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13
votes
5answers
2k views

Explaining mixed strategies for one-shot games

In the classic introduction to non-cooperative game theory, the mixed strategy for a player is taught as a distribution over strategy space for the player. The distribution essentially gives us the ...
13
votes
2answers
1k views

What is the difference between contract theory and mechanism design?

Can someone explain the difference between contract theory and mechanism design?
13
votes
5answers
3k views

When a stock market crashes, how does money just disappear?

I looked it up online (here), but I find it hard to believe that money literally "disappears". For example, if I buy 10 stocks of a toaster company for \$100 per share, and then the stock value drops ...
13
votes
2answers
402 views

Uses of convex analysis in Economics

I'm taking kind of a crash-course in convex analysis to complement my mathematical skills and was wondering if anyone knew about nice ways in which this kind of tools were used in Economics. To be ...
13
votes
4answers
4k views

How does a national budget differ from a household budget?

We are often told by pundits that "Country X cannot spend more than they take in in revenue, because a house that makes A and spends B will always collapse if B>A". Essentially the siren calls of a ...
13
votes
4answers
586 views

What is it about certain business types that seem to restrict how much large they can grow?

For example, I've never heard of a large lawn-mowing corporation. Phone and computer repairers seem to consist mostly of 1 or two man operations. Wedding planners and photographers seem exclusively to ...
13
votes
3answers
699 views

The Economics of Coronavirus

People are concerned about the economic impacts of the virus. How severe will the economic downturn be? Will the coronavirus cause a global recession worse than the 2008 crisis? I'm not looking here ...
13
votes
1answer
2k views

First Order Condition for Profit Maximization in Gambling Industry

I am working on a model of optimal payout percentages in the gambling industry. Because the nominal price of a \$1 ticket is always \$1, we use an effective price strategy where Q = \$1 in won ...
13
votes
3answers
314 views

What have been the main developments in macroeconomics and financial economics since the 2008 financial crisis?

In the aftermath of 2008 economists were, fairly or not, blamed for a failure to foresee the coming crisis. Ideas such as "The Great Moderation" and market efficiency were openly ridiculed as ...
13
votes
4answers
7k views

Why does any treasury / central bank hold gold?

I know the US treasury is slowly selling its gold reserves, but what is the actual mission and purpose when it comes to the holdings? What is the reasoning behind the slow rate of liquidation? I have ...
13
votes
3answers
1k views

Why does China buy so much U.S. Treasury debt?

What is the reason that China buys so much US debt in form of Treasuries? How does this help the Chinese economy? It seems they are willing to give money to USA so USA economy can function better (...
13
votes
2answers
4k views

Larry Summers on the causes of secular stagnation

In an influential speech on November 8, 2013 at the IMF Annual Research Conference, Larry Summers suggested that slow economic growth in the years following the 2007–2008 financial crisis might be due ...
13
votes
2answers
5k views

Where can I find data on income and social mobility over time? How far back is data available?

I'm interested in income and social mobility. I understand that Piketty's research deals with the the distribution of income over a long time period. I have also seen some of Chetty and Saez's ...
13
votes
1answer
198 views

Nash equilibrium - mistake in proof of paper?

I have a question regarding the proof of Proposition 1 in Besley and Ghatak (2007) in Appendix A of their paper. It is a quite highly cited paper but I believe there is a mistake in the proof of their ...
13
votes
6answers
755 views

Does land value tax create an incentive to merge land ownerships?

LVT is "a tax on the unimproved value of land", and "in theory, it does not distort decision making". But if I own land then improvements such as buildings on my neighbour's land can easily increase ...
13
votes
2answers
2k views

Differentiate a positive externality and the absence of a negative externality. Tax or subsidize?

I hope this isn't overly semantic, but I'd like to gain some clarification on the use positive (or negative) externality. I usually shoot down suggestions for examples of positive externalities like ...
13
votes
1answer
356 views

Barro's (2009) rare disaster model in the AER: How to derive equation (10)?

