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Professor Jacob Goeree

Biography

Jacob Goeree, a world renowned experimenter and applied theorist, joins UTS as a Distinguished Research Professor and Head of the Economics Discipline Group.  Professor Goeree is distinguished for his contributions to the mathematical modeling and testing of theories of bounded rationality, experimental economics, and mechanism design.  His work has appeared in top general-interest economics and political science journals and has influenced the design of major spectrum auctions and market institutions worldwide.  He is the current President of the Economic Science Association, Associate Editor of the Journal of Economic Theory and Games and Economic Behavior, and past Editor of Experimental Economics. He is a former Research Fellow of the Alfred P. Sloan Foundation and current Fellow of the Econometric Society as well as a member of the Royal Netherlands Academy of Arts and Sciences.  He directs the Centre for Policy and Market Design and the ARC sponsored project "Introspection, Learning, and Equilibrium in Games".

Professional

Awards and RecognitionAwards and Recognition

Member of the Royal Netherlands Academy of Arts and Sciences

Fellow of the Econometric Society

Fellow, CEPR, Tinbergen Institute, CESifo

Research Fellow, Alfred P. Sloan Foundation (2003-2007)

Wilson Scholar, University of Arizona (2009-2010)

Tinbergen Prize (2003)

Previous Academic Positions

Chaired Professor, University of Zürich (2009-2015)

Head of the ESEI Center for Market Design, University of Zürich (2009-2015)

Professor of Economics, California Institute of Technology (2004-2009)

Professor of Economics, University of Amsterdam (2001-2004)

Associate Professor of Economics, University of Virginia (1999-2001)

Assistant Professor of Economics, University of Virginia (1996-1999)

Google scholar citation page

Image of Jacob Goeree
Head of Economics Discipline Group (On Leave), Economics Discipline Group
Distinguished Research Professor, Economics Discipline Group
Director, Centre for Policy and Market Design
PhD Economics
Download CV  (PDF 70kb, 14pp)
Phone
+61 2 9514 4375

Research Interests

Mechanism design, including practical auction and market design, political science, social networks and social learning, bounded rationality, and experimental economics. Professor Goeree's work has an important policy component and has influenced the design of major spectrum auctions and markets for greenhouse gas pollution permits in Australia, Canada, Europe, and the US.

Books

Goeree, J., Holt, C. & Palfrey, T. 2016, Quantal Response Equilibrium – A Stochastic Theory of Games, Princeton University Press.
Goeree, J. & Bichler, M. 2016, Handbook of Spectrum Auction Design, Cambridge University Press.

Chapters

Goeree, J., Fine, L., Ishikida, T. & Ledyard, J. 2016, 'ACE: A Combinatorial Market Mechanism'.
Burtraw, D., Goeree, J., Holt, C., Myers, E., Palmer, K. & Shobe, W. 2011, 'Price Discovery in Emissions Permit Auctions' in Isaac, M. & Norton, D. (eds), Research in Experimental Economics: Experiments on Energy, the Environment, and Sustainability, Emerald Group Publishing Limited, UK, pp. 11-36.
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Objective - This chapter examines the performance of the market to discover efficient equilibrium under alternative auction designs. Background Auctions are increasingly being used to allocate emissions allowances (permits) for cap and trade and common-pool resource management programs. These auctions create thick markets that can provide important information about changes in current market conditions. Methodology This chapter uses experimental methods to examine the extent to which the predicted increase in the Walrasian price due to a shift in willingness to pay (perhaps due to a shift in costs of pollution abatement) is reflected in observed sales prices under alternative auction formats. Results Price tracking is comparably good for uniform-price sealed-bid auctions and for multi-round clock auctions, with or without end-of-round information about excess demand. More price inertia is observed for pay as bid (discriminatory) auctions, especially for a continuous discriminatory format in which bids could be changed at will, in part because sniping in the final moments blocked the full effect of the demand shock.
Goeree, J., Holt, C. & Palfrey, T. 2008, 'Quantal Response Equilibrium' in Durlauf, S.N. & Blume, L.E. (eds), The New Palgrave Dictionary of Economics online, Palgrave MacMillan, Online, pp. 1-11.
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Gomez, R., Goeree, J. & Holt, C. 2008, 'Predatory Pricing: Rare Like a Unicorn?' in Plott, C.R. & Smith, V.L. (eds), Handbook of Experimental Economics Results, Elsevier, Amsterdam, pp. 178-184.
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Despite the discovery of predatory intent in several widely cited antitrust cases, mall~ industrial organization economists have argued that predatory pricing is irrational alld rarely observed. For example, one of our colleagues, Kenneth Elzinga, in an address hI the American Bar Association posed the question of whether predatory pricing is rim' like an old stamp or "rare like a unicorn." The argument is that pricing below cosl ill order to drive competitors out of the market will be irrational for two reasons: (I) tllCl'l' are more profitable ways (e.g., acquisitions) to eliminate competitors, and (2) fUllin." price increases will result in new entry. Decisions in antitrust cases have often resulted from documented predatory intcllL which is sometimes attributed to an "irrational" motive for management to elimin;th' rivals. In the absence of a "smoking gun," arguments turn on Areeda-Turner cost-based tests, which are difficult to apply given the multi-product nature of most business OpCl" ations. For these reasons, the issue of predatory pricing is a natural topic for laboratory studies where costs are induced directly.
Anderson, S., Goeree, J. & Holt, C. 2008, 'Logit Equilibrium Models of Anomalous Behavior' in Plott, C.R. & Smith, V.L. (eds), Handbook of Experimental Economics Results, Elsevier, Amsterdam, pp. 549-558.
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Goeree, J. 2002, 'Retiring Rich' in Hommes, C., Ramer, R. & Withagen, C. (eds), Essays in Honor of Claus Weddepohl, Springer-Verlag, Berlin, pp. 197-207.
Goeree, J. & Holt, C. 2002, 'Coordination Games' in Nagel, L. (ed), Encyclopedia of Cognitive Science, Nature Publishing Group, McMillan, London, pp. 204-208.
Goeree, J. & Holt, C. 2002, 'Learning in Economic Experiments' in Holt, C. (ed), Encyclopedia of Cognitive Science, Nature Publishing Group, McMillan, London, pp. 1060-1069.
Goeree, J., Holt, C. & Laury, S. 2002, 'Incentives in Public Goods Experiments: Implications for the Environment' in List, J. & de Zeeuw, A. (eds), Recent Advances in Environmental Economics, Edwar Elgar Publisher, Cheltenham, pp. 309-339.
Goeree, J., Anderson, S. & Holt, C. 1998, 'The War of Attrition with Noisy Players' in Baye, M. (ed), Advances in Applied Micro-Economics, JAI Press, Greenwich, pp. 15-29.

