Lewis (1969) defined a coordination equilibrium as a Nash equilibrium in which no agent would be ... more Lewis (1969) defined a coordination equilibrium as a Nash equilibrium in which no agent would be better off if any other agent had chosen a different action. When there are multiple coordination equilibria, agents face an obvious coordination problem. The resolution of coordination problems rests upon individuals coming to understand the intentions of one another. The most explicit way of developing this understanding is for the individuals to communicate with one another. Common knowledge of a language must precede communication. Even with common knowledge of a language, individuals may not be bound to do what they say they will do. In such circumstances, talk is ‘cheap’.
Coordination problems arise when a game has multiple Nash equilibria and all players have a commo... more Coordination problems arise when a game has multiple Nash equilibria and all players have a common interest in avoiding a non-equilibrium state. To achieve an equilibrium state, agents must come to understand one another's intentions. Communication can facilitate this understanding under some, but not all, circumstances. In the absence of communication among agents, coordination may also sometimes be achieved with the aid of extrinsic signals that have come to be associated with the actions of others. In some settings, past actions themselves serve as precedents, without the benefit of any communication. Coordination and Communication Lewis (1969) defined a coordination equilibrium as a Nash equilibrium in which no agent would be better off if any other agent had chosen a different action.. When there are multiple coordination equilibria, agents face an obvious coordination problem. The resolution of coordination problems rests upon individuals coming to understand the intentions of one another. The most explicit way of developing this understanding is for the individuals to communicate with one another. Common knowledge of a language must precede communication. Even with common knowledge of a language, individuals may not be bound to do what they say they will do. In such circumstances, talk is >cheap=.
Charitable contributions are frequently made over time. Donors are free to contribute whenever th... more Charitable contributions are frequently made over time. Donors are free to contribute whenever they wish and as often as they want, and are frequently updated on the level of contributions by others. This dynamic structure enables donors to condition their contribution on that of others, and, as Schelling (1960) suggested, may serve to overcome free-riding thereby increasing charitable giving. Marx and Matthews (2000) build on Schelling's insight and show that multiple contribution rounds may secure a provision level that cannot be achieved in the static, one-shot setting, but only if there is discrete, positive payoff jump upon completion of the project. We examine these two hypotheses experimentally using static and dynamic public good games. We find that contributions are indeed higher in the dynamic than in the static game. However, in contrast to the predictions, the increase in contributions in the dynamic game does not appear to depend on the existence of a completion benefit jump or on whether players can condition their decisions on the behavior of other members of their group.
Several emerging capital markets have adopted legally separated share markets (LSSM) in which loc... more Several emerging capital markets have adopted legally separated share markets (LSSM) in which local firms market separate claims to the same underlying dividend flow to two distinct sets of investors, domestic shareholders who can only buy "A" shares with domestic currency and foreign investors who can only buy "B" shares with foreign currency. Legal restrictions prevent arbitrage across these markets. But field studies document covariance in the price movements of these assets with changes in the price of "A" shares preceding changes in the price of "B' shares. The natural explanation for the covariance in A and B shares' price movements is the notion that people trading in LSSM tend to read information from the price movements in one market as a relevant assessment of the fundamental factors of the asset they are trading in the other market. However, since any private information reflected in market prices of an asset is unobservable by an analyst, it is impossible to provide a direct test of this hypothesis using field data. A laboratory experiment is conducted to test the hypothesis that both (i) the price of an asset that is traded in a market where there are some 'informed' traders will reflect that information and (ii) the price of an asset with the same state-dependent dividend that is traded in a legally separated market with no informed traders will also reflect the same information. We find that the information held by insiders does get reflected in the asset price of the market in which the informed traders participate. Furthermore, this information does get reflected with a lag in the price of the asset traded in the market in which no informed traders participate. The effectiveness of the transference of information depends on whether or not the location of the informed traders is public knowledge and on the quality and clarity of the signal imbedded in the price movements in the market in which the informed traders participate.
