nep-gth New Economics Papers
on Game Theory
Issue of 2007‒05‒19
seventeen papers chosen by
Laszlo A. Koczy
University of Maastricht

  1. Undominated (and) perfect equilibria in Poisson games By Francesco De Sionopoli; Carlos Gonzalez Pimienta
  2. Communication Networks in the N-Player Electronic Mail Game By Kris de Jaegher
  3. On the generic finiteness of outcome distributions for bimatrix game forms By Nicolai S. Kukushkin; Cristian M. Litan; Francisco Marhuenda
  4. On the absorbability of the Guessing Game Theory. A Theoretical and Experimental Analysis By Andrea Morone; Serena Sandri; Tobias Uske
  5. Efficient Communication in the Electronic Mail Game By Kris de Jaegher
  6. Another experimental look at reciprocal behavior: indirect reciprocity By Bonein, Aurélie; Serra, Daniel
  7. Experimental Evidence on English Auctions: Oral Outcry vs. Clock By Ricardo Gonçalves; John D Hey
  8. Cooperative production and efficiency By Carmen Bevia; Luis C. Corchon
  9. Bargaining in Mergers and Termination Fees By Utz Weitzel; Stephanie Rosenkranz
  10. Crowding out in an indefinitely repeated Asymmetric Trust Game By Thomas Dirkmaat; Stephanie Rosenkranz; Vincent Buskens
  11. The Evolution of Horn’s Rule By Kris de Jaegher
  12. An Experimental Study of Complex-Offer Auctions: Payment Cost Minimization vs. Offer Cost Minimization By Rimvydas Baltaduonis
  13. Altruistic Versus Spiteful Behavior in a Public Good Game By Alexander Matros
  14. COOPERATION IN LARGE NETWORKS: AN EXPERIMENTAL By Juan Camilo Cárdenas P.; Christian R. Jaramillo H.
  15. Simple-Offer vs. Complex-Offer Auctions in Deregulated Electricity Markets By Rimvydas Baltaduonis
  16. A Game Theoretical Model of Land Contract Choice By Américo M. S. Carvalho Mendes
  17. Optimal Two Stage Committee Voting Rules By Ian Ayres, Colin Rowat and Nasser Zakariya

  1. By: Francesco De Sionopoli; Carlos Gonzalez Pimienta
    Abstract: In games with population uncertainty some perfect equilibria are in dominated strategies. We prove that every Poisson game has at least one perfect equilibrium in undominated strategies.
    Date: 2007–04
  2. By: Kris de Jaegher
    Abstract: This paper shows that Rubinstein’s results on the two-player electronic mail game do not extend to the N-player electronic mail game.
    Keywords: Communication Networks, N-Player Electronic Mail Game
    JEL: D85 C72
    Date: 2007–03
  3. By: Nicolai S. Kukushkin; Cristian M. Litan; Francisco Marhuenda
    Abstract: We provide an example of an outcome game form with two players for which there is in an open set of utilities for both players such that, in each of the associated games, the set of Nash equilibria induce a continuum of outcome distributions. The case for three or more players has been settled by Govindan and McLennan [3].
    Date: 2007–04
  4. By: Andrea Morone (University of Bari.); Serena Sandri (University of Dresden, Chair for Managerial Economics, Helmholtzstraße 10, 01069 Dresden, Germany); Tobias Uske (Max Planck Institute of Economics, Kahlaische Straße 10, 07745 Jena, Germany.)
    Abstract: Theory absorption, a notion introduced by Morgenstern and Schwödiauer (1972) and further elaborated by Güth and Kliemt (2004), discusses the problem whether a theory can survive its own acceptance. Whereas this holds for strategic equilibria according to the assumptions on which they are based, the problem if theories are absorbable by at most boundedly rational decision makers is hardly discussed. Based on guessing game experiments we discuss the requirements of equilibrium theory absorption and test experimentally the effects of informing none, some or all players about how to derive equilibrium predictions.
