1. Coralio Ballester, Antoni Calvo-Armengol and Yves Zenou Who's Who in Networks. Wanted: the Key Player
The authors provide results linking equilibrium behavior in a game among networked players to social networks-based measures of centrality, providing an interesting bridge between the economics and sociology literatures. A network of players each picks a level of some activity in a game where there are negative global externalities (competition) and local positive externalities (learning, cooperation, etc.) that come through the network. This system has feedback effects, and the authors show how equilibrium activity levels can be expressed in terms of a centrality measure from the social networks literature (Bonacich centrality). Besides deriving some comparative statics, the authors show how the centrality index can be used to identify ``key’’ players in terms of their decisions having maximum influence on overall activity.
2. Dirk Bergemann and Stephen Morris Robust Mechanism Design
The authors investigate mechanism design in a robust sense: requiring that the mechanism result in the desired equilibrium outcomes even when a large type space is considered, so that agents beliefs, beliefs about beliefs, etc., are incorporated into types and can vary. Anything that is ex post implementable is robustly implementable, and the authors identify settings where the converse holds so that these two concepts are equivalent. The authors also have an interesting companion paper (http://www.econ.yale.edu/%7Esm326/rmd-full.pdf) that looks at the full implementation question (accounting for all equilibria of a mechanism) in the face of such robustness requirements.
3. Muhamet Yildiz Wishful Thinking in Strategic Environments
Recently there has been a proliferation of economic models with over-optimistic agents. However, these models have a catch: players have biased beliefs regarding the moves of Nature, yet standard equilibrium analysis implies that they are not allowed to hold biased beliefs regarding other players' moves. Here is an interesting attempt to address this problem. The paper analyzes complete-information games with players who are "wishful thinkers": they choose not only how to act but also what to believe regarding the opponent's action. Yildiz constructs an epistemic model, in which "rationality in a state" is replaced with "wishful thinking in a state", and "common knowledge of rationality" is replaced with "common knowledge of wishful thinking". Yildiz shows that only strategies that are played in Nash equilibrium are consistent with common knowledge of wishful thinking. The only kind of biased beliefs that the model essentially leaves room for is optimism about which Nash equilibrium is going to be played.
4. Avner Shaked The Rhetoric of Inequity Aversion
Avner Shaked presents a sharply critical discussion of claims that Ernst Fehr and Klaus Schmidt have made for their theory of "inequity aversion" and of the methods that they have used to promote this theory. A vigorous response by Fehr and Schmidt and a brief rejoinder by Shaked can also be found at the above link. While Shaked's criticism is directed at Fehr and Schmidt, it raises important issues about the handling of evidence in many branches of economics.
5. Ernst Fehr and Klaus Schmidt The Rhetoric of Inequity Aversion- A Reply
[Fairness and Reciprocity Special Issue] This is the reply to the Shaked "pamphlet" by Fehr and Schmidt. It provides substantive answers to the substantive points raised by Shaked. It points out that the questions about the analytic results arise from a typo not a substantive error, and provides additional insight into why the particular parameter values were chosen for the calibration. Reviewed by Jeff Ely and David K. Levine.[Fairness and Reciprocity Special Issue continued in next volume]