It is known that sunspots can trigger panic-based bank runs and that the optimal banking contract can tolerate panic-based runs. The existing literature assumes that these sunspots are based on a publicly observed extrinsic randomizing device. In this paper, I extend the analysis of panic-based...

We show that a rational expectations equilibrium need not be incentive compatible, need not be implementable as a perfect Bayesian equilibrium and may not be fully Pareto optimal, unless the utility functions are state independent. A comparison of rational expectations equilibria with core...

We have experimentally tested a theory of bounded rational behavior in a "lemon market". It provides an explanation for the observation that real world players successfully conclude transactions when perfect rationality predicts a market collapse. We analyzed two different market designs :...

In this paper we experimentally test a theory of boundedly rational behavior in a "lemons market." We analyzed two different market designs, for which perfect rationality implies complete and partial market collapse, respectively. Our empirical observations deviate substantially from these...

We experimentally study behavior in a simple voting game where players have private information about their preferences. With random matching, subjects overwhelmingly follow the dominant strategy to exaggerate their preferences, which leads to inefficiency. We analyze an exogenous linking...

This paper analyzes the implications of currency crises in a model with unique equilibrium. Starting from a typical multiple equilibria model with self-fulfilling expectations we introduce noisy information, following Morris/Shin (1999). Under certain conditions for the noise parameter, all...

Unternehmen müssen nicht immer Kollusionsabsichten verfolgen, wenn sie untereinander Informationen austauschen. Dieser Beitrag zeigt, daß bei Nachfrageunsicherheit auch strikt kompetitive Konkurrenten private Informationen bezüglich ihrer Nachfragebedingungen preisgeben. Dies läßt sich in...

Using simple game-theoretical models, this paper studies the role of pre-determined rules for HRM policies. We consider a model in which HRM decisions affect employees' self-images and thereby their motivation. We show that in the absence of written rules, managers are too reluctant (1) to...

In the economics profession there is a fierce debate whether industrial and innovation policy should be targeted to specific sectors or firms. This paper discusses the welfare effects of such targeted policies from the perspective of strategic game theory of the firm. A theoretical case for...

We consider takeover bidding in a Cournot oligopoly when firms have private information concerning the synergy effect of merging with a takeover target. Two auction rules are considered: standard first-price and profit-share auctions, supplemented by entry fees. Since non-merged firms benefit...