minimax regret and strategic uncertainty this paper introduces a new solution concept a minimax regret equilibrium which allows for the possibility that players are uncertain about the rationality and conjectures of their opponents we provide several applications of our concept in particular we consider pricesetting environments and show that optimal pricing policy follows a non degenerate distribution the induced price dispersion is consistent with experimental and empirical observations baye and morgan 2004

efficient and durable decision rules with incomplete information we compare six concepts of efficiency for economies with incomplete information depending on the stage at which individuals welfare is evaluated and on whether incentive constraints are recognized an example is shown in which an incentive efficient decision rule may be unanimously rejected by the individuals in the economy we define durable decision rules which can resist such unanimous rejection and show that efficient durable decision rules exist

on the robustness of equilibrium refinements abstract the philosophy of equilibrium refinements is that the analyst if he knows things about the structure of the game can reject some nash equilibria as unreasonable the word know in the preceding sentence deserves special emphasis if in a fixed game the analyst can reject a particular equilibrium outcome but he cannot do so for games arbitrarily close by then he may have second thoughts about rejecting the outcome we consider several notions of distance between games and we characterize their implications for the robustness of equilibrium refinements

equilibrium in justifiable strategies a model of reason based choice in extensive form games i explore the idea that people care about the justifiability of their decisions in the context of two person extensive games each player justifies his strategy s with a belief b of the opponent s strategy which is consistent with the play path and maximally plausible according to some exogenous criterion we say that s is justifiable if against the ex post criticism that some other strategy s outperforms s against b the player can argue that playing s would have exposed him to similar criticism in the opposite direction under a simplicity based plausibility criterion this concept implies systematic departures from maximizing behaviour in familiar games

new revelations about unemployment persistence in spain time series and panel data approaches using regional data this article aims to re examine the persistence of unemployment in spain for this purpose we use time series and cross section analysis from a time series viewpoint we disaggregate unemployment by regions and use unit root tests ar coefficients and fractional differencing parameters as indicators of persistence for the cross section approach we first estimate mean regressions of regional unemployment rates then using a panel of 114 periods and 50 provinces we estimate pooled fixed and random effects models finally following some recent developments we implement several panel data unit root tests previous studies had already shown the strong persistence of spanish unemployment our disaggregated analysis extends the finding to reveal that the persistence is greater in the most industrialized regions the results also suggest that a structural break took place in 1994 implying a decline in the unemployment persistence since then

long term unemployment the invention of hysteresis and the misdiagnosis of structural unemployment in the uk this paper investigates the empirical basis for the belief that unemployment makes people less employable and that the existence of a pool of long term unemployed people is therefore in itself a barrier to full employment drawing on data for great britain from the 1940s to the present day it shows that this idea has arisen through misinterpretations of the statistical evidence the resulting policies besides diverting resources from the demand side pro grammes appropriate to the true situation of structural unemployment appear to have created a problem of the kind they were intended to address by encouraging unemployed people to move onto sickness benefits

stable equilibrium in beliefs in extensive games with perfect information abstract the purpose of this paper is to present a new solution concept of stable equilibrium in beliefs seb by assuming it is common knowledge that players are uncertainty averse in the sense of gilboa and schmeidler 1989 journal of mathematical economics 18 141 153 by making use of an appealing criterion of stability an seb is defined as a strategy profile supported by a stable belief system it is shown that all sebs constitute a unique stable belief system and an seb satisfies subgame perfectness moreover it is shown that the notion of seb refines that of subgame perfect equilibrium in terms of path of play finally following aumann 1995 games and economic behavior 8 6 19 this paper establishes some epistemic foundation for the notion of seb

rationalizable conjectural equilibrium between nash and rationalizability abstract static equilibria can be viewed as steady states of recurring play of a game such steady states in which players do not perfectly observe the actions of others need not be nash equilibria this paper suggests a static solution concept rationalizable conjectural equilibrium that corresponds to such steady states to present it the basic model of a normal form game is enriched by specifying the signals that players get about others actions the solution is a profile of actions such that each player s action is optimal given that it is common knowledge that all players maximize utility given their signals journal of economic literature classification number c72

individually rational budget balanced mechanisms and allocation of surplus abstract we investigate the issue of implementation via individually rational ex post budget balanced bayesian mechanisms we show that all decision rules generating a nonnegative expected social surplus are implementable via such mechanisms if and only if the probability distribution of the agents type profiles satisfies two conditions the well known condition of cremer and mclean 1988 full extraction of the surplus in bayesian and dominant strategy auctions econometrica 56 1247 1257 and the identifiability condition introduced in this paper we also show that these conditions are necessary for ex post efficiency to be attainable with budget balance and individual rationality and that the expected social surplus in these mechanisms can be distributed in any desirable way lastly we demonstrate that like cremer mclean condition the identifiability condition is generic if there are at least three agents

habits hysteresis and catastrophes in labor supply abstract this paper investigates the implications of a general model of locally unstable habit formation with respect to consumption household time and corporate time the model is shown to imply multiple long run equilibria exhibiting hysteresis and catastrophes dependent on rationings and the wage rate this can explain profound changes in labor supply preferences and behavior such as when long term unemployed become little motivated to get a new job or when former housewives develop a strong orientation towards paid work