In Barro (2009) Rare disasters, asset prices and welfare costs Barro develops a Lucas tree model with Epstein-Zin preferences. My question concerns the paper's equation (10). In this equation Barro ...
13
votes
1answer
452 views

Stochastic growth in continuous time

Literature: See Chang (1988) for theoretical part and Achdou et al. (2015) for numerical part respectively. Model Consider the following stochastic optimal growth problem in per capita notation. \...
13
votes
1answer
1k views

Solving the Hamilton-Jacobi-Bellman equation; necessary and sufficient for optimality?

Consider the following differential equation \begin{align} \dot x(t)=f(x(t),u(t)) \end{align} where $x$ is the state and $u$ the control variable. The solution is given by \begin{align} x(t)=x_0 + \...
13
votes
0answers
347 views

How accurate is duality?

In economic theory we know that with the use of some calculus, Hotellings Lemma and Sheppards lemma we can derive a given firms supply function and in term its Profit function. With data of a given ...
12
votes
6answers
4k views

Why must the rate of GDP growth be positive?

There are always expectations that GDP should be growing at a certain rate. This is what I see in the newspapers. I am not an economics major and this is a very basic student question. After adjusting ...
12
votes
4answers
9k views

Is complex analysis used in economics?

It's frequently useful in physics and engineering applications; are there any applications in theoretical economics? (If not, were there any attempts at incorporating CA that just never caught on?) ...
12
votes
4answers
758 views

R in econ departments?

According to my personal observation the majority of (prominent) economists prefer use Stata for their statistical analysis and Matlab for other mathematical work. SAS and Excel are also used (...
12
votes
4answers
6k views

Does the US stock market tend to rise after natural disasters?

It seems counter intuitive that markets would rise after a huge disaster that probably affects multiple industries like oil or produce. For example, can someone explain why the US markets actually ...
12
votes
4answers
6k views

Why do lenders dislike early loan repayments?

I've frequently seen references in blogs and articles about how banks and other lending agencies like to refer to people who repay loans on an accelerated schedule as "deadbeats", because they get ...
12
votes
5answers
884 views

What is the reasoning behind the sharp fall of oil prices starting in mid 2014?

Things I have considered: Poor economic conditions around the world could have caused an unpredicted decrease in demand. The resulting surplus has begun driving prices down. This could be ...
12
votes
5answers
5k views

Visualization tools for game theory: Game trees

There are many ways to draw a sequential game 'by hand'. By drawing the game I mean this: Displaying players' decision points, available actions and payoffs. Is there any way I can do this in R or a ...
12
votes
4answers
697 views

What are the empirical techniques to show causation?

A simple linear regression only shows correlation between two variables. To establish causation, two commonly taught methods are IV regression and natural experiments. What are the other methods ...
12
votes
2answers
2k views

Why in most macro models technology is labor-augmenting?

Take Romer's advanced macro book as reference. In it the Solow model,the Ramsey model and the Diamond OLG all contain the fundamental $A_t$ variable representing technological progress. In all these ...
12
votes
4answers
864 views

Osborne, Nash equilibria and the correctness of beliefs

In Osborne's An Introduction to Game Theory Nash equilibrium is described as follows (p. 21–22): First, each player chooses her action according to the model of rational choice, given her beliefs ...
12
votes
3answers
906 views

Consumer optimum in an economy with a continuum of commodities

Consider an economy with a continuum of commodities, with one commodity for each point in $[0,1]$. Suppose a consumer wants to maximise $$U = \int_0^1 c_i^\theta\,di\qquad 0<\theta<1$$ subject ...
12
votes
2answers
2k views

Monopolies are just a mathematical misunderstanding

A little head-scratcher (and a good example why we should be careful with notation). Consider a profit maximizing monopoly, that solves over price $$\max \pi = PQ(P) - C(Q(P)) \tag{1}$$ Following ...
12
votes
2answers
1k views

How is freelancing viewed under Marxism?

How does Marxism view freelance workers? Since a freelancer is the owner of their means of production, are they still viewed as exploited by the bourgeoisie? Could freelancing exist in a Marxist ...
12
votes
1answer
270 views

Quality of French wine in the US vs French wine in France

I remember reading a study/paper saying that the AVERAGE bottle of french wine drunk in the US is better than the average bottle of french wine drunk in France, due to the fact that nobody bothers to ...
12
votes
4answers
75k views

What is the definition of exogenous and endogenous preferences?

