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- Mechanism design (36)
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- Bayes correlated equilibrium (25)
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Articles 841 - 870 of 2930
Full-Text Articles in Social and Behavioral Sciences
Model Selection In The Presence Of Incidental Parameters, Yoonseok Lee, Peter C.B. Phillips
Model Selection In The Presence Of Incidental Parameters, Yoonseok Lee, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper considers model selection in nonlinear panel data models where incidental parameters or large-dimensional nuisance parameters are present. Primary interest typically centres on selecting a model that best approximates the underlying structure involving parameters that are common within the panel after concentrating out the incidental parameters. It is well known that conventional model selection procedures are often inconsistent in panel models and this can be so even without nuisance parameters (Han et al., 2012). Modifications are then needed to achieve consistency. New model selection information criteria are developed here that use either the Kullback-Leibler information criterion based on the …
Selling Cookies, Dirk Bergemann, Alessandro Bonatti
Selling Cookies, Dirk Bergemann, Alessandro Bonatti
Cowles Foundation Discussion Papers
We analyze data pricing and targeted advertising. Advertisers seek to tailor their spending to the value of each consumer. A monopolistic data provider sells cookies. informative signals about individual consumers.preferences. We characterize the set of consumers targeted by the advertisers and the optimal monopoly price of cookies. The ability to influence the composition of the targeted set provides incentives to lower prices. Thus, the price of data decreases with the reach of the database and increases with the fragmentation of data sales. We characterize the optimal policy for selling information and its implementation through nonlinear pricing of cookies.
Equality Of Opportunity, John E. Roemer, Alain Trannoy
Equality Of Opportunity, John E. Roemer, Alain Trannoy
Cowles Foundation Discussion Papers
This forthcoming chapter in the Handbook of Income Distribution (eds., A. Atkinson and F. Bourguignon) summarizes the literature on equality of opportunity. We begin by reviewing the philosophical debate concerning equality since Rawls (sections 1 and 2), present economic algorithms for computing policies which equalize opportunities, or, more generally, ways of ordering social policies with respect to their efficacy in opportunity equalization (sections 3, 4 and 5), apply the approach to the conceptualization of economic development (section 6), discuss dynamic issues (section 7), give a preamble to a discussion of empirical work (section 8), provide evidence of population views from …
The Evolution Of ‘Theory Of Mind:’ Theory And Experiments, Erik O. Kimbrough, Nikolaus Robalino, Arthur Robson
The Evolution Of ‘Theory Of Mind:’ Theory And Experiments, Erik O. Kimbrough, Nikolaus Robalino, Arthur Robson
Cowles Foundation Discussion Papers
This paper provides an evolutionary foundation for our capacity to attribute preferences to others. This ability is intrinsic to game theory, and is a key component of “Theory of Mind,” perhaps the capstone of social cognition. We argue here that this component of theory of mind allows organisms to efficiently modify their behavior in strategic environments with a persistent element of novelty. Such environments are represented here by multistage games of perfect information with randomly chosen outcomes. “Theory of Mind” then yields a sharp, unambiguous advantage over less sophisticated, behavioral approaches to strategic interaction. In related experiments, we show the …
Correlated Equilibrium And The Comparison Of Information Structures In Games, Dirk Bergemann, Stephen Morris
Correlated Equilibrium And The Comparison Of Information Structures In Games, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
A game of incomplete information can be decomposed into a basic game and an information structure. The basic game defines the set of actions, the set of payoff states the payoff functions and the common prior over the payoff states. The information structure refers to the signals that the players receive in the game. We characterize the set of outcomes that can arise in Bayes Nash equilibrium if players observe the given information structure but may also observe additional signals. The characterization corresponds to the set of (a version of) incomplete information correlated equilibria which we dub Bayes correlated equilibria. …
The Evolution Of ‘Theory Of Mind’: Theory And Experiments, Erik O. Kimbrough, Nikolaus Robalino, Arthur Robson
The Evolution Of ‘Theory Of Mind’: Theory And Experiments, Erik O. Kimbrough, Nikolaus Robalino, Arthur Robson
Cowles Foundation Discussion Papers
