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Bargaining over bets

  • Eliaz, Kfir
  • Spiegler, Ran

When two agents hold different priors over an unverifiable state of nature, which affects the outcome of a game they are about to play, they have an incentive to bet on the game's outcome. We pose the following question: what are the limits to the agents' ability to realize gains from such speculative bets when their priors are private information? We apply a "mechanism design" approach to this question. We characterize interim-efficient bets and discuss their implementability in terms of the underlying game's payoff structure. In particular, we show that as the costs of unilaterally manipulating the bet's outcome become more symmetric across states and agents, implementation becomes easier.

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File URL: http://www.sciencedirect.com/science/article/pii/S0899-8256(08)00123-1
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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 66 (2009)
Issue (Month): 1 (May)
Pages: 78-97

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Handle: RePEc:eee:gamebe:v:66:y:2009:i:1:p:78-97
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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  1. Kfir Eliaz & Ran Spiegler, 2006. "Contracting with Diversely Naive Agents," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 689-714.
  2. Kfir Eliaz & Rani Spiegler, 2005. "A Mechanism-Design Approach to Speculative Trade," Levine's Bibliography 784828000000000429, UCLA Department of Economics.
  3. Philippe Jehiel & Ady Pauzner, 2006. "Partnership dissolution with interdependent values," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 1-22, 03.
  4. Matthew O. Jackson & Simon Wilkie, 2005. "Endogenous Games and Mechanisms: Side Payments Among Players," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 543-566.
  5. Fieseler, Karsten & Kittsteiner, Thomas & Moldovanu, Benny, 1999. "Partnerships, Lemons and Efficient Trade," Sonderforschungsbereich 504 Publications 99-71, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  6. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Peter Cramton & Robert Gibbons & Paul Klemperer, 1985. "Dissolving a Partnership Efficiently," Working papers 406, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Muhamet Yildiz, 2007. "Wishful Thinking in Strategic Environments," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 319-344.
  9. Eliaz, Kfir & Spiegler, Ran, 2008. "Consumer optimism and price discrimination," Theoretical Economics, Econometric Society, vol. 3(4), December.
  10. Zvika Neeman, 1999. "Property Rights and Efficiency of Voluntary Bargaining under Asymmetric Information," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 679-691.
  11. Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
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