We report results from an experiment that examines play in an indefinitely repeated, 2-player Pri... more We report results from an experiment that examines play in an indefinitely repeated, 2-player Prisoner's Dilemma game. Each experimental session involves N subjects and a sequence of indefinitely repeated games. The main treatment consists of whether agents are matched in fixed pairings or matched randomly in each indefinitely repeated game. Within the random matching treatment, we vary the information that players have about their opponents. Contrary to a theoretical possibility suggested by Kandori (1992), a cooperative norm does not emerge in the treatments where players are matched randomly. On the other hand, in the fixed pairings treatment, the evidence suggests that a cooperative norm does emerge as players gain more experience.
Discovery world programs seek to strengthen students’ problemsolving skills by encouraging comput... more Discovery world programs seek to strengthen students’ problemsolving skills by encouraging computer-aided independent inquiry. Although such programs have attracted the attention of developers of instructional software in many disciplines, there has been comparatively little application of them in the social sciences. This paper discusses classroom experiences with Smithtown, a computer program designed to explore the feasibility of using the discovery world approach in a large lecture-oriented introductory microeconomics course. The study described applies activity profiles to iden-
We report results from an experiment that examines play in an indefinitely repeated, 2-player Pri... more We report results from an experiment that examines play in an indefinitely repeated, 2-player Prisoner's Dilemma game. Each experimental session involves N subjects and a sequence of indefinitely repeated games. The main treatment consists of whether agents are matched in fixed pairings or matched randomly in each indefinitely repeated game. Within the random matching treatment, we vary the information that players have about their opponents. Contrary to a theoretical possibility suggested by Kandori (1992), a cooperative norm does not emerge in the treatments where players are matched randomly. On the other hand, in the fixed pairings treatment, the evidence suggests that a cooperative norm does emerge as players gain more experience.
Topics in Economic Analysis & Policy, Jan 19, 2004
This paper analyzes an extension of a model of production and predation due to Grossman (1998) to... more This paper analyzes an extension of a model of production and predation due to Grossman (1998) to a multiple community setting. In a multiple community setting, defense expenditures in any one community have the property of a local public good. Such expenditures produce effects on other communities. These effects include changes in the distribution of population among communities, the redistribution of predatory effort over communities, and an induced change in the predator/producer ratio in the economy as a whole. The question we address is whether the level of defense chosen by local governments so as to maximize the per capita consumption of their own producers, given defense levels elsewhere, always produces a second-best outcome. Our analysis shows that if the number of communities is fixed, fully rational local government decision-making leads to the same level of defense activity and equilibrium per capita consumption as would be chosen by a central planner. However, if individual local governments are boundedly rational, in the sense that they do not anticipate the effects of their own defense activity on the equilibrium predator/producer ratio and distribution of producer activity, then competition among local governments never achieves a first-best outcome. Furthermore, the equilibrium associated with competition among boundedly rational local governments can sometimes yield a lower consumption per capita in equilibrium than would be achieved if there were no local governments and each agent who chose to be a producer also chose his/her own level of defense.
ABSTRACT This report examines the process of economic and financial integration in East Asia in t... more ABSTRACT This report examines the process of economic and financial integration in East Asia in the light of Europe's experience.� The report provides a comprehensive analysis of East Asian monetary and financial integration process (including a deep analysis of East Asia's response to the 1997-98 financial crisis), a comprehensive critical survey of the literature on monetary and financial integration in East Asia, and an assessment of the various initiatives undertaken in the region for financial cooperation and macroeconomic surveillance.� Its aim is to evaluate the evolution of the last decade and to offer policy suggestions.� The main policy recommendations concern essentially two areas: (i) how to promote the creation of a regional financial market in Asia and (ii) how to encourage cooperation and macroeconomic surveillance in the region. (Provisional version. The printed publication will be delayed until the final text is available).
Charitable contributions are frequently made over time. Donors are free to contribute whenever th... more Charitable contributions are frequently made over time. Donors are free to contribute whenever they wish and as often as they want, and are frequently updated on the level of contributions by others. This dynamic structure enables donors to condition their contribution on that of others, and, as Schelling (1960) suggested, may serve to overcome free-riding thereby increasing charitable giving. Marx and Matthews (2000) build on Schelling's insight and show that multiple contribution rounds may secure a provision level that cannot be achieved in the static, one-shot setting, but only if there is discrete, positive payoff jump upon completion of the project. We examine these two hypotheses experimentally using static and dynamic public good games. We find that contributions are indeed higher in the dynamic than in the static game. However, in contrast to the predictions, the increase in contributions in the dynamic game does not appear to depend on the existence of a completion benefit jump or on whether players can condition their decisions on the behavior of other members of their group.