unemployment dynamics and duration dependence in france the netherlands and the united kingdom this paper analyzes unemployment dynamics in the french dutch and u k labor market it presents a method to distinguish between the effects of duration dependence and unobserved heterogeneity on the exit rate out of unemployment it turns out that for british male unemployed there is strong genuine negative duration dependence for french unemployed there is no strong duration dependence during the first year of unemployment while for dutch unemployed there is nonmonotonic duration dependence for all groups of french and dutch individuals significant unobserved heterogeneity is found for u k male unemployed heterogeneity seems to be empirically unimportant copyright 1994 by royal economic society

the role of bounded rationality and imperfect information in subgame perfect implementation an empirical investigation in this paper we conduct a laboratory experiment to test the extent to which moore and repullo s subgame perfect implementation mechanism induces truth telling in practice both in a setting with perfect information and in a setting where buyers and sellers face a small amount of uncertainty regarding the good s value we nd that moore repullo mechanisms fail to implement truth telling in a substantial number of cases even under perfect information about the valuation of the good this failure to implement truthtelling is due to beliefs about the irrationality of one s trading partner therefore although the mechanism should in theory provide incentives for truth telling many buyers in fact believe that they can increase their expected monetary payo by lying the deviations from truth telling become signicantly more frequent and more persistent when agents face small amounts of uncertainty regarding the good s value our results thus suggest that both beliefs about irrational play and small amounts of uncertainty about valuations may constitute important reasons for the absence of moore repullo mechanisms in practice

balanced bayesian mechanisms in the transferable utility case a number of authors have identified conditions on beliefs that guarantee the existence of bayesian incentive compatible mechanisms with balanced transfers we present a new easy to interpret condition and we show that it is strictly more general than all the other conditions found in the literature we also study conditions guaranteeing the bayesian implementability of all social decision rules with balanced budget mechanisms

bayesian networks and boundedly rational expectations i present a framework for analyzing decision makers with an imperfect understanding of their environment s correlation structure the decision maker faces an objective multivariate probability distribution his own action is one of the random variables he is characterized by a directed acyclic graph over the set of variables his subjective belief filters the objective distribution through his graph via the factorization formula for bayesian networks this belief distortion implies that the decision maker s long run behavior may affect his perception of the consequences of his actions accordingly i define a personal equilibrium notion of optimal choices i show how recent models of boundedly rational expectations as well as new ones e g reverse causality can be subsumed into this framework as special cases some general properties of the bayesian network representation of subjective beliefs are presented as well as a missing data foundation

equilibrium and reinforcement learning in private information games an experimental study abstract this paper examines the abilities of standard game theoretic solution concepts static nash equilibrium and a simple model of individual learning to describe subject behavior in an experiment involving private information games with mixed strategy nash equilibrium outcomes the experimental data are compared in several ways with the predictions of static nash equilibrium and the quite different predictions of the learning model which is based on the models of roth and erev 1995 games and economic behavior special issue nobel symposium vol 8 pp 164 212 nash equilibrium does not adequately describe subject behavior whereas the learning model performs well in describing aspects of the evolution in behavior over time

uncertainty aversion and rationality in games of perfect information abstract this paper shows how uncertainty aversion can resolve ties in extensive games of perfect information and thereby refine subgame perfection in such games this is done by assuming that a players are rational with multi prior expected utility functions of gilboa and schmeidler 1989 journal of economic theory 48 221 237 and b a player s plan of the game corresponds to set valued acts at each of his decision nodes the so called strategy system in contrast to single valued act as specified in the traditional notion of strategy profile the effects of pre communication channels among players are studied and are reflected in each of the three proposed solutions finally existence of equilibria are established for each proposed solution concept as well as comparisons with other existing solutions

resource prices and planning horizons abstract this paper shows that a seemingly simple assumption that agents use a rolling planning horizon can reconcile the puzzling long run price dynamics of exhaustible resources such as oil gas and metals a rolling horizon has the effect of removing the scarcity consideration of resource owners when stocks are large hence extraction will be non decreasing and resource prices non increasing for a long period of time and there will be no connection between the price growth and the interest rate in line with the trends of a majority of exhaustible resources in the last century a calibration of the model to the oil market yields a price which closely fits the gradually falling real oil price after wwii and the sharply increasing price after 1998 this suggests that while long run scarcity was not an important parameter on the oil market in the 20th century it has been important in shaping the oil price from around 1998 and onwards

polling mechanisms and the demand revelation problem we consider a revelation mechanism for the production of public goods a sample of consumers is drawn at random each member of the sample is asked to reveal her his preferences agents are subjected to transfers of the groves class and any surplus of taxes collected on sampled agents is redistributed to non sampled agents this polling mechanism is non parametric revealing in dominant strategies budget balanced and approximately efficient if the consumer population is large when applied to a public good with exclusion this mechanism in combination with consumer free mobility yields approximately optimal allocations

reputation versus social learning a folk theorem of game theory illustrates that strategic use of reputation can drastically alter the equilibrium play of an isolated group of n players engaged in a finitely repeated game we show that this folk theorem may fail in social settings where many groups of n players play the game sequentially the ability to strategically use reputation dies out over time due to players opportunity to observe the play of earlier groups this phenomenon is demonstrated in a model of bayesian recurring games by using old and new techniques from the rational learning literature combined with a notion of purification journal of economic literature classification numbers c72 c73 d83

selective trials a principal agent approach to randomized controlled experiments we study the design of randomized controlled experiments when outcomes are significantly affected by experimental subjects unobserved effort expenditure while standard randomized controlled trials rcts are internally consistent the unobservability of effort compromises external validity we approach trial design as a principal agent problem and show that natural extensions of rcts which we call selective trials can help improve external validity in particular selective trials can disentangle the effects of treatment effort and the interaction of treatment and effort moreover they can help identify when treatment effects are affected by erroneous beliefs and inappropriate effort expenditure

