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Basic Concepts: Decisions, Game Theory, and Market Equilibrium | p. 1 |
Introduction | p. 3 |
Origins | p. 3 |
Overview | p. 5 |
Methodology | p. 8 |
A Brief History of Experimental Economics | p. 16 |
Questions | p. 18 |
A Pit Market | p. 21 |
A Simple Example | p. 21 |
A Classroom Experiment | p. 22 |
Chamberlin's Results and Vernon Smith's Reaction | p. 27 |
Extensions | p. 31 |
Questions | p. 32 |
Some Simple Games: Competition, Coordination, and Guessing | p. 35 |
Game Theory and the Prisoner's Dilemma | p. 35 |
A Prisoner's Dilemma Experiment | p. 37 |
A Coordination Game | p. 40 |
A Guessing Game | p. 42 |
Extensions | p. 44 |
Questions | p. 45 |
Risk and Decision Making | p. 47 |
Who Wants to Be a Millionaire? | p. 47 |
A Simple Lottery-Choice Experiment | p. 50 |
Payoff Scale, Order, and Demographics Effects | p. 54 |
Extensions | p. 58 |
Questions | p. 58 |
Randomized Strategies | p. 59 |
Symmetric Matching Pennies Games | p. 59 |
Battle of the Sexes | p. 63 |
Extensions | p. 67 |
Questions | p. 67 |
Market Experiments | p. 69 |
Monopoly and Cournot Markets | p. 71 |
Monopoly | p. 71 |
Cournot Duopoly | p. 75 |
Cournot Oligopoly | p. 77 |
Extensions | p. 80 |
Optional Quick Calculus Review | p. 80 |
Questions | p. 81 |
Vertical Market Relationships | p. 83 |
Double Marginalization | p. 83 |
The Newsvendor Problem | p. 87 |
The Bullwhip Effect | p. 90 |
Extensions | p. 92 |
Questions | p. 93 |
Market Institutions and Power | p. 95 |
Introduction | p. 95 |
The Exercise of Seller Market Power without Explicit Collusion | p. 99 |
Edgeworth Cycles and Random Prices | p. 102 |
The Effects of Market Power | p. 103 |
Extensions | p. 107 |
Calculation of a Mixed-Strategy Equilibrium in Prices | p. 107 |
Questions | p. 109 |
Collusion and Price Competition | p. 111 |
Collusion in Posted-Offer Markets: "This Is Economics" | p. 111 |
Collusion with Secret Discounts | p. 114 |
Extensions: Cheap Talk, Mutual Forbearance, and the "V Word" | p. 117 |
Questions | p. 120 |
Market Failure Due to Unraveling: Lemons and Matching Markets | p. 123 |
Endogenous Product Quality | p. 123 |
Clearinghouse Mechanisms and Unraveling in Labor Markets | p. 127 |
Extensions: Baseball, Dorm Rooms, School Choice, Deep Space, Sorority Rush,...but Marriage? | p. 131 |
Questions | p. 131 |
Asset Markets and Price Bubbles | p. 133 |
Bubbles and Crashes | p. 133 |
A Digression on Present Value | p. 137 |
The Limit Order Market Experiment | p. 138 |
Other Research on the Call Market Institution | p. 141 |
Questions | p. 143 |
Bargaining and Behavioral Labor Economics | p. 145 |
Ultimatum Bargaining | p. 147 |
Strategic Advantage and Ultimatums | p. 147 |
Bargaining in the Bush | p. 148 |
Bargaining in the Lab | p. 151 |
Multi-Stage Bargaining | p. 153 |
Extensions: "I Will Be Spending Years Trying to Figure Out What This All Meant" | p. 156 |
Questions | p. 157 |
Trust, Reciprocity, and Principal-Agent Games | p. 159 |
The Trust Game | p. 159 |
A Labor Market Reciprocity Game | p. 162 |
Extensions: Field Experiments | p. 164 |
Questions | p. 165 |
Public Choice | p. 167 |
Voluntary Contributions | p. 169 |
Social Norms and Public Goods | p. 169 |
"Economists Free-Ride, Does Anyone Else?" | p. 171 |
Single-Round Experiments | p. 172 |
Multi-Round Experiments | p. 176 |
Extensions | p. 178 |
Questions | p. 180 |
The Volunteer's Dilemma | p. 183 |
Sometimes It Only Takes One Hero | p. 183 |
Initial Experimental Evidence | p. 184 |
The Mixed-Strategy Equilibrium | p. 186 |
An Experiment on Group Size Effects | p. 189 |
Extensions | p. 191 |
Questions | p. 191 |
Externalities, Congestion, and Common Pool Resources | p. 193 |
Water | p. 194 |
Ducks and Traffic | p. 195 |
Fish | p. 200 |
Extensions | p. 202 |
Questions | p. 203 |
Rent Seeking | p. 205 |
Government with "a Smokestack on Its Back" | p. 205 |
Rent Seeking in the Classroom Laboratory | p. 207 |
The Nash Equilibrium | p. 208 |
Comparative Statics for Changes in Cost and the Number of Competitors | p. 209 |
Extensions | p. 210 |
Questions | p. 212 |
Voting and Politics Experiments | p. 215 |
The Median Voter Theorem | p. 215 |
Experimental Tests of Spatial Voting Models | p. 217 |
Fairness and Deviations from Core Outcomes | p. 220 |
Legislative Bargaining | p. 221 |
Agendas and Strategic Voting | p. 222 |
Polls, Runoffs, and Other Coordinating Devices | p. 224 |
Participation Games | p. 225 |
Field Experiments | p. 227 |
Extensions | p. 228 |
Questions | p. 229 |
