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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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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
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  1. Fieseler, Karsten & Kittsteiner, Thomas & Moldovanu, Benny, 2003. "Partnerships, lemons, and efficient trade," Journal of Economic Theory, Elsevier, vol. 113(2), pages 223-234, December.
  2. Eliaz, Kfir & Spiegler, Ran, 2005. "A Mechanism-Design Approach to Speculative Trade," CEPR Discussion Papers 5434, C.E.P.R. Discussion Papers.
  3. Peter Cramton & Robert Gibbons & Paul Klemperer, 1985. "Dissolving a Partnership Efficiently," Working papers 406, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
  5. Muhamet Yildiz, 2007. "Wishful Thinking in Strategic Environments," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 319-344.
  6. 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.
  7. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
  8. Eliaz, Kfir & Spiegler, Ran, 2004. "Contracting with Diversely Naive Agents," CEPR Discussion Papers 4573, C.E.P.R. Discussion Papers.
  9. Wilkie, Simon & Jackson, Matthew O., 2002. "Endogenous Games and Mechanisms: Side Payments Among Players," Working Papers 1150, California Institute of Technology, Division of the Humanities and Social Sciences.
  10. Eliaz, Kfir & Spiegler, Ran, 2008. "Consumer optimism and price discrimination," Theoretical Economics, Econometric Society, vol. 3(4), December.
  11. Philippe Jehiel & Ady Pauzner, 2006. "Partnership dissolution with interdependent values," Post-Print halshs-00754170, HAL.
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