Suchergebnisse

Relying on the experimental findings that actual choice behavior often violates the axioms of expected utility theory (EUT), we study non-EUT preferences in a noncooperative game-theoretic framework. In particular, agents' preferences are represented by the pair of functions suggested in cumulative prospect theory (CPT). Accordingly, three key aspects of CPT are incorporated: subjective probability weighting, loss aversion, and reference dependence. We introduce a correlated equilibrium and two mixed strategy equilibria for agents with CPT preferences. We prove the existence of equilibria for finite normal form games and investigate the sets of equilibria in some examples.

AbstractAlthough new Keynesian models with labor market frictions report an increase in unemployment and a decrease in labor market tightness in response to a positive technology shock, which appears to be in line with recent empirical findings, the volatilities of these variables are not as high as their empirical counterparts. This calls for the introduction of new modeling tools to amplify the volatilities of the unemployment rate and labor market tightness. Along this line, this paper contributes to the theoretical literature by studying the effect of employment‐to‐employment flow in a new Keynesian model with labor market frictions. We consider two types of firms that offer different wage levels, which incentivize low‐paid agents to search on the job. Differently from the existing literature, the main source of wage dispersion is the difference between firms' bargaining powers. The proposed model generates a higher volatility of unemployment and labor market tightness in response to a positive technology shock compared to the model without on‐the‐job search, without causing a significant change in the responses of other variables.

We present a game-theoretic approach to the analysis of the emergence or survival of buffer states. We analyze a two-stage game with three players orderly located on a linear territory, where the player in the middle is passive, and the players on the two ends are aggressive with options to declare war against the others. We conduct an equilibrium analysis and characterize the conditions under which the passive player acts as a buffer state between the aggressive players. We find various equilibrium outcomes, which can be grouped into the following categories: (i) peace with buffer, (ii) peace without buffer, and (iii) the last man standing. Our comparative static analyses reveal valuable insights regarding the factors affecting the existence of buffer states.