the nature of social learning experimental evidence in the wide economic literature on social learning many types of behavior rational and non rational have been proposed i suggest a level k model that unifies many of them in one framework this paper analyzes experimental data that is able to distinguish between levels of reasoning at the individual level it relies on rich existing data from celen and kariv 2004 as well as new experimental data that includes written accounts of reasoning from incentivized intra team communication three datasets provide consistent evidence that naive inference in form of the best response to truthful play is the most common approach to social learning the empirical type distributions feature heterogeneity similar to other level k applications

improving prediction market forecasts by detecting and correcting possible over reaction to price movements abstract we examine the impact of price trends on the accuracy of forecasts from prediction markets in particular we study an electronic betting exchange market and construct independent variables from market price odds time series from 6058 individual markets a dataset consisting of over 8 4 million price points using a conditional logit model we find that a systematic relationship exists between trends in odds and the accuracy of odds implied event probabilities the relationship is consistent with participants over reacting to price movements in particular in different time segments of the market increasing and decreasing odds lead respectively to under and over estimation of odds implied probabilities we develop a methodology to detect and correct the erroneous forecasts associated with these trends in odds in order to considerably improve the quality of forecasts generated in prediction markets

keeping up with the joneses competition and the evolution of collusion an economy consists of many markets each of which is a duopoly firms must earn normal profits in the long run if they have to survive normal profits are interpreted as the long run limit of average profits in the whole economy we adopt an aspiration based model of firm behaviour linking it to the economy with the requirement that in the long run the profit aspiration must be at least as great as normal profits we assume that the joint profits can be maximized with symmetric payoffs and with very few other assumptions are able to show that the almost global attractor is the cooperative outcome

learning by bidding we analyze a dynamic second price auction with an informed bidder and an uninformed bidder who upon seeing a posted price learns whether his valuation is above that price in the essentially unique equilibrium an informed bidder bids in the first period if her valuation is below some cutoff and bids only in the last period otherwise an uninformed bidder bids in every period to optimally change the price unless the price is above his valuation or he is the high bidder this model also provides a rationale behind the use of a secret reserve price in private value settings

growth and income inequality in south africa abstract this paper uses a multi region endogenous growth model to analyze the competing claims of income growth and income distribution in south africa the study makes a case for the use of redistributive taxes to offset limited capital mobility between high and low income regions to promote both greater income growth and greater income equality market based capital mobility is limited because low income regions are typically characterized by low levels of both physical and human capital which offer little incentive to outside investors the model estimates annual cross regional convergence rates at

herding with and without payoff externalities an internet experiment most real world situations that are susceptible to herding are also characterized by direct payoff externalities yet the bulk of the theoretical and experimental literature on herding has focused on pure informational externalities in this paper we experimentally investigate the effects of several different forms of payoff externalities e g network effects first mover advantage etc in a standard information based herding model our results are based on an internet experiment with more than 6000 subjects of which more than 2400 participated in the treatments reported here including a subsample of 267 consultants from an international consulting firm we also replicate and review earlier cascade experiments finally we study reputation effects i e the influence of success models in the context of herding

social attributes and strategic equilibrium a restaurant pricing game using a game theoretic approach we examine possible equilibrium explanations of the often observed phenomenon that two neighboring restaurants offering similar menus nevertheless experience vastly different demands the essential aspect of this analysis is the presence of a consumption externality that makes the popularity itself a factor in the determination of the relative attractiveness of the restaurants

social motives vs social influence an experiment on interdependent time preferences we report experimental evidence on the effects of social preferences on intertemporal decisions to this aim we design an intertemporal dictator game to test whether dictators modify their discounting behavior when their own decision is imposed on their matched recipients we run four different treatments to identify the effect of payoffs externalities from those related to information and beliefs our descriptive statistics show that heterogeneous social time preferences and information about others time preferences are significant determinants of choices dictators display a marked propensity to account for the intertemporal preferences of recipients both in the presence of externalities social motives and or when they know about the decisions of their matched partners social influence we also perform a structural estimation exercise to control for heterogeneity in risk attitudes as for individual behavior our estimates confirm previous studies in that high risk aversion is associated with low discounting as for social behavior we find that social motives outweigh social influence especially when we restrict our sample to pairs of dictators and recipients who satisfy minimal consistency conditions

