Search results for: Author=Lang, Matthias [9]

Forthcoming
First-Order and Second-Order Ambiguity Aversion
Management Science
forthcoming
2017
Legal Uncertainty as a Welfare Enhancing Screen
European Economic Review
91
274-289
2017
2016
Legal Uncertainty as a Welfare Enhancing Screen
6164
CESifo Working Paper
2016
2015
First-Order and Second-Order Ambiguity Aversion
2015/13
Max Planck Institute for Research on Collective Goods
Bonn
2015
Abstract
Different models of uncertainty aversion imply strikingly different economic behavior. The key to understanding these differences lies in the dichotomy between first-order and second-order ambiguity aversion which I define here. My definition and its characterization are independent of specific representations of decisions under uncertainty. I show that with second-order ambiguity aversion a positive exposure to ambiguity is optimal if and only if there is a subjective belief such that the act’s expected outcome is positive. With first-order ambiguity aversion, zero exposure to ambiguity can be optimal. Examples in finance, insurance and contracting demonstrate the economic relevance of this dichotomy.
2014
Deadlines in Stochastic Contests
Journal of Mathematical Economics
52
134-142
2014
Legal Uncertainty as a Welfare Enhancing Screen
2014/17
Max Planck Institute for Research on Collective Goods
Bonn
2014
Abstract
Consider legal uncertainty as uncertainty about the legality of a specificaction. In particular, suppose that the threshold of legality is uncertain. I show that this legal uncertainty raises welfare. Legal uncertainty changes deterrence in opposite directions. The probability of conviction increases for firms below the threshold, while the probability of conviction decreases for firms above the threshold. Hence, legal uncertainty acts as a welfare enhancing screen and increases welfare. Legal uncertainty discourages some actions with low private benefits, while it encourages other actions with high private benefits.
2013
The fog of fraud – mitigating fraud by strategic ambiguity
Games and Economic Behavior
81
255-275
2013
2012
Communicating Subjective Evaluations
2012/14
Max Planck Institute for Research on Collective Goods
Bonn
2012
Abstract
Consider managers evaluating their employees' performance. Should managers justify their subjective evaluations? To scrutinize this question, I model justification: Suppose a manager's evaluation is private information. To justify her evaluation, she can gather additional information that is uninformative about her employee's effort. I show that the manager justifies her evaluation if and only if the evaluation indicates bad performance. The justification assures the employee that the manager has not distorted the evaluation downwards. For good performances, however, the manager pays a constant high wage without justification. Empirical literature demonstrates that subjective evaluations are lenient and discriminate poorly between good performances. I show that both effects occur in optimal contracts without any biased behavior.
2010
The fog of fraud – mitigating fraud by strategic ambiguity
2010/24
Max Planck Institute for Research on Collective Goods
Bonn
2010
Abstract
Most insurance companies publish few data on the occurrence and detection of insurance fraud. This stands in contrast to the previous literature on costly state veri cation, which has shown that it is optimal to commit to an auditing strategy. The credible announcement of thoroughly auditing claim reports is a powerful deterrent. Yet, we show that uncertainty about fraud detection can be an e ffective strategy to deter ambiguity-averse agents from reporting false insurance claims. If, in addition, the auditing costs of the insurers are heterogeneous, it can be optimal not to commit, because committing to a fraud-detection strategy eliminates the ambiguity. Thus, strategic ambiguity can be an equilibrium outcome in the market. Even competition does not force fi rms to provide the relevant information. This nding is also relevant in other auditing settings, like tax enforcement.