radio spectrum and the disruptive clarity of ronald coase abstractin the federal communications commission ronald coase exposed deep theoretical foundations via normative argument the government controlled scarce frequencies spillovers were said to be otherwise endemic coase saw that regulators limited conflicts by restricting uses and that property owners routinely perform such functions via the price system the fundamental insight was that analytical symmetry was demanded accounting for the net benefits of both regulation and markets coase augured that the price system would outperform administrative allocation a conclusion mocked by communications policy experts yet one specific slice of the coasean program competitive bidding for licenses commenced at the federal communications commission in 1994 today over 70 u s auctions have been held 31 305 licenses sold and 52 6 billion paid to the treasury the reform is a textbook example of economic policy success even as it raises the question why have market mechanisms not been further implemen

do too many cooks always spoil the stew an experimental analysis of rent seeking and the role of a strategic buyer laboratory methods are used to evaluate the effects of institutional arrangements and rent defending activity on rent seeking auction outcomes in part nash equilibrium predictions are a useful behavioral guide as predicted more rents are dissipated in perfectly discriminating auctions where the high bidder wins than in lotteries where relative bids determine the chance of winning also as predicted the introduction of a rent defending buyer reduces social costs nevertheless the social costs of rent seeking consistently exceed predicted levels moreover individual bidding especially by buyers deviates markedly from nash predictions

war of attrition evidence from a laboratory experiment on market exit i introduction young industries often undergo a process of shakeout gort and klepper 1982 and klepper 1996 attracting excess firms and gradually shedding them over time more mature industries are likewise often forced to contract in the face of recession or product specific negative demand shocks when an overcrowded industry is forced to shrink which firms exit and which ones survive the conventional answer in economics is that overcrowded industries tend to shed inefficient firms and retain efficient ones we might call this survival of the most efficient a process analogous to natural selection that can adaptively improve the efficiency of industries over time nelson and winter 1982 fudenberg and tirole 1986 model firms exit decisions in overcrowded duopoly markets as wars of attrition and show that the intuition of survival of the most efficient has merit even if firms have little information regarding their costs relative to their competitors however the equilibrium of their game is complex involving a solution to a system of differential equations since neither fortune 500 chief executive officers in the naturally occurring markets nor undergraduate participants in laboratory markets deliberately solve differential equations when deciding whether or not to exit a declining market it is an open question as to how well fudenberg and tirole s rational reconstruction of the exit decision corresponds to the facts of how people make such decisions we report the results of a laboratory experiment designed to answer this question nearly 200 subjects in 16 sessions participated in a total of 3 800 wars of attrition based on fudenberg and tirole s model at the beginning of each period subjects were randomly paired and given a private cost draw that usually induced negative net per second payoffs in a shared market and positive net payoffs per second in monopoly subjects then decided in real time whether and when to exit the market never to return monotonic equilibrium strategy functions predict higher cost inefficient participant exit at an earlier time than their lower cost competitor that is the relatively efficient competitor survives in the market we find that fudenberg and tirole s model organizes our data surprisingly well especially considering its complexity we observe exit by the higher cost firm in 76 of cases when differences between the costs faced by firms are substantial the rate of efficient exit rises to nearly 100 the data on exit times are likewise quite close to the point predictions particularly in the crucial higher portion of the cost distribution that generally governs exit times the median deviation from equilibrium exit times falls to zero by the end and on average subjects earn payouts identical to those predicted in equilibrium our design permits tests of two other conjectures in fudenberg and tirole first our data supports fudenberg and tirole s core comparative static prediction that a decrease in the ex ante likelihood of actually being in a war of attrition leads to an increase in the speed of exit 1 second half of our sessions use costs framed as fixed costs suffered while in the market and half use costs framed as opportunity costs earned by exiting the market there is no evidence that this treatment variable affects exit behavior this isomorphism between gains and losses predicted by standard theory stands in stark contrast to evidence from previous individual decision making experiments suggesting asymmetries in how people react to potential losses and potential gains although wars of attrition have an important place in the game theoretic literature there are surprisingly few experimental studies directly relating to them 2 3 bilodeau childs and mestelman 2004 study a three player full information war of attrition framed as a volunteer game and report widespread failure of equilibrium predictions the predicted volunteer in a subgame perfect nash equilibrium only volunteers 41 of the time

all pay auctions an experimental study this paper reports the results of a repeated all pay auction game the auction form used is the simplest possible complete information perfect recall and common value our main findings are that in such an auction over bidding is quite drastic and the seller s revenue depends strongly on the number of bidders in early stages however after a few rounds of play this dependence completely disappears and the seller s revenue becomes independent of the number of participants the results are confronted with two solution concepts of economic theory the nash equilibrium and the symmetric logit equilibrium 2005 published by elsevier b v

