List of Abstracts

(*) Speakers

Title: The Impact of Voting Rules on Moral Transgressions in Teams

Author: Eberhard Feess (*)

Abstract: Recent experiments suggests that subjects in the laboratory are more willing to make morally questionable decisions if they decide as a group. We model group decisions as independent votes and vary the minimum number of votes (the threshold) required for a moral transgression. Drawing on a model by Rothenhaeusler et al. (2018), we hypothesize that the willingness to vote for the moral transgression increases in the threshold. Our experimental results support the hypothesis. Such a behavior, however, is fully in line with a simple theoretical model that consists only of internal moral costs and financial incentives, so that the impact of the voting threshold may fully be explained by free-riding. We then develop several additional treatments to disentangle financial free-riding, guilt sharing, social conformity and signaling of others' preferences.

Title: Leaping Into the Dark: A Theory of Policy Gambles

Author: Kartik Anand, Prasanna Gai (*) and Philipp J. König

Abstract: We show how the unpredictability of policy outcomes, together with a simple political friction – the inability of an incumbent politician to commit to a policy stance – interact with voters’ behaviour and investors’ decision-making to create endogenous policy uncertainty. In this environment, the conflict over the division of output between voters and investors, can give rise to a “policy gamble” – a departure from the status quo policy with an uncertain outcome. If investors’ aversion to policy unpredictability is sufficiently high, multiple self-fulfilling equilibria arise. Policy gambles that command broad-based electoral support can suddenly emerge, despite being against voters’ best interests. Consensus politics can eliminate the multiplicity and may enhance voter welfare relative to adversarial politics. We interpret the United Kingdom’s decision to leave the European Union through the lens of our model.

Title: Disentangling Preferences and Limited Attention: Random-utility Models with Consideration Sets

Author: Peter Gibbard (*)

Abstract: This paper presents a model of choice with limited attention. In the model, the decision-maker forms a consideration set, from which she chooses her most preferred alternative. Both preferences and consideration sets are stochastic. While we present axiomatisations for this model, our focus is on the following identification question: to what extent can an observer retrieve probabilities of preferences and consideration sets from observed choices? Our first conclusion is a negative one: if the observed data is choice probabilities, the model is not identified – probabilities of preferences and consideration sets cannot be retrieved from choice probabilities. We solve the identification problem by assuming that an “enriched” dataset is observed, which includes choice probabilities under two frames. The observations of different choices under distinct frames reveal how a change in attention causes a change in choice, holding preferences constant. This allows us to isolate the influence of attention on choice.

Title: Bayes and Hurwicz without Bernoulli

Authors: Simon Grant (*), Patricia Rich and Jack Stecher

Abstract: We provide a theory of decision under ambiguity that does not require expected utility maximization under risk. Instead, we require only that a decision maker be probabilistically sophisticated in evaluating a subcollection of acts. Three components determine the decision maker’s ranking of acts: a prior, a map from ambiguous acts to equivalent risky lotteries, and a generalized notion of certainty equivalent. The prior is Bayesian, defined over the inverse image of acts for which the decision maker is probabilistically sophisticated. Ambiguity preferences are similar to Hurwicz, depending on an act’s best- and worst-case interpretations. The generalized certainty equivalent may, but need not, come from a Bernoulli utility. The ability to combine appealing theories of risk and ambiguity at will has been sought after but missing from the literature, and our decomposition provides a promising way forward.