skill complexity and strategic interaction abstract we present a win loss game between players with explicitly modeled cognitive limitations differences in the players abilities to analyze the available moves induce preferences over the complexity of the environment and hence incentives to manipulate that complexity other things equal higher skill players are more likely to win in a class of long horizon games with constant complexity greater complexity reduces the advantage of the higher skill player when the higher skill player is the last mover when the lower skill player moves last increasing complexity induces countervailing effects either of which may dominate finally when complexity can be manipulated over the course of the game the benefits of strategic manipulation of complexity can override objective considerations about best move choice resulting in purposeful departures from subgame perfect nash equilibrium behavior

the ex ante incentive compatible core in the absence of wealth effects in a differential information economy with quasi linear utilities monetary transfers facilitate the fulfillment of incentive compatibility constraints the associated ex ante core is generically non empty however we exhibit a wellbehaved exchange economy in which this core is empty even if goods are allocated through random mechanisms

does unemployment cause unemployment micro evidence from norway the way that unemployment duration affects employment prospects is investigated using norwegian micro transition data encompassing detailed accounts of 14 807 unemployed adults a generalized non proportional weibull model is estimated with two possible exits from the unemployment pool a job or a labour force exit on average the probability of obtaining a job is fairly constant at the individual level while the probability of exiting the labour force increases significantly as unemployment duration is prolonged for some particular groups of unemployed there is also a marked negative duration dependence in the probability of obtaining a job

gender and peer effects on performance in social networks we investigate whether peer effects at work differ by gender and whether gender differences in peer effects if any depend on work organization we develop a social network model with gender heterogeneity that we test in a real effort laboratory experiment we compare sequential networks in which information flows from peers to the worker and simultaneous networks where it disseminates bi directionally we identify strong gender differences as females disregard their peers performance in simultaneous networks while males are influenced by peers in both networks females may perceive the environment in simultaneous networks as being more competitive than in sequential networks

extensive form games with uncertainty averse players abstract nash equilibrium presumes that the beliefs of a player are represented by a probability measure motivated by the ellsberg paradox and relevant experimental findings demonstrating that this representation of beliefs may be unrealistic this paper generalizes nash equilibrium in finite extensive form games to allow for preferences conforming to the multiple priors model developed by gilboa and schmeidler journal of mathematical economics 18 1989 141 153 the implications of this generalization for strategy choices and welfare are studied journal of economic literature classification numbers c72 d81

on the evolution of pareto optimal behavior in repeated coordination problems i characterize the asymptotic behavior of a society facing a repeated common interest game in this society new individuals enter to replace their parents at random times each entrant has possibly different beliefs about others behavior than his or her predecessor a self confirming equilibrium sce belief process describes an evolution of beliefs in this society consistent with a self confirming equilibrium of the repeated game the main result shows that for any common interest game the pareto dominant equilibrium is a globally absorbing state of the behavioral dynamics when the sce beliefs of new entrants satisfy certain independence and full support properties this result does not involve either of the usual assumptions of myopia or large inertia common in evolutionary models nor is this result possible if only nash rather than self confirming equilibria are considered

a prospect theory nash bargaining solution and its stochastic stability abstract we consider the long run outcomes of bargaining games when players obey prospect theory we extend the evolutionary bargaining model of young 1993 to a two stage nash demand game two players simultaneously choose whether to exercise an outside option in the first stage and play the nash demand game in the second stage which will be reached only if neither player exercises the outside option we address the influence on the stochastically stable division of reference dependent preferences where the reference point is the value of the outside option we show that the division consistently differs from the nash bargaining solution under expected utility theory inspired by this we propose a prospect theory nash bargaining solution which coincides with the stochastically stable division

preferences dependent learning in the centipede game the persistence of mistrust abstract a candidate explanation for the persistence of heterogeneous behavior in a sequential social dilemma played many times is the existence of heterogeneous preferences preferences dependent conjectures about opponents behavior are an additional source of heterogeneity by behaving differently different preference types acquire different information thus when observing only outcomes of own past interactions heterogeneous and possibly wrong conjectures about opponents strategies may endogenously arise and persist in a centipede game experiment played for forty rounds we manipulate the type of ex post information and the method of play we find that when the game is played in its reduced normal form and subjects have only access to personal statistics heterogeneity of behavior across preference types persists in the long run in this case behavior resembles a self confirming equilibrium selfish subjects take at earlier nodes due to an unjustified lack of trust when subjects have also access to public statistics heterogeneity disappears selfish subjects tend to pass more often and play moves towards bayes nash equilibrium

outcome equivalence of self confirming equilibrium and nash equilibrium abstract we introduce a condition nash equivalent self confirming equilibrium if beliefs are assumed to be independent and unitary nash equivalent self confirming equilibrium and nash equilibrium are outcome equivalent we show that the set of nash equivalent self confirming equilibria and the set of self confirming equilibria which are outcome equivalent to nash equilibria coincide our condition identifies the collection of information sets and requires the existence of beliefs shared by certain sets of players regarding these information sets if the information sets are off the equilibrium path the beliefs regarding them do not have to be correct our condition is weaker than that of strongly consistent self confirming equilibrium by kamada 2010

