Research

Putting Context into Preference Aggregation (with Karl Schlag)

The axioms underlying Arrow's impossibility theorem are very restrictive in terms of what can be used when aggregating preferences. Social preferences may not depend on the menu nor on preferences over alternatives outside the menu. But context matters. So we weaken these restrictions to allow for context to be included. The context as we define describes which alternatives in the menu and which preferences over alternatives outside the menu matter. We obtain unique representations. These are discussed in examples involving markets, bargaining and intertemporal well-being of an individual.

Rational Bargaining: Characterization and Implementation

The von Neumann-Morgenstern axioms are uncontroversial desiderata for individual decision making. We say that a bargaining solution is rational, if it can be interpreted as the most preferred alternative under these axioms. Yet, we find that neither the Nash nor the Kalai-Smorodinsky bargaining solution is rational in this sense. We formalize two consequences of rationality, namely that one can neither be strictly better off nor strictly worse off from randomizing over different actions. These two axioms, together with other standard axioms, characterize the relative utilitarian bargaining solution. We then implement this bargaining solution in sub-game perfect equilibrium.

Consumer Search in Service Markets

We analyze a market, where a firm’s marginal cost of serving a consumer depends on the consumer’s characteristics. Consumers are laymen and don’t know their relevant characteristics, while firms are experts and can learn the characteristics through a diagnosis. Firms choose whether to publicly display a price for all consumers or whether to make an offer only after the diagnosis. We find that two equilibria can coexist. Either all firms display a price equal to average marginal cost or no firm displays a price and charges the respective monopoly price to each type of consumer.

Axiomatizing Preferences over Varying Time Horizons

We consider the preferences of a decision maker that lives for finitely many periods and hence faces a diminishing number of future periods as time passes. We identify axioms that connect preferences across horizons and lead to exponential and quasi hyperbolic discounting. Existing axiomatizations for an infinite horizon ignore the problem of changing horizons and are not applicable. Existing axiomatizations for a finite horizon do not ensure identical discounting across preference relations and are therefore insufficient. We also extend the environment to allow for an uncertain time horizon.