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Coordination, Advice, and Misunderstanding in Dynamic Games /

Record Type:	Language materials, printed : Monograph/item
Title/Author:	Coordination, Advice, and Misunderstanding in Dynamic Games // Joe Ballard.
Author:	Ballard, Joe,
Description:	1 electronic resource (189 pages)
Notes:	Source: Dissertations Abstracts International, Volume: 85-12, Section: B.
基督教聖經之智慧書導讀 :	This dissertation is comprised of three related projects, each of which explore the difficulties associated with information problems and imperfectly aligned incentives in dynamic organizational settings. The first chapter, co-authored with Luke Boosey, investigates coordination between parties who lack a common language through which to communicate their specialized procedures and, consequently, understand how to coordinate. We introduce a model of dynamic coordination with costly switching, where two players are in search of compatible platforms. In the efficient symmetric equilibrium, players remain on their current platforms with certainty if their common belief about compatibility lies above a cutoff belief (that depends on the switching cost) and otherwise mix between switching platforms and remaining on their current platforms. In the presence of switching costs, the equilibrium switching probability increases as the common belief converges toward zero, but remains below 0.5 for all beliefs. We conduct an experiment to test whether behavior supports the equilibrium predictions of the model, varying (i) whether success occurs deterministically or stochastically when players are on compatible platforms and (ii) the cost of switching platforms. Behavior is mostly in line with comparative statics predictions, especially for the Deterministic treatments, although subjects display a tendency to switch less (more) often than optimal when their common belief is low (high).Next, the second chapter examines how a decision maker optimally uses temporary and permanent disciplinary instruments to influence the quality of advice she receives from an adviser over time. I consider an infinite-horizon, repeated advice environment, where an adviser of privately known expertise, either competent or incompetent, recommends one of two options to a decision maker in each period. The decision maker chooses whether to "check" the adviser's recommendation prior to implementation in every period and then, following the public outcome, either continues or terminates the relationship. When checking is too costly, termination is the only instrument used in equilibrium, resulting in inefficient termination of competent advisers. When checking is sufficiently cheap, the decision maker never terminates the relationship, but frequent (costly) checking may occur. If competent advisers receive fully informative signals, an efficient, cooperative equilibrium can be supported through the use of continual checking (for low checking costs) or termination (for high checking costs), but this is no longer possible under a partially informative signal structure. In this case, the welfare of both competent advisers and decision makers can be improved when checking is cheaper, as this enables the use of probation periods following bad outcomes.Finally, the third chapter, co-authored with Luke Boosey, explores how the potential for misunderstanding between parties in a repeated interaction affects the informal relationships that evolve over time. We develop and analyze a principal-agent model with perfectly observed (but unenforceable) actions. In each period, the principal chooses a wage to advance to the agent, who then chooses to exert either high effort or low effort. Although high effort is more costly to the agent, it also increases the probability that the principal obtains a high project payoff. In this environment, we consider three types of unexpected shocks, with each shock increasing the expected total surplus in a high-effort equilibrium. The occurrence of such a shock raises the question of how an increase in surplus should be divided between the parties. Assuming the parties are only concerned with their own material payoffs, unexpected shocks that favor (or harm) one of the parties have no impact on the equilibrium constraint of the other party. Yet, considerations of fairness, equality, envy, or guilt may influence the way in which the parties adapt the terms of an established relational contract after an unexpected shock. To accommodate these kinds of considerations, we propose a model that uses a variation of the inequity-averse preferences of Fehr and Schmidt (1999) and show that, in the presence of inequity aversion, a high-effort equilibrium can be supported for a wide range of discount factors, provided that the equilibrium wage is sufficiently high. Moreover, the equilibrium wage range increases as the players become less patient and the principal becomes more sensitive to guilt.
Contained By:	Dissertations Abstracts International85-12B.
Subject:	Behavioral psychology. -
Online resource:	http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=29253210
ISBN:	9798382781846

Coordination, Advice, and Misunderstanding in Dynamic Games /
Ballard, Joe,

Coordination, Advice, and Misunderstanding in Dynamic Games /Joe Ballard. - 1 electronic resource (189 pages)

Source: Dissertations Abstracts International, Volume: 85-12, Section: B.