advice and behavior in intergenerational ultimatum games an experimental approach abstract in the real world when people play a game they often receive advice from those that have played it before them such advice can facilitate the creation of a convention of behavior this paper studies the impact of advice on the behavior subjects who engage in a non overlapping generational ultimatum game where after a subject plays he is replaced by another subject to whom he can offer advice our results document the fact that allowing advice fosters the creation of a convention of behavior in ultimatum games in addition by reading the advice offered we conclude that arguments of fairness are rarely used to justify the offers of senders but are relied upon to justify rejections by receivers

does evolution solve the hold up problem abstract the paper examines the theoretical foundations of the hold up problem at the first stage one agent decides on the level of a relationship specific investment there is no contract so at the second stage the agent must bargain with a trading partner over the surplus that the investment has generated we show that the conventional underinvestment result hinges crucially both on the assumed bargaining game and on the choice of equilibrium concept in particular we prove the following two results i if bargaining proceeds according to the nash demand game any investment level is subgame perfect but only a particular efficient outcome is stochastically stable ii if bargaining proceeds according to the ultimatum game with the trading partner as proposer only the minimal investment level is subgame perfect but any investment level is stochastically stable journal of economic literature classification numbers l14 c78

information feedback in first price auctions i apply the notion of a self confirming equilibrium sce to study how feedback in first price auctions influences bidders perceptions about their strategic environment and consequently their bidding behavior in a private values setting revealing the two highest bids at the end of each auction is sufficient for bidders to have correct beliefs justifying the assumption of nash equilibrium in contrast in every symmetric sce of a symmetric affiliated private values model bidding strategies and revenue are weakly higher if only the highest bid is revealed i also consider interdependent valuations and discuss implications for the empirical auction literature

unemployment duration and competing risks evidence from sweden the determinants of unemployment duration are studied in the presence of multiple exits out of unemployment the results indicate that state aggregation may be a severe problem in empirical analysis of a labor market such as the one in sweden estimating a joint model for all transitions out of unemployment leads to biased estimates since different transitions are governed by different mechanisms the results also indicate positive duration dependence in both transitions to regular employment and transitions out of the labor force but no duration dependence in transitions to public labor market programs i introduction during the last decade we have witnessed a rapidly expanding literature on the determinants of unemployment duration the main motivation for this development is that a large share of the increasing unemployment rates in most western economies since the mid 1970s may be attributed to increased unemployment duration see e g the survey by lofgren and engstrom 1988 most empirical studies formulate an estimating equation for the determinants of the outflow from unemployment in terms of the hazard function which describes the conditional probability of leaving unemployment these studies are typically based on an explicit or implicit assumption that the only relevant transition out of unemployment is reemployment in this paper it is argued that such an assumption which amounts to assuming that all transitions from unemployment are governed by the same mechanism may lead to state aggregation bias we have no a priori reason to believe that e g increased education has the same effect on transitions from unemployment to employment as on transitions from

learning and price volatility in duopoly models of resource depletion the aim of this paper is to provide a theoretical model that can account for price fluctuations in depletable resource markets we do so by introducing learning into a hotelling style duopoly model of optimal resource depletion before the depletable resource becomes scarce the self confirming equilibrium of the model mirrors noncooperative rational expectations equilibrium in that supply is high and price is low although learning does induce occasional upward price spikes that are followed by a long period of falling price once the depletable resource becomes scarce the dynamics of the market change significantly with the self confirming equilibrium mirroring the cooperative rather than noncooperative rational expectations equilibrium supply is low and price is high price spikes still occur but against a background of increasing prices when scarcity is sufficient then the market is permanently in a self confirming equilibrium that is equivalent to cooperative rational expectations equilibrium

correlated types and bayesian incentive compatible mechanisms with budget balance abstract this note presents a condition which guarantees the existence of a bayesian incentive compatible mechanism with budget balance when agents have quasi linear utility functions this condition requires correlation among agents private signals types and is 1 simple and easy to verify 2 good for any decision rule whether efficient or not 3 valid even if agents types are mutually payoff relevant and 4 true for almost every probability distribution of agents types journal of economic literatureclassification numbers c72 d82

learning large deviations and recurrent currency crises this article studies a version of obstfeld s journal of international economics 43 1997 61 77 escape clause model the model is calibrated to produce three rational expectations equilibria two of these equilibria are e stable and one is unstable dynamics are introduced by assuming that agents must learn about the government s decision rule it is assumed they do this using a stochastic approximation algorithm it turns out that as a certain parameter describing the sensitivity of beliefs to new information gets small the algorithm converges to a small noise diffusion process the dynamics of exchange rate changes are then characterized using large deviation techniques from freidlin and wentzell random perturbations of dynamical systems second edition berlin springer verlag 1998 these methods describe the sense in which the limiting distribution of exchange rate changes is approximated by a two state markov switching process where the two states correspond to the two e stable equilibria the model is calibrated to the exchange rate histories of argentina brazil and mexico currency crises in these countries resemble the predicted escape routes of the model a key feature of these escape routes is that expectations of a devaluation erupt suddenly without large contemporaneous shocks this is consistent with evidence showing that crises are often poorly anticipated by financial markets

self confirming equilibrium and the lucas critique we examine the role of off path superstitions in macro economics and show how a false belief about off path play is the key element underlying both the lucas critique and the game theoretic concept of self confirming equilibrium however the impact of false beliefs in these two cases is different in the lucas case a policy maker s incorrect beliefs about off path play can lead to the adoption of mistaken policy innovation however the consequences of such an innovation provide evidence that the belief that motivated them was wrong in contrast play may never escape an undesirable self confirming equilibrium as the action implied by the mistaken belief does not generate data that contradicts it escape from the self confirming equilibrium requires that players do a sufficient amount of experimentation with off path actions

