Working Papers by Thomas R. Palfrey
# | Title | Authors | Date | Length | Paper | Abstract | |
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1468 | Dynamic Collective Action and the Power of Large Numbers | Battaglini, Marco Palfrey, Thomas R. | 04/30/2024 | 56 pages | sswp1468.pdf | Collective action is a dynamic process where individuals in a group assess over time the benefits and costs of participating toward the success of a collective goal. Early participation improves the expectation of success and thus stimulates the subsequent participation of other individuals who might otherwise be unwilling to engage. On the other hand, a slow start can depress expectations and lead to failure for the group. Individuals have an incentive to procrastinate, not only in the hope of free riding, but also in order to observe the flow of participation by others, which allows them to better gauge whether their own participation will be useful or simply wasted. How do these phenomena affect the probability of success for a group? As the size of the group increases, will a "power of large numbers" prevail producing successful outcomes, or will a "curse of large numbers" lead to failure? In this paper, we address these questions by studying a dynamic collective action problem in which n individuals can achieve a collective goal if a share an of them takes a costly action (e.g., participate in a protest, join a picket line, or sign an environmental agreement). Individuals have privately known participation costs and decide over time if and when to participate. We characterize the equilibria of this game and show that under general conditions the eventual success of collective action is necessarily probabilistic. The process starts for sure, and hence there is always a positive probability of success; however, the process "gets stuck" with positive probability, in the sense that participation stops short of the goal. Equilibrium outcomes have a simple characterization in large populations: welfare converges to either full efficiency or zero as n → ∞ depending on a precise condition on the rate at which an converges to zero. Whether success is achievable or not, delays are always irrelevant: in the limit, success is achieved either instantly or never. | |
1467 | A Note on Cursed Sequential Equilibrium and Sequential Cursed Equilibrium | Fong, Meng-Jhang Lin, Po-Hsuan Palfrey, Thomas R. | 04/11/2023 | 27 | SSWP_1467.pdf | In this short note, we compare the cursed sequential equilibrium (CSE) by Fong et al. (2023) and the sequential cursed equilibrium (SCE) by Cohen and Li (2023). We identify eight main differences between CSE and SCE with respect to the following features:
(1) the family of applicable games, (2) the number of free parameters, (3) the belief updating process, (4) the treatment of public histories, (5) effects in games of complete information, (6) violations of subgame perfection and sequential rationality, (7) re-labeling of actions, and (8) effects in one-stage simultaneous-move games. | |
1466 | Organizing for Collective Action: Olson Revisited | Battaglini, Marco Palfrey, Thomas R. | 11/17/2023 | 57 | sswp_1466_revised-nov2023.pdf | We study a standard collective action problem in which successful achievement of a group interest requires costly participation by some fraction of its members. How should we model the internal organization of these groups when there is asymmetric information about the preferences of their members? How effective should we expect it to be as we increase the group's size n? We model the organization as an honest and obedient communication mechanism and obtain three main results: (1) For large n it can be implemented with a very simple mechanism that we call the Volunteer Based Organization. (2) The limit probability of success as n goes to infinity in the optimal honest and obedient mechanism is no better than an unorganized group, which is not generally true if obedience is replaced by the usual (weaker) requirement of interim individual rationality. (3) In spite of this asymptotic equivalence, an optimal organization provides substantial gains when the probability of success converges to zero, because it does so at a much slower rate than an unorganized group. Because of this, significant probabilities of success are achievable with simple honest and obedient organizations even in very large groups. | |
