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Articles 1141 - 1170 of 2768
Full-Text Articles in Social and Behavioral Sciences
Optimal Pricing With Recommender Systems, Dirk Bergemann, Deran Ozmen
Optimal Pricing With Recommender Systems, Dirk Bergemann, Deran Ozmen
Cowles Foundation Discussion Papers
We study optimal pricing in the presence of recommender systems. A recommender system affects the market in two ways: (i) it creates value by reducing product uncertainty for the customers and hence (ii) its recommendations can be offered as add-ons which generate informational externalities. The quality of the recommendation add-on is endogenously determined by sales. We investigate the impact of these factors on the optimal pricing by a seller with a recommender system against a competitive fringe without such a system. If the recommender system is sufficiently effective in reducing uncertainty, then the seller prices otherwise symmetric products differently to …
Rank Tests For Instrumental Variables Regression With Weak Instruments, Donald W.K. Andrews, Gustavo Soares
Rank Tests For Instrumental Variables Regression With Weak Instruments, Donald W.K. Andrews, Gustavo Soares
Cowles Foundation Discussion Papers
This paper considers tests in an instrumental variables (IVs) regression model with IVs that may be weak. Tests that have near-optimal asymptotic power properties with Gaussian errors for weak and strong IVs have been determined in Andrews, Moreira, and Stock (2006a). In this paper, we seek tests that have near-optimal asymptotic power with Gaussian errors and improved power with non-Gaussian errors relative to existing tests. Tests with such properties are obtained by introducing rank tests that are analogous to the conditional likelihood ratio test of Moreira (2003). We also introduce a rank test that is analogous to the Lagrange multiplier …
Lexicographic Composition Of Simple Games, Bezalel Peleg
Lexicographic Composition Of Simple Games, Bezalel Peleg
Cowles Foundation Discussion Papers
A two-house legislature can often be modelled as a proper simple game whose outcome depends on whether a coalition wins, blocks or loses in two smaller proper simple games. It is shown that there are exactly five ways to combine the smaller games into a larger one. This paper focuses on one of the rules, lexicographic composition , where a coalition wins in G 1 => G 2 when it either wins in G 1 , or blocks in G 1 and wins in G 2 . It is the most decisive of the five. A lexicographically decomposable game is …
Nuclear Weapons And National Prestige, Robert J. Shiller
Nuclear Weapons And National Prestige, Robert J. Shiller
Cowles Foundation Discussion Papers
Leaders and historians see prestige as important, but international relations theorists have neglected the concept, in part for lack of a clear definition. It is proposed that a party “holds prestige” when group members generally believe that the party has a certain desirable quality, and this situation gives the party perceived power in the group. The definition gains support from a survey of international affairs writings on the sources of prestige. Prestige is strategically important when a party wants support from others who would rather join the side that more of the others are joining. Some general ways of acquiring …
Sinusoidal Modeling Applied To Spatially Variant Tropospheric Ozone Air Pollution, Nicholas Z. Muller, Peter C.B. Phillips
Sinusoidal Modeling Applied To Spatially Variant Tropospheric Ozone Air Pollution, Nicholas Z. Muller, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper demonstrates how parsimonious models of sinusoidal functions can be used to fit spatially variant time series in which there is considerable variation of a periodic type. A typical shortcoming of such tools relates to the difficulty in capturing idiosyncratic variation in periodic models. The strategy developed here addresses this deficiency. While previous work has sought to overcome the shortcoming by augmenting sinusoids with other techniques, the present approach employs station-specific sinusoids to supplement a common regional component, which succeeds in capturing local idiosyncratic behavior in a parsimonious manner. The experiments conducted herein reveal that a semi-parametric approach enables …
Indirect Inference For Dynamic Panel Models, Christian Gouriéroux, Peter C.B. Phillips, Jun Yu
Indirect Inference For Dynamic Panel Models, Christian Gouriéroux, Peter C.B. Phillips, Jun Yu
Cowles Foundation Discussion Papers
