We consider a market economy where two rational agents are able to learn the distribution of future events. In this context, we study whether moving away from the standard Bayesian belief updating, in the sense of under-reaction to some degree to new information, may be strategically convenient...

The current market malaise may keep some investors on the sidelines. The benefits of diversification may not seem as appealing in situations where the constituent investments are likely to lose money. Yet we will see, using relatively simple math, that diversification maintained by rebalancing...

In this paper we study the effects that loss contracts - prepayments that can be clawbacked later - have on group coordination when there is strategic uncertainty. We compare the choices made by experimental subjects in a minimum effort game. In control sessions, incentives are formulated as a...