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Full-Text Articles in Economics
Robust Mechanism Design: An Introduction, Dirk Bergemann, Stephen Morris
Robust Mechanism Design: An Introduction, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
This essay is the introduction for a collection of papers by the two of us on “Robust Mechanism Design” to be published by World Scientific Publishing. The appendix of this essay lists the chapters of the book. The objective of this introductory essay is to provide the reader with an overview of the research agenda pursued in the collected papers. The introduction selectively presents the main results of the papers, and attempts to illustrate many of them in terms of a common and canonical example, the single unit auction with interdependent values. In addition, we include an extended discussion about …
Robust Implementation In General Mechanisms, Dirk Bergemann, Stephen Morris
Robust Implementation In General Mechanisms, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
A social choice function is robustly implemented if every equilibrium on every type space achieves outcomes consistent with it. We identify a robust monotonicity condition that is necessary and (with mild extra assumptions) sufficient for robust implementation. Robust monotonicity is strictly stronger than both Maskin monotonicity (necessary and almost sufficient for complete information implementation) and ex post monotonicity (necessary and almost sufficient for ex post implementation). It is equivalent to Bayesian monotonicity on all type spaces.
Robust Implementation In General Mechanisms, Dirk Bergemann, Stephen Morris
Robust Implementation In General Mechanisms, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
A social choice function is robustly implemented if every equilibrium on every type space achieves outcomes consistent with it. We identify a robust monotonicity condition that is necessary and (with mild extra assumptions) sufficient for robust implementation. Robust monotonicity is strictly stronger than both Maskin monotonicity (necessary and almost sufficient for complete information implementation) and ex post monotonicity (necessary and almost sufficient for ex post implementation). It is equivalent to Bayesian monotonicity on all type spaces.
Robust Implementation In Direct Mechanisms, Dirk Bergemann, Stephen Morris
Robust Implementation In Direct Mechanisms, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
A social choice function is robustly implementable if there is a mechanism under which the process of iteratively eliminating strictly dominated messages leads to outcomes that agree with the social choice function for all beliefs at every type profile. In an interdependent value environment with single crossing preferences, we identify a contraction property on the preferences which together with strict ex post incentive compatibility is sufficient to guarantee robust implementation in the direct mechanism. Strict ex post incentive compatibility and the contraction property are also necessary for robust implementation in any mechanism, including indirect ones. The contraction property requires that …
Nuclear Weapons And National Prestige, Robert J. Shiller
Nuclear Weapons And National Prestige, Robert J. Shiller
Cowles Foundation Discussion Papers
Leaders and historians see prestige as important, but international relations theorists have neglected the concept, in part for lack of a clear definition. It is proposed that a party “holds prestige” when group members generally believe that the party has a certain desirable quality, and this situation gives the party perceived power in the group. The definition gains support from a survey of international affairs writings on the sources of prestige. Prestige is strategically important when a party wants support from others who would rather join the side that more of the others are joining. Some general ways of acquiring …
Robust Mechanism Design, Dirk Bergemann, Stephen Morris
Robust Mechanism Design, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
The mechanism design literature assumes too much common knowledge of the environment among the players and planner. We relax this assumption by studying implementation on richer type spaces, with more higher order uncertainty. We study the “ex post equivalence” question: when is interim implementation on all possible type spaces equivalent to requiring ex post implementation on the space of payoff types? We show that ex post equivalence holds when the social choice correspondence is a function and in simple quasi-linear environments. When ex post equivalence holds, we identify how large the type space must be to obtain the equivalence. We …
Robust Mechanism Design, Dirk Bergemann, Stephen Morris
Robust Mechanism Design, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
The mechanism design literature assumes too much common knowledge of the environment among the players and planner. We relax this assumption by studying implementation on richer type spaces. We ask when ex post implementation is equivalent to interim (or Bayesian) implementation for all possible type spaces. The equivalence holds in the case of separable environments; examples of separable environments arise (1) when the planner is implementing a social choice function (not correspondence); and (2) in a quasilinear environment with no restrictions on transfers. The equivalence fails in general, including in some quasilinear environments with budget balance. In private value environments, …
Communication And Monetary Policy, Jeffrey Amato, Stephen Morris, Hyun Song Shin
Communication And Monetary Policy, Jeffrey Amato, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
One role of monetary policy is to coordinate expectations in the economy and greater transparency of monetary policy may lead to greater coordination. But if transparent monetary policy helps coordinate expectations, then it must also magnify mistakes.
Coordination, Communication And Common Knowledge: A Retrospective On The Electronic Mail Game, Stephen Morris
Coordination, Communication And Common Knowledge: A Retrospective On The Electronic Mail Game, Stephen Morris
Cowles Foundation Discussion Papers
Common knowledge plays an important role in coordination problems and coordination problems are central to many areas of economic policy. In this paper, I review some common knowledge puzzles culminating in the electronic mail game. These puzzles may seem distant from practical concerns. However, I then argue why insights derived from this literature are useful in interpreting empirical evidence of how people coordinate under uncertainty and in understanding the role of communication in coordinating behaviour.