Conferences

Goeree, J., Holt, C. & Laury, S. 2002, 'Incentives in public goods experiments: Implications for the environment', RECENT ADVANCES IN ENVIRONMENTAL ECONOMICS, pp. 309-339.
Goeree, J.K. & Holt, C.A. 2000, 'Asymmetric inequality aversion and noisy behavior in alternating-offer bargaining games', European Economic Review, pp. 1079-1089.
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In two-stage bargaining games with alternating offers, the amount of the pie that remains after a rejection is what the first player should offer to the second player, since the second player can capture this remainder in the final (ultimatum) stage. Fairness considerations will reduce the correlation between first-stage offers and the size of the remaining pie, but randomness in behavior will have the same 'flattening' effect. This paper reports an experiment designed to separate these considerations, by introducing asymmetric fixed money payments to each player. These endowments do not affect the perfect positive correlation between initial Nash offers and the remaining pie, but are selected to induce a perfectly negative relationship between the remaining pie size and the first-stage offer that would equalize final earnings of the two players. This negative relationship is apparent in the data, which suggests the importance of fairness considerations. A theoretical model of asymmetric inequality aversion and stochastic choice is used to provide maximum likelihood estimates of utility and logit error parameters. The parameters representing 'envy', 'guilt', and logit errors are all significant, and the resulting model produces the observed negative relationship between initial offers and residual pie size. (C) 2000 Elsevier Science B.V. All rights reserved.

