Markets, Games, & Strategic Behavior

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  • Edition: 1st
  • Format: Paperback
  • Copyright: 2006-08-01
  • Publisher: Prentice Hall

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Students become fluent in economics when they can apply the concepts in a real, decision-making and strategic environment. For this reason, an increasing number of professors are incorporating experiments into their undergraduate courses. In his new text, Charles Holt begins each chapter with a lead-off experiment designed as an organizing device to introduce economic concepts such as the Winner's Curse, Asset Market Bubbles, and Rent Seeking. These experiments are easy to facilitate in the classroom, and may be run "by hand" or online via an internet browser.

Table of Contents

Basic Concepts: Decisions, Game Theory, and Market Equilibriump. 1
Introductionp. 3
Originsp. 3
Overviewp. 5
Methodologyp. 8
A Brief History of Experimental Economicsp. 16
Questionsp. 18
A Pit Marketp. 21
A Simple Examplep. 21
A Classroom Experimentp. 22
Chamberlin's Results and Vernon Smith's Reactionp. 27
Extensionsp. 31
Questionsp. 32
Some Simple Games: Competition, Coordination, and Guessingp. 35
Game Theory and the Prisoner's Dilemmap. 35
A Prisoner's Dilemma Experimentp. 37
A Coordination Gamep. 40
A Guessing Gamep. 42
Extensionsp. 44
Questionsp. 45
Risk and Decision Makingp. 47
Who Wants to Be a Millionaire?p. 47
A Simple Lottery-Choice Experimentp. 50
Payoff Scale, Order, and Demographics Effectsp. 54
Extensionsp. 58
Questionsp. 58
Randomized Strategiesp. 59
Symmetric Matching Pennies Gamesp. 59
Battle of the Sexesp. 63
Extensionsp. 67
Questionsp. 67
Market Experimentsp. 69
Monopoly and Cournot Marketsp. 71
Monopolyp. 71
Cournot Duopolyp. 75
Cournot Oligopolyp. 77
Extensionsp. 80
Optional Quick Calculus Reviewp. 80
Questionsp. 81
Vertical Market Relationshipsp. 83
Double Marginalizationp. 83
The Newsvendor Problemp. 87
The Bullwhip Effectp. 90
Extensionsp. 92
Questionsp. 93
Market Institutions and Powerp. 95
Introductionp. 95
The Exercise of Seller Market Power without Explicit Collusionp. 99
Edgeworth Cycles and Random Pricesp. 102
The Effects of Market Powerp. 103
Extensionsp. 107
Calculation of a Mixed-Strategy Equilibrium in Pricesp. 107
Questionsp. 109
Collusion and Price Competitionp. 111
Collusion in Posted-Offer Markets: "This Is Economics"p. 111
Collusion with Secret Discountsp. 114
Extensions: Cheap Talk, Mutual Forbearance, and the "V Word"p. 117
Questionsp. 120
Market Failure Due to Unraveling: Lemons and Matching Marketsp. 123
Endogenous Product Qualityp. 123
Clearinghouse Mechanisms and Unraveling in Labor Marketsp. 127
Extensions: Baseball, Dorm Rooms, School Choice, Deep Space, Sorority Rush,...but Marriage?p. 131
Questionsp. 131
Asset Markets and Price Bubblesp. 133
Bubbles and Crashesp. 133
A Digression on Present Valuep. 137
The Limit Order Market Experimentp. 138
Other Research on the Call Market Institutionp. 141
Questionsp. 143
Bargaining and Behavioral Labor Economicsp. 145
Ultimatum Bargainingp. 147
Strategic Advantage and Ultimatumsp. 147
Bargaining in the Bushp. 148
Bargaining in the Labp. 151
Multi-Stage Bargainingp. 153
Extensions: "I Will Be Spending Years Trying to Figure Out What This All Meant"p. 156
Questionsp. 157
Trust, Reciprocity, and Principal-Agent Gamesp. 159
The Trust Gamep. 159
A Labor Market Reciprocity Gamep. 162
Extensions: Field Experimentsp. 164
Questionsp. 165
Public Choicep. 167
Voluntary Contributionsp. 169
Social Norms and Public Goodsp. 169
"Economists Free-Ride, Does Anyone Else?"p. 171
Single-Round Experimentsp. 172
Multi-Round Experimentsp. 176
Extensionsp. 178
Questionsp. 180
The Volunteer's Dilemmap. 183
Sometimes It Only Takes One Herop. 183
Initial Experimental Evidencep. 184
The Mixed-Strategy Equilibriump. 186
An Experiment on Group Size Effectsp. 189
Extensionsp. 191
Questionsp. 191
Externalities, Congestion, and Common Pool Resourcesp. 193
Waterp. 194
Ducks and Trafficp. 195
Fishp. 200
Extensionsp. 202
Questionsp. 203
Rent Seekingp. 205
Government with "a Smokestack on Its Back"p. 205
Rent Seeking in the Classroom Laboratoryp. 207
The Nash Equilibriump. 208
Comparative Statics for Changes in Cost and the Number of Competitorsp. 209
