nep-gth New Economics Papers
on Game Theory
Issue of 2005‒11‒19
eighteen papers chosen by
László Á. Kóczy
Universiteit Maastricht

  1. A Focal-Point Solution for Bargaining Problems with Coalition Structure By Gustavo Bergantiños; Balbina Casas- Méndez; Gloria Fiestras- Janeiro; Juan Vidal-Puga
  2. The Core Can Be Accessed with a Bounded Number of Blocks By Kóczy,László Á.
  3. Identification and Estimation of Discrete Games of Complete Information By Stephen Ryan; Patrick Bajari; Han Hong
  4. Repeated Signaling Games By Ayça Kaya
  5. A bargaining model for finite n-person multi-criteria games By Luisa Monroy; Amparo M. Mármol; Victoriana Rubiales
  6. Non-Existence of Equilibrium in Vickrey, Second-Price, and English Auctions By Jackson, Matthew O.
  7. Advertising, Pricing & Market Structure in Competitive Matching Markets By Edner Bataille; Benoit Julien
  8. Interaction on Hypergraphs By Durieu, Jacques; Haller, Hans; Solal, Philippe
  9. Linking Strategic Interaction and Bargaining Theory. The Harsanyi - Schelling Debate on the Axiom of Symmetry By Alessandro Innocenti
  10. Demand commitment in legislative bargaining By Maria Montero; Juan Vidal-Puga
  11. Fairness and Contract Design By Ernst Fehr; Alexander Klein; Klaus M. Schmidt
  12. Group Decision-Making and Voting in Ultimatum Bargaining: An Experimental Study By Alexander Elbittar; Andrei Gomberg; Laura Sour
  13. PD Games on Networks By Allen wilhite
  14. Testing static game theory with dynamic experiments: a case study of public goods By Anabela Botelho; Glenn W. Harrison; Lígia Pinto; Elisabet E. Rutstrom
  15. Strategic Aspects of the 1995 and 2004 EU Enlargements By Kóczy,László Á.
  16. Neural Networks and Contagion By Berninghaus, Siegfried K.; Haller, Hans; Outkin, Alexander
  17. An Agent-Based Computational Laboratory for Testing the Economic Reliability of Wholesale Power Market Designs By Deddy Koesrindartoto; Junjie Sun
  18. Emergence in multi-agent systems:Cognitive hierarchy, detection, and complexity reduction By Jean Louis Dessalles; Denis Phan

  1. By: Gustavo Bergantiños (Universidade de Vigo); Balbina Casas- Méndez (Universidade de Santiago de Compostela); Gloria Fiestras- Janeiro (Universidade de Vigo); Juan Vidal-Puga (Universidade de Vigo)
    Abstract: In this paper we study the restriction, to the class of bargaining problems with coalition structure, of several values which have been proposed on the class of non-transferable utility games with coalition structure. We prove that all of them coincide with the solution independently studied in Chae and Heidhues (2004) and Vidal-Puga (2005a). Several axiomatic characterizations and two noncooperative mechanisms are proposed.
    Keywords: coalition structure bargaining values
    JEL: C7 D8
    Date: 2005–11–16
  2. By: Kóczy,László Á. (METEOR)
    Abstract: We show the existence of an upper bound for the number of blocks required to get from one imputation to another provided that accessibility holds. The bound depends only on the number of players in the TU game considered. For the class of games with non-empty cores this means that the core can be reached via a bounded sequence of blocks.
    Keywords: mathematical economics;
    Date: 2005
  3. By: Stephen Ryan; Patrick Bajari; Han Hong
    Abstract: We discuss the identification and estimation of discrete games with complete information. Following Bresnahan and Reiss, a discrete game is defined to be a generalization of a standard discrete choice model in which utility depends on the actions of other players. Using recent algorithms that compute the complete set of the Nash equilibria, we propose simulation-based estimators for static, discrete games. With appropriate exclusion restrictions about how covariates enter into payoffs and influence equilibrium selection, the model is identified with only weak parametric assumptions. Monte Carlo evidence demonstrates that the estimator can perform well in moderately-sized samples. As an illustration, we study the strategic decisions of firms in spatially-separated markets in establishing a presence on the Internet
    Keywords: Empirical Industrial Organization, Simulation Based Estimation, Homotopies
    JEL: L13 C14 C15
    Date: 2005–11–11
  4. By: Ayça Kaya (Department of Economics, University of Iowa)
    Abstract: Although many signaling situations are best interpreted as repeated games, prior research often models them as one-shot games. We analyze a class of repeated signaling games in which the informed player's type is persistent and the history of actions are perfectly observable. In this context a large class of possibly complex sequences of signals can be supported as the separating equilibrium actions of the \strong type" of the informed player. We characterize the set of such sequences. We also characterize the sequences of signals in least cost separating equilibria of these games. We show that these sequences in general have a simple structure. Moreover, many of them involve costly signaling after beliefs become degenerate.
