nep-gth New Economics Papers
on Game Theory
Issue of 2008‒07‒20
sixteen papers chosen by
Laszlo A. Koczy
University of Maastricht

  1. Games of Capacity Allocation in Many-to-One Matching with an Aftermarket By Ayse Mumcu; Ismail Saglam
  2. Alternative Characterizations of the Proportional Solution for Nonconvex Bargaining Problems with Claims By Michele Lombardi; Naoki Yoshihara
  3. Characterizing Stable One-to-One Matchings under Interdependent Preferences By Ayse Mumcu; Ismail Saglam
  4. Information Sharing Networks in Oligopoly By Sergio Currarni; Francesco Feri
  5. The Ostrich and its Conscience: Information in Dictator and Impunity Games By Alexander S. Kritikos; Jonathan H. W. Tan
  6. Kinship and friendship in a trust game with third party punishment By Björn Vollan
  7. A Double-Track Auction for Substitutes and Complements By Ning Sun; Zaifu Yang
  8. The Logit-Response Dynamics By Carlos Alos-Ferrer; Nick Netzer;
  9. A New Approach for Bounding Awards in Bankruptcy Problems By José M. Jiménez Gómez; María del Carmen Marco
  10. Correlated Equilibria, Good and Bad: An Experimental Study By John Duffy; Nick Feltovich
  11. Individual Behaavior and Bidding Heterogeneity in Sealed Bid Auctions Where the Number of Bidders is Unknown By R. Mark Isaac; Svetlana Pevnitskaya; Kurt Schnier
  12. Are Antitrust Fines Friendly to Competition? An Endogenous Coalition Formation Approach to Collusive Cartels By Alberto ZAZZARO; David BARTOLINI
  13. Individual Behavior In Auctions with Price Proportional Benefits By Mark Isaac; Svetlana Pevnitskaya; Tim C. Salmon
  14. The Buy Price in Auctions with Discrete Type Distributions By Yusuke Inami
  16. Bringing Game Theory to Hypothesis Testing: Establishing Finite Sample Bounds on Inference By Karl Schlag

  1. By: Ayse Mumcu; Ismail Saglam
    Date: 2008–07
  2. By: Michele Lombardi (Queen Mary, University of London); Naoki Yoshihara (Hitotsubashi University)
    Abstract: We provide three alternative characterizations of the proportional solution defined on <i>compact</i> and <i>comprehensive</i> bargaining problems with claims that are not necessarily convex. One characterization result is obtained by using, together with other standard axioms, two solidarity axioms. Another characterization theorem shows that the single-valuedness axiom is dispensable even within the class of nonconvex problems if the standard symmetry axiom is imposed.
    Keywords: Bargaining problems, Claims point, Proportional solution, Nonconvexity, Solidarity axioms
    JEL: C78 D60 D70
    Date: 2008–07
  3. By: Ayse Mumcu; Ismail Saglam
    Date: 2008–07
  4. By: Sergio Currarni (Department of Economics, University Of Venice Cà Foscari); Francesco Feri (University of Innsbruck)
    Abstract: We study the incentives of oligopolistic firms to share private information on demand parameters. Differently from previous studies, we consider bilateral sharing agreements, by which firms commit at the ex-ante stage to truthfully share information. We show that if signals are i.i.d., then pairwise stable networks of sharing agreements are either empty or made of fully connected components of increasing size. When linking is costly, non complete components may emerge, and components with larger size are less densly connected than components with smaller size. When signals have different variances, incomplete and irregular network can be stable, with firms observing high variance signals acting as "critical nodes". Finally, when signals are correlated, the empty network may not be pairwise stable when the number of firms and/or correlation are large enough.
    Keywords: Information sharing, oligopoly, networks, Bayesian equilibrium
    JEL: D43 D82 D85 L13
    Date: 2008
  5. By: Alexander S. Kritikos; Jonathan H. W. Tan
    Abstract: This paper studies the role of information in dictator and impunity games. We experiment with four settings: i) a standard dictator game; ii) a dictator game where the surplus size is stochastic, with a probability of being a big or small pie, and the actual size is unobservable to the responder; iii) an impunity game where responders can reject offers . proposers learn their responderfs action but this action does not affect a proposerfs payoff, and; iv) an impunity game where proposers will never learn their responderfs choice. In the dictator game with incomplete information, we observe that many proposers with big pies make offers as if they make generous offer, but had only a small pie to split. In the impunity game, proposers tend to make extreme offers of either nothing or half the pie. In the impunity game with incomplete information, gratuitous offers (0 < xR . 0.1) such as those commonly observed in the other games almost vanish, while many more proposers offer absolutely nothing. Our results point in favor of a utility-based approach to modeling social preferences in games of giving.
