Two agents are engaged in a joint activity that yields a common perperiod payoff at two rounds of play. The expert announces the probability that the current state of the world is low, instead of high, at each stage. Having received the report of the expert, the decision-maker takes action at...

The present paper introduces a model of dynamic equilibrium in a market, based on game theoretic approach, with specific development for capital markets and corporate strategies. The model allows to study some aspects of structural change in markets, both its dynamics and qualitative aspects. An...

We suggest that one individual holds multiple degrees of belief about an outcome, given the evidence. We then investigate the implications of such noisy probabilities for a buyer and a seller of binary options and find the odds agreed upon to ensure zero-expectation betting, differ from those...

This paper demonstrates the importance of simultaneously considering two behavioral biases, correlation neglect and overprecision, in characterizing belief formation. Our laboratory experiments reveal that, relative to independent signals, subjects overvalue moderately or strongly correlated...

We propose that there are three determinants of sender behavior in trust games: Beliefs re-garding the amounts returned, risk aversion, and reciprocity. Particularly, we are interested in the role of reciprocity because the possibility of negative expected reciprocal utility may lead to...

We propose an extension of the class of rational expectations bubbles (REBs) to the more general rational beliefs setting of Kurz (1994a,b). In a potentially non-stationary but stationarizable environment, it is possible to hold more than one (small-r) “rational” expectation. When rational...

Do experts form rational beliefs when making split-second, sophisticated judgments? A long literature suggests not: individuals often form prior beliefs from biased sampling and update those beliefs by improperly weighting new information. This paper studies belief formation by professional...

Bayes' Theorem has an implicit, fundamental rule of how subjects should incorporate informationally equivalent signals of opposite direction: two opposite-directional signals should cancel out such that prior beliefs remain constant. In this study, we test whether agents always follow this...