We offer a theory of polarization as an optimal response to ambiguity. Suppose individual A's beliefs first-order stochastically dominate individual B's. They observe a common signal. They exhibit polarization if A's posterior dominates her prior and B's prior dominates her posterior. Given...

We study trading models when the distribution of signals such as costs or values is not known to traders or the mechanism designer when the profit-maximizing trading procedure is designed. We present adaptive mechanisms that simultaneously elicit this information (market research) while...

In the bilateral hold-up model and the moral hazard in teams model, introducing a third party allows implementation of the first-best outcome, even if the agents can renegotiate inefficient outcomes and collude. Fines paid to the third party provide incentives for truth-telling and first-best...

This paper provides an explanation for why the sunk cost bias persists among firms in a competitive environment in which rich learning possibilities are allowed. We envision firms that experiment with cost methodologies that are consistent with real-world accounting practices, including ones...

We consider a model where agents work in sequence on a project, share information not available to the principal, and can collude. Due to limited liability the Coase theormem does not apply. The distribution of surplus among the agents is there an important control variable for the principal,...

We consider the problem of inducing agents who are concerned with their careers to reveal their private information about a project which has originated with one of them. A successful project raises the inventor's chance of promotion, at his peer's expense. Thus, the peer has an incentive to...