Journal articles

Goeree, J. & Lien, Y. 2016, 'On the Impossibility of Core-Selecting Auctions', Theoretical Economics, vol. 11, no. 1, pp. 41-52.
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When goods are substitutes, the Vickrey outcome is in the core and yields competitive seller revenue. In contrast, with complements, the Vickrey outcome is efficient but not necessarily in the core and revenue can be low. Non-core outcomes may be perceived as unfair since there are bidders willing to pay more than the winners' payments. Moreover, non-core outcomes render the auction vulnerable to defections, as the seller can attract better offers afterward. To avoid instabilities of this type, Day and Raghavan (2007), Day and Milgrom (2008), and Day and Cramton (2012) have suggested adapting the Vickrey pricing rule so that outcomes are in the core with respect to bidders' reported values. If truthful bidding were an equilibrium of the resulting auction, then the outcome would also be in the core with respect to bidders' true values. We show, however, that when the equilibrium outcome of any auction is in the core, it is equivalent to the Vickrey outcome. In other words, if the Vickrey outcome is not in the core, no core-selecting auction exists. Our results further imply that the competitive equilibrium outcome, which always exists when goods are substitutes, can only be implemented when it coincides with the Vickrey outcome. Finally, for a simple environment, we show that compared to Vickrey prices, the adapted pricing rule yields lower expected efficiency and revenue as well as outcomes that are on average further from the core.
Goeree, J.K. & Yariv, L. 2015, 'Conformity in the lab', Journal of the Economic Science Association, vol. 1, no. 1, pp. 15-28.
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Goeree, J., Bichler, M., Mayer, S. & Shabalin, P. 2014, 'Simple Auctions for Complex Sales', Telecommunications Policy, vol. 38, no. 7, pp. 613-622.
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Goeree, J. & Lien, Y. 2014, 'An Equilibrium Analysis of the Simultaneous Ascending Auction', Journal Of Economic Theory, vol. 153, pp. 506-533.
Goeree, J.K. & Zhang, J. 2014, 'Communication & competition', Experimental Economics, vol. 17, no. 3, pp. 421-438.
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Charness and Dufwenberg (Am. Econ. Rev. 101(4):1211-1237, 2011) have recently demonstrated that cheap-talk communication raises efficiency in bilateral contracting situations with adverse selection. We replicate their main finding and extend their design to include competition between agents. We find that communication and competition act as "substitutes:" communication raises efficiency in the absence of competition but not with competition, and competition raises efficiency without communication but lowers efficiency with communication. We briefly review some behavioral theories that have been proposed in this context and show that each can explain some but not all features of the observed data patterns. Our findings highlight the fragility of cheap-talk communication and may serve as a guide to refine existing behavioral theories. © 2013 Economic Science Association.
Gershkov, A., Goeree, J., Kushnir, A., Moldovanu, B. & Shi, X. 2013, 'On the equivalence of Bayesian and dominant strategy implementation', Econometrica, vol. 81, no. 1, pp. 197-220.
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We consider a standard social choice environment with linear utilities and independent, one-dimensional, private types. We prove that for any Bayesian incentive compatible mechanism there exists an equivalent dominant strategy incentive compatible mechanism that delivers the same interim expected utilities for all agents and the same ex ante expected social surplus. The short proof is based on an extension of an elegant result due to Gutmann, Kemperman, Reeds, and Shepp (1991). We also show that the equivalence between Bayesian and dominant strategy implementation generally breaks down when the main assumptions underlying the social choice model are relaxed or when the equivalence concept is strengthened to apply to interim expected allocations
Goeree, J., Offerman, T. & Sloof, R. 2013, 'Demand Reduction and Preemptive Bidding in Multi-Unit Auctions', Experimental Economics, vol. 16, no. 1, pp. 52-87.
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Multi-unit ascending auctions allow for equilibria in which bidders strategically reduce their demand and split the market at low prices. At the same time, they allow for preemptive bidding by incumbent bidders in a coordinated attempt to exclude entrants from the market. We consider an environment where both demand reduction and preemptive bidding are supported as equilibrium phenomena of the ascending auction. In a series of experiments, we compare its performance to that of the discriminatory auction. Strategic demand reduction is quite prevalent in the ascending auction even when entry imposes a (large) negative externality on incumbents. As a result, the ascending auction performs worse than the discriminatory auction both in terms of revenue and efficiency, while entrants chances are similar across the two formats.
Goeree, J. & Zhang, J. 2013, 'Communication & competition', Experimental Economics, vol. 17, pp. 421-438.
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Charness and Dufwenberg (Am. Econ. Rev. 101(4):12111237, 2011) have recently demonstrated that cheap-talk communication raises efficiency in bilateral contracting situations with adverse selection. We replicate their main finding and extend their design to include competition between agents. We find that communication and competition act as substitutes: communication raises efficiency in the absence of competition but not with competition, and competition raises efficiency without communication but lowers efficiency with communication. We briefly review some behavioral theories that have been proposed in this context and show that each can explain some but not all features of the observed data patterns. Our findings highlight the fragility of cheap-talk communication and may serve as a guide to refine existing behavioral theories.
Goeree, J. & Chen, Y. 2012, 'Stable Allocations and Market Design', Nature, vol. 492, pp. 54-55.
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What is the best way to match up entities that have different preferences for one another, if price cannot be used to determine the allocation? The 2012 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel went to Lloyd S. Shapley and Alvin E. Roth for the theory and practical demonstration that such processes are optimized by achieving stable matches (see Fig. 1).
Brunner, C., Goeree, J. & Camerer, C. 2011, 'Stationary concepts for experimental 22 games: Comment', American Economic Review, vol. 101, no. 2, pp. 1029-1040.
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Reinhard Selten and Thorsten Chmura (2008) recently reported laboratory results for completely mixed 2 X 2 games used to compare Nash equilibrium with four other stationary concepts: quantal response equilibrium, action-sampling equilibrium, payoff-sampling equilibrium, and impulse balance equilibrium. We reanalyze their data, correct some errors, and find that Nash clearly fits worst while the four other concepts perform about equally well. We also report new analysis of other previous experiments that illustrate the importance of the loss aversion hardwired into impulse balance equilibrium: when the other non-Nash concepts are augmented with loss aversion, they outperform impulse balance equilibrium.
Goeree, J. & Yariv, L. 2011, 'An experimental study of collective deliberation', Econometrica, vol. 79, no. 3, pp. 893-921.
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We study the effects of deliberation on collective decisions. In a series of experiments, we vary groups' preference distributions (between common and conflicting interests) and the institutions by which decisions are reached (simple majority, two-thirds majority, and unanimity). Without deliberation, different institutions generate significantly different outcomes, tracking the theoretical comparative statics. Deliberation, however, significantly diminishes institutional differences and uniformly improves efficiency. Furthermore, communication protocols exhibit an array of stable attributes: messages are public, consistently reveal private information, provide a good predictor for ultimate group choices, and follow particular (endogenous) sequencing
Goeree, J. & Holt, C. 2010, 'Hierarchical package bidding: A paper and pencil combinatorial auction', Games and Economic Behavior, vol. 70, no. 1, pp. 146-169.
