Identification of firms’ beliefs in structural models of market competition

Firms make decisions under uncertainty and differ in their ability to collect and process information. As a result, in changing environments, firms have heterogeneous beliefs on the behaviour of other firms. This heterogeneity in beliefs can have important implications on market outcomes, efficiency and welfare. This paper studies the identification of firms’ beliefs using their observed actions—a revealed preference and beliefs approach. I consider a general structural model of market competition where firms have incomplete information and their beliefs and profits are nonparametric functions of decisions and state variables. Beliefs may be out of equilibrium. The framework applies both to continuous and discrete choice games and includes as particular cases models of competition in prices or quantities, auction models, entry games and dynamic games of investment decisions. I focus on identification results that exploit an exclusion restriction that naturally appears in models of competition: an observable variable that affects a firm's cost (or revenue) but does not have a direct effect on other firms’ profits. I present identification results under three scenarios—common in empirical industrial organization—on the data available to the researcher.     

WHY DOES IT MATTER THAT BELIEFS AND VALUATIONS BE CORRECTLY REPRESENTED?*

This article contains an analysis of a simple principal–agent problem illustrating possible problems that may arise when the prinicpal ascribes to the agent subjective probabilities and utilities that are implied by the subjective expected utility model but do not represent the agent's beliefs and valuations. In particular, it is possible that an incentive contract designed by the principal induces the agent to choose an action that is not in the principal's best interest.     

A spectrum of equilibration processes in game theory

In game theory, four dynamic processes converging towards an equilibrium are distinguished and ordered by way of agents' decreasing cognitive capacities. In the eductive process, each player has enough information to simulate perfectly the others' behavior and gets immediately to the equilibrium. In epistemic learning, each player updates his beliefs about others' future strategies, with regard to their sequentially observed actions. In behavioral learning, each player modifies his own strategies according to the observed payoffs obtained from his past actions. In the evolutionary process, each agent has a fixed strategy and reproduces in proportion to the utilities obtained through stochastic interactions. All along the spectrum, longer term dynamics makes up for weaker rationality, and physical relations substitute for mental interactions. Convergence, if any, is towards an always stronger equilibrium notion and selection of an equilibrium state becomes more sensitive to context and history. The processes can be mixed if associated to different periods, agents or mechanisms and deepened if obtained by formal reasoning principles.     

Greeks and games: Forerunners of modern game theory

Modern game theory is connected with its ancient Greek originals in three respects.

Learning from Neighbours

When payoffs from different actions are unknown, agents use their own past experience as well as the experience of their neighbours to guide their decision making. In this paper, we develop a general framework to study the relationship between the structure of these neighbourhoods and the process of social learning.
We show that, in a connected society, local learning ensures that all agents obtain the same payoffs in the long run. Thus, if actions have different payoffs, then all agents choose the same action, and social conformism obtains. We develop conditions on the distribution of prior beliefs, the structure of neighbourhoods and the informativeness of actions under which this action is optimal. In particular, we identify a property of neighbourhood structures—local independence—which greatly facilitates social learning. Simulations of the model generate spatial and temporal patterns of adoption that are consistent with empirical work.     

Eliciting beliefs: Proper scoring rules,incentives, stakes and hedging

Proper Scoring Rules (PSRs) are popular incentivized mechanisms to elicit an agent's beliefs. This paper combines theory and experiment to characterize how PSRs bias reported beliefs when (i) the PSR payments are increased, (ii) the agent has a financial stake in the event she is predicting, and (iii) the agent can hedge her prediction by taking an additional action. In contrast with previous literature, the PSR biases are characterized for all PSRs and all risk averse agents. Our results reveal complex distortions of reported beliefs, thereby raising concerns about the ability of PSRs to recover truthful beliefs in general decision-making environments.     

Separating reputation, social influence, and identification effects in a dictator game

This study explores the ways in which information about other individual's action affects one's own behavior in a dictator game. The experimental design discriminates behaviorally between three possible effects of recipient's within-game reputation on the dictator's decision: Reputation causing indirect reciprocity, social influence, and identification. The separation of motives is an important step in trying to understand how impulses towards selfish or generous behavior arise. The statistical analysis of experimental data reveals that the reputation effects have a stronger impact on dictators’ actions than the social influence and identification.     

Economists on Darwin's theory of social evolution and human behaviour

Abstract

This article analyses Darwin's image among economists with a specific focus on his theory of social evolution as presented in the Descent of Man (1871). We propose an analysis of the way and context in which economists refer to Darwin, mention his name and quote his writings. It then appears that Darwin is most of the time viewed as a biologist only, who never developed his own theory of social evolution. He is thus quoted as a biologist who either borrowed concepts from economists who developed a theory of social evolution, or laid the basis for biological theory of social evolution developed by others, Spencer, in particular. It is only recently that eventually the twofold dimensions—biological and social—of Darwin's general theory of evolution are considered together by bioeconomists.     