1465 | Cursed Sequential Equilibrium | Fong, Meng-Jhang Lin, Po-Hsuan Palfrey, Thomas R. | 04/11/2023 | 61 | sswp1465_updated_041123.pdf | This paper develops a framework to extend the strategic form analysis of cursed equilibrium (CE) developed by Eyster and Rabin (2005) to multi-stage games. The approach uses behavioral strategies rather than normal form mixed strategies, and imposes sequential rationality. We define cursed sequential equilibrium (CSE) and compare it to sequential equilibrium and standard normal-form CE. We provide a general characterization of CSE and establish its properties. We apply CSE to five applications in economics and political science. These applications illustrate a wide range of differences between CSE and Bayesian Nash equilibrium or CE: in signaling games; games with preplay communication; reputation building; sequential voting; and the dirty faces game where higher order beliefs play a key role. A common theme in several of these applications is showing how and why CSE implies systematically different behavior than Bayesian Nash equilibrium in dynamic games of incomplete information with private values, while CE coincides with Bayesian Nash equilibrium for such games. | |
1460 | Cognitive Hierarchies in Extensive Form Games | Lin, Po-Hsuan Palfrey, Thomas R. | 08/10/2022 | 47 | sswp1460_updated_081022.pdf | The cognitive hierarchy (CH) approach posits that players in a game are heterogeneous with respect to levels of strategic sophistication. A level-k player believes all other players in the game have lower levels of sophistication distributed from 0 to k- 1, and these beliefs correspond to the truncated distribution of a \true" distribution of levels. We extend the CH framework to extensive form games, where these initial beliefs over lower levels are updated as the history of play in the game unfolds, providing information to players about other players' levels of sophistication. For a class of centipede games with a linearly increasing pie, we fully characterize the dynamic CH solution and show that it leads to the game terminating earlier than in the static CH solution for the centipede game in reduced normal form. | |
1459 | Bilateral Conflict: An Experimental Study of Strategic Effectiveness and Equilibrium | Holt, Charles A. Palfrey, Thomas R. | 01/17/2022 | 36 | sswp1459.pdf | Bilateral conflict involves an attacker with several alternative attack methods and a defender who can take various actions to better respond to different types of attack. These situations have wide applicability to political, legal, and economic disputes, but are particularly challenging to study empirically because the payoffs are unknown. Moreover, each party has an incentive to behave unpredictably, so theoretical predictions are stochastic. This paper reports results of an experiment where the details of the environment are tightly controlled. The results sharply contradict the Nash equilibrium predictions about how the two parties' choice frequencies change in response to the relative effectiveness of alternative attack strategies. In contrast, nonparametric quantal response equilibrium predictions match the observed treatment effects. Estimation of the experimentally controlled payoff parameters across treatments accurately recovers the true values of those parameters with the logit quantal response equilibrium model but not with the Nash equilibrium model. | |
1445 | An Experimental Study of Vote Trading | Casella, Alessandra Palfrey, Thomas R. | 12/18/2018 | 59 | sswp1445.pdf | Vote trading is believed to be ubiquitous in committees and legislatures, and yet we know very little of its properties. We return to this old question with a laboratory experiment. We posit that pairs of voters exchange votes whenever doing so is mutually advantageous. This generates trading dynamics that always converge to stable vote allocations--allocations where no further improving trades exist. The data show that stability has predictive power: vote allocations in the lab converge towards stable allocations, and individual vote holdings at the end of trading are in line with theoretical predictions. However, there is only weak support for the dynamic trading process itself. | |
