decision maker preferences for international legal cooperation why do some decision makers prefer big multilateral agreements while others prefer cooperation in small clubs does enforcement encourage or deter institutional cooperation we use experiments drawn from behavioral economics and cognitive psychology along with a substantive survey focused on international trade to illustrate how two behavioral traits patience and strategic reasoning of individuals who play key roles in negotiating and ratifying an international treaty shape their preferences for how treaties are designed and whether they are ratified patient subjects were more likely to prefer treaties with larger numbers of countries and larger long term benefits as were subjects with the skill to anticipate how others will respond over multiple iterations of strategic games the presence of an enforcement mechanism increased subjects willingness to ratify treaties however strategic reasoning had double the effect of adding enforcement to a trade agreement more strategic subjects were particularly likely to favor ratifying the agreement we report these results for a sample of 509 university students and also show how similar patterns are revealed in a unique sample of ninety two actual us policy elites under some conditions certain types of university student convenience samples can be useful for revealing elite dominated policy preferences different types of people in the same situation may prefer to approach decision making tasks and reason through trade offs in materially different ways

the informational theory of legislative committees an experimental analysis we experimentally investigate the informational theory of legislative committees gilligan and krehbiel 1989 two committee members provide policy relevant information to a legislature under alternative legislative rules under the open rule the legislature is free to make any decision under the closed rule the legislature chooses between a member s proposal and a status quo we find that even in the presence of biases the committee members improve the legislature s decision by providing useful information we obtain evidence for two additional predictions the outlier principle according to which more extreme biases reduce the extent of information transmission and the distributional principle according to which the open rule is more distributionally efficient than the closed rule when biases are less extreme we find that the distributional principle dominates the restrictive rule principle according to which the closed rule is more informationally efficient overall our findings provide experimental support for gilligan and krehbiel s informational theory

imperfect choice or imperfect attention understanding strategic thinking in private information games to understand the thinking process in private information games we use mousetracking to record which payoffs subjects attend to the games have three information states and vary in strategic complexity subjects consistently deviate from nash equilibrium choices and often fail to look at payoffs which they need to in order to compute an equilibrium response choices and lookups are similar when stakes are higher when cluster analysis is used to group subjects according to lookup patterns and choices three clusters appear to correspond approximately to level 3 level 2 and level 1 thinking in level k models and a fourth cluster is consistent with inferential mistakes as for example in qre or cursed equilibrium theories deviations from nash play are associated with failure to look at the necessary payoffs the time durations of looking at key payoffs can predict choices to some extent at the individual level and at the trial by trial level

meaning and credibility in cheap talk games i define neologism proofness a refinement of perfect bayesian equilibrium in cheap talk games it applies when players have a preexisting common language so that an unexpected message s literal meaning is clear and only credibility restricts communication i show that certain implausible equilibria are not neologism proof in some games no equilibrium is journal of economic literature classification numbers d83 d82 c73

signal jamming models of fraudulent misreporting and economic prospects an experimental investigation abstract this study uses experimental methodology to examine how the frequency and magnitude with which managers commit fraud varies with economic prospects boom middle and bust the experimental design is based on signal jamming equilibrium sje models of fraud in which managers make potentially inaccurate public reports and investors bid on shares under sje managers always exaggerate reports by a fixed amount up to the maximum possible report independent of the truth shareholders can perfectly correct managers reports except for the maximum possible report in contrast the results of the experiment show four robust deviations from sje predictions 1 managers exaggerate and shareholders correct reports according to dominated mixed strategies with probabilities significantly less than one 2 managers exaggerate more frequently and by more when outcomes are poor 3 shareholders adjust low reports by less than high reports and 4 shareholders correct relatively high reports by more in booms than busts even though managers reporting strategies are invariant to economic prospects

level k mechanism design non equilibrium models of choice e g level k reasoning have significantly different sometimes more accurate predictions in games than does nash equilibrium when it comes to the maximal set of functions that are implementable in mechanism design however they turn out to have similar implications focusing on single valued rules we discuss the role and implications of different behavioural anchors arbitrary level 0 play and prove a level k revelation principle if a function is level k implementable given any level 0 play it must obey a slight weakening of standard strict incentive constraints further the same condition is also sufficient for level k implementability although the role of specific level 0 anchors is more controversial for the sufficiency argument nonetheless our results provide tight characterizations of level k implementable functions under a variety of level 0 play including truthful uniform and atomless anchors

a non cooperative bargaining theory with incomplete information verifiable types abstract we consider a non cooperative sequential bargaining game with incomplete information where two players negotiate for mechanisms with ex post verifiable types at the interim stage we prove the existence of a stationary sequential equilibrium of the bargaining game where the ex post nash bargaining solution with no delay is asymptotically implemented with probability one further the ex post nash bargaining solution is a unique outcome of a stationary equilibrium under the property of independence of irrelevant types iit whereby the response of every type of a player is independent of allocations proposed to his other types and under a self selection property of their belief

a guide to health care reform there are four rationales for health care reform increasing the efficiency of health delivery reforming the market for health insurance providing universal coverage and reducing the federal deficit these goals are reflected in most reform proposals achieving these goals involves several problems however paying for universal coverage may lead to labor supply or demand reductions in addition reform involves large federal risks that must be dealt with through deficit financing reduced benefits or lower subsidies

mechanism design by an informed principal private values with transferable utility we provide a solution to the informed principal problem in the independent private values setting with monetary transfers the principal s private information creates signaling considerations that may distort the implemented allocation we show that there is no distortion all principal types implement an allocation that is optimal for the principal ex ante before he she learns his her type as an application we consider settings with linear utility for bilateral exchange in which the principal is one of the traders the solution is a combination of a participation fee a buy out option for the principal and a resale stage with posted prices

adverse selection in health insurance markets evidence from state small group health insurance reforms abstract the past decade witnessed major changes in state laws governing the sale of health insurance to small employers states took measures to restrict insurers ability to distinguish between high and low risk customers because of concern about the low rate of coverage among workers in small firms the high prices in the small group market and the absence of federal health reform using both individual level and employer level data i test predictions about the effect of reforms on the employer provided health insurance market i estimate these effects for small firms and their workers using large firms and their workers in the same states as well as large and small firms and their workers in non reform states as comparison groups i find the reforms decreased the rate of employer coverage on average for workers in small firms by less than two percentage points within small firms low expenditure individuals experienced a larger decline in the rate of coverage through their employer while the coverage rate of high expenditure individuals rose slightly in some specifications there is also evidence that comprehensive reforms increased premiums slightly for small employers and that most of this increase was passed on to workers through higher employee contributions