equilibrium selection in static and dynamic entry games abstract we experimentally assess the predictive power of two equilibrium selection principles for binary n player entry games with strategic complementarities in static entry games we test the theory of global games which posits that players play games of complete information as if they were playing a related global game of incomplete information by contrast in dynamic n period entry games the efficient subgame perfect equilibrium prediction is for all to enter whenever the payoff relevant state variable exceeds a certain threshold the subgame perfect entry threshold of the dynamic game will generally differ from the global game threshold of the static version of the same game nevertheless our experimental findings suggest that entry thresholds are similar between static and dynamic versions of the same game an implication is that the modeling of entry games with strategic complementarities as static one shot games ignoring the dynamic element of such interactions may not be unreasonable

stopping on nine evidence of heuristic managerial decision making in major league baseball pitcher substitutions economic agents who exhibit left digit bias over emphasize round numbers using data on managers pitcher substitution decisions in major league baseball i find that managers remove starting pitchers more often when the next pitch will result in a pitch count ending in zero unlike counts ending in nine pitch counts ending in eight do not exhibit higher substitution rates despite the fact that pitchers usually throw multiple pitches before the manager s next decision opportunity managers apparently use rules of thumb that emphasize leftmost digits and ignore at least some future consequences of present actions however these significant biases disappear when the stakes are high i find no evidence of disproportionate substitutions on the nine s in close games and the final digit of the pitch count does not discontinuously affect the probability of winning managers act in a manner consistent with rational inattention using heuristics only when the stakes are low

coordination and learning behavior in large groups with asymmetric players we study a class of large group noncooperative iterated market entry games with complete information binary choices and asymmetric players in which the incentive of each player to enter the market decreases the larger the number of entrants experimental results from two different studies show remarkable coordination on the aggregate level which is accounted for successfully by the nash equilibrium solution the equilibrium solution is less successful in accounting for the differences among types of players with differential entry costs or differences among players of the same type rather the behavioral patterns observed on the aggregate level are accounted for by a reinforcement based learning model postulating an initial distribution of individual cutoff points these cutoff points are assumed to change over time at a decreasing rate as a joint function of the decision and outcome of the preceding period journal of economic literature classification numbers c7 d5 d8 2002 elsevier science usa

a theory of exit in duopoly we develop a duopoly model in which exit occurs because of the existence of fixed costs or opportunity costs each firm enters the market knowing its own cost but not that of its opponent as times goes on each firm becomes increasingly pessimistic about the cost of its remaining rival the time of exit is the only strategic variable so that our model is a war of attrition in contrast to the classic war of attrition however we assume that with positive probability each firm s costs may be low enough that staying in forever is a dominant strategy thus our model unlike the classic one has a unique equilibrium

a comparison of multiple unit all pay and winner pay auctions under incomplete information this article examines the properties of independent private value all pay and winner pay auctions when there are multiple units sold we study bidding behavior efficiency and revenue in a set of 23 experimental sessions our data show that the all pay auction and the winner pay auction are empirically revenue equivalent though both yield higher revenue than the risk neutral bayesian equilibrium our evidence also suggests that the winner pay auction is more likely to lead to a pareto efficient allocation than the all pay auction

less fighting than expected experiments with wars of attrition and all pay auctions while all pay auctions are well researched experimentally we do not have much laboratory evidence on wars of attrition this paper tries to fill this gap technically there are only a few differences between wars of attrition and all pay auctions behaviorally however we find striking differences as many studies our experiment finds overbidding in all pay auctions in contrast in wars of attrition we observe systematic underbidding

wars of attrition in experimental duopoly markets oligopolists often bear large fixed costs these fixed costs can change for example through rising property rents increased taxes and renegotiated labor contracts in this paper we imagine oligopoly market structures that are identical except for the level of fixed costs does this level influence the strategic behavior of firms since marginal profits are unaffected by fixed costs one answer is that there should be no change in behavior alternatively firms may seek more cooperative outputs in order to maintain profits enough cooperation can even generate bigger profits but if fixed costs rise to a level where there are too many firms in the market for any seller to earn an adequate profit a price war could result attrition leaves more profits for the survivors and the higher fixed costs are an increased barrier to later entry thus it also can be argued that greater fixed costs engender less cooperation among rivals because agents are fighting over a smaller profit pie 1 through the use of experimental markets this paper shows that fixed costs do have an influence on the level of cooperation after they have reached a relatively high level in a duopoly market structure subjects as rivals engage in price wars outputs are kept large larger than the cournot level until a rival exits the market by contrast such behavior does not take place when fixed costs are relatively low this difference in behavior at low and high fixed cost levels

learning information and sorting in market entry games theory and evidence previous data from experiments on market entry games n player games where each player faces a choice between entering a market and staying out appear inconsistent with either mixed or pure nash equilibria here we show that in this class of game learning theory predicts sorting that is in the long run agents play a pure strategy equilibrium with some agents permanently in the market and some permanently out we conduct experiments with a larger number of repetitions than in previous work in order to test this prediction we find that when subjects are given minimal information only after close to 100 periods do subjects begin to approach equilibrium in contrast with full information subjects learn to play a pure strategy equilibrium relatively quickly however the information which permits rapid convergence revelation of the individual play of all opponents