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Brunner, C., Goeree, J., Holt, C. & Ledyard, J. 2010, 'An experimental test of flexible combinatorial spectrum auction formats', American Economic Journal. Microeconomics, vol. 2, no. 1, pp. 39-57.
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Goeree, J., McConnell, M.A., Mitchell, T., Tromp, T. & Yariv, L. 2010, 'The 1/d law of giving', American Economic Journal. Microeconomics, vol. 2, no. 10, pp. 183-203.
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Goeree, J., Palmer, K., Holt, C., Shobe, W. & Burtraw, D. 2010, 'An experimental study of auctions versus grandfathering to assign pollution permits', Journal of the European Economic Association, vol. 8, no. 2-3, pp. 514-525.
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We experimentally study auctions versus grandfathering in the initial assignment of pollution permits that can be traded in a secondary spot market. Low and high emitters compete for permits in the auction, whereas permits are assigned for free under grandfathering. In theory, trading in the spot market should erase inefficiencies due to initial mis-allocations. In the experiment, high emitters exercise market power in the spot market, and permit holdings under grandfathering remain skewed towards high emitters. Furthermore, the opportunity costs of "free" permits are fully "passed through." In the auction, the majority of permits are won by low emitters, reducing the need for spot-market trading. Auctions generate higher consumer surplus and slightly lower product prices in the laboratory markets. Moreover, auctions eliminate the large "windfall profits" that are observed in the treatment with free, grandfathered permit allocations.
Shobe, W., Palmer, K., Myers, E., Holt, C., Goeree, J. & Burtraw, D. 2010, 'An experimental analysis of auctioning emission allowances under a loose cap', Agricultural and Resource Economics Review, vol. 39, no. 2, pp. 162-175.
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The direct sale of emission allowances by auction is an emerging characteristic of cap-andtrade programs. This study is motivated by the observation that all of the major implementations of cap-and-trade regulations for the control of air pollution have started with a generous allocation of allowances relative to recent emissions history, a situation we refer to as a loose cap. Typically more stringent reductions are achieved in subsequent years of a program. We use an experimental setting to investigate the effects of a loose cap environment on a variety of auction types. We find that all auction formats studied are efficient in allocating emission allowances, but auction revenues tend to be lower relative to competitive benchmarks when the cap is loose. Regardless of whether the cap is tight or loose, the different auction formats tend to yield comparable revenues toward the end of a series of auctions. However, aggressive bidding behavior in initial discriminatory auctions yields higher revenues than in the other auction formats, a difference that disappears as bidders learn to adjust their bids closer to the cut-off that separates winning and losing bids.
Boone, J., Chen, R., Goeree, J. & Polydoro, A. 2009, 'Risky procurement with an insider bidder', Experimental Economics, vol. 12, no. 4, pp. 417-436.
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Procurement auctions carry substantial risk when the value of the project is highly uncertain and known only to insiders. This paper reports the results from a series of experiments comparing the performance of three auction formats in such complex and risky settings. In the experiment, every bidder knows the private value for the project but only a single insider bidder knows the common-value part. In addition to the standard second-price and English auctions we test the qualifying auction, a two-stage format commonly used in the sale of complex and risky assets. The qualifying auction has a fully revealing equilibrium that implements the revenue-maximizing outcome but it also has an uninformative babbling equilibrium in which bidders place arbitrarily high bids in the first stage. In the experiments, the latter equilibrium has more drawing power, which causes the qualifying auction to perform worse than the English auction and only slightly better than a sealed-bid second-price auction. Compared to the two other formats, the English auction is roughly 40% more efficient, yields 50% more revenues, avoids windfall profits for the insider, while protecting uninformed bidders from losses.
Burtraw, D., Goeree, J., Holt, C., Myers, E., Palmer, K. & Shobe, W. 2009, 'Collusion in auctions for emission permits: An experimental analysis', Journal of Policy Analysis and Management, vol. 28, no. 4, pp. 672-691.
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Environmental markets have several institutional features that provide a new context for the use of auctions and that have not been studied previously. This paper reports on laboratory experiments testing three auction formsuniform and discriminatory price sealed-bid auctions and an ascending clock auction. We test the ability of subjects to tacitly or explicitly collude in order to maximize profits. Our main result is that the discriminatory and uniform price auctions produce greater revenues than the clock auction, both with and without explicit communication. The clock appears to facilitate successful collusion, both because of its sequential structure and because it allows bidders to focus on one dimension of cooperation (quantity) rather than two (price and quantity)
Boone, J. & Goeree, J. 2009, 'Optimal privatisation using qualifying auctions', The Economic Journal, vol. 119, no. 534, pp. 277-297.
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This article explores use of auctions for privatising public assets. In our model, a single insider bidder possesses information about the assets common value. Bidders are privately informed about their costs of exploiting the asset. Due to the insiders presence, uninformed bidders face a strong winners curse in standard auctions. We show that the optimal mechanism discriminates against the informationally advantaged bidder. It can be implemented via a two-stage qualifying auction. In the first stage, non-binding bids are submitted to determine who enters the second stage, which consists of a standard second-price auction augmented with a reserve price.
Goeree, J., Riedl, A. & Ule, A. 2009, 'In search of stars: Network formation among heterogeneous agents', Games and Economic Behavior, vol. 67, no. 2, pp. 445-466.
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This paper reports results from a laboratory experiment on network formation among heterogeneous agents. The experimental design extends the BalaGoyal [Bala, V., Goyal, S., 2000. A non-cooperative model of network formation, Econometrica 68, 11311230] model of network formation with decay and two-way flow of benefits by introducing agents with lower linking costs or higher benefits to others. Furthermore, agents' types may be common knowledge or private information. In all treatments, the (efficient) equilibrium network has a star structure. While equilibrium predictions fail completely with homogeneous agents, star networks frequently occur with heterogeneous agents. Stars are not born but rather develop: with a high-value agent, the network's centrality, stability, and efficiency all increase over time. A structural econometric model based on best response dynamics and other-regarding preferences is used to analyze individual linking behavior. Maximum-likelihood estimates of the underlying structural parameters, obtained by pooling data from several treatments, allow us to explain the main treatment effects.
Burtraw, D., Holt, C., Myers, E., Palmer, K., Shobe, W. & Goeree, J. 2009, 'Vertical Integration of Successive Monopolists: A Classroom Experiment', Perspectives on Economic Education Research, vol. 28, no. 4, pp. 672-691.
This classroom experiment introduces students to the concept of double marginalization, i.e. the exercise of market power at successive vertical layers in a supply chain. By taking on roles of firms, students determine how the mark-ups are set at each successive production stage. They learn that final retail prices tend to be higher than if the firms were vertically integrated. Students compare the welfare implications of two potential solutions to the double marginalization problem: acquisition and franchise fees. The experiment also can stimulate a discussion of two-part tariffs, transfer pricing, contracting, and the Coase theorem
Ali, N., Goeree, J., Kartik, N. & Palfrey, T. 2008, 'Information aggregation in standing and ad hoc committees', American Economic Review, vol. 98, no. 2, pp. 181-186.