features of experimentally observed bounded rationality abstract on the basis of experimental evidence reported in the literature the paper draws conclusions about the bounded rationality exhibited by human economic behaviour among the topics discussed are presentation effects caused by superficial analysis strategic reasoning and strategy construction based on reciprocity and fairness avoidance of circular concepts in step by step strategic reasoning ex post rationality and learning direction theory presence of both adaptive and analytic approaches to repeated decision tasks and the absence of quantitative expectations and optimization in typical repeated game strategies

peddling influence through intermediaries a sender may communicate with a decision maker through intermediaries in this model an objective sender and intermediary pass on information truthfully while biased ones favor a particular agenda but also have reputational concerns i show that the biased sender and the biased intermediary s reporting truthfulness are strategic complements the biased sender is less likely to use an intermediary than an objective sender if his reputational concerns are low but more likely to do so if his reputational concerns are moderate moreover the biased sender may be more likely to use an intermediary perceived to be more biased

experimental evidence on the evolution of the meaning of messages in sender receiver games an experiment this paper experimentally investigates the evolution of message meanings when talk is cheap we consider communication between a privately informed sender and a receiver when the sender s message does not affect payoffs directly sender receiver games introduced by jerry green and nancy stokey 1980 and vincent p crawford and joel sobel 1982 provide the simplest stylized environment in which communication is essential communication is the only way to link the receiver s action to the sender s private information in addition sender receiver games have been widely used to study communication in accounting economics finance and political science intuition strongly suggests that effective communication will evolve when the players interests are closely aligned however there is always a nash equilibrium in which the sender randomizes uniformly across all messages such babbling equilibria are proper roger b myerson 1978 blume 1994 and even strategic stability elon kohlberg and jeanfrancois mertens 1986 does not rule out uninformative equilibria in general in response a literature developed that formulates equilibrium selection criteria by appealing to the existence of a commonly understood language matthew rabin 1990 steven a matthews et al 1991 joseph farrell 1993 that can be used to formulate credible deviations from equilibrium unfortunately the selection criteria from this literature are frequently strong enough to remove all equilibria from consideration in addition these arguments are vulnerable to stiglitz s observation in koo cho and david m kreps 1987 that successful deviations from equilibrium may induce further deviations which in turn may undermine the credibility of the original deviations both problems can be avoided by a dynamic approach as in rabin and sobel 1996 we also adopt a dynamic perspective but do not require messages to have a priori meanings instead distinct meanings may emerge endogenously this is important for communication across cultures and for language change 2 we are guided by recent results of blume department of economics university of iowa iowa city ia 52242 dejong department of accounting university of iowa iowa city ia 52242 kim department of economics sung kyun kwan university seoul 110 745 korea sprinkle department of accounting university of wisconsin madison wi 53706 we thank joyce berg vince crawford robert forsythe joel horowitz deirdre mccloskey forrest nelson larry samuelson gene savin joel sobel and especially two anonymous referees for their advice and suggestions we benefitted from comments and discussions resulting from presentations at the 1994 summer meetings of the econometric society the 1996 social learning workshop at suny stony brook the io me gt workshop at the university of iowa the university of bonn the university of bielefeld the center for economic research at tilburg university ohio state university seoul national university and texas a m university we are grateful for financial support from the college of business administration at the university of iowa the ira b mcgladrey institute and the national science foundation

the incidence of mandated maternity benefits i consider the labor market effects of mandates which raise the costs of employing a demographically identifiable group the efficiency of these policies will be largely dependent on the extent to which their costs are shifted to group specific wages i study several state and federal mandates which stipulated that childbirth be covered comprehensively in health insurance plans raising the relative cost of insuring women of childbearing age i find substantial shifting of the costs of these mandates to the wages of the targeted group correspondingly i find little effect on total labor input for that group jel 118 j32 h51 in an era of tight fiscal budget constraints mandating employer provision of workplace benefits to employees is an attractive means for a government to finance its policy agenda consequently in recent years there has been a growth of interest in mandated benefits as a tool of social policy for example the centerpiece of president bill clinton s health care proposal is mandated employer provision of health insurance and more than 20 states have man

employment based health insurance and job mobility is there evidence of job lock the majority of privately insured americans obtain their health insurance through their own or a family member s employment the rationale for employers to provide health insurance is straightforward by pooling the risks of individuals employers can reduce adverse selection and lower administrative expenses in addition they benefit from tax laws allowing businesses to deduct their health insurance costs these advantages of employer provision however must be weighed against the distortions they may generate in individual labor market decisions in particular health insurance may distort job mobility if employees decide to keep jobs they would rather leave for fear of losing coverage for preexisting conditions a possibility that has been termed job lock this paper attempts to quantify the effect of employer provided health insurance on the labor market mobility of individuals the link between employer provided health insurance and

evolutionary stability with equilibrium entrants abstract the strategy that upsets a potential evolutionarily stable strategy may in itself be very unstable or may differ from the candidate strategy only in irrelevant ways this paper develops a solution concept addressing these difficulties we lood for a set of nash equilibria such that small groups of entrants whose members are satisfied with their entry cannot take the population out of the set such a set is robust to the iterated removal of weakly dominated strategies depends only on the reduced normal form and has the never a weak best response property for generic two person extensive form games such sets generate payoffs consistent with proper equilibria

labor market consequences of state health insurance regulation this study based mainly on the 1989 98 march current population surveys finds that state mandated health insurance benefits and small group health insurance reform had no statistically significant effects on labor market outcomes such as the quantity of work wages and whether an employee worked for a small or large firm the number and type of state mandated health insurance benefits were unrelated to weeks of work wages and the prevalence of private insurance coverage but positively associated with weekly work hours extensive small group health insurance reform was associated with a slight decline in the prevalence of private insurance coverage in small firms and this reform affected both full and part time employees less extensive reforms were not generally related to the prevalence of private insurance coverage overall the authors do not find strong evidence that insurance regulations affected labor market outcomes although they appear to cause a small decrease in private coverage

cheap talk coordination and evolutionary stability abstract asymmetric information games where the informed player can send a costless message sender receiver games typically have equilibria where meaningful communication occurs we therefore know such cheap talk can matter still even when there is no conflict of interest there are also equilibria where no information transmission occurs this paper shows that for a class of games with perfectly coinciding interests modeled as asymmetric contests where players are unsure of which role they will have only meaningful communication is evolutionarily stable journal of economic literature classification numbers c70 c72 d82

