Abstract
This dissertation comprises three essays that study how departures from standard assumptions, on either beliefs or preferences, shape strategic behavior and market outcomes under incomplete information. The first chapter studies bilateral trade under two-sided asymmetric information, using a takeover game in which the asset’s value depends on both the buyer’s and the seller’s private signals. Applying cursed sequential equilibrium, I show that valuation biases vary systematically with the relative informativeness of each side’s signal. A laboratory experiment confirms that high type buyers overestimate the asset’s value as predicted, but low type buyers do so only when their signal is less informative; low type sellers overestimate, while high type sellers underestimate. Under-trading persists across treatments, but allocative efficiency improves among high type buyers when their signal is more informative: despite overbidding, they trade more often and earn positive surplus on average. The second chapter, co-authored with Po-Hsuan Lin, examines how cursedness affects information transmission in Spence’s job market signaling game. We characterize the cursed sequential equilibrium and show that as players become more cursed, the worker obtains less education—a costly signal that does not enhance productivity—suggesting cursedness improves the efficiency of information transmission. However, this efficiency improvement depends on the richness of the message space. The experimental data from Kübler, Müller, and Normann (2008) provide supportive evidence for our theory. The third chapter, co-authored with Simona Fabrizi, studies how heterogeneous ambiguity attitudes shape platform competition in the ride-sharing market. We develop a duopoly pricing model and show that competing platforms offering homogeneous services can exploit users’ ambiguity preferences by offering distinct pricing schemes: a fixed price or a price range. In an online experiment, individuals choose between a fixed price and a price range under ambiguity or risk. In the gain domain, wider price ranges make the uncertain option more attractive; in the loss domain, individuals gravitate toward the fixed price under ambiguity, but switch to the price range under risk.