market watch information and availability cascades among the media and investors in the u s ipo market in this study we advance current research on social influence in markets by examining how the recency and availability of information about others actions within and between different communities influence their allocation of attention and their evaluations specifically we examine how the media and investors allocate attention to and evaluate newly public firms in the days following their initial public offerings ipos our findings have implications for understanding the fieldwide processes through which the value of new firms is established in markets

experiments on unemployment benefit sanctions and job search behavior this paper presents the results of an experimental study on unemployment benefit sanctions the experimental set up allows us to distinguish between the effect of benefit sanctions once they are imposed the ex post effect and the threat of getting a benefit sanction imposed the ex ante effect we find that both effects matter moreover the ex ante effect turns out to be substantial and bigger than the ex post effect benefits sanctions stimulate the outflow from unemployment

on the consensus effect abstract individuals often tend to conform to the choices of others in group decisions compared to choices made in isolation we show that this behavior which we term the consensus effect is equivalent to a well known violation of expected utility namely strict quasi convexity of preferences which is shared by many popular non expected utility models in contrast to the equilibrium outcome when individuals are expected utility maximizers quasi convexity of preferences imply that group decisions may fail to properly aggregate preferences and strictly pareto dominated equilibria may arise

cooperation through imitation abstract this paper characterizes long run outcomes for broad classes of symmetric games when players select actions on the basis of average historical performance received wisdom suggests that when agent s interests are partially opposed behavior is excessively competitive keeping up with the jones lowers everyones welfare here we study the long run consequences of imitative behavior when agents have sufficiently long memories and evaluate past actions in terms of weighted average payoff imitation robustly leads to cooperative outcomes with highest symmetric payoffs in the long run furthermore lengthening memory reinforces this effect this provides a rationale for example for collusive cartel like behavior without collusive intent

does past success lead analysts to become overconfident this paper provides evidence that analysts who have predicted earnings more accurately than the median analyst in the previous four quarters tend to be simultaneously less accurate and further from the consensus forecast in their subsequent earnings prediction this phenomenon is economically and statistically meaningful the results are robust to different estimation techniques and different control variables our findings are consistent with an attribution bias that leads analysts who have experienced a short lived success to become overconfident in their ability to forecast future earnings

decision making with naive advice in many of the decisions we make we rely on the advice of others who have preceded us for example before we buy a car choose a dentist choose a spouse find a school for our children sign on to a retirement plan etc we usually ask the advice of others who have experience with such decisions the same is true when we make major financial decisions here people easily take advice from their fellow workers or relatives as to how to choose stock balance a portfolio or save for their child s education although some advice we get is from experts most of the time we make our decisions relying only on the rather uninformed word of mouth advice we get from our friends or neighbors we call this aive advice in this paper i will outline a set of experimental results that indicate that word of mouth advice is a very powerful force in shaping the decisions that people make and tends to push those decisions in the direction of the predictions of the rational theory

how to play 3 3 games a strategy method experiment abstract using the strategy method selten 1967 beitrage zur experimentellen wirtschaftsforschung pp 136 168 we elicit subjects strategies for playing any 2 person 3 3 game with integer payoffs between 0 and 99 in each of 5 tournaments every strategy pair plays 500 000 games the frequency of pure strategy equilibrium play increases from 51 in the first to 74 in the last tournament with the equilibria that maximize joint payoff being preferred when multiple exist for games without pure equilibria strategies are typically based on elements of the best reply cascade map maximize the expected payoff against uniformly randomizing opponents br map best reply to map and br br map best reply to br map

do institutions promote rationality an experimental study of the three door anomaly the three door problem is an example of a systematic violation of a key rationality postulate that has attracted much attention in this seemingly simple individual decision task most people initially fail to apply correctly bayes law and to make the payoff maximizing choice previous experimental studies have shown that individual learning reduces the incidence of irrational choices somewhat but is far from eliminating it we experimentally study the roles of communication and competition as institutions to mitigate the choice anomaly we show that the three door anomaly can be entirely eliminated by these institutions