internal rationality imperfect market knowledge and asset prices we present a decision theoretic framework in which agents are learning about market behavior and that provides microfoundations for models of adaptive learning agents are internally rational i e maximize discounted expected utility under uncertainty given dynamically consistent subjective beliefs about the future but agents may not be externally rational i e may not know the true stochastic process for payoff relevant variables beyond their control this includes future market outcomes and fundamentals we apply this approach to a simple asset pricing model and show that the equilibrium stock price is then determined by investors expectations of the price and dividend in the next period rather than by expectations of the discounted sum of dividends as a result learning about price behavior affects market outcomes while learning about the discounted sum of dividends is irrelevant for equilibrium prices stock prices equal the discounted sum of dividends only after making very strong assumptions about agents market knowledge

linear inequality methods to enforce partnerships under uncertainty an overview we review different generic conditions on stochastic outcome functions to enforce either efficient or nearly efficient partnerships their logical relationship is explored two kinds of conditions are considered however the property for an action profile to be compatible plays a crucial role in both kinds also two kinds of enforcement mechanisms are considered enforcement through utility transfers and enforcement through repetition

perpetual learning and apparent long memory abstract this paper studies the low frequency dynamics in forward looking models where expectations are formed using perpetual learning such as constant gain least squares we show that if the coefficient on expectations is sufficiently close to unity perpetual learning induces strong persistence that is empirically indistinguishable from long memory we apply this result to present value models of stock prices and exchange rates and find that perpetual learning can explain the long memory observed in the data

on non nash equilibria abstract i consider generalisations of the nash equilibrium concept based on the idea that in equilibrium the players beliefs should not be contradicted even if they could possibly be incorrect this possibility depends on the information about opponents behaviour available to the players in equilibrium therefore the players information is crucial for this notion of equilibrium called conjectural equilibrium in general and rationalizable conjectural equilibrium rubinstein wolinsky 1994 when the game and the players bayesian rationality are common knowledge in this paper i argue for a refinement of rationalizable conjectural equilibrium showing by propositions and by examples how this equilibrium notion works and how the suitable equilibrium concept depends on the players information journal of economic literature classification numbers c72 d83 d82

evolutionary drift and equilibrium selection this paper develops an approach to equilibrium selection in game theory based on studying the learning process through which equilibrium is achieved the differential equations derived from models of interactive learning typically have stationary states that are not isolated instead nash equilibria that specify different out of equilibrium behaviour appear in connected components of stationary states the stability properties of these components can depend critically on the perturbations to which the system is subjected we argue that it is then important to incorporate such drift into the model a sufficient condition is provided for drift to create stationary states with strong stability properties near a component of equilibria applications to questions of forward and backward induction are developed

racial discrimination in labor markets with posted wage offers we analyze race discrimination in labor markets in which wage offers are posted if employers with job vacancies receive multiple applicants they choose the most qualified but may choose arbitrarily among equally qualified applicants in the model firms post wages workers choose where to apply and firms decide which workers to hire labor market frictions greatly amplify racial disparities so mild discriminatory tastes or small productivity differences can produce large wage differentials between the races compared with the nondiscriminatory equilibrium the discriminatory equilibrium features lower net output lower wages for both white and black workers and greater profits for firms this abstract was borrowed from another version of this item

unemployment vacancies and the long term unemployed this paper is concerned with two related features of the labor market the ratio of long term to total unemployment r and the relat ionship between unemployment and vacancies the u v curve a model is developed to explain r in terms of the average probability that an unemployed person will find a job within a particular time period when the authors add the empirically confirmed hypothesis that this exit probability is lower for the long term than it is for the short term unemployed the n the model is consistent with the observed pattern of unemployment copyright 1988 by royal economic society

group learning wage dispersion and non stationary offers can differences in equilibrium beliefs among otherwise identical individuals account for a substantial degree of wage inequality this paper shows that this is possible if two conditions are met first people learn about the distribution of wage offers from the experience of their peers and second people believe that wage offers are stationary even though offers that arrive later tend to have higher wages than offers that arrive earlier peer groups can then end up with different stable beliefs that lead to intergroup wage differences the non stationarity of offers is rationalized in a model where firms can either advertise their job openings or not and where advertised ones have more influence on more inexperienced job searchers a statistic is proposed whose application to existing studies suggests that the non stationarity considered here is present in data

learning hypothesis testing and rational expectations equilibrium abstract foster and young 2003 provide a model of learning by hypothesis testing that spends almost all of the time approximating nash equilibria of a repeated game here i extend this learning model to a macroeconomic setting where agents decisions are informed by hypotheses they hold regarding the economy they periodically test these hypotheses against observed data and replace them if they fail under certain conditions agents who learn in this way spend a large fraction of the time approximating rational expectations equilibria

economists models of learning abstract economic theorists have intensively studied learning in games and decisions over the last decade this essay puts some of the work in perspective and offers opinions about what still needs to be learned journal of economic literature classification numbers c73 d83

imperfect monitoring in communication networks individuals in many social networks imperfectly monitor other individuals network relationships this paper shows that in a model of a communication network imperfect monitoring leads to the existence of many inefficient equilibria reasonable restrictions on actions or on beliefs about others actions can however eliminate many of these inefficient equilibria even with imperfect monitoring star networks known to be efficient in many settings are shown to have desirable monitoring characteristics more generally this paper provides a formal framework in which to study incorrect perceptions as an equilibrium phenomenon in social networks

