Assumption Of Incomplete Information Research Articles

Information Aggregation Bias and Samuelson's Dictum

AbstractUnder the assumption of incomplete information, idiosyncratic shocks may not dissipate in the aggregate. An econometrician who incorrectly imposes complete information and applies the law of large numbers may be susceptible to information aggregation bias. Tests of aggregate economic theory will be misspecified even though tests of the same theory at the microlevel deliver the correct inference. A testable implication of information aggregation bias is “Samuelson's Dictum” or the idea that stock prices can simultaneously display “microefficiency” and “macroinefficiency;” an idea accredited to Paul Samuelson. Using firm‐level data from the Center for Research in Security Prices, we present empirical evidence consistent with Samuelson's dictum. Specifically, we conduct two standard tests of the linear present value model of stock prices: a regression of future dividend changes on the dividend‐price ratio and a test for excess volatility. We show that the dividend price ratio forecasts the future growth in dividends much more accurately at the firm level as predicted by the present value model, and that excess volatility can be rejected for most firms. When the same firms are aggregated into equal‐weighted or cap‐weighted portfolios, the estimated coefficients typically deviate from the present value model and “excess” volatility is observed; this is especially true for aggregates (e.g., S&P 500) that are used in most asset pricing studies. To investigate the source of our empirical findings, we propose a theory of aggregation bias based on incomplete information and segmented markets. Traders specializing in individual stocks conflate idiosyncratic and aggregate shocks to dividends. To an econometrician using aggregate data, these assumptions generate a rejection of the present value model even though individual traders are efficiently using their available information.

The Impact of Epidemic on the Trans-Pacific Container Liner Shipping Market: A Game of the Supply and Demand

Since January 2020, the global novel coronavirus epidemic (referred to as the epidemic) has raged. Countries around the world have "suspended" most economic activities in order to prevent the spread of the epidemic. As a result, the global supply chain is severely disrupted, causing global inflation to rise. Freight rates on the trans-Pacific route from North America to the Asia-Pacific region continued to skyrocket, surcharge items increased, and delivery events were extended. Based on the analysis of the current situation of the impact on the trans-Pacific supply chain, the paper uses the data of the growth rate of Sino-US trade volume as a "pay off" sample to establish a supply-demand game model for container liners on the trans-Pacific route under the background of the epidemic. Under the dynamic assumption of incomplete information, a Bayesian refined Nash equilibrium is obtained. Finally, the paper uses the Bayesian refined Nash equilibrium model to analyze the trend of container liner shipping rates on trans-Pacific routes under the background of the epidemic.

Stability analysis of carbon emission reduction based on evolutionary game model

Based on the limited rationality of game participants, this paper discusses the root of complexity in cooperative competition game, and then discusses the evolutionary model of cooperative competition game by using evolutionary game theory. This paper analyzes the emission reduction behavior in carbon emissions, and establishes a corresponding evolutionary game model. Based on the assumption of incomplete information and the idea of “replication dynamics” in the process of biological evolution, the asymptotical stability analysis of asymmetric evolutionary game equilibrium is carried out. The results show that the carbon reduction strategy depends on the comparison the numerical value of two key factors.

Bilayer game strategy of regional integrated energy system under multi‐agent incomplete information

In view of the high coupling degree of regional integrated energy system, a bilayer interaction strategy, consisting of energy suppliers, distribution networks, and users, is proposed. Game interaction strategy includes two aspects: scheduling and bidding. The independent system operator (ISO) coordinates all adjustable resources. Depending on the quotation price and multi-energy load prediction, ISO minimises the total energy cost, which realises the complementary of the multi-energy in the cooperative game. Under the assumption of incomplete information and bounded rationality, this study designs bidding functions and pay-as-bid settlement protocols. On this basis, according to history scheduling data and units’ characteristics, agents for energy suppliers pursue maximum interests. Also, the non-cooperative bidding process in multi-energy market is simulated by using Q-learning algorithm. Finally, the evolutionary process of the bilayer competitive game model is studied by practical example, and the existence local Nash equilibrium of the strategy is also proven.

