Abstract

In a series of experiments with 375 participants, we investigate the impact of biased polls on election outcomes, when voters have the opportunity to observe and learn about the bias by playing multiple voting rounds. While in control conditions, polls are unbiased, in treatment conditions, participants view only poll results where a particular candidate's vote share is the largest. We find that this candidate is consistently elected more often in the treatments than in the controls, because biased polls robustly distort voters' expectations about vote shares. Remarkably, this effect holds after eighteen election rounds, out of which the first three are practice rounds, and even in a treatment where voters are explicitly informed about the bias. Our results suggest that the anchoring effects of biased polls on participants' beliefs are stronger than potential reactance to biased information.

Abstract

We consider a general economy, where agents have private information about their types. Types can be multi-dimensional and potentially interdependent. We show that, if the realized frequency of types (the exact number of agents for each type) is common knowledge, then a mechanism exists, which is consistent with truthful revelation of private information and which implements first-best allocations of resources as the unique equilibrium. The result requires weak restrictions on preferences (Local Non-Common Indifference Property) and on the Pareto correspondence (Anonymity).

Abstract

We present a modified citizen-candidate model where the implemented policy arises from a compromise between the government and an unelected external power. We show that the two-candidate equilibria of this model differ significantly from the original: however small the cost of candidacy, the distance between the candidates' policies, both ideal and implemented, remains strictly above a threshold. Moreover, there may be one-candidate equilibria in which the only candidate is not the one most preferred by the median voter. Both results point out that, even with negligible cost of entry, there are limits to strategic delegation.

Abstract

Nowadays, public–private partnership projects have become a standard for delivering public services in both developed and developing countries. In this paper, we are concerned with the analysis of private sector proposals and the selection of the private sector partner to whom to award the contract. To the best of our knowledge, this problem has not been addressed within a game theory framework. To fill this gap, we model this decision problem as a static non-cooperative game of complete information and propose a new ordinal game theory algorithm for finding an optimal generalized Nash equilibrium. The proposed algorithm determines a single ranking of proposals or bidders that takes account of multiple performance criteria and reflects both the public sector and the private sector perspectives, and can handle any number of private sector players and any number of contractual terms. An illustrative scenario is provided to guide the reader through the workings of the proposed ordinal game theory algorithm. The proposed ordinal game theory-based analysis framework can be used by the private sector to analyse any set of potential proposals most likely to be submitted by bidders and to assist with the choice of bidding strategies, and by the public sector player to analyse any set of potential proposals most likely to be submitted under any set of contractual terms and to assist with the choice of a realistic set of contractual terms and their performance measures. 

Abstract

In this paper, citizens vote in order to influence the election outcome and in order to signal their unobserved characteristics to others. The model is one of rational voting and generates the following predictions: (i) The paradox of not voting does not arise, because the benefit of voting does not vanish with population size. (ii) Turnout in elections is positively related to the importance of social interactions. (iii) Voting may exhibit bandwagon effects and small changes in the electoral incentives may generate large changes in turnout due to signaling effects. (iv) Signaling incentives increase the sensitivity of turnout to voting incentives in communities with low opportunity cost of social interaction, while the opposite is true for communities with high cost of social interaction. Therefore, the model predicts less volatile turnout for the latter type of communities.

Abstract

Using the methodology pioneered in previous research, we demonstrate that ChatGPT (GPT-3.5) and GPT-4 are not well-trained on economic topics. We provide some concrete examples of how ChatGPT fails to comply with standard economic principles. We warn the general public against using it for economic advice for the time being.

Abstract

In a set of preregistered experiments with general population, participants receive recommended answers to an economics questionnaire by two computerized advisors. One advisor is of high-accuracy (`the Expert') and recommends the answers produced by academic consensus. The other advisor is of low accuracy (`the Populist'), and recommends the modal answers of participants from a pilot study. Participants do not know who the Expert is, and have to judge this from the recommendations. We examine which advisor participants identify as the Expert via revealed preference, i.e. participants select an advisor to answer the questionnaire on their behalf. We call this the 'identify the Expert' problem. Our participants overwhelmingly choose the Populist, even when fully informed about the modus operandi of the two advisors. Bayesian models fail to explain these choices, even in the degenerate case where participants should be able to identify the Expert with 100% accuracy. Overconfidence in one's ability only partly accounts for advisor choice, while ego-involvement cannot explain behavior.

