Christoph Carnehl (Bocconi)
Title: A Quest for Knowledge (with Johannes Schneider)
Abstract: Is more novel research always desirable? We develop a model in which knowledge shapes society's policies and guides the search for discoveries. Researchers select a question and how intensely to study it. The novelty of a question determines both the value and difficulty of discovering its answer. We show that the benefits of discoveries are nonmonotone in novelty. Knowledge expands endogenously step-by-step over time. Through a dynamic externality, moonshots - research on questions more novel than what is myopically optimal - can improve the evolution of knowledge. Moonshots induce research cycles in which subsequent researchers connect the moonshot to previous knowledge.
Giacomo Weber (Paris School of Economics)
Title: Coarse Agents and Intergroup Phenomena
Abstract: This paper proposes a framework for analyzing intergroup phenomena. A set of heterogeneous agents is divided into two groups. Agents are paired, and each pair plays a normal-form game under complete information. When the opponent belongs to the same group ("in-group"), players form correct expectations about the opponent's behavior in equilibrium. Conversely, players form coarse expectations when their opponent is from the "out-group". In equilibrium, such coarse expectations must coincide with the aggregate behavior of the out-group. We apply this framework to an organizational setting where the groups represent subdivisions, and each game corresponds to a team task. These tasks are identical and exhibit strategic complementarities. An omniscient designer sorts agents into pairs in a way that maximizes the overall probability of task success. The analysis of the optimal assignment emphasizes the role of coarse expectations: by pairing efficient agents in-group and less efficient agents out-group, the designer can induce the latter to overexert effort in equilibrium. Further economic applications are discussed.
Alexander Magnus Jakobsen (Northwestern)
Title: Revealed Persuasion
Abstract: Using tools from decision theory, I study the identification and comparative-static properties of Bayesian Persuasion in terms of the receiver's choices, preferences and welfare. First, I show how all model parameters can be identified using different types of receiver choice data: the ex-ante ranking of action sets, ex-post choice distributions, or simply the supports of ex-post distributions. I then fully characterize key comparative static properties of the model in terms of those primitives. In particular, I show how the degree of conflict between the agents varies with the receiver's value of flexibility and of public information—the latter being achieved via a new menu operator that simulates public signals. Finally, utilizing comparisons between ex-ante preferences and ex-post choices, I develop comparative notions of optimism and pessimism for potentially-misspecified receivers.
Carlos Akkar (Oxford)
Title: Characterising Better Information in Decentralised Evaluations
Abstract: A risky opportunity is assessed by many evaluators until one seizes it. Evaluations are decentralised: no evaluator knows how many others rejected the opportunity, nor why they did so. An adverse selection problem ensues: evaluators recognise that merely receiving the opportunity is suggestive of its past rejections, and is therefore bad news. Better information might leave evaluators worse off by exacerbating this adverse selection problem. I characterise which Blackwell improvements of evaluators' information improve their decisions (payoffs) and which ones harm them. This characterisation informs a regulator who wants to improve evaluators' decision quality by restricting their information. I show that she must strive to prevent any regret that adverse selection might beget: ideally, no evaluator takes the opportunity unless it would be optimal despite all her competitors' rejections.
Michelle Avataneo (Northwestern)
Title: The Evolutionary Success of Moral Universalism vs Moral Conditionality.
Abstract: One is a moral universalist if one displays the same moral values (such as care and fairness) towards all, regardless of the moral values of those one interacts with. One is a moral conditionalist if one displays different moral values towards different people, depending on their morality. One can come across both universalists and conditionalists, suggesting that neither moral doctrine is uniformly advantageous. This paper explains why this is so. It shows that moral universalism is evolutionarily advantageous in environments with one-off interactions, whereas conditionality is advantageous under repeated interactions. Three main implications of the analysis match empirical observation: cities are more morally diverse than rural areas; people in rural areas are happier; and people in cities are wealthier.
Bruno Biais (HEC)
Title: Dynamic contracting with many agents
Abstract: We analyze dynamic capital allocation and risk sharing between a principal and many agents, who privately observe their output. The state variables of the mechanism design problem are aggregate capital and the distribution of continuation utilities across agents. This gives rise to a Bellman equation in an infinite dimensional space, which we solve with mean-field techniques. We fully characterize the optimal mechanism and show that the level of risk agents must be exposed to for incentive reasons is decreasing in their initial outside utility. We extend classical welfare theorems by showing that any incentive constrained optimal allocation can be implemented as an equilibrium allocation, with appropriate money issuance and wealth taxation by the principal.
Chris Turansick (Bocconi)
Title: An Alternative Approach for Nonparametric Analysis of Random Utility Models
Abstract: We readdress the problem of nonparametric statistical testing of random utility models proposed in Kitamura and Stoye (2018). Although their test is elegant, it is subject to computational constraints which leaves execution of the test infeasible in many applications. We note that much of the computational burden in Kitamura and Stoye's test is due to their test defining a polyhedral cone through its vertices rather than its faces. We propose an alternative but equivalent hypothesis test for random utility models. This test relies on a series of equality and inequality constraints which defines the faces of the corresponding polyhedral cone. Building on our testing procedure, we develop a novel axiomatization of the random utility model. Our new axiom can be interpreted as a condition on surplus allocation in cooperative games.
