A Mechanism‐Design Approach to Speculative Trade

When two parties have different prior beliefs about some future event, they can realize gains through speculative trade. Can these gains be realized when the parties' prior beliefs are not common knowledge? We examine a simple example in which two parties having heterogeneous prior beliefs, independently drawn from some distribution, bet on what future action one of them will choose. We define a notion of “constrained interim‐efficient” best and ask whether they can be implemented in Bayesian equilibrium by some mechanism. Our main result establishes that as the costs of unilaterally manipulating the bet's outcome become more symmetric across states, implementation becomes easier. In particular, when these costs are equal in both states, implementation is possible for any distribution.     

Inferring a linear ordering over a power set

An observer attempts to infer the unobserved ranking of two ideal objects, A and B, from observed rankings in which these objects are `accompanied' by `noise' components, C and D. In the first ranking, A is accompanied by C and B is accompanied by D, while in the second ranking, A is accompanied by D and B is accompanied by C. In both rankings, noisy-A is ranked above noisy-B. The observer infers that ideal-A is ranked above ideal-B. This commonly used inference rule is formalized for the case in which A,B,C,D are sets. Let X be a finite set and let be a linear ordering on 2^X. The following condition is imposed on . For every quadruple (A,B,C,D)Y, where Y is some domain in (2^X)⁴, if and , then . The implications and interpretation of this condition for various domains Y are discussed.     

Argumentation in Multi-issue Debates

An axiomatic modeling approach to multi-issue debates is proposed. A debate is viewed as a decision procedure consisting of two stages: (1) an “argumentation rule” determines what arguments are admissible for each party, given the “raw data”, depending on the issue or set of issues under discussion; (2) a “persuasion rule” determines the strength of the admissible arguments and selects the winning party. Persuasion rules are characterized for various alternative specifications of the argumentation rule. These characterizations capture rhetorical effects that we sometimes encounter in real-life multi-issue debates.     

Evaluating the performance capability of a multi-organization system

A model for evaluating the performance capability of a multi-organization system is introduced. The model is based on hierarchical-modular decomposition of the components which determine system performance up to the level where they can be measured quantitatively, or at least qualitatively, in an objective or subjective manner. Performance measures are obtained by incorporating these components into multi-attribute evaluation functions. The model provides decision makers with a tool for quantitative assessment of performance, identification of bottlenecks, a framework for ‘what-if’ simulation and a mean for conflict resolution during planning. Application of the model to the Israeli Water Resources Development System provides an illustrative example.     

MONEY PUMPS IN THE MARKET

Agents who employ non‐rational choice procedures are often vulnerable to exploitation, in the sense that a profit‐seeking trader can offer them a harmful transaction which they will nevertheless accept. We examine the vulnerability of a procedure for deciding whether to buy a lottery: observe another agent who already bought it and buy the lottery if that agent's experience was positive. We show that the exploitation of such agents can be embedded in an inter‐temporal market mechanism, in the form of speculative trade in an asset of no intrinsic value. (JEL: D84)