nep-gth New Economics Papers
on Game Theory
Issue of 2005‒10‒29
sixteen papers chosen by
László Á. Kóczy
Universiteit Maastricht

  1. Weak Monotonicity and Bayes-Nash Incentive Compatibility By Müller,Rudolf; Perea,Andrés; Wolf,Sascha
  2. Measuring Strategic Uncertainty in Coordination Games By Frank Heinemann; Rosemarie Nagel; Peter Ockenfels
  3. Strategic equivalence and bounded rationality in extensive form games By Voorneveld, Mark; Fagraeus Lundström, Helena
  4. Rage Against the Machines: How Subjects Learn to Play Against Computers By Peter Duersch; Albert Kolb; Joerg Oechssler; Burkhard Schipper
  5. Learning with Heterogeneous Expectations in an Evolutionary World By Eran A. Guse
  6. Bidding Behavior in Asymmetric Auctions: An Experimental Study By Werner Güth; Radosveta Ivanova-Stenzel; Elmar Wolfstetter
  7. Allocative and Informational Externalities in Auctions and Related Mechanisms By Philippe Jehiel; Benny Moldovanu
  8. Priority Auctions and Queue Disciplines that Depend on Processing Time By Thomas Kittsteiner; Benny Moldovanu
  9. Auctions and Information acquisition: Sealed-bid or Dynamic Formats? By Olivier Compte; Philippe Jehiel
  10. Unique Equilibria in the Rubinstein Bargaining Model when the Payoff Set is Non-Convex By Wolfgang F. Koehler
  11. Ambiguity and Social Interaction By Jürgen Eichberger; David Kelsey; Burkhard C. Schipper
  12. Imitation - Theory and Experimental Evidence By Jose Apestgeguia; Steffen Huck; Jörg Oechssler
  13. Interactive Unawareness By Aviad Heifetz; Martin Meier; Burkhard C. Schipper
  14. A Note on Sabotage in Collective Tournaments By Oliver Gürtler
  15. Prizes versus Wages with Envy and Pride By Pradeep K. Dubey; John Geanakoplos; Ori Haimanko
  16. Effects of Acquisitions on Product and Process Innovation and R&D Performance By Elena Cefis; Stephanie Rosenkranz; Utz Weitzel

  1. By: Müller,Rudolf; Perea,Andrés; Wolf,Sascha (METEOR)
    Abstract: An allocation rule is called Bayes-Nash incentive compatible, if there exists a payment rule, such that truthful reports of agents’ types form a Bayes-Nash equilibrium in the directrevelation mechanism consisting of the allocation rule and the payment rule. This paperprovides characterizations of Bayes-Nash incentive compatible allocation rules in socialchoice settings where agents have one-dimensional or multi-dimensional types, quasi-linearutility functions and interdependent valuations. The characterizations are derived byconstructing complete directed graphs on agents’ type spaces with cost of manipulationas lengths of edges. Weak monotonicity of the allocation rule corresponds to the conditionthat all 2-cycles in these graphs have non-negative length.For one-dimensional types and agents’ valuation functions satisfying non-decreasingexpected differences, we show that weak monotonicity of the allocation rule is a necessaryand sufficient condition for the rule to be Bayes-Nash incentive compatibile. In the casewhere types are multi-dimensional and the valuation for each outcome is a linear functionin the agent’s type, we show that weak monotonicity of the allocation rule together withan integrability condition is a necessary and sufficient condition for Bayes-Nash incentivecompatibility.
    Keywords: mathematical economics;
    Date: 2005
  2. By: Frank Heinemann (Ludwig-Maximilians-Universität München); Rosemarie Nagel (Universitat Pompeu Fabra, Barcelona, Spain); Peter Ockenfels (Goethe-Universität Frankfurt am Main, Germany)
    Abstract: This paper explores predictability of behavior in coordination games with multiple equilibria. In a laboratory experiment we measure subjects' certainty equivalents for three coordination games and one lottery. Attitudes towards strategic uncertainty in coordination games are related to risk aversion, experience seeking, gender and age. From the distribution of certainty equivalents among participating students we estimate probabilities for successful coordination in a wide range of coordination games. For many games success of coordination is predictable with a reasonable error rate. The best response of a risk neutral player is close to the global-game solution. Comparing choices in coordination games with revealed risk aversion, we estimate subjective probabilities for successful coordination. In games with a low coordination requirement, most subjects underestimate the probability of success. In games with a high coordination requirement, most subjects overestimate this probability. Data indicate that subjects have probabilistic beliefs about success or failure of coordination rather than beliefs about individual behavior of other players.
    JEL: C72 C91 D81 D84
    Date: 2004–05
  3. By: Voorneveld, Mark (Dept. of Economics, Stockholm School of Economics); Fagraeus Lundström, Helena (Dept. of Mathematics, Royal Institute of Technology, Stockholm, Sweden)
    Abstract: In a large family of solution concepts for boundedly rational players --- allowing players to be imperfect optimizers, but requiring that ``better'' responses are chosen with probabilities at least as high as those of ``worse'' responses --- most of Thompson's ``inessential'' transformations for the strategic equivalence of extensive form games become far from inconsequential. Only two of the usual elementary transformations remain truly inessential: the interchange of moves, and replacing a final move by nature by simply taking expected payoffs.
