nep-gth New Economics Papers
on Game Theory
Issue of 2005‒08‒13
ten papers chosen by
László Á. Kóczy
Universiteit Maastricht

  1. Referrals in Search Markets By Maria Arbatskaya; Hideo Konishi
  2. Voting Rules and Budget Allocation in an Enlarged EU By Kauppi, Heikki; Widgrén, Mika
  3. A simple derivation of Prelec’s probability weighting function By Ali al-Nowaihi; Sanjit Dhami
  4. Corruption And The Provision Of Public Output In A Hierarchical Asymmetric Information Relationship By Sanjit Dhami; Ali al-Nowaihi
  5. The Killing Game: Reputation and Knowledge in Non-Democratic Succession By Egorov, Georgy; Sonin, Konstantin
  6. Let the Dummy Talk! - Unilateral Communication and Discrimination in Three-Person Dictator Experiments - By Ben Greiner; Ro’i Zultan; Werner Güth
  7. Stability of Mixed Equilibria By Ziv Gorodeisky
  8. Giving Gossips Their Due: Information Provision in Games with Private Monitoring By Robert Gazzale
  9. Learning in Games with Unstable Equilibria By Ed Hopkins; Josef Hofbauer; Michel Benaim
  10. Metamimetic games By David Chavalarias

  1. By: Maria Arbatskaya (Emory University); Hideo Konishi (Boston College)
    Abstract: This paper compares equilibrium outcomes in search markets with and without referrals. Although consumers would benefit from honest referrals, it is not at all clear whether firms would unilaterally provide information about competing offers since such information could encourage a consumer to purchase the product elsewhere. In a model of a horizontally differentiated product and sequential consumer search, we show that valuable referrals can arise as a part of equilibrium: firm will give referrals to consumers whose ideal product is sufficiently far from the firm's offering. The effect of referrals on the equilibrium prices is examined, and it is found that prices are higher in markets with referrals. Although consumers can be made worse off by the existence of referrals, referrals lead to a Pareto improvement as long as search cost is not too low relative to product heterogeneity. The effects of referral fees and third-party referrals are examined, and policy implications are drawn.
    Keywords: horizontal referrals, consumer search, information, matching, broker commission.
    JEL: C7 D4 D8 L1
    Date: 2005–07–27
  2. By: Kauppi, Heikki; Widgrén, Mika
    Abstract: The EU declares to provide support for the rural and poor regions of its member states. However, recent research shows that past EU budget allocations (in EU-15) can largely be explained by measures of the distribution of voting power in the Council of Ministers deciding on the bulk of EU spending. Yet, empirical analysis also indicates that the needs of the member states play a role in the determination of their receipts from the EU budget. As a rough estimate, power explains 60% of the budget allocation and, when stable coalition structures among member countries are allowed, even 90%. In this paper we use such estimates to predict EU budget shares after the eastern enlargement. We compare incumbent member states' predicted budget receipts before and after eastern enlargement, and examine the impact of different voting rule proposals on predicted budget shares and receipts in EU-25. According to our estimates, eastern enlargement has large effects on the budget receipts of the incumbent member states. Moreover, whether the voting rules are based on the Nice Treaty (NT) or the Constitutional Treaty (CT) makes a difference for most member states. Many member states would be worse off under CT than under NT. In relative terms, Germany would be the biggest winner under CT, because under CT population counts more on power than under NT voting rules.
    Keywords: constitutional treaty; EU budget; Treaty of Nice; voting power
    JEL: C71 D70 D72
    Date: 2005–07
  3. By: Ali al-Nowaihi; Sanjit Dhami
    Abstract: Since Kahneman and Tversky (1979), it has been generally recognized that decision makers overweight low probabilities and underweight high probabilities. Of the several weighting functions that have been proposed, that of Prelec (1998) has the attractions that it is parsimonious, consistent with much of the available empirical evidence and has an axiomatic foundation. Luce (2001) provided a simpler derivation based on reduction invariance, rather than compound invariance of Prelec (1998). This note gives a simpler form of reduction invariance, which we call power invariance. A more direct derivation of Prelec’s function is given, achieving a further simplification.
    Keywords: Decision making under risk; Prelec’s probability weighting function; Compound invariance; Reduction invariance; Power invariance; Prospect theory; Algebraic functional equations
    JEL: C60 D81
    Date: 2005–07
  4. By: Sanjit Dhami; Ali al-Nowaihi
    Abstract: This paper develops a hierarchical principal-agent model to explore the influence of corruption, bribery, and politically provided oversight of production on the efficiency and level of output of some publicly provided good. Under full information, an honest politician acheives the first best while a dishonest politician creates shortages and bribes. Under asymmetric information, however, an honest politician might create more shortages relative to a dishonest one, although, the latter creates greater bribes. Furthermore, the contracted output can be greater or smaller relative to that produced by an unregulated private monopolist. The model identifies a tradeoff between bribery and allocative efficiency. This helps to reconcile some conflicting results on the implications of corruption for the size of the public sector and provides new results on the circumstances under which an improvement in the auditing technology is beneficial. Relative to the static case, in the dynamic renegotiation-proof equilibrium, shortages fall but bribes can increase or decrease, raising important issues of the choice between long-term and short-term contracts.
