Social Systems Research Institute
The University of Wisconsin - Madison
Room 6470 Social Science Building - 1180 Observatory Drive
Madison, Wisconsin 53706 U.S.A.
Phone: (608)262-0446
Fax: (608)263-3876
Electronic Mail: ssri@facstaff.wisc.edu
9903R EVOLUTION AND MIXED STRATEGIES Binmore, Ken and Larry Samuelson (This revision: March 15, 2000)Selten showed that no mixed equilibria are evolutionarily stable when players can condition their strategies on the roles they occupy in a game. Alternatively, Harsanyi's purification argument implies that all mixed equilibria are approximations of strict, and hence evolutionarily stable, equilibria of games with slightly perturbed payoffs. This paper reconciles these contrasting results. We show that approximations of mixed equilibria will have high invasion barriers, and hence are likely to persist in an evolutionary setting, when payoff perturbations are relatively important and role identification is relatively noisy. When payoff perturbations are unimportant and role identification is precise, approximations of mixed equilibria will have small invasion barriers and are unlikely to persist.
Journal of Economic Literature Classification Numbers C70, C78.
Keywords: Evolutionary stability, ESS, mixed strategy, asymmetric game.
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9910R INTERACTIONS-BASED MODELS Brock, William A. and Steven N. Durlauf (revised April 10, 2000)This paper describes a range of methods which have been proposed to study interactions in economic and social contexts. By interactions, we refer to interdependences between individual decisions which are not mediated by markets. These types of models have been employed to understand phenomena ranging from the effect of neighborhoods on the life prospects of children to the evolution of political party platforms. We provide a general choice-based framework for modelling such interactions which subsumes a number of specific models which have been studied. This framework illustrates the relationship between interactions-based models and models in statistical mechanics. Our analysis is then extended to the econometrics of these models, with an emphasis on the identification of group-level influences on individual behavior. Finally, we review some of the empirical work on interactions which has appeared in the social science literature.
9915R REVOLUTION AND EQUILIBRIUM UNDER INEXACT INFORMATION Sandholm, William H. (revised June 1, 2000)We study a general model of stochastic evolution in games, assuming that players have inexact information about the game's payoffs or the population state. We show that when the population is large, its behavior over finite time spans follows an almost deterministic trajectory. While this result provides a useful description of disequilibrium behavior adjustment, it tells us little about equilibrium play.
previous title: Markov Evolution with Inexact Information
We establish that the equilibrium behavior of a large population can be approximated by a diffusion. We
then propose a new notion of stability called local probabilistic stability (LPS), which requires that a population
which begins play in equilibrium settle into a fixed stochastic pattern around the equilibrium. We use the diffusion
approximation to prove a simple characterization of LPS. While LPS accords closely with standard deterministic
notions of stability at interior equilibria, it is significantly less demanding at boundary equilibria.
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9921R TESTS FOR FORECAST ENCOMPASSING WHEN FORECASTS DEPEND ON ESTIMATED REGRESSION PARAMETERS West, Kenneth D. (revised February 2000)This paper presents analytical and simulation results on the properties of two tests for forecast encompassing, allowing throughout for dependence of the forecasts on estimated regression parameters. One test, which was intended for forecasts that do not depend on regression parameters, was developed by Harvey, Leybourne and Newbold (1998). This test works relatively well when the size of the sample of forecasts errors is very small. A second test, which explicitly accounts for uncertainty about the regression parameters, otherwise is comparable or preferable.
9935R "I Didn't Tell, and I Won't Tell": Dynamic Response Error in the SIPP Bollinger, Christopher R. and Martin H. David (revised February 21, 2000)Using state administrative records matched to two interviews of the 1984 Survey of Income and Program Participation panel, we examine intertemporal relationships in response errors for participation in the Food Stamp Program. Response errors are highly correlated for these interviews taken four months apart. The error process can not be explained by respondent learning. We control for income and household characteristics in bivariate probit analysis and find that response to these characteristics is stable and that the error terms are highly correlated. The stability of the model across periods gives no evidence of learning. The high, positive correlation of the error term across periods supports the hypothesis that respondents have a latent tendency to cooperate (or not cooperate) in giving truthful answers. Cooperators provide accurate answers throughout the panel, while non-cooperators provide false answers and may not fully participate throughout the panel.
9936R ENCOMPASSING TESTS WHEN NO MODEL IS ENCOMPASSING West, Kenneth D. (revised June 2000)This paper considers regression-based tests for encompassing, when none of the models under consideration encompasses all the other models. For both in- and out-of-sample applications, I derive asymptotic distributions and propose feasible procedures to construct confidence intervals and test statistics. Procedures that are asymptotically valid under the null of encompassing (e.g., Davidson and MacKinnon (1981)) can have large asymptotic and finite sample distortions. Simulations indicate that the proposed procedures can work well in samples of size typically available, though the divergence between actual and nominal confidence interval coverage sometimes is large.