learning to play limited forecast equilibria abstract this paper provides a learning justification for limited forecast equilibria i e strategy profiles such that 1 players choose their actions in order to maximize the discounted average payoff over their horizon of foresight as given by their forecasts and 2 forecasts are correct on and off the equilibrium path the limited forecast equilibria appear to be the stochastically stable outcomes of a simple learning process involving vanishing trembles journal of economic literatureclassification numbers c72 d83

incentives and the existence of pareto optimal revelation mechanisms abstract from the characterization of strongly and bayesian incentive compatible paretooptimal mechanisms with transferable utilities we derive the following results if there are only two types per individual then a strongly incentive compatible paretooptimal mechanism exists if there are only two individuals with more than three types then there are sets of beliefs open in the class of all beliefs for which no bayesian incentive compatible pareto optimal mechanism exists if there are more than two individuals then the class of beliefs for which such mechanisms exist is open and dense in the class of all beliefs

self confirming equilibrium rium path of play thus if a self confirming equilibrium occurs repeatedly no player ever observes play that contradicts his beliefs even though beliefs about play at off path information sets need not be correct we characterize the ways in which self confirming equilibria and nash equilibria can differ and provide conditions under which self con firming equilibria correspond to standard solution concepts nash equilibrium and its refinements describe a situation in which i each player s strategy is a best response to his beliefs about the play of his opponents and ii each player s beliefs about the opponents play are exactly correct we propose a new equilibrium concept self confirming equilibrium that weakens condition ii by requiring only that players beliefs are correct along the equilibrium path of play thus each player may have incorrect beliefs about how his opponents would play in contingencies that do not arise when play follows the equilibrium and moreover the beliefs of different players may be wrong in different ways the concept of self confirming equilibrium is motivated by the idea that noncooperative equilibria should be interpreted as the outcome of a learning process in which players revise their beliefs using their observations of previous play suppose that each time the game is played the players observe the actions chosen by their opponents but that players do not observe the actions their opponents would have played at the information sets that were not reached along the path of play then if a self confirming equilibrium occurs repeatedly no player ever observes play that contradicts his beliefs so the equilibrium is self confirming in the weak sense of not being inconsistent with the evidence by analogy with the literature on the bandit problem e g rothschild 1974 one might expect that a non nash self confirming equilibrium can be the outcome of plausible learning processes this point was made by fudenberg and

learning self control this article examines how a decision maker who is only partially aware of his temptations learns about them over time in facing temptations individuals use their experience to forecast future self control problems and choose the appropriate level of commitment i demonstrate that rational learning can be perpetually partial and need not result in full sophistication the main result of this article characterizes necessary and sufficient conditions for learning to converge to full sophistication i apply this result to a consumption savings environment in which a decision maker is tempted by present bias and establish a learning theoretic justification for assuming sophistication in this setting an individual who finds himself continuously repudiating his past plans may learn to distrust his future behavior and may do something about it strotz 1955

payoff information and self confirming equilibrium abstract in a self confirming equilibrium each player correctly forecasts the actions that opponents will take along the equilibrium path but may be mistaken about the way that opponents would respond to deviations this paper develops a refinement of self confirming equilibrium in which players use information about opponents payoffs in forming beliefs about the way that opponents play off of the equilibrium path we show that this concept is robust to payoff uncertainty we also discuss its relationship to other concepts and show that it is closely related to assuming almost common certainty of payoffs in an epistemic model with independent beliefs journal of economic literature classification numbers c72 d84

signalling and adaptive learning in an entry limit pricing game in an experimental investigation of milgrom and roberts 1992 model play consistently converges to a unique equilibrium providing evidence of sophisticated strategic behavior that the theory predicts play starts with monopolists at their myopic maxima followed by an attempt to pool and then if no pooling equilibrium exists separation suggesting myopia rather than a forward looking process when both pure strategy equilibria and separating equilibria exist equilibrium selection is a function of the past history of play an adaptive learning model characterizes the major features of the data and provides predictions of intermediate term behavior that is otherwise lacking in the theory

practical policy evaluation abstract in the wake of the lucas 1976 the study of appropriate macroeconomic policy has largely focused on the comparison of different regimes rules in practice few policymakers are faced with making those kinds of choices i examine the problem of a policymaker making but one in a sequence of similar decisions my main result is that the policymaker s optimal response to the current state can be found by applying regression methods to past macroeconomic data i argue that macroeconomic policy evaluation intended to be of practical value should rely less on putatively structural macroeconomic models and more on regression based approaches

learning to play games in extensive form by valuation abstract game theoretic models of learning which are based on the strategic form of the game cannot explain learning in games with large extensive form we study learning in such games by using valuation of moves a valuation for a player is a numeric assessment of her moves that purports to reflect their desirability we consider a myopic player who chooses moves with the highest valuation each time the game is played the player revises her valuation by assigning the payoff obtained in the play to each of the moves she has made we show for a repeated win lose game that if the player has a winning strategy in the stage game there is almost surely a time after which she always wins when a player has more than two payoffs a more elaborate learning procedure is required we consider one that associates with each move the average payoff in the rounds in which this move was made when all players adopt this learning procedure with some perturbations then with probability 1 there is a time after which strategies that are close to subgame perfect equilibrium are played a single player who adopts this procedure can guarantee only her individually rational payoff