    Keywords: theory absorption, guessing game, p-beauty contest, individual behaviour, elimination of dominated strategies
    JEL: C72 C91
    Date: 2007–04
  5. By: Kris de Jaegher
    Abstract: The literature on the electronic mail game shows that players’ mutual expectations may lock them into requiring an inefficiently large number of confirmations and confirmations of confirmations from one another. This paper shows that this result hinges on the assumption that, with the exception of the first message, each player can only send a message when receiving an immediately preceding message. We show that, once this assumption is lifted, equilibria involving confirmations of confirmations no longer pass standard refinements of the Nash equilibrium, and are no longer evolutionary stable.
    Keywords: Electronic Mail Game, Efficient Communication, Grounding, Equilibrium Refinements, Evolutionary Stability
    JEL: C70 D72
    Date: 2007–01
  6. By: Bonein, Aurélie; Serra, Daniel
    Abstract: This paper highlights a new social motivation, the indirect reciprocity, through a three-player dictator-ultimatum game. Player 2 has the opportunity to reward or punish indirectly the player 1 by inciting – with her offer - player 3 to accept or to reject the division. We implement three treatments: in the first two we vary player 2’s available information whereas in treatment 3, players take part in a dictator game - as proposers - before being player 2s in the dictator-ultimatum game. Results show that 55% of subjects in treatment 2 and 28% in treatment 3 behave as indirect reciprocity predicts. Another reciprocal behavior - the generalized reciprocity - is investigated through a three-player dictator game. Our data show that 80% of players 2 act according to this reciprocal behavior. Finally, our findings confirm that the more complex the strategic interaction becomes the more self-regarding behavior is likely and the less other-regarding behaviors, such as reciprocity, dominate.
    Keywords: indirect reciprocity; generalized reciprocity; dictator game; ultimatum game; individual behavior
    JEL: D63 C72 C91
    Date: 2007–02
  7. By: Ricardo Gonçalves; John D Hey
    Abstract: This paper tests experimentally, in a common value setting, the equivalence between the Japanese English auction (or clock auction) and an open outcry auction, where bidders are allowed to call their own bids. We find that (i) bidding behaviour is different in each type of auction, but also that (ii) this difference in bidding behaviour does not affect significantly the auction prices. This lends some support to the equivalence between these two types of auction. The winner's curse is present: overbidding led to higher than expected prices (under Nash bidding strategies) in both types of auction.
    Keywords: English auctions, discrete bidding, winner's curse
    JEL: D44 C91 C50
    Date: 2007–05
  8. By: Carmen Bevia; Luis C. Corchon
    Abstract: We characterize the sharing rule for which a contribution mechanism achieves efficiency in a cooperative production setting when agents are heterogeneous. The sharing rule bears no resemblance to those considered by the previous literature. We also show for a large class of sharing rules that if Nash equilibrium yields efficient allocations, the production function displays constant returns to scale, a case in which cooperation in production is useless.
    Date: 2007–04
  9. By: Utz Weitzel; Stephanie Rosenkranz
    Abstract: We model takeovers as a bargaining process and explain termination fees for, both, the target and the acquirer, subject to parties’ bargaining power and outside options. In equilibrium, termination fees are offered by firms with outside options in exchange for a greater share of merger synergies. Termination fees decrease in firms’ bargaining power, and increase in firms’ outside options. We find that a merger with the second highest bidder, including a termination fee, can lead to equally high premiums as a merger with the highest bidder, without a termination fee. This novel result directly contrasts the agency cost perspective, which argues that termination provisions may be used by managers to lock into acquirers that do not generate the highest shareholder value. Further, even in a merger with the highest bidder and in the absence of bidding related costs, a termination fee is not necessarily a deal protection device, but can be used to improve shareholder value. Our bargaining model offers an alternative to auction related explanations of termination fees, like cost compensation or seller commitment.