Title: Bidding with Securities under Risk Aversion: The Role of Steepness as Insurance

Authors: Allan Hernandez-Chanto (*) and Andres Fioriti

Abstract: In a security-bid auction, the stochastic revenue of the project being auctioned is used as an asset to securitize the winner's payment to the seller. De Marzo et al. (2005) show that in an environment with risk-neutral seller and bidders, steeper securities increase the seller's expected revenue but do not affect the efficiency of the auction. We introduce risk-averse bidders to analyze the insurance role of steepness and its implications for revenue, efficiency and bidders' endogenous participation. Steeper securities provide more insurance because they allow bidders to smooth payoffs across realizations: asking for lower payments when revenue realizations are low and for higher payments when realizations are high. We show that such insurance levels the field for more risk-averse bidders, inducing them to bid more aggressively and improving the revenue and the allocative efficiency of the auction. In addition, we present two results that are novel to the auction literature. We show that if bidders are homogeneously and sufficiently risk-averse (i) a call option is the only security that guarantees Pareto efficiency; and (ii) steeper securities attract more entry when bidders do not know their signals and entry is costly.

Title: Product Quality and Strategic Asymmetry under Export Rivalry

Authors: John Gilbert, Onur Koska (*) and Reza Oladi

Abstract: In a simple duopoly trade model with both horizontal and vertical product differentiation, this study scrutinizes the endogenous choice of quantities and prices as strategic variables under export rivalry. We show that strategic asymmetry (such that a potential exporter commits to a quantity contract, while a local rival commits to a price contract) can be observed especially when the relative product quality of the foreign variety is sufficiently high and trade costs are sufficiently low. Also a lower degree of horizontal product differentiation can make strategic asymmetry under export rivalry more likely.

Title: Random Non-Expected Utility: Non-Uniqueness

Author: Yi-Hsuan Lin (*)

Abstract: In random expected utility (Gul and Pesendorfer, 2006), the distribution of preferences is uniquely recoverable from random choice. This paper shows through two examples that such uniqueness fails in general if risk preferences are random but do not conform to expected utility theory. In the first, non- uniqueness obtains even if all preferences are confined to the betweenness class (Dekel, 1986) and are suitably monotone. The second example illustrates random choice behavior consistent with random expected utility that is also consistent with random non-expected utility. Reasons for such non-uniqueness are discussed. In particular, uniqueness may be restored if joint distributions of choice across a limited number of feasible sets are available.

Title: Pledge-and-Review Bargaining

Authors: Carline Bentley, Steffen Lippert (*) and James Tremewan

Abstract: We implement a simple game in the laboratory to test the main insight of the model of Pledge-and-Review bargaining in Harstad (2019): when uncertainty over disagreement payoffs is only resolved after pledges of contributions to a public good have been made (but before unanimity voting on whether those pledges will be implemented) positive contributions can be sustained. We find that this uncertainty does lead to greater contributions, but only for subjects who perform well in the cognitive reflection test. It appears that the reasoning required to reach the (efficient) subgame perfect Nash equilibrium is too challenging for most subjects. Interestingly, despite contributing one’s full endowment being the payoff maximizing strategy given subjects’ actual behaviour in the treatment with uncertainty, the bulk of subjects do not learn, and contributions in fact fall over time. A treatment where all players’ disagreement payoffs are equal to their endowment for sure leads to a sustained high level of cooperation, suggesting that the voting mechanism itself is sufficient to allow coordination on high levels of contributions without a role for uncertainty.

Title: Deposit Supply and Loan Demand in a Bank Sector with Differentiated Competition between Investor- and Customer-Owned Banks

Author: Richard Meade (*)

Abstract: Girotti and Meade (2017) find empirically that US depositors differently value savings bank deposit rates – a monetary metric – depending on whether banks are investor-owned or customer-owned. They also present evidence that investor-owned banks offer higher deposit rates than customer-owned banks, despite the latter formally acting in depositors’ interests. We provide microeconomic foundations for these findings, by formally modelling household deposit supply and loan demand choices in relation to each bank type. We do so by also modelling duopoly competition between investor- and customer-owned banks, with each bank type differentiated in terms of non-price characteristics as well as deposit and loan rate choices. This extends the standard Hotelling framework by applying it to the banking context, and by allowing different bank types to pursue different objectives. This enables us to derive equilibrium deposit and loan rates for each bank type, [and hence to analyse the dependence of a household’s equilibrium deposit choice on bank ownership. We derive conditions under which an investor-owned bank offers a higher deposit rate than its customer-owned rival, and under which depositors value deposit rates less highly when offered by customer-owned banks.]