unemployment duration and economic incentives a quasi random assignment approach abstract we investigate how economic incentives and spell duration affect hazard rates out of insured unemployment we take into account that insured unemployment not always ends in employment but also in disability training programs or benefit sanctions our empirical basis is norwegian register data containing variation in economic incentives and spell duration similar to that of random assignment experiments we find that the employment and benefit sanction hazards are negatively affected by the unemployment insurance replacement ratio but that the effects vary considerably among individuals there is negative duration dependence in the employment hazard and positive duration dependence in the disability hazard

selfcon rming equilibrium and model uncertainty we propose to bring together two conceptually complementary ideas 1 selfcon rming equilibrium sce at rest points of learning dynamics in a game played recurrently agents best respond to con rmed beliefs i e beliefs consistent with the evidence they accumulated and 2 ambiguity aversion agents other things being equal prefer to bet on events with known rather than unknown probabilities and more generally distinguish objective from subjective uncertainty a behavioral trait captured by their ambiguity attitudes using as a workhorse the smooth ambiguity model of klibano marinacci and mukerji 2005 we provide a de nition of smooth sce which generalizes the traditional concept of fudenberg and levine 1993a b here called bayesian sce and admits waldean maxmin sce as a limit case we show that the set of equilibria expands as ambiguity aversion increases the intuition is simple by playing the same strategy in

merging reputation and repeated games with incomplete information we relate and unify several results that appeared in the following domains merging of probabilities perturbed games and reputation phenomena and repeated games with incomplete information journal of economic literature classification numbers c72 d83

on the dynamic selection of mechanisms for provision of public projects abstract how do individuals spatial decisions affect the institutions for public goods provision over time this paper describes a dynamic model in which the provision mechanism for a public project is itself the object of locational choice of individuals individuals in an ongoing society must choose between a location with a majority rule mechanism and one with a voluntary contribution mechanism each mechanism determines a funding decision for a local public project which is repeated over time generations of individuals asynchronously supercede their parents creating an entry exit process that allows individuals with possibly different beliefs to enter society a self confirming equilibrium sce belief process describes an evolution of beliefs in this society consistent with a self confirming equilibrium fudenberg and levine 1993 of the repeated location provision game it is shown that the process with belief mutation as new individuals enter society results in a globally absorbing state in which the majority rule mechanism is the unique survivor of the two

learning through noticing theory and experimental evidence in farming existing learning models attribute failures to learn to a lack of data we model a different barrier given the large number of dimensions one could focus on when using a technology people may fail to learn because they failed to notice important features of the data they possess we conduct a field experiment with seaweed farmers to test a model of learning through noticing we find evidence of a failure to notice on some dimensions farmers do not even know the value of their own input interestingly trials show that these dimensions are the ones that farmers fail to optimize furthermore consistent with the model we find that simply having access to the experimental data does not induce learning instead farmers change behavior only when presented with summaries that highlight the overlooked dimensions we also draw out the implications of learning through noticing for technology adoption agricultural extension and the meaning of human capital we thank andy newman matthew rabin and andrei shleifer for helpful comments as well as seminar participants at the behavioural decision theory conference berkeley bu and harvard mit

a dynamic model of equilibrium selection in signaling markets in his work on signaling spence proposed a dynamic model of a market in which a buyer revises prices in light of experience and in which sellers with private information about their types choose utility maximizing signals given these prices we follow spence s suggestion of introducing perturbations into the resulting dynamic process in a broad class of markets our model selects a separating equilibrium outcome if and only if the equilibrium outcome satisfies a version of the undefeated equilibrium concept whereas a pooling equilibrium outcome is selected if and only if the equilibrium outcome is both undefeated and satisfiesd1

bankruptcy law in latin america past and future this paper studies bankruptcy law in latin america focusing on the brazilian reform we start with a review of the international literature on this subject next we examine the economic incentives associated with several aspects of bankruptcy laws and insolvency procedures in general as well as the trade offs involved we follow this theoretical discussion with an empirical evaluation of the quality of current insolvency procedures in latin america we find that the region is governed by a set of laws that is inefficient even when compared with regions of lower per capita income this inefficiency has severe consequences for credit markets and the cost of capital next we focus on the recent brazilian bankruptcy reform analyzing its main components and possible effects the appendix describes difficulties of the reform process in brazil and lessons other latin american countries can learn from it

adaptive learning vs equilibrium refinements in an entry limit pricing game signalling models are studied using experiments and adaptive learning models in an entry limit pricing game even though high cost monopolists never play dominated strategies the easier it is for other players to recognise that these strategies are dominated the more likely play is to converge to the undominated separating equilibrium and the more rapidly limit pricing develops this is inconsistent with the equilibrium refinements literature including cho kreps intuitive criterion and pure bayesian adaptive learning models an augmented adaptive learning model in which some players recognise the existence of dominated strategies and their consequences predicts these outcomes

subjective games and equilibria applying the concepts of nash bayesian and correlated equilibria to the analysis of strategic interaction requires that players possess objective knowledge of the game and opponents strategies such knowledge is often not available the proposed notions of subjective games and of subjective nash and correlated equilibria replace essential but unavailable objective knowledge by subjective assessments when playing a subjective game repeatedly subjective optimizers converge to a subjective equilibrium we apply this approach to some well known examples including single and multi person multi arm bandit games and repeated cournot oligopoly games journal of economic literature classification numbers c73 and c83

managing beliefs about monetary policy under discretion in models of monetary policy discretionary policymaking is typically constrained in its ability to manage public beliefs however when a policymaker possesses private information policy actions serve as signals to the public about unobserved economic conditions and belief management becomes an integral part of optimal discretion policies this article derives the optimal time consistent policy for a general linear quadratic setting the optimal policy is illustrated in a simple new keynesian model where analytical solutions can be derived as well in this model imperfect information about the policymaker s output target leads to lower policy losses