Coordination problems arise when a game has multiple Nash equilibria and all players have a commo... more Coordination problems arise when a game has multiple Nash equilibria and all players have a common interest in avoiding a non-equilibrium state. To achieve an equilibrium state, agents must come to understand one another's intentions. Communication can facilitate this understanding under some, but not all, circumstances. In the absence of communication among agents, coordination may also sometimes be achieved with the aid of extrinsic signals that have come to be associated with the actions of others. In some settings, past actions themselves serve as precedents, without the benefit of any communication. Coordination and Communication Lewis (1969) defined a coordination equilibrium as a Nash equilibrium in which no agent would be better off if any other agent had chosen a different action.. When there are multiple coordination equilibria, agents face an obvious coordination problem. The resolution of coordination problems rests upon individuals coming to understand the intentions of one another. The most explicit way of developing this understanding is for the individuals to communicate with one another. Common knowledge of a language must precede communication. Even with common knowledge of a language, individuals may not be bound to do what they say they will do. In such circumstances, talk is >cheap=.
Several countries have adopted legally separated share markets (LSSM), where local firms market s... more Several countries have adopted legally separated share markets (LSSM), where local firms market separate claims to the same dividend flow to domestic and foreign investors who cannot arbitrage across LSSM. We designed a laboratory experiment to test whether the inside information in one LSSM is reflected in the prices of both markets. We find that insider information does transfer across markets. The extent of this transfer depends upon whether the location of insiders is publicly known, how close prices in the informed market get to the full information equilibrium, and how much the price variance is in this market. We also observe insiders' behavior and performance under different market conditions. Efforts by insiders to manipulate the market increase when their location is unknown to the public. On average such efforts pay off to the whole group of insiders but not to the initiator of these manipulative transactions.
Lewis (1969) defined a coordination equilibrium as a Nash equilibrium in which no agent would be ... more Lewis (1969) defined a coordination equilibrium as a Nash equilibrium in which no agent would be better off if any other agent had chosen a different action. When there are multiple coordination equilibria, agents face an obvious coordination problem. The resolution of coordination problems rests upon individuals coming to understand the intentions of one another. The most explicit way of developing this understanding is for the individuals to communicate with one another. Common knowledge of a language must precede communication. Even with common knowledge of a language, individuals may not be bound to do what they say they will do. In such circumstances, talk is ‘cheap’.
Coordination problems arise when a game has multiple Nash equilibria and all players have a commo... more Coordination problems arise when a game has multiple Nash equilibria and all players have a common interest in avoiding a non-equilibrium state. To achieve an equilibrium state, agents must come to understand one another's intentions. Communication can facilitate this understanding under some, but not all, circumstances. In the absence of communication among agents, coordination may also sometimes be achieved with the aid of extrinsic signals that have come to be associated with the actions of others. In some settings, past actions themselves serve as precedents, without the benefit of any communication. Coordination and Communication Lewis (1969) defined a coordination equilibrium as a Nash equilibrium in which no agent would be better off if any other agent had chosen a different action.. When there are multiple coordination equilibria, agents face an obvious coordination problem. The resolution of coordination problems rests upon individuals coming to understand the intentions of one another. The most explicit way of developing this understanding is for the individuals to communicate with one another. Common knowledge of a language must precede communication. Even with common knowledge of a language, individuals may not be bound to do what they say they will do. In such circumstances, talk is >cheap=.
Charitable contributions are frequently made over time. Donors are free to contribute whenever th... more Charitable contributions are frequently made over time. Donors are free to contribute whenever they wish and as often as they want, and are frequently updated on the level of contributions by others. This dynamic structure enables donors to condition their contribution on that of others, and, as Schelling (1960) suggested, may serve to overcome free-riding thereby increasing charitable giving. Marx and Matthews (2000) build on Schelling's insight and show that multiple contribution rounds may secure a provision level that cannot be achieved in the static, one-shot setting, but only if there is discrete, positive payoff jump upon completion of the project. We examine these two hypotheses experimentally using static and dynamic public good games. We find that contributions are indeed higher in the dynamic than in the static game. However, in contrast to the predictions, the increase in contributions in the dynamic game does not appear to depend on the existence of a completion benefit jump or on whether players can condition their decisions on the behavior of other members of their group.
