Now showing 1 - 10 of 11
  • Publication
    Eliciting Beliefs in Continuous-Choice Games: a Double Auction Experiment
    (Springer Science + Business Media B.V., 2015-12-01)
    This paper proposes a methodology to implement probabilistic belief elicitation in continuous-choice games. Representing subjective probabilistic beliefs about a continuous variable as a continuous subjective probability distribution, the methodology involves eliciting partial information about the subjective distribution and fitting a parametric distribution on the elicited data. As an illustration, the methodology is applied to a double auction experiment, where traders' beliefs about the bidding choices of other market participants are elicited. Elicited subjective beliefs are found to differ from proxies such as Bayesian Nash Equilibrium (BNE) beliefs and empirical beliefs, both in terms of the forecasts of other traders' bidding choices and in terms of the best-response bidding choices prescribed by beliefs. Elicited subjective beliefs help explain observed bidding choices better than BNE beliefs and empirical beliefs. By extending probabilistic belief elicitation beyond discrete-choice games to continuous-choice games, the proposed methodology enables to investigate the role of beliefs in a wider range of applications.
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    Scopus© Citations 6
  • Publication
    Quantal response equilibrium in a double auction
    (Springer, 2015-04-01)
    This paper establishes existence and uniqueness of Quantal Response Equilibrium (QRE) in a double auction. The concept of QRE has the intuitive property that a deviation from best response is less likely the higher the cost associated with the deviation itself. Thanks to such property, the QRE accommodates stochastic elements in the analysis of the strategic decision-making that arises in the double auction. By providing a theoretical alternative to the Bayesian Nash Equilibrium model, the QRE model offers an appealing tool for analyzing data of double auction experiments.
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  • Publication
    First- and Second-order Subjective Expectations in Strategic Decision-Making: Experimental Evidence
    (Elsevier, 2013-09) ;
    Manski, Charles F.
    We study first- and second-order subjective expectations (beliefs) in strategic decision-making. We elicit probabilistically both first- and second-order beliefs and apply the method to a Hide-and-Seek experiment. We study the relationship between choice and beliefs in terms of whether observed choice coincides with the optimal action given elicited beliefs. We study the relationship between first- and second-order beliefs under a coherence criterion. Weak coherence requires that if an event is assigned, according to first-order beliefs, a probability higher/lower/equal to the one assigned to another event, then the same holds according to second-order beliefs. Strong coherence requires the probability assigned according to first- and second-order beliefs to coincide. Evidence of heterogeneity across participants is reported. Verbal comments collected at the end of the experiment shed light on how subjects think and decide in a complex environment that is strategic, dynamic and populated by potentially heterogeneous individuals.
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    Scopus© Citations 26
  • Publication
    Decision rights: freedom, power, and interference
    ( 2016-09-01) ;
    Rommeswinkel, Hendrik
    We propose a general theoretical model of decision‐rights allocation and choice, formulated in the context of a dynamic psychological game. Decision rights are valued not only instrumentally, i.e. according to the expected utility associated with the achieved outcomes, but also intrinsically, i.e. according to the procedure by which outcomes are achieved. As such procedural motivations, our model introduces freedom, power and interference. We conduct a novel laboratory experiment in which the separate effect of each belief‐dependent preference can be distinguished. We find that the intrinsic value of decision rights is driven strongly by an aversion to interference. This result suggests that individuals value decision rights because they dislike letting other individuals interfere on their outcomes.
  • Publication
    Freedom, Power and Interference
    ( 2016-06-28) ;
    Rommeswinkel, Hendrik
    Freedom and power are pervasive components in any social, political, and economic interaction. Individuals interact by making decisions, affecting themselves to the extent that they have the freedom to do so, and affecting others to the extent that they have the power to do so. Thus, freedom and power are fundamentally related to the exercise of decision rights. Economics, which has traditionally considered decision rights solely for their instrumental value in achieving outcomes, has recently moved to consider decision rights also for their intrinsic value, i.e., the value beyond the expected utility associated with them. In this paper, we propose a behavioral theory of preference for decision rights, driven by preference for freedom, power, and non-interference, and we conduct a novel laboratory experiment in which the effect of each preference is distinguished. We employ the following terminology. An individual experiences freedom when his preferences over the possible outcomes influence the outcomes he achieves. An individual experiences power when his preferences influence another individual’s outcomes. An individual does not experience interference when his outcomes are not influenced by another individual’s preferences. Each concept captures the causal dependence of an individuals’ preferences on an individuals’ outcomes. In our behavioral theory, individuals have not only preferences over outcomes, which lead them to value decision rights instrumentally, but also preference for freedom, power, and non-interference, which lead them to value decision rights intrinsically. Evidence from our experiment confirms the existence of an intrinsic value of decision rights, as reported by the existing literature. Most importantly, our theoretical framework and experimental design allow to disentangle the factors generating the intrinsic value of decision rights. We highlight two main findings. First, we find no evidence of preference for power. This result suggests that preference for power, as casually observed in politics or other institutional settings, may simply be instrumental to other components of well-being, such as status recognition. Second, we find stronger evidence of preference for non-interference than of preference for freedom. This result suggests that individuals value decision rights neither because they enjoy the freedom of making a choice, nor because they enjoy having power over other individuals, but rather because they dislike letting other individuals interfere in their outcomes. Our framework and findings lead to a fundamental change in perspective on preference for decision rights. Individuals like to have decision rights in virtue of the absence of the decision rights of other individuals.
  • Publication
    A general model of boundedly rational observational learning: theory and evidence
    ( 2015-11-06)
    Mueller-Frank, Manuel
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    This paper introduces a model of boundedly rational observational learning, which is rationally founded and applicable to general environments. Under Quasi-Bayesian updating each action is treated as if it were based only on the private information of its respective observed agent. We analyze the theoretical long run implications of Quasi-Bayesian updating in a model of repeated interaction in social networks with binary actions. We characterize the environments in which consensus and information aggregation is achieved and establish that for any environment information aggregation fails in large networks. Evidence from a laboratory experiment supports Quasi-Bayesian updating and our theoretical predictions.
  • Publication
    Freedom, Power, and Interference
    (-, 2015)
    We propose a behavioral theory of preference for decision rights, driven by preference for freedom, power, and non-interference, which can lead subjects to value decision rights intrinsically, i.e. beyond the expected utility associated with them. We conduct a novel laboratory experiment in which the effect of each preference is distinguished. We find that the intrinsic value of decision rights is driven more strongly by preference for non-interference than by preference for freedom or power. This result suggests that individuals value decision rights not because they enjoy the freedom of making a choice, nor because they enjoy having power over other individuals, but rather because they dislike letting other individuals interfere in their outcomes. Our theoretical framework and experimental findings lead to a fundamental change in perspective on preference for decision rights.