Speaker:     Simona Fabrizi
Affiliation: Massey University (Albany)
Title:       Learning and collusion in new markets with uncertain entry costs
Date:        Tuesday, 28 Aug 2012
Time:        4:00 pm
Location:    Room 5115, Owen Glenn Building

This paper analyzes an entry timing game with uncertain entry costs. Two firms receive costless signals about the cost of a new project and decide when to invest. We characterize the equilibrium of the investment timing game with private and public signals. We show that competition leads the two firms to invest too early and analyze collusion schemes whereby one firm prevents the other firm from entering the market. We show that, in the efficient collusion scheme, the active firm must transfer a large part of the surplus to the inactive firm in order to limit preemption.

Paper written in co-authorship with Francis Bloch (Ecole Polytechnique) and Steffen Lippert (University of Otago).

Speaker:     Jack Stecher
Affiliation: Carnegie Mellon University (USA)
Title:       Expected Utility and Equilibrium with Subjective Choice Sets and Strategic Reporting
Date:        Monday, 25 Jun 2012
Time:        4:30 pm
Location:    Room 6115, Owen Glenn Building

This paper studies an economy where agents trade using a shared language, so that
they do not need to meet in person with goods physically present. Agents provide
vague descriptions of proposed net trades, which we interpret as arising either from
inherent limitations in what the agents can describe or from strategic presentations of
information. We construct a family of orders over terms in the language, arising from
an individual’s preferences over consumption as subjectively perceived, illustrate the
induced order’s properties, and show the constructive existence of competitive equi-
librium. Finally, we illustrate the relationship between the existence of a competitive
equilibrium obtained in the language and the one that would result from an interaction
involving perceived consumption sets.

Speaker:     Arkadii Slinko
Affiliation: The University of Auckland
Title:       Geometric properties of voting rules
Date:        Monday, 18 Jun 2012
Time:        4:00 pm
Location:    Room 6115, Owen Glenn Building

Each axiom of voting rules considered in Economics and Political Science reflects some notion of fairness, e.g., unanimity requires that, if all voters vote for a certain candidate, this candidate should be elected; anonymity requires that it does not matter who submitted which ballot; monotonicity requires that, if support of the winner of the election grows, she should remain the winner of the election.

In a completely different vein we investigate the geometric properties of voting rules. We define a graph on the set of all elections as vertices and colour them  in a such a way that two vertices have the same colour if and only if the corresponding elections have the same winner. We determine for which classic social choice rules the monochromatic components are connected, convex, etc.

This is a work in progress in co-authorship with Edith Elkind, Svetlana Obraztsova, Piotr Faliszewski.

Speaker:     Patrick Girard
Affiliation: The University of Auckland
Title:       Logical dynamics of belief change in the community
Date:        Monday, 21 May 2012
Time:        4:00 pm
Location:    Room 6115, Owen Glenn Building

In this paper we explore the relationship between norms of belief revision that may be adopted by members of a community and the resulting dynamic properties of the distribution of beliefs across that community. We show that  at a qualitative level many aspects of social belief change  can be obtained from a very simplistic model, which we call `threshold influence’. In particular, we focus on the question of what makes the beliefs of a community stable under various dynamical situations. Besides, we  consider refinements and alternatives to the `threshold’ model. The most significant alternative is to move to consideration of plausibility judgements rather than mere beliefs. We show first that some such change is mandated by difficult problems with belief-based dynamics related to the need to decide on an order in which different beliefs are considered. Secondly, we show that the resulting plausibility-based account results in a dynamical system that is non-deterministic at the level of beliefs. Nonetheless, the plausibility-based account lacks certain intuitively desirable features, such as the preservation of the transitivity.

Speaker:     Patrick Girard
Affiliation: The University of Auckland
Title:       Ceteris paribus reasoning and preferences
Date:        Monday, 7 May 2012
Time:        4:00 pm
Location:    Room 6115, Owen Glenn Building

Ceteris Paribus clauses in reasoning are used to allow for defeaters of norms, rules or laws, such as in von Wright’s example “I prefer my raincoat over my umbrella, everything else being equal”. I offer an analysis in which sets of formulas S, embedded in modal operators, provide necessary and sufficient conditions for things to be equal in ceteris paribus clauses. I’ll talk about how ceteris paribus preferences can be formalised and discuss questions that arise with the formalisation, and propose some solutions.

Speaker:     Arkadii Slinko
Affiliation: The University of Auckland
Title:       MMP review: what are the issues and what are the options?
Date:        Monday, 26 Mar 2012
Time:        4:00 pm
Location:    Room 6115, Owen Glenn Building

In this talk I will outline the issues under consideration in the current review of the MMP voting system and outline the major options that can be chosen. I will try to explain the rational and major trade-offs made in the design of hybrid systems like MMP. From this point we will start a discussion on particular issues. This will hopefully start the process of preparation of a submission to the Electoral Commission on behalf of the Centre.