Global Games: Theory And Applications, Stephen Morris, Hyun Song Shin
Global Games: Theory And Applications, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
Global games are games of incomplete information whose type space is determined by the players each observing a noisy signal of the underlying state. With strategic complementarities, global games often have a unique, dominance solvable equilibrium, allowing analysis of a number of economic models of coordination failure. For symmetric binary action global games, equilibrium strategies in the limit (as noise becomes negligible) are simple to characterize in terms of ‘diffuse’ beliefs over the actions of others. We describe a number of economic applications that fall in this category. We also explore the distinctive roles of public and private information in …
Global Games: Theory And Applications, Stephen Morris, Hyun Song Shin
Global Games: Theory And Applications, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
Global games are games of incomplete information whose type space is determined by the players each observing a noisy signal of the underlying state. With strategic complementarities, global games often have a unique, dominance solvable equilibrium, allowing analysis of a number of economic models of coordination failure. For symmetric binary action global games, equilibrium strategies in the limit (as noise becomes negligible) are simple to characterize in terms of ‘diffuse’ beliefs over the actions of others. We describe a number of economic applications that fall in this category. We also explore the distinctive roles of public and private information in …
Faulty Communication, Stephen Morris
Faulty Communication, Stephen Morris
Cowles Foundation Discussion Papers
The electronic mail game of Rubinstein (1989) showed that a lack of common knowledge generated by faulty communication can make coordinated action impossible. This paper shows how this conclusion is robust to having a more realistic timing structure of messages, more than two players who meet publicly but not as a plenary group, and strategic decisions about whether to communicate.
Faulty Communication, Stephen Morris
Faulty Communication, Stephen Morris
Cowles Foundation Discussion Papers
The electronic mail game of Rubinstein (1989) showed that a lack of common knowledge generated by faulty communication can make coordinated action impossible. This paper shows how this conclusion is robust to having a more realistic timing structure of messages, more than two players who meet publicly but not as a plenary group, and strategic decisions about whether to communicate.
Rethinking Multiple Equilibria In Macroeconomic Modelling, Stephen Morris, Hyun Song Shin
Rethinking Multiple Equilibria In Macroeconomic Modelling, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
Are beliefs as indeterminate as auggested by models with multiple equilibria? Multiplicity of equilibria arise largely as the unintended consequence of two modelling assumptions — the fundamentals are assumed to be common knowledge, and economic agents know others’ actions in equilibrium. Both are questionable. When others’ actions are not known with certainty, such as when actions rely on noisy signals, self-fulfilling beliefs lead to a unique outcome determined by the fundamentals and the knowledges that others are rational. This paper illustrates this approach in the context of a model of bank runs and other similar applications. Such an approach places …
Coordination Risk And The Price Of Debt, Stephen Morris, Hyun Song Shin
Coordination Risk And The Price Of Debt, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
Creditors of a distressed borrower face a coordination problem. Even if the fundamentals are sound, fear of premature foreclosure by others may lead to pre-emptive action, undermining the project. Recognition of this problem lies behind corporate bankruptcy provisions across the world, and it has been identified as a culprit in international financial crises, but has received scant attention from the literature on debt pricing. Without common knowledge of fundamentals, the incidence of failure is uniquely determined provided that private information is precise enough. This affords a way to price the coordination failure. Comparative statics on the unique equilibrium provides several …
A Theory Of The Onset Of Currency Attacks, Stephen Morris, Hyun Song Shin
A Theory Of The Onset Of Currency Attacks, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
The swiftness and devastating impact of recent financial crises have taken many market participants by surprise, and pose challenges for economists seeking a theory of the onset of a crisis. We propose such a theory based on two features. The actions of diverse economic actors which undermine the currency are mutually reinforcing, while the fragmented nature of the media create small disparities in their information. In such circumstances, the beliefs of market participants can be tracked in the same way as the economic fundamentals, and an attack is triggered when the economic fundamentals deteriorate sufficiently to fall below the minimum …
Game Theory Without Partitions, And Applications To Speculation And Consensus, John Geanakoplos
Game Theory Without Partitions, And Applications To Speculation And Consensus, John Geanakoplos
Cowles Foundation Discussion Papers
Decision theory and game theory are extended to allow for information processing errors. This extended theory is then used to reexamine market speculation and consensus, both when all actions (opinions) are common knowledge and when they may not be. Five axioms of information processing are shown to be especially important to speculation and consensus. They are called nondelusion, knowing that you know, nested, balanced, and positively balanced. We show that it is necessary and sufficient that each agent’s information processing errors be nondeluded and (1) balanced so that the agents cannot agree to disagree, (2) positively balanced so that it …
Common Knowledge Of Summary Statistics, Adam Brandenburger, John Geanakoplos
Common Knowledge Of Summary Statistics, Adam Brandenburger, John Geanakoplos
Cowles Foundation Discussion Papers
Consider a group of people who are asked to offer their opinions on some issue. “Business confidence” surveys are an example: groups of businessmen are often asked for their predictions of economic indicators such as growth or inflation rates. Each member of the group makes a prediction based on his or her private information, and the average prediction is then publicly announced. If the members of the group are then allowed to revise their opinions, based on whatever information they glean from the public announcement, is there any tendency for the opinions in the group to converge on a common, …