affecting policy by manipulating prediction markets experimental evidence abstract documented results indicate prediction markets effectively aggregate information and form accurate predictions this has led to a proliferation of markets predicting everything from the results of elections to a company s sales to movie box office receipts recent research suggests prediction markets are robust to manipulation attacks and resulting market outcomes improve forecast accuracy however we present evidence from the lab indicating that single minded well funded manipulators can in fact destroy a prediction market s ability to aggregate informative prices and mislead those who are making forecasts based upon market predictions however we find that manipulators primarily influence market trades meaning outstanding bids and asks remain informative

do prediction markets aid defenders in a weak link contest abstract laboratory experiments have demonstrated that prediction market prices weakly aggregate the disparate information of the traders about states moves of nature however in many practical applications one is attempting to predict the move of a strategic rival this is particularly important in aggressor defender contests this paper reports an experiment where the defender may have the advantage of observing a prediction market on the aggressor s action the results of the experiments indicate that the use of prediction markets does not increase the defender s win rate prediction markets contain reliable information regarding aggressors decisions that is not being exploited by defenders and the existence of a prediction market does not alter the behavior of the aggressor whose behavior is being forecast

credit rationing deregulation and race in mortgage lending in the united states 1960 90 this paper examines discrimination in mortgage lending in teh united states over three decades in 1960 to 1990 we focus on whether deregulation increased federal oversight and enhanced competition reduce discrimination as becker s theory suggests becker 1971 we find that discrimination is evident over the three decades taken together is prevalent from 1960 to 1980 but is absent in the data from 1980 to 1990 this finding strongly supports becker hypothesis preferences for discrimination appear to be offset by the higher costs fo engaging in them after 1980

preference conformism an experiment this paper reports on an experiment designed to test whether people s preferences change to become more alike such preference conformism would be worrying for an economics that takes individual preferences as given de gustibus es non disputandum so the test is important but it is also difficult people can behave alike for many reasons and the key to the design of our test therefore is the control of the other possible reasons for observing apparent peer effects we find evidence of preference conformism in the aggregate and at the individual level where there is heterogeneity it appears also to be more consistent with festinger s epistemic account of why it might occur than that of social identity theory

credit rationing race and the mortgage market abstract this study applies microdata from the 1983 survey of consumer finances to evaluate the effects of borrower race and default risk in mortgage lending the empirical analysis is based on a probit model of whether borrowers obtain fha or conventional mortgages the former are fully insured and are characterized by easier downpayment constraints but are typically more expensive hence households borrowing through the fha will tend to be credit constrained in the conventional market results of the analysis indicate that variables which proxy lender concerns about default risk and cost have an important effect on the type of loan borrowers obtain empirical estimates also suggest that minority households are significantly less likely to obtain conventional financing than whites even after controlling for various proxies of default risk these results suggest that race effects in mortgage lending may persist for reasons unrelated to borrower default risk

desperate housewives communication difficulties and the dynamics of marital un happiness this paper develops a model of marital dissolution based on communication difficulties the quality of a marriage depends on the proximity of an action to a target the target is unknown and must be learned over time each individual receives private signals about the target and can communicate them only imperfectly to his or her spouse because of imperfect communication spouses may hold different beliefs about the optimal action the action actually chosen is a compromise of the spouses distinct beliefs if a couple s beliefs diverge too widely one or both of them may prefer to dissolve the marriage the paper explores how poor communication contributes to marital unhappiness as well as its implications for the dynamics of divorce risk the welfare properties of divorce decisions and the role of counseling when the distribution of decision making power in the household favors men wives but not husbands can find themselves trapped for prolonged periods in a marriage that leaves them as unhappy as it is possible to be without seeking relief through divorce

do markets drive out lemmings or vice versa this paper investigates experimentally a market inspired by two strands of literature on herd behaviour in non market situations and on the aggregation of private information in markets the first strand suggests that socially undesirable herd behaviour may result when information is private the second suggests that in a market context the price mechanism may cause the private information to be aggregated correctly and efficiently this latter therefore suggests that socially undesirable behaviour may be eliminated through the market we test this experimentally and find that socially undesirable behaviour may result the market is misled by agents privately optimizing