Loren Fryxell (Oxford)
Title:
Abstract:
Meg Meyer (Oxford)
Title: Dependence-Sensitive First-Order Stochastic Dominance
Abstract: When evaluations are comparative, rather than absolute, joint distributions, and not just marginal distributions, matter. This has implications both for behavioral decision theory and for performance/quality evaluation. In particular, univariate first-order stochastic dominance (FOSD) is no longer sufficient, in general, for one risky option to be preferred, or more likely to be chosen, than another. We propose a generalization of univariate FOSD that is sensitive to the joint distribution of (X,Y): Our generalization, dependence-sensitive first-order stochastic dominance (DSFD), captures a large family of comparative criteria for judging X to be superior to Y. We provide a sufficient condition on the joint distribution of (X,Y) for FOSD to imply DSFD and show that this result is robust to the inclusion of noise. We also provide a set of conditions that are equivalent to DSFD.
Nemanja Antic (Northwestern)
Title: Task Clarity and Credibility in Relational Contracts (with Ameet Morjaria and Miguel Ángel Talamas Marcos)
Abstract: We develop and test a relational contracting model where building relationships requires the principal and agent to solve task clarity as well as credibility problems. We model task clarity as the likelihood of the agent finding a productive action for the principal and demonstrate that it influences the agent’s propensity to fulfill promises -- the usual notion of credibility in relational contracts. This is because improving task clarity increases the ease of replacing a relationship after a defection, making defection more tempting. We validate our model using a decade of administrative data from the Ethiopian floriculture industry. Our estimation documents that: i) task clarity problems are economically relevant in the industry and larger for domestic firms, ii) consistent with a unique prediction of our model, domestic firms, due to their lower task clarity and despite a lower discount factor, are less likely to defect on relationships as a response to improvements in the outside option, and iii) analogously with the model, task clarity has buyer and seller components, which explain differences between foreign and domestic firms in task clarity, credibility, and overall success in relational contracts.
Marie Laclau (HEC)
Title: A belief-based approach to signaling (joint with F. Koessler and T. Tomala)
Abstract : In this paper, we provide a geometric characterization of the set of interim equilibrium payoffs in a general class of signaling games. To obtain a tractable characterization, we use the belief based approach found in the literature on repeated games with incomplete information, cheap talk and Bayesian persuasion. This approach avoids to specify the prior, the strategies of the sender and receiver, and the belief system. The key ingredient is to consider Bayes-plausible belief distributions that are incentive-compatible for the sender. Geometrically, this leads to a constrained convexification of the graphs of the interim value correspondences. Our characterization extends the analogous result for sender-receiver cheap talk games. We illustrate the results with some classical signaling games. We derive the best equilibrium payoff for the sender when his preferences are type-independent. For zero-sum preferences, we obtain an explicit formula for the ex-ante equilibrium payoff and establish a simple condition for the uniqueness of interim equilibrium payoffs.
Justus Preusser (Bocconi)
Title: Surplus extraction and the burden of proof (joint with Deniz Kattwinkel)
Abstract: An agent holds a surplus which a principal wants to extract. The size of the surplus is the agent’s private information; they decide how much of the surplus to reveal initially. In addition, both parties can costly produce conclusive proof that reveals the true size of the surplus. The agent’s liability is bounded by the revealed size of their surplus, while the principal is equipped with additional funds. The principal commits to a contract that allocates the burden of proof and the shares of the surplus contingent on the agent’s reports and the evidence presented. We characterize the principal’s optimal contract. Applications include wealth taxation, investment contracts, and procurement contracts.
Michael Greinecker (ENS Paris Saclay)
Title: Sequential Equilibria in a Class of Infinite. Extensive Form Games (with Martin Meier and Konrad Podczeck)
Abstract: Sequential equilibrium is one of the most fundamental refinements of Nash equilibrium for games in extensive form but is not defined for extensive-form games in which a player can choose among a continuum of actions. We define a class of infinite extensive form games in which information behaves continuously as a function of past actions and define a natural notion of sequential equilibrium for this class. Sequential equilibria exist in this class and refine Nash equilibria. In standard finite extensive-form games, our definition selects the same strategy profiles as the traditional notion of sequential equilibrium.
Daniel Quigley (Oxford)
Title: Aggregating strategic information (with James Best)
Abstract: A single uninformed decision-maker faces a binary decision problem in the presence of multiple informed senders. We examine the design of mediated mechanisms that maximize the decision-maker’s expected utility, when (i) senders share common interests (which differ from those of the decision-maker), and (ii) each sender’s private signal contains no information about the signals of others. We do not allow transfers, and our setting precludes direct cross-checking methods. We find that optimal mediation depends on the degree to which information is dispersed. When information is held among few senders, mediation cannot improve on the senders’ collusive outcome. However, when information is distributed among many senders (or biases are large), mediation schemes that `overrule’ suspicious plethoras of biased reporting can strictly improve the decision-maker’s payoffs. We fully characterize optimal mediation for the case in which private signals are binary, and show that it has a particular interval structure.
