The endowment effect describes the fact that people demand much more to give up an object than they are willing to spend to acquire it. The existence of this effect has been documented in numerous experiments. We attempt to explain this effect by showing that evolution favors individuals whose...

Recently, the theory of informational cascades has been tested in an experiment by Anderson and Holt (1997) who report that their data support the theory amazingly well. In this note we report on an experiment designed to find out whether observed cascades are indeed due to rational Bayesian...

A convention can be seen as the standard way of playing a game. If different conventions exist in various geographical, social or other entities (called "towns") and if there is some mobility between these towns, which conventions, if any, will emerge as the successful ones? A simple...

The recent literature on informational cascades has nurtured the impression that cascades can occur only if the action space is coarser than the signal space. In particular, it is sometimes claimed that with continuous action spaces cascades are impossible. In this note we present a simple...

This experiment was designed to test various learning theories in the context of a Cournot oligopoly. We derive theoretical predictions for the learning theories and test these predictions by varying the information given to subjects. The results show that some subjects imitate successful...

We report results of a series of experiments designed to test the stability of the best reply process. With linear demand and cost functions, the process is stable if and only if there are less than three firms in the market. However, we find no experimental evidence of such instability in a...

We provide a new explanation for the apparent underpricing of initial public offerings applicable to large, regulated firms like telecommunications companies. Under the assumption that regulation is subject to political pressure by voters we demonstrate that it may be rational for issuers to...

This paper investigates the impact of information about rivals' actions on the competitiveness of experimental oligopoly markets. We compare two treatments: in one, firms are informed about their rivals' actions and profits. In the other, firms are only given some aggregate information about...

We show that in symmetric two-player exact potential games, the simple decision rule "imitate-if-better" cannot be beaten by any strategy in a repeated game by more than the maximal payoff difference of the one-period game. Our results apply to many interesting games including examples like 2x2...

We show that for many classes of symmetric two-player games, the simple decision rule "imitate-the-best" can hardly be beaten by any other decision rule. We provide necessary and sufficient conditions for imitation to be unbeatable and show that it can only be beaten by much in games that are of...