Auctions | p. 231 |
Private Value Auctions | p. 233 |
Introduction | p. 233 |
Auctions: Up, Down, and the "Little Magical Elf" | p. 234 |
Bidding against a Uniform Distribution | p. 237 |
Bidding Behavior in a Two-Person, First-Price Auction | p. 240 |
Extensions | p. 242 |
Risk Aversion | p. 244 |
Questions | p. 246 |
The Takeover Game | p. 247 |
Wall Street (the Film) | p. 247 |
A Takeover Game Experiment | p. 248 |
Quality Unraveling | p. 250 |
Extensions: The Loser's Curse | p. 252 |
Questions | p. 252 |
Common-Value Auctions and the Winner's Curse | p. 255 |
"I Won the Auction but I Wish I Hadn't" | p. 255 |
The Nash Equilibrium | p. 258 |
The Winner's Curse | p. 261 |
Extensions | p. 262 |
Questions | p. 263 |
Multi-Unit and Combinatorial Auctions | p. 265 |
Dry 2K | p. 265 |
FCC Bandwidth Auctions and Package Bidding Alternatives | p. 272 |
Experimental Tests of Package Bidding Alternatives | p. 276 |
Extensions | p. 278 |
Questions | p. 279 |
Behavioral Game Theory: Treasures and Intuitive Contradictions | p. 281 |
Multi-Stage Games | p. 285 |
Extensive Forms and Strategies | p. 285 |
Two-Stage Trust Games | p. 288 |
The Centipede Game | p. 291 |
Extensions | p. 292 |
Questions | p. 293 |
Generalized Matching Pennies | p. 295 |
The Case of Balanced Payoffs | p. 295 |
Noisy Best Responses | p. 296 |
The Effects of Payoff Imbalances | p. 299 |
Probabilistic Choice | p. 302 |
Extensions | p. 304 |
Questions | p. 305 |
The Traveler's Dilemma | p. 307 |
A Vacation with an Unhappy Ending? | p. 307 |
Data | p. 309 |
Learning and Experience | p. 310 |
Iterated Rationality and Quantal Response Equilibrium | p. 312 |
Extensions | p. 316 |
Bounded Rationality in the Traveler's Dilemma-A Spreadsheet-Based Analysis | p. 318 |
Questions | p. 323 |
Coordination Games | p. 325 |
"The Minimum Effort Game? That's One I Can Play!" | p. 325 |
Nash Equilibria, Numbers Effects, and Experimental Evidence | p. 328 |
Effort-Cost Effects | p. 329 |
Equilibrium with Noisy Behavior | p. 331 |
Extensions | p. 333 |
An Analysis of Noisy Behavior in the Coordination Game | p. 334 |
Questions | p. 337 |
Individual Decision Experiments | p. 339 |
Probability Matching | p. 341 |
Being Treated Like a Rat | p. 341 |
Are Rats Really More Rational Than Humans? | p. 342 |
Siegel and Goldstein's Experiments | p. 343 |
A Simple Model of Belief Learning | p. 345 |
Reinforcement Learning | p. 346 |
Extensions | p. 347 |
Questions | p. 348 |
Lottery Choice Anomalies | p. 351 |
Introduction | p. 351 |
The Allais Paradox | p. 352 |
Prospect Theory: Probability Misperception | p. 354 |
Prospect Theory: Gains, Losses, and "Reflection Effects" | p. 356 |
Extensions | p. 359 |
Questions | p. 360 |
ISO (in Search of...) | p. 361 |
Introduction | p. 361 |
Search from a Uniform Distribution | p. 362 |
Experimental Data | p. 363 |
Optimal Search | p. 364 |
Extensions | p. 366 |
Questions | p. 367 |
Information, Learning, and Signaling | p. 369 |
Bayes' Rule | p. 371 |
Introduction | p. 371 |
A Simple Example and a Counting Heuristic | p. 373 |
Relating the Counting Heuristic to Bayes' Rule | p. 376 |
Experimental Results | p. 378 |
Bayes' Rule with Elicited Probabilities | p. 379 |
A Follow-Up Experiment with a Rare Event | p. 382 |
Extensions | p. 383 |
Truthful Elicitation | p. 384 |
Questions | p. 385 |
Information Cascades | p. 389 |
"To Do Exactly as Your Neighbors Do Is the Only Sensible Rule" | p. 389 |
A Model of Rational Learning from Others' Decisions | p. 390 |
Experimental Evidence | p. 392 |
Extensions | p. 395 |
Questions | p. 396 |
Statistical Discrimination | p. 397 |
"Brown-Eyed People Are More Civilized" | p. 397 |
Being Purple or Green | p. 399 |
Data on Statistical Discrimination | p. 401 |
"Are Emily and Greg More Employable than Lakisha and Jamal?" | p. 405 |
Extensions | p. 406 |
Derivation of the Discriminatory Equilibrium | p. 407 |
Questions | p. 408 |
Signaling Games | p. 409 |
Real Men Don't Eat Quiche | p. 409 |
Separating Equilibria | p. 410 |
Pooling | p. 412 |
Unintuitive Beliefs and Reverse Type Dependence | p. 413 |
"Stripped Down Poker" | p. 416 |
Extensions: "Too Cool for School" | p. 419 |
Questions | p. 420 |
Prediction Markets | p. 423 |
The Rationale for Prediction Markets | p. 423 |
The Success of Political Event Markets | p. 426 |
Information Aggregation and "Common Value Trading" | p. 428 |
Extensions | p. 431 |
Questions | p. 431 |
References | p. 433 |
Index | p. 451 |
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