arXiv subjects

Mallesh M Pai

Publications and source records attributed to Mallesh M Pai.

3 recordsLinked to original sources

arXiv2026

The Wisdom of the Crowd and Higher-Order Beliefs

We propose a new simple procedure called Population-Mean-Based Aggregation (PMBA) that enables a principal to "aggregate" information about an unknown state of the world from agents without understanding the information structure among them. PMBA only requires agents to communicate their beliefs about the state, and some agents to communicate their expectations of the population average belief. In a large population, for any finite number of possible states, and under weak assumptions on the information structure, allowing individual agents' beliefs to be misspecified, we show that PMBA infers the true state (in probability or almost surely under the stated conditions). We show how PMBA can be reinterpreted as a linear regression procedure, and how it can be used to aggregate information from a finite number of agents, allowing us to reuse existing results on inference in linear models. We conduct a novel experiment to show that the real-world performance of our procedure exceeds that of existing methods.

econ.TH↗

arXiv2023

The Centralizing Effects of Private Order Flow on Proposer-Builder Separation

The current Proposer-Builder Separation (PBS) equilibrium has several builders with different backgrounds winning blocks consistently. This paper considers how that equilibrium will shift when transactions are sold privately via order flow auctions (OFAs) rather than forwarded directly to the public mempool. We discuss a novel model that highlights the augmented value of private order flow for integrated builder searchers. We show that private order flow is complementary to top-of-block opportunities, and therefore integrated builder-searchers are more likely to participate in OFAs and outbid non integrated builders. They will then parlay access to these private transactions into an advantage in the PBS auction, winning blocks more often and extracting higher profits than non-integrated builders. To validate our main assumptions, we construct a novel dataset pairing post-merge PBS outcomes with realized 12-second volatility on a leading CEX (Binance). Our results show that integrated builder-searchers are more likely to win in the PBS auction when realized volatility is high, suggesting that indeed such builders have an advantage in extracting top-of-block opportunities. Our findings suggest that modifying PBS to disentangle the intertwined dynamics between top-of-block extraction and private order flow would pave the way for a fairer and more decentralized Ethereum.

econ.TH↗

arXiv2021

Competing Models

Different agents need to make a prediction. They observe identical data, but have different models: they predict using different explanatory variables. We study which agent believes they have the best predictive ability -- as measured by the smallest subjective posterior mean squared prediction error -- and show how it depends on the sample size. With small samples, we present results suggesting it is an agent using a low-dimensional model. With large samples, it is generally an agent with a high-dimensional model, possibly including irrelevant variables, but never excluding relevant ones. We apply our results to characterize the winning model in an auction of productive assets, to argue that entrepreneurs and investors with simple models will be over-represented in new sectors, and to understand the proliferation of "factors" that explain the cross-sectional variation of expected stock returns in the asset-pricing literature.

econ.TH↗