Simonson and Tversky (Journal of Marketing Research, 1992) demonstrated that the tendency to choose an alternative is enhanced or hindered depending on whether the tradeoffs within the set under consideration are favorable or unfavorable to that option (tradeoff contrast effect). In this paper...

Abstract In Heller and Mohlin (2017) we develop a framework in which individuals' preferences coevolve with their abilities to deceive others about their preferences and intentions. Specifically, individuals are characterised by (i) a level of cognitive sophistication and (ii) a subjective...

We study population dynamics under which each revising agent tests each strategy k times, with each trial being against a newly drawn opponent, and chooses the strategy whose mean payoff was highest. When k = 1, defection is globally stable in the prisoner's dilemma. By contrast, when k 1 we...

We develop a framework in which individuals' preferences coevolve with their abilities to deceive others about their preferences and intentions. Specifically, individuals are characterised by (i) a level of cognitive sophistication and (ii) a subjective utility function. Increased cognition is...

Black and Cox (1976) claim that the value of junior debt is increasing in asset risk when the firm's value is low. We show, using closed-form solution, that the junior debt's value is hump-shaped. This has interesting implications for the market-discipline role of banks' junior debt (subdebt)

We study environments in which agents are randomly matched to play a Prisoner's Dilemma, and each player observes a few of the partner's past actions against previous opponents. We depart from the existing related literature by allowing a small fraction of the population to be commitment types....

We study the influence of unsecured debt (subdebt) and of bail-in debt on banks' risk-taking in a contingent claim model, while considering the bargaining between stockholders and debtholders. We show that replacing stock with subdebt: (1) leads to fewer risk-shifting events, but generates a...

We present a novel theoretical mechanism that explains how nonenforceable communication about future actions has the capacity to improve efficiency. We explore a two-player partnership game where each player, before choosing a level of effort to exert on a joint project, makes a cheap talk...

We study environments in which agents from a large population are randomly matched to play a one-shot game, and, before the interaction begins, each agent observes noisy information about the partner's aggregate behavior. Agents follow stationary strategies that depend on the observed signal. We...

In various environments new agents may base their decisions on observations of actions taken by a few other agents in the past. In this paper we analyze a broad class of such social learning processes, and study under what circumstances the initial behavior of the population has a lasting...