3rd Lecture on ABM Models with Posted Prices. Writeup: Chapter 3
YT Video Recording of Lecture: Video.
Wednesday 30th Sep lecture The first two lectures were preliminary materials. With this 3rd Lecture, we build our first ABModel. This is a very simple model of the housing rental market with Posted Prices. We will compare the outcomes of the ABM to the housing rental market discssed in Varian Chapter 1. In particular, we will focus on Reservation Prices. Varian Chapter 1 also has an excellent discussion of methodology of conventional economics which we will use and compare with ABM methodology, which we will develop later on in the course. Before reading Chapter 1 of Varian, it will be useful for the students to read the Structured Summary of Varian Chapter 1. This summary brings out the important element of the discussion in Varian, which we would like students to notice, and remember, for later use.
PREPARATION FOR CLASS: Homework Exercise: talk to fellow students, as well as others, about their experiences with renting houses or apartments. Focus on understanding how people decide on which house to rent, and also on how much rent to pay. In particular, try to assess the extent to which Varian's description of the market for rental housing is in conformity with real world rental markets. Make a list of similarities and differences from interviews you have done to see how people decide on rentals.
Supplementary Materials:
Short Lecture on a variant ABM model with Posted Prices: YT Video
• Davis, Douglas D., and Charles A. Holt (1997). Price rigidities and institutional variations in markets with posted prices. Economic Theory 9: 63–80.
• Friedman, Milton (1953). The methodology of positive economics. In Essays in Positive Economics. Chicago: University of Chicago Press. Available from: Mäki, Uskali, ed. The methodology of positive economics: Reflections on the Milton Friedman legacy . Cambridge University Press, 2009.
• Kahneman, Daniel, Jack L. Knetsch and Richard Thaler (1986). Fairness as a constraint on profit seeking: entitlements in the market. American Economic Review 76(4): 728–741.
• Ketcham, Jon, Vernon L. Smith and Arlington W. Williams (1984). A comparison of posted-offer and double-auction pricing institutions. Review of Economic Studies 51: 595–614.
• Plott, Charles R., and Vernon L. Smith (1978). An experimental examination of two exchange institutions. Review of Economic Studies 45(1): 133–153.
• Thaler, Richard (1985). Mental accounting and consumer choice. Marketing Science 4(3): 199–214.
• Varian, Hal R. Intermediate Microeconomics: A Modern Approach, chapter 1, “The Market.”