information aggregation and belief elicitation in experimental parimutuel betting markets this paper studies the impact of belief elicitation on informational efficiency and individual behavior in experimental parimutuel betting markets in one treatment groups of eight participants who possess a private signal about the eventual outcome play a sequential betting game the second treatment is identical except that bettors are observed by eight other participants who submit incentivized beliefs about the winning probabilities of each outcome in the third treatment the same individuals make bets and assess the winning probabilities of the outcomes market probabilities more accurately reflect objective probabilities in the third than in the other two treatments submitting beliefs reduces the favorite longshot bias and making bets improves the accuracy of elicited beliefs a level k framework provides some insights about why belief elicitation improves the capacity of betting markets to aggregate information

instability of equilibria in experimental markets upward sloping demands externalities and fad like incentives the objective of the paper is to study markets in which the value of the activity to any one person increases with the level with which the activity is undertaken by others the general interpretation could be fads mimicking behavior or some sort of belief formation process in which the beliefs or expectations of agents about some underlying state of nature are influenced by the buying behavior of other agents the result is to create a market that can be modeled as having an upward sloping market demand curve the questions posed are 1 in the fad like environment does the classical concept of equilibrium as an equating of market demand and market supply accurately predict market behavior ii can both stable and unstable equilibria be observed and iii which of the two classical concepts of stability best describes the conditions under which instability is obeserved under the conditions of a fad like demand side externality in a market organized by the multiple unit double auction muda market equilibration occurs at a point where demand equals supply the disequilibrium behavior follows the dynamics of the marshallian model of dynamics as opposed to the walrasian model these results confirm and extend the major findings of plott and george who studied a similar environment with a downward sloping supply

endogenous overconfidence in managerial forecasts abstract we examine whether attribution bias leads managers who have experienced short term forecasting success to become overconfident in their ability to forecast future earnings importantly this form of overconfidence is endogenous and dynamic we also examine the effect of this cognitive bias on the managerial credibility consistent with the existence of dynamic overconfidence managers who have predicted earnings accurately in the previous four quarters are less accurate in their subsequent earnings predictions these managers also display greater divergence from the analyst consensus and are more precise lastly investors and analysts react less strongly to forecasts issued by overconfident managers

the evolution of walrasian behavior consider an evolutionary context where a given number of quantity setting oligopolists tend to mimic successful behavior occasionally experimenting with some small probability in this context it is shown that the unique long run outcome of the process has all firms playing walrasian i e choosing an output that maximizes profits when taking the market clearing price as given

do investors herd in emerging stock markets evidence from the taiwanese market abstract this paper has three main contributions to the literature on investor herds first it extends investor herding studies to an emerging yet relatively sophisticated taiwanese stock market at the sector level by using firm level data second it employs different methodologies designed to test the existence of investor herds to better understand the sources of herd behavior third it discusses the implications of different herding measures for investors exposed to systematic and unsystematic risks we find that the linear model based on the cross sectional standard deviation cssd testing methodology yields no significant evidence of herding however the non linear model proposed by chang et al 2000 and the state space based models of hwang and salmon 2004 lead to consistent results indicating strong evidence of herd formation in all sectors we also find that the herding effect is more prominent during periods of market losses our results suggest limited diversification opportunities for investors in this market especially during periods of market losses when diversification is most needed further research is necessary to see whether similar findings hold for other emerging markets

information cascades in the laboratory when a series of individuals with private information announce public predictions initial conformity can create an information cascade in which later predictions match the early announcements this paper reports an experiment in which private signals are draws from an unobserved urn subjects make predictions in sequence and are paid if they correctly guess which of two urns was used for the draws if initial decisions coincide then it is rational for subsequent decisionmakers to follow the established pattern regardless of their private information rational cascades formed in most periods in which such an imbalance occurred copyright 1997 by american economic association

