|
If you are seeing this message, you may be experiencing temporary network problems. Please wait a few minutes and refresh the page. If the problem persists, you may wish to report it to your local Network Manager.
It is also possible that your web browser is not configured or not able to display style sheets. In this case, although the visual presentation will be degraded, the site should continue to be functional. We recommend using the latest version of Microsoft or Mozilla web browser to help minimise these problems.
Wiley InterScience | |||
  EconometricaVolume 73 Issue 5, Pages 1623 - 1672 Published Online: 5 Aug 2005 © 2009 The Econometric Society
Abstract | References | Full Text: PDF (Size: 347K) | Related Articles | Citation Tracking  Cursed Equilibrium We thank Colin Camerer and seminar participants at Arizona, Berkeley, Birmingham, Caltech, Edinburgh, ESSET 2001 (Gerzensee), ESA Meeting 2002 (Strasbourg), Essex, Harvard, LSE, Nottingham, Nuffield, UCL, Zurich, Pompeu Fabra, and especially Dirk Engelmann, three anonymous referees, and Glenn Ellison for helpful comments, as well as Davis Beekman, Kitt Carpenter, David Huffman, and extra especially Jeff Holman for valuable research assistance. We are grateful to Chris Avery, John Forsythe, Serena Guarnaschelli, John Kagel, Mark Isaac, Dan Levin, Richard McKelvey, and Tom Palfrey for sharing their data. Eyster thanks the Olin and MacArthur Foundations, and Rabin thanks the Russell Sage, MacArthur, and National Science Foundations for financial support. Copyright The Econometric Society 2005 KEYWORDS Adverse selection • winner's curse • common-values auctions • speculative trade ABSTRACTThere is evidence that people do not fully take into account how other people's actions depend on these other people's information. This paper defines and applies a new equilibrium concept in games with private information, cursed equilibrium, which assumes that each player correctly predicts the distribution of other players' actions, but underestimates the degree to which these actions are correlated with other players' information. We apply the concept to common-values auctions, where cursed equilibrium captures the widely observed phenomenon of the winner's curse, and to bilateral trade, where cursedness predicts trade in adverse-selections settings for which conventional analysis predicts no trade. We also apply cursed equilibrium to voting and signalling models. We test a single-parameter variant of our model that embeds Bayesian Nash equilibrium as a special case and find that parameter values that correspond to cursedness fit a broad range of experimental datasets better than the parameter value that corresponds to Bayesian Nash equilibrium. Manuscript received November, 2000; final revision received February, 2005. | 
|
