We find an economic rationale for the common sense answer to the question in our title — courts should not always enforce what the contracting parties write. We describe and analyze a contractual environment that allows a role for an active court. An active court can improve on the outcome that the parties would achieve without it. The institutional role of the court is to maximize the parties’...

The introduction of a small amount of bounded rationality into a model sometimes has little effect, and sometimes has a dramatic impact on predicted behavior. We call a model robust to bounded rationality if small deviations from rationality result only in small changes in the equilibrium set. We also say that a model is structurally stable if the equilibrium set (given fully rational agents) v...

Casual observation reveals that groups of people interact on many levels simultaneously. Examples include political party formation and interaction; the interaction of Sunnis, Shias and Kurds in the Government of Iraq; and labor union and confederation formation. In this paper, a model of hierarchical group structures is developed. The model generalizes the existing coalitional theory in severa...

We study a continuous and balanced mechanism that is capable of implementing in Nash equilibrium all the Pareto-efficient individually rational allocations for an economy with public goods. The Government chooses a set of weights directly related to the Lindahl prices corresponding to the Pareto-efficient allocation it wants to implement. The mechanism then guarantees that initial endowments ar...

Consider an exchange mechanism which accepts “diversified” offers of various commodities and redistributes everything it receives. We impose certain conditions of fairness and convenience on such a mechanism and show that it admits unique prices, which equalize the value of offers and returns for each individual. We next define the complexity of a mechanism in terms of certain integers τij , πi...

We conduct an experimental study on behavior and cognition in prisoner’s dilemmas with and without role-switching from the perspective of inductive game theory (IGT). It is basic for our study that subjects have no prior knowledge about any payoffs, even their own; they may learn them by repeated play. Without role-switching, many subjects learned relevant payoffs successfully and played a domi...

Power is a core concept in the analysis and design of organisations. In this paper we consider positional power in hierarchies. One of the problems with the extant literature on positional power in hierarchies is that it is mainly restricted to the analysis of power in terms of the bare positions of the actors. While such an analysis informs us about the authority structure within an organisati...

We compare behavior in modified dictators game during the “Great Recession” to behavior in otherwise identical experiments conducted amidst the economic boom that preceded it. The experiments capture both differences in indexical selfishness and differences in equalityefficiency tradeoffs. Subjects exposed to the recession exhibit higher levels of indexical selfishness and greater emphasis on e...

Basel II changes risk management in banks strongly. Internal rating procedures would lead one to expect that banks are changing over to active risk control. But, if risk management is no longer a simple “game against nature”, if all agents involved are active players then a shift from a non-strategic model setting (measuring event risk stochastically) to a more general strategic model setting (...