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Publications (47)
Equivalencebetween insuring income and what is bought with income is commonly assumed. It seems to be implicitly held that uninsured but replaceable goods will always be replaced if they fail. This does not follow. People may have difficulty coming up with the money to pay for a replacement out of pocket. Also, the income effect of a loss may mean...
Adverse selection famously leads to the crowding out of socially benefcial trades. We show that even more trades may be simultaneously crowded in. The reason is that, in the absence of complete unravelling, "lemons" fetch more under adverse selection. It is demonstrated how these "bad" trades occur in insurance, credit and used-car markets, and som...
Paying an insurance premium but not needing to claim is sometimes viewed as pouring money down the drain. Aversion to the perceived waste may lead to the rejection of fair insurance. Although policies paying rebates if no claim is made are not attractive to expected utility maximisers, this paper finds strong evidence they appeal to waste averters.
This experiment finds that the Becker-DeGroot-Marschak (BDM) (1964) valuation mechanism under-predicts the proportion of subjects choosing cash over an item. The extent of the divergence is increasing in risk aversion, which is consistent with reference dependent preferences. This suggests a reframing of the BDM to improve its performance. The modi...
This experiment shows that varying the commission received by financial advisors strongly influences insurance purchase.
Subjects donate individually (control group) or in pairs (treatment group). Those in pairs reveal their donation decision to each other. Average donations in the treatment group are significantly higher than in the control group. Paired subjects have the opportunity to revise their donation decision after discussion. Pair members shift toward each...
Opportunities for shrouded pricing drive down upfront price as firms compete to capture new customers. Unless the surcharge is sufficiently high, consumers are worse off if the practice is banned, assuming Cournot–Nash equilibrium and isoelastic demand.
This high-stakes experiment investigates the effect on buyers of mandatory disclosures concerning an insurance policy's value for money (the claims ratio) and the seller's commission. These information disclosures have virtually no effect despite most buyers claiming to value such information. Instead, our data reveal that whether the subject is ge...
Recent studies conclude that men on average have higher intelligence than women by 3-5 IQ points. However, the ultimate evolutionary question of why men should have evolved to have higher intelligence than women remains. We suggest that men may have slightly higher intelligence than women through 4 mechanisms: (1) assortative mating of intelligent...
We present a two-sided search model in which individuals from two groups (males and females, employers and workers) would like to form a long-term relationship with a highly ranked individual of the other group, but are limited to individuals who they randomly encounter and to those who also accept them. This article extends the research program, b...
In this review, we present several variations of the Alpern-Reyniers two-sided matching model,
with particular application to its biological interpretation as a mate selection game. In this context,
the model describes equilibrium behavior in a dynamic game where unmated males and females
of various types in a given cohort group are randomly matche...
Unrealistic optimism is a well documented phenomenon. This paper argues that it is important in many economic contexts. Focusing on start-up finance for businesses, optimism may be responsible for or consistent with features such as credit rationing or redlining that are normally taken as symptoms of under-provision of finance requiring interventio...
Following Schelling (1960), coordination problems have mainly been considered in a context where agents can achieve a common goal (e.g., rendezvous) only by taking common actions. Dynamic versions of this problem have been studied by Crawford and Haller (1990), Ponssard (1994), and Kramarz (1996). This paper considers an alternative dynamic formula...
This paper investigates the effect on consumer price of a vertical merger between a monopolist manufacturer and his retailer, when inventory costs are taken into consideration. We find that the traditional result (lower prices) remains true only when inventory costs are sufficiently small. The direction of the price change also depends on the marke...
We introduce the notion of a "crowding game", where individuals choose to locate themselves among finitely many compartments, each with a capacity (size) and a cost (price). Individuals have a common notion of physical comfort (freedom from crowding), which is increasing in the size of their compartment, decreasing in the number (or mass) of other...
In this paper we consider the effect of the `impatience ratio' I (of the worker discount factor to the firm discount factor) on the preferences of the players between two bargaining schemes in an asymmetric information wage bargaining context. The firm has private information about the worker's value and the worker makes wage demands. In the contac...
We study the Iterated Bilateral Reciprocity game in which the need for help arises randomly. Players are heterogeneous with respect to 'neediness' i.e. probability of needing help. We find bounds on the amount of heterogeneity which can be tolerated for cooperation (all players help when asked to help) to be sustainable in a collectivity. We introd...