A game-theoretic approach to advertisement dissemination in ephemeral networks

In ephemeral networks, disseminating advertisements faces two dilemmatic problems: on the one hand, disseminators own the limited resources and have privacy concerns, thus, often preferring to avoid disseminating advertisements without enough incentives; Even if advertisements are disseminated, their dissemination accuracy is lower. On the other hand, false advertisements may flood in ephemeral networks if too many incentives but no punishments are given. Thus, it is a challenge to design an effective scheme to guarantee rational disseminators have sufficient impetus to forward true advertisements to the interested consumers and report false advertisements, despite facing the limitation of resources and the risk of privacy leakage. To solve this problem, in this paper, a bargaining-based scheme is proposed to motive disseminators to forward the true advertisements to the interested node and a semi-grim policy is designed for punishing the disseminators who releases and disseminates false advertisements. Acknowledging the assumption of incomplete information, a repeated dissemination game is proposed to help disseminators to decide whether to forward advertisements or report false advertisements. Simulation results demonstrate that our scheme not only provides disseminators a strong impetus to disseminate the advertisements with higher dissemination accuracy, but also effectively prevents disseminators from forwarding false advertisements.

Waste cooking oil-to-energy under incomplete information: Identifying policy options through an evolutionary game

The policies concerning waste cooking oil-to-energy supply chains are urgently needed in China. This is because, in practice, there is a real risk of raw material supply being interrupted. Given that the various participating entities are often unable to accurately estimate either their own revenue stream or costs, or the actions of other stakeholders, this paper builds an evolutionary game to model three parties including the government, biofuel enterprises and restaurants under the assumptions of incomplete information and bounded entity rationality, and investigates supply chain policy options. Results indicate that the strategy choices of the various parties (dominance, treatment and participation) are merely in equilibrium for the time being. In the long run, however, there will be one of two equilibrium states: either all three players withdraw from supply chain operation or biofuel enterprises and restaurants eventually take an active part in reverse supply chain management without government intervention. To attain this long-term goal, governments should eliminate the garbage disposal fees levied on restaurants, while, at the same time, increase quantity-based subsidies to biofuel enterprises. Cracking down on restaurants that privately sell waste cooking oil to illegal peddlers should be regarded as a long-term task. Therefore, in either equilibrium state, restaurants should always be the focus of attention.

ENDOGENOUS DESTRUCTION IN CONFLICT: THEORY AND EXTENSIONS

This article develops a general equilibrium model of conflict to characterize the implications of endogenous destruction for bargaining and fighting. Specifically, we consider the scenario where two contending parties engage in bargaining to avoid fighting when there are direct costs (e.g., arms buildups) and indirect costs (e.g., destruction to consumable resources) of conflict. Without imposing specific functional form restrictions on conflict, production, and destruction technologies, we show their interactions in determining an optimal decision between fighting and bargaining. We find that, under the shadow of conflict, bargaining is costly as the contending parties always allocate more resources to arming for guarding settlement through bargaining than in the event of fighting. In contrast to conventional thinking that bargaining is Pareto superior over fighting, we show conditions under which fighting dominates bargaining as the Nash equilibrium choice. The positive analysis may help explain the general causes of fighting, without resorting to the assumption of incomplete information or misperceptions. (JEL D74, H56, C7)

Dynamic network formation with incomplete information

How do networks form and what is their ultimate topology? Most of the literature that addresses these questions assumes complete information: agents know in advance the value of linking even with agents they have never met and with whom they have had no previous interaction (direct or indirect). This paper addresses the same questions under the much more natural assumption of incomplete information: agents do not know in advance—but must learn—the value of linking. We show that incomplete information has profound implications for the formation process and the ultimate topology. Under complete information, the network topologies that form and are stable typically consist of agents of relatively high value only. Under incomplete information, a much wider collection of network topologies can emerge and be stable. Moreover, even with the same topology, the locations of agents can be very different: An agent can achieve a central position purely as the result of chance rather than as the result of merit. All of this can occur even in settings where agents eventually learn everything so that information, although initially incomplete, eventually becomes complete. The ultimate network topology depends significantly on the formation history, which is natural and true in practice, and incomplete information makes this phenomenon more prevalent.

An Alternating Direction Method for Nash Equilibrium of Two-Person Games with Alternating Offers

In this paper, we propose a method for finding a Nash equilibrium of two-person games with alternating offers. The proposed method is referred to as the inexact proximal alternating direction method. In this method, the idea of alternating direction method simulates alternating offers in the game, while the inexact solutions of subproblems can be matched to the assumptions of incomplete information and bounded individual rationality in practice. The convergence of the proposed method is proved under some suitable conditions. Numerical tests show that the proposed method is competitive to the state-of-the-art algorithms.