Speaker:     Simon Grant
Affiliation: The University of Queensland
Title:       A matter of interpretation: Ambiguous contracts and liquidated damages
Date:        Tuesday, 22 Nov 2011
Time:        4:00 pm
Location:    Room 6115, Owen Glenn Building

We focus on syntactic aspects of differential awareness that give rise to contractual disputes. Boundedly rational parties use a common language, but do not share a common understanding of the world, leading to ambiguity in both syntactic and semantic forms. In contractual relationships, ambiguity leads to disagreement and disputes. We show that the agents may prefer simpler less ambiguous contracts when facing potential disputes. In particular, parties may prefer liquidated damages provisions to contractual terms that specify a more complex risk allocation.

Everyone welcome!

Speaker:     Matthew Ryan
Affiliation: The University of Auckland
Title:       Inference with Ambiguous Priors and an Economic Application
Date:        Tuesday, 13 Sep 2011
Time:        4:00 pm
Location:    Room 6115, Owen Glenn Building

This paper considers statistical inference when the prior takes the form of a belief function (Dempster, 1967; Shafer, 1976) rather than a probability. We review some approaches to this non-standard inference problem and discuss their properties.  The paper also develops an economic application, in which entrepreneurs learn about a new market or technology over time.  We demonstrate that these learning dynamics, when embedded in an equilibrium model of price determination, can produce an “investment bubble”: a boom in investment despite unfavourable market data – a frequentist evaluation would lead one to reject the new technology – followed by the inevitable crash.  The investment boom and bust in tech stocks of the late 1990’s is a recent example of the phenomenon. Curiously, the initial boom is driven not by the increasing exuberance of over-optimistic entrepreneurs, but by the diminishing resistance of their more conservative employees and financiers. This is a Joint work with Luca Rigotti (Pittsburgh) and Rhema Vaithianathan.

Everyone welcome!

Speaker: Arkadii Slinko, Geoffrey Pritchard and Mark Wilson
Affiliation: The University of Auckland
Title: CMSS seminar devoted to referendum on electoral system in NZ
Date: Tuesday, 23 Aug 2011
Time: 4:00 pm
Location: Room 6115, Owen Glenn Building

On 26 November 2011 New Zealanders will vote in a referendum asking whether they want to retain the MMP electoral system, and if that system were to be changed, which of four other systems they would prefer. In this seminar we will have two talks in relation to this and general discussion.

[Note: slides for Pritchard-Wilson talk are available.]

1) Choosing how to choose an electoral system – 20 min
Arkadii Slinko

In this short talk I will introduce the options, i.e., the rules we are to choose from, list their obvious drawbacks and outline general principles on the basis of which, I believe, the choice should be made.

2) Referendum options simulator project – 40 min
Geoffrey Pritchard and Mark Wilson

The Electoral Commission has provided qualitative information about each of the five systems. We have created an online simulator that aims to allow a more quantitative comparison by estimating the seat distribution in Parliament under each of the systems, for each user-specified polling scenario.

We use NZ-specific data rather than general results for artificial societies. This immediately raises important modelling questions and particular issues around lack of data and spatial distribution of party support. Other obstacles include the specification in the referendum legislation that 120 electorates be used for each system, requiring us to perform redistricting. In this talk we shall present the simulator and discuss its internal workings and some representative results. Audience questions and comments are strongly invited.

3) General discussion – 30 min

Everyone welcome!

TITLE:           A Stochastic Elasticity Correction to the Black-Scholes Formula

SPEAKER:         Professor Jeong-Hoon Kim (Yonsei University, Korea)
TIME/DATE:      4pm, Monday, 11 July
VENUE:  Room 6115 (OGGB)

About the Speaker

Professor Kim is specialist in the mathematics of asset pricing, and is based in the Financial Mathematics Lab at Yonsei University. He is presently on sabbatical in Australasia, and will be visiting the CMSS until 17 July.   He is in room 6101 of the OGGB if you would like to drop by and say hello.  Professor Kim’s talk will discuss a generalisation of the Black-Scholes formula which introduces a type of stochastic volatility.  A more detailed abstract appears below.  Professor Kim has promised to emphasise the financial/economic logic behind the ideas, so the talk will be accessible to the less mathematically inclined!

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Abstract:
We propose a CEV-type model where the elasticity takes a perturbative form in terms of a small and fast mean-reverting process. Based on this multiscale hybrid structure of the volatility of the underlying asset price, we study option pricing in such a way that the resultant option price has a desirable correction to the Black-Scholes formula. The correction effects are developed by asymptotic analysis based upon the Ornstein-Uhlenbeck diffusion that decorrelates rapidly while fluctuating on a fast time-scale. Our results show that the implied volatilities demonstrate a smile effect (right geometry), which overcomes the major drawback of the Black-Scholes model, and move to the right direction as the underlying asset price increases (right dynamics), which fits observed market behavior and removes the possible instability of hedging that local volatility models might cope with. We also show correction effects on the fitting of the implied volatility surface to the market data as well as on the reduction of the hedging cost.