Aaron Bodoh-Creed

Ambiguous beliefs and mechanism design

This paper develops a payoff equivalence theorem for mechanisms with ambiguity averse participants with preferences of the Maxmin Expected Utility (MEU) form (Gilboa and Schmeidler, 1989). We use our payoff equivalence result to explicitly characterize the revenue maximizing private value auction mechanism for agents with arbitrary forms of ambiguous beliefs. We also show that the revenue ranking between first and second price auctions is sensitive to the form of ambiguity aversion. Our payoff equivalence techniques allow us to study the constrained efficient, budget balanced bilateral trade mechanism and show that increased ambiguity improves the efficiency of the mechanism. In addition, we characterize the revenue maximizing, efficient bilateral trade mechanism and show that heightened ambiguity lowers ex ante budget deficits.

Efficiency and information aggregation in large uniform-price auctions

We prove that the equilibria of a large interdependent-value, uniform-price auction model where bidders have arbitrary preferences for multiple units can be approximated by a nonatomic exchange economy. We show that the uniform-price auction is approximately efficient with a large number of participants and asymptotically aggregates idiosyncratic bidder information into the market price. More generally our analysis framework provides conditions justifying the use of nonatomic limit model approximations to analyze the large-market behavior of game-theoretic models. We demonstrate continuity requirements on the economic primitives sufficient for the equilibrium strategies of the two models to converge as the number of participants in the finite game approaches infinity.

Approximation of Large Games with Applications to Uniform Price Auctions

We provide a framework justifying the use of nonatomic limit model approximations to analyze the large market behavior of otherwise intractable game-theoretic models. We demonstrate continuity requirements on the economic primitives sufficient for the equilibrium strategies of the two models to converge as the number of participants in the large finite game approaches infinity. We apply our analysis framework to show that the equilibrium of a large interdependent values uniform price auction model where bidders have complementary preferences for multiple units can be approximated by a nonatomic exchange economy. We prove that the uniform price auction asymptotically aggregates idiosyncratic bidder information into market price and that the uniform price auction is approximately efficient with a large number of participants in the private values or single unit demand case.

College Assignment as a Large Contest

We develop a model of college assignment as a large contest wherein students with heterogeneous abilities compete for seats at vertically differentiated colleges through the acquisition of productive human capital. We use a continuum model to approximate the outcomes of a game with large but finite sets of colleges and students. By incorporating two common families of affirmative action mechanisms into our model--admissions preferences and quotas--we can show that (legal) admissions preference schemes and (illegal) quotas have the same sets of equilibria, including identical outcomes and investment strategies. Finally, we explore the welfare costs of using human capital accumulation to compete for college admissions. We define the cost of competition as the welfare difference between a color-blind admissions contest and the first-best outcome chosen by an omniscient social planner. Using a calibrated version of our model, we find that the cost of competition is equivalent to a loss of

To reveal or not to reveal: Privacy preferences and economic frictions

91,795 in NPV of lifetime earnings.

How Efficient are Decentralized Auction Platforms

Abstract We model two agents who wish to determine if their types match, but who also desire to reveal as little information as possible to non-matching types. For example, firms considering a merger must determine the mergers profitability, but would prefer to keep their information private if the deal fails. In the model, agents with different traits reveal information to a potential partner to determine if they share the same type, but face a penalty depending on the accuracy of their partners posterior beliefs. With limited signaling, there is a universally-preferred dynamic communication protocol in which traits are sequentially revealed depending on the sensitivity of the trait. Interestingly, the rarity of an agents traits plays no role due to the balance of opposing effects: although revealing a rare trait reveals more information immediately, it also screens more partners from later learning information about other traits.

Costless Signaling with Costly Signals

We provide a model of a decentralized, dynamic auction market platform (e.g., eBay) in which a large number of buyers and sellers participate in simultaneous, single-unit auctions each period. Our model accounts for the endogenous entry of agents and the impact of intertemporal optimization on bids. Solving our model with a finite number of bidders is computationally intractable due to the curse of dimensionality, so we prove that a continuum version of our model provides a good approximation of an equilibrium in the finite model. We use the approximation to estimate the structural primitives of our model using Kindle sales on eBay. We find that just over one third of Kindle auctions on eBay result in an inefficient allocation with deadweight loss amounting to 13.5% of total possible market surplus. We also find that partial centralization - for example, running half as many 2-unit, uniform price auctions each day - would eliminate a large fraction of the inefficiency, but yield lower seller revenues. Our results highlight the importance of understanding platform composition effects - selection of agents into the market - in assessing the implications of market design.

Using Machine Learning to Explain Violations of the 'Law of One Price'

We study signaling environments with two features that are common in practice: first, complete-information bliss points are heterogeneous across different types of senders; second, receivers observe many choices by each sender, rather than a single decision. We prove that, ironically, a sufficiently large increase in the weight attached to signaling costs allows senders to signal their true types at arbitrarily low overall cost. As an application, it follows that, when senders take a sufficient number of observable actions, their private information is revealed almost costlessly. Instead of becoming ubiquitous, costly signaling becomes essentially irrelevant.

Endogenous Institutional Selection, Building Trust, and EconomicGrowth

Substantial price variation for homogeneous goods in online markets is a well-known puzzle that has withstood attempts by empirical researchers to explain it. Economic theory suggests two possible sources of the dispersion: either market frictions are more important than previously thought, or there are subtle differences between product listings presented to e-commerce consumers that applied econometricians have failed to detect. We use a very detailed data set consisting of posted-price listings for new Kindle Fire tablets from eBay to determine if observable listing heterogeneity can explain the price dispersion of seemingly homogeneous products. By combining a richer set of variables than previous studies with more sophisticated machine learning techniques, we can explain 42% of the dispersion. We interpret this as a bound on the influence of market frictions on price dispersion. Variables describing the amount of information in the listing are good predictors of the price, but variables describing the style of a listings text are good predictors as well. We identify readily interpretable groups of words that are also good predictors of price. We find a high degree of heterogeneity of the marginal effects of seller reputation and including an image in the listing, but the patterns of heterogeneity largely conform to economic intuition. A smaller, but non-trivial, latitude for market frictions remains, and we discuss their possible sources.

Optimizing for Distributional Goals in School Choice Problems

Private-order market institutions founded on trust-based relational contracts suffer adverse selection and moral hazard problems, while public-order market institutions have a limited capacity to enforce contracts. I model agent selection between contract enforcement institutions and demonstrate that the states contract enforcement capacity is complementary to private-order contract enforcement institutions for low to moderate levels of public-order enforcement capacity. This suggests that initial improvements to public-order institutions cause the accumulation of trust and result in economic growth in both institutions. However, I show that the private-order institution must eventually collapse once the level of public-order contract enforcement capacity gets too large.