Impacts of institutional capacity on enterprise IT application maturity—based on grey system theory

One of the formidable challenges for management is how to foster and enhance information technology application maturity (ITAM). The existing methodology for examining this issue assumes completely known information. But this is rarely the case in information system (IS) research. By leveraging grey system modelling (GM), this paper examines the impact of enterprise institutional capacity (IC) on information technology application maturity (ITAM), under an assumption of incomplete information. Grey correlation analysis and GM(1,1) results show that IC positively influences ITAM overall but the effect varies across the different dimensions of ITAM and across the different enterprise IT applications stages. Our findings suggest that enterprises should focus on IC construction and cultivation and be aware of the multi-factor influences on ITAM.

A Game-Theoretic Approach for Opportunistic Spectrum Sharing in Cognitive Radio Networks with Incomplete Information

One important issue in cognitive transmission is for multiple secondary users to dynamically acquire spare spectrum from the single primary user. The existing spectrum sharing scheme adopts a deterministic Cournot game to formulate this problem, of which the solution is the Nash equilibrium. This formulation is based on two implicit assumptions. First, each secondary user is willing to fully exchange transmission parameters with all others and hence knows their complete information. Second, the unused spectrum of the primary user for spectrum sharing is always larger than the total frequency demand of all secondary users at the Nash equilibrium. However, both assumptions may not be true in general. To remedy this, the present paper considers a more realistic assumption of incomplete information, i.e., each secondary user may choose to conceal their private information for achieving higher transmission benefit. Following this assumption and given that the unused bandwidth of the primary user is large enough, we adopt a probabilistic Cournot game to formulate an opportunistic spectrum sharing scheme for maximizing the total benefit of all secondary users. Bayesian equilibrium is considered as the solution of this game. Moreover, we prove that a secondary user can improve their expected benefit by actively hiding its transmission parameters and increasing their variance. On the other hand, when the unused spectrum of the primary user is smaller than the maximal total frequency demand of all secondary users at the Bayesian equilibrium, we formulate a constrained optimization problem for the primary user to maximize its profit in spectrum sharing and revise the proposed spectrum sharing scheme to solve this problem heuristically. This provides a unified approach to overcome the aforementioned two limitations of the existing spectrum sharing scheme.

Let My People Go? Ethnic Bias of Jewish and Arab Judges in Pretrial Detention Decisions in Israel

This is the first study to assess the effect of suspects' ethnic identity on pre-trial detention decisions across the ethnic identity of the deciding judges. Concentrating on the early-stage decisions in the criminal process, controlling for the state's position and for the ethnicity of the judges, and excluding agreements, allows us to better control of intervening factors, and for evaluating competing explanations of the findings under assumptions of incomplete information. The multi-level analyses draw on a sample of pretrial detention decisions in three Israeli magistrate courts. We find that the ethnicity of suspects carries a significantly different effect between Arab and Jewish judges. When the judge is Jewish, a Jewish defendant has significantly higher chances of being released on bail than a similarly situated Arab suspect. Yet, while an average inverse bias was found for Arab Judges, the ethnic identity of the defendant was not found to have a significant effect in this condition. The implications of the findings, as well as the merit of concentrating on early-stage judicial decisions in the study of judicial ethnic bias are discussed.

A Carleman approximation scheme for a stochastic optimal control problem in the continuous-time framework

The paper investigates the optimal control problem for a stochastic linear differential system, driven by a persistent disturbance generated by a nonlinear stochastic exogenous system. The assumption of incomplete information has been assumed, that is neither the state of the system, nor the state of the exosystem are directly measurable. The standard quadratic cost functional has been considered. The approach followed consists of applying the ν-degree Carleman approximation scheme to the exosystem, which provides a stochastic bilinear system. Then, the optimal regulator is obtained (i.e. the solution to the minimum control problem among all the affine transformations of the measurements). Better performances of the regulator are expected using higher order system approximations.

