This paper contributes to the micro-foundation of money in centralized markets with idiosyncratic uncertainty. It shows existence of stationary monetary equilibria and ensures that there is an optimum quantity of money. The rational solution of our model is compared with actual behavior in a...

For an axiomatic approach to a special solution of the Nash-bargaining problem we use a weakened form of invariance of the solution under affine linear transformations of utility which is motivated by behavioural studies on bounded rationality. Besides standard axioms a new compensation axiom is...

This paper studies a centralized market with idiosyncratic uncertainty and money as a medium of exchange from a theoretical as well as an experimental perspective. In our model, prices are fixed and markets are cleared by rationing. We prove the existence of stationary monetary equilibria and of...

In an experimental 2x2 coordination game with two strict equilibria we observe that, in contrast to equilibrium selection theory (Harsanyi and Selten 1988), only half of the subjects choose the strategy that relates to the payoff- and risk-dominant equilibrium. We propose modified risk dominance...

Expected value theory has been known for centuries to be subject to critique by St. Petersburg paradox arguments. And there is a traditional rebuttal of the critique that denies the empirical relevance of the paradox because of its apparent dependence on existence of credible offers to pay...

In an experimental framework on network formation inspired by the two-way information flow model of Bala and Goyal (2000), we observe that many groups participating in the experiment reach the strict Nash network resp. come very close to this network. Compared to the results of previous network...

Inspired by the theoretical results on network formation by Bala and Goyal (2000) and experimental evidence by Plott and Callander (2002) and Falk and Kosfeld (2003) we design network formation experiments in discrete and continuous time. Particularly in the continuous time experiment, we...

A large literature is concerned with analysis and empirical application of theories of decision making for environments with risky outcomes. Expected value theory has been known for centuries to be subject to critique by St. Petersburg paradox arguments. More recently, theories of risk aversion...

This paper presents results from an experiment designed to study the effect of self reporting risk preferences on strategy choices made in a subsequently played 2 X 2 coordination game. The main finding is that the act of answering a questionnaire about one's own risk preferences significantly...

In an experimental setting, subjects face a standard elicitation task for certainty equivalents. We show that when a third, objectively irrelevant, option is added to the standard task, the willingness to take risks increases.