2001 THE INTERACTIONS-BASED APPROACH TO SOCIOECONOMIC BEHAVIOR Blume, Lawrence E. and Steven N. Durlauf (January 2000)No Abstract. Download WP#2001 in pdf.
2002 THE ECONOMICS OF PHILANTHROPY Andreoni, James (February 2000)Prepared for the International Encyclopedia of the Social and Behavioral Sciences, N.J. Smelser and P.B. Baltes, eds, Elsevier: London, 2001
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2003 ANALOGIES, ADAPTATION, AND ANOMALIES Samuelson, Larry (March 22, 2000)This paper studies the allocation of scarce reasoning resources. Decision-makers are characterized by a stock of models, or analogies, and respond to strategic interactions by applying what appear to be the most suitable models. The stock of models is shaped by an adaptive process that balances the gains from more sophisticated decision-making against the attendant cost of placing heavier demands on scarce reasoning resources. Equilibrium models will be finely tuned to interactions, leading to seemingly "rational" behavior, when the interactions are sufficiently important (played frequently for relatively high stakes) and sufficiently distinct that a more generic model entails a prohibitive payoff reduction. Interactions that are infrequently encountered, played for smaller stakes, or similar to other interactions (so that a generic model involves relatively small payoff sacrifices), may trigger seemingly inappropriate analogies, leading to behavioral anomalies.
2004 FREE TRADE AND GLOBAL WARMING: A TRADE THEORY VIEW OF THE KYOTO PROTOCOL Copeland, Brian R. and M. Scott Taylor (March 28, 2000)This paper demonstrates how three important results in environmental economics, true under mild conditions in closed economies, are false of need serious amendment in a world with international trade in goods. Since the three results we highlight have framed much of the ongoing discussion and research on the Kyoto protocol our viewpoint from trade theory suggests a re-examination may be in order. Specifically, we demonstrate that in an open trading world, but not in a closed economy setting: (1) unilateral emission reductions by the rich North can create self-interested emission reductions by the unconstrained poor South; (2) simple rules for allocating emission reductions across countries (such as uniform reductions) may well be efficient even if international trade in emission permits is not allowed; and (3) when international emission permit trade does occur it may make both participants in the trade worse off and increase global emissions.
2005 EVOLUTION WITH DIVERSE PREFERENCES Ely, Jeffrey C. and William H. Sandholm (May 9, 2000)We study the best response dynamics in settings where players' preferences are diverse. We find that under these dynamics, rest points and Nash equilibria are identical. We prove the existence and uniqueness of solution trajectories, and provide methods of analyzing the dynamics based on aggregation. Finally, we apply these techniques to prove a dynamic version of Harsanyi's (1973) purification theorem.
2006 A DYNAMIC MODEL OF HOLDUP AND INCOMPLETE CONTRACTS Che, Yeon-Koo and Jozsef Sakovics (May 12, 2000)We consider a dynamic model of holdup and incomplete contracts. Unlike the static model (largely adopted in the existing literature), the parties in our model can continue to make relationship-specific investments until they agree on the terms of trade. This endogeneity in investment timing yields a host of new results. First, inability to contract prior to investment need not produce a hold-up type inefficiency. Second, inefficiencies may still arise but not because of the lack of appropriability at the margin. The effects of ex ante contracts in our dynamic model are different from some recent findings based on static models. Even though we treat ex ante contracts as outside options in bargaining, we find that awarding ownership control of an asset to a party boosts his incentives, consistent with the Grossman-Hart- Moore results (which rest on the inside-option specification of bargaining), and that an exclusivity clause can promote investments, much in contrast to the "irrelevance" result by Segal and Whinston.
2007 DISCRETE CHOICE WITH SOCIAL INTERACTIONS Brock, William A. and Steven N. Durlauf (May 15, 2000)This paper provides an analysis of aggregate behavioral outcomes when individual utility exhibits social interaction effects. We study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behavior of others in an environment of noncooperative decisionmaking. Laws of large numbers are generated in such environments. Multiplicity of equilibria in these models, which are equivalent to the existence of multiple self-consistent means for average choice behavior, will exist when the social interactions exceed a particular threshold. Local stability of these multiple equilibria is also studied. The properties of the noncooperative economy are contrasted with the properties of an economy in which a social planner determines the set of individual choices. Finally, the likelihood function based on the theoretical model is given and conditions for the econometric identifiability of the model is established.