It is well-known that maximum likelihood (ML) estimation of the autoregressive parameter of a dynamic panel data model with fixed effects is inconsistent under fixed time series sample size ( T ) and large cross section sample size ( N ) asymptotics. The estimation bias is particularly relevant in practical applications when T is small and the autoregressive parameter is close to unity. The present paper proposes a general, computationally inexpensive method of bias reduction that is based on indirect inference (Gouriéroux et al., 1993), shows unbiasedness and analyzes efficiency. The method is implemented in a simple linear dynamic panel …
Repeated Games With Present-Biased Preferences, Hector Chade, Pavlo Prokopovych, Lones Smith
Repeated Games With Present-Biased Preferences, Hector Chade, Pavlo Prokopovych, Lones Smith
Cowles Foundation Discussion Papers
We study infinitely repeated games with observable actions, where players have present-biased (so-called beta-delta) preferences. We give a two-step procedure to characterize Strotz–Pollak equilibrium payoffs: compute the continuation payoff set using recursive techniques, and then use this set to characterize the equilibrium payoff set U(beta,delta). While Strotz–Pollak equilibrium and subgame perfection differ here, the generated paths and payoffs nonetheless coincide. We then explore the cost of the present-time bias. Fixing the total present value of 1 util flow, lower beta or higher delta shrinks the payoff set. Surprisingly, unless the minimax outcome is a Nash equilibrium of the stage game, …
Optimal Estimation Of Cointegrated Systems With Irrelevant Instruments, Peter C.B. Phillips
Optimal Estimation Of Cointegrated Systems With Irrelevant Instruments, Peter C.B. Phillips
Cowles Foundation Discussion Papers
It has been know since Phillips and Hansen (1990) that cointegrated systems can be consistently estimated using stochastic trend instruments that are independent of the system variables. A similar phenomenon occurs with deterministically trending instruments. The present work shows that such “irrelevant” deterministic trend instruments may be systematically used to produce asymptotically efficient estimates of a cointegrated system. The approach is convenient in practice, involves only linear instrumental variables estimation, and is a straightforward one step procedure with no loss of degrees of freedom in estimation. Simulations reveal that the procedure works well in practice, having little finite sample bias …
Refined Inference On Long Memory In Realized Volatility, Offer Lieberman, Peter C.B. Phillips
Refined Inference On Long Memory In Realized Volatility, Offer Lieberman, Peter C.B. Phillips
Cowles Foundation Discussion Papers
There is an emerging consensus in empirical finance that realized volatility series typically display long range dependence with a memory parameter (d) around 0.4 (Andersen et. al. (2001), Martens et. al. (2004)). The present paper provides some analytical explanations for this evidence and shows how recent results in Lieberman and Phillips (2004a, 2004b) can be used to refine statistical inference about d with little computational effort. In contrast to standard asymptotic normal theory now used in the literature which has an O ( n -1/2 ) error rate on error rejection probabilities, the asymptotic approximation used here has an error …
Bandit Problems, Dirk Bergemann, Juuso Välimäki
Bandit Problems, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
We survey the literature on multi-armed bandit models and their applications in economics. The multi-armed bandit problem is a statistical decision model of an agent trying to optimize his decisions while improving his information at the same time. This classic problem has received much attention in economics as it concisely models the trade-off between exploration (trying out each arm to find the best one) and exploitation (playing the arm believed to give the best payoff).
Gaussian Inference In Ar(1) Time Series With Or Without A Unit Root, Peter C.B. Phillips, Chirok Han
Gaussian Inference In Ar(1) Time Series With Or Without A Unit Root, Peter C.B. Phillips, Chirok Han
Cowles Foundation Discussion Papers
This note introduces a simple first-difference-based approach to estimation and inference for the AR(1) model. The estimates have virtually no finite sample bias, are not sensitive to initial conditions, and the approach has the unusual advantage that a Gaussian central limit theory applies and is continuous as the autoregressive coefficient passes through unity with a uniform / n rate of convergence. En route, a useful CLT for sample covariances of linear processes is given, following Phillips and Solo (1992). The approach also has useful extensions to dynamic panels.
