research

2023

1. 

   Underreaction and dynamic inconsistency in communication games under noise

   Gerrit Bauch

   arXiv preprint arXiv:2311.12496, 2023

   Abs arXiv

   Communication is rarely perfect, but rather prone to error of transmission and reception. Often the origin of these errors cannot be properly quantified and is thus imprecisely known. We analyze the impact of an ambiguous noise which may alter the received message on a communication game of common interest. The noise is ambiguous in the sense that the parameters of the error-generating process and thus the likelihood to receive a message by mistake are Knightianly unknown. Ex-ante and interim responses are characterized under maxmin preferences. While the sender can disregard ambiguity, the receiver reveals a dynamically inconsistent, but astonishing behavior under a quadratic loss. Their interim actions will be closer to the pooling action than their ex-ante ones, as if facing a higher likelihood of an occurring error.

2022

1. 

   The Texas Shootout under Uncertainty

   Gerrit Bauch, and Frank Riedel

   arXiv preprint arXiv:2211.10089, 2022

   forthcoming in Games and Economic Behavior

   Abs arXiv

   We investigate the allocation of a co-owned company to a single owner using the Texas Shoot-Out mechanism with private valuations. We identify Knightian Uncertainty about the peer’s distribution as a reason for its deterrent effect of a premature dissolving. Modeling uncertainty by a distribution band around a reference distribution F, we derive the optimal price announcement for an ambiguity averse divider. The divider hedges against uncertainty for valuations close to the median of F, while extracting expected surplus for high and low valuations. The outcome of the mechanism is efficient for valuations around the median. A risk neutral co-owner prefers to be the chooser, even strictly so for any valuation under low levels of uncertainty and for extreme valuations under high levels of uncertainty. If valuations are believed to be close, less uncertainty is required for the mechanism to always be efficient and reduce premature dissolutions.

2021

1. 

   Effects of Noise on the Grammar of Languages

   Gerrit Bauch

   2021

   Abs HTML

   We study a signaling game of common interest in which a stochastic noise is perturbing the communication between an informed sender and an uninformed receiver. Despite this inhibiting factor,efficient languages exist. In equilibrium, sender uses a tessellation consisting of convex cells while receiver converts posterior beliefs into Bayesian estimators serving as interpretations. Shannon entropy measures the noise level and describes to which extent communication is possible. A limit case of errors that respect the distance between words leads to concise interpretations in the decoding process. Comparative statics for different levels of noise reveal which grammatical structures are more robust towards noise. For increasing error separation between most distinct types becomes more important than precision about each single one. Furthermore, distinct words are saved for the description of opposite domains of the type space. Evolutionary modeling approaches converge to equilibria, but not every equilibrium is stable.