moments of asset returns. This paper suggests a reason why bad news is more often than not associated with higher future volatility. We show that, in a model with endogenous leverage and heterogeneous beliefs, agents have the incentive to invest mostly in technologies that become more volatile in bad times. Agents choose these technologies because they can be leveraged more during normal times. Together …
Why Does Bad News Increase Volatility And Decrease Leverage?, Ana Fostel, John Geanakoplos
Why Does Bad News Increase Volatility And Decrease Leverage?, Ana Fostel, John Geanakoplos
Cowles Foundation Discussion Papers
The literature on leverage until now shows how an increase in volatility reduces leverage. However, in order to explain pro-cyclical leverage it assumes that bad news increases volatility. This paper suggests a reason why bad news is more often than not associated with higher future volatility. We show that, in a model with endogenous leverage and heterogeneous beliefs, agents have the incentive to invest mostly in technologies that become volatile in bad times. Together with the old literature this explains pro-cyclical leverage. The result also gives rationale to the pattern of volatility smiles observed in the stock options since 1987. …
Why Does Bad News Increase Volatility And Decrease Leverage?, Ana Fostel, John Geanakoplos
Why Does Bad News Increase Volatility And Decrease Leverage?, Ana Fostel, John Geanakoplos
Cowles Foundation Discussion Papers
A recent literature shows how an increase in volatility reduces leverage. However, in order to explain pro-cyclical leverage it assumes that bad news increases volatility, that is, it assumes an inverse relationship between first and second moments of asset returns. This paper suggests a reason why bad news is more often than not associated with higher future volatility. We show that, in a model with endogenous leverage and heterogeneous beliefs, agents have the incentive to invest mostly in technologies that become more volatile in bad times. Agents choose these technologies because they can be leveraged more during normal times. Together …
Inference Based On Conditional Moment Inequalities, Donald W.K. Andrews, Xiaoxia Shi
Inference Based On Conditional Moment Inequalities, Donald W.K. Andrews, Xiaoxia Shi
Cowles Foundation Discussion Papers
In this paper, we propose an instrumental variable approach to constructing confidence sets (CS’s) for the true parameter in models defined by conditional moment inequalities/equalities. We show that by properly choosing instrument functions, one can transform conditional moment inequalities/equalities into unconditional ones without losing identification power. Based on the unconditional moment inequalities/equalities, we construct CS’s by inverting Cramér-von Mises-type or Kolmogorov-Smirnov-type tests. Critical values are obtained using generalized moment selection (GMS) procedures. We show that the proposed CS’s have correct uniform asymptotic coverage probabilities. New methods are required to establish these results because an infinite-dimensional nuisance parameter affects the asymptotic …
Inference Based On Conditional Moment Inequalities, Donald W.K. Andrews, Xiaoxia Shi
Inference Based On Conditional Moment Inequalities, Donald W.K. Andrews, Xiaoxia Shi
Cowles Foundation Discussion Papers
In this paper, we propose an instrumental variable approach to constructing confidence sets (CS’s) for the true parameter in models defined by conditional moment inequalities/equalities. We show that by properly choosing instrument functions, one can transform conditional moment inequalities/equalities into unconditional ones without losing identification power. Based on the unconditional moment inequalities/equalities, we construct CS’s by inverting Cramér–von Mises-type or Kolmogorov–Smirnov-type tests. Critical values are obtained using generalized moment selection (GMS) procedures. We show that the proposed CS’s have correct uniform asymptotic coverage probabilities. New methods are required to establish these results because an infinite-dimensional nuisance parameter affects the asymptotic …
Inference Based On Conditional Moment Inequalities, Donald W.K. Andrews, Xiaoxia Shi
Inference Based On Conditional Moment Inequalities, Donald W.K. Andrews, Xiaoxia Shi
Cowles Foundation Discussion Papers
In this paper, we propose an instrumental variable approach to constructing confidence sets (CS’s) for the true parameter in models defined by conditional moment inequalities/equalities. We show that by properly choosing instrument functions, one can transform conditional moment inequalities/equalities into unconditional ones without losing identification power. Based on the unconditional moment inequalities/equalities, we construct CS’s by inverting Cramér-von Mises-type or Kolmogorov-Smirnov-type tests. Critical values are obtained using generalized moment selection (GMS) procedures. We show that the proposed CS’s have correct uniform asymptotic coverage probabilities. New methods are required to establish these results because an infinite-dimensional nuisance parameter affects the asymptotic …