Please note: items in “[…]” above are yet to be completed.

References:

Girotti, Mattia and Meade, Richard, U.S. Savings Banks' Demutualization and Depositor Welfare (August 2017). Banque de France Working Paper No. 639. Available at SSRN: https://ssrn.com/abstract=3032304 or http://dx.doi.org/10.2139/ssrn.3032304

Title: Supporting Cooperation via Agreement Equilibrium

Authors: Mehmet S. Ismail and Ronald Peeters (*)

Abstract: We introduce 'agreement equilibrium' as a novel solution concept that can explain the abundance of cooperative behavior that is often observed in laboratory experiments in various contexts. The main idea of the agreement equilibrium is to identify behaviors that individuals can (tacitly) agree on while being ambiguous about their opponents' intentions to respect or to betray this (tacit) agreement. We investigate properties of the agreement equilibrium, including in comparison to other equilibrium concepts, and illustrate the agreement equilibrium in a series of famous applications.

Title: Budgeting Requirements for Decision Markets

Author: Thomas Pfeiffer (*)

Abstract: Many decision-making problems require conditional forecasts. To decide, for instance, between alternative marketing campaigns, a company needs to understand how each of the alternatives will affect sales. Finding mechanisms that properly incentivise participants to provide their information for such conditional forecasts is non-trivial, but can be done through so-called decision markets. Decision markets combine market scoring rules to elicit forecasts with stochastic decision rules to map aggregated forecasts to decisions. In my presentation I will discuss obstacles to the implementation of decision markets as distributed applications. In particular, I will focus on the budgeting requirements for decision markets, and how they differ from properly incentivised prediction markets.

Title: Generalised Random Categorisation Rules

Author: Matthew Ryan (*)

Abstract: Aguiar’s (2017) random categorisation rule (RCR) describes random choice behaviour as the maximisation of a linear preference order over the intersection of a random consideration set with the set of available options. A key axiom in Aguiar’s (2017) characterisation of the RCR is an acyclicity condition on a revealed preference relation derived from the random choice function. We show that this condition may be substantially weakened -- to asymmetry of the revealed preference relation -- without jeopardising the essence of the RCR representation. In our generalisation of the RCR, preferences may be ill-behaved on subsets of alternatives that are never considered together. While these pathologies in preference are masked by the decision-maker’s selective attention to a particular choice problem, they may still be revealed by data across different choice problems. Finally, we show that the generalised model remains within the random utility class.

Title: Consumer Decision-making under Uncertainty on Digital Platforms

Authors: Yen Ling Tan (*) and Simona Fabrizi

Abstract: Inspired by the ride-sharing market in New Zealand, with Uber and Zoomy offering respectively a fixed price and an estimated price range per ride, we ask ourselves if competitors in the digital economy could deliberately offer distinct pricing schemes aimed at serving consumers with different levels of ambiguity tolerance to gain market share. We introduce explicit ambiguity in the study of individual decision-making over binary pricing options to investigate how ambiguity attitudes and different types of utility representations over ambiguous outcomes affect individual decision-making under ambiguity and competition in the ride-sharing market.

Title: Strategy-proof Rule on Non-conditional Domains: An Impossibility

Authors: Jorge Alcalde-Unzu and Marc Vorsatz (*)

Abstract: The Gibbard-Satterthwaite theorem shows that in the universal preference domain, all non-dictatorial and strategy-proof social choice rules are of range two. We show that the impossibility also holds if the preference domain of each agent fixes non-conditionally some binary comparisons. This has implications for any possible cartesian product of preference domains. On the one hand, it directly states an impossibility if all individual domain restrictions are non-conditional. Since the universal preference domain is non-conditional, our result generalizes the Gibbard-Satterthwaite theorem. On the other hand, if at least one individual domain restriction is conditional, our result provides a strategy to characterize all strategy-proof rules.