communication between rational agents abstract conventional game theoretic solution concepts never guarantee meaningful communication in cheap talk games i define a solution concept which does guarantee communication in some games i assume full rationality without imposing equilibrium conditions but add a natural behavioral assumption about how agents use language agents have a propensity to speak the truth and to believe others speak the truth but use the game s strategic incentives to check whether such behavior and beliefs are rational i also define and prove the existence of an equilibrium version of the concept and present examples where its predictions seem more natural than farrell s neologism proof equilibrium

unforeseen contingency and renegotiation with asymmetric information this article considers a buyer seller contracting model in which the seller possesses private information about all relevant aspects of the state of nature including how much each action is worth to the buyer i argue that given asymmetric information the buyer may not entirely dismiss an unforeseen contingency claim by the seller then if the buyer lacks the foresight awareness to expect the unexpected the model admits an equilibrium in which a seemingly complete contract is written and then renegotiated along its outcome path to generate inefficiency ex post

how has small group market reform affected employee health insurance coverage abstract in the early 1990s over 40 states passed legislation designed to limit a number of exclusionary practices by insurers in the small group market in order to improve the availability and affordability of health insurance to employees in small firms in this paper we address the effects of reform on the likelihood that workers are offered insurance have employment based coverage or are policyholders of an employment based plan we use differences in differences dd and differences in differences in differences ddd estimators to evaluate the differential effects of alternative reform measures on high and low risk workers we generally find little effect of reform on offer rates and find that in states with the most stringent reform employment based coverage and policyholder rates increased for high risk workers relative to low risk workers our results also indicate that the effects of reform varied significantly by the extent to which states adopted guaranteed issue

cultural conflict and merger failure an experimental approach we use laboratory experiments to explore merger failure due to conflicting organizational cultures we introduce a laboratory paradigm for studying organizational culture that captures several key elements of the phenomenon in our experiments we allow subjects in firms to develop a culture and then merge two firms as expected performance decreases following the merging of two laboratory firms in addition subjects overestimate the performance of the merged firm and attribute the decrease in performance to members of the other firm rather than to situational difficulties created by conflicting culture

an experimental study of truth telling in a sender receiver game a recent experimental study of cai and wang 2005 on strategic information transmission reveals that subjects tend to transmit more information than predicted by the standard equilibrium analysis to evidence that this overcommunication phenomenon can be explained in terms of a tension between normative social behavior and incentives for lying we show in a simple sender receiver game that subjects incurring in costs to punish liars tell the truth more often than predicted by the logit agent quantal response equilibria whereas subjects that do not punish liars after receiving a deceptive message play on the aggregate equilibrium strategies thus we can partition the subject pool into two groups one group of subjects with preferences for truth telling and one taking into account only material incentives

strategy subsets closed under rational behavior a set of strategy profiles is here said to be closed under rational behavior curb of it contains all its best replies each curb set contains the support of at least one nash equilibrium in mixed

persuasive communication when the sender s incentives are uncertain abstract we study persuasion in a modified crawford sobel sender receiver game in which the receiver makes a binary decision to accept or reject a good recommended by the sender the good s quality and the sender s type neutral or biased are not observable to the receiver these alterations yield a simple model and a unique truth telling equilibrium in which neutral senders who observe different qualities fully separate but can only communicate low quality levels accurately biased senders adopt a mixed strategy that can successfully persuade the receiver to accept the good most of the time when the sender s degree of bias is continuously distributed a truth telling equilibrium does not exist nonetheless a partition equilibrium exists for any given number of partitions on the message space

cheap talk and bogus network externalities in the emerging technology market many emerging technologies exhibit path dependent demands driven by positive network feedback such network effects profoundly impact marketing strategists thinking in today s network economy however the significant network externalities expected by many people often fail to materialize in the emerging technology market we analyze this phenomenon in the context of a technology distribution channel by studying cheap talk strategies under information asymmetry we show that incentive compatible contracts are essential for achieving credible information transmission in our model the better informed technology vendor has an incentive to inflate the retailer s ex ante belief of network externalities when a wholesale price contract is adopted when properly termed revenue sharing contracts are implemented there are information efficient cheap talk equilibria where truthful information transmission is mutually beneficial when the vendor s information is imperfect even revenue sharing contracts cannot guarantee credible information transmission if there is significant prior belief disparity between the vendor and the retailer this study demonstrates how information inefficient equilibria e g information blockage arise because of the conflict of interest or the conflict of opinion among channel members it also explores the role of cheap talk in facilitating channel coordination

rewards in an experimental sender receiver game we show in a sender receiver game with strictly opposing interests that rewards enhance trust but do not influence truth telling subjects who reward tend to tell the truth and trust more often in the presence and absence of reward opportunities the amount of obtained rewards thereby enhances truth telling

deception and misreporting in a social program we investigate empirically the extent of misreporting in a poverty alleviation program in which self reported information followed by a household visit is used to determine eligibility in the model we propose and estimate underreporting may be due to a deception motive and overreporting to an embarrassment motive we find that underreporting of goods and desirable home characteristics is widespread and that overreporting is common with respect to goods linked to social status larger program benefits encourage underreporting and discourage overreporting we also estimate the costs of lying and embarrassment for different goods and show that the embarrassment cost for lacking a good is proportional to the percentage of households who own the good jel d01 i32 i38 c25

deviations dynamics and equilibrium refinements existing equilibrium refinements rule out nash equilibria susceptible to deviations we propose a framework for considering not only equilibria impervious to deviations but also equilibria likely to recur in the long run because they are repeatedly deviated to we explore which equilibria are recurrent with respect to the deviations underlying some existing signaling refinements we show that the set of recurrent equilibria based on cho and kreps s 1987 intuitive criterion is equivalent to their solution concept but that applying our framework to existing cheap talk refinements make those solution concepts more realistic and guarantee existence where their current formulations do not journal of economic literatureclassification numbers b49 c72 c73

learning and communication in sender receiver games an econometric investigation this paper compares the performance of stimulus response sr and belief based learning bbl using data from game theory experiments the environment extensive form games played in a population setting is novel in the empirical literature on learning in games both the sr and bbl models fit the data reasonably well in common interest games with history while the test results accept sr and reject bbl in games with no history and in all but one of the divergent interest games estimation is challenging since the likelihood function is not globally concave and the results may be subject to convergence bias

