nep-gth New Economics Papers
on Game Theory
Issue of 2007‒03‒10
eight papers chosen by
Laszlo A. Koczy
University of Maastricht

  1. One - Memory in Repeated Games By Barlo, Mehmet; Carmona, Guilherme
  2. Sustaining cooperation in trust games By Rigdon, Mary; McCabe, Kevin; Smith, Vernon
  3. How do coalitions get built - Evidence from an extensive form coalition game with renegotiation & externalities By Gary E Bolton; Jeannette Brosig
  4. Ascending Auction: Uniqueness and Robustness to Strategic Uncertainty By Dirk Bergemann; Stephen Morris
  5. Best-reply matching in Akerlof’s market for lemons. By Gisèle Umbhauer
  6. Cross and Double Cross: Comparative Statics in First Price Auctions By Ed Hopkins; Tatiana Kornienko
  7. The Role of Mediation in Peacemaking and Peacekeeping Negotiations. By Ester Camiña; Nicolás Porteiro
  8. Efficiency in the Trust Game: an Experimental Study of Preplay Contracting By Juergen Bracht; Nick Feltovich

  1. By: Barlo, Mehmet; Carmona, Guilherme
    Abstract: We study the extent to which equilibrium payo®s of discounted repeated games can be obtained by 1 { memory strategies. First, we present robust examples of games in which there is a subgame perfect equilibrium payo® pro¯le that cannot be obtained by any 1 { memory subgame perfect equilibrium. Then, a complete characterization of 1 { memory simple strategies is provided, and it is employed to establish the following in games with more than two players each having connected action spaces: 1. all subgame perfect equilibrium payo®s can be approximately supported by an " { sub- game perfect equilibrium strategy of 1 { memory, 2. all strictly enforceable subgame perfect equilibrium payo®s can be approximately sup- ported by a 1 { memory subgame equilibrium, and 3. the subgame perfect Folk Theorem holds for 1 { memory strategies. While no further restrictions are needed for the third result to hold in 2 { player games, an additional restriction is needed for the ¯rst two: players must have common punishments.
    Date: 2007
  2. By: Rigdon, Mary; McCabe, Kevin; Smith, Vernon
    Abstract: It is well-known in evolutionary game theory that population clustering in Prisoner's Dilemma games allows some cooperative strategies to invade populations of stable defecting strategies. We adapt this idea of population clustering to a two-person trust game. Without knowing it, players are typed based on their recent track record as to whether or not they are trusting (Players 1) and whether or not they are trustworthy (Players 2). They are then paired according to those types: trustors with trustworthy types, and similarly non-trustors with untrustworthy types. In the control comparisons, Players 1 are randomly repaired with Players 2 without regard to type. We ask: are there natural tendencies for people to cooperate more frequently in environments in which they experience more cooperation in comparison with controls?
    Keywords: exchange; trust; reciprocity; cooperation; clustering; bargaining; experimental economics
    JEL: D02 D0
    Date: 2001–08
  3. By: Gary E Bolton; Jeannette Brosig
    Abstract: We investigate a three-person coalition game in which one bargainer, the builder, can propose and build a coalition over two stages. In equilibrium, coalition building ends with an efficient grand coalition, while the equilibrium path is contingent on the values of the two-person coalitions and associated externality payoffs. Considering relative payoffs need not change the equilibrium path. Nevertheless, outcomes in the experiment are often inefficient. One explanation is that bargainers have difficulties anticipating the future actions of other bargainers. This problem might be mitigated by allowing bargainers to communicate prior to each stage. A test finds that communication does in fact increase efficiency, although unevenly, and at the cost of the builder. The study implies that the nature and pattern of communication among bargainers is a critical factor in efficient coalition building.
    Keywords: coalitional bargaining, communication, game theory, experiment
    JEL: C7 C9 D7
    Date: 2007–03–06
  4. By: Dirk Bergemann; Stephen Morris
    Date: 2007–03–07
  5. By: Gisèle Umbhauer
    Abstract: The paper studies Akerlof's market for lemons in a new way. We firstly construct mixed Perfect Bayesian Nash equilibria in which all qualities are sold on the market even if the seller's strategy set is reduced to prices. Then we turn to the best-reply matching (BRM) approach developed by Droste, Kosfeld & Voorneveld (2003) for games in normal form. In a BRM equilibrium, the probability assigned by a player to a pure strategy is linked to the number of times this strategy is a best reply to the other players’ played strategies. We extend this logic to signaling games in extensive form and apply the new obtained concept to Akerlof’s model. This new concept leads to a very simple rule of behaviour, which is consistent, different from the Bayesian equilibrium behaviour, different from Akerlof’s result, and can be socially efficient.
    Keywords: best-reply matching, experience goods, signalling game, mixed Perfect Bayesian Equilibrium, extensive form, normal form.
    JEL: C72 D82 L15
    Date: 2007
  6. By: Ed Hopkins; Tatiana Kornienko
    Date: 2007–03–07
  7. By: Ester Camiña (Departamento de Fundamentos del Análisis Económico II (Economía Cuantitativa). Universidad Complutense de Madrid.); Nicolás Porteiro (Department of Economics, Universidad Pablo de Olavide)
    Abstract: We develop a model of bargaining that provides a rationale for the difference in the method of negotiation, depending on the nature of the conflict. We distinguish those negotiations that take place previous to a potential conflict (peacekeeping), and negotiations inside the conflict (peacemaking). In these contexts, we study the role of a mediator that tries to achieve a certain balance between the efficiency of the agreement and the equality of the sharing. We show that the credibility of the mediator comes from her willingness to impose delays in the negotiation, even if that implies costs. We also find how the “weak” player in the conflict can strategically profit from the mediator’s quest for equality. Finally, we show how the capacity of the mediator to induce a higher equality in the sharing is always higher in a peacemaking situation than in a peacekeeping one..
    Keywords: Mediation, Rubinstein bargaining.
    JEL: C72 C78
    Date: 2007–03
  8. By: Juergen Bracht; Nick Feltovich
    Abstract: We use a human-subjects experiment to test the effects of a simple mechanism designed to increase cooperation and efficiency in the trust game. In the equilibrium of the standard trust game, the investor does not invest, foreseeing that the allocator would have kept all of the returns from investment. Our mechanism adds a preplay escrow stage, in which the allocator places an amount (possibly zero) into escrow, to be forfeited if he keeps the proceeds of investment for himself. In the experiment, we vary the amounts that can be put into escrow. Our baseline treatment has no escrow. In a second treatment, only low escrow choices are possible, so the equilibrium is unaffected. In our third treatment, there is an escrow amount high enough that, in equilibrium, investment and sharing of the proceeds will occur. Two additional treatments mirror our second and third, except that in these, the escrow amount is randomly chosen and imposed on the allocator. We find that the high escrow amount, when chosen, does lead to the predicted efficient result. Contrary to the equilibrium prediction, we also find substantial investment in both the baseline and “low-escrow” treatments, leading to markedly higher efficiency than predicted (albeit well below that when the high amount is chosen). Over time, however, cooperation and efficiency after low or zero escrow amounts decline. We find only weak evidence for “crowding-out”, which predicts that given a low or zero amount placed into escrow in non-baseline treatments, investment and efficiency would actually be lower than in the baseline. We also find that initially, investment is more likely after allocators place the maximum possible amount into escrow – as if this action by allocators is being (mistakenly) read by investors as a signal that allocators plan to share. All of these results are seen when escrow choices are imposed as well as when they are voluntary.
    Keywords: experiment, trust game, incentives, signal, crowding out
    JEL: C72 D82 A13
    Date: 2006–08

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