nep-gth New Economics Papers
on Game Theory
Issue of 2007‒01‒13
sixteen papers chosen by
Laszlo A. Koczy
Universiteit Maastricht

  1. The strategy structure of some coalition formation games By Gabrielle Demange
  2. Virtual Nash implementation with admissible support By Olivier, BOCHET; Franois, MANIQUET
  3. Level-k Auctions: Can a Non-Equilibrium Model of Strategic Thinking Explain the Winner's Curse and Overbidding in Private-Value Auctions? By Vincent Crawford; Nagore Iriberri
  4. The Proportional Lottery Protocol is Strongly Participatory and VNM-Strategy-Proof By Stefano Vannucci
  5. Games in the Nervous System: The Game Motoneurons Play By Irit Nowik; Idan Segev; Shmuel Zamir
  6. Equilibrium Degeneracy and Reputation Effects in Continuous-Time Games By Eduardo Faingold; Yuliy Sannikov
  7. The Eeckhout Condition and the Subgame Perfect Implementation of Stable Matching By Sang-Chul Suh; Quan Wen
  8. Rational Multi-Agent Search By Andreas Blume; April Franco; Paul Heidhues
  9. Experiential Learning and the Effectiveness of Economic Simulation Games By Bernhard Herz; Wolfgang Merz
  10. The role of information in repeated games with frequent actions By Yuliy Sannikov; Andrzej Skrzypacz
  11. Knowing what others Know: Coordination motives in information acquisition By Christian Hellwig; Laura Veldkamp
  12. Learning in Society By Braz Camargo
  13. Substitute Valuations, Auctions and Equilibrium with Discrete Goods By Paul Milgrom; Bruno Strulovici
  14. Contract and Game Theory: Basic Concepts for Settings with Finite Horizons By Joel Watson
  15. On the Provision of Public Goods in Dynamic Contracts: Lack of Commitment By Christine Hauser; Gokce Uysal
  16. Water allocation strategies for the Kat Basin in South Africa : comparing negotiation tools and game theory models By Dinar, Ariel; Farolfi, Stefano; Patrone, Fioravante; Rowntree, Kate

  1. By: Gabrielle Demange
    Abstract: In coalitional games with side payments, the core predicts which coalitions form and how benefits are shared. The predictions however run into difficulties if the core is empty or if some coalitions benefit from not blocking truthfully. These difficulties are analyzed in games in which an a priori given collection of coalitions can form, as the collection of pairs of buyer-seller in an assignment game. The incentive properties of the core and of its selections are investigated in function of the collection. Furthermore the relationships with Vickrey-Clarke-Groves mechanisms are drawn.
    Date: 2006
  2. By: Olivier, BOCHET; Franois, MANIQUET
    Abstract: A social choice correspondence (SCC) is virtually implementable if it is e-close (in the probability simplex) to some (exactly) implementable correspondence. Abreu and Sen (1991) proved that, without restriction on the set of alternatives receiving strictly positive probability at equilibrium, every SCC is virtually implementable in Nash Equilibrium. We study virtual implementation when the supports of equilibrium lotteries are restricted. We provide a necessary and sufficient condition, imposing joint restrictions on SCCs and admissible supports. Then, we discuss how to construct supports. Finally, we study virtual implementation when the support is restricted to the efficient or individually rational alternatives.
    Date: 2006–08–30
  3. By: Vincent Crawford (University of California, San Diego); Nagore Iriberri (University of California, San Diego)
    Abstract: This paper proposes a structural non-equilibrium model of initial responses to incomplete-information games based on "level-k" thinking, which describes behavior in many experiments with complete-information games. We derive the model's implications in first- and second-price auctions with general information structures, compare them to equilibrium and Eyster and Rabin's (2005) "cursed equilibrium," and evaluate the model's potential to explain behavior in auction experiments. The level-k model generalizes many insights from equilibrium auction theory. It also allows a unified explanation of the winner's curse in common-value auctions and overbidding in those independent-private-value auctions without the uniform value distributions used in most experiments.
    Keywords: common-value auctions, winner's curse, overbidding, bounded rationality, level-k model, non-equilibrium strategic thinking, behavioral game theory, experiments,
    Date: 2005–11–01
  4. By: Stefano Vannucci
    Abstract: A voting protocol is said to be strongly participatory if for any player i and any strategy profile either the outcome is i‘s preferred one or has a strategy which would ensure her a better outcome, and VNMstrategy proof if at any preference profile the set of sincere strategies of each player is a VNM-stable set. It is shown that the proportional lottery (PL) modular voting protocol is both strongly participatory and VNMstrategy proof.
