We study the effects of diverse beliefs on equilibrium securitization under risk neutrality. We provide a simple characterization of the optimal securities. Pooling and tranching of assets emerges in equilibrium as a consequence of the traders' diverse beliefs about asset returns. The issuer of...

We analyze the structure of a society driven by power relations. Our model has an exogenous power relation over the set of coalitions of agents. Agents determine the social order by forming coalitions. The power relations determine the ranking of agents in society for any social order. We study...

The paper discusses community enforcement in infinitely repeated, two-action games with local interaction and uncertain monitoring. Each player interacts with and observes only a fixed set of opponents, of whom he is privately informed. The main result shows that when beliefs about the...

The paper discusses community enforcement in infinitely repeated, two-action games with local interaction and uncertain monitoring. Each player interacts with and observes only a fixed set of opponents, of whom he is privately informed. The main result shows that when beliefs about the...

We analyze the structure of a society driven by power relations. Our model has an exogenous power relation over the set of coalitions of agents. Agents determine the social order by forming coalitions. The power relations determine the ranking of agents in society for any social order. We study...

Decision theory can be used to test the logic of decision making---one may ask whether a given set of decisions can be justified by a decision-theoretic model. Indeed, in principal-agent settings, such justifications may be required---a manager of an investment fund may be asked what beliefs she...

Human utility embodies a number of seemingly irrational aspects. The leading example in this paper is that utilities often depend on the presence of salient unchosen alternatives. Our focus is to understand <i>why</i> an evolutionary process might optimally lead to such seemingly dysfunctional features...

Psychologists report that people make choices on the basis of "decision utilities'' that routinely overestimate the "experienced utility'' consequences of these choices. This paper argues that this dichotomy between decision and experienced utilities may be the solution to an evolutionary design...

This paper examines circumstances under which subjectivity enhances the effectiveness of inductive reasoning. We consider agents facing a data generating process who are characterized by inference rules that may be purely objective (or data-based) or may incorporate subjective considerations....

Different markets are cleared by different types of prices—seller-specific prices that are uniform across buyers in some markets, and personalized prices tailored to the buyer in others. We examine a setting in which buyers and sellers make investments before matching in a competitive market....