Informational Herding And Optimal Experimentation, Lones Smith, Peter Norman Sorensen
Informational Herding And Optimal Experimentation, Lones Smith, Peter Norman Sorensen
Cowles Foundation Discussion Papers
We show that far from capturing a formally new phenomenon, informational herding is really a special case of single-person experimentation — and ‘bad herds’ the typical failure of complete learning. We then analyze the analogous team equilibrium, where individuals maximize the present discounted welfare of posterity. To do so, we generalize Gittins indices to our non-bandit learning problem, and thereby characterize when contrarian behaviour arises: (i) While herds are still constrained efficient, they arise for a strictly smaller belief set. (ii) A log-concave log-likelihood ratio density robustly ensures that individuals should lean more against their myopic preference for an action …
Caller Number Five: Timing Games That Morph From One Form To Another, Andreas Park, Lones Smith
Caller Number Five: Timing Games That Morph From One Form To Another, Andreas Park, Lones Smith
Cowles Foundation Discussion Papers
There are two varieties of timing games in economics: In a war of attrition, more predecessors helps; in a pre-emption game, more predecessors hurts. In this paper, we introduce and explore a spanning class with rank-order payoffs that subsumes both as special cases. In this environment with unobserved actions and complete information, there are endogenously-timed phase transition moments. We identify equilibria with a rich enough structure to capture a wide array of economic and social timing phenomena — shifting between phases of smooth and explosive entry. We introduce a tractable general theory of this class of timing games based on …
Simultaneous Search, Hector Chade, Lones Smith
Simultaneous Search, Hector Chade, Lones Smith
Cowles Foundation Discussion Papers
We introduce and solve a new class of “downward-recursive” static portfolio choice problems. An individual simultaneously chooses among ranked stochastic options, and each choice is costly. In the motivational application, just one may be exercised from those that succeed. This often emerges in practice, such as when a student applies to many colleges. We show that a greedy algorithm finds the optimal set. The optimal choices are “less aggressive” than the sequentially optimal ones, but “more aggressive” than the best singletons. The optimal set in general contains gaps. We provide a comparative static on the chosen set.
Assortative Matching And Repubation, Axel Anderson, Lones Smith
Assortative Matching And Repubation, Axel Anderson, Lones Smith
Cowles Foundation Discussion Papers
Consider Becker’s classic 1963 matching model, with unobserved fixed types and stochastic publicly observed output. If types are complementary, then matching is assortative in the known Bayesian posteriors (the ‘reputations’). We discover a robust failure of Becker’s result in the simplest dynamic two type version of this world. Assortative matching is generally neither efficient nor an equilibrium for high discount factors. In a labor theoretic rationale, we show that assortative matching fails around the highest (lowest) reputation agents for ‘low-skill (high-skill) concealing’ technologies. We then find that as the number of production outcomes grows, almost all technologies are of either …
Optimal Bandwidth Selection In Heteroskedasticity-Autocorrelation Robust Testing, Yixiao Sun, Peter C.B. Phillips, Sainan Jin
Optimal Bandwidth Selection In Heteroskedasticity-Autocorrelation Robust Testing, Yixiao Sun, Peter C.B. Phillips, Sainan Jin
Cowles Foundation Discussion Papers
In time series regressions with nonparametrically autocorrelated errors, it is now standard empirical practice to use kernel-based robust standard errors that involve some smoothing function over the sample autocorrelations. The underlying smoothing parameter b, which can be defined as the ratio of the bandwidth (or truncation lag) to the sample size, is a tuning parameter that plays a key role in determining the asymptotic properties of the standard errors and associated semiparametric tests. Small- b asymptotics involve standard limit theory such as standard normal or chi-squared limits, whereas fixed-b asymptotics typically lead to nonstandard limit distributions involving Brownian bridge functionals. …
Understanding Overbidding In Second Price Auctions: An Experimental Study, David J. Cooper, Hanming Fang
Understanding Overbidding In Second Price Auctions: An Experimental Study, David J. Cooper, Hanming Fang
Cowles Foundation Discussion Papers
This paper presents results from a series of second price private value auction (SPA) experiments in which bidders are either given for free, or are allowed to purchase, noisy signals about their opponents’ value. Even though theoretically such information about opponents’ value has no strategic use in the SPA, it provides us with a convenient instrument to change bidders’ perception about the “strength” (i.e., the value) of their opponent. We argue that the empirical relationship between the incidence and magnitude of overbidding and bidders’ perception of the strength of their opponent provides the key to understand whether overbidding in second …
Limit Theorems For Functionals Of Sums That Converge To Fractional Stable Motions, P. Jeganathan
Limit Theorems For Functionals Of Sums That Converge To Fractional Stable Motions, P. Jeganathan
Cowles Foundation Discussion Papers
No abstract provided.