Estimation And Inference With Weak, Semi-Strong, And Strong Identification, Donald W.K. Andrews, Xu Cheng
Estimation And Inference With Weak, Semi-Strong, And Strong Identification, Donald W.K. Andrews, Xu Cheng
Cowles Foundation Discussion Papers
This paper analyzes the properties of standard estimators, tests, and confidence sets (CS’s) for parameters that are unidentified or weakly identified in some parts of the parameter space. The paper also introduces methods to make the tests and CS’s robust to such identification problems. The results apply to a class of extremum estimators and corresponding tests and CS’s that are based on criterion functions that satisfy certain asymptotic stochastic quadratic expansions and that depend on the parameter that determines the strength of identification. This covers a class of models estimated using maximum likelihood (ML), least squares (LS), quantile, generalized method …
The Role Of Commitment In Bilateral Trade, Dino Gerardi, Johannes Hörner, Lucas Maestri
The Role Of Commitment In Bilateral Trade, Dino Gerardi, Johannes Hörner, Lucas Maestri
Cowles Foundation Discussion Papers
This paper solves for the set of equilibrium payoffs in bargaining with interdependent values when the informed party makes all offers, as discounting vanishes. The seller of a good is informed of its quality, which affects both his cost and the buyer’s valuation, but the buyer is not. To characterize this payoff set, we derive an upper bound, using mechanism design with limited commitment. We then prove that this upper bound is tight, by showing that all its extreme points are equilibrium payoffs. Our results shed light on the role of different forms of commitment on the bargaining process. In …
Affective Decision-Making: A Theory Of Optimism-Bias, Anat Bracha, Donald J. Brown
Affective Decision-Making: A Theory Of Optimism-Bias, Anat Bracha, Donald J. Brown
Cowles Foundation Discussion Papers
Optimism-bias is inconsistent with the independence of decision weights and payoffs found in models of choice under risk, such as expected utility theory and prospect theory. Hence, to explain the evidence suggesting that agents are optimistically biased, we propose an alternative model of risky choice, affective decision-making, where decision weights — which we label affective or perceived risk — are endogenized. Affective decision making (ADM) is a strategic model of choice under risk, where we posit two cognitive processes: the “rational” and the “emotional” processes. The two processes interact in a simultaneous-move intrapersonal potential game, and observed choice is the …
Estimated Macroeconomic Effects Of A Chinese Yuan Appreciation, Ray C. Fair
Estimated Macroeconomic Effects Of A Chinese Yuan Appreciation, Ray C. Fair
Cowles Foundation Discussion Papers
This paper uses a multicountry macroeconometric model to estimate the macroeconomic effects of a Chinese yuan appreciation. The estimated effects on U.S. output and employment are modest. Positive effects on U.S. output from a decrease in imports from China are offset by negative effects on U.S. output from increased inflation and from a decrease in U.S. exports to China because of a Chinese contraction.
Estimated Macroeconomic Effects Of The U.S. Stimulus Bill, Ray C. Fair
Estimated Macroeconomic Effects Of The U.S. Stimulus Bill, Ray C. Fair
Cowles Foundation Discussion Papers
This paper uses a multicountry macroeconometric model to estimate the macroeconomic effects of the U.S. stimulus bill passed in February 2009. The analysis has the advantage of taking into account many endogenous effects. Real U.S. output is estimated to be $554 billion larger when summed over the 12-year period 2009:1–2020:4 (0.29 percent of the total sum of output). The average number of jobs is 509 thousand larger (0.37 percent). There is some redistribution of output and employment away from 2012–2015. At the end of 2020 the federal government debt is larger by $637 billion in real terms (the debt/GDP ratio …
Dynamic Auctions: A Survey, Dirk Bergemann, Maher Said
Dynamic Auctions: A Survey, Dirk Bergemann, Maher Said
Cowles Foundation Discussion Papers
We survey the recent literature on designing auctions and mechanisms for dynamic settings. Two settings are considered: those with a dynamic population of agents or buyers whose private information remains fixed throughout time; and those with a fixed population of agents or buyers whose private information changes across time. Within each of these settings, we discuss both efficient (welfare-maximizing) and optimal (revenue-maximizing) mechanisms.