Education, Dynamic Signalling and Social Distance (back to home page)
In many European countries the average level of education has grown steadily over the last few generations. The paper shows how such a trend can be easily rationalized by a model that extends a standard signaling game in two directions. First, a temporal structure is induced by having two different cohorts of individuals playing the game. Second, in addition to standard rational agents, the model postulates the existence of two classes of agents that care about their relative position in the distribution of educational choices. Conformist individuals wish to be close to the average level; status seeking individuals seek to be above it. Results show that the presence of these two classes of individuals generates an average level of education that changes and increases over time for a wide range of choice of parameters. Consequences of this increasing level of education on the behaviour of the firms are also explored.
Keywords: education, signalling, status seeeking, conformist behaviour.
JEL Classification: I20, D82.
Best Responding to What? A Behavioural Approach to One Shot Play in 2x2 Games (back to home page)
We introduce a simple procedure to be used for selecting the strategies most likely to be played by inexperienced agents who interact in one shot 2x2 games. We start with an axiomatic description of a function that may capture players' beliefs. Various proposals connected with the concept of mixed strategy Nash equilibrium do not match this description. On the other hand minimax regret obeys all the axioms. Therefore we use minimax regret to approximate players' beliefs and we let players best respond to these conjectured beliefs. When compared with existing experimental evidences about one shot matching pennies games, this procedure correctly indicates the choices of the vast majority of the players. Applications to other classes of games are also explored.
Keywords: prediction, beliefs, mixed strategy Nash equilibrium, minimax regret, matching pennies, experiments.
JEL Classification: C72, C91.
Some Equivalence Results between Mixed Strategy Nash Equilibria and Minimax Regret in 2x2 Games (back to home page)
We show that in any 2x2 game in which a unique mixed strategy Nash equilibrium exists, the probability distribution that this equilibrium assigns to player i is either the same or the mirror image of the distribution that the minimax regret criterion defines for player j. Sharper results that connect the two distributions for the same player are then established for the class of symmetric games.
Keywords: mixed strategy Nash equilibria, minimax regret .
JEL Classification: C72, C92.
Un Bilancio dell’Esperienza UMTS in Europa: fu Collusione? (back to home page)
Something relevant happened in the mobile telecommunications field in the last two years: the allocation of the UMTS licenses, needed to supply the new third generation services, heavily involved the governments of all European countries and the most important telecom companies in the world. At the same time, it called the attention of the media and of the public opinion. After the run to 3G licenses finished a few months ago, it is now possible to draw up a first balance of the UMTS experience at a Continental level. In both the two categories winners and losers can easily be spotted. But other interesting points arise: can the actual allocation be considered stable? Has competition been limited on purpose in some auctions? Did a secret plan exist, a plan devoted to share the European market among the biggest operators in their different areas of influence?
Keywords: auctions, telecommunications, collusion..
JEL classification: D44, L96.
Lowest Unique Bid Auctions with Signals (back to home page)
A lowest unique bid auction allocates a good to the agent who submits the lowest bid that is not matched by any other bid. This peculiar auction format is becoming increasingly popular over the Internet. We show that when all the bidders are rational such a selling mechanism can lead to positive profits only if there is a large mismatch between the auctioneer's and the bidders' valuation. On the contrary, the auction becomes highly lucrative if at least some bidders are myopic. In this second case, we analyze the key role played by the existence of some private signals that the seller sends to the bidders about the status of their bids. Data about actual auctions confirm the profitability of the mechanism and the limited rationality of the bidders.
Keywords: lowest unique bid auctions, signals, bounded rationality.
JEL classification: D44, C72, D82.
Self-Serving Biased Reference Points (back to home page)
The paper formalizes the pervasive phenomenon of the self-serving bias within the framework of reference dependent preferences. This formulation allows to state a simple rule to assess the existence of the bias at the aggregate level as well as a procedure that identifies the minimum number of biased agents. As an application, we study the problem of the optimal allocation of a scarce resource among a finite number of claimants. We analyze the performance of different welfare criteria and show how the existence of self-serving biased individuals exacerbates the conflict between equity and efficiency of the final allocation.
Keywords: self-serving bias, reference dependent preferences, optimal allocation.
JEL classification: D00, D60.
Some Social Welfare Implications of Behavioral Preferences (back to home page)
We investigate how the assumption that individuals are characterized by some recent forms of behavioral preferences changes the analysis of an otherwise classical welfare problem, namely the optimal allocation of a scarce resource among a finite number of claimants. We consider two preference specifications: inequity aversion and reference dependence. In the latter case we also study the implications of the claimants displaying a self serving bias when setting their reference point. Using standard welfare criteria, we compute the optimal allocations that a benevolent social planner should implement in the various scenarios. Results are often remarkably different with respect to traditional (i.e., rational preferences) analysis. We discuss the policy implications and the role of a social planner.
Keywords: social welfare, optimal allocation, inequity aversion, reference dependence, self serving bias.
JEL classification: D01, D61.
The Neglected Effects of Demand Characteristics on the Sustainability of Collusion (back to home page)
According to traditional IO models, the characteristics of market demand (intercept, slope, elasticity) and of technology (level of symmetric marginal costs) do not play any role in defining the sustainability of collusive behaviors in Bertrand oligopolies. The paper modifies this counterintuitive result by showing that all the above mentioned factors do affect the sustainability of collusion when prices are assumed to be discrete rather than continuous. The sign of these effects is unambiguous. Their magnitude varies greatly: in some cases it is totally negligible, in others it becomes extremely relevant.
Keywords: collusion, market demand, Bertrand supergames.
JEL Classification: L13, L41.
Preempting versus Postponing: the Stealing Game (back to home page)
We present an endogenous timing game of action commitment in which players can steal from each other parts of a homogeneous and perfectly divisible pie (market). We show how the incentives to preempt or to follow the rivals radically change with the number of players involved in the game. In the course of the analysis we also introduce, discuss and apply the concept of pu-dominance, a generalization of the risk dominance criterion to games with more than two players.
Keywords: stealing, endogenous timing games, pu-dominance.
JEL classification: C72, C73.