We study an optimal timing decision problem where an agent endowed with a risky investment opportunity trades the benefits of waiting for additional information against a potential loss in first-mover advantage. The players’ clocks are de-synchronized in that they learn of the investment opportunity at different times. Previous literature has uncovered an inverted-U shaped relationship between ...

Building upon the works of Anscombe and Amuann [Ann. Math. Stat. 34 (1963) 199] and Karni and Schmeidler [An expected utility theory for state-dependent preferences. Working Paper 48-80, Foerder Institute for Economic Research, Tel Aviv University], we develop a general axiomatic theory of quantifiable beliefs—a form of probabilistic sophistication that does not preclude state-dependent prefere...

Ž The class of probabilistic belief spaces Harsanyi, 1967]68, Man. Sci., 14, . 159]182, 320]324, 486]502 contains a unï ersal space, into which every other belief space can be mapped in a unique way by a belief morphism. We show that there is no analogous universal space in the class of knowledge spaces. To show this we define the rank of a knowledge space, which is the ordinality of the most c...

This paper investigates the equilibrium consequences of a contractual market with moral hazard where multiple principals compete each other to offer incentive contracts to agents who choose unobservable ex post actions. We show the following limit theorems: First, when the trade–off between incentive and risk sharing causes the moral hazard problem on the side of agents, the full insurance cont...

To analyze the optimal social insurance package, we set up a two-period life-cycle model with risky human capital investment, where the government has access to labor taxation, education subsidies and capital taxation. Social insurance is provided by redistributive labor taxation. Moreover, both education subsidies and capital taxation are used as catalyzers to facilitate social insurance by mi...

This short paper resolves an apparent contradiction between Feldman’s (1989) and Riedel’s (2000) equilibrium models of the term structure of interest rates under incomplete information. Feldman (1989) showed that in an incomplete information version of Cox, Ingersoll, and Ross (1985), where the stochastic productivity factors are unobservable, equilibrium term structures are “interior” and boun...

A subjective expected utility agent is given information about the state of the world in the form of a set of possible priors. She is allowed to condition her prior on this information. A set of priors may be updated according to Bayes’ rule, prior-by-prior, upon learning that some state of the world has not obtained. We show that there exists no decision maker who obeys Bayes’ rule, conditions...

This paper develops a theory of social norms: what they are, how they form, and how they change. The theory also makes predictions about group formation, categorization, and discrimination, and it can be extended to model leadership and fairness. The paper accounts for the existence of “oppositional culture,” where minority groups disparage the majority and are disparaged in turn. An explanatio...

The objective of this paper is to show how ambiguity, and a decision maker (DM)’s response to it, can be modelled formally in the context of a general decision model. We introduce a relation derived from the DM’s preferences, called ‘‘unambiguous preference’’, and show that it can be represented by a set of probabilities. We provide such set with a simple differential characterization, and argu...

We study comovements between standardized option values and spot stock prices for the S&P 100 equity index and ten large U.S. firms over 1988 to 1995. To standardize option values, we use a weighted average of option implied volatilities (IV) to control for the option’s moneyness, interest rates, and time to maturity. We find differences in the comovement behavior across individual stocks and t...