    Keywords: signaling games; dynamic games; repeated games; asymmetric information
    JEL: C70 C73 D82
    Date: 2005–11
  5. By: Luisa Monroy (Universidad de Sevilla); Amparo M. Mármol (Universidad de Sevilla); Victoriana Rubiales (Universidad de Sevilla)
    Abstract: In this paper we consider a multi-criteria game model which allows interactions between players. The problem addressed is considered as a cooperative game in order to achieve consensus solutions which are evaluated with respect to several criteria simultaneously. The main idea consists of analyzing finite multi-criteria n-person games as multi-criteria bargaining games. The notion of Pareto-optimal guaranteed payoffs as a generalization of the maximin values of scalar games is proposed, together with two different solution concepts which can be characterized as the solutions of multi-criteria linear programming problems. A procedure to incorporate additional information about the agents' preferences in order to reach a final consensus is also provided.
    Keywords: Finite multi-criteria games. Bargaining games. Multi-criteria analysis
    JEL: C72 C78 C61
    Date: 2005
  6. By: Jackson, Matthew O.
    Abstract: A simple example shows that equilibria can fail to exist in second price (Vickrey) and English auctions when there are both common and private components to bidders' valuations and private information is held on both dimensions. The example shows that equilibrium only exists in the extremes of pure private and pure common values, and that existence in standard models is not robust to a slight perturbation.
    Keywords: general equilibrium, stability, experiments
    Date: 2005–11
  7. By: Edner Bataille (California State University-Bakersfield); Benoit Julien (Australian Graduate School of Management, University of New South Wales)
    Abstract: This paper develops a model of pricing and advertising in a matching environment with capacity constrained sellers. Sellers' expenditure on directly informative advertising attracts consumers only probabilistically. Consumers who happen to observe advertisements randomize over the advertised sellers using symmetric mixed strategies. Equilibrium prices and profit maximizing advertising levels are derived and their properties analyzed, including the interplay of prices and advertising with the market structure. The model generates a unimodal (inverted U-shape) relationship between both, individual and industry advertising level, and market structure. The relationship results from a trade off between a price effect and a market structure-matching effect. We find that the decentralized market has underprovision of advertising, both for individual sellers and industry wide, and that entry is excessive relative to the efficient level. We present a quantitative analysis to highlight properties of the models and to demonstrate the extent of inefficiency.
    Keywords: Advertising, pricing, market structure, endogenous matching, asymmetric information, efficiency.
    JEL: B21 C72 C78 D40 D43 D61 D83 J41 L11 M37
    Date: 2005–11–15
  8. By: Durieu, Jacques (CREUSET, University of Saint-Etienne); Haller, Hans (Department of Economics, Virginia Polytechnic Institute and State University); Solal, Philippe (CREUSET, University of Saint-Etienne)
    Abstract: Interaction on hypergraphs generalizes interaction on graphs, also known as pairwise local interaction. For games played on a hypergraph which are supermodular potential games, logit-perturbed best-response dynamics are studied. We find that the associated stochastically stable states form a sublattice of the lattice of Nash equilibria and derive comparative statics results for the smallest and the largest stochastically stable state. In the special case of networking games, we obtain comparative statics results with respect to investment costs, for Nash equilibria of supermodular games as well as for Nash equilibria of submodular games.
    Date: 2005–10–22
  9. By: Alessandro Innocenti
    Abstract: This paper analyses the early contributions of John Harsanyi and Thomas C. Schelling to bargaining theory. In his work, Harsanyi (1956) draws Nash’s solution to two-person cooperative games from the bargaining model proposed by Zeuthen (1930). Whereas Schelling (1960) proposes a multi-faceted theory of conflict that, without dismissing the assumption of rational behaviour, points out some of its paradoxical consequences. Harsanyi and Schelling’s contrasting views on the axiom of symmetry, as postulated by Nash (1950), are then presented. The analysis of this debate illustrates that, although in the early 1960s two different approaches to link strategic interaction and bargaining theory were proposed, only Harsanyi’s insights were fully developed later. Lastly, the causes of this evolution are assessed.
    Keywords: bargaining, game theory, symmetry
    JEL: B21 B41 C78
    Date: 2005–11
  10. By: Maria Montero (University of Nottingham); Juan Vidal-Puga (University of Vigo)
    Abstract: Morelli (American Political Science Review, 1999) provides a majoritarian bargaining model in which the parties make payoff demands and the order of moves is chosen by the leading party. Morelli's main proposition states that the ex post distribution of payoffs inside the coalition that forms is proportional to the homogeneous representation of the game. We provide a counterexample and prove a weaker result: proportional payoffs hold if the rules are modified so that the parties must move in decreasing order of weight.