This paper investigates the evolutionary foundation for our capacity to attribute preferences to others. This ability is intrinsic to game theory, and is a key component of “Theory of Mind,” perhaps the capstone of social cognition. We argue here that this component of theory of mind allows organisms to efficiently modify their behavior in strategic environments with a persistent element of novelty. Our notion of “Theory of Mind” ’ (ToM) yields a sharp, unambiguous advantage over less sophisticated approaches to strategic interaction because agents with ToM extrapolate to novel circumstances information about opponents’ preferences that was learned previously. We then …
Testing The Martingale Hypothesis, Peter C.B. Phillips, Sainan Jin
Testing The Martingale Hypothesis, Peter C.B. Phillips, Sainan Jin
Cowles Foundation Discussion Papers
We propose new tests of the martingale hypothesis based on generalized versions of the Kolmogorov-Smirnov and Cramér-von Mises tests. The tests are distribution free and allow for a weak drift in the null model. The methods do not require either smoothing parameters or bootstrap resampling for their implementation and so are well suited to practical work. The paper develops limit theory for the tests under the null and shows that the tests are consistent against a wide class of nonlinear, non-martingale processes. Simulations show that the tests have good finite sample properties in comparison with other tests particularly under conditional …
Unit Roots In Life — A Graduate Student Story, Peter C.B. Phillips
Unit Roots In Life — A Graduate Student Story, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This is a graduate student story. It mixes personal reflections with recollections of the extraordinary New Zealanders who shaped my thinking as a graduate student and beginning researcher — people who have had an enduring impact on my work and career as an econometrician. The story traces out these human initial conditions and unit roots that figure in my early life of teaching and research.
Functional Coefficient Nonstationary Regression, Jiti Gao, Peter C.B. Phillips
Functional Coefficient Nonstationary Regression, Jiti Gao, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper studies a general class of nonlinear varying coefficient time series models with possible nonstationarity in both the regressors and the varying coffiecient components. The model accommodates a cointegrating structure and allows for endogeneity with contemporaneous correlation among the regressors, the varying coefficient drivers, and the residuals. This framework allows for a mixture of stationary and non-stationary data and is well suited to a variety of models that are commonly used in applied econometric work. Nonparametric and semiparametric estimation methods are proposed to estimate the varying coefficient functions. The analytical findings reveal some important differences, including convergence rates, that …
Testing For Multiple Bubbles: Historical Episodes Of Exuberance And Collapse In The S&P 500, Peter C.B. Phillips, Shu-Ping Shi, Jun Yu
Testing For Multiple Bubbles: Historical Episodes Of Exuberance And Collapse In The S&P 500, Peter C.B. Phillips, Shu-Ping Shi, Jun Yu
Cowles Foundation Discussion Papers
Recent work on econometric detection mechanisms has shown the effectiveness of recursive procedures in identifying and dating financial bubbles. These procedures are useful as warning alerts in surveillance strategies conducted by central banks and fiscal regulators with real time data. Use of these methods over long historical periods presents a more serious econometric challenge due to the complexity of the nonlinear structure and break mechanisms that are inherent in multiple bubble phenomena within the same sample period. To meet this challenge the present paper develops a new recursive flexible window method that is better suited for practical implementation with long …
Reviewing The Leverage Cycle, Ana Fostel, John Geanakoplos
Reviewing The Leverage Cycle, Ana Fostel, John Geanakoplos
Cowles Foundation Discussion Papers
We review the theory of leverage developed in collateral equilibrium models with incomplete markets. We explain how leverage tends to boost asset prices, and create bubbles. We show how leverage can be endogenously determined in equilibrium, and how it depends on volatility. We describe the dynamic feedback properties of leverage, volatility, and asset prices, in what we call the Leverage Cycle. We also describe some cross-sectional implications of multiple leverage cycles, including contagion, flight to collateral, and swings in the issuance volume of the highest quality debt. We explain the differences between the leverage cycle and the credit cycle literature. …
Reflections On Macroeconometric Modeling, Ray C. Fair
Reflections On Macroeconometric Modeling, Ray C. Fair
Cowles Foundation Discussion Papers
I have been doing research in macroeconomics since the late 1960s, almost 50 years. In this paper I pause and take stock. The paper is part personal reflections on macroeconometric modeling, part a road map of the techniques of macroeconometric modeling, and part comments on what I think I have learned about how the macroeconomy works from my research in this area.