1444 | Trading Votes for Votes. A Dynamic Theory | Casella, Alessandra Palfrey, Thomas R. | 12/10/2018 | 38 | sswp1444.pdf | We develop a framework to study the dynamics of vote trading over multiple binary issues. We prove that there always exists a stable allocation of votes that is reachable in a finite number of trades, for any number of voters and issues, any separable preference profile, and any restrictions on the coalitions that may form. If at every step all blocking trades are chosen with positive probability, convergence to a stable allocation occurs in finite time with probability one. If coalitions are unrestricted, the outcome of vote trading must be Pareto optimal, but unless there are three voters or two issues, it need not correspond to the Condorcet winner. If trading is farsighted, a non-empty set of stable vote allocations reachable from a starting vote allocation need not exist, and if it does exist it need not include the Condorcet winner, even in the case of two issues. | |
1427 | Candidate entry and political polarization: An experimental study | Grober, Jens Palfrey, Thomas R. | 12/15/2016 | 51 | sswp1427.pdf | We report the results of a laboratory experiment based on a citizen‐candidate model with private information about ideal points. Inefficient political polarization is observed in all treatments; that is, citizens with extreme ideal points enter as candidates more often than moderate citizens. Second, less entry occurs, with even greater polarization, when voters have directional information about candidates' ideal points, using ideological party labels. Nonetheless, this directional information is welfare enhancing because the inefficiency from greater polarization is outweighed by lower total entry costs and better voter information. Third, entry rates are decreasing in group size and the entry cost. These findings are all implied by properties of the unique symmetric Bayesian equilibrium of the entry game. Quantitatively, we observe too little (too much) entry when the theoretical entry rates are high (low). This general pattern of observed biases in entry rates is implied by logit quantal response equilibrium. | |
1423 | The Effects of Income Mobility and Tax Persistence on Income Redistribution and Inequality | Agranov, Marina Palfrey, Thomas R. | 10/17/2016 | 48 | SSWP_1423.pdf | We explore the effect of income mobility and the persistence of redistributive tax policy on the level of redistribution in democratic societies. An infinite-horizon theoretical model is developed, and the properties of the equilibrium tax rate and the degree of after-tax inequality are characterized. Mobility and stickiness of tax policy are both negatively related to the equilibrium tax rate. However, neither is sufficient by itself. Social mobility has no effect on equilibrium taxes if tax policy is voted on in every period, and tax persistence has no effect in the absence of social mobility. The two forces are complementary. Tax persistence leads to higher levels of post-tax inequality, for any amount of mobility. The effect of mobility on inequality is less clear-cut and depends on the degree of tax persistence. A laboratory experiment is conducted to test the main comparative static predictions of the theory, and the results are generally supportive. | |
1422 | Communication Among Voters Benefits the Majority Party | Palfrey, Thomas R. Pogorelskiy, Kirill | 10/17/2016 | 56 | SSWP_1422.pdf | How does communication among voters affect turnout? And who benefits from it? In a laboratory experiment in which subjects, divided into two competing parties, choose between costly voting and abstaining, we study three pre-play communication treatments: No Communication, a control; Public Communication, where all voters exchange public messages through computer chat; and Party Communication, where messages are also exchanged but only within one's own party. Our main finding is that communication always beenfits ts the majority party by increasing its expected turnout margin and, hence, its expected margin of victory and probability of winning the election. Party communication increases overall turnout, while public communication increases turnout with a high voting cost but decreases it with a low voting cost. With communication, we find essentially no support for the standard Nash equilibrium predictions and limited consistency with correlated equilibrium. | |
1415 | The Political Economy of Public Debt: A Laboratory Study | Battaglini, Marco Nunnari, Salvatore Palfrey, Thomas R. | 02/08/2016 | 50 | SSWP_1415.pdf | This paper reports the results from a laboratory experiment designed to study political distortions in the accumulation of public debt. A legislature bargains over the levels of a public good and of district specific transfers in two periods. The legislature can issue or | |