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Dufwenberg, M., Gneezy, U., Goeree, J. & Nagel, R. 2007, 'Price floors and competition', Economic Theory, vol. 33, no. 1, pp. 211-224.
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Goeree, J. & Groer, J. 2007, 'Welfare reducing polls', Economic Theory, vol. 31, no. 1, pp. 51-68.
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Goeree, J., Palfrey, T. & Rogers, B. 2006, 'Social learning with private and common values', Economic Theory, vol. 28, no. 2, pp. 245-264.
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Goeree, J., Palfrey, T. & Rogers, B. 2006, 'Social learning with private and common values', Economic Theory, vol. 28, no. 2, pp. 245-264.
We consider an environment where individuals sequentially choose among several actions. The payoff to an individual depends on her action choice, the state of the world, and an idiosyncratic, privately observed preference shock. Under weak conditions, as the number of individuals increases, the sequence of choices always reveals the state of the world. This contrasts with the familiar result for pure common-value environments where the state is never learned, resulting in herds or informational cascades. The medium run dynamics to convergence can be very complex and non-monotone: posterior beliefs may be concentrated on a wrong state for a long time, shifting suddenly to the correct state. Copyright Springer-Verlag Berlin/Heidelberg 2006
Goeree, J.K., Offerman, T. & Schram, A. 2006, 'Using first-price auctions to sell heterogeneous licenses', International Journal of Industrial Organization, vol. 24, no. 3, pp. 555-581.
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This paper considers three alternative ways to sell heterogeneous licenses via a first-price format when there is single unit demand. It has been suggested that incorporating a first-price element may bolster competition in this case [Klemperer, Paul D., 2002. What really matters in auction design. Journal of Economic Perspectives, 16, 169-189]. In a controlled laboratory setting, we compare the performance of the simultaneous first-price auction, the sequential first-price auction and the simultaneous descending auction with that of the simultaneous ascending auction. The experiments involve several bidding environments of varying complexity. We find that the simultaneous ascending auction achieves the highest levels of efficiency but also has drawbacks: (i) its revenues are low and variable, (ii) per-license profits vary, and (iii) the incidence of winner's curse outcomes is high. Seller's revenues are highest when the licenses are sold in a sequential first-price auction, in decreasing order of quality. © 2005 Elsevier B.V. All rights reserved.
Goeree, J., Holt, C. & Palfrey, T. 2005, 'Regular quantal response equilibrium', Experimental Economics, vol. 8, no. 4, pp. 347-367.
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Goeree, J. & Holt, C. 2005, 'An experimental study of costly coordination', Games and Economic Behavior, vol. 51, no. 2, pp. 349-364.
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Goeree, J., Holt, C. & Palfrey, T. 2005, 'Regular Quantal Response Equilibrium', Experimental Economics, vol. 8, no. 4, pp. 347-367.
The structural Quantal Response Equilibrium (QRE) generalizes the Nash equilibrium by augmenting payoffs with random elements that are not removed in some limit. This approach has been widely used both as a theoretical framework to study comparative statics of games and as an econometric framework to analyze experimental and field data. The framework of structural QRE is flexible: it can be applied to arbitrary finite games and incorporate very general error structures. Restrictions on the error structure are needed, however, to place testable restrictions on the data (Haile et al., 2004). This paper proposes a reduced-form approach, based on quantal response functions that replace the best-response functions underlying the Nash equilibrium. We define a regular QRE as a fixed point of quantal response functions that satisfies four axioms: continuity, interiority, responsiveness, and monotonicity. We show that these conditions are not vacuous and demonstrate with an example that they imply economically sensible restrictions on data consistent with laboratory observations. The reduced-form approach allows for a richer set of regular quantal response functions, which has proven useful for estimation purposes. Copyright Springer Science + Business Media, Inc. 2005
Goeree, J., Maasland, E., Onderstal, S. & Turner, J. 2005, 'Full text available How (Not) to Raise Money', Journal of Political Economcy, vol. 113, no. 4, pp. 897-918.
Goeree, J.K. & Holt, C.A. 2005, 'An explanation of anomalous behavior in models of political participation', American Political Science Review, vol. 99, no. 2, pp. 201-213.
This paper characterizes behavior with "noisy" decision making for models of political interaction characterized by simultaneous binary decisions. Applications include: voting participation games, candidate entry, the volunteer's dilemma, and collective action problems with a contribution threshold. A simple graphical device is used to derive comparative statics and other theoretical properties of a "quantal response" equilibrium, and the resulting predictions are compared with Nash equilibria that arise in the limiting case of no noise. Many anomalous data patterns in laboratory experiments based on these games can be explained in this manner.
Fryer, R.G., Goeree, J.K. & Holt, C.A. 2005, 'Experience-based discrimination: Classroom games', Journal of Economic Education, vol. 36, no. 2, pp. 160-170.
The authors present a simple classroom game in which students are randomly designated as employers, purple workers, or green workers. This environment may generate "statistical" discrimination if workers of one color tend not to invest because they anticipate lower opportunities in the labor market, and these beliefs are self-confirming as employers learn that it is, on average, less profitable to hire workers of that color. Such discriminatory equilibria may arise even when workers are ex-ante identical, and the employer has no prior information regarding potential workers. The exercise typically generates a lively discussion about discrimination and how it may be addressed by alternative public policies.
Goeree, J.K., Maasland, E., Onderstal, S. & Turner, J.L. 2005, 'How (not) to raise money', Journal of Political Economy, vol. 113, no. 4, pp. 897-918.
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We show that standard winner-pay auctions are inept fund-raising mechanisms because of the positive externality bidders forgo if they top another's high bid. Revenues are suppressed as a result and remain finite even when bidders value a dollar donated the same as a dollar kept. This problem does not occur in lotteries and all-pay auctions, where bidders pay irrespective of whether they win. We introduce a general class of all-pay auctions, rank their revenues, and illustrate how they dominate lotteries and winner-pay formats. The optimal fund-raising mechanism is an all-pay auction augmented with an entry fee and reserve price. © 2005 by The University of Chicago. All rights reserved.
Goeree, J. & Offerman, T. 2004, 'Notes and Comments the Amsterdam Auction', Econometrica, vol. 72, no. 1, pp. 281-294.
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Goeree, J., Plott, C. & Wooders, J. 2004, 'Bidders' choice auctions: Raising revenues through the right to choose', Journal of the European Economic Association, vol. 2, no. 2-3, pp. 504-515.
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Goeree, J. & Holt, C. 2004, 'A model of noisy introspection', Games and Economic Behavior, vol. 46, no. 2, pp. 365-382.
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Goeree, J.K. & Offerman, T. 2004, 'The amsterdam auction', Econometrica, vol. 72, no. 1, pp. 281-294.
The Amsterdam auction has been used to sell real estate in the Dutch capital for centuries. By awarding a premium to the highest losing bidder, the Amsterdam auction favors weak bidders without having the implementation difficulties of Myerson's (1981) optimal auction. In a series of experiments, we compare the standard firs-price and English auctions, the optimal auction, and two variants of the Amsterdam auction. With strongly asymmetric bidders, the second-price Amsterdam auction raises substantially more revenues than standard formats and only slightly less than the optimal auction.
Anderson, S.P., Goeree, J.K. & Holt, C.A. 2004, 'Noisy directional learning and the logit equilibrium', Scandinavian Journal of Economics, vol. 106, no. 3, pp. 581-602.