We determine equilibrium acceptance strategies in a class of multi-period mating games where individuals prefer opposite sex partners with a close parameter type (one-dimensional homotypic preferences). In each period unmated individuals are randomly paired. They form a couple (and leave the pool) if each accepts the other; otherwise they continue...
We present a model of rivalry in an organization consisting of a single authority and N subordinates. A number Nh of subordinates are highly able whereas the rest, Nt=N—Nh, are less able. This information is common knowledge among the subordinates. The authority organizes a contest in which n (≤ N) promotion opportunities or rewards of value B each...
We use high-low search algorithms to compute equilibria in a multi-period model of collective bargaining. In this model, a group of workers bargains collectively with a firm which knows the per period incremental value v of each worker. The workers don't know their individual values, but use high-low search to learn them, given the known distributi...
We use a contest framework to investigate the nature of organizational culture. Organization members decide whether to participate in the contest and if they do participate they have two possible modi operandi: be helpful or not. We state sufficient conditions, in terms of contest design, for the existence of various types of organizational culture...
We consider the coordinated search problem faced by two searchers who start together at zero and can move at speed one to find an object symmetrically distributed on the line. In particular we fully analyze the case of the negative exponential distribution given by the density f(x) = e−|x|μ/(2μ), μ > 0. The searchers wish to minimize the expected t...
Two unit-speed searchers starting at 0 seek a stationary target hidden according to a known bounded symmetric distribution. The objective is to minimize the expected time for the searchers to return to 0 after one of them has found the target. We find a general optimality condition and use it to solve the problem when the target has a uniform, tria...
We model the effect of contract parameters such as price rebates and after-sales warranty costs on the choice of quality by a supplier, the inspection policy of a producer, and the resulting end product quality. Both noncooperative and cooperative settings are explored. The paper's contribution is to highlight the importance of strategic and contra...
This paper provides an approach to quality supply by a supplier and quality inspection by a producer, which explicitly recognizes the inherently opposing interests these two parties may have. The supplier and the producer are modeled as players in a nonzero sum game, where the supplier can control the effort invested in the delivery of quality and...
Considers the optimal search problems in which a pair of searchers
seek to minimize the expected time taken to find each other (rendezvous
search) or to regroup at their initial fixed location after one finds a
stationary object on the line (coordinated search). There is a known
distribution for the searchers and for the hidden object, respectively...
We model the commonly used marketing practices of offering discounts to either repeat buyers (trade-ins) or new buyers (introductory offers) of a quasi-durable good. We analyze these practices in terms of their potential for intertemporal and third-degree price discrimination. In our two-period model, the monopolist sets a first-period price that s...
We explain trade-ins as a device used by a monopolist to price discriminate between new and repeat buyers. We show how the monopolist creates and subsequently exploits market segmentation. A two-period model is considered. In the first period, the seller sets a price which divides the second-period market into old and new customers. In the second p...
A simple model of wage bargaining is developed. The firm knows the worker's productivity but the worker has only probabilistic information about his value to the firm. The worker acquires information by making wage demands and observing the resulting hiring/firing decisions of the firm. The firm acts strategically and distorts the worker's learning...
We develop a game theoretic model of joint quality control in a single sourcing environment which integrates supplier and customer decisions. In this model, both parties behave strategically and take each other's incentives into account when deciding on their respective sampling plans. The specific sampling plans considered are of the single sample...
This paper outlines a new approach to the problem of demand uncertainty. It deals with setting optimal supply levels when demand is unknown. The novel feature of this approach is that information is obtained by observing sales. This information is used to determine future supply levels. Thus, supply levels are chosen with a view to current profit a...
We consider the problem of supplying perishable goods to disloyal customers. As in traditional stock-control literature, a penalty is incurred whenever there is a stockout. However, in contrast to mainstream models, loss of goodwill is explicitly treated by incorporating the behavioural assumption that a fixed proportion of unsatisfied demand is lo...
We consider the problem of a supplier faced with unknown but deterministic future demand. We assume that demand {itDt} increases linearly over time: Dt=D+αt. The supplier knows demand D in period 0 with certainty but is ignorant about the rate of increase α. In each period t he will supply a certain quantity St and as a consequence he gets informat...
How malleable are preferences? This paper provides experimental evidence on the extent to which insurance sellers can influence buyers and whether mandatory information disclosure offsets these effects. The experiment involves 214 subjects seeking or recently obtaining unsecured loans and 25 sellers with experience of commission selling and in rece...