This dissertation is comprised of three related projects, each of which explore the difficulties associated with information problems and imperfectly aligned incentives in dynamic organizational settings. The first chapter, co-authored with Luke Boosey, investigates coordination between parties who lack a common language through which to communicate their specialized procedures and, consequently, understand how to coordinate. We introduce a model of dynamic coordination with costly switching, where two players are in search of compatible platforms. In the efficient symmetric equilibrium, players remain on their current platforms with certainty if their common belief about compatibility lies above a cutoff belief (that depends on the switching cost) and otherwise mix between switching platforms and remaining on their current platforms. In the presence of switching costs, the equilibrium switching probability increases as the common belief converges toward zero, but remains below 0.5 for all beliefs. We conduct an experiment to test whether behavior supports the equilibrium predictions of the model, varying (i) whether success occurs deterministically or stochastically when players are on compatible platforms and (ii) the cost of switching platforms. Behavior is mostly in line with comparative statics predictions, especially for the Deterministic treatments, although subjects display a tendency to switch less (more) often than optimal when their common belief is low (high).Next, the second chapter examines how a decision maker optimally uses temporary and permanent disciplinary instruments to influence the quality of advice she receives from an adviser over time. I consider an infinite-horizon, repeated advice environment, where an adviser of privately known expertise, either competent or incompetent, recommends one of two options to a decision maker in each period. The decision maker chooses whether to "check" the adviser's recommendation prior to implementation in every period and then, following the public outcome, either continues or terminates the relationship. When checking is too costly, termination is the only instrument used in equilibrium, resulting in inefficient termination of competent advisers. When checking is sufficiently cheap, the decision maker never terminates the relationship, but frequent (costly) checking may occur. If competent advisers receive fully informative signals, an efficient, cooperative equilibrium can be supported through the use of continual checking (for low checking costs) or termination (for high checking costs), but this is no longer possible under a partially informative signal structure. In this case, the welfare of both competent advisers and decision makers can be improved when checking is cheaper, as this enables the use of probation periods following bad outcomes.Finally, the third chapter, co-authored with Luke Boosey, explores how the potential for misunderstanding between parties in a repeated interaction affects the informal relationships that evolve over time. We develop and analyze a principal-agent model with perfectly observed (but unenforceable) actions. In each period, the principal chooses a wage to advance to the agent, who then chooses to exert either high effort or low effort. Although high effort is more costly to the agent, it also increases the probability that the principal obtains a high project payoff. In this environment, we consider three types of unexpected shocks, with each shock increasing the expected total surplus in a high-effort equilibrium. The occurrence of such a shock raises the question of how an increase in surplus should be divided between the parties. Assuming the parties are only concerned with their own material payoffs, unexpected shocks that favor (or harm) one of the parties have no impact on the equilibrium constraint of the other party. Yet, considerations of fairness, equality, envy, or guilt may influence the way in which the parties adapt the terms of an established relational contract after an unexpected shock. To accommodate these kinds of considerations, we propose a model that uses a variation of the inequity-averse preferences of Fehr and Schmidt (1999) and show that, in the presence of inequity aversion, a high-effort equilibrium can be supported for a wide range of discount factors, provided that the equilibrium wage is sufficiently high. Moreover, the equilibrium wage range increases as the players become less patient and the principal becomes more sensitive to guilt.

English

ISBN: 9798382781846Subjects--Topical Terms:

523778
Behavioral psychology.
Subjects--Index Terms:

Advice

Coordination, Advice, and Misunderstanding in Dynamic Games /
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520 $a This dissertation is comprised of three related projects, each of which explore the difficulties associated with information problems and imperfectly aligned incentives in dynamic organizational settings. The first chapter, co-authored with Luke Boosey, investigates coordination between parties who lack a common language through which to communicate their specialized procedures and, consequently, understand how to coordinate. We introduce a model of dynamic coordination with costly switching, where two players are in search of compatible platforms. In the efficient symmetric equilibrium, players remain on their current platforms with certainty if their common belief about compatibility lies above a cutoff belief (that depends on the switching cost) and otherwise mix between switching platforms and remaining on their current platforms. In the presence of switching costs, the equilibrium switching probability increases as the common belief converges toward zero, but remains below 0.5 for all beliefs. We conduct an experiment to test whether behavior supports the equilibrium predictions of the model, varying (i) whether success occurs deterministically or stochastically when players are on compatible platforms and (ii) the cost of switching platforms. Behavior is mostly in line with comparative statics predictions, especially for the Deterministic treatments, although subjects display a tendency to switch less (more) often than optimal when their common belief is low (high).Next, the second chapter examines how a decision maker optimally uses temporary and permanent disciplinary instruments to influence the quality of advice she receives from an adviser over time. I consider an infinite-horizon, repeated advice environment, where an adviser of privately known expertise, either competent or incompetent, recommends one of two options to a decision maker in each period. The decision maker chooses whether to "check" the adviser's recommendation prior to implementation in every period and then, following the public outcome, either continues or terminates the relationship. When checking is too costly, termination is the only instrument used in equilibrium, resulting in inefficient termination of competent advisers. When checking is sufficiently cheap, the decision maker never terminates the relationship, but frequent (costly) checking may occur. If competent advisers receive fully informative signals, an efficient, cooperative equilibrium can be supported through the use of continual checking (for low checking costs) or termination (for high checking costs), but this is no longer possible under a partially informative signal structure. In this case, the welfare of both competent advisers and decision makers can be improved when checking is cheaper, as this enables the use of probation periods following bad outcomes.Finally, the third chapter, co-authored with Luke Boosey, explores how the potential for misunderstanding between parties in a repeated interaction affects the informal relationships that evolve over time. We develop and analyze a principal-agent model with perfectly observed (but unenforceable) actions. In each period, the principal chooses a wage to advance to the agent, who then chooses to exert either high effort or low effort. Although high effort is more costly to the agent, it also increases the probability that the principal obtains a high project payoff. In this environment, we consider three types of unexpected shocks, with each shock increasing the expected total surplus in a high-effort equilibrium. The occurrence of such a shock raises the question of how an increase in surplus should be divided between the parties. Assuming the parties are only concerned with their own material payoffs, unexpected shocks that favor (or harm) one of the parties have no impact on the equilibrium constraint of the other party. Yet, considerations of fairness, equality, envy, or guilt may influence the way in which the parties adapt the terms of an established relational contract after an unexpected shock. To accommodate these kinds of considerations, we propose a model that uses a variation of the inequity-averse preferences of Fehr and Schmidt (1999) and show that, in the presence of inequity aversion, a high-effort equilibrium can be supported for a wide range of discount factors, provided that the equilibrium wage is sufficiently high. Moreover, the equilibrium wage range increases as the players become less patient and the principal becomes more sensitive to guilt.
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710 2 $a The Florida State University. $b Economics. $e degree granting institution. $3 523784
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