This paper investigates simultaneous learning about both nature and others' actions in repeated games, and identifies a set of sufficient conditions assuring that equilibrium actions converge to a Nash equilibrium.nPlayers have each an utility function over infinite histories continuous for the product topology. Nature' drawing after any history can depend on any past actions, or can be independent of them.nProvided that 1) every player maximizes her expected payoff against her own beliefs, 2) every player updates her beliefs in a Bayesian manner, 3) prior beliefs about both nature and other players' strategies have a grain of truth, and 4) beliefs about nature are independent of actions chosen during the game, we show that after some finite time the equilibrium outcome of the above game is arbitrarily close to a Nash equilibrium.nThose assumptions are shown to be tight.
"Women earn less than men but are not less satisfied with life. This paper argues that norms on the appropriate pay for women compared to men explain thesenfindings. We take citizens’ approval of an equal rights amendment to the Swissnconstitution as a proxy for the norm that “women and men shall have the right to equal pay for work of equal value”. We find that the gender wage gap narrows by onenfifth due to an increase by one standard deviation in the approval. Rejecting annexplanation in terms of discrimination, we find that employed women are less (notnmore) satisfied with life in liberal communities where the gender wage gap is smaller."
We show experimentally that a principal's distrust in the voluntary performance of an agent has a negative impact on the agent's motivation to perform well. Before the agent chooses his performance, the principal in our experiment decides whether he wants to restrict the agents' choice set by implementing a minimum performance level for the agent. Since both parties have conflicting interests, restriction is optimal for the principal whenever the latter expects the agent to behave opportunistically. We find that most principals in our experiment do not restrict the agent's choice set but trust that the agent will perform well voluntarily. Principals who trust induce, on average, a higher performance and hence earn higher payoffs than principals who control. The reason is that most agents lower their performance as a response to the signal of distrust created by the principal's decision to limit their choice set. Our results shed new light on dysfunctional effects of explicit incentives as well as the puzzling incompleteness of many economic contracts.
Distortions in memory impose important bounds on rationality but have been largely disregarded in economics. While it is possible to learn, it is more difficult, and sometimes impossible, to unlearn. This retention effect lowers individual utility directly or via reduced productivity, andnadds costs to principal-agent relationships. The imprinting effect states that the more one tries to forget a piece of information the more vivid it stays in memory, leading to a paradoxical outcome. The effects are based on, and are supported by, psychological experiments, and it is shown that they are relevant in many economic situations and beyond.
This paper reports on a two-task principal-agent experiment in which only one task is contractible. The principal can either offer a piece-rate contract or a (voluntary) bonus to the agent. Bonus contracts strongly outperform piece rate contracts. Many principals reward high efforts on both tasks with substantial bonuses. Agents anticipate this and provide high efforts on both tasks. In contrast, almost all agents with a piece rate contract focus on the first task and disregard the second.nPrincipals understand this and predominantly offer bonus contracts. This behavior contradicts the self-interest theory but is consistent with theories of fairness.
This paper intends to provide an evaluation of where the economic research on happiness stands and in which interesting directions it might develop. First, the current state of the research on happiness in economics is briefly discussed. We emphasize the potential of happiness research in testing competing theories of individual behavior. Second, the crucial issue of causality is taken up illustrating it for a particular case, namely whether marriagenmakes people happy or whether happy people get married. Third, happiness research is takennup as a new approach to measuring utility in the context of cost-benefit analysis.
A global signaling game is a sender-receiver game in which the sender is only imperfectly informed about the receiver's preferences. The paper considers an economically relevant class of signaling games that possessnmore than one Perfect Bayesian equilibrium. For this class of games, it is shown that a Perfect Bayesian equilibrium is una®ected by a small perturbation of the information structure if and only if it is consistent with a criterionnsuggested by Cho and Kreps (1987). Moreover, the equilibrium in the globalnsignaling game is essentially unique.
We consider economies with additively separable utility functions and give conditions for the two-agents case under which the existencenof sunspot equilibria is equivalent to the occurrence of the transfer paradox.nThis equivalence enables us to show that sunspots cannot matter if the initial economy has a unique spot market equilibrium and there are only twoncommodities or if the economy has a unique equilibrium for all distributions of endowments induced by asset trade. For more than two agents the equivalence breaks and we give an example for sunspot equilibria even though theneconomy has a unique equilibrium for all distributions of endowments inducednby asset trade.
"Corporate scandals, reflected in excessive management compensation and fraudulent accounts, cause great damage. Agency theory’s insistence to link the compensation of mangers and directors as closely as possible to firm performance is a major reason for these scandals.nThey cannot be overcome by improving variable pay for performance as selfish extrinsicnmotivation is reinforced. Based on the common pool approach to the firm, institutions arenproposed, serving to raise intrinsically motivated corporate virtue. More importance is to benattributed to fixed pay and strengthening the legitimacy of authorities by procedural fairness, relational contracts and organizational citizenship behavior."
We model the interbank market for overnight credit with heterogeneous banks and asymmetric information. An unsophisticated bank justntrades to compensate its liquidity imbalance, while a sophisticated bank willnexploit its private information about the liquidity situation in the market. It is shown that with positive probability, the liquidity effect (Hamilton, 1997) is reversed, i.e., a liquidity drainage from the banking system may generatenan overall decrease in the market rate. The phenomenon does not disappear when the number of banks increases. We also show that private information mitigates the effect of an unexpected liquidity shock on the market rate, suggesting a conservative information policy from a central bank perspective.