does long term unemployment reduce a person s chance of a job a time series test long term unemployed are less likely to leave unemployment than short term unemployed to what extent is this due to an effect of duration and to what extent to heterogeneity on reasonable assumptions heterogeneity on its own with no duration dependence would imply that if over time the exit rate of new entrants fell by a given multiple the overall exit rate from unemployment should fall by the same multiple however over the last twenty years in the uk the overall exit rate has fallen by 60 per cent more than the fall in the exit rate of new entrants another test of pure heterogeneity based on more general assumptions also fails hence we explain the overall fall in exit rates from unemployment by the combined effect of 1 a fall in the ratio of vacancies to unemployed and 2 a higher proportion of the unemployed being long term unemployed and hence demoralized and stigmatized in the eyes of employers

ranking unemployment duration and wages it explores the implication of one central assumption when firms receive multiple acceptable applications they hire the worker who has been unemployed for the least amount of time this assumption ranking is contrasted with the assumption of random hiring no ranking by embodying this assumption in a model of the labour market with job creation destruction and matching the joint behaviour of unemployment the distribution of unemployment durations and wages are characterized the implication that the re employment prospects of employed workers were they to become unemployed are better than those of the currently unemployed appears to have been an important feature of european unemployment experience in the 1980 s this paper examines the effects of the composition of unemployment on wage determination it explores one central assumption when firms receive multiple acceptable applications they hire the worker who has been unemployed for the least amount of time we refer to this assumption as ranking and contrast it throughout to the assumption of random hiring or no ranking by embodying this assumption in a model of the labour market with job creation destruction and matching we characterize the joint behaviour of unemployment the distribution of unemployment durations and wages ranking has a number of important implications first in addition to the obvious result that the exit rate from unemployment is a decreasing function of duration we show that the effect of duration is stronger the higher the rate of unemployment second with the wage depending on the distributions of prospective unemployment durations the presence of long term unemployed per se has little effect on wages third looking at the relation between the wage and the aggregate level of unemployment and comparing ranking to the case of no ranking the wage moves less with the level of unemployment but more with the change in unemployment put simply ranking and no ranking models show exactly the same aggregate unemployment slightly different long run responses of wages to unemployment and sharply different wage dynamics the paper is organized as follows section i characterizes the matching process and derives a matching function based on an urn ball process with vacancies as urns and applications by unemployed workers as balls thus the distribution of applications per vacancy depends on aggregate unemployment and vacancies vacancies with at least one acceptable application are filled when a vacancy receives more than one acceptable application firms use a rule to choose among applicants thus the rule determines who is hired but does not affect the number of hires section ii uses this matching function in a model of the labour market with continual job creation and destruction and characterizes the equilibrium values of unemployment vacancies and hires

attrition in longitudinal panel data and the empirical analysis of dynamic labour market behaviour in the empirical analysis of unemployment durations and job durations it is generally assumed that the stochastic processes underlying labour market behaviour and the behaviour concerning participation in a panel survey are independent however there are reasons to believe that the probability of dropping out of the panel is related to the rate at which a different job is found if there is such a relation and if it is ignored then the estimator of the rate at which individuals become employed or change jobs will generally be inconsistent in this paper we analyse the relation between the duration spent in a particular labour market state and the duration of panel survey participation by explicitly modelling and estimating the joint distribution of both durations the emphasis will be on models allowing for stochastically related unobserved determinants of both types of duration we estimate models both for unemployment durations and for job durations copyright 1994 john wiley sons ltd

behavioral equilibrium in economies with adverse selection i propose a new solution concept behavioral equilibrium to study environments with players who are naive in the sense that they fail to account for the informational content of other players actions a behavioral equilibrium requires that i players have no incentives to deviate given their beliefs about the consequences of deviating ii these beliefs are consistent with the information obtained from the actual equilibrium play of all players and iii when processing this information naive players fail to account for the correlation between other players actions and their own payouncertainty i apply the framework to certain adverse selection settings and show that contrary to the received literature the adverse selection problem is exacerbated when naive players fail to account for selection more generally the main distinguishing feature of the framework is that in equilibrium beliefs about both fundamentals and strategies are jointly restricted consequently whether a bias may arise or not is determined endogenously in equilibrium jel c72 d82 a large literature presents evidence that psychological and cognitive biases aect people s be havior this evidence raises some questions what are the eects of these biases and can they persist at all in economic settings where people strategically interact with each other and have the opportunity to learn from their experience 1 in this paper i introduce a game theoretic equilibrium framework to study these questions in the context of a particular bias people s failure to take into account the informational content of other people s actions i apply the framework to a class of games that arises naturally in adverse selection settings and then show that the adverse selection

review of sargent s the conquest of american inflation sargent s book provides a reinterpretation of the us inflation record over the last half century reflecting on how macroeconomic theory has evolved since the beginnings of the rational expectations revolution it is a basic reference on dynamic macroeconomic theory

economic science and political influence when policymakers and private agents use models the economists who design the model have an incentive to alter it in order to influence outcomes in a fashion consistent with their own preferences i discuss some consequences of the existence of such ideological bias in particular i analyze the role of measurement infrastructures such as national statistical institutes the extent to which intellectual competition between different schools of thought may lead to polarization of views over some parameters and at the same time to consensus over other parameters and finally how the attempt to preserve influence can lead to degenerative research programs