Choosing monetary sequences: theory and experimental evidence

We formulate and investigate experimentally a model of how individuals choose between time sequences of monetary outcomes. The model assumes that a decision maker uses, sequentially, two criteria to screen options. Each criterion only permits a decision between some pairs of options, while the other options are incomparable according to that criterion. When the first criterion is not decisive, the decision maker resorts to the second criterion to select an alternative. We find that: (1) traditional economic models based on discounting alone cannot explain a significant (almost 30%) proportion of the data no matter how much variability in the discount functions is allowed; (2) our model, despite considering only a specific (exponential) form of discounting, can explain the data much better solely thanks to the use of the secondary criterion; (3) our model explains certain specific patterns in the choices of the “irrational” people. We reject the hypothesis that anomalous behavior is due simply to random “mistakes” around the basic predictions of discounting theories: deviations are not random and there are clear systematic patterns of association between “irrational” choices.     

Maximal symmetry and the Nash solution

The Nash Bargaining Solution is characterised by using the new axiom of Maximal Symmetry in place of Nash's Independence of Irrelevant Alternatives and Symmetry. This axiom expresses the idea that a fair arbitrator should treat symmetric alternatives in the same way, subject to the feasibility constraint. An advantage of the proposed characterisations is that they are valid on a wide set of domains, in particular domains including, or consisting of, non-convex problems. Received: 16 March 1998/Accepted: 13 October 1998     

Children's Physiological Regulation and Sibling Conflict as Correlates of Children's Conscience Development

Children's conscience, including the ability to experience guilt and engage in rule‐compatible behavior, develops across early childhood. The current study investigated whether within‐family variation in children's baseline respiratory sinus arrhythmia (RSA) and sibling conflict behavior were associated with individual differences in children's guilt and internalized conduct. Between‐family differences across sibling dyad gender compositions were also examined. A within‐family design that included 70 families with two siblings between the ages of 2 and 5 was utilized. Children's baseline RSA was measured while sitting quietly with their family. Mothers and fathers completed questionnaires that assessed siblings’ conflict behavior, guilt, and internalized conduct. Older siblings had higher levels of guilt and internalized conduct than younger siblings. Results from actor‐partner interdependence models indicated that there were no direct effects of children's baseline RSA. The interaction effects approached significance (p's ≤ .08) suggesting that older siblings’ conflict moderated the association between older siblings’ baseline RSA and both older and younger siblings’ guilt. In contrast, older siblings’ conflict was positively associated with older and younger siblings’ internalized conduct. Guilt and internalized conduct also differed for older and younger siblings in different dyad gender compositions. The results underscore the need for greater clarity regarding the function that siblings serve in promoting children's moral development during early childhood.     

CREDIT,WAGES, AND BANKRUPTCY LAWS

We analyze how bankruptcy laws affect the general equilibrium interactions between credit and wages. Soft laws reduce the frequency of liquidations and thus ex post inefficiencies, but they worsen credit rationing ex ante. This hinders firm creation and thus depresses labor demand. Rich agents who need few outside funds can invest even if creditor rights are weak. Hence, they favor soft laws that exclude poorer agents from the credit market and reduce the competition for labor. Such laws can generate greater utilitarian welfare than under perfect contract enforcement: By barring access to credit to some agents, soft laws lower wages, which increases the pledgeable income of richer agents and decreases the liquidation rates they must commit to. When they induce strong credit rationing, however, soft laws are Pareto‐dominated by tougher laws combined with subsidies to entrepreneurs. (JEL: D82, G33, K22)     

Nonexclusive Competition in the Market for Lemons

A seller can trade an endowment of a perfectly divisible good, the quality of which she privately knows. Buyers compete by offering menus of nonexclusive contracts, so that the seller can privately trade with several buyers. In this setting, we show that an equilibrium exists under mild conditions and that aggregate equilibrium allocations are generically unique. Although the good for sale is divisible, in equilibrium the seller ends up trading her whole endowment or not trading at all. Trades take place at a price equal to the expected quality of the good, conditional on the seller being ready to trade at that price. Our model thus provides a novel strategic foundation for Akerlof's (1970) results. It also contrasts with competitive screening models in which contracts are assumed to be exclusive, as in Rothschild and Stiglitz (1976). Latent contracts that are issued but not traded in equilibrium play an important role in our analysis.     

Stochastic Choice and Consideration Sets

We model a boundedly rational agent who suffers from limited attention. The agent considers each feasible alternative with a given (unobservable) probability, the attention parameter, and then chooses the alternative that maximizes a preference relation within the set of considered alternatives. We show that this random choice rule is the only one for which the impact of removing an alternative on the choice probability of any other alternative is asymmetric and menu independent. Both the preference relation and the attention parameters are identified uniquely by stochastic choice data.     

Large Risks,Limited Liability,and Dynamic Moral Hazard

We study a continuous‐time principal–agent model in which a risk‐neutral agent with limited liability must exert unobservable effort to reduce the likelihood of large but relatively infrequent losses. Firm size can be decreased at no cost or increased subject to adjustment costs. In the optimal contract, investment takes place only if a long enough period of time elapses with no losses occurring. Then, if good performance continues, the agent is paid. As soon as a loss occurs, payments to the agent are suspended, and so is investment if further losses occur. Accumulated bad performance leads to downsizing. We derive explicit formulae for the dynamics of firm size and its asymptotic growth rate, and we provide conditions under which firm size eventually goes to zero or grows without bounds.     

Nash bargaining theory when the number of alternatives can be finite

Nash (1950) considered a domain of convex bargaining problems. We analyse domains including, or even consisting of, finite problems and provide various characterisations of the Nash Bargaining Solution (NBS). In particular, we extend Kaneko's (1980) results. Received: 12 July 1996 / Accepted: 6 February 1997     

COVID: Using the DAN Model with Couples to Increase Family Resilience

The COVID‐19 pandemic has massively impacted our society, affecting both wider systems and smaller ones alike. Families across the world have had to adapt to a new style of living, dominated by uncertainty, which is testing their resilience. Within this context, we have asked ourselves, as systemic therapists, what can be done to provide support and a sense of understanding to families. In this article, it is argued that therapeutic tools taken from a manualised intervention to promote resilience in couples can provide valuable help to families who are struggling in this difficult time. This intervention, developed at the Iscra Institute in Modena, Italy, is called Digital, Analogic, and Narrative (DAN). The tools used in the DAN model are described in this paper and their application in practice is illustrated through a case study.