Social learning often occurs between groups with different levels of experience. Yet little is known about the ideal behavioral rules in such contexts. Existing insights only apply when individuals ...learn from each other in the same group. In this paper, we close this gap and consider two groups, novices and experienced. Experienced should not learn from novices. For novices learning from experienced, a particular form of probabilistic imitation is selected. Novices should imitate any experienced who is more successful, and sometimes but not always imitate an experienced who is less successful.
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CEKLJ, IZUM, KILJ, NUK, PILJ, PNG, SAZU, UL, UM, UPUK
Incentivized methods for eliciting subjective probabilities in economic experiments present the subject with risky choices that encourage truthful reporting. We discuss the most prominent elicitation ...methods and their underlying assumptions, provide theoretical comparisons and give a new justification for the quadratic scoring rule. On the empirical side, we survey the performance of these elicitation methods in actual experiments, considering also practical issues of implementation such as order effects, hedging, and different ways of presenting probabilities and payment schemes to experimental subjects. We end with a discussion of the trade-offs involved in using incentives for belief elicitation and some guidelines for implementation.
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CEKLJ, EMUNI, FIS, FZAB, GEOZS, GIS, IJS, IMTLJ, KILJ, KISLJ, MFDPS, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, SBMB, SBNM, UKNU, UL, UM, UPUK, VKSCE, ZAGLJ
In an equilibrium framework, we explore how players communicate in games with multiple Nash equilibria when messages that make sense are not ignored. Communication is about strategies and not about ...private information. It begins with the choice of a language, followed by a message that is allowed to be vague. We focus on equilibria where the sender is believed whenever possible, and develop a
theory of credible communication
. We show that credible communication is sensitive to changes in the timing of communication. Sufficient conditions for communication leading to efficient play are provided.
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CEKLJ, DOBA, EMUNI, FIS, FZAB, GEOZS, GIS, IJS, IMTLJ, IZUM, KILJ, KISLJ, MFDPS, NLZOH, NUK, ODKLJ, OILJ, PILJ, PNG, SAZU, SBCE, SBJE, SBMB, SBNM, UILJ, UKNU, UL, UM, UPUK, VKSCE, ZAGLJ
5.
Robust sequential search Schlag, Karl H; Zapechelnyuk, Andriy
Theoretical economics,
November 2021, Volume:
16, Issue:
4
Journal Article
Peer reviewed
Open access
We study sequential search without priors. Our interest lies in decision rules that are close to being optimal under each prior and after each history. We call these rules robust. The search ...literature employs optimal rules based on cutoff strategies, and these rules are not robust. We derive robust rules and show that their performance exceeds 1/2 of the optimum against binary independent and identically distributed (i.i.d.) environments and 1/4 of the optimum against all i.i.d. environments. This performance improves substantially with the outside option value; for instance, it exceeds 2/3 of the optimum if the outside option exceeds 1/6 of the highest possible alternative.
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BFBNIB, CEKLJ, FZAB, GIS, IJS, KILJ, NLZOH, NUK, OILJ, SBCE, SBMB, UL, UM, UPUK
We propose how to bid in first-price auctions when a bidder knows the own value but not how others will bid. To do this, we introduce a methodology to show how to make choices in strategic settings ...without assuming common knowledge or equilibrium behavior. Accordingly, we first eliminate environments that are believed not to occur and then find a robust rule that performs well in the remaining environments. We test our bids using data from laboratory experiments and the field and find that our bids outperform those made by real bidders.
This paper was accepted by Omar Besbes, revenue management and market analytics.
Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2023.4899 .
Dynamic benchmark targeting Schlag, Karl H.; Zapechelnyuk, Andriy
Journal of economic theory,
05/2017, Volume:
169
Journal Article
Peer reviewed
Open access
We study decision making in complex discrete-time dynamic environments where Bayesian optimization is intractable. A decision maker is equipped with a finite set of benchmark strategies. She aims to ...perform similarly to or better than each of these benchmarks. Furthermore, she cannot commit to any decision rule, hence she must satisfy this goal at all times and after every history. We find such a rule for a sufficiently patient decision maker and show that it necessitates not to rely too much on observations from distant past. In this sense we find that it can be optimal to forget.
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IJS, IMTLJ, KILJ, KISLJ, NUK, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
ABSTRACT
A solution to Rubinstein (1982)'s open‐ended, alternating‐offer bargaining problem for two equally patient bargainers who exhibit similar degrees of inequality aversion is presented. ...Inequality‐averse bargainers may experience envy if they are worse off, and guilt if they are better off, but they still reach agreement in the first period under complete information. If the guilt felt is strong, then the inequality‐averse bargainers split a pie of size one equally regardless of their degree of envy. If the guilt experienced is weak, then the agreed split is tilted away from the Rubinstein division towards a more unequal split whenever the degree of envy is smaller than the discounted degree of guilt. Envy and weak guilt have opposite effects on the equilibrium division of the pie, and envy has a greater marginal impact than weak guilt. Equally inequality‐averse bargainers agree on the Rubinstein division if the degree of envy equals the discounted degree of guilt. As both bargainers' sensation of inequality aversion diminishes, the bargaining outcome converges to the Rubinstein division.
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FZAB, GIS, IJS, IZUM, KILJ, NLZOH, NUK, OILJ, PILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
Individuals in a finite population repeatedly choose among actions yielding uncertain payoffs. Between choices, each individual observes the action and realized outcome ofoneother individual. We ...restrict our search to learning rules with limited memory that increase expected payoffs regardless of the distribution underlying their realizations. It is shown that the rule that outperforms all others is that which imitates the action of an observed individual (whose realized outcome is better than self) with a probability proportional to the difference in these realizations. When each individual uses this best rule, the aggregate population behavior is approximated by the replicator dynamic.Journal of Economic LiteratureClassification Numbers: C72, C79, D83.
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IJS, IMTLJ, KILJ, KISLJ, NUK, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
We present a method for eliciting beliefs about probabilities when multiple realisations of an outcome are available, the “frequency” method. The method is applicable for any reasonable utility ...function. Unlike existing techniques that account for deviations from risk-neutrality, this method is highly transparent to subjects and easy to implement. Rather than identifying point beliefs these methods identify bounds on beliefs, thus trading off precision for generality and simplicity. An experimental comparison of this method and a popular alternative, the Karni method, shows that subjects indeed find the frequency method easier to understand. Significantly, we show that confusion due to the complexity of the Karni method leads to less cognitively able subjects erroneously stating a belief of 50%, a bias not present in the frequency method.
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CEKLJ, EMUNI, FIS, FZAB, GEOZS, GIS, IJS, IMTLJ, KILJ, KISLJ, MFDPS, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, SBMB, SBNM, UKNU, UL, UM, UPUK, VKSCE, ZAGLJ
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