A situation in which the regularity in nature can be utilized while competition is to be avoided is modeled by the Parasite game. In this game regular behavior could enhance guessing nature but strategic randomization is required to avoid being outguessed. In an experiment, 60 pairs of participants (partner design) played many rounds of the Parasite game. The treatements differed in nature's probabilities and whether or not these probabilities were announced in advance or oculd only be experienced over time. Before playing, the working memory (WM) of participants was measured. Data analyses test the correspondence of participants' behavior to game-theoretic benchmarks and the effect of participants' WM on their behavior.

In this paper, we analyze the investment patterns of a large number of clients of a major Israeli brokerage house during 1994. We compare the behavior of clients making independent investment decisions to that of investors whose accounts were managed by brokerage professionals. Our main objective is to investigate whether the disposition effect (i.e., the tendency to sell winners quicker than losers), demonstrated in the US only for individual investors, also holds for professional investors. This analysis is important, as accepted financial theory predicts that prices are determined mainly by decisions made by professionals. We show that both professional and independent investors exhibit the disposition effect, although the effect is stronger for independent investors. The second objective of our study is the comparison of trade frequency, volume and profitability between independent and professionally managed accounts. We believe that these comparisons not only provide insights of their own, but also help to put the differences in the disposition effect in a wider perspective. We demonstrate that professionally managed accounts were more diversified and that round trips were both less correlated with the market and slightly more profitable than those of independent accounts.

The positive core is a nonempty extension of the core of transferable utility games. If the core is nonempty, then it coincides with the core. It shares many properties with the core. Six well-known axioms which are employed in some axiomatizations of the core, the prenucleolus, or the positive prekernel, and one new intuitive axiom, characterize the positive core on any infinite universe of players. This new axiom requires that the solution of a game, whenever it is nonempty, contains an element which is invariant under any symmetry of the game.

Large flowers often contain larger nectar rewards, and receive more pollinator visits, than small flowers. We studied possible behavioral mechanisms underlying the formation of flower size preferences in bumblebees, using a two-phase laboratory experiment. Experimentally naive Bombus terrestris (L.) foraged on artificial flowers that bore either a big (3.8cm diameter) or a small (2.7cm diameter) display of a uniform color. Only flowers of one display size contained nectar rewards. We changed the display color and the locations of big and small flowers in the second experiment phase. We recorded the bees' choices in both phases. Almost one half of the bees (41) made their first visit to a small flower. The bees learned to associate display size with food reward, and chose rewarding flowers with >85 accuracy by the end of each experimental phase. Some learning occurred within the bees' first three flower visits. Learning of the size-reward association was equally good for big and small displays in the first experimental phase, but better for small displays in the second phase. Formation of size-reward associations followed a similar course in both phases. This suggests that the bees did not apply their experience from the first learning phase to the new situation of the second phase. Rather, they treated each phase of the experiment as an independent learning task. Our results suggest that associative learning is involved in the formation of preferences for large displays by bees. Moreover, bees that had learned to prefer large displays in one foraging situation may not transfer this preference to a novel situation that is sufficiently different. We propose that this feature of the bees' behavior can select for honest advertising in flowers.

When people make moral or legal judgments in isolation, they produce a pattern of outcomes that they would themselves reject, if only they could see that pattern as a whole. A major reason is that human thinking is category-bound. When people see a case in isolation, they spontaneously compare it to other cases that are mainly drawn from the same category of harms. When people are required to compare cases that involve different kinds of harms, judgments that appear sensible when the problems are considered separately often appear incoherent and arbitrary in the broader context. Another major source of incoherence is what we call the translation problem: The translation of moral judgments into the relevant metrics of dollars and years is not grounded in either principle or intuition, and produces large differences among people.. The incoherence produced by category-bound thinking is illustrated by an experimental study of punitive damages and contingent valuation. We also show how category-bound thinking and the translation problem combine to produce anomalies in administrative penalties. The underlying phenomena have large implications for many topics in law, including jury behavior, the valuation of public goods, punitive damages, criminal sentencing, and civil fines. We consider institutional reforms that might overcome the problem of predictably incoherent judgments. Connections are also drawn to several issues in legal theory, including valuation of life, incommensurability, and the aspiration to global coherence in adjudication.