Sequential Equilibria In Bayesian Games With Communication, Dino Gerardi, Roger B. Myerson
Sequential Equilibria In Bayesian Games With Communication, Dino Gerardi, Roger B. Myerson
Cowles Foundation Discussion Papers
We study the effects of communication in Bayesian games when the players are sequentially rational but some combinations of types have zero probability. Not all communication equilibria can be implemented as sequential equilibria. We define the set of strong sequential equilibria (SSCE) and characterize it. SSCE differs from the concept of sequential communication equilibrium (SCE) defined by Myerson (1986) in that SCE allows the possibility of trembles by the mediator. We show that these two concepts coincide when there are three or more players, but the set of SSCE may be strictly smaller than the set of SCE for two-player …
Testing Linearity In Cointegrating Relations With An Application To Purchasing Power Parity, Seung Hyun Hong, Peter C.B. Phillips
Testing Linearity In Cointegrating Relations With An Application To Purchasing Power Parity, Seung Hyun Hong, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper develops a linearity test that can be applied to cointegrating relations. We consider the widely used RESET specification test and show that when this test is applied to nonstationary time series its asymptotic distribution involves a mixture of noncentral chi-squared distributions, which leads to severe size distortions in conventional testing based on the central chi-squared. Nonstationarity is shown to introduce two bias terms in the limit distribution, which are the source of the size distortion in testing. Appropriate corrections for this asymptotic bias leads to a modified version of the RESET test which has a central chi-squared limit …
The Response Of Prices, Sales, And Output To Temporary Changes In Demand, Adam Copeland, George J. Hall
The Response Of Prices, Sales, And Output To Temporary Changes In Demand, Adam Copeland, George J. Hall
Cowles Foundation Discussion Papers
We determine empirically how the Big Three automakers accommodate shocks to demand. They have the capability to change prices, alter labor inputs through temporary layoffs and overtime, or adjust inventories. These adjustments are interrelated, non-convex, and dynamic in nature. Combining weekly plant-level data on production schedules and output with monthly data on sales and transaction prices, we estimate a dynamic profit-maximization model of the firm. Using impulse response functions, we demonstrate that when an automaker is hit with a demand shock sales respond immediately, prices respond gradually, and production responds only after a delay. The size of the immediate sales …
Grading In Games Of Status: Marking Exams And Setting Wages, Pradeep Dubey, John Geanakoplos
Grading In Games Of Status: Marking Exams And Setting Wages, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
We introduce grading into games of status. Each player chooses effort, producing a stochastic output or score. Utilities depend on the ranking of all the scores. By clustering scores into grades, the ranking is coarsened, and the incentives to work are changed. We first apply games of status to grading exams. Our main conclusion is that if students care primarily about their status (relative rank) in class, they are often best motivated to work not by revealing their exact numerical exam scores (100,99,…,1), but instead by clumping them into coarse categories ( A,B,C ). When student abilities are disparate, the …
Grading In Games Of Status: Marking Exams And Setting Wages, Pradeep Dubey, John Geanakoplos
Grading In Games Of Status: Marking Exams And Setting Wages, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
We introduce grading into games of status. Each player chooses effort, producing a stochastic output or score. Utilities depend on the ranking of all the scores. By clustering scores into grades, the ranking is coarsened, and the incentives to work are changed. We first apply games of status to grading exams. Our main conclusion is that if students care primarily about their status (relative rank) in class, they are often best motivated to work not by revealing their exact numerical exam scores (100,99,…,1), but instead by clumping them into coarse categories ( A,B,C ). When student abilities are disparate, the …
A Remark On Bimodality And Weak Instrumentation In Structural Equation Estimation, Peter C.B. Phillips
A Remark On Bimodality And Weak Instrumentation In Structural Equation Estimation, Peter C.B. Phillips
Cowles Foundation Discussion Papers