    Keywords: Corruption; Regulation; Asymmetric Information; Renegotiation-Proofness
    JEL: D82 D78 L51
    Date: 2005–07
  5. By: Egorov, Georgy; Sonin, Konstantin
    Abstract: The winner of a battle for a throne can either execute or spare the loser; if the loser is spared, he contends the throne in the next period. Executing the losing contender gives the winner an additional quiet period, but then his life is at risk if he loses to some future contender who might be, in equilibrium, too frightened to spare him. The trade-off is analysed within a dynamic complete information game, with, potentially, an infinite number of long-term players. In an equilibrium, decisions to execute predecessors are history-dependent. With a dynastic rule in place, incentives to kill the predecessor are much higher than in non-hereditary dictatorships. The historical part of our analytic narrative contains a detailed analysis of two types of non-democratic succession: hereditary rule of the Osmanli dynasty in the Ottoman Empire in 1281–1922, and non-hereditary military dictatorships in Venezuela in 1830–1964.
    Keywords: dictatorship; economic history; positive political theory; succession
    JEL: C73 D72 N40
    Date: 2005–06
  6. By: Ben Greiner; Ro’i Zultan; Werner Güth
    Abstract: To explain why pre-play communication increases cooperation in games, one refers to a) strategic causes such as efficient communication or reputation effects, and b) changes in the utilities due to social processes. Hitherto experimental support for both explanations is mixed and confounded. Our experimental design eliminates all strategic factors and allows to focus on the effects of communication processes. We clearly find social effects, but none of revealed anonymity or salient communication. The social processes invoked are very heterogeneous but not irregular for different communicators.
    Date: 2005–07
  7. By: Ziv Gorodeisky
    Abstract: We consider stability properties of equilibria in stochastic evolutionary dynamics. In particular, we study the stability of mixed equilibria in strategic form games. In these games, when the populations are small, all strategies may be stable. We prove that when the populations are large, the unique stable outcome of best-reply dynamics in 2 x 2 games with a unique Nash equilibrium that is completely mixed is the mixed equilibrium. The proof of this result is based on estimating transition times in Markov chains.
    Date: 2005–08
  8. By: Robert Gazzale (Williams College)
    Abstract: The ability of a long-lived seller to maintain and profit from a good reputation may induce her to provide high quality or effort despite short-run incentives to the contrary. This incentive remains in place with private monitoring, provided that buyers share their information. However, this assumption is unrealistic in environments where information sharing is costly or the beneficiaries of a buyer’s sharing are strangers. I study a simple mechanism that induces costly information provision, and may explain such behavior in environments where the incentives are not overt. Agents who possess information may share it with the community and acquire a reputation for gossiping. Reputations function in tandem: sellers provide high effort because they face agents with reputations for information sharing, and expect the outcome of their dealings will be made public, while information holders share their information as a reputation for doing so results in higher effort from sellers.
    Keywords: reputation, moral hazard, information sharing, mechanism design
    JEL: C7 D8
    Date: 2005–08–04
  9. By: Ed Hopkins; Josef Hofbauer; Michel Benaim
    Abstract: We investigate games whose Nash equilibria are mixed and are unstable under fictitious play-like learning processes. We show that when players learn using weighted stochastic fictitious play and so place greater weight on more recent experience that the time average of play often converges in these “unstable” games, even while mixed strategies and beliefs continue to cycle. This time average is related to the best response cycle first identified by Shapley (1964). For many games, the time average is close enough to Nash equilibrium to create the appearance of convergence to equilibrium. We discuss how these theoretical results may help to explain data from recent experimental studies of price dispersion.
    Keywords: Games, Learning, Best Response Dynamics, Stochastic Fictitious Play, Mixed Strategy Equilibria, TASP.
    JEL: C72 C73 D84
  10. By: David Chavalarias (CREA - Centre de recherche en épistémologie appliquée - CNRS : UMR7656 - Polytechnique - X)
    Abstract: Imitation is fundamental in the understanding of social system dynamics but the diversity of imitation rules employed by modelers proves that the modeling of mimetic processes cannot avoid the traditional problem of endogenization of all the choices, including the one of the mimetic rules. Starting from the remark that human reflexive capacities are the ground for a new class of mimetic rules, I propose a formal framework, metamimetic games, that enable to endogenize the distribution of imitation rules while being human specific. The corresponding concepts of equilibrium - counterfactually stable state - and attractor are introduced. Finally, I give an interpretation of social differentiation in terms of cultural co-evolution among a set of possible motivations that departs from the traditional view of optimization indexed to criteria that exist prior to the activity of agents.
    Keywords: Social cognition, imitation, cultural co-evolution, differentiation, reflexivity, metacognition, stochastic game theory, endogenous distributions, metamimetic games, counterfactual equilibrium.
    Date: 2005–08–01

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