    Date: 2008–04
  6. By: Björn Vollan (Philipps-University Marburg/University of Mannheim)
    Abstract: This paper reports on a set of trust games with third party punishment (TPP) where participants are either family members or friends or unrelated villagers. The experimental sessions were carried out in southern Namibia (Karas) and the bordering northern South Africa (Namaqualand). The aim was to test several hypotheses derived from kin selection theory as well as to assess the importance of third party punishment for encounters among family members and friends. Building on Hamilton, (1964) it was proposed by e.g. Madsen et al., (2007) that kinship is the baseline behaviour among humans. Thus, I use kinship as basis for comparison of how we treat friends and unrelated people and when there is the possibility to punish free-riding behaviour. It turns out that kinship is the baseline behaviour when no other features are available to humans. However, a personal exchange among friends that has a third party observer performs better than a personal exchange among family members without third party punishment. Contributions to family members can substantially be increased by third party punishment. Thus, human ability to sustain a norm by punishing freeriders at personal costs could also have played an important role in sustaining co-operation among kin.
    Keywords: Trust, field experiment, third party punishment, kinship, friendship
    Date: 2008
  7. By: Ning Sun (School of Economics, Shanghai University of Finance and Economics); Zaifu Yang (Faculty of Business Administration, Yokohama National University)
    Abstract: We propose a new t^atonnement process called a double-track auction for eciently allocating multiple heterogeneous indivisible items in two distinct sets S1 and S2 to many buyers who view items in the same set as substitutes but items across the two sets as complements. The auctioneer initially announces suciently low prices for items in one set, say S1, but suciently high prices for items in the other set S2. In each round, the buyers respond by reporting their demands at the current prices and the auctioneer adjusts prices upwards for items in S1 but downwards for items in S2 based on buyers' reported demands until the market is clear. Unlike any existing auction, this auction is a blend of a multi-item ascending auction and a multi-item descending auction. We prove that the auction nds an ecient allocation and its market-clearing prices in nitely many rounds. Based on the auction we also establish a dynamic, ecient and strategy-proof mechanism.
    Keywords: Market design, dynamic auction, t^atonnement process, gross substitutes and complements, Walrasian equilibrium, incentives.
    Date: 2008–07
  8. By: Carlos Alos-Ferrer; Nick Netzer;
    Keywords: Learning in games, logit-response dynamics, best-response potential games
    Date: 2008
  9. By: José M. Jiménez Gómez (Universidad Politécnica de Cartagena); María del Carmen Marco (Universidad Politécnica de Cartagena)
    Abstract: The solution for the "Contested Garment Problem" proposed in the BabylonicTalmud, one of the most important sources of inspiration for solving situations where demand overcomes supply of some resources, suggests that each agent should receive at least some part of the available amount when facing these situations. Thisidea has been underlied the theoretical analysis of bankruptcy problems from its beginning (O'Neill, 1982) to present day (Dominguez and Thomsom, 2006). In this context, starting from the fact that a society establishes its own set of "Commonly Accepted Equity Principles", we propose a new award bound by providing each agent her minimum amount according to all the admissible bankruptcy rules for such a society. Moreover, we analyze the recursive application of this new bound, since it will not exhaust the resources, in general.
    Keywords: Bankruptcy problems, bankruptcy rules, lower bound, recursive process.
    JEL: C71 D63 D71
    Date: 2008–03
  10. By: John Duffy; Nick Feltovich
    Abstract: We report results from an experiment that explores the empirical validity of correlated equilibrium, an important generalization of the Nash equilibrium concept. Specifically, we seek to understand the conditions under which subjects will condition their behavior on private, third-party recommendations drawn from known distributions in playing the game of Chicken. In a `good-recommendations` treatment, the distribution is such that following recommendations comprises a correlated equilibrium with payoffs better than any symmetric payoff in the convex hull of Nash equilibrium payoff vectors. In a `bad-recommendations` treatment, the distribution is such that following recommendations comprises a correlated equilibrium with payoffs worse than any Nash equilibrium payoff vector. In a `Nash-recommendations` treatment, the distribution is a convex combination of Nash equilibrium outcomes (which is also a correlated equilibrium), and in a fourth `very-good-recommendations` treatment, the distribution yields high payoffs, but following recommendations does not comprise a correlated equilibrium. We compare behavior in all of these treatments to the case where subjects do not receive recommendations. We find that when recommendations are not given to subjects, behavior is very close to mixed-strategy Nash equilibrium play. When recommendations are given, behavior does differ from mixed-strategy Nash equilibrium, with the nature of the differences varying according to the treatment. Our main finding is that subjects will follow third-party recommendations only if those recommendations derive from a correlated equilibrium, and further, if that correlated equilibrium is payoff-enhancing relative to the available Nash equilibria.