Wikipedia states: Exogenous Preference -- one that comes from outside the model and is unexplained by the model. Endogenous Preference -- preferences then cannot be taken as given, but are ...
12
votes
2answers
211 views

How could the Euro zone be broken up in an ordered way?

Let’s assume that the members of Euro zone all agreed that it would end in 18 months time with each country getting its own currency. What process could be put in place to allow this to happen ...
12
votes
2answers
3k views

What is the definition of a “Stackelberg leader-leader equilibrium”?

I have encountered the equilibrium concept of "Stackelberg leader-leader equilibrium" while reading Product Line Rivalry (AER, Brander and Eaton (1984). They say "we define a Stackelberg strategy as ...
12
votes
2answers
277 views

Economics of forgetting

I'm interested to know economic justifications of forgetting in various fields. On example is Green and Porter(1984). To sustain a Cartel, Cartel members have incentive to forget deviations in a ...
12
votes
2answers
2k views

What is the difference between “aggregation” and a “representative agent?”

What is the difference between "aggregation" and a "representative agent?" I'm sorry if I'm not entirely clear on this question, but that's why I ask. It seems to me as if a representative agent is ...
12
votes
2answers
983 views

Depreciation and second-hand markets for bicycles

Probably the answer to this question is "business as usual", but I've observed of late that the market for bicycles is pretty weird. You can buy a brand new factory-produced bicycle in the US (I'm ...
12
votes
2answers
245 views

Why use empirical macroeconomic models when they are not policy invariant (Lucas Critique)?

With high probability this question is duplicate, and I tried to find one already in the community, but I was unsuccessful. According to the Lucas Critique, in its more general terms, the problem ...
12
votes
1answer
719 views

What are estimates of the elasticity of demand for credit with respect to interest rates?

When interest rates go up one percent (not one percentage point), what happens to demand for credit? I've only been able to find two papers in this area: Gross and Souleles (2001) study credit cards ...
12
votes
1answer
607 views

When does the Divine Equilibrium refinement coincide with that of Perfect Sequential Equilibrium?

In signaling games, it seems that the Cho Kreps refinement (intuitive criterion) is the go to refinement for eliminating bad sequential equilibria. Divine equilibrium and perfect sequential ...
12
votes
2answers
588 views

Is there a solution to the Joker's game in The Dark Knight?

In the final battle in the movie, the Dark Knight (2008), the Joker has rigged two ferries carrying people out of Manhattan Gotham to explode. One ferry carries mostly civilians with a substantial ...
12
votes
2answers
812 views

$1.25 PPP per day poverty threshold - What precisely does it mean?

As Wikipedia states: In 2008, the World Bank came out with a revised figure of $1.25 at 2005 purchasing-power parity (PPP). (Update: In 2015, this was updated to $\$1.90$ at 2015 PPP.) Wikipedia ...
12
votes
0answers
365 views

Can I refine the set of equilibria in a signaling game to the sender-optimal outcome?

Main question: I've been reading about communication games a lot, and I'm wondering if there are good criteria to select between two separating-ish equilibria. I think of a separating equilibria as ...
11
votes
6answers
724 views

What metrics would indicate a house bubble rather than genuine market values?

There are concerns that Auckland, New Zealand, is currently experiencing a housing bubble. Auckland is one of the top 10 cities in the world on a housing unaffordability index. The question is - ...
11
votes
1answer
4k views

What did “18/9”, “25/”, and “30/” mean in this 1800 British document?

In "The Petition of the Master Taylors of London and its Vicinity, December 1800" (reproduced in Galton, 1896), it is stated the wages and allowances ... were accordingly settled at the rate of 18/...
11
votes
6answers
1k views

References to learn continuous-time dynamic programming

Does anyone know of good references to learn continuous-time dynamic programming? The references don't have to be books. They could be links to online resources as well. Links to clear, concise ...
11
votes
3answers
498 views

Price discrimination- how much is optimal?

I am of the understanding that as a general rule, price discrimination does not benefit consumers. Yet I can think of a situation where it does. Look at two countries, Australia and India. The price ...

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