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Double seminar: The Condorcet Paradox Revisited and How (Not) To Decide: Procedural Games

Event details of Tinbergen Institute/CREED Seminar: Harold Houba (VU University Amsterdam) and Georg Kirchsteiger (ECARES, Université Libre de Bruxelles)
Date 23 June 2011
Time 15:00 -17:00

Harold Houba: The Condorcet Paradox Revisited (1500-1600)

We analyze the Condorcet paradox within a strategic bargaining model with majority voting. Consistent subgame perfect equilibria (CPE) exist whenever the geometric mean of the players' risk coefficients, ratios of utility differences between alternatives, is at most one. CPEs are Pareto efficient and ensure agreement within finite expected time. For generic parameter values, CPEs are unique and in a CPE either all players propose their best alternative with probability one or two players do so and the third player randomizes between proposing his best and middle alternative. Agents accept best alternatives, may reject middle alternatives withpositive probability, and reject otherwise. Bargaining power as modeled by recognition probabilities is a key factor in determining expected delay. Irrespective of the utility functions, no delay occurs for a suitable choice of bargaining power, whereas expected delay goes to infinity if one of the players has almost all the bargaining power. For generic parameter values, Condorcet cycles do not occur. Contrary to the case with unanimous approval, a player benefits from an increase in his risk aversion.

Georg Kirchsteiger: How (Not) To Decide: Procedural Games (1600-1700)

Using Psychological Game Theory we develop a general framework allowing players to exhibit procedural concerns. We present two areas in which procedural concerns play a key role. First, we apply our framework to policy experiments and show that the way in which researchers allocate subjects into treatment and control groups influences the experimental results. Second, we analyze the problem of appointing agents into jobs that differ in terms of their desirability. Because of procedural concerns the principal.s choice of appointment procedure aspects the subsequent effort choice of agents. We test this hypothesis in a field experiment and find consistent results.