In a simple model composed of a structural equation and identity, the finite sample distribution of the IV/LIML estimator is always bimodal and this is most apparent when the concentration parameter is small. Weak instrumentation is the energy that feeds the secondary mode and the coefficient in the structural identity provides a point of compression in the density that gives rise to it. The IV limit distribution can be normal, bimodal, or inverse normal depending on the behavior of the concentration parameter and the weakness of the instruments. The limit distribution of the OLS estimator is normal in all cases …
A Credit Mechanism For Selecting A Unique Competitive Equilibrium, Cheng-Zhong Qin, Martin Shubik
A Credit Mechanism For Selecting A Unique Competitive Equilibrium, Cheng-Zhong Qin, Martin Shubik
Cowles Foundation Discussion Papers
The enlargement of the general-equilibrium structure to allow default subject to penalties to appririate credit limits and default penalties results in a construction of a simple mechanism for a credit using society. We show that there generically exists a price-normalizing bundle that determines a credit money along with appropriate credit limmits and default penalties for a credit mechanism to select a unique competitive equilibrium (CE). With some additional conditions, a common credit money can be applied such that any CE can be a unique selection by the credit mechanism with appropriate credit limits default penalties for the traders. This will …
Estimated Age Effects In Baseball, Ray C. Fair
Estimated Age Effects In Baseball, Ray C. Fair
Cowles Foundation Discussion Papers
Age effects in baseball are estimated in this paper using a nonlinear fixed-effects regression. The sample consists of all players who have played 10 or more “full-time” ’ years in the major leagues between 1921 and 2004. Quadratic improvement is assumed up to a peak-performance age, which is estimated, and then quadratic decline after that, where the two quadratics need not be the same. Each player has his own constant term. The results show that aging effects are larger for pitchers than for batters and larger for baseball than for track and field, running, and swimming events and for chess. …
A New Approach To Robust Inference In Cointegration, Sainan Jin, Peter C.B. Phillips, Yixiao Sun
A New Approach To Robust Inference In Cointegration, Sainan Jin, Peter C.B. Phillips, Yixiao Sun
Cowles Foundation Discussion Papers
A new approach to robust testing in cointegrated systems is proposed using nonparametric HAC estimators without truncation. While such HAC estimates are inconsistent, they still produce asymptotically pivotal tests and, as in conventional regression settings, can improve testing and inference. The present contribution makes use of steep origin kernels which are obtained by exponentiating traditional quadratic kernels. Simulations indicate that tests based on these methods have improved size properties relative to conventional tests and better power properties than other tests that use Bartlett or other traditional kernels with no truncation.
Prizes Versus Wages With Envy And Pride, Pradeep Dubey, John Geanakoplos, Ori Haimanko
Prizes Versus Wages With Envy And Pride, Pradeep Dubey, John Geanakoplos, Ori Haimanko
Cowles Foundation Discussion Papers
We show that if agents are risk neutral, prizes outperform wages when there is sufficient pride and envy relative to the noisiness of performance. If agents are risk averse, prizes are a necessary supplement to wages (as bonuses).
Perfect Competition In A Bilateral Monopoly (In Honor Of Martin Shubik), Pradeep Dubey, Dieter Sondermann
Perfect Competition In A Bilateral Monopoly (In Honor Of Martin Shubik), Pradeep Dubey, Dieter Sondermann
Cowles Foundation Discussion Papers
We show that if limit orders are required to vary smoothly, then strategic (Nash) equilibria of the double auction mechanism yield competitive (Walras) allocations. It is not necessary to have competitors on any side of any market: smooth trading is a substitute for price wars. In particular, Nash equilibria are Walrasian even in a bilateral monopoly.
Continuous Versus Discrete Market Games, Alexandre Marino, Bernard De Meyer
Continuous Versus Discrete Market Games, Alexandre Marino, Bernard De Meyer
Cowles Foundation Discussion Papers
De Meyer and Moussa Saley [4] provide an endogenous justification for the appearance of Brownian Motion in Finance by modeling the strategic interaction between two asymmetrically informed market makers with a zero-sum repeated game with one-sided information. The crucial point of this justification is the appearance of the normal distribution in the asymptotic behavior of V n ( P )// n . In De Meyer and Moussa Saley’s model [4], agents can fix a price in a continuous space. In the real world however, the market compels the agents to post prices in a discrete set. The previous remark raises …