volunteering a public service an experimental investigation in some public goods environments it may be advantageous for heterogeneous groups to be coordinated by a single individual this volunteer will bear private costs for acting as the leader while enabling each member of the group to achieve maximum potential gains this environment is modeled as a war of attrition game in which everyone can wait for someone else to volunteer since these games generally have multiple nash equilibria but a unique subgameperfect equilibrium we tested experimentally the predictive power of the subgame perfection criterion our data contradict that subjects saw the subgame perfect strategy combination as the obvious way to play the game an alternative behavioral hypothesis that subjects were unable to predict accurately how their opponents would play and tried to maximize their expected payoff is proposed this hypothesis fits the observed data generally well

workaholics and dropouts in organizations this paper reports the results of experiments designed to test the theory of the optimal composition of prizes in contests in the aggregate the behavior of subjects is consistent with that predicted by the theory but we find that such aggregate results mask an unexpected compositional effect on the individual level whereas theory predicts that subject efforts are continuous and increasing functions of ability the actual efforts of our laboratory subjects bifurcate lowability workers drop out and exert little or no effort and high ability workers try too hard this bifurcation which is masked by aggregation can be explained by assuming loss aversion on the part of the subjects jel c92 d44 d72 d82 j31

war and conflict in economics theories applications and recent trends we review the main economic models of war and conflict these models vary in details but their implications are qualitatively consistent highlighting key commonalities across a variety of conflict settings recent empirical literature employing both laboratory and field data in many cases confirms the basic implications of conflict theory however this literature also presents important challenges to the way economists traditionally model conflict we finish our review by suggesting ways to address these challenges

unions in oligopolistic vertically connected industries a model of two unionized vertically connected oligopolistic industries is analyzed economic performance measured by consumer prices depends on the institutional setting of wage bargaining two externalities may occur namely an integration and a competition externality which have contrary effects with decentralized bargaining no externalities can be internalized resulting in low consumer prices with bargaining at the industry level only the competition externality is internalized resulting in high prices with centralized bargaining both externalities can be internalized resulting again in low prices with at least two firms in each industry the decentralized setting performs best performance improves with an increase in the competition of the product markets author s abstract

an experimental study of voting with costly delay a conclave is a voting mechanism in which a committee selects an alternative by voting until a sufficient supermajority is reached we study experimentally welfare properties of simple three voter conclaves with privately known preferences over two outcomes and waiting costs the resulting game is a form of multiplayer war of attrition our key finding is that consistent with theoretical predictions when voters are ex ante heterogeneous in terms of the intensity of their preferences the conclave leads to efficiency gains relative to simple majority voting we also compare welfare properties of a static versus a dynamic version of a conclave when social cost of waiting is taken into account the dynamic conclave is superior in terms of welfare than its static version

equilibrium play in large group market entry games coordination behavior is studied experimentally in a class of noncooperative market entry games featuring symmetric players complete information zero entry costs and several randomly presented values of the market capacity once the market capacity becomes publicly known each player must decide privately whether to enter the market and receive a payoff which increases linearly in the difference between the market capacity and the number of entrants or stay out payoffs for staying out are either positive giving rise to the domain of gains or negative giving rise to the domain of losses the major findings are substantial individual differences that do not diminish with practice aggregate behavior that is organized extremely well in both the domains of gains and losses by the nash equilibrium solution and variations in the population action strategies with repeated play of the stage game that are accounted for by a variant of an adaptive learning model due to roth and erev 1995

the generalized war of attrition abstract we model a war of attrition with n k firms competing for n prizes in a natural oligopoly context the k 1 lowest value firms drop out instantaneously even though each firm s value is private information to itself in a standard setting context in which every competitor suffers losses until a standard is chosen even after giving up on its own preferred alternative each firm s exit time is independent both of k and of other players actions our results explain how long it takes to form a winning coalition in politics solving the model is facilitated by the revenue equivalence theorem jel d43 d44 l13 o30

high stakes behavior with low payoffs inducing preferences with holt laury gambles abstract kahneman and tversky 1979 argued that risky decisions in high stakes environments can be informed using questionnaires with hypothetical choices yet results by holt and laury 2002 suggest that questionnaire responses and decisions in hypothetical and low monetary payoff environments do not well predict decisions in higher monetary payoff environments this raises the question of whether investigating decision making in high stakes environments requires using high stakes here we show that one can induce preferences using the binary lottery reward technique e g berg et al 1986 in order to study high stakes decision making using low stakes in particular we induce preferences such that decisions in a low stakes environment reflect well the choices made in the high stakes environment of holt and laury 2002 this finding is of interest to anyone interested in studying high stakes decision behavior without paying high stakes

theory and misbehavior of first price auctions recent experimental evidence appears to reject simple nash equilibrium models of bidding behavior in first price auctions the author presents a methodological critique of this evidence existing tests have concentrated on deviations of subjects from predictions in the message space of the action bid deviations the author suggests that it is more natural to evaluate subject behavior in expected payoff space he concludes that the evidence against the simple models is not significant enough to warrant their rejection copyright 1989 by american economic association