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We specify a dynamic model in which agents adjust their decisions toward higher payoffs, subject to normal error. This process generates a probability distribution of players' decisions that evolves over time according to the Fokker-Planck equation. The dynamic process is stable for all potential games, a class of payoff structures that includes several widely studied games. In equilibrium, the distributions that determine expected payoffs correspond to the distributions that arise from the logit function applied to those expected payoffs. This " logit equilibrium" forms a stochastic generalization of the Nash equilibrium and provides a possible explanation of anomalous laboratory data. © The editors of the Scandinavian Journal of the economics 2004. Published by Blackwell Publishing.
Goeree, J., Holt, C. & Palfrey, T. 2003, 'Risk averse behavior in generalized matching pennies games', Games and Economic Behavior, vol. 45, no. 1, pp. 97-113.
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Goeree, J. & Offerman, T. 2003, 'Competitive bidding in auctions with private and common values', The Economic Journal, vol. 113, no. 489, pp. 598-613.
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Goeree, J.K. 2003, 'Bidding for the future: Signaling in auctions with an aftermarket', Journal of Economic Theory, vol. 108, no. 2, pp. 345-364.
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This paper considers auctions where bidders compete for an advantage in future strategic interactions. When bidders wish to exaggerate their private information, equilibrium bidding functions are biased upwards as bidders attempt to signal via the winning bid. Signaling is most prominent in second-price auctions where equilibrium bids are "above value." In English and first-price auctions, signaling is less extreme since the winner incurs the cost of her signaling choice. The opportunity to signal lowers bidders' payoffs and raises revenue. When bidders understate their private information, separating equilibria need not exist and the auction may not be efficient. © 2003 Elsevier Science (USA). All rights reserved.
Goeree, J.K. & Offerman, T. 2003, 'Winner's curse without overbidding', European Economic Review, vol. 47, no. 4, pp. 625-644.
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We report the results of a series of second-price auction experiments where each bidder's signal is given by a normally distributed value plus a normally distributed error. While bidders' values differ in one treatment they are the same in another, which allows for a direct test of the "winner's curse" irrespective of confounding factors. Bidders may also fall prey to a "news curse" when they do not sufficiently take into account that signals and errors are correlated. We find that the effects of the winner's curse are mitigated by a news curse and loss or risk aversion. © 2002 Elsevier B.V. Al rights reserved.
Goeree, J. & Offerman, T. 2002, 'Efficiency in auctions with private and common values: An experimental study', American Economic Review, vol. 92, no. 3, pp. 625-643.
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Anderson, S.P., Goeree, J.K. & Holt, C.A. 2002, 'The logit equilibrium: A perspective on intuitive behavioral anomalies', Southern Economic Journal, vol. 69, no. 1, pp. 21-47.
This paper considers a class of models in which rank-based payoffs are sensitive to "noise" in decision making. Examples include auctions, price competition, coordination, and location games. Observed laboratory behavior in these games is often responsive to the asymmetric costs associated with deviations from the Nash equilibrium. These payoff-asymmetry effects are incorporated in an approach that introduces noisy behavior via a logit probabilistic choice function. In the resulting logit equilibrium, behavior is characterized by a probability distribution that satisfies a "rational expectations" consistency condition: The beliefs that determine players' expected payoffs match the decision distributions that arise from applying the logit rule to those expected payoffs. We prove existence of a unique, symmetric logit equilibrium and derive comparative statics results. The paper provides a unified perspective on many recent laboratory studies of games in which Nash equilibrium predictions are inconsistent with both intuition and experimental evidence.
Goeree, J.K., Holt, C.A. & Laury, S.K. 2002, 'Private costs and public benefits: Unraveling the effects of altruism and noisy behavior', Journal of Public Economics, vol. 83, no. 2, pp. 255-276.
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An increase in the common marginal value of a public good has two effects: it increases the benefit of a contribution to others, and it reduces the net cost of making a contribution. These two effects can be decomposed by letting a contribution have an 'internal' return for oneself that differs from the 'external' return to someone else. We use this framework in a series of one-shot public goods games in which subjects make choices in ten treatments with no feedback. Contributions are generally increasing in the external return and group size, which suggests that altruism in this context is not simply of the 'warm glow' variety, i.e. giving only for the sake of giving. Contributions are also increasing in the internal return, indicating that decisions are sensitive to the costs of helping others. We specify a logit equilibrium model in which individuals are motivated by own and others' earnings, and in which choice is stochastic. Maximum likelihood estimates of (representative-agent) altruism and logit parameters are significant and of reasonable magnitudes, and the resulting two-parameter model tracks the pattern of contributions across the ten treatments. A richer model reveals some differences in individual altruism coefficients, with more dispersion among male subjects. © 2002 Elsevier Science B.V. All rights reserved.
Goeree, J., Capra, M., Gomez, R. & Holt, C. 2002, 'Learning and Noisy Equilibrium Behaviour in an Experimental Study of Imperfect Price Competition', International Economic Review, vol. 43, no. 3, pp. 613-636.
Goeree, J., Holt, C. & Palfrey, T. 2002, 'Quantal Response Equilibrium and Overbidding in Private-Value Auctions', Journal of Economic Theory, vol. 104, no. 1, pp. 247-272.
Goeree, J. & Holt, C. 2001, 'Ten little treasures of game theory and ten intuitive contradictions', American Economic Review, vol. 91, no. 5, pp. 1402-1422.
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Anderson, S., Goeree, J. & Holt, C. 2001, 'Minimum-effort coordination games: Stochastic potential and logit equilibrium', Games and Economic Behavior, vol. 34, no. 2, pp. 177-199.
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Capra, C.M., Goeree, J.K., Gomez, R. & Holt, C.A. 2000, 'Predation, asymmetric information and strategic behavior in the classroom: An experimental approach to the teaching of industrial organization', International Journal of Industrial Organization, vol. 18, no. 1, pp. 205-225.
Classroom market experiments can complement the theoretical orientation of standard industrial organization courses. This paper describes various experiments designed for such courses, and presents details of a multi-market game with entry and exit. In this experiment incumbents have a cost advantage in their 'home' markets, and mobile firms decide which market to enter. After entry decisions are made, firms choose prices and quantities to offer for sale. Predatory pricing is possible with this setup, and the experiment can be used to motivate discussions of monopoly, competition, entry, and efficiency. Other classroom experiments with an industrial organization focus are surveyed. © Elsevier Science B.V.
Goeree, J.K. & Hommes, C.H. 2000, 'Heterogeneous beliefs and the non-linear cobweb model', Journal of Economic Dynamics and Control, vol. 24, no. 5-7, pp. 761-798.
This paper generalizes the evolutionary cobweb model with heterogeneous beliefs of Brock and Hommes (1997. Econometrica 65, 1059-1095), to the case of non-linear demand and supply. Agents choose between a simple, freely available prediction strategy such as naive expectations and a sophisticated, costly prediction strategy such as rational expectations, and update their beliefs according to an evolutionary 'fitness' measure such as past realized net profits. It is shown that, for generic non-linear, monotonic demand and supply curves, the evolutionary dynamics exhibits 'rational routes to randomness', that is, bifurcation routes to strange attractors occur when the traders' sensitivity to differences in evolutionary fitness increases. © 2000 Elsevier Science B.V.
Capra, M., Goeree, J., Gomez, R. & Holt, C. 1999, 'Anomalous behavior in a traveler's dilemma?', American Economic Review, vol. 89, no. 3, pp. 678-690.