2008 CHAOS THEORY Brock, William A. (March 2000)
Chaos theory is the study of deterministic differences (differential) equations that display Sensitive
Dependence upon Initial Conditions (SDIC) to generate time paths that look like random behavior. Even though a
small error in measurement of the system state leads to degredation of predictability at an exponential rate and thus
prediction by any method is futile in the long term, nonlinear prediction methods can do a good job on short term
prediction when chaos or other nonlinearity is present. Since economic theory generates nonlinear dynamics it is
theoretically easy to produce economic models that generate chaotic dynamics when external forcing noise is set
equal to zero. More interesting is whether there is evidence in economic and financial time series data for the
presence of chaos. While the evidence is weak for the presence of chaos which can be short term predicted there
does seem to be useful evidence in favor of nonlinear structure which can be predicted in the short term conditional
on appropriate information sets.
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2009 ECONOMICS OF ENVIRONMENTAL REGULATION Brock, William A. (March 22, 2000)Under the Theme on "Fundamental Economics" in Encyclopedia of Life Support Systems (EOLSS), EOLSS Publishers, Oxford UK, 2001 (to appear).
No abstract.
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2010 Econometric Analysis and the Study of Economic Growth: A Skeptical Perspective Durlauf, Steven N. (May 30, 2000)No Abstract.
2011 Strategic Trade, Competitive Industries and Agricultural Trade Disputes Bagwell, Kyle and Robert W. Staiger (July 2000)The primary predictions of strategic-trade theory are not restricted to imperfectly-competitive markets. Indeed, these predictions emerge in a natural three-country extension of the traditional theory of trade policy in competitive markets, once the theory is augmented to allow for politically-motivated governments, so that the sign of export policy may be converted from tax to subsidy. This suggests that the ongoing agricultural trade disputes may be best interpreted from the perspective of strategic-trade theory. In fact, these disputes may offer the most important example yet of strategic-trade theory.
2012 Legislative Bargaining and Coalition Formation Norman, Peter (August 2000)The finite horizon version of a popular legislative bargaining model due to Baron and Ferejohn is investigated. With three of more rounds of bargaining a continuum of distributions are supportable as a subgame perfect equilibria in Markov strategies. Allowing for history dependent strategies subgame perfect equilibria can be constructed where strictly positive shares are given to a larger group of people than necessary for a minimal winning coalition and, if players are sufficiently patient, any distribution where every agent get a strictly positive share can be supported as a subgame perfect equilibrium. In sharp contrast to these results I obtain a generic uniqueness result when allowing for differences in players' time preferences. However, the unique backwards induction equilibrium in the perturbed game is non-stationary. Hence, neither the original (symmetric) game or the perturbed game provides any guidance for equilibrium selection in the infinite game.
2013 Identification of Standard Auction Models Athey, Susan and Philip A. Haile (August 8, 2000)We present new identification results for models of first-price, second-price, ascending (English), and descending (Dutch) auctions. We analyze a general specification of bidders' preferences and the underlying information structure, nesting as special cases the pure private values and pure common values models, and allowing both ex ante symmetric and asymmetric bidders. We address identification of a series of such models and propose strategies for discriminating between them on the basis of observed data. In the simplest case, the symmetric independent private values model is nonparametrically identified even if only the transaction price from each auction is observed. For more complex models, we provide conditions for identification and testing when additional information of one of the following types is available: (i) one or more bids in addition to the transaction price; (ii) exogenous variation in the number of bidders; (iii) bidder-specific covariates that shift the distribution of valuations; (iv) the ex post realization of the value of the object sold. Our results include new tests that distinguish between private and common values models.
Keywords: Auctions, nonparametric, identification and testing, private values, common values, asymmetric bidders,
unobserved bids, order statistics
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473
Durlauf, Steven N.
The Case "Against" Social Capital
Focus 20 (3), a University of Wisconsin-Madison Institute for Research on Poverty Publication, Fall 1999, pp. 1-5.
474
Durlauf, Steven N.
The Memberships Theory of Inequality: Ideas and Implications
Elites, Minorities and Economic Growth, Chapter 13, Elise S. Brezis and Peter Temin, eds., Elsevier Science B.V., 1999, pp. 161-177.
475
Brock, William A.
Whither Nonlinear?
Journal of Economic Dynamics and Control, 24, 2000, pp. 663-678.
476
Brock, William A. and Patrick de Fontnouvelle
Expectational Diversity in Monetary Economies
Journal of Economic Dynamics and Control, 24, 2000, pp. 725-759.