Let X_i be non-negative, independent random variables with finite expectation, and X*_n=maxX_1,...,X_n. The value EX*_n is what can be obtained by a "prophet". A "mortal" on the other hand, may use k>=1 stopping rules t_1,...,t_k, yielding a return of E[max_i=1,...,k X_t_i]. For n>=k the optimal return is V^n_k(X_1,...,X_n)=supE[max_i=1,...,k X_t_i] where the supremum is over all stopping rules t_1,...t_k such that P(t_i

When modelling large economies by nonatomic measure spaces of agents, one defines "coalitions" as measurable - not arbitrary - sets of agents. Here we suggest a rationale for this restriction: "Real" economies have finitely many agents. In them, coalitions are associated with various measures, like total endowment, which play a vital role in the analysis. So in the model, too, one should be able to associate similar measures with coalitions; this means that they must be "measurable." Thus, though in the finite case a coalition is simply an arbitrary set of players, the appropriate generalization to the infinite case is not an arbitrary but a measurable set.

The paper presents a notion of rationalizing choice functions that violate the Independence of Irrelevant Alternatives  axiom. A collection of linear orderings is said to provide a rationalization by multiple rationales for a choice function if the choice from any choice set can be rationalized by one of the orderings. We characterize a tight upper bound on the minimal number of orderings that is required to rationalize arbitrary choice functions, and calculate the minimal number for several specific choice procedures.

The present chapter brings together parts of the theory of polynomial equalities and inequalities used in the theory of stochastic games. The theory can be considered as a theory of polynomial equalities and inequalities over the field of real numbers or the field of real algebraic numbers or more generally over an arbitrary real closed field.

By means of an example it is shown that the prenucleolus is not the only minimal solution that satisfies nonemptiness, Pareto optimality, covariance, the equal treatment property and the reduced game property, even if universe of players is infinite. This example also disproves a conjecture of Gurvich et al. Moreover, we prove that the prenucleolus is axiomatized by nonemptiness, covariance, the equal treatment property, and the reconfirmation property, provided the universe of players is infinite.

We consider a model of hierarchical organizations in which agents have the option ofreducing the probability of failure by investing towards their decisions. A mechanismspecifies a distribution of sanctions in case of failure across the levels of the hierarchy. Itis said to be investment-inducing if it induces all agents to invest in equilibrium. It is saidto be optimal if it does so at minimal total punishment. We characterize optimalinvestment-inducing mechanisms in several versions of our benchmark model. Inparticular we refer to the problem of allocating individuals with diverse qualifications todifferent levels of the hierarchy as well as allocating tasks of different importance acrossdifferent hierarchy levels. We also address the issue of incentive-optimal hierarchyarchitectures.

The professional producers of such wide-spread high-stakes tests as the SAT have a policy of balancing, rather than randomizing, the answer keys of their tests. Randomization yields answer keys that are, on average, balanced, whereas a policy of deliberate balancing assures this desirable feature not just on average, but in every test. This policy is a well-kept trade secret, and apparently has been successfully kept as such, since there is no evidence of any awareness on the part of test takers and the coaches that serve them that this is an exploitable feature of answer keys. However, balancing leaves an identifiable signature on answer keys, thus not only jeopardizing the secret, but also creating the opportunity for its exploitation. The present paper presents the evidence for key balancing, the traces this practice leaves in answer keys, and the ways in which testwise test takers can exploit them. We estimate that such test takers can add between 10 and 16 points to their final SAT score, on average, depending on their knowledge level. The secret now being out of the closet, the time has come for test makers to do the right thing, namely to randomize, not balance, their answer keys.'Following the link to the published version ofdp252, an earlier, but fuller,'version'is included.'

In our previous paper we built a general equilibrium model of default and punishment in which equilibrium always exists and endogenously determines asset promises, penalties, and sales constraints. In this paper we interpret the endogenous sales constraints as equilibrium signals. By specializing the default penalties and imposing an exclusivity constraint on asset sales, we obtain a perfectly competitive version of the Rothschild-Stiglitz model of insurance. In our model their separating equilibrium always exists even when they say it doesn't.