    JEL: D70 D71
    Date: 2006–11
  5. By: Irit Nowik; Idan Segev; Shmuel Zamir
    Date: 2006–12–30
  6. By: Eduardo Faingold (Economics University of Pennsylvania); Yuliy Sannikov
    Abstract: We study a continuous-time reputation game between a large player and a population of small players in which the actions of the large player are imperfectly observable. We explore two versions of the game. In the complete information game, in which it is common knowledge that the large player is a strategic normal type, we show that \emph{intertemporal incentives collapse}: irrespective of players' patience and signal informativeness, the set of equilibrium payoffs of the large player coincides with (the convex hull of) the set of static Nash equilibrium payoffs. In the incomplete information game, the small players assign positive probability to the large player being a \emph{commitment type}, who plays the same action at all times, irrespective of the past history of play, or a \emph{normal type} (with payoffs from the complete information game). With this perturbation, nontrivial intertemporal incentives arise. In this two-type setting, we characterize the set of Nash equilibrium payoffs of the large player by means of a pair of ordinary differential equations. Furthermore, we show that for any prior probability on the large player's types, the large player's maximum Nash equilibrium payoff is attained by a Markov equilibrium, i.e., by a sequential equilibrium in strategies that depend only on the small players' common posterior belief. We illustrate our results with examples of applications in Industrial Organization, Corporate Finance and Macroeconomics.
    Keywords: Dynamic Games, Reputation Effects, Imperfect Monitoring, Brownian Motion
    JEL: C73
    Date: 2006–12–03
  7. By: Sang-Chul Suh; Quan Wen
    Abstract: We investigate an extensive form sequential matching game of perfect information. We show that the subgame perfect equilibrium of the sequential matching game leads to the unique stable matching when the Eeckhout Condition (2000) for existence of a unique stable matching holds, regardless of the sequence of agents. This result does not extend to preferences that violate the Eeckhout Condition, even if there is a unique stable matching.
    Keywords: Matching; unique stable matching; subgame perfect equilibrium
    JEL: C72 C78 D78
    Date: 2006–12–03
  8. By: Andreas Blume; April Franco (Economics University of Iowa); Paul Heidhues
    Abstract: We study games in which players search for an optimal action profile. All action profiles are either a success, with a payoff of one, or a failure, with a payoff of zero. Players do not know the location of success profiles; instead each player is privately informed about the marginal distribution of success profiles over his actions. We characterize optimal joint search strategies.
    Keywords: Search, Decentralization, Symmetry
    JEL: C72 C73 D23
    Date: 2006–12–03
  9. By: Bernhard Herz; Wolfgang Merz
    Abstract: Kolb's theory of experiential learning provides a natural setting to evaluate simulation games. In this article, an experimental design is developed to test whether economic simulation games support the learning process corresponding to Kolb's experiential learning cycle. The empirical results indicate that simulation games support the four learning stages more efficiently than traditional teaching methods.
    Keywords: economic simulation games, learning through simulation/gaming, experiential learning, evaluation of simulation games, experimental assessment of teaching techniques, effectiveness of simulation games
  10. By: Yuliy Sannikov; Andrzej Skrzypacz (GSB Stanford University)
    Abstract: We show that the ways incentives can be provided during dynamic interaction depend very crucially on the manner in which players learn information. This conclusion is established in a general stationary environment with noisy public monitoring and frequent actions. The monitoring process can be represented by a sum of a multi-dimensional Brownian component and a jump process. We show that jumps can be used to provide incentives both with transfers and value burning while continuous information can be used to provide incentives only with transfers. Also, it is asymptotically optimal to use the cumulative realization of the Brownian component linearly. Additionally, we approximate the equilibrium payoff set for fixed small discount rates as the periods become short by a series of linear programming problems. These problems highlight how the two types of information can be used to provide incentives.
    Keywords: repeated games, dynamic incentives, frequent moves
    JEL: C72 C73 D82
    Date: 2006–12–03
  11. By: Christian Hellwig (Department of Economics University of California Los Angeles); Laura Veldkamp
    Abstract: When a large number of agents play a game with strategic complementarity, information choices exhibit strategic complementarity as well: If an agent wants to do what others do, then they want to know what others know. Likewise, strategic substitutability in actions produces strategic substitutability in information acquisition. The uniqueness or multiplicity of coordination game equilibria depends on whether information choice is discrete or continuous and whether the information is public or private. We use these results to explore how optimal information choices change the dynamic predictions of well-known macroeconomic theories.