Several emerging capital markets have adopted legally separated share markets (LSSM) in which loc... more Several emerging capital markets have adopted legally separated share markets (LSSM) in which local firms market separate claims to the same underlying dividend flow to two distinct sets of investors, domestic shareholders who can only buy "A" shares with domestic currency and foreign investors who can only buy "B" shares with foreign currency. Legal restrictions prevent arbitrage across these markets. But field studies document covariance in the price movements of these assets with changes in the price of "A" shares preceding changes in the price of "B' shares. The natural explanation for the covariance in A and B shares' price movements is the notion that people trading in LSSM tend to read information from the price movements in one market as a relevant assessment of the fundamental factors of the asset they are trading in the other market. However, since any private information reflected in market prices of an asset is unobservable by an analyst, it is impossible to provide a direct test of this hypothesis using field data. A laboratory experiment is conducted to test the hypothesis that both (i) the price of an asset that is traded in a market where there are some 'informed' traders will reflect that information and (ii) the price of an asset with the same state-dependent dividend that is traded in a legally separated market with no informed traders will also reflect the same information. We find that the information held by insiders does get reflected in the asset price of the market in which the informed traders participate. Furthermore, this information does get reflected with a lag in the price of the asset traded in the market in which no informed traders participate. The effectiveness of the transference of information depends on whether or not the location of the informed traders is public knowledge and on the quality and clarity of the signal imbedded in the price movements in the market in which the informed traders participate.
We report results from an experiment that examines play in an indefinitely repeated, 2-player Pri... more We report results from an experiment that examines play in an indefinitely repeated, 2-player Prisoner's Dilemma game. Each experimental session involves N subjects and a sequence of indefinitely repeated games. The main treatment consists of whether agents are matched in fixed pairings or matched randomly in each indefinitely repeated game. Within the random matching treatment, we vary the information that players have about their opponents. Contrary to a theoretical possibility suggested by Kandori (1992), a cooperative norm does not emerge in the treatments where players are matched randomly. On the other hand, in the fixed pairings treatment, the evidence suggests that a cooperative norm does emerge as players gain more experience.
Discovery world programs seek to strengthen students’ problemsolving skills by encouraging comput... more Discovery world programs seek to strengthen students’ problemsolving skills by encouraging computer-aided independent inquiry. Although such programs have attracted the attention of developers of instructional software in many disciplines, there has been comparatively little application of them in the social sciences. This paper discusses classroom experiences with Smithtown, a computer program designed to explore the feasibility of using the discovery world approach in a large lecture-oriented introductory microeconomics course. The study described applies activity profiles to iden-
We report results from an experiment that examines play in an indefinitely repeated, 2-player Pri... more We report results from an experiment that examines play in an indefinitely repeated, 2-player Prisoner's Dilemma game. Each experimental session involves N subjects and a sequence of indefinitely repeated games. The main treatment consists of whether agents are matched in fixed pairings or matched randomly in each indefinitely repeated game. Within the random matching treatment, we vary the information that players have about their opponents. Contrary to a theoretical possibility suggested by Kandori (1992), a cooperative norm does not emerge in the treatments where players are matched randomly. On the other hand, in the fixed pairings treatment, the evidence suggests that a cooperative norm does emerge as players gain more experience.