Extensionsp. 210
Questionsp. 212
Voting and Politics Experimentsp. 215
The Median Voter Theoremp. 215
Experimental Tests of Spatial Voting Modelsp. 217
Fairness and Deviations from Core Outcomesp. 220
Legislative Bargainingp. 221
Agendas and Strategic Votingp. 222
Polls, Runoffs, and Other Coordinating Devicesp. 224
Participation Gamesp. 225
Field Experimentsp. 227
Extensionsp. 228
Questionsp. 229
Auctionsp. 231
Private Value Auctionsp. 233
Introductionp. 233
Auctions: Up, Down, and the "Little Magical Elf"p. 234
Bidding against a Uniform Distributionp. 237
Bidding Behavior in a Two-Person, First-Price Auctionp. 240
Extensionsp. 242
Risk Aversionp. 244
Questionsp. 246
The Takeover Gamep. 247
Wall Street (the Film)p. 247
A Takeover Game Experimentp. 248
Quality Unravelingp. 250
Extensions: The Loser's Cursep. 252
Questionsp. 252
Common-Value Auctions and the Winner's Cursep. 255
"I Won the Auction but I Wish I Hadn't"p. 255
The Nash Equilibriump. 258
The Winner's Cursep. 261
Extensionsp. 262
Questionsp. 263
Multi-Unit and Combinatorial Auctionsp. 265
Dry 2Kp. 265
FCC Bandwidth Auctions and Package Bidding Alternativesp. 272
Experimental Tests of Package Bidding Alternativesp. 276
Extensionsp. 278
Questionsp. 279
Behavioral Game Theory: Treasures and Intuitive Contradictionsp. 281
Multi-Stage Gamesp. 285
Extensive Forms and Strategiesp. 285
Two-Stage Trust Gamesp. 288
The Centipede Gamep. 291
Extensionsp. 292
Questionsp. 293
Generalized Matching Penniesp. 295
The Case of Balanced Payoffsp. 295
Noisy Best Responsesp. 296
The Effects of Payoff Imbalancesp. 299
Probabilistic Choicep. 302
Extensionsp. 304
Questionsp. 305
The Traveler's Dilemmap. 307
A Vacation with an Unhappy Ending?p. 307
Datap. 309
Learning and Experiencep. 310
Iterated Rationality and Quantal Response Equilibriump. 312
Extensionsp. 316
Bounded Rationality in the Traveler's Dilemma-A Spreadsheet-Based Analysisp. 318
Questionsp. 323
Coordination Gamesp. 325
"The Minimum Effort Game? That's One I Can Play!"p. 325
Nash Equilibria, Numbers Effects, and Experimental Evidencep. 328
Effort-Cost Effectsp. 329
Equilibrium with Noisy Behaviorp. 331
Extensionsp. 333
An Analysis of Noisy Behavior in the Coordination Gamep. 334
Questionsp. 337
Individual Decision Experimentsp. 339
Probability Matchingp. 341
Being Treated Like a Ratp. 341
Are Rats Really More Rational Than Humans?p. 342
Siegel and Goldstein's Experimentsp. 343
A Simple Model of Belief Learningp. 345
Reinforcement Learningp. 346
Extensionsp. 347
Questionsp. 348
Lottery Choice Anomaliesp. 351
Introductionp. 351
The Allais Paradoxp. 352
Prospect Theory: Probability Misperceptionp. 354
Prospect Theory: Gains, Losses, and "Reflection Effects"p. 356
Extensionsp. 359
Questionsp. 360
ISO (in Search of...)p. 361
Introductionp. 361
Search from a Uniform Distributionp. 362
Experimental Datap. 363
Optimal Searchp. 364
Extensionsp. 366
Questionsp. 367
Information, Learning, and Signalingp. 369
Bayes' Rulep. 371
Introductionp. 371
A Simple Example and a Counting Heuristicp. 373
Relating the Counting Heuristic to Bayes' Rulep. 376
Experimental Resultsp. 378
Bayes' Rule with Elicited Probabilitiesp. 379
A Follow-Up Experiment with a Rare Eventp. 382
Extensionsp. 383
Truthful Elicitationp. 384
Questionsp. 385
Information Cascadesp. 389
"To Do Exactly as Your Neighbors Do Is the Only Sensible Rule"p. 389
A Model of Rational Learning from Others' Decisionsp. 390
Experimental Evidencep. 392
Extensionsp. 395
Questionsp. 396
Statistical Discriminationp. 397
"Brown-Eyed People Are More Civilized"p. 397
Being Purple or Greenp. 399
Data on Statistical Discriminationp. 401
"Are Emily and Greg More Employable than Lakisha and Jamal?"p. 405
Extensionsp. 406
Derivation of the Discriminatory Equilibriump. 407
Questionsp. 408
Signaling Gamesp. 409
Real Men Don't Eat Quichep. 409
Separating Equilibriap. 410
Poolingp. 412
Unintuitive Beliefs and Reverse Type Dependencep. 413
"Stripped Down Poker"p. 416
Extensions: "Too Cool for School"p. 419
Questionsp. 420
Prediction Marketsp. 423
The Rationale for Prediction Marketsp. 423
The Success of Political Event Marketsp. 426
Information Aggregation and "Common Value Trading"p. 428
Extensionsp. 431
Questionsp. 431
Referencesp. 433
Indexp. 451
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