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

controlling preferences for lotteries on units of experimental exchange in an experimental setting when outcomes are stochastically related to actions predictions of equilibrium behavior depend not only on the participants preference orderings of outcomes but also on their orderings of lotteries on outcomes as well we introduce and test a reward structure that can be utilized in any experimental setting to allow the experimenter to decree beforehand the subjects preferences for lotteries on experimental outcomes we show analytically that the proposed reward structure can induce subjects to behave as if they have the decreed preference function defined on experimental outcomes empirical tests using two different choice settings provide evidence to support this ability to control preferences

quantal response and nonequilibrium beliefs explain overbidding in maximum value auctions we report new experimental data on a simple common value auction to investigate the extent to which bidding can be explained by logit qre in combination with different models about bidder beliefs cursed equilibrium level k and cognitive hierarchy there is a close correspondence between the predicted bidding patterns in those models and the distribution of observed bids the pattern of median bids in the data consists of a combination of overbidding with low signals and near value bidding with higher signals logit qre with heterogeneous bidders approximates this pattern combining qre with any of the other models of belief formation leads to a closer match with the data all the estimated models predict only small treatment effects across different versions of the game consistent with the data we also reanalyze an earlier dataset for the same game ivanov et al 2010 which exhibited much more overbidding and reach similar qualitative conclusions

persuasion with communication costs this paper studies strategic transmission of verifiable information with reporting costs that continuously increase in the precision of the report contrary to previous literature it is shown that the unraveling result first derived by milgrom 1981 is relatively robust to costly reporting a separating equilibrium exists even with arbitrarily high reporting costs intuitively the costs work as a signaling device and a combination of disclosure of information and costly signaling accomplishes full separation with reporting costs there are typically multiple equilibria for example a pooling equilibrium exists if and only if the reporting costs are high finally a separating equilibrium exists when the receiver has to make a costly effort in order to access the information in a report as long as this cost is not too high

money or friends social identity and deception in networks abstract strategic communication occurs in virtually all committee decision environments theory suggests that small differences in monetary incentives between committee members can leave deception a strategically optimal decision crawford and sobel 1982 galeotti et al 2013 at the same time in natural environments social incentives can also play an important role in determining the way people share or withhold truthful information unfortunately little is known about how monetary and social incentives interact to determine truth telling we investigate this issue by first building a novel model and then testing its equilibrium predictions using laboratory data in the absence of social identity the model s predictions are supported there is more truthful communication between those who share monetary incentives than those who do not we find that the effect of identity is asymmetric sharing the same identity does not promote truth telling but holding different identities reduces truthfulness overall as compared to environments lacking social identity committees with both monetary and social incentives exhibit truthful communication substantially less frequently

cheap talk can matter in bargaining this paper describes an intuitive way in which cheap talk can matter in a twostage bargaining game in which talk may be followed by serious negotiation the intuition that all buyers would claim to have low reservation prices is incorrect in our model instead if good faith participation is endogenously determined then the parties can use talk to trade off bargaining position against the probability of continued negotiation our cheap talk equilibrium features bargaining behavior that could not be equilibrium behavior in the absence of talk

when does ethical code enforcement matter in the inter organizational context the moderating role of switching costs drawing on signaling theory we suggest that a supplier s enforcement of ethical codes sends signals about the supplier that affect a buyer s decision to continue their commitment to the supplier we then draw on side bet theory to hypothesize how switching costs influence the importance of a supplier s enforcement of ethical codes in predicting a buyer s continuance commitment to a supplier we empirically test our model with data from 158 purchasing managers across three manufacturing industries results confirm the connection between ethical code enforcement and continuance commitment but suggest that a supplier s enforcement of ethical codes matter less when switching suppliers is perceived as too costly

new directions for modelling strategic behavior game theoretic models of communication coordination and cooperation in economic relationships author s crawford vp abstract in this paper i discuss the state of progress in applications of game theory in economics and try to identify possible future developments that are likely to yield further progress to keep the topic manageable i focus on a canonical economic problem that is inherently game theoretic that of fostering efficient coordination and cooperation in relationships with particular attention to the role of communication i begin with an overview of noncooperative game theory s principal model of behavior nash equilibrium i next discuss the alternative thinking and learning rationales for how real world actors might reach equilibrium decisions i then review how nash equilibrium has been used to model coordination communication and cooperation in relationships and discuss possible developments

using privileged information to manipulate markets insiders gurus and credibility access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements the fact that privileged information is noisy interferes with the public s attempts to learn whether such announcements are honest it allows opportunistic individuals to manipulate prices repeatedly without ever being fully found out this leads us to extend sobel s 1985 model of strategic communication to the case of noisy private signals our results show that when truthfulness is not easily verifiable restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices

primaries and candidate polarization behavioral theory and experimental evidence do primary elections cause candidates to take extreme polarized positions standard equilibrium analysis predicts full convergence to the median voter s position with complete information but behavioral game theory predicts divergence when players are policy motivated and have out of equilibrium beliefs theoretically i show that primary elections can cause greater extremism or moderation depending on the beliefs candidates and voters have about their opponents in a controlled incentivized experiment i find that candidates diverge substantially and that primaries have little effect on average positions voters employ a strategy that weeds out candidates who are either too moderate or too extreme which enhances ideological purity without increasing divergence the analysis highlights the importance of behavioral assumptions in understanding the effects of electoral institutions

evolutionary stability in games of communication abstract this paper identifies evolutionarily stable outcomes in games in which one player has private information and the other takes a payoff relevant action the informed player can communicate at little cost outcomes satisfying a set valued evolutionary stability condition must exist and be efficient in common interest games when there is a small cost associated with using each message the outcome preferred by the informed player is stable the paper introduces a nonequilibrium set valued stability notion of entry resistant sets for games with partial common interest the no communication outcome is never an element of an entry resistant set journal of economic literature classification numbers c72 d82

defence procurement and industrial structure in the u k defence ministries being monopsonists with considerable regulatory authority have the power to shape the electronics aerospace and engineering industries that supply them this paper uses the u k experience to investigate whether and how the government should influence industrial structure after reviewing market structure and policy it provides a quantitative measure of the impact of the new more competitive procurement practices on the size distribution of contracts and assesses the role of policy on the likely evolution of the structure of the european arms industry

