In classical models of markets, the state of nature is revealed regardless of the actions agents take. If instead agents can uncover information they will determine which states can be distinguished and thus which goods are traded. Competitive equilibria can then be inefficient. One source of...

The psychology literature provides ample evidence that people have difficulties taking the perspective of less-informed others. This paper presents a controlled experiment showing that this "curse of knowledge" can cause comparative overconfidence and overentry into competition. In a broader...

How does demand uncertainty affect entry into skill-based competition? I investigate this question in a market entry experiment with skill-based payoffs by systematically varying two key elements of the market environment: demand risk and expected market size. Results show that people's...

We analyze the effect of ambiguous loss probabilities on competitive insurance markets with asymmetric information. We characterize equilibria under actuarially fair pricing with preferences that are second-order ambiguity averse (have smooth indifference curves). We also show existence of...

We analyze competitions where the contestants evaluate each other and find the first contestant to be disadvantaged. We suspect that this is due to information diffusion, Bayesian belief updating taking place in course of the contest and initial uncertainty about a contestant's relative quality....

The objective of our paper is to study R&D investments and pricing behavior in an environment with fundamental uncertainty. We designed a multi-period experiment in which each period consisted of two stages, an R&D phase and a pricing stage. Participants in the experiment had almost no...

Empirical applications of real options models in competitive environments implicitly exploit the optimality of myopic planning. In a seminal paper [Leahy, J.V., 1993. Investment in Competitive Equilibrium: the Optimality of Myopic Behavior. Quarterly Journal of Economics 108, 1105–1133] shows...