    Keywords: Costly Information Acquisition, strategic complements, multiple equilibria
    JEL: D83 C72 C73
    Date: 2006–12–03
  12. By: Braz Camargo (Economics University of Western Ontario)
    Abstract: In the canonical learning model, the multi-armed bandit with independent arms, a decision maker learns about the different alternatives only through his private experience. It is well known that any optimal experimentation strategy for this problem is ex-post inefficient: it sometimes leads the superior alternative to be dropped altogether. Many situations of interest, however, involve learning from individual experience and the experience of others. This paper shows how learning in society can overcome this inefficiency. We consider an economy populated with a continuum of infinitely lived agents where each one of them faces a multi-armed bandit. The unknown stochastic payoffs of each arm are the same for all agents. In each period, they are randomly and anonymously matched in pairs, and in any such match they observe their partner's current action choice and its outcome. We establish that if initial beliefs are sufficiently heterogeneous, then the fraction of the population choosing the superior arm converges to one in any perfect bayesian equilibrium of this game. We also show that the same conclusion holds when only action choices are observable within a match and the number of arms is two
    Keywords: Multi-Armed Bandits, Social Learning, Strategic Experimentation
    JEL: C73 D82 D83
    Date: 2006–12–03
  13. By: Paul Milgrom; Bruno Strulovici
    Date: 2006–12–30
  14. By: Joel Watson (UC San Diego)
    Abstract: This paper reports the analysis of a general model of contract in multi-period settings with both external and self-enforcement. In the model, players alternately engage in contract negotiation and take individual actions. A notion of contractual equilibrium, which combines a bargaining solution and individual incentive constraints, is proposed and analyzed. The modeling framework helps identify the relation between the manner in which players negotiate and the outcome of the long-term contractual relationship. In particular, the model shows the importance of accounting for the selfenforced component of contract in the negotiation process. Examples and guidance for applications are provided.
    Keywords: contract, games, self-enforcement, external enforcement, bargaining protocols, disagreement points, contractual equilibrium, hold up,
    Date: 2006–02–01
  15. By: Christine Hauser (Economics University of Rochester); Gokce Uysal
    Abstract: We study a model of efficient risk sharing between two agents, A and B, who enjoy a non-durable common good. Only agent B can provide the common good whereas agent A can merely contribute indirectly by making transfers to the provider, agent B. We consider self-enforcing equilibria in the absence of commitment. We characterize the Pareto frontier of the subgame perfect equilibrium payoffs. The main results are: First, the consumption of the public good is significantly more stable than are the private consumptions. Second, in the absence of aggregate uncertainty, agents' consumptions are invariant to distribution of income in most cases. In the remaining cases, private consumptions and continuation values covary positively with respective incomes. Third, if some first best allocation is sustainable, the long-term equilibrium converges to the first best allocation. Otherwise, agents' utilities oscillate over a finite set of values. We find that an increase in the provider's deviation lifetime utility shifts the frontier of the set of subgame perfect equilibrium payoffs to exclude the lowest values of the provider (hence the highest values of the other). A decrease in the provider's deviation lifetime utility shifts the frontier of the set to include lower values for the provider (hence higher values for the other)
    Keywords: mutual insurance, lack of commitment, optimal dynamic contract, public good
    JEL: C72 C73 D90
    Date: 2006–12–03
  16. By: Dinar, Ariel; Farolfi, Stefano; Patrone, Fioravante; Rowntree, Kate
    Abstract: Governments and developing agencies promote participatory approaches in solving common pool resource problems, such as in the water sector. Two main participatory approaches have been applied separately, namely negotiation and mediation. In this paper the authors apply the Role-Playing Game that is a component of the Companion Modeling approach, a negotiation procedure, and the Cooperative Game Theory (Shapley value and the Nucleolus solution concepts) that can be mirrored as a mediated mechanism to a water allocation problem in the Kat watershed in South Africa. While the absolute results of the two approaches differ, the negotiation and the cooperative game theory provide similar shares of the benefit allocated to the players from various cooperative arrangements. By evaluating the two approaches, the authors provide useful tips for future extension for both the Role-Playing Games and the Cooperative Game Theory applications.
    Keywords: Water Supply and Systems,Water Supply and Sanitation Governance and Institutions,Environmental Economics & Policies,Water Conservation,Town Water Supply and Sanitation
    Date: 2006–12–01

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