Credibility costs in the monetary integration game*

AbstractEuro candidates are expected to maintain the value of their currency within the fluctuation band of the new exchange rate mechanism for at least two years. This paper highlights some unpleasant macroeconomic effects that could occur during this interval. The problem is cast as a two‐stage sequential game between private agents and the government of the applicant country. The policy‐maker decides whether to devaluate the domestic currency or not at two distinct dates; it makes a last choice just before accession to the monetary union. Under an assumption of incomplete information of private agents about the government's priorities on inflation and economic activity, the game presents a hybrid perfect Bayesian equilibrium. In the pooling configuration, an initial policy of zero devaluation does not signal the final devaluation decision. As private agents cannot completely rule out the risk of a ‘last devaluation’, a premium adds to interest rates and entails a systematic output loss.

Robust two-time-scale discrete-time system design

Abstract The problem of forming desired output transients for discrete-time system is discussed under assumption of incomplete information about varying parameters of the system and unknown external disturbances. The main result of the paper is the procedure to analyse of fast and slow motions in the discrete-time control system with small parameter where control system is designed by dynamic contraction method. It is shown, that if a sufficient time-scale separation between the fast and slow modes in the closed loop system and stability of fast motions are provided then in the closed loop system the output transient performance indices are insensitive to parameter variations of the plant and external disturbances. Finally, in order to guaranteed cost control an universal digital control law for a sampled-data system with small sampling period is received and numerical example is presented.

Profit sharing and strike activity in Cournot oligopoly

Within an incomplete-information framework, we develop a model of wage determination in a unionized Cournot oligopoly. The assumption of incomplete information allows the possibility of strikes or lockouts, which waste industry potential resources, at equilibrium. Facing such deadweight loss, the government or the social planner may decide to adopt a policy, such as a profit-sharing scheme. Under two different bargaining structures (firm level vs. industry level), we investigate the effects of adopting profit sharing on the wage outcome and the strike activity. If the base-wage bargaining takes place at the industry level, then the introduction of a profit-sharing scheme increases the strike activity. But if the base-wage bargaining takes place at the firm level and the number of firms in the industry is greater than two, then the introduction of a profit-sharing scheme reduces the strike activity.

The Value of Preference Information in Agency Relationships

Standard models of agency theory often assume that the principal has complete information about the preferences of the agent. This paper starts from the assumption of incomplete information on the agent‘s preferences and models a situation where the principal can obtain additional preference information before concluding a contract with the agent. We introduce the concept of a Value of Preference Information (VPI), which describes the benefits to the principal from obtaining such information. This information can be obtained either before or after the principal knows the precise structure of the decision problems which will be delegated to the agent. Analytic and simulation techniques are used to study factors influencing the VPI in these two situations.

Robust Digital Controller Design for MIMO Non-Linear Time-Varying Systems

A control problem in which the control task is formulated for output variables as decoupled tracking with desired output transients is stateted and solved for continuous-time non-linear time-varying MIMO systems under assumption of incomplete information about varying parameters of the system and external disturbances. A continuous-time controller based on the Dynamic Contraction Method is designed for a pseudo-continuous-time model of the control loop with a pure time delay and then Tustin transformation is used to calculate the parameters of a digital controller. In order to increase the sampling period a control law with a compensation of the time delay is used.

Recent Results of Dynamic Contraction Method (Survey)

The problem of forming desired output transients for discrete-time system is discussed under assumption of incomplete information about varying parameters of the system and unknown external disturbances. To solve the discussed control problem a design method which was called a dynamic contraction method is used. Such problems as the analysis of fast and slow motions in the discrete-time system with small parameter, choices of control law parameters, influence of varying parameters and control accuracy are considered.

Endogenous Stackelberg Leadership when Costs are Private Information

SummaryLately several authors have tried to explain the emergence of Stackelberg leadership as an endogenous feature of duopoly models. This article describes two models where assumptions of incomplete information about the rival firm’s marginal cost of production creates incentives for duopolistic firms to end up in a sequential choice situation. In the first model the duopolists can commit themselves to be a Stackelberg leader or follower at the time when they know the distributions, but not the actual values, of their own and the rival’s cost. The central result from this model is that under quantity (but not price) competition the duopolists may agree on who should be the leader and who should be the follower. In the second model the firms cannot commit to a specific role. In the quantity setting version of this model they must decide both when and how much to produce. It turns out that there can never be an equilibrium where they both always produce in the same period. However, there are equilibria where one firm produces in the first period and the other in the second, i.e. Stackelberg-type equilibria. Similar results are found in a price setting version of the model.