1408 | Trading Votes for Votes. A Decentralized Matching Algorithm | Casella, Alessandra Palfrey, Thomas R. | 10/06/2015 | 58 | SSWP_1408.pdf | Vote-trading is common practice in committees and group decision-making. Yet we know very little about its properties. Inspired by the similarity between the logic of sequential rounds of pairwise vote-trading and matching algorithms, we explore three central questions that have parallels in the matching literature: (1) Does a stable allocation of votes always exist? (2) Is it reachable through a decentralizd algorithm? (3) What welfare properties does it possess? We prove that a stable allocation exists and is always reached in a finite number of trades, for any number of voters and issues, for any separable preferences, and for any rule on how trades are prioritized. Its welfare properties however, are guaranteed to be desirable only under specific conditions. A laboratory experiment confirms that stability has predictive power on the vote allocation achieved via sequential pairwise trades, but lends only weak support to the dynamic algorithm itself. | |
1400 | How Cheap Talk Enhances Efficiency in Public Goods Games | Palfrey, Thomas R. Rosenthal, Howard Roy, Nilanjan | 01/15/2015 | 46 | SSWP_1400.pdf | This paper uses a Bayesian mechanism design approach to investigate the effects of communication in a threshold public goods game. Individuals have private information about contribution costs. If at least some fraction of the group makes a discrete contribution, a public benefit accrues to all members of the group. We experimentally implement three different communication structures prior to the decision move: (a) simultaneous exchange of binary messages, (b) larger finite numerical message space, and (c) unrestricted text chat. We obtain theoretical bounds on the efficiency gains that are obtainable under these different communication structures. In an experiment with three person groups and a threshold of two, we observe significant efficiency gains only with the richest of these communication structures, where participants engage in unrestricted text chatting. In that case, the efficiency bounds implied by mechanism design theory are achieved. | |
1399 | Static and Dynamic Underinvestment: An Experimental Investigation | Agranov, Marina Frechette, Guillaume Palfrey, Thomas R. Vespa, Emanuel | 01/08/2015 | 51 | SSWP_1399.pdf | In this paper we design a stylized version of an environment with public goods, dynamic linkages, and legislative bargaining. Our theoretical framework studies the provision of a durable public good as a modified version of Battaglini et al. (2012). We develop an experimental design that allows us to disentangle inefficiences that would result in a one-shot world (static inefficiencies) from extra inefficiencies that emerge in an environment in which decisions in the present affect the future (dynamic inefficiencies). We solve for efficiency and also characterize the bargaining equilibrium, a symmetric stationary subgame-perfect equilibrium, which is the most common concept used in applied work. The experimental results indicate that subjects do react to dynamic linkages and, as such, we find evidence of both static and dynamic inefficiencies. In fact, the quantitative predictions of the model with respect to the share of dynamic inefficiencies are closest to the data which dynamic linkages are high. To the extent that behavior is different from what is predicted by the model, a systematic pattern emerges, namely the use of strategic cooperation whereby subjects increase the efficiency of period one propoals by selectively punishing, in period two, subjects who did not propose efficient allocations. | |
1386 | Ignorance and Bias in Collective Decisions | Elbittar, Alexander Gomberg, Andrei Martinelli, Cesar Palfrey, Thomas R. | 07/21/2014 | 40 | SSWP1386.pdf | We study theoretically and experimentally a committee with common interests. Committee members do not know which of two alternatives is the best, but each member can acquire privately a costly signal before casting a vote under either majority or unanimity rule. In the experiment, as predicted by Bayesian equilibrium, voters are more likely to acquire information under majority rule, and attempt to counter the bias in favor of one alternative under unanimity rule. As opposed to Bayesian equilibrium predictions, however, many committee members vote when uninformed. Moreover, uninformed voting is strongly associated with a lower propensity to acquire information. We show that an equilibrum model of subjective prior beliefs can account for both these phenomena, and provides a good overall fit to the observed patterns of behavior both in terms of rational ignorance and biases. | |