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Goeree, J.K. & Holt, C.A. 1999, 'Stochastic game theory: for playing games, not just for doing theory.', Proceedings of the National Academy of Sciences of the United States of America, vol. 96, no. 19, pp. 10564-10567.
Recent theoretical advances have dramatically increased the relevance of game theory for predicting human behavior in interactive situations. By relaxing the classical assumptions of perfect rationality and perfect foresight, we obtain much improved explanations of initial decisions, dynamic patterns of learning and adjustment, and equilibrium steady-state distributions.
Goeree, J.K. & Holt, C.A. 1999, 'Classroom games: Rent-seeking and the inefficiency of non-market allocations', Journal of Economic Perspectives, vol. 13, no. 3, pp. 217-226.
Economics is often taught at a level of abstraction that can hinder some students from gaining basic intuition. However, lecture and textbook presentations can be complemented with classroom exercises in which students make decisions and interact. The approach can increase interest in and decrease skepticism about economic theory. This feature offers short descriptions of classroom exercises for a variety of economics courses, with something of an emphasis on the more popular undergraduate courses. Suggestions for future columns and comments on past ones should be sent to Charles Holt, c/o Journal of Economic Perspectives, Department of Economics, University of Virginia, Charlottesville, Virginia 22903-3288.
Goeree, J.K. & Holt, C.A. 1999, 'Employment and prices in a simple macroeconomy', Southern Economic Journal, vol. 65, no. 3, pp. 637-647.
This exercise sets up interlinked labor and goods markets in a classroom macroeconomy. Students with worker roles are endowed with labor that can be consumed or sold to firms that post wages, purchase labor, and produce goods that can be either consumed or sold to workers. The money from sales is used by firms to purchase labor in the next period. Complicated record keeping is avoided by using ordinary playing cards to represent money and goods. The exercise can stimulate a discussion of potential output, unemployment, and the role of money in determining wages and prices. Use: This experiment can be used in introductory macroeconomics classes to teach concepts of the circular flow, real and money wages, unemployment, and labor market equilibrium and in intermediate classes to consider Keynesian and quantity theories. Time required: Fifteen minutes for reading instructions, 30 to 45 minutes for trading (depending on the number of periods), and 15 minutes for discussion. Materials: You will need one copy of the instructions for each person and one deck of ordinary playing cards for each replicated group of two workers and one firm. No money or other incentives are required.
Anderson, S.P., Goeree, J.K. & Holt, C.A. 1998, 'A theoretical analysis of altruism and decision error in public goods games', Journal of Public Economics, vol. 70, no. 2, pp. 297-323.
We formalize an equilibrium model in which altruism and decision-error parameters determine the distribution of contributions for linear and quadratic public goods games. The equilibrium density is exponential for linear games, and normal for quadratic games. Our model implies: (i) contributions increase with the marginal value of the public good, (ii) total contributions increase with the number of participants, (iii) mean contributions lie between the Nash prediction and half the endowment. These predictions, which are not implied by a Nash analysis, are consistent with laboratory data. Maximum likelihood estimates of altruism and error parameters are significant and plausible.
Anderson, S.P., Goeree, J.K. & Holt, C.A. 1998, 'Rent Seeking with Bounded Rationality: An Analysis of the All-Pay Auction', Journal of Political Economy, vol. 106, no. 4, pp. 828-853.
The winner-take-all nature of all-pay auctions makes the outcome sensitive to decision errors, which we introduce with a logit formulation. The equilibrium bid distribution is a fixed point: the belief distributions that determine expected payoffs equal the choice distributions determined by expected payoffs. We prove existence, uniqueness, and symmetry properties. In contrast to the Nash equilibrium, the comparative statics of the logit equilibrium are intuitive: rent dissipation increases with the number of players and the bid cost. Overdissipation of rents is impossible under full rationality but is observed in laboratory experiments. Our model predicts this property.
Goeree, J.K., Hommes, C. & Weddepohl, C. 1998, 'Stability and complex dynamics in a discrete tâtonnement model', Journal of Economic Behavior and Organization, vol. 33, no. 3-4, pp. 395-410.
In this paper we study the dynamics of discrete price adjustment processes. We show that gross substitutability leads to a kind of stability of the process: it guarantees that all prices converge to some bounded region that contains the unique equilibrium price. The dynamics inside this region is by no means trivial. We demonstrate that as the speed of adjustment increases the process undergoes several bifurcations, and the dynamics may become quite complex. Our approach differs from other literature on tâtonnement processes in that our systems are not necessarily one-dimensional. © 1998 Elsevier Science B.V.
Anderson, S.P., Goeree, J.K. & Ramer, R. 1997, 'Location, location, location', Journal of Economic Theory, vol. 77, no. 1, pp. 102-127.
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We analyze the canonical location-then-price duopoly game with general log- concave consumer densities. A unique pure-strategy equilibrium to the two-stage game exists if the density is not "too asymmetric" and not "too concave." These criteria are satisfied by many commonly used densities. Equilibrium locations are closer, and prices lower, the tighter the density. Our results apply also to a vertical differentiation specification. Symmetric densities that are "too concave" have no symmetric equilibrium, although asymmetric ones may exist. Finally, product differentiation is always excessive. Under symmetry the equilibrium dispersion lies between 3/2 and 3 times the optimum dispersion. Journal of Economic Literature Classification Numbers: C72, D43, L13. © 1997 Academic Press.
Goeree, J. & Minkman, M. 1997, 'The Demand for Soccer', Kwantitatieve Methoden, vol. 54, pp. 47-54.
Goeree, J., Shuangzhe, L. & Heinz, N. 1996, 'Solutions: An Inequality Involving Submatrices', Econometric Theory, vol. 12, no. 02, pp. 394-395.
Goeree, J., Liu, S.Z. & Neudecker, H. 1996, 'An inequality involving submatrices', ECONOMETRIC THEORY, vol. 12, no. 2, pp. 394-395.
Goeree, J., Neudecker, H., Drury, S.W. & Styan, G.P.H. 1995, 'The Singular Value Decomposition of the Square Roots of the Identity Matrix', Econometric Theory, vol. 11, no. 03, pp. 648-653.
GOEREE, J., NEUDECKER, H., DRURY, S. & STYAN, G. 1995, 'THE SINGULAR-VALUE DECOMPOSITION OF THE SQUARE ROOTS OF THE IDENTITY MATRIX', ECONOMETRIC THEORY, vol. 11, no. 3, pp. 648-653.
DEBOER, J. & GOEREE, J. 1993, 'COVARIANT W GRAVITY AND ITS MODULI SPACE FROM GAUGE-THEORY', NUCLEAR PHYSICS B, vol. 401, no. 1-2, pp. 369-412.
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DEBOER, J. & GOEREE, J. 1993, 'THE EFFECTIVE ACTION OF W(3) GRAVITY TO ALL ORDERS', NUCLEAR PHYSICS B, vol. 401, no. 1-2, pp. 348-366.
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DEBOER, J. & GOEREE, J. 1993, 'KPZ ANALYSIS FOR W3 GRAVITY', NUCLEAR PHYSICS B, vol. 405, no. 2-3, pp. 669-694.
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DEBOER, J. & GOEREE, J. 1992, 'THE COVARIANT W3 ACTION', PHYSICS LETTERS B, vol. 274, no. 3-4, pp. 289-297.
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DEBOER, J. & GOEREE, J. 1992, 'W-GRAVITY FROM CHERN-SIMONS THEORY', NUCLEAR PHYSICS B, vol. 381, no. 1-2, pp. 329-359.
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DEBOER, J. & GOEREE, J. 1991, 'MARKOV TRACES AND II1-FACTORS IN CONFORMAL FIELD-THEORY', COMMUNICATIONS IN MATHEMATICAL PHYSICS, vol. 139, no. 2, pp. 267-304.
GOEREE, J. 1991, 'W-CONSTRAINTS IN 2D QUANTUM-GRAVITY', NUCLEAR PHYSICS B, vol. 358, no. 3, pp. 737-757.
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Bais, F.A., Tjin, T., Driel, P.V., Boer, J.D. & Goeree, J., 'W Algebras, W Gravities and their Moduli Spaces'.
By generalizing the Drinfel'd--Sokolov reduction we construct a large class of W algebras as reductions of Kac--Moody algebras. Furthermore we construct actions, invariant under local left and right W transformations, which are the classical covariant induced actions for W gravity. Talk presented by T. Tjin at the Trieste Summerschool on strings and related topics.