The Comparison Of Information Structures In Games: Bayes Correlated Equilibrium And Individual Sufficiency, Dirk Bergemann, Stephen Morris
The Comparison Of Information Structures In Games: Bayes Correlated Equilibrium And Individual Sufficiency, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
We define and characterize a notion of correlated equilibrium for games with incomplete information, which we call Bayes correlated equilibrium: The set of outcomes that can arise in Bayes Nash equilibria of an incomplete information game where players may have access to additional signals beyond the information structure is characterized and shown to be equivalent to the set of Bayes correlated equilibria. A game of incomplete information can be decomposed into a basic game, given by actions sets and payoff functions, and an information structure. We introduce a partial order on many player information structures — which we call individual …
The Comparison Of Information Structures In Games: Bayes Correlated Equilibrium And Individual Sufficiency, Dirk Bergemann, Stephen Morris
The Comparison Of Information Structures In Games: Bayes Correlated Equilibrium And Individual Sufficiency, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
The set of outcomes that can arise in Bayes Nash equilibria of an incomplete information game where players may have access to additional signals beyond the given information structure is characterized and shown to be equivalent to the set of a version of incomplete information correlated equilibria which we dub Bayes correlated equilibria. A game of incomplete information can be decomposed into a basic game, given by actions sets and payoff functions, and an information structure. We introduce a partial order on many player information structures — which we call individual sufficiency — under which more information shrinks the set …
Estimating Smooth Structural Change In Cointegration Models, Jiti Gao, Degui Li, Peter C.B. Phillips
Estimating Smooth Structural Change In Cointegration Models, Jiti Gao, Degui Li, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper studies nonlinear cointegration models in which the structural coefficients may evolve smoothly over time. These time-varying coefficient functions are well-suited to many practical applications and can be estimated conveniently by nonparametric kernel methods. It is shown that the usual asymptotic methods of kernel estimation completely break down in this setting when the functional coefficients are multivariate. The reason for this breakdown is a kernel-induced degeneracy in the weighted signal matrix associated with the nonstationary regressors, a new phenomenon in the kernel regression literature. Some new techniques are developed to address the degeneracy and resolve the asymptotics, using a …
Bayes Correlated Equilibrium And The Comparison Of Information Structures In Games, Dirk Bergemann, Stephen Morris
Bayes Correlated Equilibrium And The Comparison Of Information Structures In Games, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
The set of outcomes that can arise in Bayes Nash equilibria of an incomplete information game where players may have access to additional signals beyond the given information structure is equivalent to the set of a version of incomplete information correlated equilibrium which we dub Bayes correlated equilibrium . A game of incomplete information can be decomposed into a basic game, given by actions sets and payoff functions, and an information structure. We identify a partial order on many player information structures (individual sufficiency) under which more information shrinks the set of Bayes correlated equilibria.
Testing For Multiple Bubbles: Limit Theory Of Real Time Detectors, Peter C.B. Phillips, Shu-Ping Shi, Jun Yu
Testing For Multiple Bubbles: Limit Theory Of Real Time Detectors, Peter C.B. Phillips, Shu-Ping Shi, Jun Yu
Cowles Foundation Discussion Papers
This paper provides the limit theory of real time dating algorithms for bubble detection that were suggested in Phillips, Wu and Yu (2011, PWY) and Phillips, Shi and Yu (2013b, PSY). Bubbles are modeled using mildly explosive bubble episodes that are embedded within longer periods where the data evolves as a stochastic trend, thereby capturing normal market behavior as well as exuberance and collapse. Both the PWY and PSY estimates rely on recursive right tailed unit root tests (each with a different recursive algorithm) that may be used in real time to locate the origination and collapse dates of bubbles. …
Norming Rates And Limit Theory For Some Time-Varying Coefficient Autoregressions, Offer Lieberman, Peter C.B. Phillips
Norming Rates And Limit Theory For Some Time-Varying Coefficient Autoregressions, Offer Lieberman, Peter C.B. Phillips
Cowles Foundation Discussion Papers
A time-varying autoregression is considered with a similarity-based coefficient and possible drift. It is shown that the random walk model has a natural interpretation as the leading term in a small-sigma expansion of a similarity model with an exponential similarity function as its autoregressive coefficient. Consistency of the quasi-maximum likelihood estimator of the parameters in this model is established, the behaviors of the score and Hessian functions are analyzed and test statistics are suggested. A complete list is provided of the normalization rates required for the consistency proof and for the score and Hessian functions standardization. A large family of …
Testing Linearity Using Power Transforms Of Regressors, Yae In Baek, Jin Seo Cho, Peter C.B. Phillips
Testing Linearity Using Power Transforms Of Regressors, Yae In Baek, Jin Seo Cho, Peter C.B. Phillips
Cowles Foundation Discussion Papers
We develop a method of testing linearity using power transforms of regressors, allowing for stationary processes and time trends. The linear model is a simplifying hypothesis that derives from the power transform model in three different ways, each producing its own identification problem. We call this modeling difficulty the trifold identification problem and show that it may be overcome using a test based on the quasi-likelihood ratio (QLR) statistic. More specifically, the QLR statistic may be approximated under each identification problem and the separate null approximations may be combined to produce a composite approximation that embodies the linear model hypothesis. …
Afriat From Maxmin, John Geanakoplos
Afriat From Maxmin, John Geanakoplos
Cowles Foundation Discussion Papers
Afriat’s original method of proof is restored by using the minmax theorem.