sequential voting with abstention abstract dekel and piccione 2000 sequential voting procedures in symmetric binary elections j polit economy 108 34 55 have proven that information cascades do not necessarily affect the properties of information aggregation in sequential elections under standard conditions any symmetric equilibrium of a simultaneous voting mechanism is also an equilibrium of the correspondent sequential mechanism we show that when voters can abstain these results are sensitive to the introduction of an arbitrarily small cost of voting the set of equilibria in the two mechanisms are generally disjoint and the informative properties of the equilibrium sets can be ranked if an appropriate q rule is chosen when the cost of voting is small the unique symmetric equilibrium of the simultaneous voting mechanism dominates all equilibria of the sequential mechanism

efficiency equity and timing of voting mechanisms we compare the behavior of voters under simultaneous and sequential voting rules when voting is costly and information is incomplete in many political institutions ranging from small committees to mass elections voting is sequential which allows some voters to know the choices of earlier voters for a stylized model we generate a variety of predictions about the relative efficiency and participation equity of these two systems which we test using controlled laboratory experiments most of the qualitative predictions are supported by the data but there are significant departures from the predicted equilibrium strategies in both the sequential and the simultaneous voting games we find a tradeoff between information aggregation efficiency and equity in sequential voting a sequential voting rule aggregates information better than simultaneous voting and is more efficient in some information environments but sequential voting is inequitable because early voters bear more participation costs

taking the road less traveled by does conversation eradicate pernicious cascades abstract we offer a model in which sequences of individuals often converge upon poor decisions and are prone to fads despite communication of the payoff outcomes from past choices this reflects both direct and indirect action based information externalities in contrast with previous cascades literature cascades here are spontaneously dislodged and in general have a probability less than one of lasting forever furthermore the ability of individuals to communicate can reduce average decision accuracy and welfare

cournot vs walras a reappraisal through simulations abstract best reply behavior in cournot oligopolies generally leads to cournot nash equilibrium but imitative behavior selects the walrasian equilibrium as the unique stochastically stable state previous work alos ferrer 2004 showed that in the presence of memory imitative behavior leads to a non trivial dynamics selecting all quantities between the cournot and walrasian outcomes however the scope of previous results was limited to specific assumptions on demand and cost functions and did not provide information on the shape of the distribution of outcomes we use computational simulations to address these limitations we show that the selection result for non trivial memory holds beyond the set of well behaved cournot games previously analyzed further we find that in cournot games the limit distribution of long run outcomes is highly skewed towards the walrasian quantity although longer memory increases the importance of the cournot equilibrium the competitive outcome remains the dominant prediction

information aggregation in standing and ad hoc committees this paper reports results from a laboratory experiment comparing voting behavior and decision making efficiency in standing and ad hoc committees where decisions are made by unanimity rule we also compare sequential and simultaneous secret ballot voting procedures the data are remarkably consistent across treatments in both qualitative comparative statics and quantitative terms the different procedures and the ad hoc or standing nature of the committees generally do not seem to lead to the selection of different equilibria with the exception of some evidence of bandwagon effects in the sequential procedure

efficiency of experimental security markets with insider information an application of rational expectations models the study reports on the ability of competing models of market information integration and dissemination to explain the behavior of simple laboratory markets for a one priced security returns to the security depended upon a randomly drawn state of nature some agents insiders whose identity was unknown to other agents knew the state before the markets opened with replication of market conditions the predictions of a fully revealing rational expectations model are relatively accurate prices adjusted immediately to near rational expectations prices profits of insiders were virtually indistinguishable from non insiders and efficiency levels converged to near 100 percent

coordination on bubbles in large group asset pricing experiments abstract we present a large group experiment in which participants predict the price of an asset whose realization depends on the aggregation of individual forecasts the markets consist of 21 to 32 participants a group size larger than in most experiments multiple large price bubbles occur in six out of seven markets the bubbles emerge even faster than in smaller markets individual forecast errors do not cancel out at the aggregate level but participants coordinate on a trend following prediction strategy that gives rise to large bubbles the observed price patterns can be captured by a behavioral heuristics switching model with heterogeneous expectations