    JEL: D83 C72 C73
    Date: 2008–07
  11. By: R. Mark Isaac (Department of Economics, Florida State University); Svetlana Pevnitskaya (Department of Economics, Florida State University); Kurt Schnier (University of Rhode Island)
    Abstract: This paper analyzes individual bidding data from a series of first price (FP) and second price (SP) sealed-bid auctions in which the number of bidders is unknown. In SP auctions we find a substantial amount of coincidence with theory. We observe systematic deviations from risk neutral bidding in FP auctions and show theoretically that these deviations are consistent with risk averse preferences. We find essentially no heterogeneity in bidding in SP auctions where risk preferences and the number of bidders do not affect the optimal bid, while in the FP auctions heterogeneity in bidding persists and increases with experience. We conclude that heterogeneity in bidding in FP auctions is consistent with heterogeneity in risk preferences, the attempt to count the number of bidders in the auction, and bidder specific noise. (JEL D44, C91)
    Keywords: auctions, risk aversion
    JEL: D44 C91
    Date: 2008–03
  12. By: Alberto ZAZZARO (Universita' Politecnica delle Marche, Dipartimento di Economia); David BARTOLINI ([n.a.])
    Abstract: A well-established result of the theory of antitrust policy is that it might be optimal to tolerate some degree of collusion among firms if the Authority in charge is constrained by limited resources and imperfect information. However, few doubts are cast on the common opinion by which stricter enforcement of antitrust laws definitely makes market structure more competitive and prices lower. In this paper we challenge this presumption of effectiveness and show that the introduction of a positive (expected) antitrust fine may drive firms from partial cartels to a monopolistic cartel. Moreover, introducing uncertainty on market demand, we show that the social optimal competition policy can call for a finite or even zero antitrust penalty even if there are no enforcement costs. We first show our results in a Cournot industry with five symmetric firms and equilibrium binding agreements. Then we extend the analysis to the case of n symmetric firms and a generic rule of coalition formation. Finally, we consider the case of asymmetric firms and show that our results still hold for an industry populated by one Stackelberg leader and two followers.
    Keywords: antitrust policy, coalition formation, collusive cartels
    JEL: C70 L40 L41
    Date: 2008–07
  13. By: Mark Isaac (Department of Economics, Florida State University); Svetlana Pevnitskaya (Department of Economics, Florida State University); Tim C. Salmon (Department of Economics, Florida State University)
    Abstract: Auctions with price proportional benefits involve situations in which bidders receive utility from the revenue raised by the auctioneer. We conduct experimental treatments with three classes of induced preferences and find that while bidders' response to incentives is on average consistent with theory, only one class of preferences leads to a significant increase in revenue. We then test for the presence of such preferences in experiments where auction revenue is donated to an actual charity. The latter sessions were conducted with a standard subject pool and with a special subject pool consisting of individuals with a very strong connection to the relevant charity. Subjects with a strong connection to charity evidence slightly more aggressive bidding behavior when the revenue is going to a charity but this is not strong enough to generate a significant increase in revenue. These results suggest that preferences in the natural environment are consistent with the manner of preferences assumed in the theory.
    Keywords: auctions, charitable giving, economic experiments
    JEL: D44 D64
    Date: 2008–07
  14. By: Yusuke Inami (Graduate School of Economics, Kyoto University)
    Abstract: This paper considers second-price, sealed-bid auctions with a buy price where biddersf types are discretely distributed. We characterize all equilibria, restricting our attention to equilibria where bidders whose types are less than a buy price bid their own valuations. Budish and Takeyama (2001) analyzed the two-bidder, two-type framework, and showed that if bidders are risk-averse, a seller can obtain a higher expected revenue from the auction with a certain buy price than from the auction without a buy price. We extend their revenue improvement result to the n-bidder, two-type framework. However, in case of three or more types, biddersf risk aversion is not a sufficient condition for the revenue improvement. Our example illustrates that even if bidders are risk-averse, a seller cannot always obtain a higher expected revenue from the auction with a buy price.
    Keywords: Auction; Buy price; Risk aversion
    JEL: C72 D44
    Date: 2008–07
  15. By: URS FISCHBACHER (University of Konstanz); SIMON GAECHTER (University of Nottingham, School of Economics)
    Abstract: We provide a direct test of the role of social preferences and beliefs in voluntary cooperation and its decline. We elicit individuals’ cooperation preference in one experiment and use them – as well as subjects’ elicited beliefs – to make predictions about contributions to a public good played repeatedly. We find substantial heterogeneity in people’s preferences. With simulation methods based on this data, we show that the decline of cooperation is driven by the fact that most people have a preference to contribute less than others. Belief formation and virtual learning do not contribute to the decline of cooperation. Universal free riding is very likely despite the fact that most people are not selfish.
    Keywords: Public goods experiments, social preferences, conditional cooperation, free riding
    JEL: C91 C72 H41 D64
    Date: 2008–05
  16. By: Karl Schlag
    Abstract: Small sample properties are of fundamental interest when only limited data is avail- able. Exact inference is limited by constraints imposed by speci.c nonrandomized tests and of course also by lack of more data. These e¤ects can be separated as we propose to evaluate a test by comparing its type II error to the minimal type II error among all tests for the given sample. Game theory is used to establish this minimal type II error, the associated randomized test is characterized as part of a Nash equilibrium of a .ctitious game against nature. We use this method to investigate sequential tests for the di¤erence between two means when outcomes are constrained to belong to a given bounded set. Tests of inequality and of noninferiority are included. We .nd that inference in terms of type II error based on a balanced sample cannot be improved by sequential sampling or even by observing counter factual evidence providing there is a reasonable gap between the hypotheses.
    Keywords: Exact, distribution-free, nonparametric, independent samples, matched pairs, Z test, unavoidable type II error, noninferiority
    JEL: C12 C14
    Date: 2008–06

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