1385 | Equilibrium Tax Rates and Income Redistribution: A Laboratory Study | Agranov, Marina Palfrey, Thomas R. | 01/31/2014 | 38 pages | SSWP_1385.pdf | This paper reports results from a laboratory experiment that investigates the Meltzer-Richard model of equilibrium tax rates, inequality, and income redistribution. We also extend that model to incorporate social preferences in the form of altruism and inequality aversion. The experiment varies the amount of inequality and the collective choice procedure to determine tax rates. We report four main findings. First, higher wage inequality leads to higher tax rates. The effect is significant and large in magnitude. Second, the average implemented tax rates are almost exactly equal to the theoretical ideal tax rate of the median wage worker. Third, we do not observe any significant differences in labor supply or average implemented tax rates between a direct democracy institution and a representative democracy system where tax rates are determined by candidate competition. Fourth, we observe negligible deviations from labor supply behavior or voting behavior in the directions implied by altruism or inequality aversion. | |
1382 | Experiments in political economy | Palfrey, Thomas R. | 11/21/2013 | 114 pages | sswp1382.pdf | ||
1371 | The dynamic free rider problem: A laboratory study | Battaglini, Marco Nunnari, Salvatore Palfrey, Thomas R. | 01/08/2013 | sswp1371.pdf | |||
1370 | External validation of voter turnout models by concealed parameter recovery | Merlo, Antonio Palfrey, Thomas R. | 02/08/2013 | sswp1370.pdf | |||
1363 | Symmetric play in repeated allocation games | Kuzmics, Christoph Palfrey, Thomas R. Rogers, Brian W. | 07/05/2012 | sswp1363.pdf | |||
1359 | Vote Trading with and without Party Leaders | Casella, Alessandra Palfrey, Thomas R. Turban, Sebastien | 01/31/2012 | sswp1359.pdf | |||
1357 | Turnout and Power Sharing (revised) | Herrera, Helios Morelli, Massimo Palfrey, Thomas R. | 10/11/2013 | sswp1357R.pdf | |||
1355 | The Free Rider Problem: A Dynamic analysis (Revised March 2012) | Battaglini, Marco Nunnari, Salvatore Palfrey, Thomas R. | 10/15/2011 | sswp1355R.pdf | |||
1352 | Legislative bargaining and the dynamics of public investment | Battaglini, Marco Nunnari, Salvatore Palfrey, Thomas R. | 08/31/2011 | sswp1352.pdf | |||
1349 | Quantal Response and Nonequlibrium Beliefs Explain Overbidding in Maximum-Value Auctions | Camerer, Colin F. Nunnari, Salvatore Palfrey, Thomas R. | 06/22/2011 | 32 | sswp1349.pdf | ||
1343 | Candidate Entry and Political Polarization: An anti-median voter theorem | Grosser, Jens Palfrey, Thomas R. | 03/17/2011 | 37 pages | sswp1343.pdf | ||
1331 | Competitive equillibrium in markets for votes (revised) | Casella, Alessandra Llorente-Saguer, Aniol Palfrey, Thomas R. | 02/23/2012 | sswp1331R2.pdf | |||
1318 | Political institutions and the dynamics of public investment | Battaglini, Marco Nunnari, Salvatore Palfrey, Thomas R. | 01/30/2010 | sswp1318.pdf | |||
1311 | Information gatekeepers: Theory and experimental evidence | Brocas, Isabelle Carrillo, Juan D. Palfrey, Thomas R. | 09/01/2009 | 34 pages | sswp1311.pdf | ||
1309 | Speculative overpricing in asset markets with information flows (Revised) | Palfrey, Thomas R. Wang, Stephanie W. | 01/19/2012 | 48 pages | sswp1309R.pdf | ||
1296 | Information aggregation & strategic abstention in large laboratory elections | Battaglini, Marco Morton, Rebecca Palfrey, Thomas R. | 07/01/2008 | 12 pages | sswp1296c.pdf | ||
1292 | A citizen candidate model with private information and unique equilibrium | Grosser, Jens Palfrey, Thomas R. | 06/01/2008 | 22 pages | sswp1292c.pdf | ||
1291 | Network architecture, salience and coordination | Choi, Syngjoo Gale, Douglas Kariv, Shachar Palfrey, Thomas R. | 07/01/2008 | 45 pages | sswp1291R.pdf | This paper reports the results of an experimental investigation of monotone games with imperfect information. Players are located at the nodes of a network and observe the actions of other players only if they are connected by the network. These games have many sequential equilibria; nonetheless, the behavior of subjects in the laboratory is predictable. The network architecture makes some strategies salient and this in turn makes the subjects' behavior predictable and facilitates coordination on efficient outcomes. In some cases, modal behavior corresponds to equilibrium strategies. | |
