nep-gth New Economics Papers
on Game Theory
Issue of 2007‒01‒14
thirteen papers chosen by
Laszlo A. Koczy
Universiteit Maastricht

  1. Coalition Formation, Bargaining and Investments in Networks with Externalities: Analysis of the Eurasian Gas Supply Network By Ikonnikova, Svetlana
  2. On the reserve price in all-pay auctions with complete information and lobbying games By Bertoletti, Paolo
  3. The Framing of Games and the Psychology of Strategic Choice By Martin Dufwenberg; Simon Gaechter; Heike Hennig-Schmidt
  4. NIRA-3: An improved MATLAB package for finding Nash equilibria in infinite games By Krawczyk, Jacek; Zuccollo, James
  5. NISOCSol an algorithm for approximating Markovian equilibria in dynamic games with coupled-constraints By Krawczyk, Jacek; Azzato, Jeffrey
  6. Demand Bargaining and Proportional Payoffs in Legislatures By Maria Montero; Juan Vidal-Puga
  7. The Nature of Salience Revisited: Cognitive Hierarchy Theory versus Team Reasoning By Nicolas Bardsley; Judith Mehta; Chris Starmer; Robert Sugden
  8. Experiments with Network Formation By John Duffy; Dean Corbae
  9. Technical and Data Appendix to `Experiments with Network Formation` By John Duffy; Dean Corbae
  10. Emotions Enforce Fairness Norms (a Simple Model of Strong Reciprocity) By López-Pérez, Raúl
  11. Anomalies in Auction Choice Behavior By Radosveta Ivanova-Stenzel; Timothy C. Salmon
  12. Communication and Coordination in the Laboratory Collective Resistance Game By Cason, Timothy N.; Mui, Vai-Lam
  13. How eBay Sellers set “Buy-it-now” prices - Bringing The Field Into the Lab By Tim Grebe; Radosveta Ivanova-Stenzel; Sabine Kröger

  1. By: Ikonnikova, Svetlana
    Abstract: We present a new methodology to study how upstream (e.g. producers) and downstream (e.g. transiters) players form coalitions, bargain over joint profit sharing and invest. Within coalitions players combine resources, coalitions compete on a market. Profit of each coalition depends on the cooperation among the outside players. Hence, we consider a game with externalities. To find the equilibrium coalition structure and the expected payoffs, we use the solution proposed by Maskin (2003). Payoffs reflect the bargaining power and depend on capacities of players. We show, how investment options available to players matter. We apply the study to analyze the Eurasian gas supply network. Russia and Turkmenistan - producers and Ukraine, Belorus, Azerbaijan, Iran - transiters form coalitions to supply gas and bargain over profit sharing. Besides, the players invest in pipelines. We derive the bargaining power of the countries from the architecture of the network and calculate the strategic value of the different pipeline projects.
    Keywords: Partition Function; Coalitional Bargaining; Coalition Formation; Externalities; Gas Supply
    JEL: C72 C71
    Date: 2005–12
  2. By: Bertoletti, Paolo
    Abstract: We show that the seller’s optimal reserve price in an all-pay auction with complete information is higher than in a standard auction. We use our results to re-consider some findings of the literature that models lobbying games as all-pay auctions. In particular, we show that the so-called Exclusion Principle appears to rely crucially on the implicit assumption of a “weak” (in terms of bargaining power) seller, and does not hold if she regards bidders’ valuations as iid according to a monotonic hazard rate. Our preliminary results for the case of independent but asymmetric bidders make it even more suspicious.
    Keywords: all-pay auctions; reserve price; economic theory of lobbying
    JEL: D44 D72
    Date: 2006–01
  3. By: Martin Dufwenberg (University of Arizona); Simon Gaechter (University of Nottingham); Heike Hennig-Schmidt (University of Bonn)
    Abstract: Psychological game theory can provide a rational choice explanation of framing effects; frames influence beliefs, and beliefs influence motivations. We explain this point theoretically, and explore its empirical relevance experimentally. In a 2×2-factorial framing design of one-shot public good experiments we show that frames affect subject’s first- and second-order beliefs, and contributions. From a psychological game-theoretic framework we derive two mutually compatible hypotheses about guilt aversion and reciprocity under which contributions are related to second- and first-order beliefs, respectively. Our results are consistent with either.