    Keywords: Mergers and Acquisitions, Bargaining, Outside Option, Termination Fees, Break-Up Fees, Lockups
    JEL: G34 C71 C78 D44 K22
    Date: 2007–03
  10. By: Thomas Dirkmaat; Stephanie Rosenkranz; Vincent Buskens
    Abstract: In this paper we introduce an alternative version of the trust game by Dasgupta (1988) and Kreps (1990) that allows for asymmetric information. We use this version to study the effect of checking on the trustee’s behaviour, checking is a control option the trustor can decide to use and that takes place after both trustor and trustee made their initial decisions. ‘Checking’ differs in this respect from the often in the literature found ‘monitoring’ that allows the trustor to control the trustee’s behaviour before the trustee makes his decision. The game theoretical analysis suggests that checking increases cooperation. The experimental results show that this is only true for the selfish part of the trustee population. Honest trustee react negatively to checking, which is more in line with crowding out theory.
    Keywords: Trust, Asymmetric Information, Experiment, Checking, Crowding Out
    JEL: C71 C91 D82
    Date: 2006–12
  11. By: Kris de Jaegher
    Abstract: Horn’s rule says that messages can be kept ambiguous if only a single interpretation is plausible. Speakers only perform costly disambiguation to convey surprising information. This paper shows that, while noncooperative game theory cannot justify Horn’s rule, evolutionary game theory can. In order to model the evolution of signalling, the pooling equilibrium needs to be one’s starting point. But in such an equilibrium, the plausible interpretation is made, and the receiver is therefore already predisposed to interpret absence of a signal as referring to a plausible event. From there on, a marked signal referring to an implausible event can evolve. At the same time, the paper identifies an exception to Horn’s rule. If giving a plausible interpretation for an implausible event is very costly, then in the pooling equilibrium the implausible interpretation is always made. In this exceptional case, only an inefficient separating equilibrium disobeying Horn’s rule can evolve.
    Keywords: Horn’s Rule, Signalling, Evolutionary Game Theory, Evolutionary Drift, Pragmatics.
    JEL: C72 D82
    Date: 2007–01
  12. By: Rimvydas Baltaduonis (University of Connecticut and George Mason University)
    Abstract: A Payment Cost Minimization (PCM) auction has been proposed as an alternative to the Offer Cost Minimization (OCM) auction to be used in wholesale electric power markets with the intention to lower the procurement cost of electricity. Efficiency concerns about this proposal have relied on the assumption of true production cost revelation. Using an experimental approach, I compare the two auctions, strictly controlling for the level of unilateral market power. A specific feature of these complex-offer auctions is that the sellers submit not only the quantities and the minimum prices at which they are willing to sell, but also the start-up fees that are designed to reimburse the fixed start-up costs of the generation plants. I find that both auctions result in start-up fees that are significantly higher than the start-up costs. Overall, the two auctions perform similarly in terms of procurement cost and efficiency. Surprisingly, I do not find a substantial difference between less market power and more market power designs. Both designs result in similar inefficiencies and equally higher procurement costs over the competitive prediction. The PCM auction tends to have lower price volatility than the OCM auction when the market power is minimal but this property vanishes in the designs with market power. These findings lead me to conclude that both the PCM and the OCM auctions do not belong to the class of truth revealing mechanisms and do not easily elicit competitive behavior.
    Keywords: strategic behavior, sealed-bid auction, complex offer auction, electricity, efficiency
    JEL: C72 D4 D61 L94
    Date: 2007–04
  13. By: Alexander Matros
    Abstract: This paper analyses an evolutionary version of the Public Good game of Eshel, Samuelson, and Shaked (1998) in which agents can choose between imitation and best-reply decision rules. We describe conditions under which altruistic and spiteful (maximizing) behavior arise: these conditions are established for any number of neighbors and any total number of agents in the population. Given mistake-free play, (short-run) outcomes are identical whether agents are constrained to employ an imitation rule only; or they can choose between imitation and best-reply rules. Given the possibility of mistakes, (long-run) outcomes vary across these two scenarios. The paper suggests how to provide public goods and gives an explanation of why we observe seemingly irrational cooperation - altruistic behavior - in the rational world.