1280 | Information aggregation in standing and ad hoc committees (formerly: Information aggregation and equilibrium selection in committees) | Ali, S. Nageeb Goeree, Jacob K. Kartik, Navin Palfrey, Thomas R. | 12/01/2007 | 12 pages | sswp1280R.pdf | 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. | |
1279 | No Trade | Carrillo, Juan D. Palfrey, Thomas R. | 09/01/2007 | 32 pages | sswp1279.pdf | ||
1273 | The dynamics of distributive politics | Battaglini, Marco Palfrey, Thomas R. | 07/01/2007 | 44 pages | sswp1273.pdf | ||
1271 | On eliciting beliefs in strategic games | Palfrey, Thomas R. Wang, Stephanie W. | 03/01/2007 | 40 pages | sswp1271R.pdf | Several recent studies in experimental economics have tried to measure beliefs of subjects engaged in strategic games with other subjects. Using data from one such study (Nyarko-Schotter, 2002) we conduct an experiment where our experienced subjects observe early rounds of strategy choices from that study and are given monetary incentives to report forecasts of choices in later rounds. We elicit beliefs using three different scoring rules: linear, logarithmic, and quadratic. There are differences between the elicited beliefs under quadratic and logarithmic scoring rules in spite of both being proper scoring rules. The (improper) linear scoring rule frequently elicits boundary forecasts as theory predicts, and is poorly calibrated. We compare the forecasts of our trained observers to forecasts of the actual players in the Nyarko-Schotter experiment and identify several differences. There was a significant positive correlation between observer forecasts and the choice behavior in the game under both proper scoring rules, but no significant correlation between the players' own forecasts and the actual play. This raises doubts about whether beliefs can be reliably elicited from players who simultaneously have a stake in the target of their forecast, in this case the opponent's choice. The distribution of player forecasts also tended to be more extreme than the observer forecasts using either of the proper scoring rules. We also find evidence of belief convergence when beliefs are elicited iteratively from a group. | |
1263 | The Swing Voter's Curse in the laboratory | Battaglini, Marco Morton, Rebecca Palfrey, Thomas R. | 12/01/2006 | 50 pages | sswp1263.pdf | ||
1262 | Efficiency, equity, and timing of voting mechanisms | Battaglini, Marco Morton, Rebecca Palfrey, Thomas R. | 12/01/2006 | 40 pages | sswp1262.pdf | ||
1261 | Minorities and storable votes | Casella, Alessandra Palfrey, Thomas R. Riezman, Raymond G. | 12/01/2006 | 48 pages | sswp1261R.pdf | ||
1260 | Heterogeneous quantal response equilibrium and cognitive hierarchies | Camerer, Colin F. Palfrey, Thomas R. Rogers, Brian W. | 12/01/2006 | 36 pages | sswp1260c.pdf | ||
1259 | The compromise game: Two-sided adverse selection in the laboratory | Carrillo, Juan D. Palfrey, Thomas R. | 12/01/2006 | 44 pages | sswp1259.pdf | ||
1258 | Political reputations and campaign promises | Aragones, Enriqueta Palfrey, Thomas R. Postlewaite, Andrew | 12/01/2006 | 78 pages | sswp1258.pdf | ||
1219 | Regular Quantal Response Equilibrium | Goeree, Jacob K. Holt, Charles A. Palfrey, Thomas R. | 03/01/2005 | 29 pages | wp1219.pdf | The structural Quantal Response Equilibrium (QRE) generalizes the Nash equilibrium by augmenting payoffs with random elements that are not removed in some limit. This approach has been widely used both as a theoretical framework to study comparative statics of games and as an econometric framework to analyze experimental and field data. The framework of structural QRE is flexible: it can be applied to arbitrary finite games and incorporate very general error structures. Restrictions on the error structure are needed, however, to place testable restrictions on the data (Haile et al., 2004). This paper proposes a reduced-form approach, based on quantal response functions that replace the best-response functions underlying the Nash equilibrium. We define a {\em regular} QRE as a fixed point of quantal response functions that satisfies four axioms: continuity, interiority, responsiveness, and monotonicity. We show that these conditions are not vacuous and demonstrate with an example that they imply economically sensible restrictions on data consistent with laboratory observations. The reduced-form approach allows for a richer set of regular quantal response functions, which has proven useful for estimation purposes. | |
