
on Game Theory 
By:  Frank H. Page, Jr. (Department of Finance, University of Alabama); Myrna H. Wooders (Department of Economics, Vanderbilt University) 
Abstract:  Given the preferences of players and the rules governing network formation, what networks are likely to emerge and persist? And how do individuals and coalitions evaluate possible consequences of their actions in forming networks? To address these questions we introduce a model of network formation whose primitives consist of a feasible set of networks, player preferences, the rules of network formation, and a dominance relation on feasible networks. The rules of network formation may range from noncooperative, where players may only act unilaterally, to cooperative, where coalitions of players may act in concert. The dominance relation over feasible networks incorporates not only player preferences and the rules of network formation but also assumptions concerning the degree of farsightedness of players. A specification of the primitives induces an abstract game consisting of (i) a feasible set of networks, and (ii) a path dominance relation defined on the feasible set of networks. Using this induced game we characterize sets of network outcomes that are likely to emerge and persist. Finally, we apply our approach and results to characterization of equilibrium of well known models and their rules of network formation, such as those of Jackson and Wolinsky (1996) and Jackson and van den Nouweland (2005). 
Keywords:  Basins of attraction, network formation games, stable sets, path dominance core, Nash networks 
JEL:  C71 C72 
Date:  2006–06 
URL:  http://d.repec.org/n?u=RePEc:van:wpaper:0614&r=gth 
By:  Vincent P. Crawford; Nagore Iriberri 
Date:  2006–07–31 
URL:  http://d.repec.org/n?u=RePEc:cla:levrem:321307000000000256&r=gth 
By:  Julio J. Rotemberg 
Abstract:  I suppose that people react with anger when others show themselves not to be minimally altruistic. With heterogeneous agents, this can account for the experimental results of ultimatum and dictator games. Moreover, it can account for the surprisingly large fraction of individuals who offer an even split, with parameter values that are more plausible than those required to explain outcomes in these experiments with the models of Levine (1998), Fehr and Schmidt (1999), Dickinson (2000), and Bolton and Ockenfels (2000). 
Keywords:  Game theory 
Date:  2006 
URL:  http://d.repec.org/n?u=RePEc:fip:fedbwp:0612&r=gth 
By:  Joana Pais 
Abstract:  Decentralized markets are modeled by means of a sequential game where, starting from any matching situation, firms are randomly given the opportunity to make job offers. In this random context, we prove the existence of ordinal subgame perfect equilibria where firms act according to a list of preferences. Moreover, every such equilibrium preserves stability for a particular profile of preferences. In particular, when firms act truthfully, every outcome is stable for the true preferences. Conversely, when the initial matching is the empty matching, every stable matching can be reached as the outcome of an ordinal equilibrium play of the game. 
Keywords:  Matching Markets; Stability; Random Mechanisms. 
JEL:  C78 J44 
URL:  http://d.repec.org/n?u=RePEc:ise:isegwp:wp122006&r=gth 
By:  J. Atsu Amegashie 
Abstract:  In psychological games, higherorder beliefs, emotions, and motives  in addition to actions  affect players’ payoffs. Suppose you are tolerated as opposed to being genuinely accepted by your peers and “friends”. In particular, suppose you are invited to a party, movie, dinner, etc not because your company is desired but because the inviter would feel guilty if she did not invite you. In all of these cases, it is conceivable that the intention behind the action will matter and hence will affect your payoffs. I model intentions in a dynamic psychological game under incomplete information. I find a complex social interaction in this game. In particular, a player may stick to a strategy of accepting every invitation with the goal of discouraging insincere invitations. This may lead one to erroneously infer that this player is eagerly waiting for an invitation, when indeed his behavior is driven more by strategic considerations than by an excessive desire for social acceptance. I discuss how being tolerated but not being truly accepted can explain the rejection of mutually beneficial trades, the choice of identity, social exclusion, marital divorce, and its implication for political correctness and affirmative action. 
Keywords:  guilt, intentions, psychological game, secondorder beliefs, social interaction 
JEL:  C73 J16 Z13 
Date:  2006 
URL:  http://d.repec.org/n?u=RePEc:ces:ceswps:_1757&r=gth 
By:  Claudio Mezzetti; Ilia Tsetlin 
Abstract:  We study auctions of a single object among symmetric bidders with affiliated values. We show that the secondprice auction minimizes revenue among all efficient auction mechanisms in which only the winner pays, and the price only depends on the losers’ bids. In particular, we show that the kth price auction generates higher revenue than the secondprice auction, for all k > 2. It follows that with affiliated private values the kth price auction yields higher revenue than the English auction. We also show that the kth price auction may generate higher revenue than the English auction even in a setting with common values. 
Keywords:  Auctions; SecondPrice Auction; English Auction; kth Price Auction; Affiliated Values; Robust Mechanism Design 
JEL:  D44 D82 
Date:  2006–07 
URL:  http://d.repec.org/n?u=RePEc:lec:leecon:06/8&r=gth 
By:  Joana Pais 
Abstract:  We consider centralized matching markets in which, starting from an arbitrary match ing, frms are successively chosen in a random fashion and offer their positions to the workers they prefer the most. We propose an algorithm that generalizes some wellknown algorithms and explore some of its properties. In particular, different executions of the algorithm may lead to different output matchings. We then study incentives in the rev elation game induced by the algorithm. We prove that ordinal equilibria always exist. Furthermore, every matching that results from an equilibrium play of the game is stable for a particular preference profile. Namely, if an ordinal equilibrium exists in which firms reveal their true preferences, only matchings that are stable for the true preferences can be obtained. 
Keywords:  Matching Markets; Stability; Random Mechanism. 
