Faruk Gul

Temptation and Self‐Control

We study a two-period model where ex ante inferior choice may tempt the decision-maker in the second period. Individuals have preferences over sets of alternatives that represent second period choices. Our axioms yield a representation that identifies the individuals commitment ranking, temptation ranking, and cost of self-control. An agent has a preference for commitment if she strictly prefers a subset of alternatives to the set itself. An agent has self-control if she resists temptation and chooses an option with higher ex ante utility. We introduce comparative measures of preference for commitment and self-control and relate them to our representations. Copyright The Econometric Society.

Foundations of Dynamic Monopoly and the Coase Conjecture

Subgame-perfect equilibria are characterized for a market in which the seller quotes a price each period. Assume zero costs, positive interest rate, continuum of buyers, and some technical conditions. If buyers’ valuations are positive then equilibrium is unique, buyers’ strategies are stationary, and the price sequence is determinant along the equilibrium path but possibly randomized elsewhere, Otherwise a continuum of stationary equilibria can exist, but at most one with analytic strategies. Coase’s conjecture is verified for stationary strategies: reducing the period length drives all prices to zero or the least valuation. Connections to bargaining models are described. Journal qf Economic Literature Classification

The English Auction with Differentiated Commodities

Abstract We study economies (with indivisibilities) that satisfy the gross substitutes (GS) condition. We define an excess demand set with the property that increasing the prices of all goods in excess demand eventually leads to the smallest Walrasian prices. This procedure is a generalization of the auction studied by G. Demange, D. Gale and M. J. Sotomayor, Polit. Econ. 94 (1986), 863–872. In our auction, truthful revelation of demand is a perfect Bayesian equilibrium if the smallest Walrasian prices correspond to the Vickrey–Clarke–Groves payments. However, no dynamic auction can reveal sufficient information to implement the Vickrey mechanism if all GS preferences are allowed. Journal of Economic Literature Classification Numbers: D4, D44, D5, D51.

A Comment on Aumann's Bayesian View

In Aumann [1987], it is asserted that for those who adhere to the “. . .Bayesian view of the world, the notion of equilibrium is an unavoidable consequence. . . ” I discuss two possible interpretations of the information model and show that neither interpretation supports this assertion. The hierarchy representation interpretation renders the prior stage meaningless and hence both the key assumption of Aumann’s theory and its conclusion become impossible to interpret. The prior interpretation, on the other hand, is distinctively non-Bayesian. Furthermore, both the common prior assumption and the notion of having beliefs over one’s own actions are problematic in the latter interpretation.

A theory of subjective compound lotteries

We develop a Savage-type model of choice under uncertainty in which agents identify uncertain prospects with subjective compound lotteries. Our theory permits issue preference; that is, agents may not be indifferent among gambles that yield the same probability distribution if they depend on different issues. Hence, we establish subjective foundations for the Anscombe-Aumann framework and other models with two different types of probabilities. We define second-order risk as risk that resolves in the first stage of the compound lottery and show that uncertainty aversion implies aversion to second-order risk which implies issue preference and behavior consistent with the Ellsberg paradox.

On Delay in Bargaining with One-Sided Uncertainty

Recently, attention has been given to a model of two-person bargaining in which the parties alternate making of fers and there is uncertainty about the valuation of one party. The p urpose of the analysis has been to identify delay to agreement with a screening process, where agents with relatively lower valuations dis tinguish themselves by waiting longer to settle. The authors point ou t a fundamental difficulty with this program by demonstrating that th e assumptions used in the literature allow for delay only in so far a s the time between offers is significant. Copyright 1988 by The Econometric Society.

Noncooperative Collusion in Durable Goods Oligopoly

Coase conjectured that a durable goods monopolist who can make offers to sell arbitrarily frequently will lose the ability to extract positive profits. This result, which has now been proved, can be attributed to the inability of the monopolist to commit to maintaining sufficiently high prices in the near future. For the case of durable-goods oligopoly, we show that letting the firms make offers arbitrarily frequently enhances their ability to commit to high prices and in the limit enables the firms to enjoy total market profits equal to the full commitment (one-shot) monopoly profit.

Unobservable Investment and the Hold-Up Problem

We study a two-person bargaining problem in which the buyer may invest and increase his valuation of the object before bargaining. We show that if all offers are made by the seller and the time between offers is small, then the buyer invests efficiently and the seller extracts all of the surplus. Hence, bargaining with frequently repeated offers remedies the hold-up problem even when the agent who makes the relation-specific investment has no bargaining power and contracting is not possible. We consider alternative formulations with uncertain gains from trade or two-sided investment.

Asymptotic Efficiency in Large Exchange Economies with Asymmetric Information

The authors provide conditions on an exchange economy with asymmetric information that guarantee that when the economy is replicated sufficiently often, there will be an allocation that is incentive compatible, individually rational, and nearly efficient. The main theorem covers both the case in which aggregate uncertainty remains when the economy is replicated and the case in which replication eliminates aggregate uncertainty. In addition, the authors demonstrate how their theorem does or does not apply to standard asymmetric information problems such as the buyers bid double auction problem, Akerlofs lemons problem, and insurance with asymmetric information. Copyright 1992 by The Econometric Society.

Random Choice as Behavioral Optimization

We develop an extension of Luces random choice model to study violations of the weak axiom of revealed preference. We introduce the notion of a stochastic preference and show that it implies the Luce model. Then, to address well-known difficulties of the Luce model, we define the attribute rule and establish that the existence of a well-defined stochastic preference over attributes characterizes it. We prove that the set of attribute rules and random utility maximizers are essentially the same. Finally, we show that both the Luce and attribute rules have a unique consistent extension to dynamic problems.vskip=-17.5pt]Author: please provide at least three Key Words that describe the article.