institutions and behavior experimental evidence on the effects of democracy a novel experiment is used to show that the effect of a policy on the level of cooperation is greater when it is chosen democratically by the subjects than when it is exogenously imposed in contrast to the previous literature our experimental design allows us to control for selection effects e g those who choose the policy may be affected differently by it our finding implies that democratic institutions may affect behavior directly in addition to having effects through the choice of policies our findings have implications for the generalizability of the results of randomized policy interventions

expert information and majority decisions this paper shows theoretically and experimentally that hearing expert opinions can be a double edged sword for collective decision making we present a majoritarian voting game of common interest where committee members receive not only private information but also expert information that is more accurate than private information and observed by all members in theory there are bayesian nash equilibria where the committee members voting strategy incorporates both types of information and access to expert information enhances the efficiency of the majority decision however there is also a class of potentially inefficient equilibria where a supermajority always follow expert information and the majority decision does not aggregate private information in the laboratory the majority decisions and the subjects voting behaviour were largely consistent with those in the class of inefficient equilibria we found a large efficiency loss due to t he presence of expert information especially when the committee size was large we suggest that it may be desirable for expert information to be revealed only to a subset of committee members

returns to scale and input substitution for large u s banks the united states commercial banking industry has experienced significant changes in recent years the recent wave of mergers and the near term prospects of interstate banking suggests that the industry is moving toward much larger average banking organizations rhoades 1985 will a more concentrated banking industry result in lower costs due to scale economies we address this question by examining the cost function for large banks numerous studies of economies of scale in banking exist generally tracing their roots to the classic papers by benston 1965 and bell and murphy 1968 a good review of the most recent studies can be found in clark 1988 the majority of the papers uses samples of smaller banks that is under 1 billion in deposits finding generally that economies of scale are quickly exhausted and that further increases in bank size occur at constant or possibly increasing cost the extrapolation of previous findings for samples of smaller banks to large banks may be problematic especially in the current environment first large banks service a different mix of markets and customers than small banks suggesting that large and small banks probably face different cost structures second the process of deregulation may have rendered the results of prior studies moot since the data pertain to periods before significant deregulation since we

informational cascades a mirage abstract experimental research found contradictory results regarding the occurrence of informational cascades whereas anderson and holt anderson l r holt c a 1997 information cascades in the laboratory the american economic review 87 847 862 confirmed the model of banerjee banerjee a v 1992 a simple model of herd behavior the quarterly journal of economics 107 797 817 and bikhchandani et al bikhchandani s hishleifer d welch i 1992 a theory of fads fashion custom and cultural change as informational cascades journal of political economy 100 992 1026 through lab tests huck and oechssler huck s oechssler j 2000 informational cascades in the laboratory do they occur for the right reasons journal of economic psychology 21 661 671 came to contradictory results on crucial issues this article presents experimental evidence supporting further doubts concerning bayesian informational cascades just under two thirds of all decisions are characterized by an excessive orientation towards the private signal and only a small number of the subjects

exchange asymmetries incorrectly interpreted as evidence of endowment effect theory and prospect theory systematic asymmetries in exchange behavior have been widely interpreted as support for endowment effect theory an application of prospect theory positing that loss aversion and utility function kinks set by entitlements explain observed asymmetries we experimentally test an alternative explanation namely that asymmetries are explained by classical preference theories finding influence through the experimental procedures typically used contrary to the predictions of endowment effect theory we observe no asymmetries when we modify procedures to remove the influence of classical preference theories when we return to traditional type procedures however the asymmetries reappear the results support explanations based in classical preference theories and reject endowment effect theory

cooperation as a result of learning with aspiration levels abstract it is shown that a win stay lose shift behavior rule with endogenous aspiration levels yields cooperation in a certain class of games interaction takes place in many groups markets or locations simultaneously and the aspiration level in each round equals the current population average the class of games includes the prisoner s dilemma and cournot oligopoly and thus yields an explanation for cooperation and collusion

through trial and error to collusion in this article we study a very simple trial and error learning process in the context of a cournot oligopoly without any knowledge of the payoff functions players increase respectively decrease their quantity as long as this leads to higher profits we show that despite the absence of any coordination or punishing device this process converges to the joint profit maximizing outcome

