Rational conjectures and evolutionary beliefs in public goods games

This paper applies conjectural variations (CVs) to a model of public good provision and shows that CVs are superior to Nash beliefs. In addition to imposing consistency, as Bresnahan, I show that consistent conjectures (CCs) are obtained from individual payoff maximization. CCs emerge as the unique subgame perfect Nash equilibrium (NE) in a two-stage game in which beliefs are chosen in Stage 1 and quantities in Stage 2. There is an individual payoff advantage to non-Nash behavior, generating a Prisoner's Dilemma in conjectures in addition to the usual free-rider problem associated with public goods. The correct and payoff maximizing conjecture is the unique equilibrium in an evolutionary framework against a player with Nash conjectures. The consistent conjecture equilibrium is the unique evolutionary equilibrium when both players conjectures evolve. Hence, the NE prediction is too optimistic when players have rational conjectures.     

Rational belief structures and rational belief equilibria

Summary The paper introduces some simplifying tools and methods for studying Rational Beliefs and for proving existence of Rational Belief Equilibria. We identify a set of stable non-stationary stochastic processes, named SIDS processes. Furthermore we introduce the concept of a Rational Belief Structure, which formulates the Rational Beliefs of the agents as beliefs about the distribution of exogenous variables and the beliefs of other agents. The use of the developed apparatus is demonstrated by showing existence of a set of Rational Belief Equilibria in an Overlapping Generations Model with money and one commodity.The results presented in this paper are taken from my Ph.D. thesis from Stanford University ([13]). The dissertation is devoted to the study of the theory of Rational Beliefs as developed by Mordecai Kurz. I gratefully acknowledge the inspiration obtained from innumerable discussions with him over the years about this subject. His suggestions were instrumental for writing the thesis and this paper. The paper benefited much from a thorough reading by Trinidad Casasus, Mordecai Kurz and Ho-Mou Wu. Financial support from The Academy for Research (Forskerakademiet), Aarhus, Denmark and The University of Copenhagen, during my time as a Ph.D. student and from Danish Social Science Research Council thereafter and in addition from Fondazione Eni Enrico Mattei of Milan, Italy is gratefully acknowledged.     

The evolutionary stability of constant consistent conjectures

In the general context of smooth two-player games, this paper shows that there is a close connection between (constant) consistent conjectures in a given game and the evolutionary stability of these conjectures. Evolutionarily stable conjectures are consistent and consistent conjectures are the only interior candidates to be evolutionarily stable. Examples are provided to illustrate the result.     

Quality risk aversion, conjectures, and new product diffusion

In this paper, we provide a generalization of the standard models of the diffusion of a new product. Consumers are heterogeneous and risk averse, and the firm is uncertain about the demand curve: both learn from past observations. The attitude towards risk has important effects with regard to the diffusion pattern. In our model, downward-biased signals to consumers can prevent the success of the product, even if its objective quality is high: a “lock-in” result. We show, in addition, that the standard logistic pattern can be derived from the model. Finally, we discuss the steady states of the learning dynamics, with regard to the multiplicity and the local stability of equilibria, and to their welfare properties.     

On the consistency of conjectures with public goods

This note addresses Sugden's criticisms, levelled against our Non-Nash theory for public goods. In particular, we argue that our previous exercise was not to present a theory of public goods that could escape the voluntary contribution problem by relaxing Nash conjectures. Rather, our non-Nash model was merely an analytical exercise, meant to encompass a widevariety of behaviour. This note also indicates when positive conjectures might be realistic and, therefore, potentially consistent. Finally, we extend our specific example to include negative, zero, and positive conjectures.     

Evolutionarily stable conjectures and other regarding preferences in duopoly games

We study the evolutionary selection of conjectures in duopoly games when players have other regarding preferences, i.e. preferences over payoff distributions. In both the Cournot and Bertrand duopoly games, the consistent conjectures are independent of other regarding preferences. Both duopoly games have evolutionarily stable conjectures that depend on other regarding preferences but that do not coincide with the consistent conjectures. For increasingly spiteful preferences, the evolutionarily stable conjectures implicate low quantities in the Cournot game and high prices in the Bertrand game, whereas the inverse relationships hold for the consistent conjectures. We discuss our findings in the context of ultimate and proximate causation.     

Optimal privatization in a mixed duopoly with consistent conjectures

We show that partially privatizing a public firm alters underlying conjectures, in turn, changing the optimal degree of privatization. The consistent conjectures equilibrium (CCE) generates substantially greater optimal privatization than does any conjecture shared between the firms including the standard Cournot–Nash equilibrium (CNE). Yet, when the private rival is foreign, the CCE generates substantially less privatization than the CNE. The optimal extent of privatization with a domestic rival exceeds that with a foreign rival in the CCE as well as in the CNE.     

A further look at consistent conjectures and private provision of public goods

A model of private provision of a public good under conjectural variations is discussed and the rule for a symmetric consistent conjectures equilibrium (CCE) derived. It is shown that in a number of reasonable cases symmetric CCEs fail to exist in economies with identical individuals, while there may exist asymmetric ones. The relevance of these results for the use of the conjectural variations approach in public good theory is then discussed together with some suggestions for further research.     