    JEL: C70 C72 C73
    Date: 2006–12
  14. By: Juan Camilo Cárdenas P.; Christian R. Jaramillo H.
    Abstract: We present a new design of a simple public goods experiment with a large number of players, where up to 80 people in a computer lab have the possibility to connect with others in the room to induce more cooperators to contribute to the public good and overcome the social dilemma. This experimental design explores the possibility of social networks to be used and institutional devices to create the same behavioral responses we observe with small groups (e.g. commitments, social norms, reciprocity, trust, shame, guilt) that seem to induce cooperative behavior in the private provision of public goods. The results of our experiment suggest that the structure of the network affects not only the players’ ability to communicate, but their willingness to do so as well. We also find that the local connectivity structure of the network has an important role as determinant of the willingness of the players to cooperate.
    Date: 2007–04–05
  15. By: Rimvydas Baltaduonis (University of Connecticut and George Mason University)
    Abstract: In my recent experimental research of wholesale electricity auctions, I discovered that the complex structure of the offers leaves a lot of room for strategic behavior, which consequently leads to anti- competitive and inefficient outcomes in the market. A specific feature of these complex-offer auctions is that the sellers submit not only the quantities and the minimum prices at which they are willing to sell, but also the start-up fees that are designed to reimburse the fixed start-up costs of the generation plants. In this paper, using the experimental method I compare the performance of two complex-offer auctions (COAs) against the performance of a simple-offer auction (SOA), in which the sellers have to recover all their generation costs --- fixed and variable ---through a uniform market-clearing price. I find that the SOA significantly reduces consumer prices and lowers price volatility. It mitigates anti-competitive effects that are present in the COAs and achieves allocative efficiency more quickly.
    Keywords: strategic behavior, sealed-bid auction, complex offer auction, electricity, efficiency
    JEL: C72 D4 D61 L94
    Date: 2007–04
  16. By: Américo M. S. Carvalho Mendes (Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto))
    Abstract: In most of the land tenancy literature the type of contract is exogenous. Also even though these contracts vary a lot among farms, between regions and over time, the theoretical literature has not always acknowledged this idiosyncrasy. Building on the strategic bargaining theory initiated by Rubinstein, this model not only makes the type of contract endogenous, but also provides the surplus sharing rules and the conditions giving rise to each type of contract, showing how the type and terms of the contract are tailored to fit the characteristics of the parties and their economic environment. Pairwise bargaining is embedded into a market context by putting “competitive pressure” on the players through the opportunity they have to break up bargaining and look for alternative partners. Because of this threat of opting out, the outcome of the bargaining process depends not only on the characteristics of the players, but also on events outside their match and the information they have about them. The model departs from price-taking assumptions. Type and terms of the contract result from negotiation and are shaped by the “relative bargaining powers” of the players whose relevant components are identified in a precise way in the model.
    Keywords: land tenancy, sharecropping, land contract choice, game theory
    JEL: C7 D8
    Date: 2007–04
  17. By: Ian Ayres, Colin Rowat and Nasser Zakariya
    Abstract: We study option management by committee. Analysis is illustrated by tenure decisions. Our innovations are two-fold: we treat the committee's problem as one of social choice, not information aggregation; and we endogenise the outside option: rejecting a candidate at either the probationary or tenure stage return the committee to a candidate pool. For committees with N members, we find: (1) a candidate's fate depends only on the behaviour of two `weather-vane' committee members - generalised median voters; (2) en- thusiastic assessments by one of these weather-vanes may harm a candidate's chances by increasing others' thresholds for hiring him; and (3) sunk time costs may lead voters who opposed hiring a candidate to favour tenuring him, even after a poor probationary performance. We characterise the opti- mal voting rule when N = 2. A patient or perceptive committee does best with a (weak) majority at the hiring stage and unanimity at the tenure stage. An impatient or imperceptive committee does best under a double (weak) majority rule. If particularly impatient or imperceptive, this rule implies that any hire is automatically tenured. Perversely, the performance of a patient, imperceptive committee improves as its perceptiveness further declines.
    Keywords: intertemporal strategic voting, real options, tenure
    JEL: C73 D71 D72 D80 G12
    Date: 2007–03

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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