Search

The prevailing approaches to modelling interactive uncertainty with epistemic models in economics are state-based and type-based. We explicitly formulate two general procedures that transform state models into type models and vice versa. Both transformation procedures preserve the belief hierarchies as well as the common prior assumption. By means of counterexamples it is shown that the two procedures are not inverse to each other. However, if attention is restricted to maximally reduced epistemic models, then isomorphisms can be constructed and an inverse relationship emerges.

In this paper we explore the absentminded driver problem using two different scenarios. In the first scenario we assume that the driver is capable of reasoning about his degree of absentmindedness before he hits the highway. This leads to a Savage-style model where the states are mutually exclusive and the act-state independence is in place. In the second we employ centred possibilities, by modelling the states (i.e. the events about which the driver is uncertain) as the possible final destinations indexed by a time period. The optimal probability we find for continuing at an exit is different from almost all papers in the literature. In this scenario, act-state independence is still violated, but states are mutually exclusive and the driver arrives at his optimal choice probability via Bayesian updating. We show that our solution is the only one guaranteeing immunity from sure loss via a Dutch strategy, and that – despite initial appearances – it is time consistent. This raises important implications for the rationality of commitment in such scenarios.

We study bargaining models in discrete time with a finite number of players, stochastic selection of the proposing player, endogenously determined sets and orders of responders, and a finite set of feasible alternatives. The standard optimality conditions and system of recursive equations may not be sufficient for the existence of a subgame perfect equilibrium in stationary strategies (SSPE) in case of costless delay. We present a characterization of SSPE that is valid for both costly and costless delay. We address the relationship between an SSPE under costless delay and the limit of SSPEs under vanishing costly delay. An SSPE always exists when delay is costly, but not necessarily so under costless delay, even when mixed strategies are allowed for. This is surprising as a quasi SSPE, a solution to the optimality conditions and the system of recursive equations, always exists. The problem is caused by the potential singularity of the system of recursive equations, which is intimately related to the possibility of perpetual disagreement in the bargaining process.

A mechanism allocates one unit of an infinitely divisible commodity among agents reporting a number between zero and one. Nash, Pareto optimal Nash, and strong equilibria are analyzed for the case where the agents have single-dipped preferences. One of the main results is that when the mechanism is anonymous, monotonic, standard, and order preserving, then the Pareto optimal Nash and strong equilibria coincide and assign Pareto optimal allocations that are characterized by so-called maximal coalitions: members of a maximal coalition prefer an equal coalition share over obtaining zero, whereas the outside agents prefer zero over obtaining an equal share from joining the coalition.

A mechanism allocates one unit of an infinitely divisible commodity among agents reporting a number between zero and one. Nash, Pareto optimal Nash, and strong equilibria are analyzed for the case where the agents have single-dipped preferences. One of the main results is that when the mechanism is anonymous, monotonic, standard, and order preserving, then the Pareto optimal Nash and strong equilibria coincide and assign Pareto optimal allocations that are characterized by so-called maximal coalitions: members of a maximal coalition prefer an equal coalition share over obtaining zero, whereas the outside agents prefer zero over obtaining an equal share from joining the coalition.

Betrayal aversion is an important factor in the decision to trust. Trust in members of one’s own social group (ingroup members) is often higher than that in members of other groups (outgroup members). In this paper, I study (i) how betrayal aversion contributes to in-/outgroup discrimination in trust and (ii) how this contribution evolves as social groups solidify.

Betrayal aversion is an important factor in the decision to trust. Trust in members of one’s own social group (ingroup members) is often higher than that in members of other groups (outgroup members). In this paper, I study (i) how betrayal aversion contributes to in-/outgroup discrimination in trust and (ii) how this contribution evolves as social groups solidify.

Betrayal aversion is an important factor in the decision to trust. Trust in members of one’s own social group (ingroup members) is often higher than that in members of other groups (outgroup members). In this paper, I study (i) how betrayal aversion contributes to in-/outgroup discrimination in trust and (ii) how this contribution evolves as social groups solidify.

During the COVID-19 pandemic, traditional (offline) chess tournaments were prohibited and instead held online. We exploit this unique setting to assess the impact of remote work policies on the cognitive performance of individuals. Using the artificial intelligence embodied in a powerful chess engine to assess the quality of chess moves and associated errors, we find a statistically and economically significant decrease in performance when an individual competes remotely versus offline in a face-to-face setting. The effect size decreases over time, suggesting an adaptation to the new remote setting.