nep-gth New Economics Papers
on Game Theory
Issue of 2008‒05‒31
six papers chosen by
Laszlo A. Koczy
University of Maastricht

  1. The Unique-lowest Sealed-bid Auction By Harold Houba; Dinard van der Laan; Dirk Veldhuizen
  2. On an Evolutionary Foundation of Neuroeconomics By Schipper, Burkhard C
  3. Evolution in time of Farsightedly Stable Coalitions: An Application of FUND By Dritan Osmani; Richard S.J. Tol
  4. The second-price auction solves King Solomon's dilemma By Mihara, H. Reiju
  5. Allocation, externalities, and the fair division approach: An experimental study By Torsten Weiland
  6. Cooling-Off in Negotiations - Does It Work? By Joerg Oechssler; Andreas Roider; Patrick W. Schmitz

  1. By: Harold Houba (VU University Amsterdam); Dinard van der Laan (VU University Amsterdam); Dirk Veldhuizen (VU University Amsterdam)
    Abstract: Unique-lowest sealed-bid auctions are auctions in which participation is endogenous and the winning bid is the lowest bid among all unique bids. Such auctions admit very many Nash equilibria (NEs) in pure and mixed strategies. The two-bidders' auction is similar to the Hawk-Dove game, which motivates to study symmetric NEs: Properties and comparative statics are derived and the symmetric NE with the lowest expected gains is the maximin in symmetric strategies, which allows computation through a mathematical program. Simulations provide numerical evidence that the symmetric NE with the lowest expected gains is the unique limit point of the replicator dynamics.
    Keywords: Auctions; Sealed-Bid Auction; Evolutionary Stability; Endogenous Entry; Maximin
    JEL: D44 C72 C73 C61 L83
    Date: 2008–05–16
  2. By: Schipper, Burkhard C
    Abstract: Neuroeconomics focuses on brain imaging studies mapping neural responses to choice behavior. Economic theory is concerned with choice behavior but it is silent on neural activities. We present a game theoretic model in which players are endowed with an additional structure - a simple "nervous system" - and interact repeatedly in changing games. The nervous system constrains information processing functions and behavioral functions. By reinterpreting results from evolutionary game theory (Germano, 2007), we suggest that nervous systems can develop to "function well" in exogenously changing strategic environments. We present an example indicating that an analogous conclusion fails if players can influence endogenously their environment.
    Keywords: Neuroeconomic theory; Evolutionary game theory; Learning in games
    JEL: B40 B21 A12 C73 B25 C72 D87
    Date: 2008–04–16
  3. By: Dritan Osmani; Richard S.J. Tol (Economic and Social Research Institute)
    Abstract: Game theory is used to analyze the formation and stability of coalitions for environmental protection. The paper extends further our previous research on farsightedly stable coalitions and preferred farsightedly stable coalitions (Osmani & Tol 2007a). The integrated assessment model FUND provides data for di®erent time horizons as well as the cost-bene¯t function of pollution abatement. This allows for analysis of the evolution in time of farsightedly stable coalitions and their improvement to environment and welfare. Considering multiple farsightedly stable coalitions, the participation in coalitions for environmental protection is signi¯cantly increased, which is a positive result of our game theoretical approach. But the farsighted behavior can not be sustained for a long term which implies that we can not have big coalitions for environmental protection even in "a farsighted world".
    Keywords: game theory, integrated assessment modeling, farsighted stability, coalition formation
    JEL: C02 C72 H41
    Date: 2008–05
  4. By: Mihara, H. Reiju
    Abstract: Consider the problem of allocating k identical, indivisible objects among n agents, where k is less than n. The planner's objective is to give the objects to the top k valuation agents at zero costs to the planner and the agents. Each agent knows her own valuation of the object and whether it is among the top k. Modify the (k+1)st-price sealed-bid auction by introducing a small participation fee and the option not to participate in it. This strikingly simple mechanism (modified auction) implements the desired outcome in iteratively weakly undominated strategies. Moreover, no pair of agents can profitably deviate from the equilibrium by coordinating their strategies or bribing each other.
    Keywords: Solomon's problem; implementation; entry fees; Olszewski's mechanism; collusion; bribes
    JEL: D71 D61 C72
    Date: 2008–05
  5. By: Torsten Weiland (Max Planck Institute of Economics)
    Abstract: We experimentally investigate four allocation mechanisms - all based on the fair division approach, with varying bid elicitation methods and price rules - in terms of their allocation efficiency, distributional effects, and regularities in individual bidding behavior. In a repeated design, an indivisible good is assigned that generates profits for its owner but, at the same time, exerts negative externalities on the non-acquiring bidders. Both the bidders' valuations of the good and their potentially incurred damages are stochastic and denote private information, inciting strategic bidding and complicating an efficient allocation. Indeed, observed bidding is dominated by strategic reporting which, however, only marginally diminishes efficiency. One particular allocation mechanism, relying on sparse information elicitation and the first-price rule, is found to yield economically superior results to both more complex and second-price based allocation mechanisms.
    Keywords: Allocation, auction, fair division, externalities, experiment
    JEL: C92 D44 D62 L14
    Date: 2008–04–08
  6. By: Joerg Oechssler (University of Heidelberg, Department of Economics); Andreas Roider (University of Heidelberg, Department of Economics); Patrick W. Schmitz (University of Cologne, Department of Economics)
    Abstract: Negotiations frequently end in conflict after one party rejects a final offer. In a large-scale internet experiment, we investigate whether a 24-hour coolingoff period leads to fewer rejections in ultimatum bargaining. We conduct a standard cash treatment and a lottery treatment, where subjects receive lottery tickets for several large prizes - emulating a high-stakes environment. In the lottery treatment, unfair offers are less frequently rejected, and cooling-off significantly reduces the rejection rate further. In the cash treatment, rejections are more frequent and remain so after cooling-off. This treatment difference is particularly pronounced for subjects with lower cognitive abilities.
    Keywords: negotiations, ultimatum game, emotions, cooling-off, cognitive abilities, behavioral biases, internet experiment
    JEL: C78 C99 D8
    Date: 2008–04

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