A progress report on Kelly's majority conjectures

LetC(m, n) be the proportion of n-voter profiles on m alternatives that have a majority winner. Jerry Kelly conjectured that C(m, n) > C(m + 1, n) for m ? 3 and n = 3 and n ? 5, and C(m, n) > C(m, n + 2) for m ? 3 and n ? 3. We prove these for special cases.     

Interest-rate policy and rational expectations

The choice of monetary instrument under rational expectations is discussed in a general equilibrium model for the financial sector. It is shown that a supply rule leads to indeterminate asset prices, whereas the prices are determinate under an appropriately formulated interest-rate policy.     

Rational Pessimism, Rational Exuberance, and Asset Pricing Models

The paper estimates and examines the empirical plausibility of asset pricing models that attempt to explain features of financial markets such as the size of the equity premium and the volatility of the stock market. In one model, the long-run risks (LRR) model of Bansal and Yaron, low-frequency movements, and time-varying uncertainty in aggregate consumption growth are the key channels for understanding asset prices. In another, as typified by Campbell and Cochrane, habit formation, which generates time-varying risk aversion and consequently time variation in risk premia, is the key channel. These models are fitted to data using simulation estimators. Both models are found to fit the data equally well at conventional significance levels, and they can track quite closely a new measure of realized annual volatility. Further, scrutiny using a rich array of diagnostics suggests that the LRR model is preferred.     

Injecting rational bubbles

This paper proves two theorems about economies with a finite number of infinitely lived agents who trade a complete set of one-period Arrow securities and several infinitely lived securities at each date, subject to short-sales constraints. The first theorem in the paper considers an equilibrium to an economy of this kind. It proves that there exists another economy with perturbed short-sales constraints in which there is an allocation-equivalent equilibrium in which asset prices have a bubble. The second theorem extends to the result to the case in short-sales constraints are endogenously determined in the sense of Alvarez and Jermann [Efficiency, equilibrium, and asset pricing with risk of default, Econometrica 68 (2000) 775-797].     

Building rational cooperation

Experiments have shown that people have a natural taste for cooperation. This paper takes a first step in understanding how formal and informal institutions might be designed to utilize these private tastes to facilitate more efficient economic interactions. We examine a twice-played prisoners’ dilemma in which the total of the stakes in the two periods is fixed, but the distribution of these stakes can be varied across periods. We verify experimentally that it is best to “start small,” reserving most of the stakes for the second period.     

Robust rational turnout

We show that equilibria of a class of participation games (Palfrey and Rosenthal in Public Choice 41(1):7–53, 1983; Journal of Public Economics 24(2):171–193, 1984) exhibit minimal heterogeneity of behavior so that players’ mixed strategies are summarized by at most two probabilities. We then establish that, except for a finite set of common costs of participation, these games are regular. Thus, equilibria of these voting games are robust to general payoff perturbations and survive in nearby games of incomplete information. Thanks to participants of the 2006 MPSA conference for comments on an early version.     

理性经济人批判与国家理性行为体假说

该文基于理性经济人批判,提出符合时代要求与社会进步的"国家理性行为体"假说,即假设国家作为一个整体,国家行为必须要从事物发展的客观规律出发,综合权衡全体国民短、中、长期的利益需求及其可获得性,以均衡、稳定与可持续地增进全体国民福利最大化为目的。     

Rational truth-avoidance and self-esteem

Abstract .  We assume that people have beliefs about their abilities that generate self-esteem, and that self-esteem is valued intrinsically. Individuals face two choices; one of which strictly dominates the other in a pecuniary sense, but necessarily involves gathering information concerning their ability. We lay out the circumstances under which an individual may find it rational to reject the dominant choice, an act that, in psychology is described as avoiding the situation . We then go on to show that the incentive to avoid the truth is increasing in income/wealth and decreasing in self-esteem, the perceived accuracy of one's self-assessment, and the role that luck plays in generating opportunities.     

Revision of conjectures about the opponent’s utilities in signaling games

In this paper we apply the concept of preference conjecture equilibrium introduced in Perea (2005) to signaling games and show its relation to sequential equilibrium. We introduce the concept of minimum revision equilibrium and show how this can be interpreted as a refinement of sequential equilibrium     

True indexes and rational habit formation

In this paper we discuss the construction of true indexes when tastes change endogenously. True indexes take the substitution possibilities of the consumer to a changing economic situation into account when equating the utility level of a particular period to the utility level attained in the base period through an appropriate change in income or the wage level. When tastes change endogenously, the current decision depends on the past history of consumption but, by the same token, the future path of consumption will depend on the current choice. In a true index, these intertemporal links of the current decision have to be taken into account. For a particular specification of the habit formation process, this is achieved by an appropriate transformation of prices and expenditures. A true intertemporal wage index is computed for the period 1946–1967 in the U.S. Because of increasing needs and intertemporal rationality, this index is roughly constant and equal to 1: real wages remained constant!