    Keywords: demand commitment majority games politics
    JEL: C7 D8
    Date: 2005–11–14
  11. By: Ernst Fehr (Institute for Empirical Research in Economics, University of Zurich, Bluemlisalpstrasse 10, CH-8006 Zurich, Switzerland, email: and Collegium Helveticum, Schmelzbergstrasse 25, CH-8092 Zürich, Switzerland); Alexander Klein (Department of Economics, University of Munich, Ludwigstrasse 28, D-80539 Muenchen, Germany); Klaus M. Schmidt (Department of Economics, University of Munich, Ludwigstrasse 28, D-80539 Muenchen, Germany, email:
    Abstract: We show experimentally that fairness concerns may have a decisive impact on the actual and optimal choice of contracts in a moral hazard context. Bonus contracts that offer a voluntary and unenforceable bonus for satisfactory performance provide powerful incentives and are superior to explicit incentive contracts when there are some fair-minded players. But trust contracts that pay a generous wage upfront are less efficient than incentive contracts. The principals understand this and predominantly choose the bonus contracts. Our results are consistent with recently developed theories of fairness, which offer important new insights into the interaction of contract choices, fairness and incentives.
    Keywords: Moral Hazard, Incentives, Bonus Contract, Trust Contract, Fairness, Inequity Aversion
    JEL: C7 C9 J3
    Date: 2005–11
  12. By: Alexander Elbittar (CIDE); Andrei Gomberg (ITAM); Laura Sour (CIDE)
    Abstract: Many rent-sharing decisions in a society result from a bargaining process between groups of individuals (such as between the executive and the legislative branches of government, between legislative factions, between corporate management and shareholders, etc.). We conduct a laboratory study of the effect of different voting procedures on group decision-making in the context of ultimatum bargaining. Earlier studies have suggested that when the bargaining game is played by unstructured groups of agents, rather than by individuals, the division of the payoff is substantially affected in favor of the ultimatum-proposers. Our theoretical arguments suggest that one explanation for this could be implicit voting rules within groups. We explicitly structure the group decision-making as voting and study the impact of different voting rules on the bargaining outcome. The observed responder behavior is consistent with preferences depending solely on payoff distribution. Furthermore, we observe that proposers react in an expected manner to changes in voting rule in the responder group.
    Keywords: Bargaining games, group decision making and experimental design.
    JEL: C92 D44 D82
    Date: 2005–11–11
  13. By: Allen wilhite
    Abstract: We tend to interact with same people, day after day. Might this affect our behavior? In an abstract fashion, we look at this question. To model this repeated interaction with a small subset of the entire population we place agents on the nodes of a network and have them play a prisoners’ dilemma game exclusively with their neighbors. We then alter the payoffs of the game and the topology of the network to see if, when, and to what degree cooperation survives. We find widely divergent aggregate decisions across networks and across payoffs. But, there is commonality as well. It seems clear that some networks, or some organizational structures, are more conducive to fostering cooperation
    Keywords: PD games, networks
    JEL: C73
    Date: 2005–11–11
  14. By: Anabela Botelho (NIMA, Universidade do Minho); Glenn W. Harrison; Lígia Pinto (NIMA, Universidade do Minho); Elisabet E. Rutstrom (University of South Carolina)
    Abstract: Game theory provides predictions of behavior in many one-shot games. On the other hand, most experimenters usually play repeated games with subjects, to provide experience. To avoid subjects rationally employing strategies that are appropriate for the repeated game, experimenters typically employ a "random strangers" design in which subjects are randomly paired with others in the session. There is some chance that subjects will meet in multiple rounds, but it is claimed that this chance is so small that subjects will behave as if they are in a one-shot environment. We present evidence from public goods experiments that this claim is not always true.
    Keywords: Game theory, experiments, public goods
    JEL: C72 C92 H41
    Date: 2005–11
  15. By: Kóczy,László Á. (METEOR)
    Abstract: We discuss the two latest enlargements of the EU. While the 1995 entrants are by now fully integrated, the 2004 entrants will ``enjoy'''' a secondary status for a number of years. We attribute this difference to the fact that unlike the former EFTA members joining in 1995, the 2004 entrants formed a group with heterogenous interests, one that lacked the same strong internal economic ties. Not being able to act as a unified block they had a considerably weaker bargaining position. We support our arguments by qualitative results from a simple model, a dynamic partition function game based on Yi (1997) and Morelli and Penelle (1997).