Identification And Estimation In Two-Sided Matching Markets, Nikhil Agarwal, William Diamond
Identification And Estimation In Two-Sided Matching Markets, Nikhil Agarwal, William Diamond
Cowles Foundation Discussion Papers
We study estimation and non-parametric identification of preferences in two-sided matching markets using data from a single market with many agents. We consider a model in which preferences of each side of the market are vertical, utility is non-transferable and the observed matches are pairwise stable. We show that preferences are not identified with data on one-to-one matches but are non-parametrically identified when data from many-to-one matches are observed. The additional empirical content in many-to-one matches is illustrated by comparing two simulated objective functions, one that does and the other that does not use information available in many-to-one matching. We …
Collateral Equilibrium: A Basic Framework, John Geanakoplos, William R. Zame
Collateral Equilibrium: A Basic Framework, John Geanakoplos, William R. Zame
Cowles Foundation Discussion Papers
Much of the lending in modern economies is secured by some form of collateral: residential and commercial mortgages and corporate bonds are familiar examples. This paper builds an extension of general equilibrium theory that incorporates durable goods, collateralized securities and the possibility of default to argue that the reliance on collateral to secure loans and the particular collateral requirements chosen by the social planner or by the market have a profound impact on prices, allocations, market structure and the efficiency of market outcomes. These findings provide insights into housing and mortgage markets, including the sub-prime mortgage market.
Optimal Sup-Norm Rates And Uniform Inference On Nonlinear Functionals Of Nonparametric Iv Regression, Xiaohong Chen, Timothy M. Christensen
Optimal Sup-Norm Rates And Uniform Inference On Nonlinear Functionals Of Nonparametric Iv Regression, Xiaohong Chen, Timothy M. Christensen
Cowles Foundation Discussion Papers
This paper makes several important contributions to the literature about nonparametric instrumental variables (NPIV) estimation and inference on a structural function h0 and its functionals. First, we derive sup-norm convergence rates for computationally simple sieve NPIV (series 2SLS) estimators of h0 and its derivatives. Second, we derive a lower bound that describes the best possible (minimax) sup-norm rates of estimating h0 and its derivatives, and show that the sieve NPIV estimator can attain the minimax rates when h0 is approximated via a spline or wavelet sieve. Our optimal sup-norm rates surprisingly coincide with the optimal root-mean-squared rates for severely ill-posed …
Sequential Information Disclosure In Auctions, Dirk Bergemann, Achim Wambach
Sequential Information Disclosure In Auctions, Dirk Bergemann, Achim Wambach
Cowles Foundation Discussion Papers
We propose a sequential auction mechanism for a single object in which the seller jointly determines the allocation and the disclosure policy. A sequential disclosure rule is shown to implement an ascending price auction in which each losing bidder learns his true valuation, but the winning bidder’s information is truncated from below. As the auction ends, the winning bidder only has limited information, namely that his valuation is sufficiently high to win the auction. The sequential mechanism implements the allocation of the handicap auction of Esö and Szentes [10] but strengthens the participation constraints of the bidders from interim to …
Competing For Consumer Inattention, Geoffroy De Clippel, Kfir Eliaz, Kareen Rozen
Competing For Consumer Inattention, Geoffroy De Clippel, Kfir Eliaz, Kareen Rozen
Cowles Foundation Discussion Papers
Consumers purchase multiple types of goods and services, but may be able to examine only a limited number of markets for the best price. We propose a simple model which captures these features, conveying some new insights. A firm’s price can deflect or draw attention to its market, and consequently, limited attention introduces a new dimension of competition across markets. We fully characterize the resulting equilibrium, and show that the presence of partially attentive consumers improves consumer welfare as a whole. When consumers are less attentive, they are more likely to miss the best offer in each market; but the …
Financial Innovation, Collateral And Investment, Ana Fostel, John Geanakoplos
Financial Innovation, Collateral And Investment, Ana Fostel, John Geanakoplos
Cowles Foundation Discussion Papers
We show that financial innovations that change the collateral capacity of assets in the economy can affect investment even in the absence of any shift in utilities, productivity, or asset payoffs. First we show that the ability to leverage an asset by selling non-contingent promises can generate over-investment compared to the Arrow-Debreu level. Second, we show that the introduction of naked CDS can generate under-investment with respect to the Arrow-Debreu level. Finally, we show that the introduction of naked CDS can robustly destroy competitive equilibrium.