Satoshi Fukuda (Bocconi)
Title: Shaping Institutions (joint with William Fuchs)
Abstract: We propose a simple model of the evolution of institutions, where leaders' actions have a persistent effect by shaping the norms of the institutions they lead. This can lead to different long-run behaviors even for institutions with the same formal rules. The early history of leaders plays a crucial role in determining which outcome prevails. Every period, a leader decides to respect or abuse their position. Respect strengthens the norms; abuse weakens them. Leaders' type and current norms determine the benefit/cost of abusing the position. Norms also determine the replacement probability of leaders. We elucidate democratic backsliding and corporate-board capturing.
Pooya Molavi (Northwestern)
Title: Learning Dynamics and Stock Market Crashes" (with Ian Dew-Becker and Stefano Giglio)
Abstract: This paper studies the determinants of the joint behavior of security returns and their higher moments. One of its key practical questions is: why does stock market volatility rise when prices fall? We derive sufficient statistics determining the relationship between prices and volatility, among a range of other moments, which hold in essentially all possible models of cash-flow dynamics. The necessary and sufficient condition to match the data is that agents’ conditional distribution for fundamentals given the signals they have observed is negatively skewed. A simple three-parameter quantitative filtering model replicates a wide array of features of stock market dynamics.
Harry Pei (Northwestern)
Title: Community Enforcement with Endogenous Records
Abstract: I study repeated games with anonymous random matching where players endogenously decide whether to disclose signals about their past actions. I establish an-anti folk theorem, that when players are sufficiently long-lived, they will almost always play their dominant actions and will almost never cooperate. When players’ expected lifespans are intermediate, they can sustain some cooperation if their actions are substitutes but cannot sustain any cooperation if their actions are complements. Therefore, the maximal level of cooperation a community can sustain is not monotone with respect to its members’ expected lifespans and the complementarity of players’ actions can undermine their abilities to sustain cooperation.
Martino Banchio (Bocconi)
Title: Search and Rediscovery (joint work with Suraj Malladi)
Abstract: We model search in settings where agents know what can be found but not where to find it. A searcher faces a set of choices arranged by an observable attribute. Each period, she either selects a choice and pays a cost to learn about its quality, or she concludes search to take her best discovery to date. She knows that similar choices have similar qualities and uses this to guide her search. We identify robustly optimal search policies with a simple structure. Search is incremental, recall is never invoked, there is a threshold stopping rule, and the policy at each history depends only on a simple index.
Ines Moreno de Barreda (Oxford)
Title: Socially Efficient Approval Mechanism with Signalling costs (joint with Evgenii Safonov)
Abstract: An agent with a privately known continuous type applies for approval. While the agent always prefers approval over rejection, approving an agent with low type has social costs. The agent sends a report about her type that she can inflate by engaging in signaling costs that have the single-crossing property. We study approval mechanisms without transfers that maximize a social welfare function that takes into consideration both the approval decision and the signaling costs of the agent. We show that when the cost function is non-separable, threshold approval rules, which are widespread in society, are never socially optimal. By introducing some randomness in the rule, we can reduce the signaling costs without substantially changing the screening of the rule. If we further assume that the marginal cost is strictly log-supermodular, an assumption satisfied by the quadratic-loss function, we show that the optimal approval mechanism induces an approval probability that is continuous in the agent’s type. We provide necessary first-order conditions for the optimal rule, and illustrate them with an analysis of the case of quadratic-loss function and uniform distribution of the agents’ types.
Yves Le Yaouanq (CREST IP-Paris)
Titre : An Esteem-based Model of Rationalizations and Moral Behaviour (with Peter Schwardmann and Joel J. van der Weele)
Abstract : An influential literature in psychology finds that people tend to make moral judgements based on intuitions and emotions and then reason and rationalize primarily to justify the conclusions they previously arrived at. Our theoretical model formalizes this idea under the assumption that people invest in rationalizations because they value a (self)-image and outward reputation as a reasonable, evidence-based decision-maker. The model produces complementarities in agents’ cognitions, as one’s ability to critically assess others’ actions diminishes when resorting to self-serving rationalizations. Complementarities also occur among opposing political partisans and generate multiple equilibria, one where both sides abide by the facts, and one where they rationalize away inconvenient evidence and assign inappropriate motives to their opponents. Agents are overly eager to share their narratives publicly in the hope of enhancing their reputation, even though such communication decreases social welfare. Our model sheds light on the origin of partisan disagreement about the consequences of public policies and the conditions under which factual polarization increases. It matches empirical facts on the effect of echo chambers and intergroup contact as well as on miscalibrated perceptions of members of the out-group.