a theory of credibility this paper presents models in which one agent must decide whether to trust another whose motives are uncertain reliability can only be communicated through actions in this context it pays for people to build a reputation based on reliable behaviour someone becomes credible by consistently providing accurate and valuable information or by performing useful services the theory provides a justification for long term arrangements without binding contracts it also describes those situations where it pays an agent to cash in on his reputation many decisions depend on trusting someone consumers must decide whether to believe advertisements banks need to judge the reliability of loan applicants and employers must decide how much responsibility to delegate to their employees this paper attempts to model situations that arise when someone is uncertain about whether to trust the people he deals with in this context reputations for reliability are valuable an agent becomes credible by consistently providing accurate valuable information or by always acting responsibly i analyse a series of simple abstract models of information transmission in the basic model there are two agents the sender s and the receiver r who are to play the game a known finite number of times at each stage both players learn the value of a parameter measuring the importance of that period s play of the game that is the value of making a correct decision and s obtains payoff relevant information s then sends a signal to r who makes a decision that affects the welfare of both players after both players learn the consequences of r s decision the process repeats at each stage r must decide what action to take in order to do that he must assess the credibility of s the difficulty arises because r is uncertain about s s preferences when play begins i model this by assuming that with positive probability s has identical preferences to r s is a friend and with positive probability s has completely opposed preferences to r s is an enemy this uncertainty creates a trade off for enemy senders at each stage providing honest information enhances s s reputation but only at the expense of foregoing an opportunity for immediate gain by duping r the possibility that s is a friend lends credibility to what he says but this credibility may also be exploited by an enemy s the principal equilibrium has the following form in the basic model where s has no control over the importance of a given play s typically conveys accurate information for the first several periods r raises the probability he places on s being friendly after receiving accurate information if he believes that an enemy would have lied to him with positive probability the more important the information the more likely an enemy will attempt to deceive r an enemy will eventually take advantage of r by misleading him when this happens the sender loses all opportunities for deception in the future i

coarse thinking and persuasion we present a model of uninformative persuasion in which individuals think coarsely they group situations into categories and apply the same model of inference to all situations within a category coarse thinking exhibits two features that persuaders take advantage of i transference whereby individuals transfer the informational content of a given message from situations in a category where it is useful to those where it is not and ii framing whereby objectively useless information influences individuals choice of category the model sheds light on uninformative advertising and product branding as well as on some otherwise anomalous evidence on mutual fund advertising

pinocchio s pupil using eyetracking and pupil dilation to understand truth telling and deception in sender receiver games we conduct laboratory experiments on sender receiver games with an incentive for senders to exaggerate such as security analyst s painting a rosy picture about earnings prospects our results show that overcommunicati on messages are more informative of the true state than they should be in equilibri um is consistent with a level k model eyetracking shows that senders look much more on the payoff rows corresponding to the true state and much less at receiver payoffs than at their own payoffs senders pupils also dilate more when their deception is larger in magnitude together these data are consistent with the hypothesis that figuring out ho w to deceive another player is cognitively difficult as assumed in the level k mod el a combination of sender messages and lookup patterns predicts the true state about t wice as often as predicted by equilibrium using these measures would enable receiver subjects to hypothetically earn up to 16 21 percent more than they actually do

modeling secrecy and deception in a multiple period attacker defender signaling game abstract in this paper we apply game theory to model strategies of secrecy and deception in a multiple period attacker defender resource allocation and signaling game with incomplete information at each period we allow one of the three possible types of defender signals truthful disclosure secrecy and deception we also allow two types of information updating the attacker updates his knowledge about the defender type after observing the defender s signals and also after observing the result of a contest if one occurs in any given time period our multiple period model provides insights into the balance between capital and expense for defensive investments and the effects of defender private information such as defense effectiveness target valuations and costs and also shows that defenders can achieve more cost effective security through secrecy and deception possibly lasting more than one period in a multiple period game this paper helps to fill a significant gap in the literature in particular to our knowledge no past work has studied defender secrecy and deception in a multiple period game moreover we believe that the solution approach developed and applied in this paper would prove useful in other types of multiple period games

monitoring of performance in organizational contracting the case of defense procurement this paper contains an agency theoretic analysis of procurement contracts in which the government designs optimal linear contracts for a risk averse supplier in the presence of moral hazard private information and imperfect monitoring optimal contracts deviate from first best risk sharing the direction of the deviation depends on the relative severity of the moral hazard and private information problems and on the precision of the monitor in contrast to the usual result in the moral hazard literature the government may in some cases prefer that the effort of the supplier be taxed choice of the precision of the monitor and the categories of costs covered by the monitor are also studied

strategic sophistication and attention in games an eye tracking study abstract we used eye tracking to measure the dynamic patterns of visual information acquisition in two player normal form games participants played one shot games in which either neither or only one of the players had a dominant strategy first we performed a mixture models cluster analysis to group participants into types according to the pattern of visual information acquisition observed in a single class of games then we predicted agents choices in different classes of games and observed that patterns of visual information acquisition were game invariant our method allowed us to predict whether the decision process would lead to equilibrium choices or not and to attribute out of equilibrium responses to limited cognitive capacities or social motives our results suggest the existence of individually heterogeneous but stable patterns of visual information acquisition based on subjective levels of strategic sophistication and social preferences

designing incentive systems for truthful forecast information sharing within a firm we consider a firm where the sales division sales is responsible for demand forecasting and the operations division operations is responsible for ordering sales has better information about the demand than operations and sends a nonbinding demand forecast to operations to incentivize truthful information sharing we include a forecast error penalty in the incentive system of sales besides monetary payoffs we also add behavioral factors to the utility function of sales we model the setting as a signaling game and derive the pareto dominant separating equilibria of the game in laboratory experiments we observe human behavior that is in line with the predictions of the behavioral model but deviates substantially from expected payoff maximizing behavior we use the behavioral model to design incentive systems for truthful information sharing and validate the approach in an experiment with out of sample treatments and out of sample subjects we conduct additional experiments to provide further robus

market distortions and government transparency in this paper we investigate how government transparency depends on economic distortions we first consider an abstract class of economies in which a benevolent policy maker is privately informed about the exogenous state of the economy and contemplates whether to release this information our key result is that distortions limit communication even if transparency is ex ante pareto superior to opaqueness it cannot constitute an equilibrium when distortions are sufficiently high we next confirm this broad insight in two applied contexts in which monopoly power and income taxes are the specific sources of distortions jel d82 e61

language meaning and games a model of communication coordination and evolution language is a powerful coordination device we generalize the cheap talk approach to pre play communication by way of introducing a meaning cor respondence between messages and actions and by postulating two axioms met by natural languages players have a lexicographic preference second to material payoffs against deviating from the meaning correspondence under two sided communication in generic and symmetric n 3 n coordination games a nash equilibrium component in such a lexicographic communication game is evolutionarily stable if and only if it results in the unique pareto efficient out come of the underlying game we extend the analysis to one sided communica tion in arbitrary finite two player games jel c72 c73 z 3