on the existence of a unique correlated equilibrium in cournot oligopoly abstract in this paper i provide sufficient conditions under which the unique pure strategy nash equilibrium of the cournot oligopoly model with or without product differentiation is also the unique correlated equilibrium my conditions are 1 the demand function is linear and 2 the cost function is weakly convex

nonemployment stigma as rational herding a field experiment abstract long spells of unemployment are known to reduce the likelihood of re employment but it is difficult to discern the reasons for this observation using an experimental method that controls for search intensity and possible discouragement of job applicants i document that job market opportunities for the nonemployed diminish rapidly over time in this experiment duration dependence is solely due to firm perceptions why do firms view long spells of nonemployment as negative signals rational herding is one important factor managers believe that unemployed applicants were previously interviewed and if the applicants were productive they would have been hired

sequential sales learning and cascades when ipo shares are sold sequentially later potential investors can learn from the purchasing decisions of earlier investors this can lead rapidly to cascades in which subsequent investors optimally ignore their private information and imitate earlier investors although rationing in this situation gives rise to a winner s curse it is irrelevant the model predicts that 1 offerings succeed or fail rapidly 2 demand can be so elastic that even risk neutral issuers underprice to completely avoid failure 3 issuers with good inside information can price their shares so high that they sometimes fail 4 an underwriter may want to reduce the communication among investors by spreading the selling effort over a more segmented market consider a scenario in which an issuer is selling a new security of uncertain value for example an ipo initial public offering of stock or high yield debt through an underwriter the s e c has banned variable price sales while the value of this new security is highly uncertain to individual market participants investors hold perfectly accurate information when aggregated moreover there are many potential investors and a small number of these investors can jointly determine the value of the firm or its project with high precision it would seem that in this scenario underpriced offerings would succeed and overpriced offerings would fail nevertheless this paper shows that if the distribution channels of invest ment banks are limited underpriced offerings can fail and overpriced offer ings can succeed with limited distribution channels it takes the under writer time to approach interested investors therefore later investors can observe how well an offering has sold to date or at least how successful it has sold relative to offerings previously undertaken by this underwriter

the 11 20 money request game a level k reasoning study we study experimentally a new two player game each player requests an amount between 11 and 20 shekels nis he receives the requested amount and if he requests exactly one shekel less than the other player he receives an additional 20 shekels level k reasoning is appealing due to the natural starting point requesting 20 and the straightforward best response operation nevertheless almost all subjects exhibit at most three levels of reasoning using two variants of the game we demonstrate that the depth of reasoning is not increased by enhancing the attractiveness of the level 0 strategy or by reducing the monetary cost of undercutting the other player

information cascades replication and an extension to majority rule and conformity rewarding institutions in a randomly determined order each agent was given an independent private signal about which of two states was selected by a random draw after receiving the private signal each agent made a publicly announced decision about the state thus at the time of personal decision each agent had a private signal and also knew the decisions of all preceding agents the experiments focused on three different types of organization 1 agents were rewarded according to whether their announced decision was right or wrong this individualistic institution is the one studied by anderson and holt aer 1997 their discovery of information cascades is replicated 2 agents were rewarded according to whether a majority of announced decisions were right or wrong under this majority rule institution the instance of information cascades is sharply reduced 3 agents are rewarded more according to whether their personal announced decision was the same as the majority decision than they were rewarded if their decision was correct this conformity rewarding institution is motivated by proceedings in which there is incentive to produce reports that conform to the reports of others substantial information cascades are observed

location and education in south african cities under and after apartheid we model a south african city during apartheid in which both schooling and mobility are restricted on the basis of race and after apartheid in which no restrictions are imposed we first show that the inequality between blacks and whites decreases when apartheid laws are removed indeed blacks are better off because of human capital externalities due to the possibility of mixing with white students whereas whites are worse off due to negative human capital externalities and intensified land market competition after apartheid we also show that reducing the commuting costs of black children always increases the utility of black families and may even increase that of whites