Strategic obscurity in the forecasting of disasters

A principal acquires information about a shock and then discloses it to an agent. After the disclosure, the principal and agent each decide whether to take costly preparatory actions that yield mutual benefits but only when the shock strikes. The principal maximizes his expected payoff by ex ante committing to the quality of his information, and the disclosure rule. We show that even when the acquisition of perfect information is costless, the principal may optimally acquire imperfect information when his own action eliminates the agent's incentive to take action against the risk.     

Network Games

In contexts ranging from public goods provision to information collection, a player's well-being depends on his or her own action as well as on the actions taken by his or her neighbours. We provide a framework to analyse such strategic interactions when neighbourhood structure, modelled in terms of an underlying network of connections, affects payoffs. In our framework, individuals are partially informed about the structure of the social network. The introduction of incomplete information allows us to provide general results characterizing how the network structure, an individual's position within the network, the nature of games (strategic substitutes vs. complements and positive vs. negative externalities) and the level of information shape individual behaviour and payoffs.     

启蒙的主体

启蒙既不是一个凌驾于所有人之上的理性的纯粹运动,也不是人类的一个群体对另一个群体,一个族类对另一个族类,一个人对另一个人的教化。每一个个体作为自为者都是启蒙的主体;与此同时,每个主体对于任何另外一个主体都可以是,或者应当是一个批判性的主体。     

Mindreading and endogenous beliefs in games

We argue that a Bayesian explanation of strategic choices in games requires introducing a psychological theory of belief formation. We highlight that beliefs in epistemic game theory are derived from the actual choice of the players, and cannot therefore explain why Bayesian rational players should play the strategy they actually chose. We introduce the players’ capacity of mindreading in a game theoretical framework with the simulation theory, and characterise the beliefs that Bayes rational players could endogenously form in games. We show in particular that those beliefs need not be ratifiable, and therefore that rational players can form action-dependent beliefs.     

Learning in society

In an individual experimentation problem a decision maker learns only from his own experience. It is well known that an optimal experimentation strategy for such problems sometimes results in the best alternative being dropped altogether, which is the so-called “Rothschild effect.” Many experimentation problems of interest, however, involve learning from both individual experience and the experience of others. This paper shows that learning in society can overcome the Rothschild effect. We consider an economy with a continuum of infinitely lived players in which each player faces a multi-armed bandit and in each period a player observes the action choice of another randomly chosen player. We show that social conformity always happens in the long run, and we use this fact to derive a condition on the distribution of prior beliefs that implies that the fraction of players who choose the best alternative always converges to one in the long run.     

A THEORY OF MAN AS A CREATOR OF THE WORLD*

The present paper proposes a theory of man, wherein man constructs models of the world based on past experiences in social situations. The present theory considers experiences, or chunks of impressions, as primitives instead of an objective game, which is assumed to be given in the standard game theory. Agents construct models of the world based on direct and indirect experiences. Each model comprises a structural part and a factual part. The structural part is represented as a game, while the factual part is represented as a strategy profile of this game. In constructing a model, an agent might use certain axioms—for example coherence, according to which the model should be able to explain his or her own experiences; conformity to a solution concept; and minimality with respect to some simplicity measure. A few applications are presented to demonstrate how this theory works.     

Keynesian uncertainty and the instability of beliefs

In an influential critique, Coddington (1982) argues that Keynes uses the theme of uncertainty in an opportunistic way in the General theory emphasizing it when it suits his purposes and ignoring it when it does not. This reading is examined in the light of Keynes's earlier Treatise on probability. The first part of the paper argues that Keynes's epistemology differs in important respects from the one Coddington is attacking, and in particular, that Keynes's account contains conceptions of uncertainty not considered by Coddington. The two premises of Coddington's argument are then assessed. These are: 1) that Keynes provides no account of the relative impact of uncertainty in different decision-making contexts; and 2) that uncertainty is not a sufficient condition for unstable beliefs about future outcomes of current (investment) decisions. It is argued that Coddington is mistaken in asserting 1) and, although 2) is correct in principle, that there is nevertheless a strong presumption that uncertainty does lead to unstable beliefs in the particular situations Keynes describes. The conclusion is that the connection between uncertainty and unstable beliefs cannot be regarded as either analytically destructive or somehow beside the point, even on Coddington's terms.     