health insurance and labor market outcomes joint decision making within households abstract most americans obtain access to health insurance through an employer in this paper we ask how the link between health insurance and employment affects labor market choices such as whether to work full time to understand the effect of the incentives embedded in the employer based insurance system we study the joint decision making of husbands and wives that determines the household s access to health insurance we estimate the effect on a wife s husband s labor market outcomes of husband s wife s health insurance allowing the health insurance of both spouses to be endogenous obtaining unbiased estimates of such effects is complicated by the likelihood that positive assortative mating creates correlations between a couple s characteristics and the possibility that there are important unobservable household income effects our innovation is to measure these biases by examining a second fringe benefit paid sick leave in addition to health insurance we find that as predicted spouse s insurance has statistically significant negative effects on being offered own employer insurance as well as on the probability of working full time with health insurance

behaviorally optimal auction design examples and observations this paper begins to explore behavioral mechanism design replacing equilibrium by a model based on level k thinking which has strong support in experiments in representative examples we consider optimal sealed bid auctions with two symmetric bidders who have independent private values assuming that the designer knows the distribution of level k bidders we show that in a first price auction level k bidding changes the optimal reserve price and often yields expected revenue that exceeds myerson s 1981 bound and that an exotic auction that exploits bidders non equilibrium beliefs can far exceed the revenue bound we close with some general observations about level k auction design jel c72 c92

interim bayesian persuasion first steps some recent information transmission models kamenica and gentzkow 2011 rayo and segal 2010 view the sender as an information structure designer this view emphasizes a connection between design and information transmission it departs from traditional models of information transmission crawford and sobel 1982 grossman 1981 milgrom 1981 spence 1973 since it assumes that the sender commits to an information system before learning her type so that her choice is by itself uninformative by contrast there is a small but active tradition in mechanism design following myerson 1983 that considers the possibility that a choice of mechanism by an informed principal may be used as a signal by the participants in the mechanism through the study of an example this short paper proposes a modest first step toward building a theory of information structure design by an informed principal i work in a simple framework where a sender whose type is either high or low seeks validation from a receiver who wants to validate high types exclusively the sender chooses an infor mation system i e a conditional distribution of signals for each of her types from a feasible set i allow for potential restrictions on the set of feasible information systems which is important to make bayesian persuasion models more flexible i consider perfect bayesian equilibria of the game in which the sender chooses an information system after learning her type and the receiver chooses whether to validate after observing the signal generated by the information system

strategic communication with lying costs i study a model of strategic communication between an uninformed receiver and an informed but upwardly biased sender the sender bears a cost of lying or more broadly of misrepresenting his private information the main results show that inflated language naturally arises in this environment where the sender almost always claims to be of a higher type than he would with complete information regardless of the intensity of lying cost there is incomplete separation with some pooling on the highest messages the degree of language inflation and how much information is revealed depend upon the intensity of lying cost the analysis delivers a framework to span a class of cheap talk and verifiable disclosure games unifying the polar predictions they make under large conflicts of interest i use the model to discuss how the degree of manipulability of information can affect the trade off between delegation and communication copyright 2009 wiley blackwell

can the government talk cheap communication announcements and cheap talk a great deal of attention has recently been focused on communication in economic contexts while some models of credible announcements have been based on reputational forces or penalties imposed by third parties as in sobel 21 and cothren 4 several recent papers have addressed the possibility of communication through cheap talk that is talk in situations with no explicit penalties for deception perhaps the most prominent application of cheap talk in the literature is the recent model of federal reserve announcements by stein 22 this paper will show that cheap talk equilibria of the sort modeled by stein and others often depend in a fundamental way on implausible discontinuities in public responses to government announcements that is cheap talk equilibria are frequently only possible if certain infinitesimally small changes in government announcements are capable of causing large discontinuous changes in public expectations and behavior intuitively if public expectations are a continuous function of government announcements then the government can fine tune these expectations the government will therefore often be tempted to deviate from the cheap talk equilibrium announcements in order to manipulate expectations this causes the equilibrium to unravel discontinuous public reactions sometimes prevent these equilibria from unraveling because they convert continuous choice problems which allow manipulative fine tuning into discrete choice problems where such fine tuning is impossible these discontinuities are implausible however and this may often rule out cheap talk as a realistic model of governmental policy announcements 2

lying for strategic advantage rational and boundedly rational misrepresentation of intentions starting from hendricks and mcafee s 2000 example of the allies decision to feint at calais and attack at normandy on d day this paper models misrepresentation of intentions to competitors or enemies allowing for the possibility of bounded strategic rationality and rational players responses to it yields a sensible account of lying via costless noiseless messages in many cases the model has generically unique pure strategy sequential equilibria in which rational players exploit boundedly rational players but are not themselves fooled in others the model has generically essentially unique mixed strategy sequential equilibria in which rational players strategies protect all players from exploitation

decentralized organizational learning an experimental investigation we experimentally study decentralized organizational learning our objective is to understand how learning members of an organization cope with the con founding effects of the simultaneous learning of others we test the predictions of a stylized rational agent model of organizational learning that provides sharp predictions as to how learning members of an organization might cope with the simultaneous learning of others as a function of fundamental variables e g firm size and the discount factor while the problem of learning while others are learning is quite difficult we find support for the comparative static predictions of the models unique symmetric equilibrium jel c72 d23 d83 if one s own actions are embedded in an ecology of the actions of many others who are simultaneously learning and changing it is not easy to understand what is going on the relationship between the actions of individuals in the organization and overall organiza tional performance is confounded by simultaneous learning of other actors

when does communication improve coordination we study costless pre play communication of intentions among inexperienced players using the level k model of strategic thinking to describe players beliefs we fully characterize the effects of preplay communication in symmetric 2 2 games one way communication weakly increases coordination on nash equilibrium outcomes although average payoffs sometimes decrease two way communication further improves payoffs in some games but is detrimental in others moving beyond the class of symmetric 2 2 games we find that communication facilitates coordination in common interest games with positive spillovers and strategic complementarities but there are also games in which any type of communication hampers coordination jel c72 d83

