“Behavioral Equilibrium in Economies with Adverse Selection” American Economic Review, 98(4): 1269-91, September 2008
Premio Consagracion 2009, awarded every other year by the Academia Nacional de Ciencias Economicas (Argentina) to an Argentine economist under 40.
Abstract. I propose a new solution concept, behavioral equilibrium, to study environments with players who are naive in the sense that they fail to account for the informational content of other players' actions. A behavioral equilibrium requires that: (i) players have no incentives to deviate given their beliefs about the consequences of deviating, (ii) these beliefs are consistent with the information obtained from the actual equilibrium play of all players, and (iii) when processing this information, naive players fail to account for the correlation between other players' actions and their own payoff uncertainty. I apply the framework to certain adverse selection settings and show that, contrary to the received literature, the adverse selection problem is exacerbated when naive players fail to account for selection. More generally, the main distinguishing feature of the framework is that in equilibrium beliefs about both fundamentals and strategies are jointly restricted. Consequently, whether a bias may arise or not is determined endogenously in equilibrium.
“Information Feedback in First Price Auctions” RAND Journal of Economics, 39: 491-508, Summer 2008.
Abstract. In practice, the information that bidders receive about auction outcomes is often a design choice of the auctioneer. For example, in some settings bidders only learn whether or not they win, while in others all bids are revealed after the auction ends. I study how this information feedback affects equilibrium outcomes in a first price auction by focusing on the effect of such feedback on bidders' beliefs about their opponents' strategies and their own valuation of the object. I depart from the existing literature by replacing the Nash equilibrium solution concept with a less restrictive one, self-confirming equilibrium (SCE), which requires bidders' beliefs to be consistent with the information obtained about equilibrium outcomes, though not necessarily correct. In a private values environment, revealing the two highest bids is sufficient for bidders to have correct beliefs (and therefore to play a Nash equilibrium). When valuations are not private, the same result holds if in addition bidders obtain feedback about the value of objects that they do not win. In contrast, in every symmetric SCE of a symmetric, affiliated, private values model, bidding strategies and revenue are (weakly) higher when only the highest bid is revealed compared to the case where at least the two highest bids are revealed. With interdependent valuations, revenue may increase by requiring the winning bidder to reveal information about the ex-post value of the object.
“Robust Equilibrium Analysis in Games with Uncertainty”
Newer version coming soon
Abstract. I propose an extension of Nash equilibrium to games with incomplete information that provides a framework for evaluating the robustness of equilibrium predictions to assumptions regarding players’ uncertainty about the game. This uncertainty includes, but is not limited to, payoff and strategic uncertainty, beliefs about other players’ rationality, beliefs about other players’ beliefs, and so on, so that in principle the framework accommodates any hierarchy of beliefs. However, in contrast to the Bayesian Nash equilibrium (BNE) framework and in the spirit of self-confirming equilibrium, the proposed equilibrium concept restricts hierarchies of beliefs to be consistent with players’ knowledge of equilibrium play. While rationalizability, standard BNE (i.e. with the correct prior over payoff uncertainty being common knowledge), and self-confirming equilibrium all constitute special cases, the proposed concept allows for the analysis of intermediate cases where knowledge of equilibrium play does not eliminate uncertainty and players use their (higher order) beliefs about the game to infer what other players are doing in equilibrium. The main result is a characterization of the solution concept in terms of a procedure that iteratively eliminates strategies. In a finite game, the procedure finds the set of equilibria in a finite number of steps. I illustrate the approach in a duopoly game with demand uncertainty.
“Endogenous Participation and Local Market Power in Highway Procurement” joint with Liran Einav
“Information Aggregation, Learning, and Non-strategic Behavior in Voting Environments” joint with Demian Pouzo.
“Learning to Trade Under Adverse Selection: Experimental Evidence” joint with Emanuel Vespa.