Ran Spiegler

A SIMPLE MODEL OF SEARCH ENGINE PRICING

We present a simple model of how a monopolistic search engine optimally determines the average relevance of firms in its search pool. In our model, there is a continuum of consumers, who use the search engines pool, and there is a continuum of firms, whose entry to the pool is restricted by a price‐per‐click set by the search engine. We show that a monopolistic search engine may have an incentive to set a relatively low price‐per‐click that encourages low‐relevance advertisers to enter the search pool. In general, the ratio between the marginal and average relevance in the search pool induced by the search engines policy is equal to the ratio between the search engines profit per consumer and the equilibrium product price. These conclusions do not change if the search engine charges a fixed access fee rather than a price‐per‐click.

Money Pumps in the Market

Agents who employ non-rational choice procedures are often vulnerable to exploitation, in the sense that a profit-seeking trader can offer them a harmful transaction which they will nevertheless accept. We examine the vulnerability of a procedure for deciding whether to buy a lottery: observe another agent who already bought it and buy the lottery if that agents experience was positive. We show that the exploitation of such agents can be embedded in an inter-temporal market mechanism, in the form of speculative trade in an asset of no intrinsic value. (JEL: D84) (c) 2008 by the European Economic Association.

Equilibrium in justifiable strategies: A model of reason-based choice in extensive-form games

I explore the idea that people care about the justifiability of their decisions in the context of two-person extensive games. Each player justifies his strategy s with a belief b of the opponents strategy which is consistent with the play path and maximally plausible (according to some exogenous criterion). We say that s is justifiable if against the ex post criticism that some other strategy s′ outperforms s against b, the player can argue that playing s′ would have exposed him to similar criticism in the opposite direction. Under a simplicity-based plausibility criterion, this concept implies systematic departures from maximizing behaviour in familiar games. Copyright 2002, Wiley-Blackwell.

Extracting Interaction-Created Surplus

Abstract This paper demonstrates that the economic surplus which agents produce in bilateral interactions is extractable by an outside party having sufficient initial resources. The third party achieves this outcome using a class of “exclusive-interaction” contracts. A basic extractability result is shown to be robust to several extensions: competition among outside parties, multiplicity of interacting agents, and a dynamic extension with repeated opportunities to interact. Finally, some connections with the economic intermediation literature are drawn. Journal of Economic Literature Classification Number: C79

On the Equilibrium Effects of Nudging

Consumers’ systematic decision biases make them vulnerable to market exploitation. The doctrine of libertarian paternalism maintains that this problem can be mitigated by soft interventions (nudges) like disclosure or default architecture. However, the case for nudging is often made without an explicit model of the boundedly rational choice procedures that lie behind consumer biases. I demonstrate that once such models are incorporated into the analysis, equilibrium market reaction to nudges can reverse their theoretical consequences.

Simplicity of Beliefs and Delay Tactics in a Concession Game

I explore the idea of simplicity as a belief-selection criterion in games. A pair of strategies in finite-automata representation (s(1), s(2)) is a Simple Nash Equilibrium (SINE) if: (1) s(j) is a best-reply to s(i); (2) every automaton for player j, which generates the same path as s(j) (given s(i)), has at least as many states as s(j). I apply SINE to a bilateral concession game and show that it captures an aspect of bargaining behavior: players employ delay tactics in order to justify their concessions. Delay tactics are mutually reinforcing, and this may prevent players from reaching an interior agreement

COMMENTS ON THE POTENTIAL SIGNIFICANCE OF NEUROECONOMICS FOR ECONOMIC THEORY

In this short note I speculate about the various ways in which the study of neurological aspects of decision making could be fruitful for economic modelling.

Testing Threats in Repeated Games

I introduce a solution concept for infinite-horizon games, called ``Experimental Equilibrium``, in which players systematically test threats that affect their optimal response. Both the tests and the optimal response are part of equilibrium behavior.

Contradiction as a form of Contractual Incompleteness

A simple model is presented, in which contradictory instructions are viewed as a type of contract incompleteness. The model provides a complexity-based rationale for contradictory instructions. If there are complexity bounds on the contract, there may be an incentive to introduce contradictions, leaving for another agent the task of interpreting them. The optimal amount of contradictions depends on the complexity bound, the conflict of interests with the interpreter and the institutional constraints on his interpretations. In particular, a higher complexity bound may result in a larger amount of contradictions. Copyright

Argumentation in Multi-issue Debates

An axiomatic modeling approach to multi-issue debates is proposed. A debate is viewed as a decision procedure consisting of two stages: (1) an “argumentation rule” determines what arguments are admissible for each party, given the “raw data”, depending on the issue or set of issues under discussion; (2) a “persuasion rule” determines the strength of the admissible arguments and selects the winning party. Persuasion rules are characterized for various alternative specifications of the argumentation rule. These characterizations capture rhetorical effects that we sometimes encounter in real-life multi-issue debates.