can there be a market for cheap talk information an experimental investigation abstract this paper reports on experiments testing the viability of markets for cheap talk information we find that the level of trade in these markets is very small and eventually vanishes sellers provide low quality information even when doing so does not increase their monetary payoff this contributes to the low demand in the market for information moreover we observe the same very low level of activity in the market for information when sellers face no conflict of interest and the noise in the quality of the transmitted information is much lower hence we argue that the collapse of the market for information is a demand phenomenon and even small uncertainty over the quality of information seems to have a large impact

on the value of exposure and secrecy of defense system first mover advantage vs robustness abstract it is commonly accepted in the literature that when facing with a strategic terrorist the government can be better off by manipulating the terrorist s target selection with exposing her defense levels and thus moving first however the impact of terrorist s private information may significantly affect such government s first mover advantage which has not been extensively studied in the literature to explore the impact of asymmetry in terrorist s attributes between government and terrorist on defense equilibrium we propose a model in which the government chooses between disclosure sequential game and secrecy simultaneous game of her defense system our analysis shows that the government s first mover advantage in a sequential game is considerable only when both government and terrorist share relatively similar valuation of targets in contrast we interestingly find that the government no longer benefits from the first mover advantage by exposing her defense levels when the degree of divergence between government and terrorist valuation of targets is high this is due to the robustness of defense system under secrecy in the sense that all targets should be defended in equilibrium irrespective of how the terrorist valuation of targets is different to government we identify two phenomena that lead to this result first when the terrorist holds a significantly higher valuation of targets than the government s belief the government may waste her budget in a sequential game by over investing on the high valued targets second when the terrorist holds a significantly lower valuation of targets the government may incur a higher expected damage in a sequential game because of not defending the low valued targets finally we believe that this paper provides some novel insights to homeland security resource allocation problems

risk pre play communication and equilibrium abstract we report an experiment with a 3 3 game with a unique and efficient equilibrium however each player s equilibrium strategy may result in a very low payoff if the other player does not use her equilibrium strategy players can avoid this possibility by playing an alternative safe strategy when players have no opportunity for pre play communication over 80 of subjects choose the safe strategy however we observe substantial increases in the amount of equilibrium play when i the riskiness of the equilibrium strategy is reduced and ii subjects have opportunities to send non binding costless messages to one another prior to playing the game

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

convergence of incentive driven dynamics in fisher markets abstract we study out of equilibrium price dynamics in fisher markets we develop a general framework in which sellers have a a set of atomic price update rules apu which are simple responses to a price vector b a belief formation procedure that simulates actions of other sellers themselves using the apu to some finite horizon in the future sellers use an apu to respond to a price vector they generate with the belief formation procedure the framework allows sellers to have inconsistent and time varying beliefs about each other under mild and natural assumptions on the apu we show that despite the inconsistent and time varying nature of beliefs the market converges to a unique equilibrium at a linear rate distance to equilibrium decreases exponentially in time if the apu are driven by weak gross substitutes demands the equilibrium point is the same as predicted by those demands

strategic responses to defence sector restructuring an analysis of lancashire based companies this paper investigates the factors affecting the likelihood of lancashire based companies involved in defence production pursuing strategic responses to defence sector restructuring data covering 100 lancashire based companies form the lancashire defence survey database which is analysed results of the data analysis are of interest to organizations involved in local economic development policy making they suggest that the effects of restructuring are most profound in large core defece companies most directly involved in defence production other effects are passed on to companies that carry out subcontracting but there is less evidence of strategies being implemented in response to structural change among these companies company size product type and degree of defence dependency are uncovered as significant factors influencing whether a strategic response is instigated

did community rating induce an adverse selection death spiral evidence from new york pennsylvania and connecticut using data from the 1987 to 1996 march current population surveys we find no evidence for the dire predictions of some that the imposition of pure community rating leads to a market wide reduction in insurance coverage by setting off an adverse selection death spiral specifically the percentage of individuals in small groups covered by health insurance did not fall in new york which enacted community rating legislation in 1993 relative to either pennsylvania which enacted no insurance reform or connecticut which enacted moderate insurance reforms without imposing community rating consistent with the predictions of the simple rothschild and stiglitz 1976 framework however we find that the new yorkreforms appear to have had a significant impact on the structure of the new yorkinsurance mark et specifically new yorkexperienced a dramatic shift away from indemnity insurance toward hmos while this shift tookplace during a period of nationwide increases in the percentage with managed care the increase in hmo penetration in new york s small group and individual markets was significantly greater than in pennsylvania or connecticut

coordination under limited depth of reasoning this paper provides the first unified explanation of behavior in coordinated attack games under both public and private information it demonstrates that the main experimental results such as threshold strategies comparative statics and the differences in behavior under public and private information are robust predictions of limited depth of reasoning models this is in contrast to equilibrium which mispredicts the coordinating roles of public and private information the analysis has implications for understanding macroeconomic phenomena like currency attacks and debt crises which are commonly modeled using incomplete information coordinated attack games

backward induction normal form perfection and explicable equilibria a weakening of d kreps and r wilson s 1982 notion of sequential rationality is presented the motivation stems from the difficulty in justifying sequentially rational behavior in subgames reachable only through a violation of sequential rationality although the present notion of weak sequential rationality is based upon extensive form considerations it bears a close relation to r selten s 1975 normal form perfect equilibria backward induction outcomes can be achieved in generic games of perfect information with additional restrictions on beliefs an example with imperfect information shows that sequential rationality is not the consequence of equilibrium play and the absence of incredible threats copyright 1992 by the econometric society

the hidden cost of raising voters expectations reference dependence and politicians credibility abstract two politicians compete to get elected each politician is characterized by a valence which is unobservable to the electorate and can take one of two values high or low the representative voter prefers politicians with high valence but random shocks may lead him to appoint a low valence politician politicians make statements concerning their valence if the voter is a standard expected utility maximizer politicians statements lack any credibility and no information transmission takes place by introducing reference dependence and loss aversion we show that truthful communication is possible in equilibrium and we characterize the conditions under which it can arise intuitively these behavioral biases introduce a cost of overstating one s valence as overstatements may shift the electorate s preferences toward better skilled opponents

cheap talk with two audiences these problems have in common a simple structure an informed sender says something to two interested but uninformed receivers who then take actions based on their beliefs these actions affect the sender as well as the receivers in this paper we study how costless nonverifiable claims cheap talk can affect these beliefs and hence the actions and how the incentives for truthful revelation to one receiver are affected by the presence of the other we then ask how welfare is affected by whether claims are made in public or in private as some of the above examples suggest public messages may be more credible than private messages addressed to either audience one possibility is that the presence of one audience can discipline the sender s relationship with the other we call this one sided