Financial Innovation, Collateral And Investment, Ana Fostel, John Geanakoplos
Financial Innovation, Collateral And Investment, Ana Fostel, John Geanakoplos
Cowles Foundation Discussion Papers
Financial innovations that change how promises are collateralized can affect investment, even in the absence of any change in fundamentals. In C-models, the ability to leverage an asset always generates over-investment compared to Arrow Debreu. The introduction of CDS always leads to under-investment with respect to Arrow Debreu, and in some cases even robustly destroys competitive equilibrium. The need for collateral would seem to cause under-investment. Our analysis illustrates a countervailing force: goods that serve as collateral yield additional services and are therefore over-valued and over-produced. In models without cash flow problems there is never marginal under-investment on collateral.
Sequential Information Disclosure In Auctions, Dirk Bergemann, Achim Wambach
Sequential Information Disclosure In Auctions, Dirk Bergemann, Achim Wambach
Cowles Foundation Discussion Papers
We consider the design of an optimal auction in which the seller can determine the allocation and the disclosure rule of the mechanism. Thus, in contrast to the standard analysis of a optimal auctions, the seller can explicitly design the disclosure of the information received by each bidder as his private information. We show that the optimal disclosure rule is a sequential disclosure rule, implemented in an ascending price auction. In the optimal disclosure mechanism, each losing bidder learns his true valuation, but the winning bidder only learns that his valuation is sufficiently high to win the auction. We show …
Nonparametric Analysis Of Random Utility Models: Testing, Yuichi Kitamura, Jörg Stoye
Nonparametric Analysis Of Random Utility Models: Testing, Yuichi Kitamura, Jörg Stoye
Cowles Foundation Discussion Papers
This paper develops new tools for the analysis of Random Utility Models (RUM). The leading application is stochastic revealed preference theory, that is, the modeling of aggregate choice behavior in a population characterized by individual rationality and unobserved heterogeneity. We test the null hypothesis that a repeated cross-section of demand data was generated by such a population, without restricting unobserved heterogeneity in any form whatsoever. Equivalently, we empirically test McFadden and Richter’s (1991) Axiom of Revealed Stochastic Preference (ARSP, to be defined later), using only nonsatiation and the Strong Axiom of Revealed Preference (SARP) as restrictions on individual level behavior. …
(Ir)Rational Exuberance: Optimism, Ambiguity And Risk, Anat Bracha, Donald J. Brown
(Ir)Rational Exuberance: Optimism, Ambiguity And Risk, Anat Bracha, Donald J. Brown
Cowles Foundation Discussion Papers
The equilibrium prices in asset markets, as stated by Keynes (1930): “…will be fixed at the point at which the sales of the bears and the purchases of the bulls are balanced.” We propose a descriptive theory of finance explicating Keynes’ claim that the prices of assets today equilibrate the optimism and pessimism of bulls and bears regarding the payoffs of assets tomorrow. This equilibration of optimistic and pessimistic beliefs of investors is a consequence of investors maximizing Keynesian utilities subject to budget constraints defined by market prices and investor’s income. The set of Keynesian utilities is a new class …