mweretka

Marek
Weretka

Marek is a member of our Scientific Council. As of August 2018 he also heads project INFERENCE, and subsequently project EMPATHY. Marek is an Stuart & Brenda McCroskey Professor at University of Wisconsin-Madison.

Opublikowane | Published

  • Slope-takers in anonymous markets | AEJ: Microeconomics

    We present a learning-based selection argument for Linear Bayesian Nash equilibrium in a Walrasian auction. Endowments vary stochastically; traders model residual supply as linear, estimate its slope from past trade data, and periodically update these estimates. With quadratic preferences, this learning process converges to the unique LBN. In an example with non-quadratic preferences, it converges to a steady state close to a particular equilibrium of the corresponding deterministic setting; strategies played are not an equilibrium, but utility sacrificed is negligible. Anonymity and statistical learning therefore support use of LBN under quadratic utility, and motivate a related concept under non-quadratic utility.

    Marek
    Weretka
  • An ordinal theorem of the maximum | Economic Theory

    This paper extends the notion of equivalent variation, Hicks (1939) to an abstract decision problem. It also provides a modern, ordinal variant of the maximum theorem, Berge (1963) that formulates the assumptions in terms of underlying preferences and demonstrates the continuity of the classic preference-based welfare indices (i.e., the equivalent and compensating variations) as well as the upper hemicontinuity of the choice correspondence. We then apply the theorem to the relevant economic problems.

    Marek
    Weretka
  • Co-worker altruism and unemployment | Games and Economic Behavior

    It is well-known that social relationships and altruism among workers foster cooperation in the workplace and, therefore, may have beneficial effects for firms. Yet it is unclear how and to what extent co-worker altruism impacts labor market outcomes. In this paper, we find that, although co-worker altruism may be seamless in good times, it may impact the functioning of labor markets during bad times. Specifically, co-worker altruism may potentially lead to wage rigidity and involuntary unemployment in economic downturns. These results seem to be consistent with recent empirical findings.

    Marek
    Weretka
    Jorge
    Vasquez
  • Affective empathy in non-cooperative games | Games and Economic Behavior

    According to psychology, affective empathy is one of the key processes governing human interactions. It refers to the automatic transmission and diffusion of emotions in response to others' emotions, which gives rise to emotional contagion. Contrary to other forms of empathy, affective empathy has received little attention in economics. In this paper, we augment the standard game-theoretic framework by allowing players to affectively empathize. Players' utility functions depend not only on the strategy prole being played, but also on the realized utilities of other players. Thus, players' realized utilities are interdependent, capturing emotional contagion. We offer a solution concept for these empathetic games and show that the set of equilibria is non-empty and, generically, finite. Motivated by psychological evidence, we analyze sympathetic and antipathetic games. In the former, players' utilities increase in others' realized utilities, capturing unconditional friendship; whereas in the latter the opposite holds, resembling hostility.

    Marek
    Weretka
    Jorge
    Vasquez
  • Normative inference in efficient markets | Economic Theory

    This paper develops a non-parametric method to infer social preferences over policies from prices of securities when agents have non-stationary heterogeneous preferences. We allow for arbitrary efficient risk-sharing mechanisms, formal and informal, and consider a large class of policies. We present a condition on the distribution of aggregate wealth that is necessary and sufficient for the revelation of social preferences over a universal set of policies. We also provide a weaker condition that is sufficient for revelation of social preferences for an arbitrary finite collection of policies.
     

    Marek
    Weretka

W toku | Work in progress

  • Empathy in risky choices regarding others

    One of the assumptions of the affective empathy theory is that individuals have consistent preferences over outcomes. However, there is empirical evidence showing violation of such assumption. In particular, in Asian disease experiment subjects are more likely to choose risky over safe rescue plan (with the same expected outcome) under loss than under gain framing. In this study, we induce empathy in the Asian disease study to test whether providing sympathetic or antipathetic relationship between decision-maker and the others affect the size of the framing gap (GvL gap). We find that inducing affection leads to reduction of the gap.

    Magdalena
    Smyk-Szymańska
    Erita
    Narhetali
    Marek
    Weretka
  • Contracts with interdependent preferences

    This paper studies contracting between a principal and multiple agents, as in Lazear and Rosen (1981) and Green and Stokey (1983). The setup is classical except for the assumption that agents have interdependent preferences. We characterize cost effective contracts, and relate the direction of co-movement in rewards --  "joint liability" (positive) or "tournaments" (negative) --  to the assumed structure of preference interdependence. We also study the implications of preference interdependence for the principal's payoffs. We identify two asymmetries. First, the optimal contract leans towards joint liability rather than tournaments, especially in larger teams, in a sense made precise in the paper. Second, when the mechanism-design problem is augmented by robustness constraints designed to eliminate multiple equilibria, for small teams the principal may prefer teams linked via adversarial rather than altruistic preferences.

    Marek
    Weretka
  • Welfare measurements with heterogeneous agents

    The canonical infinite horizon framework with heterogeneous consumers, used in macro and financial literature, lacks a preference-based welfare index that produces consistent normative predictions for different policies. In particular, the classic preference-based indices, such as equivalent or compensating variations, do not aggregate and they are not additive on the set of policies. This paper offers a positive result. We show that for arbitrary heterogeneous von Neumann Morgenstern preferences with common discount factor, an equivalent (compensating) variation is nearly additive and admits a representative agent representation, as long as consumers are patient. Therefore, this index generates consistent quantitative comparisons of welfare effects in a wide variety of problems studied in the macro and finance literature. These problems include, among others, predictions regarding welfare impacts of fiscal or monetary policies, costs of real business cycles, or welfare costs of policies implemented in financial markets. 

    Marcin
    Dec
    Marek
    Weretka