rationalizable strategic behavior and the problem of perfection this paper explores the fundamental problem of what can be inferred about the outcome of a noncooperative game from the rationality of the players and from the information they possess the answer is summarized in a solution concept called rationalizability strategy profiles that are rationalizable are not always nash equilibria conversely the information in an extensive form game often allows certain unreasonable nash equilibria to be excluded from the set of rationalizable profiles a stronger form of rationalizability is appropriate if players are known to be not merely rational but also cautious what constitutes rational behavior in a noncooperative strategic situation this paper explores the issue in the context of a wide class of finite noncooperative games in extensive form the traditional answer relies heavily upon the idea of nash equilibrium nash 17 the position developed here however is that as a criterion for judging a profile of strategies to be reasonable choices for players in a game the nash equilibrium property is neither necessary nor sufficient some nash equilibria are intuitively unreasonable and not all reasonable strategy profiles are nash equilibria the fact that a nash equilibrium can be intuitively unattractive is well known the equilibrium may be imperfect introduced into the literature by selten 20 the idea of imperfect equilibria has prompted game theorists to search for a narrower definition of equilibrium while this research some of which will be discussed here has been extremely instructive it remains inconclusive theorists often agree about what should happen in particular games but to capture this intuition in a general solution concept has proved to be very difficult if this paper is successful it should make some progress in that direction the other side of the coin has received less scrutiny can all non nash profiles really be excluded on logical grounds i believe not the standard justifications for considering only nash profiles are circular in nature or make gratuitous assumptions about players decision criteria or beliefs the following discussion of these points is extremely brief due to space constraints more detailed arguments may be found in pearce 18

promises and conventions an approach to pre play agreements abstract i analyze how informal agreements can be sustained by moral emotions with regard to a large class of two player games specifically i assume that people feel guilty if they breach an agreement and that the guilt increases according to the degree of the harm inflicted on the other a central insight is that it is easier to sustain efficient informal agreements if actions are strategic complements than if they are strategic substitutes i complement this general insight by studying two specific cases where negotiators face uncertainty about the breach of the agreement i show that while the optimal agreement in a game with strategic substitutes must compromise on surplus maximization and efficiency the optimal agreement in a game with sufficiently strong strategic complements tends to maximize both the surplus and the probability of compliance especially if the game is symmetric

cheap talk and the fed a theory of imprecise policy announcments this paper examines the problem faced by the federal reserve in announcing its private information about its future policies because it would like to manipulate expectations and pursue a time inconsistent policy the fed cannot reveal its policy objectives precisely and credibly it can however communicate some information about its goals through the cheap talk mechanism of vincent crawford and joel sobel making announcements that are imprecise and only giving ranges within which these goals may lie copyright 1989 by american economic association

where do the sick go health insurance and employment in small and large firms this research was supported by a grant from the economic research initiative on the uninsured at the university of michigan

equilibrium selection in experimental cheap talk games in the past many refinements have been proposed to select equilibria in cheap talk games usually these refinements were motivated by a discussion of how rational agents would reason in some particular cheap talk games in this paper we propose a new refinement and stability measure that is intended to predict actual behavior in a wide range of cheap talk games according to our average credible deviation criterion acdc the stability of an equilibrium is determined by the frequency and size of credible deviations acdc organizes the results from several cheap talk experiments in which behavior converges to equilibrium even in cases where other criteria do not make a prediction

pandering to persuade a principal chooses one of multiple projects or an outside option an agent is privately informed about the projects benets and shares the principal s preferences except for not internalizing her value from the outside option we show that for moderate outside option values strategic communication is characterized by pandering the agent biases his recommendation toward conditionally better looking projects even when both parties would be better o with some other project a project that has lower expected value can be conditionally better looking we develop some comparative statics of pandering pandering is also induced by an optimal mechanism without transfers

language and government coordination an experimental study of communication in the announcement game one of the key roles of government is to coordinate the activities of citizens one reason why governments are efficient facilitators of coordinated action in addition to their ability to force compliance or tax is that they are typically endowed with more information than the individuals they govern this advantage creates a dilemma for them however since it forces them to decide on how they should distribute the information in their possession to the population this paper investigates this question we investigate the announcement game defined by the government and those it governs and focus on communication strategy that government uses to communicate private information to the citizens this communication strategy involves 1 partitioning the state space in an attempt to mask the true state of the world and 2 choosing what type of language to use in order to communicate elements of this partition we present evidence that the language used to execute a communication strategy does affect the efficiency of the equilibrium convergence process and also demonstrate that subjects playing the role of the government exhibit a great deal of sophistication in the communication strategies they employ and the language they use to execute them

endogenous depth of reasoning we introduce a model of strategic thinking in games of initial response unlike standard models of strategic thinking in this framework the player s depth of reasoning is endogenously determined and it can be disentangled from his beliefs over his opponent s cognitive bound in our approach individuals act as if they follow a cost benet analysis the depth of reasoning is a function of the player s cognitive abilities and his payos the costs are exogenous and represent the game theoretical sophistication of the player the benet instead is related to the game payos behavior is in turn determined by the individual s depth of reasoning and his beliefs about the reasoning process of the opponent thus in our framework payos not only aect individual choices in the traditional sense but they also shape the cognitive process itself our model delivers testable implications on players chosen actions as incentives and opponents change we then test the model s predictions with an experiment we administer dierent treatments that vary beliefs over payos and opponents as well as beliefs over opponents beliefs the results of this experiment which are not accounted for by current models of reasoning in games strongly support our theory we also show that the predictions of our model are highly consistent both qualitatively and quantitatively with well known unresolved empirical puzzles our approach therefore serves as a novel unifying framework of strategic thinking that allows for predictions across games

communication coordination and nash equilibrium i note a methodological problem in studying the role of pre play communication in ensuring equilibrium to deal with this problem i define a solution concept for the extended game in which talk is followed by play that is intermediate between nash equilibrium and rationalizability in some games our solution concept implies a nash outcome while in others it does not

costly predation and the distribution of competence an evolutionary game model shows how an equilibrium distribution of competence may evolve when members of a population prey on one another but when predatory competence is costly to acquire under one interpretation the competence distribution is an endogenously determined distribution of bounded rationality an example shows how tricksters and suckers might coexist in the long run the analysis leads to a curious result about a mixed equilibrium for a symmetric zero sum game an increase in the costs of one or more competence levels has exactly zero effect on the fraction of the population at those levels