    Keywords: Strategy;
    Date: 2005
  16. By: Berninghaus, Siegfried K. (Universität Karlsruhe); Haller, Hans (Department of Economics, Virginia Polytechnic Institute and State University); Outkin, Alexander (Decision Applications Division, Los Alamos National Laboratory)
    Abstract: We analyze local as well as global interaction and contagion in population games, using the formalism of neural networks. In contrast to much of the literature, a state encodes not only the frequency of play, but also the spatial pattern of play. Stochastic best response dynamics with logistic noise gives rise to a log-linear or logit response model. The stationary distribution is of the Gibbs-Boltzmann type. The long-run equilibria are the maxima of a potential function.
    Date: 2005–10–22
  17. By: Deddy Koesrindartoto (Economics Iowa State University); Junjie Sun
    Abstract: In April 2003 the U.S. Federal Energy Regulatory Commission proposed the Wholesale Power Market Platform (WPMP) for common adoption by all U.S. wholesale power markets. The WPMP is a complicated market design envisioning day-ahead, real-time, and ancillary service markets maintained and operated by an independent system operator or regional transmission organization. Variants of the WPMP have been implemented or accepted for implementation in several regions of the U.S. However, strong opposition to the WPMP still persists in many regions due in part to a perceived lack of adequate reliability testing. This presentation will report on the development of an agent-based computational laboratory for testing the economic reliability of the WPMP market design. The computational laboratory incorporates several core elements of the WPMP design as actually implemented in March 2003 by the New England independent system operator (ISO-NE) for the New England wholesale power market. Specifically, our modeled wholesale power market operates over a realistically rendered AC transmission grid. Computationally rendered generator agents (bulk electricity sellers) and load-serving entity agents (bulk electricity buyers) repeatedly bid into the day-ahead and real-time markets using the same protocols as actual ISO-NE market participants. In each trading period the agents use reinforcement learning to update their bids on the basis of past experience. We are using our agent-based computational laboratory to test the extent to which the core WPMP protocols are capable of sustaining efficient, orderly, and fair market outcomes over time despite attempts by market participants to gain individual advantage through strategic pricing, capacity withholding, and induced transmission congestion. This presentation will report on some of our initial experimental findings.
    Keywords: Agent-based computational economics; Wholesale power market design; Learning agents
    JEL: L1 L5 L94 C6 C7
    Date: 2005–11–11
  18. By: Jean Louis Dessalles (CREM CNRS UMR 6211 University of Rennes I,); Denis Phan
    Abstract: This paper provides a formal definition of emergence, operative in multi-agent framework and which make sense from both a cognitive and an economics point of view. The first part discuses the ontological and epistemic dimension of emergence and provides a complementary set of definitions. Following Bonabeau, Dessalles, emergence is defined as an unexpected decrease in relative algorithmic complexity. The relative algorithmic complexity of a system measures the complexity of the shortest description that a given observer can give of the system, relative to the description tools available to that observer. Emergence occurs when RAC abruptly drops by a significant amount, i.e. the system appears much simpler than anticipated. Following Muller, we call strong emergence a situation in which the agents involved in the emerging phenomenon are able to perceive it. Strong emergence is particularly important in economic modelling, because the behaviour of agents may be recursively influenced by their perception of emerging properties. Emerging phenomena in a population of agents are expected to be richer and more complex when agents have enough cognitive abilities to perceive the emergent patterns. Our aim here is to design a minimal setting in which this kind of “strong emergence†unambiguously takes place. In part II, we design a model for strong emergence as an extension of Axtell et al. In the basic model, agents tend to correlate their fellows’ behaviour with fortuitous visible but meaningless characteristics. On some occasions, these fortuitous tags turn out to be reliable indicators of dominant and submissive behaviour in an iterative Nash bargaining tournament. One limit of this model is that dominant and submissive classes remain implicit within the system. As a consequence, classes only emerge in the eye of external observers. In the enhanced model, Individuals may deliberately choose to display a tag after observing that they are regularly dominated by other agents who display that tag. Tag display is constrained by the fact that displaying agents must endure a cost. Agents get an explicit representation of the dominant class whenever that class emerges, thus implementing strong emergence. This phenomenon results from a double-level emergence. As in the initial model, dominant and submissive strategies may emerge through amplification of fortuitous differences in agents’ personal experiences. We add the possibility of a second level in emergence, where a tag is explicitly used by agents to announce their intention to adopt a dominant strategy. Costly signalling (Spence, Zahavi et al. Gintis, Smith, Bowles) is an essential feature of this extended model. Qualities are not objective, but correspond to an emerging de facto ranking of individuals. Without strong emergence, endogenous signalling allows possible inversion in the class regime, while with strong emergence class behaviour may became a stochastically stable regim
    Keywords: adaptive complex systems, agent based computational economics, behavioural learning in games, cognitive hierarchy, complexity, detection, emergence, population games, signalling, stochastic stability
    JEL: B41 C73 C88 D83
    Date: 2005–11–11

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