    Keywords: Framing; psychological games; guilt aversion; reciprocity; public good games; voluntary cooperation
    JEL: C91 C72 D64 Z13
    Date: 2006–10
  4. By: Krawczyk, Jacek; Zuccollo, James
    Abstract: A powerful method for computing Nash equilibria in constrained, multi-player games is created when the relaxation algorithm and the Nikaido-Isoda function are used together in a suite of MATLAB routines. This paper updates the MATLAB suite described in \cite{Berridge97} by adapting them to MATLAB 7. The suite is now capable of solving both static and open-loop dynamic games. An example solving a coupled constraints game using the suite is provided.
    Keywords: Nikaido-Isoda function; Coupled constraints
    JEL: C63
    Date: 2006–12
  5. By: Krawczyk, Jacek; Azzato, Jeffrey
    Abstract: In this report, we outline a method for approximating a Markovian (or feedback-Nash) equilibrium of a dynamic game, possibly subject to coupled-constraints. We treat such a game as a "multiple" optimal control problem. A method for approximating a solution to a given optimal control problem via backward induction on Markov chains was developed in Krawczyk (2006). A Markovian equilibrium may be obtained numerically by adapting this backward induction approach to a stage Nikaido-Isoda function (described in Krawczyk & Zuccollo (2006)).
    Keywords: Computational techniques; Noncooperative games; Econometric software; Taxation; Water; Climate; Dynamic programming; Dynamic games; Applications of game theory; Environmental economics; Computational economics; Nikaido-Isoda function; Approximating Markov decision chains
    JEL: C87 C63 Q25 C72 E62
    Date: 2006
  6. By: Maria Montero (University of Nottingham); Juan Vidal-Puga (University of Vigo)
    Abstract: We study a majoritarian bargaining model in which the parties make payoff demands in decreasing order of voting weight. If the game is constant-sum and homogeneous, the unique subgame perfect equilibrium is such that the minimal winning coalition of the players who move first forms and payoffs are proportional to the voting weights.
    Date: 2006–11
  7. By: Nicolas Bardsley (National Centre for Research Methods, University of Southampton); Judith Mehta (School of Economics, University of East Anglia); Chris Starmer (CeDEx, University of Nottingham); Robert Sugden (School of Economics, University of East Anglia)
    Abstract: This paper reports experimental tests of two alternative explanations of how players use focal points to select equilibria in one-shot coordination games. Cognitive hierarchy theory explains coordination as the result of common beliefs about players’ pre-reflective inclinations towards the relevant strategies; the theory of team reasoning explains it as the result of the players’ using a non-standard form of reasoning. We report two experiments; one finds support for the first theory, the other for the second. In the light of additional questionnaire evidence, we conclude that players’ reasoning is sensitive to the decision context.
    Keywords: salience, focal point, cognitive hierarchy, team reasoning
    JEL: C72 C92
    Date: 2006–09
  8. By: John Duffy; Dean Corbae
    Abstract: We examine how groups of agents form trading networks in the presence of idiosyncratic risk and the possibility of contagion. Specifically` four agents play a two--stage finite repeated game. In the first stage` the network structure is endogenously determined through a noncooperative proposal game. In the second stage` agents play multiple rounds of a coordination game against all of their chosen `neighbors\` after the realization of a payoff relevant shock. While parsimonious` our four agent environment is rich enough to capture all of the important interaction structures that have appeared in the networks literature` including bilateral (marriage)` local interaction (wheel)` star` and uniform matching (complete) networks. Marriage is not only the ex-ante efficient network in our environment` but also stable in the sense of being immune to unilateral deviations. Since our framework admits multiple equilibria` we examine which types of networks are likely to emerge through a series of experiments. Our experimental findings largely confirm the predictions of our model.
    Date: 2006–12
  9. By: John Duffy; Dean Corbae
    Abstract: This appendix provides proofs and the entire set of data used in Corbae and Duffy (2006)` ``Experiments with Network Formation\`\`. In particular we show that for the environment laid out in that paper` a marriage network is not only the ex-ante efficient network` but also stable in the sense of being immune to unilateral deviations.