Abstract

How do people choose economic advice? Previous literature suggests that advisers are prone to pandering, offering advice to the public that is wrong, but conforms to commonly held beliefs. We develop a set of validated questions on economic policy to examine the persuasiveness of expert versus populist advice. Populists, in our context, conform to commonly held beliefs, even when wrong. Two computerized advisers suggest answers to each question, and experimental participants are incentivized to choose the most accurate adviser. Do participants choose the high-accuracy  adviser ('the Expert'), or the low-accuracy one ('the Charlatan'), whose answers are designed to be similar to the modal participant's? Our participants overwhelmingly choose the Charlatan. Revealing the Charlatan's exact modus operandi to debias behavior scarcely helps. Sequential feedback on the correct answer improves choices only slowly and partially. Bayesian choice models fail to explain behavior; a naive choice model akin to reinforcement learning with high inertia fits behavior well.

Abstract

The key argument for incomplete contracts to matter is the possibility of renegotiating existing mechanisms. This paper address this issue by constructing a mechanism that implements the efficient allocation in the general environment of Moore and Repullo (1988), although agents can renegotiate at no cost. Our mechanism has two key features, both of which are observed in practice: (i) it randomizes whether to offer a contract to an informed third-party off-equilibrium or not; (ii) the third-party may hide itself from the other agents. Moving beyond the pure incomplete contracting case, we provide a sufficient condition for implementation to succeed when the third-party has no information about the state.

Abstract

I develop a simple, static general equilibrium model with two classes of individuals, workers and entrepreneurs, and two goods. One good is in fixed supply and the other is a standard, producible and consumable commodity. Entrepreneurs set prices, wages and job positions, and competition in the labor market is modelled à la Bertrand. Even though the model does not feature any type of price rigidity, asymmetric information or labor-market friction, its pure symmetric Nash equilibria produce markedly different results from the canonical competitive equilibrium models: (i) A positive output gap and unemployment may emerge in equilibrium. (ii) Income and wealth inequality matter for the determination of equilibrium prices and employment. (iii) An increase in income/wealth inequality or of productivity may reduce employment and increase the output gap. As a result, Say's Law may not hold in the economy and minimum-wage policies may have desirable effects in terms of employment and output.

Abstract

We provide a simple model that relates the search intensity of households for products to the price distribution and the wage. Households decide how much time to spend on work and on search for finding better deals in a market where firms charge different prices. Thus, the equilibrium price distribution and the wage depend on the endogenous search intensity and labor supply. Moreover, we show that positive technological shocks, which reduce price posting costs for firms, lead to an increase in labor supply, wages and to the average price, while they lead to a decrease in search effort. These results are consistent with recent empirical findings. 

Abstract

Renegotiation of contractual agreements may lead to distortion of ex-ante incentives and inefficiencies. However, this problems can be circumvented in a credible way by the use of financial claims. The contracting parties ask financial markets (external claimants) to issue financial claims which are redeemable in the event of renegotiation. If the contracting parties do not know exactly how many claims have been issued, then this source of asymmetric information causes the failure of any renegotiation attempt. Moreover, by construction, the renegotiation blocking process does not generate additional inefficiency.

Abstract

This paper provides a theoretical model for explaining the separation of ownership and control in firms. An entrepreneur hires a worker for providing effort to complete a project. The worker's effort determines the probability that the project is completed on time, but the worker receives unobservable benefits for every period she is employed. We show that hiring a manager on a short-term contract may increase the firm value and we identify the conditions under which separation of ownership and control is optimal. The model is consistent with empirical findings.