Topics in Economic Analysis & Policy, Jan 19, 2004
This paper analyzes an extension of a model of production and predation due to Grossman (1998) to... more This paper analyzes an extension of a model of production and predation due to Grossman (1998) to a multiple community setting. In a multiple community setting, defense expenditures in any one community have the property of a local public good. Such expenditures produce effects on other communities. These effects include changes in the distribution of population among communities, the redistribution of predatory effort over communities, and an induced change in the predator/producer ratio in the economy as a whole. The question we address is whether the level of defense chosen by local governments so as to maximize the per capita consumption of their own producers, given defense levels elsewhere, always produces a second-best outcome. Our analysis shows that if the number of communities is fixed, fully rational local government decision-making leads to the same level of defense activity and equilibrium per capita consumption as would be chosen by a central planner. However, if individual local governments are boundedly rational, in the sense that they do not anticipate the effects of their own defense activity on the equilibrium predator/producer ratio and distribution of producer activity, then competition among local governments never achieves a first-best outcome. Furthermore, the equilibrium associated with competition among boundedly rational local governments can sometimes yield a lower consumption per capita in equilibrium than would be achieved if there were no local governments and each agent who chose to be a producer also chose his/her own level of defense.
ABSTRACT This report examines the process of economic and financial integration in East Asia in t... more ABSTRACT This report examines the process of economic and financial integration in East Asia in the light of Europe's experience.� The report provides a comprehensive analysis of East Asian monetary and financial integration process (including a deep analysis of East Asia's response to the 1997-98 financial crisis), a comprehensive critical survey of the literature on monetary and financial integration in East Asia, and an assessment of the various initiatives undertaken in the region for financial cooperation and macroeconomic surveillance.� Its aim is to evaluate the evolution of the last decade and to offer policy suggestions.� The main policy recommendations concern essentially two areas: (i) how to promote the creation of a regional financial market in Asia and (ii) how to encourage cooperation and macroeconomic surveillance in the region. (Provisional version. The printed publication will be delayed until the final text is available).
Charitable contributions are frequently made over time. Donors are free to contribute whenever th... more Charitable contributions are frequently made over time. Donors are free to contribute whenever they wish and as often as they want, and are frequently updated on the level of contributions by others. This dynamic structure enables donors to condition their contribution on that of others, and, as Schelling (1960) suggested, may serve to overcome free-riding thereby increasing charitable giving. Marx and Matthews (2000) build on Schelling's insight and show that multiple contribution rounds may secure a provision level that cannot be achieved in the static, one-shot setting, but only if there is discrete, positive payoff jump upon completion of the project. We examine these two hypotheses experimentally using static and dynamic public good games. We find that contributions are indeed higher in the dynamic than in the static game. However, in contrast to the predictions, the increase in contributions in the dynamic game does not appear to depend on the existence of a completion benefit jump or on whether players can condition their decisions on the behavior of other members of their group.
Coordination problems arise when a game has multiple Nash equilibria and all players have a commo... more Coordination problems arise when a game has multiple Nash equilibria and all players have a common interest in avoiding a non-equilibrium state. To achieve an equilibrium state, agents must come to understand one another's intentions. Communication can facilitate this understanding under some, but not all, circumstances. In the absence of communication among agents, coordination may also sometimes be achieved with the aid of extrinsic signals that have come to be associated with the actions of others. In some settings, past actions themselves serve as precedents, without the benefit of any communication. Coordination and Communication Lewis (1969) defined a coordination equilibrium as a Nash equilibrium in which no agent would be better off if any other agent had chosen a different action.. When there are multiple coordination equilibria, agents face an obvious coordination problem. The resolution of coordination problems rests upon individuals coming to understand the intentions of one another. The most explicit way of developing this understanding is for the individuals to communicate with one another. Common knowledge of a language must precede communication. Even with common knowledge of a language, individuals may not be bound to do what they say they will do. In such circumstances, talk is >cheap=.
Several countries have adopted legally separated share markets (LSSM), where local firms market s... more Several countries have adopted legally separated share markets (LSSM), where local firms market separate claims to the same dividend flow to domestic and foreign investors who cannot arbitrage across LSSM. We designed a laboratory experiment to test whether the inside information in one LSSM is reflected in the prices of both markets. We find that insider information does transfer across markets. The extent of this transfer depends upon whether the location of insiders is publicly known, how close prices in the informed market get to the full information equilibrium, and how much the price variance is in this market. We also observe insiders' behavior and performance under different market conditions. Efforts by insiders to manipulate the market increase when their location is unknown to the public. On average such efforts pay off to the whole group of insiders but not to the initiator of these manipulative transactions.
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