Knowledge that Transforms

[We consider an oligopolistic market where firms face an uncertain demand for their product. Each firm observes a private signal for the state of demand and decides whether to reveal it to other firms and how complete this revelation will be. After the stage of information transmission the firm chooses its level of output. We derive pure strategy equilibria that are symmetric and subgame perfect, and demonstrate that no information sharing is the unique Nash equilibrium of the game regardless of the degree of correlation among the private signals.]

Revolution is viewed as a two person game, between Lenin and the Tsar, who compete for support of coalitions of the population. The payoff is the probability of revolution, which Lenin seeks to maximize and the Tsar to minimize. Lenin's strategies are income distribution proposals; the Tsar's strategies are lists of penalties which members of the population will pay should they join Lenin and their bid for revolution fail. The probabilities of revolution depend on the strategies which the two revolutionary entrepreneurs propose. There is an equilibrium pair of strategies; the task is to study what properties it has. In particular, it is shown that various tyrannical aspects of the Tsar's strategy, and progressive aspects of Lenin's strategy need not flow from ideological precommitments, but are simply good optimizing behavior, given their respective goals in this game. Thus apparently ideological positions of Lenin and the Tsar are provided with microfoundations of a sort. The paper thus aims to: (i) study revolutions as strategic games, and more generally to (ii) be a case study of the rational evolution of apparently ideological behavior. 1. INTROI)UCTION REVOLUTIONS HAVE BEEN VIEWED by social scientists and historians, for the most part, as largely inexplicable events. According to the logic of collective (Olson [4]) the free rider problem should prevent each participant from joining in a revolutionary struggle. The side payments which might overcome such self-interested behavior are generally not offered in revolutionary situations. Rosa Luxemburg wrote of the psychology of the mass strike which made revolutionary events possible (Luxemburg [2]): contemporary students of rational action might characterize that psychology as the adoption, by the participants, of assurance game in contrast to prisoner dilemma game (Sen [7]). In the assurance game, an agent would rather cooperate (in this case revolt) if others do, rather than take a free ride. Economists, when they consider revolutions at all, view them as exogenous events, perhaps because they are so difficult to explain from rational self-interested behavior. Sociologists and political scientists have described which classes tend to be revolutionary (as opposed to reformist) in historical situations (for instance, Paige [6]), Skocpol [8], Stinchcombe [9]); these works show that any understanding of the formation of revolutionary preferences must be deeply rooted in the specifics of how the people involved earn their livelihood and how they interact. The present paper does not study these sociological aspects of the revolutionary situation; indeed, the sociology is taken as given and is embedded in various probability functions which are postulated. Nor do different production classes exist here, in the sense of groups of agents relating differently to the means of production. (I will, however, refer to different income classes in the paper.) Revolution is treated here as an allocation problem, a redistribution problem. The key actors upon whom attention will be focused are not the masses of people,

[For many multivariate linear rational expectations models a symmetry condition is satisfied, and when it is, a convenient representation of the solution exists that has many of the desirable features of the solution to the univariate model. This allows for greater insight into the identification, stability, and comparative dynamics properties of the model.]

[This paper examines the existence conditions of an oligopolistic equilibrium. We use the Cournot concept (the strategies are the production levels) in a partial equilibrium framework. We allow for U-shaped average cost curves and nonidentical firms. We show that an equilibrium exists if the demand is large. The main part of the proof is a new fixed point theorem for a class of noncontinuous mappings.]

This paper reexamines both monthly and quarterly U.S. postwar data to investigate if the observed comovements between money, real interestrates, prices and output are compatible with the money-real interest-output link suggested by existing monetary theories of output, which include both Keynesian and equilibrium models.The major empirical findings are these;1) In both monthly and quarterly data, we cannot reject the hypothesis that the ex ante real rate is exogenous, or Granger-causally prior in the context of a four-variable system which contains money, prices, nominal interest rates and industrial production.2) In quarterly data, there is significantly more information con-tained in either the levels of expected inflation or the innovationof this variable for predicting future output, given current and lagged output, than in any other variable examined (money, actualinflation, nominal interest rates, or ex ante real rates). The effect of an inflation innovation on future output is unambiguously negative. The first result casts strong doubt on the empirical importance of existing monetary theories of output, which imply that money should have a causal role on the ex ante real rates. The second result would appear incompatible with most demand driven models of output.In light of these results, we propose an alternative structural model which can account for the major dynamic interactions among the variables.This model has two central features: i) output is unaffected by money supply;and ii) the money supply process is motivated by short-run price stability.

ABSTRACT We extend the standard finance model of the firm's dividend/investment/financing decisions by allowing the firm's managers to know more than outside investors about the true state of the firm's current earnings. The extension endogenizes the dividend (and financing) announcement effects amply documented in recent research. But once trading of shares is admitted to the model along with asymmetric information, the familiar Fisherian criterion for optimal investment becomes time inconsistent: the market's belief that the firm is following the Fisher rule creates incentives to violate the rule. We show that an informationally consistent signalling equilibrium exists under asymmetric information and the trading of shares that restores the time consistency of investment policy, but leads in general to lower levels of investment than the optimum achievable under full information and/or no trading. Contractual provisions that change the information asymmetry or the possibility of profiting from it could eliminate both the time inconsistency and the inefficiency in investment policies, but these contractual provisions too are likely to involve dead‐weight costs. Establishing which route or combination of routes serves in practice to maintain consistency remains for future research.

ABSTRACT One of the most significant and unique features in Kahneman and Tversky's approach to choice under uncertainty is aversion to loss realization. This paper is concerned with two aspects of this feature. First, we place this behavior pattern into a wider theoretical framework concerning a general disposition to sell winners too early and hold losers too long. This framework includes other elements, namely mental accounting, regret aversion, self‐control, and tax considerations. Second, we discuss evidence which suggests that tax considerations alone cannot explain the observed patterns of loss and gain realization, and that the patterns are consistent with a combined effect of tax considerations and the three other elements of our framework. We also show that the concentration of loss realizations in December is not consistent with fully rational behavior, but is consistent with our theory.

ABSTRACT Research in experimental psychology suggests that, in violation of Bayes' rule, most people tend to “overreact” to unexpected and dramatic news events. This study of market efficiency investigates whether such behavior affects stock prices. The empirical evidence, based on CRSP monthly return data, is consistent with the overreaction hypothesis. Substantial weak form market inefficiencies are discovered. The results also shed new light on the January returns earned by prior “winners” and “losers.” Portfolios of losers experience exceptionally large January returns as late as five years after portfolio formation.