In the presence of cost uncertainty, limited liability introduces the possibility of default in procurement. If financial soundness is not perfectly observable, then financially weaker contractors are selected with higher probability in any incentive compatible mechanism. Informational rents are...

This paper experimentally analyzes the effect of network structures on individualsʼ decisions in a game of strategic substitutes. The theoretical basis for our experiment is the model of Bramoullé and Kranton (2007). As predicted, we find that individuals are able to coordinate on equilibria,...

We study the problem of risk sharing within a household or syndicate. A household shares risky prospects using a social welfare functional. We characterize the social welfare functionals such that the household is collectively less risk averse than each member, and satisfies the Pareto principle...

Unpredictable behavior is central to optimal play in many strategic situations because predictable patterns leave players vulnerable to exploitation. A theory of unpredictable behavior based on differential complexity constraints is presented in the context of repeated two-person zero-sum games....

Optimism bias is inconsistent with the independence of decision weights and payoffs found in models of choice under risk and uncertainty, such as expected utility theory, subjective expected utility, and prospect theory. We therefore propose an alternative model of risky and uncertain choice...

This paper introduces asymmetric awareness into the classical principal–agent model and discusses the optimal contract between a fully aware principal and an unaware agent. The principal enlarges the agentʼs awareness strategically when proposing a contract and faces a tradeoff between...

We consider the Hotelling–Downs model with n⩾3 office-seeking candidates and runoff voting. We show that Nash equilibria in pure strategies always exist and that there are typically multiple equilibria, both convergent (all candidates are located at the median) and divergent (candidates...

This paper studies the evolution of peoplesʼ models of how other people think – their theories of mind. This is formalized within the level-k model, which postulates a hierarchy of types, such that type k plays a k times iterated best response to the uniform distribution. It is found that,...

We demonstrate that the Hotelling–Downs model with runoff voting always admits symmetric mixed strategy equilibria for any (even or odd) number of office-motivated candidates (provided they are at least four). In specific, (a) we show that the game does not admit any symmetric atomless...

We propose a rule of decision-making, the sequential procedure guided by routes, and show that three influential boundedly rational choice models can be equivalently understood as special cases of this rule. In addition, the sequential procedure guided by routes is instrumental in showing that...