The paper addresses a paradoxical game-theoretic example which is closely related to the coordinated attack problem. Two players have to play one of two possible coordination games. Only one of them receives information about the coordination game to be played. It is shown that the situation with "almost common knowledge" is very different from when the coordination game played is common knowledge.

A single seller of an indivisible good operates in a market with many consumers who differ in their ability to process information. The consumers' constraints are modeled in two submodels: the first in terms of the limits on the number of sets in the partition of the price space, and the second in terms of the limits on the complexity of the operation he can use to process a price offer. For the construction of the second submodel, the tool of a "perceptron" is borrowed from the parallel computation literature. Assuming a negative correlation between the seller's cost of supply of the good and the consumer's ability to process information, I demonstrate that the heterogeneity of consumer's abilities can be used by the seller to profitably discriminate among them.

This paper explores how the requirement that the implementation of contracts be renegotiation-proof affects the set of contracts that can be implemented in a seller--buyer scenario in which the information regarding the agents' valuations is nonverifiable. This paper explicitly adds a time dimension to an implementation problem and introduces a natural criterion of renegotiation-proofness for the case of time-consuming renegotiation. The main insight gained is that the addition of the time dimension enlarges significantly the set of contracts that can be implemented in a renegotiation-proof manner.

This essay reviews Dani Rodrik's superb book Economics Rules and argues that it can serve as an ideal platform for discussing what economists can and should accomplish. The essay comments on some of the major issues in contemporary economics examined in the book: whether economics is a science, the meaning of economic models, the nature of “facts” in economics, and others. It also touches on issues that the book overlooks, such as the sociology of the profession, the teaching curriculum in economics, and the dismal situation of publishing in economics. (JEL A11, B40, C50)

We study interactive situations in which players are boundedly rational. Each player, rather than optimizing given a belief about the other players' behavior, as in the theory of Nash equilibrium, uses the following choice procedure. She first associates one consequence with each of her actions by sampling (literally or virtually) each of her actions once. Then she chooses the action that has the best consequence. We define a notion of equilibrium for such situations and study its properties.

A new typology of players is proposed based on the classification of actions as either instinctive or contemplative. A person’s type is the probability of him choosing a contemplative action. To test the typology, results of 10 games are analyzed. Actions in each game were classified depending on whether their response time was more or less, respectively, than the median response time of all subjects who played the game. It is argued that fast actions are more instinctive and slow actions are more contemplative. A subject’s contemplative index (CI) is defined as the proportion of games in which he chose a contemplative action. It is found that for 8 of the 10 games, the CI in the other 9 games is positively correlated with a player’s choice of a contemplative action in that game (average Spearman correlation of 9%). The CI is used to shed light on the nature of choice in five additional games.

What on earth are economic theorists like me trying to accomplish? This paper discusses four dilemmas encountered by an economic theorist: The dilemma of absurd conclusions: Should we abandon a model if it produces absurd conclusions or should we regard a model as a very limited set of assumptions that will inevitably fail in some contexts? The dilemma of responding to evidence: Should our models be judged according to experimental results? The dilemma of modelless regularities: Should models provide the hypothesis for testing or are they simply exercises in logic that have no use in identifying regularities? The dilemma of relevance: Do we have the right to offer advice or to make statements that are intended to influence the real world?

The aim of this paper is to explain the fact that certain properties of binary relations are frequently observed in natural language while others do not appear at all. Three features of binary relation are studied: (1) The ability to use the relation to indicate nameless elements. (2) The accuracy with which the vocabulary spanned by the relation can be used to approximate the actual terms to which a user of the language wishes to refer. (3) The ease with which the relation can be described by means of examples. It is argued that linear orderings are optimal according to the first criteria while asymmetric relations are optimal according to second. From among complete and asymmetric relations (tournaments) those which are transitive are optimal according to the third criterion. Copyright 1996 by The Econometric Society.

The paper is a discussion of the interpretation of game theory. The first half of the paper deals with the notion of "strategy". The paper endorses the view that equilibrium strategy describes a player's plan of action, as well as those considerations which support the optimality of his plan rather than being merely described as a "plan of action". In the second half of the paper it is argued that a good model in game theory has to be realistic in the sense that it provides a model for the perception of real life social phenomena. It should incorporate a description of the relevant factors involved, as perceived by the decision makers. Copyright 1991 by The Econometric Society.