    Keywords: Extensive form games; Quantal response equilibrium; Logit model; Strategic equivalence
    JEL: C72
    Date: 2005–10–13
  4. By: Peter Duersch (Department of Economics, University of Heidelberg); Albert Kolb (Department of Economics, University of Bonn); Joerg Oechssler (Department of Economics, University of Heidelberg); Burkhard Schipper (Department of Economics, University of California)
    Abstract: We use an experiment to explore how subjects learn to play against computers which are programmed to follow one of a number of standard learning algorithms. The learning theories are (unbeknown to subjects) a best response process, fictitious play, imitation, reinforcement learning, and a trial & error process. We test whether subjects try to influence those algorithms to their advantage in a forward-looking way (strategic teaching). We find that strategic teaching occurs frequently and that all learning algorithms are subject to exploitation with the notable exception of imitation. The experiment was conducted, both, on the internet and in the usual laboratory setting. We find some systematic differences, which however can be traced to the different incentives structures rather than the experimental environment.
    Keywords: learning; fictitious play; imitation; reinforcement; trial & error; strategic teaching; Cournot duopoly; experiments; internet.
    JEL: C72 C91 C92 D43 L13
    Date: 2005–10–25
  5. By: Eran A. Guse
    Abstract: This paper studies a game theoretic model where agents choose between two updating rules to predict a future endogenous variable. Agents rationally choose between these predictors based on relative performance. Conditions for evolutionary stability and stability under learning are found for the Nash solutions and corresponding parameter equilibria. Stability conditions are contingent upon parameter values and the initial distribution of heterogeneity. However, when the cost of using the more advanced updating rule is sufficiently large, all agents will asymptotically use the more parsimonious, or Minimum State Variable (MSV), updating rule.
    Keywords: Adaptive Learning; Evolutionary Dynamics; Heterogeneous Expectations; Multiple Equilibria; Rational Expectations.
    JEL: C62 D84 E37
    Date: 2005–10
  6. By: Werner Güth (Max Planck Institute for Research into Economic Systems, Kahlaische Str. 10, D-07745 Jena, Germany); Radosveta Ivanova-Stenzel (Humboldt University Berlin, Department of Economics, Spandauer Str. 1, D-10099 Berlin, Germany); Elmar Wolfstetter (Humboldt University Berlin, Department of Economics, Spandauer Str. 1, D-10099 Berlin, Germany)
    Abstract: We review an asymmetric auction experiment. Based on Plum (1992) private valuations of the two bidders are independently drawn from distinct but commonly known distributions, one of which first-order stochastically dominates the other. We test the qualitative properties of that model of asymmetric auctions, in particular whether the weak bidder behaves more aggressively than the strong, and then test bidders' preference for first- vs. second-price auctions.
    Keywords: sealed bid suctions, asymmetric bidders, private-independent values, experiments
    JEL: D44 C91
    Date: 2004–08
  7. By: Philippe Jehiel; Benny Moldovanu
    Date: 2005–10–26
  8. By: Thomas Kittsteiner (Department of Economics, University of Bonn, Adenauerallee 24-42, D-53113 Bonn, Germany); Benny Moldovanu (Department of Economics, University of Bonn, Germany)
    Abstract: We analyze the allocation of priority in queues via simple bidding mechanisms. In our model, the stochastically arriving customers are privately informed about their own processing time. They make bids upon arrival at a queue whose length is unobservable. We consider two bidding schemes that differ in the definition of bids (these may reflect either total payments or payments per unit of time) and in the timing of payments (before, or after service). In both schemes, a customer obtains priority over all customers (waiting in the queue or arriving while he is waiting) who make lower bids. Our main results show how the convexity/concavity of the function expressing the costs of delay determines the queue-discipline (i.e., SPT, LPT) arising in a bidding equilibrium.
    Date: 2004–05
  9. By: Olivier Compte; Philippe Jehiel
    Date: 2005–10–26
  10. By: Wolfgang F. Koehler
    Abstract: I give necessary and sufficient conditions for the uniqueness of the equilibrium in a wide class of Rubinstein bargaining models. The requirements encompass a class of non-convex or disconnected payoff sets with discontinuous Pareto frontiers. The equilibrium of the non-cooperative game is unique if the objective function of the corresponding Nash-bargaining game has a unique maximum. I extend the analysis to games where the time between offers is not constant.