Other

Burtraw, D., Goeree, J., Holt, C.A., Myers, E., Palmer, K. & Shobe, W. 2008, 'Collusion in Auctions for Emission Permits: An Experimental Analysis'.
Environmental markets have several institutional features that provide a new context for the use of auctions and which have not been studied previously. This paper reports on laboratory experiments testing three auction forms -– uniform and discriminatory price sealed bid auctions and an ascending clock auction. We test the ability of subjects to tacitly or explicitly collude in order to maximize profits. Our main result is that the discriminatory and uniform price auctions produce greater revenues than the clock auction, both without and with explicit communication. The clock appears to be more subject to successful collusion because of its sequential structure and because it allows bidders to focus on one dimension of cooperation (quantity) rather than two (price and quantity).
Goeree, J.K., Palfrey, T.R., Rogers, B.W. & McKelvey, R.D. 2007, 'Self-correcting information cascades', pp. 733-762.
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We report experimental results from long sequences of decisions in environments that are theoretically prone to severe information cascades. Observed behaviour is much different - information cascades are ephemeral. We study the implications of a theoretical model based on quantal response equilibrium, in which the observed cascade formation/ collapse/formation cycles arise as equilibrium phenomena. Consecutive cascades may reverse states, and usually such a reversal is self-correcting: the cascade switches to the correct state. These implications are supported by the data. We extend the model to allow for base rate neglect and find strong evidence for overweighting of private information. The estimated belief trajectories indicate fast and efficient learning dynamics. © 2007 The Review of Economic Studies Limited.
Goeree, J. & Groer, J. 2004, 'False Consensus Voting and Welfare Reducing Polls'.
We consider a process of costly majority voting where people anticipate that others have similar preferences. This perceived consensus of opinion is the outcome of a fully rational Bayesian updating process where individuals consider their own tastes as draws from a population. We show that the correlation in preferences lowers expected turnout. The intuition is that votes have a positive externality on those who don't participate, which reduces incentives to participate. We study the effects of the public release of information ('polls) on participation levels. We find that polls raise expected turnout but reduce expected welfare because they stimulate the 'wrong group to participate. As a result, polls frequently predict the wrong outcome. While this lack of prediction power is usually attributed to an imperfect polling technology, we show it may result from the reaction of rational voters to the poll's accurate information.
Goeree, J.K., Holt, C.A. & Palfrey, T.R. 2002, 'Quantal response equilibrium and overbidding in private-value auctions', pp. 247-272.
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This paper applies the quantal response equilibrium (QRE) model to study overbidding in private-values auctions. Experimental evidence shows that the prevalence of overbidding depends on the cost of overbidding relative to underbidding, as predicted theoretically. We use QRE as an error structure to estimate parameters of several competing models of overbidding. A QRE model based on risk averse bidders closely tracks the exact distribution of bids. The estimated parameters are significant and consistent across treatments. Journal of Economic Literature Classification Numbers: C72, C92, D44. © 2002 Elsevier Science (USA).
Goeree, J., 'Information Cascades: Theory and Experiments'.
Goeree, J., Palfrey, T., Rogers, B. & McKelvey, R., 'Self-correcting Information Cascades'.
In laboratory experiments, information cascades are ephemeral phenomena, collapsing soon after they form, and them reforming again. The formation/collapse/reformation cycles occur frequently and repeatedly. Cascades may be reversed (collapse followed by a cascade on a different state) and more often than not, such a reversal is self-correcting: The cascade switches from the incorrect to the correct state. Past experimental work focused on relatively short horizons, where these interesting dynamics are rarely observed. We present experiments with a longer horizon, and also investigate the effect of signal informativeness. We propose a theoretical model, based on quantal response equilibrium, where temporary and self-correcting cascades arise as equilibrium phenomena. The model also predicts the systematic differences we observe experimentally in the dynamics, as a function of signal informativeness. We extend the basic model to include a parameter measuring base rate neglect and find it to be a statistically significant factor in the dynamics, resulting in somewhat faster rates of social learning.