    Date: 2006–12
  10. By: López-Pérez, Raúl (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)
    Abstract: In experimental games, many subjects cooperate contrary to their material interest and they do that in a reciprocal manner. In addition, many subjects punish those others who behave unkindly, and previous history usually influences subjects’ choices. We propose a simple game-theoretical model to account for these and other experimental phenomena, and compare it with other models of social preferences and reciprocity.
    Keywords: Emotions; Fairness; Path-Dependency; Strong Reciprocity; Social Norms
    JEL: C70 C72 D63 D64 D74 Z13
  11. By: Radosveta Ivanova-Stenzel (Humboldt-University of Berlin, Department of Economics, Spandauer Str. 1, D-10178 Berlin, Germany.; Timothy C. Salmon (Florida State University, Department of Economics, Tallahassee, FL, 32306-2180. Tel: 850-644-7207, Fax: 850-644-4535.
    Abstract: Ivanova-Stenzel and Salmon (2004a) established some interesting yet puzzling results regarding bidders’ preferences between auction formats. The finding is that bidders strongly prefer the ascending to the first price sealed bid auction on a ceteris paribus basis but they are not willing to pay up to an entry price for entering into an ascending auction instead of a first price that would equalize the profits between the two. While it was found that risk aversion on the part of the bidders could resolve this anomaly the claim that risk aversion drives overbidding in first price auctions is somewhat controversial. In this study we examine two competing explanations for the observed behavior; loss aversion and “clock aversion”, i.e. a dislike for some aspect of the clock based bidding mechanism. We find that neither alternative explanation can account for bidders’ auction choice behavior leaving risk aversion as the only un-falsified hypothesis.
    Keywords: bidder preferences, private values, sealed bid auctions, ascending auctions
    JEL: C91 D44
    Date: 2006–10
  12. By: Cason, Timothy N.; Mui, Vai-Lam
    Abstract: This paper presents a laboratory collective resistance (CR) game to study how different forms of non-binding communication among responders can help coordinate their collective resistance against a leader who transgresses against them. Contrary to the predictions of analysis based on purely self-regarding preferences, we find that non-binding communication about intended resistance increases the incidence of no transgression even in the one-shot laboratory CR game. In particular, we find that the incidence of no transgression increases from 7 percent with no communication up to 25-37 percent depending on whether communication occurs before or after the leader’s transgression decision. Responders’ messages are different when the leaders can observe them, and the leaders use the observed messages to target specific responders for transgression.
    Keywords: Communication ; Cheap Talk ; Collective Resistance ; Laboratory Experiment ; Social Preferences
    JEL: C92 D74
    Date: 2006–11
  13. By: Tim Grebe (Institut für Wirtschaftstheorie I, Humboldt.Universität zu Berlin, Spandauer Str. 1, D-10099 Berlin, Germany.; Radosveta Ivanova-Stenzel (Institut für Wirtschaftstheorie I, Humboldt.Universität zu Berlin, Spandauer Str. 1, D-10099 Berlin, Germany.; Sabine Kröger (Département d'économie, Université Laval, Pavillon J.A.DeSève, Québec City, Québec G1K 7P4, Canada.
    Abstract: In this paper we introduce a new type of experiment that combines the advantages of lab and field experiments. The experiment is conducted in the lab but using an unchanged market environment from the real world. Moreover, a subset of the standard subject pool is used, containing those subjects who have experience in conducting transactions in that market environment. This guarantees the test of the theoretical predictions in a highly controlled environment and at the same time enables not to miss the specific features of economic behavior exhibited in the field. We apply the proposed type of experiment to study seller behavior in online auctions with a Buy-It-Now feature, where early potential bidders have the opportunity to accept a posted price offer from the seller before the start of the auction. Bringing the field into the lab, we invited eBay buyers and sellers into the lab to participate in a series of auctions on the eBay platform. We investigate how traders' experience in a real market environment influences their behavior in the lab and whether abstract lab experiments bias subjects' behavior.
    Keywords: online auctions, experiments, buyout prices
    JEL: C72 C91 D44 D82
    Date: 2006–11

This nep-gth issue is ©2007 by Laszlo A. Koczy. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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