    Keywords: Bargaining
    JEL: C78
    Date: 2005–10
  11. By: Jürgen Eichberger (Alfred Weber Institut, Universität Heidelberg.); David Kelsey (Department of Economics, University of Exeter); Burkhard C. Schipper (Department of Economics, University of Bonn & University of California, Davis, address: Department of Economics, University of California, Davis, One Shields Avenue, Davis, CA 95616, USA,
    Abstract: We present a non-technical account of ambiguity in strategic games and show how it may be applied to economics and social sciences. Optimistic and pessimistic responses to ambiguity are formally modelled. We show that pessimism has the effect of increasing (decreasing) equilibrium prices under Cournot (Bertrand) competition. In addition the effects of ambiguity on peace-making are examined. It is shown that ambiguity may select equilibria in coordination games with multiple equilibria. Some comparative statics results are derived for the impact of ambiguity in games with strategic complements.
    Keywords: Ambiguity, Optimism, Pessimism, Strategic Games, Oligopoly, Strategic Delegation, Peace-making, Strategic Complements, Choquet Expected Utility
    JEL: C72 D43 D62 D81
    Date: 2005–07
  12. By: Jose Apestgeguia (Department of Economics, Public University of Navarre.; Steffen Huck (Department of Economics and ELSE, University College London.; Jörg Oechssler (Department of Economics, University of Heidelberg.
    Abstract: We introduce a generalized theoretical approach to study imitation and subject it to rigorous experimental testing. In our theoretical analysis we find that the different predictions of previous imitation models are due to different informational assumptions, not to different behavioral rules. It is more important whom one imitates rather than how. In a laboratory experiment we test the different theories by systematically varying information conditions. We find significant effects of seemingly innocent changes in information. Moreover, the generalized imitation model predicts the differences between treatments well. The data provide support for imitation on the individual level, both in terms of choice and in terms of perception. But imitation is not unconditional. Rather individuals' propensity to imitate more successful actions is increasing in payoff differences.
    Keywords: Evolutionary game theory; Stochastic stability; Imitation; Cournot markets; Information; Experiments; Simulations
    JEL: C72 C91 C92 D43 L13
    Date: 2005–04
  13. By: Aviad Heifetz (The Economics and Management Department, The Open University of Israel.; Martin Meier (Instituto de Análisis Económico - CSIC, Campus Universitat Autònoma de Barcelona.; Burkhard C. Schipper (Department of Economics, University of Bonn.
    Abstract: The standard state-spaces of asymmetric information preclude non-trivial forms of unawareness (Modica and Rustichini, 1994, Dekel, Lipman and Rustichini, 1998). We introduce a generalized state-space model that allows for non-trivial unawareness among several individuals, and which satisfies strong properties of knowledge as well as all the desiderata on unawareness proposed this far in the literature.
    Keywords: unawareness, awareness, knowledge, interactive epistemology, speculative trade, bounded perception.
    JEL: C70 C72 D80 D82
    Date: 2005–02
  14. By: Oliver Gürtler (Department of Economics, BWL II, University of Bonn, Adenauerallee 24-42, D-53113 Bonn, Germany. Tel.:+49-228-0739214, Fax:+49-228-0739210.
    Abstract: In this paper a tournament between teams (a collective tournament) is analyzed, where each contestant may spend productive effort in order to increase his team's performance or sabotage the members of the opponent team. It is shown that sabotaging the weaker members of a team always decreases their team's performance more significantly than sabotaging stronger members does. As a consequence, sabotage activities are only directed at a team's weaker members. This finding is quite interesting, as previous results on individual tournaments indicate that oftentimes only the stronger participants should be sabotaged.
    Keywords: Collective Tournament, Sabotage, Complementarities
    JEL: C72 J33 M52
    Date: 2005–10
  15. By: Pradeep K. Dubey (Center for Game Theory, Department of Economics, SUNY at Stony Brook, Stony Brook, NY 11794, Cowles Foundation for Research in Economics, Yale University); John Geanakoplos (Cowles Foundation, Yale University); Ori Haimanko (Department of Economics, Ben-Gurion University of the Negev)
    Abstract: We show that if agents are risk neutral, prizes outperform wages when there is sufficient pride and envy relative to the noisiness of performance. If agents are risk averse, prizes are a necessary supplement to wages (as bonuses).
    Keywords: Envy, Pride, Wages, Prizes, Bonus
    JEL: C72 D23 L14
    Date: 2005–10
  16. By: Elena Cefis; Stephanie Rosenkranz; Utz Weitzel
    Abstract: Using a game theoretical model on firms' simultaneous investments in product and process innovation, we deduct and empirically test hypotheses on the optimal R&D portfolio, investment, performance, and dynamic efficiency of R&D for acquisitions and in independently competing firms. We use Community Innovation Survey data on Italian manufacturing firms. Theoretical and empirical results show that firms involved in acquisitions invest in different R&D portfolios and invest at least as much in aggregate R&D as independent firms. The empirical results do not support our hypothesis on dynamic efficiency since acquisitions lead to inferior R&D performance.
    Keywords: Mergers and Acquisitions, Innovation, Dynamic Efficiency, Cost Reduction, Product Differentiation
    JEL: C72 L1 L13 O32
    Date: 2005–06

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