JEL:  C78 J44 
URL:  http://d.repec.org/n?u=RePEc:ise:isegwp:wp112006&r=gth 
By:  Joana Pais 
Abstract:  In the college admissions problem, we consider the incentives confronting agents who face the prospect of being matched by a random stable mechanism. We provide a fairly complete characterization of ordinal equilbria. Namely, every ordinal equilib rium yields a degenerate probability distribution. Furthermore, individual rationality is a necessary and sufficient condition for an equilibrium outcome, while stability is guaranteed in ordinal equilibrium where firms act straightforwardly. Finally, we re late equilibrium behavior in random and in deterministic mechanisms. 
Keywords:  Matching; College Admissions Problem; Stability; Random Mechanism. 
JEL:  C78 
URL:  http://d.repec.org/n?u=RePEc:ise:isegwp:wp132006&r=gth 
By:  Helios Herrera; Cesar Martinelli 
Date:  2006–07–31 
URL:  http://d.repec.org/n?u=RePEc:cla:levrem:321307000000000225&r=gth 
By:  Rocholl, Jörg 
Abstract:  This paper examines the results of 93 discriminatory German Treasury auctions between 1998 and 2002. It documents the seller’s use of discretion and its influence on auction outcomes and bidding strategies. The evidence suggests that the seller uses its discretion frequently and substantially. It does not maximize revenues in a singleperiod game, but moves up in the competitive demand curve to set the auction price close to the market price. Bidders do not make profits in German auctions on average, while their bidding strategies reflect the uncertainty created by the seller’s discretion. The paper extends and tests the multiunit auction model by Lengwiler (1999). The empirical evidence is consistent with the implication that the marketclearing price depends on the seller’s marginal cost rather than on the submitted demand. 
Keywords:  Discriminatory auctions, Winner’s curse, Seller discretion 
JEL:  G28 H63 
Date:  2005 
URL:  http://d.repec.org/n?u=RePEc:zbw:bubdp1:3374&r=gth 
By:  Monique Florenzano (Centre d'Economie de la Sorbonne  [CNRS : UMR8174]  [Universit? Panth?onSorbonne  Paris I]); Charalambos Aliprantis (Department of Economics, Purdue University  [Purdue University]); Rabee Tourky (Department of Economics, Purdue University  [Purdue University]) 
Abstract:  Abstract. The second welfare theorem and the coreequivalence theorem have been proved to be fundamental tools for obtaining equilibrium existence theorems, especially in an infinite dimensional setting. For wellbehaved exchange economies that we call proper economies, this paper gives (minimal) conditions for supporting with prices Pareto optimal allocations and decentralizing Edgeworth equilibrium allocations as nontrivial equilibria. As we assume neither transitivity nor monotonicity on the preferences of consumers, most of the existing equilibrium existence results are a consequence of our results. A natural application is in Finance, where our conditions lead to new equilibrium existence results, and also explain why some financial economies fail to have equilibrium. 
Keywords:  Equilibrium; Valuation equilibrium; Paretooptimum; Edgeworth equilibrium; Properness; ordered topological vector spaces; RieszKantorovich formula; supconvolution 
Date:  2006–07–19 
URL:  http://d.repec.org/n?u=RePEc:hal:papers:halshs00086791_v1&r=gth 
By:  Joana Pais; Ágnes Pintér 
Abstract:  We present an experimental study where we analyze three well known matching mechanisms  the Boston, the GaleShapley, and the Top Trading Cycles mechanisms  in three different informational set tings. Our experimental results are consistent with the theory, sug gesting that the TTC mechanism outperforms both the Boston and the GaleShapley mechanisms in terms of efficiency and it is as suc cessful as the GaleShapley mechanism regarding the proportion of truthful preference revelation, whereas manipulation is stronger un der the Boston mechanism. In addition, even though agents are much more likely to revert to truthtelling in lack of information about the others' payooffs  ignorance may be beneficial in this context  , the TTC mechanism results less sensitive to the amount of information that participants hold. These results therefore suggest that the use of the TTC mechanism in practice is more desirable than of the others. 
URL:  http://d.repec.org/n?u=RePEc:ise:isegwp:wp142006&r=gth 
By:  Thibault Gajdos (CREST  Centre de Recherche en Économie et Statistique  [INSEE]  [ École Nationale de la Statistique et de l'Administration Économique]); JeanChristophe Vergnaud (EUREQUA  Equipe de Recherche en Economie Quantitative  [Université PanthéonSorbonne  Paris I]); JeanMarc Tallon (EUREQUA  Equipe de Recherche en Economie Quantitative  [Université PanthéonSorbonne  Paris I]) 
Abstract:  We develop an axiomatic approach to decision under uncertainty that explicitly takes into account the information available to the decision maker. The information is described by a set of priors and a reference prior. We define a notion of imprecision for this informational setting and show that a decision maker who is averse to information imprecision maximizes the minimum expected utility computed with respect to a subset of the set of initially given priors. The extent to which this set is reduced can be seen as a measure of imprecision aversion. This approach thus allows a lot of flexibility in modelling the decision maker attitude towards imprecision. In contrast, applying<br />GilboaSchmeidler [1989] maxmin criterion to the initial set of priors amounts to assuming extreme pessimism. 
Keywords:  Uncertainty, Decision, Multiple Priors 
Date:  2006–07–17 
URL:  http://d.repec.org/n?u=RePEc:hal:papers:halshs00086021_v1&r=gth 
By:  Marco Celentani; Drew Fudenberg; David K Levine; Wolfgang Pesendorfer 
Date:  2006–07–31 
URL:  http://d.repec.org/n?u=RePEc:cla:levarc:699152000000000019&r=gth 