Aaron Bodoh-Creed
Assistant Professor
Cornell Department of Economics

Cornell University
Department of Economics
462 Uris Hall
Ithaca, NY 14853

acreed@cornell.edu

Curriculum Vitae

Fields: Microeconomics, Industrial Organization, Behavioral Economics, Political Economics
Research

Approximation of Large Dynamic Games
We provide a framework for simplifying the estimation and analysis of dynamic games with many agents by using nonatomic limit game approximations. We show that that the equilibria of a nonatomic approximation are epsilon-Bayesian-Nash Equilibria of the dynamic game with many players if the limit game is continuous. We also show that the Bayesian-Nash equilibrium correspondence of a large dynamic game is upper hemicontinuous in the number of agents and converges to the set of equilibria of a nonatomic limit game under stronger continuity conditions. We use our results to show that repeated static Nash equilibria are the only equilibria of continuous repeated games of perfect or imperfect information, public or private monitoring in the limit as N approaches infinity. Extensions include: games with large players in the limit as N approaches infinity; games with (discontinuous) entry and exit decisions; Markov perfect equilibria of complete information stochastic games with aggregate shocks; games with private and/or imperfect monitoring; asymmetric games with multiple player roles (e.g. buyers and sellers); games with asynchronous actions; and coalition-proof equilibria. Finally we provide an application of our framework to the analysis of large dynamic auction platforms such as E-Bay using the nonatomic limit model of Satterthwaite and Shneyerov.

Approximation of Large Games with Applications to Uniform Price Auctions (R&R at JET, previously The Simple Behavior of Large Mechanisms)
We prove that the equilibria of a large interdependent values uniform price auction model where bidders have arbitrary preferences for multiple units can be approximated by a nonatomic exchange economy. We show that the uniform price auction is approximately efficient with a large number of participants and asymptotically aggregates idiosyncratic bidder information into the market price. More generally our analysis framework provides conditions justifying the use of nonatomic limit model approximations to analyze the large market behavior of otherwise intractable game-theoretic models. We demonstrate continuity requirements on the economic primitives sufficient for the equilibrium strategies of the two models to converge as the number of participants in the large finite game approaches infinity.

Mood, Associative Memory, and the Evaluation of Asset Prices
We provide a model of the effect of associative memory and mnemonic cues on agent beliefs to explain a variety of asset pricing puzzles. Our model is specialized to study affective state as a cue for information congruent with the affect of the agent, a phenomenon called mood congruent memory. We employ our model to provide novel explanations for phenomena such as short-run underreaction and long-run overreaction to news, excess volatility, and the influence of non-fundamental events. Furthermore our theory predicts these phenomena are correlated and potentially have effect on an industry- or market-wide basis. Finally, we provide a number of new cross-sectional and panel-data prediction regarding asset prices and portfolio choices.

Ambiguous Beliefs and Mechanism Design (Accepted Subject to Minor Revisions at GEB)
This paper develops a Payoff Equivalence theorem for mechanisms with ambiguity averse participants with preferences of the Minimum Expected Utility (MEU) form (Gilboa and Schmeidler, 1989). We use our payoff equivalence result to explicitly characterize the revenue maximizing private value auction mechanism for agents with arbitrary forms of ambiguity aversion. We also show that the revenue ranking between first and second price auctions is sensitive to the form of ambiguity aversion. Our payoff equivalence techniques allow us to study the constrained efficient, budget balanced bilateral trade mechanism and show that increased ambiguity improves the efficiency of the mechanism. In addition, we characterize the revenue maximizing, efficient bilateral trade mechanism and show that heightened ambiguity lowers ex ante budget deficits.

Institutional Selection, Building Trust, and Economic Growth (Under Review)
Private-order market institutions founded on trust-based relational contracts suffer adverse selection and moral hazard problems, while public-order market institutions have a limited capacity to enforce contracts. We model agent selection between contract enforcement institutions and demonstrate that the state's contract enforcement capacity is complementary to private-order contract enforcement institutions. This suggests that improvements to public-order institutions cause the accumulation of trust and result in economic growth in both institutions. We endogenize public-order enforcement capacity and discuss the robustness of our findings to different political institutions. Our predictions are illustrated by regressing generalized trust against proxies for public-order contract enforcement capacity.

Legal Competition in the Medieval World
We develop a model of competition between legal systems with overlapping jurisdictions based on Hotelling competition that suggests that, absent institutional reform, courts with overlapping jurisdictions will be driven to adopt divergent legal doctrines in order to extract rents from agents with heterogeneous preferences over which doctrine is applied to their case. This has the effect of weakening the ability for relational contracting to be self-enforcing and lowers the volume of trade possible. This article provides an historical overview of the source and nature of some of these overlapping jurisdictions in the medieval era and the variety of legal regimes active across jurisdictions. Several institutional reforms, such as the system of merchant law that developed in continental Europe, are discussed as potential solutions to the problem of legal competition.


Work In Progress

Simulating the Dynamic Effects of Horizontal Mergers: U.S. Airlines (with L. Benkard and J. Lazarev)

A Tractable Model of eBay

Large Matching Markets: Incentive Compatibility, Risk, and Unraveling

A Theory of Conversations (with N. Augenblick)

Indecision and Political Agency (with B.D. Bernheim)

The Dynamics of Base Rate Neglect (with D. Benjamin and M. Rabin)

Unpublished Works


Heterogeneity in Economies with Ambiguity Aversion Preferences (with M. Miccoli)
We show that in economies where agents have heterogeneous preferences that can be represented with Hansen and Sargent's multiplier preferences form, the representative agent will not have multiplier preferences. We consider the errors induced in model outcomes if an econometrician assumes the representative agent has a multipler preferences form utility function in the context of exchange and production general equilibrium economies. We quantify the impact of these errors in terms of predictions regarding economic outcomes, asset pricing, and costs of the business cycle.

Base Rate Neglect
A formal model of the psychological phenomenon of base rate neglect is introduced and applied to inference problems of categorical classification and numerical prediction. Ourpsychological model provides a basis for the adaptive expectations model of belief formation and updating. Applications to insurance choice, projection bias, demand for information, representativeness in advertising, and financial portfolio selection. An extended application to employment screening wherein firms suffer base rate neglect is also examined.


Political Parties and Informative Branding
Models of electoral competition capture the strategic interaction between independent candidates and the voting public, which neglects the political parties that play a vital role in democratic electoral processes. In addition to providing campaign contributions and publicity for the candidates nominated by the party, political party affiliation serves as a brand label that voters use as a source of information regarding the candidate's policy preferences. Political party brands provide an explanation for party-line voting in elections as a rational response by voters to a difficult information aggregation problem. This paper outlines a model of political party brands in the context of the U.S. electoral system that allows for the derivation of comparative statics relating party brand, policy, and party preferences robust to a range of model specifications. Extensions of the model are used to provide novel explanations of platform choice, the effects of third party candidate entry, and negative advertising.


Royalty Negotiation with Downstream Competition
The effects of injunctive relief on royalty negotiations between a "patent-troll" and a firm that has inadvertantly infringed a patent has been recently explored by C. Shapiro.   This paper extends Shapiro's model by incorporating the case of downstream competition between the patent-holder and the infringer.  We examine the effects of injunctive relief and limited liability on the royalty negotiations.  Unlike Shapiro, we find a role in the use of injunctive relief as a substitute for reverse payment schemes.  Finally, we discuss how these effects will impact the entry process into an industry.