The Place of Indigenous Institutions in Constitutional Order

The failure of the state in Africa and elsewhere, and its attendant conflict, is rooted in the lack of correspondence between indigenous institutions and the formal structures of the state. Indigenous institutions, as have variously evolved, represent sets of practices and expectations that can be distinctive to problems of collective action faced by groups of individuals in their own exigent circumstances. By developing a community of understanding tuned to these circumstances, they provide the rules and grammar within which individuals perceive their actions and those of others. They thus each represent a facility within which a person can use his or her knowledge of time and place and his or her understanding of others in the group in resolving collective action problems. In order to overcome the pathologies of state failure, societies should be constituted with reference to these indigenous political resources. As such, constitutional rules should both link such systems of collective action and set out the terms by which they develop.     

Hayek and Keynes: From a common critique of economic method to different theories of expectations

The methodological positions of Hayek and Keynes contain striking similarities. Both authors opposed empiricist approaches to economics that assign priority to mere observation as the source of knowledge. Both emphasised intentionality, motivation and human agency. Notwithstanding this common ground, they had different conceptions of how beliefs are formed and had different explanations of thought and action in economics. Hayek grounded his explanation on an evolutionary theory of the mind, i.e. on psychological premises, whereas Keynes based his view of belief formation on probable reasoning, where probability is a logical concept. Starting from psychological premises Hayek maintained that individuals act rationally only by following rules. As a consequence, he considered conventional expectations to be the primary guide for agents in economic life. Keynes agreed that conventional expectations actually guide economic behaviour, but he maintained that they are justified only in situations of total ignorance. In conditions of limited knowledge, agents can base their action on reasonable expectations, independently of conventions. Moreover, agents?particularly those institutions responsible for economic policy?ought to shun conventional behaviour in order to counteract its negative social consequences. We argue that Keynes's theory of expectations is well grounded upon his theory of logical probability. Hence his advocacy of discretionary policy is rationally justified.     

Social welfare for an economy of angelic agents

This paper analyzes an economy in which all agents are pursuing the common good (or social welfare) but choices are decentralized, i.e., each agent can choose his/her action in the set of the actions that he/she can perform. One wonders if it is enough the common goal of maximizing social welfare to their will be achieved. The paper examines both the cases in which the choice made by each agent does not directly influence those of other agents, as in the competitive equilibrium analysis, and the case in which there is a direct influence, as in the game theory analyses. In the first case, we get that the common goal of maximizing social welfare is not enough to reach it, but it is necessary to coordinate the actions of individual agents by extending information to redistribute initial endowments and by introducing an appropriate social organization. We get the maximum social welfare without further intervention for the cases describable with the theory of games, but only for games of complete information. If the information is incomplete, some further coordination is generally required.     

对争议中的《劳动合同法》的评析

《劳动合同法》自颁布以来就引起了大家广泛的关注和争论,这些争论表面上是因为法律规定的改进所致,但实质上是利益配置结构发生变化的结果。《劳动合同法》的实施虽然引起了很大的争议,但此法的实施,也引起了各主体对自身问题的深思,促进了国家、企业和劳动者对自身问题的认识和改进。国家应加强社会保障职责,企业要加速产业结构调整,劳动者个人要提高技能素质。     

Mirror neuron research and Adam Smith’s concept of sympathy: Three points of correspondence

In The Theory of Moral Sentiments, Adam Smith asserts that humans have an innate interest in the fortunes of other people and desire for sympathy with others. In Smith??s theory, sympathy is an imperfectly reflected combination of emotion and judgment when one observes someone (the agent) in a particular situation, and imagines being that person in that situation. That imagination produces a degree of interconnectedness among individuals. Recent neuroscience research on mirror neurons provides evidence consistent with Smith??s assertion, suggesting that humans have an innate capability to understand the mental states of others at a neural level. A mirror neuron fires both when an agent acts and when an agent observes that action being performed by another; the name derives from the ??mirroring?? of the action in the brain of the observer. This neural network and the capabilities arising from it have three points of correspondence with important aspects of the Smithian sympathetic process: an agent??s situation as a stimulus or connection between two similar but separate agents, an external perspective on the actions of others, and an innate imaginative capacity that enables an observer to imagine herself as the agent, in the agent??s situation. Both this sympathetic process and the mirror neuron system predispose individuals toward coordination of the expression of their emotions and of their actions. In Smith??s model this decentralized coordination leads to the emergence of social order, bolstered and reinforced by the emergence and evolution of informal and formal institutions grounded in the sympathetic process. Social order grounded in this sympathetic process relies on a sense of interconnectedness and on shared meanings of actions, and the mirror neuron system predisposes humans toward such interconnection.