American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 1 February 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=1 Journal Article A Theory of Deception DavidEttingerU Cergy-Pontoise PhilippeJehielParis School of Economics and U College London 1 20 This paper proposes an equilibrium approach to belief manipulation and deception in which agents only have coarse knowledge of their opponent's strategy. Equilibrium requires the coarse knowledge available to agents to be correct, and the inferences and optimizations to be made on the basis of the simplest theories compatible with the available knowledge. The approach can be viewed as formalizing into a game theoretic setting a well documented bias in social psychology, the fundamental attribution error. It is applied to a bargaining problem, thereby revealing a deceptive tactic that is hard to explain in the full rationality paradigm. (JEL C78, D83, D84) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.1.1 10.1257/mic.2.1.1 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 1 February 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=1 Journal Article Investor Sentiments SergeiIzmalkovNew Economic School, Moscow MuhametYildizMIT and Institute for Advanced Study, Princeton, NJ 21 38 We consider a general class of games that have been used to model many economic problems where players' sentiments are believed to play an important role. Dropping the common prior assumption, we identify the relevant notion of sentiments for strategic behavior in these games. This notion is tied to how likely a player thinks that some other player has a more optimistic outlook than himself when they obtain their private information. Under this notion, we show that sentiments have a profound effect on strategic outcomes -- even with vanishing uncertainty. (JEL C73, D82, D83, G11) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.1.21 10.1257/mic.2.1.21 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 1 February 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=1 Journal Article An Experimental Test of Flexible Combinatorial Spectrum Auction Formats ChristophBrunnerCA Institute of Technology Jacob K.GoereeCA Institute of Technology Charles A.HoltU VA John O.LedyardCA Institute of Technology 39 57 This paper reports laboratory experiments that evaluate the performance of a flexible package bidding format developed by the FCC, in comparison with other combinatorial formats. In general, the interest of policy makers in combinatorial auctions is justified by the laboratory data. When value complementarities are present, package bidding yields improved performance. We find clear differences among the combinatorial auction formats both in terms of efficiency and seller revenue, however. Notably, the combinatorial clock provides the highest revenue. The FCC's flexible package bidding format performed worse than the alternatives, which is one of the main reasons why it was not implemented. (JEL D44, H82) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.1.39 10.1257/mic.2.1.39 http://www.aeaweb.org/aej-micro/data/2007-0019_data.zip http://www.aeaweb.org/aej-micro/app/2007-0019_app.pdf American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 1 February 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=1 Journal Article Noise, Information, and the Favorite-Longshot Bias in Parimutuel Predictions MarcoOttavianiLondon Business School and Northwestern U Peter NormanSorensenU Copenhagen 58 85 According to the favorite-longshot bias, the expected return on an outcome tends to increase in the fraction of bets laid on that outcome. We derive testable implications for the direction and extent of the bias depending on the ratio of private information to noise present in the market. We link this ratio to observables such as the number of bettors, the number of outcomes, the amount of private information, the level of participation generated by recreational interest in the event, the divisibility of bets, the presence of ex post noise, as well as ex ante asymmetries across outcomes. (JEL D81, D83) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.1.58 10.1257/mic.2.1.58 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 1 February 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=1 Journal Article Social Reinforcement: Cascades, Entrapment, and Tipping GeoffreyHealColumbia U HowardKunreutherU PA 86 99 The actions of different agents sometimes reinforce each other. Examples are network effects and the threshold models used by sociologists as well as (Harvey) Leibenstein's "bandwagon effects." We model such situations as a game with increasing differences, and show that tipping of equilibria, cascading, and clubs with entrapment are natural consequences of this mutual reinforcement. If there are several equilibria, one of which Pareto dominates, then the inefficient equilibria can be tipped to the efficient one, a result of interest in the context of coordination problems. We characterize the smallest tipping set. (JEL C72, D80, D85, Z13) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.1.86 10.1257/mic.2.1.86 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 1 February 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=1 Journal Article Information Percolation DarrellDuffieStanford U GastonGiroux? GustavoMansoMIT 100 111 We study the "percolation" of information of common interest through a large market as agents encounter and reveal information to each other over time. We provide an explicit solution for the dynamics of the cross-sectional distribution of posterior beliefs. We also show that convergence of the cross-sectional distribution of beliefs to a common posterior is exponential and that the rate of convergence does not depend on the size of the groups