Every simple monotonic game in bv'NA is a weighted majority game. Every game v in bv'NA has a representation v=u+sum_i=1^inftyf_i o mu_i where u in pNA, mu_i in NA^1 and f_i is a sequence of bv' functions with sum_i=1^infty||f_i||

Arrow's theorem asserts that under certain conditions every non-dictatorial social choice function leads to nonrational social choice for some profiles. In other words, for the case of non-dictatorial social choice if we observe that the society prefers alternative A over B and alternative B over C we cannot deduce what its choice will be between B and C. Here we ask whether we can deduce anything from observing a sample of the society's choices on the society's choice in other cases? We prove that the answer is ``no' for large societies for neutral and monotonic social choice function such that the society's choice is not typically determined by the choices of a few individuals. The proof is based on threshold properties of Boolean functions and on analysis of the social choice under some probabilistic assumptions on the profiles. A similar argument shows that under the same conditions for the social choice function but under certain other probabilistic assumptions on the profiles the social choice function will typically lead to rational choice for the society.

This paper presents a model of group formation based on the assumption that individuals prefer to associate with people similar to them. It is shown that, in general, if the number of groups that can be formed is bounded, then a stable partition of the society into groups may not exist. A partition is defined as stable if none of the individuals would prefer be in a different group than the one he is in. However, if individuals characteristics are one-dimensional, then a stable partition always exists. We give sufficient conditions for stable partitions to be segregating (in the sense that, for example, low-characteristic individuals are in one group and high-characteristic ones are in another) and Pareto efficient. In addition, we propose a dynamic model of individual myopic behavior describing the evolution of group formation to an eventual stable, segregating, and Pareto efficient partition.

A strong representation of a committee, formalized as a simple game, on a convex and closed set of alternatives is a game form with the members of the committee as players such that (i) the winning coalitions of the simple game are exactly those coalitions, which can get any given alternative independent of the strategies of the complement, and (ii) for any profile of continuous and convex preferences, the resulting game has a strong Nash equilibrium. In the paper, it is investigated whether committees have representations on convex and compact subsets of R^m. This is shown ot be the case if there are vetoers; for committees with no vetoers the existence of strong representations depends on the structure of the alternative set as well as on that of the committee (its Nakamura-number). Thus, if A is strictly convex, compact and has smooth boundary, then no committee can have a strong representation on A. On the other hand, if A has non-smooth boundary, representations may exist depending on the Nakamura-number (if it is at least 7).

We analyze a model of network formation where the costs of link formation are publicly known but individual benefits are not known to the social planner. The objective is to design a simple mechanism ensuring efficiency, budget balance and equity. We propose two mechanisms towards this end; the first ensures efficiency and budget balance but not equity. The second mechanism corrects the asymmetry in payoffs through a two-stage variant of the first mechanism. We also discuss an extension of the basic model to cover the case of directed graphs and give conditions under which the proposed mechanisms are immune to coalitional deviations.

The American and some other constitutions entrench property rights by requiring super majoritarian voting as a condition for amending or revoking their own provisions. Following Buchanan and Tullock [5], this paper analyzes individuals' interests behind a veil of ignorance, and shows that under some standard assumptions, a (simple) majoritarian rule should be adopted. This result changes if one assumes that preferences are consistent with the behavioral phenomenon known as the "endowment effect." It then follows that (at least some) property rights are best defended by super majoritarian protection. The paper then shows that its theoretical results are consistent with a number of doctrines underlying American Constitutional Law.

The primitives of a bargaining problem consist of a set, S, of feasible utility pairs and a disagree- ment point in it. The idea is that the set S is induced by an underlying set of physical outcomes which, for the purposes of the analysis, can be abstracted away. In a very influential paper Nash (1950) gives an axiomatic characterization of what is now the widely known Nash bargaining solution. Rubinstein, Safra, and Thomson (1992) (RST in the sequel) recast the bargaining problem into the underlying set of physical alternatives and give an axiomatization of what is known as the ordinal Nash bargaining solution. This solution has a very natural interpretation and has the interesting property that when risk preferences satisfy the expected utility axioms, it induces the standard Nash bargaining solution of the induced bargaining problem. This property justifies the proper name in the solution s appellation. The purpose of this paper is to give an axiomatic characterization of the rule that assigns the time-preference Nash outcome to each bargaining problem.