1203 | Regular quantal response equilibrium | Goeree, Jacob K. Holt, Charles A. Palfrey, Thomas R. | 06/01/2004 | 20 pages | sswp1203c.pdf | ||
1197 | Self-correcting Information Cascades | Goeree, Jacob K. Palfrey, Thomas R. Rogers, Brian W. McKelvey, Richard D. | 04/01/2004 | 41 pages | wp1197.pdf | In laboratory experiments, information cascades are ephemeral phenomena, collapsing soon after they form, and them reforming again. The formation/collapse/reformation cycles occur frequently and repeatedly. Cascades may be reversed (collapse followed by a cascade on a different state) and more often than not, such a reversal is self-correcting: The cascade switches from the incorrect to the correct state. Past experimental work focused on relatively short horizons, where these interesting dynamics are rarely observed. We present experiments with a longer horizon, and also investigate the effect of signal informativeness. We propose a theoretical model, based on quantal response equilibrium, where temporary and self-correcting cascades arise as equilibrium phenomena. The model also predicts the systematic differences we observe experimentally in the dynamics, as a function of signal informativeness. We extend the basic model to include a parameter measuring base rate neglect and find it to be a statistically significant factor in the dynamics, resulting in somewhat faster rates of social learning. | |
1187 | Social learning with private and common values | Goeree, Jacob K. Palfrey, Thomas R. Rogers, Brian W. | 11/01/2003 | 29 pages | sswp1187c.pdf | We consider an environment where individuals sequentially choose among several actions. The payoff to an individual depends on her action choice, the state of the world, and an idiosyncratic, privately observed preference shock. Under weak conditions, as the number of individuals increases, the sequence of choices always reveals the state of the world. This contrasts with the familiar result for pure common-value environments where the state is 'never' learned, resulting in herds or informational cascades. The medium run dynamics to convergence can be very complex and non-monotone: posterior beliefs may be concentrated on a wrong state for a long time, shifting suddenly to the correct state. | |
1186 | A general characterization of interim efficient mechanisms for independent linear environments | Ledyard, John O. Palfrey, Thomas R. | 11/01/2003 | 50 pages | sswp1186c.pdf | We consider the class of Bayesian environments with independent types, and utility functions which are both quasi-linear in a private good and linear in a one-dimensional private-value type parameter. We call these "independent linear environments". For these environments, we fully characterize interim efficient allocation rules which satisfy interim incentive compatibility and interim individual rationality constraints. We also prove that they correspond to decision rules based on virtual surplus maximization, together with the appropriate incentive taxes. We demonstrate how these techniques can be applied easily to the design of auctions, markets, bargaining rules, public good provision, and assignment problems. | |
1173 | An Experimental Study of Storable Votes | Casella, Alessandra Gelman, Andrew Palfrey, Thomas R. | 09/01/2003 | 69 pages | wp1173.pdf | The storable votes mechanism is a method of voting for committees that meet periodically to consider a series of binary decisions. Each member is allocated a fixed budget of votes to be cast as desired over the multiple decisions. Voters are induced to spend more votes on those decisions that matter to them most, shifting the ex ante probability of winning away from decisions they value less and towards decisions they value more, typically generating welfare gains over standard majority voting with non-storable votes. The equilibrium strategies have a very intuitive feature the number of votes cast must be monotonic in the voter's intensity of preferences but are otherwise difficult to calculate, raising questions of practical implementation. In our experiments, realized efficiency levels were remarkably close to theoretical equilibrium predictions, while subjects adopted monotonic but off-equilibrium strategies. We are lead to conclude that concerns about the complexity of the game may have limited practical relevance. |