EconStor Community: Kellogg School of Management - Center for Mathematical Studies in Economics and Management Science, Northwestern University
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The Roman metro problem: Dynamic voting and the limited power of commitment
http://hdl.handle.net/10419/97260
Title: The Roman metro problem: Dynamic voting and the limited power of commitment
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<br/>Authors: Roessler, Christian; Shelegia, Sandro; Strulovici, Bruno
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<br/>Abstract: A frequently heard explanation for the underdeveloped metro system in Rome is the following one: If we tried to build a new metro line, it would probably be stopped by archeological finds that are too valuable to destroy, so the investment would be wasted. This statement, which seems self-contradictory from the perspective of a single decision maker, can be rationalized in a voting model with diverse constituents. One would think that commitment to finishing the metro line (no matter what is discovered in the process) can resolve this inefficiency. We show, however, that a Condorcet cycle occurs among the plans of action one could feasibly commit to, precisely when the metro project is defeated in step-by-step voting (that is, when commitment is needed). More generally, we prove a theorem for binary-choice trees and arbitrary learning, establishing that no plan of action which is majority-preferred to the equilibrium play without commitment can be a Condorcet winner among all possible plans. Hence, surprisingly, commitment has no power in a large class of voting problems.Hidden actions and preferences for timing of resolution of uncertainty
http://hdl.handle.net/10419/97259
Title: Hidden actions and preferences for timing of resolution of uncertainty
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<br/>Authors: Ergin, Haluk; Sarver, Todd
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<br/>Abstract: We study preferences for timing of resolution of objective uncertainty in a menuchoice model with two stages of information arrival. We characterize a general class of utility representations called hidden action representations, which interpret an intrinsic preference for timing of resolution of uncertainty as if an unobservable action is taken between the resolution of the two periods of information arrival. These representations permit a richer class of preferences for timing than was possible in the model of Kreps and Porteus (1978) by incorporating a preference for exibility. Our model contains several special cases where this hidden action can be given a novel economic interpretation, including a subjective-state-space model of ambiguity aversion and a model of costly contemplation.Robust multiplicity with a grain of naiveté
http://hdl.handle.net/10419/97258
Title: Robust multiplicity with a grain of naiveté
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<br/>Authors: Heifetz, Aviad; Kets, Willemien
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<br/>Abstract: In an important paper, Weinstein and Yildiz (2007) show that if players have an infinite depth of reasoning and this is commonly believed, types generically have a unique rationalizable action in games that satisfy a richness condition. We show that this result does not extend to environments where players may have a finite depth of reasoning, or think it is possible that the other player has a finite depth of reasoning, or think that the other player may think that is possible, and so on, even if this so-called grain of naiveté is arbitrarily small. More precisely, we show that even if there is almost common belief in the event that players have an infinite depth of reasoning, there are types with multiple rationalizable actions, and the same is true for nearby types. Our results demonstrate that both uniqueness and multiplicity are robust phenomena when we relax the assumption that it is common belief that players have an infinite depth, if only slightly.Tractable falsifiability
http://hdl.handle.net/10419/97257
Title: Tractable falsifiability
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<br/>Authors: Gradwohl, Ronen; Shmaya, Eran
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<br/>Abstract: We propose to strengthen Popper's notion of falsifiability by adding the requirement that when an observation is inconsistent with a theory, there must be a short proof of this inconsistency. We model the concept of a short proof using tools from computational complexity, and provide some examples of economic theories that are falsifiable in the usual sense but not with this additional requirement. We consider several variants of the definition of short proof and several assumptions about the difficulty of computation, and study their different implications on the falsifiability of theories.