Experimental Cost of Information

By Tommaso Denti, Massimo Marinacci, and Aldo Rustichini

American Economic Review, September 2022

We relate two main representations of the cost of acquiring information: a cost that depends on the experiment performed, as in statistical decision theory, and a cost that depends on the distribution of posterior beliefs, as in applications of rational i...

Optimal Information Disclosure in Classic Auctions

By Dirk Bergemann, Tibor Heumann, Stephen Morris, Constantine Sorokin, and Eyal Winter

American Economic Review: Insights, September 2022

We characterize the revenue-maximizing information structure in the second-price auction. The seller faces a trade-off: more information improves the efficiency of the allocation but creates higher information rents for bidders. The information disclosure...

The Microeconomics of Cryptocurrencies

By Hanna Halaburda, Guillaume Haeringer, Joshua Gans, and Neil Gandal

Journal of Economic Literature, September 2022

Since its launch in 2009 much has been written about Bitcoin, cryptocurrencies, and blockchains. While the discussions initially took place mostly on blogs and other popular media, we now are witnessing the emergence of a growing body of rigorous academ...

Persistent Overconfidence and Biased Memory: Evidence from Managers

By David Huffman, Collin Raymond, and Julia Shvets

American Economic Review, October 2022

A long-standing puzzle is how overconfidence can persist in settings characterized by repeated feedback. This paper studies managers who participate repeatedly in a high-powered tournament incentive system, learning relative performance each time. Using r...

Fake News, Voter Overconfidence, and the Quality of Democratic Choice

By Melis Kartal and Jean-Robert Tyran

American Economic Review, October 2022

This paper studies, theoretically and experimentally, the effects of overconfidence and fake news on information aggregation and the quality of democratic choice in a common-interest setting. We theoretically show that overconfidence exacerbates the adver...

Screening Dominance: A Comparison of Noisy Signals

By David Lagziel and Ehud Lehrer

American Economic Journal: Microeconomics, November 2022

This paper studies the impact of noisy signals on screening processes. It deals with a decision problem in which a decision-maker screens a set of elements based on noisy unbiased evaluations. Given that the decision-maker uses threshold strategies, we sh...

Sequential Screening with Type-Enhancing Investment

By Bin Liu and Jingfeng Lu

American Economic Journal: Microeconomics, November 2022

Due to the well-known efficiency–rent extraction trade-off, the optimal mechanism in a pure screening environment (e.g., revenue maximization in auctions or cost minimization in procurement) typically calls for distortions in allocative efficiency when ...

Communication and Cooperation in Markets

By S. Nageeb Ali and David A. Miller

American Economic Journal: Microeconomics, November 2022

Many markets rely on traders truthfully communicating who has cheated in the past and ostracizing those traders from future trade. This paper investigates when truthful communication is incentive compatible. We find that if each side has a myopic incentiv...

Reaping the Informational Surplus in Bayesian Persuasion

By Ronen Gradwohl, Niklas Hahn, Martin Hoefer, and Rann Smorodinsky

American Economic Journal: Microeconomics, November 2022

The Bayesian persuasion model studies communication between an informed sender and a receiver with a payoff-relevant action, emphasizing the ability of a sender to extract maximal surplus from his informational advantage. In this paper, we study a setting...

A Theory of One-Size-Fits-All Recommendations

By Doron Levit and Anton Tsoy

American Economic Journal: Microeconomics, November 2022

One-size-fits-all recommendations are common in many contexts, including those with a widespread heterogeneity. We propose a model that rationalizes this phenomenon. An expert recommends publicly to two agents whether to adopt a policy. The expert is priv...

Deposit Requirements in Auctions

By Xiaogang Che, Tong Li, Jingfeng Lu, and Xiaoyong Zheng

American Economic Journal: Microeconomics, November 2022

We examine optimal auction design when buyers may receive future outside offers. The winning bidder may choose to default upon observing her outside offer. Under the optimal mechanism, the bidder with the highest value wins if and only if her value is abo...

On the Foundations of Ex Post Incentive-Compatible Mechanisms

By Takuro Yamashita and Shuguang Zhu

American Economic Journal: Microeconomics, November 2022

This paper considers an interdependent-value robust mechanism design problem, where the principal has little knowledge about the agent's belief. Although ex post incentive-compatible (EPIC) mechanisms can implement allocations without any knowledge about ...

Expectations-Based Loss Aversion May Help Explain Seemingly Dominated Choices in Strategy-Proof Mechanisms

By Bnaya Dreyfuss, Ori Heffetz, and Matthew Rabin

American Economic Journal: Microeconomics, November 2022

Deferred acceptance (DA), a widely implemented algorithm, is meant to improve allocations: under classical preferences, it induces preference-concordant rankings. However, recent evidence shows that—in both real, large-stakes applications and experiment...

Robust Minimal Instability of the Top Trading Cycles Mechanism

By Battal Doğan and Lars Ehlers

American Economic Journal: Microeconomics, November 2022

In the context of priority-based allocation of objects, we formulate methods to compare assignments in terms of their stability. We introduce three basic properties that a reasonable stability comparison should satisfy. We show that for any stability comp...

Making Elections Work: Accountability with Selection and Control

By Vincent Anesi and Peter Buisseret

American Economic Journal: Microeconomics, November 2022

We study the limits of dynamic electoral accountability when voters are uncertain about politicians' characteristics (adverse selection) and their actions (moral hazard). Existing work argues that voters cannot achieve their first-best payoff. This is att...

Reporting Sexual Misconduct in the #MeToo Era

By Ing-Haw Cheng and Alice Hsiaw

American Economic Journal: Microeconomics, November 2022

We model the reporting of sexual misconduct. Individuals underreport misconduct due to strategic uncertainty over whether others will report and corroborate a pattern of behavior. Underreporting occurs if and only if misconduct is widespread. Making sanct...

Dynamic Matching in Overloaded Waiting Lists

By Jacob D. Leshno

American Economic Review, December 2022

This paper introduces a stylized model to capture distinctive features of waiting list allocation mechanisms. First, agents choose among items with associated expected wait times. Waiting times serve a similar role to that of monetary prices in directing ...

Trading on Sunspots

By Boyan Jovanovic and Viktor Tsyrennikov

American Economic Review, December 2022

In a model with multiple Pareto-ranked equilibria, we show that the set of equilibria shrinks if we allow trade in assets that pay based on the realization of a sunspot acting as an equilibrium-selection device. When the probability of a low-output outcom...

Learning from Manipulable Signals

By Mehmet Ekmekci, Leandro Gorno, Lucas Maestri, Jian Sun, and Dong Wei

American Economic Review, December 2022

We study a dynamic stopping game between a principal and an agent. The principal gradually learns about the agent's private type from a noisy performance measure that can be manipulated by the agent via a costly and hidden action. We fully characterize th...

Dynamic Amnesty Programs

By Sam Kapon

American Economic Review, December 2022

A regulator faces a stream of agents engaged in crimes with stochastic returns. The regulator designs an amnesty program, committing to a time path of punishments for criminals who report their crimes. In an optimal program, time variation in the returns ...