of agents that meet. The rate of convergence is merely the mean rate at which an individual agent is matched. (JEL D83) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.1.100 10.1257/mic.2.1.100 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 1 February 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=1 Journal Article Naïve Learning in Social Networks and the Wisdom of Crowds BenjaminGolubStanford U Matthew O.JacksonStanford U and Santa Fe Institute 112 49 We study learning in a setting where agents receive independent noisy signals about the true value of a variable and then communicate in a network. They naïvely update beliefs by repeatedly taking weighted averages of neighbors' opinions. We show that all opinions in a large society converge to the truth if and only if the influence of the most influential agent vanishes as the society grows. We also identify obstructions to this, including prominent groups, and provide structural conditions on the network ensuring efficient learning. Whether agents converge to the truth is unrelated to how quickly consensus is approached. (JEL D83, D85, Z13) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.1.112 10.1257/mic.2.1.112 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 1 February 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=1 Journal Article Optimal Sales Schemes against Interdependent Buyers MasakiAoyagiISER, Osaka U 150 82 This paper studies a monopoly pricing problem when the seller can choose the timing of a trade with each buyer, and a buyer's valuation of the seller's good is the weighted sum of his and other buyers' private signals. We show that it is optimal for the seller to employ a sequential scheme that trades with one buyer at a time and allows each buyer to observe the outcomes of all preceding transactions. We also identify conditions under which the seller optimally trades with the buyers in the increasing order of the weights they place on other buyers' signals. (JEL D42, D82, L12) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.1.150 10.1257/mic.2.1.150 http://www.aeaweb.org/aej-micro/app/2007-0029_app.pdf American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 1 February 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=1 Journal Article The 1/d Law of Giving Jacob K.GoereeCA Institute of Technology Margaret A.McConnellCA Institute of Technology TiffanyMitchellWestridge High School, Pasadena, CA TraceyTrompWestridge High School, Pasadena, CA LeeatYarivCA Institute of Technology 183 203 We combine survey data on friendship networks and individual characteristics with experimental observations from dictator games. Dictator offers are primarily explained by social distance, giving follows a simple inverse distance law. While student demographics play a minor role in explaining offer amounts, individual heterogeneity is important for network formation. In particular, we detect significant homophilous behavior; students connect to others similar to themselves. Moreover, the network data reveal a strong preference for cliques, students connect to those already close. The study is one of the first to identify network architecture with individual behavior in a strategic context. (JEL D44, H82) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.1.183 10.1257/mic.2.1.183 http://www.aeaweb.org/aej-micro/data/2008-0037_data.zip American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 1 February 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=1 Journal Article The Strategic Value of Quantity Forcing Contracts DavidMartimortToulouse School of Economics and EHESS SalvatorePiccoloU Naples "Federico II" and CSEF 204 29 We explore the strategic value of quantity forcing contracts in a manufacturer-retailer environment under both adverse selection and moral hazard. Manufacturers dealing with (exclusive) competing retailers may prefer to leave contracts silent on retail prices, whenever other aspects of the retailers' activity remain nonverifiable. Two effects are at play when moving from retail price maintenance to quantity forcing. First, restricting screening possibilities may increase retailers' rent. Second, such a restriction affects downstream competition. This latter effect may justify using quantity forcing contracts and, more generally, shed light on a novel source of contractual incompleteness. (JEL D82, D86, L14) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.1.204 10.1257/mic.2.1.204 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 1 February 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=1 Journal Article Competition, Monopoly Maintenance, and Consumer Switching Costs HodakaMoritaU New South Wales MichaelWaldmanCornell U 230 55 Significant attention has been paid to why a durable goods producer with little or no market power would monopolize the maintenance market for its own product. This paper investigates an explanation for the practice based on consumer switching costs and the decision concerning maintaining versus replacing used units. In our explanation, if the maintenance market is not monopolized, consumers sometimes maintain used units that are more efficiently replaced. In turn, monopolizing the maintenance market avoids this inefficiency. In contrast to most previous explanations for the practice, in our explanation, the practice increases both social and consumer welfare. (JEL D42, D43, D82, K21, L12, L42) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.1.230 10.1257/mic.2.1.230 http://www.aeaweb.org/aej-micro/app/2008-0004_app.pdf American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 1 February 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=1 Journal Article Front Matter i ii http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.1.i 10.1257/mic.2.1.i