nep-gth New Economics Papers
on Game Theory
Issue of 2009‒02‒22
thirteen papers chosen by
Laszlo A. Koczy
Budapest Tech and Maastricht University

  1. Procuring Commodities: Request for Quote or Reverse Auctions? By Shachat, Jason
  2. Evolutionary Dynamics May Eliminate All Strategies Used in Correlated Equilibria By Yannick Viossat
  3. Sequential Internet Auctions with Different Ending Rules By Toshihiro Tsuchihashi
  4. Demented Prisoners By Klaus Kultti; Hannu Salonen
  5. Expected Behavior in the Dictator Game. By Pablo Brañas-Garza
  6. Endogenous Social Preferences, Heterogeneity and Cooperation By Zarri, Luca
  7. R&D Cooperation in Real Option Game Analysis. By Giovanni Villani
  8. Risk and Inequality Aversion in Social Dilemmas By Brice Magdalou; Dimitri Dubois; Phu Nguyen-Van
  9. Emotion and economic decision in the ultimatum game (In French) By Emmanuel PETIT (GREThA UMR CNRS 5113)
  10. TI-games I: An exploration of Type Indeterminacy in strategic decision-making By Jerry Busemeyer; Ariane Lambert-Mogiliansky
  11. Contracting Under Reciprocal Altruism By Shchetinin, Oleg
  12. Negotiating constitution for political unions By Vikas Kumar
  13. On the (Sub)optimality of Multi-tier Hierarchies: Coordination versus Motivation By Choe, Chongwoo; Ishiguro, Shingo

  1. By: Shachat, Jason
    Abstract: We examine the relative performances of reverse auctions and request for quotes in a simple commodity environment. Enterprises embarking on a reverse auction initiative often start with their commodity purchases. We conduct laboratory experiments and find that this is a poor starting point. Both the mean and variance of prices when sourcing through reverse auctions. With respect to the general investigation of auctions, the request for quote is the mirror image of a first price sealed bid auction and has the same symmetric Nash equilibrium. However, the request for quote allows identification of simple behavioral rules such as always bidding a percentage of your signal, which is indistinct from Nash equilibrium strategies in the sell auction counterpart. Consequently we estimate that one-fourth of the subjects follow a simple mark-up rule and approximately two-thirds follow a strategic Nash equilibrium strategy.
    Keywords: Procurement; Auction; Experiment
    JEL: C92 D44 C72
    Date: 2009–02–08
  2. By: Yannick Viossat (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris Dauphine - Paris IX)
    Abstract: We show on a 4x4 example that many dynamics may eliminate all strategies used in correlated equilibria, and this for an open set of games. This holds for the best-response dynamics, the Brown-von Neumann-Nash dynamics and any monotonic or weakly sign-preserving dynamics satisfying some standard regularity conditions. For the replicator dynamics and the best-response dynamics, elimination of all strategies used in correlated equilibrium is shown to be robust to the addition of mixed strategies as new pure strategies.
    Keywords: Correlated equilibrium; Evolutionary dynamics; Elimination; As-if rationality
    Date: 2008–07
  3. By: Toshihiro Tsuchihashi
    Abstract: Two ending rules, a soft close and a hard close, exist in Internet auctions. In hard close auctions, each auction ends with a fixed deadline determined by a seller. In soft close auctions, the end time automatically extends if at least one bid is submitted in the last few minutes, so each buyer has an opportunity to reply to other buyers' bids. The reserve prices set by the seller in hard close auctions are higher than the reserve prices in soft close auctions. The result is consistent with data of DS Lite auctions in Yahoo! Japan.
    Date: 2009–02
  4. By: Klaus Kultti (Department of Economics, University of Helsinki); Hannu Salonen (Department of Economics, University of Turku)
    Abstract: We study infinitely repeated Prisoners' Dilemma, where one of the players may be demented. If a player gets demented in period t after his choice of action, he is stuck to this choice for the rest of the game. So if his last choice was ``cooperate'' just before dementia struck him, then heÕs bound to cooperate always in the future. Even though a demented player cannot make choices any more he enjoys the same payoffs from strategy profiles as he did when healthy. A player may prove he is still healthy by showing a (costly) health certificate. This is possible only as long as the player really is healthy: a demented player cannot get a clean bill of health. We study an asymmetric information game where it is known that player 1 cannot get demented but player 2 may be either a ``healthy'' type who will never be demented or a ``dementible'' type who eventually will get demented. We study when cooperation can be maintained in a perfect Bayesian equilibrium with at most health check.
    Keywords: prisoners' dilemma, dementia, co-operation
    JEL: C72
    Date: 2009–02
  5. By: Pablo Brañas-Garza (Department of Economic Theory and Economic History, GLOBE, University of Granada.)
    Abstract: This paper provides novel results for the extensive literature on dictator games: recipients do not expect dictators to behave selfishly, but instead expect the equal split division. We performed a field experiment in Baja California among a population of unexperienced subjects. Using monetary incentives we find that only 10 percent of subjects correctly guessed the expected Nash equilibrium payoff (zero). In sharp contrast, the modal subject predicts the equal split. The predictions made by dictators are notably different: 45% predicted the zero contribution and 40% expected the equal split. Surprisingly, their actions are uncorrelated with their predictions: they choose a donation in the interior of the interval. We conjecture that the equal split is the natural solution to the problem but because the dictators are involved, they also consider the chance of keeping the complete pie for themselves. Dictators solve the puzzle by passing a positive amount of money which reflects the tension between fairness and self-interest. In consequence, any giving smaller than the equal split division may not be considered altruistic behavior. Only a donation larger than the 50/50 split would reflect generosity.
    Keywords: expectations, dictator game, equal split, guessing.
    JEL: D63 D64 C91
    Date: 2008–12–21
  6. By: Zarri, Luca (Associazione Italiana per la Cultura della Cooperazione e del Non Profit)
    Abstract: We set up an analytical framework focusing on the problem of interaction over time when economic agents are characterized by various types of distributional social preferences. We develop an evolutionary approach in which individual preferences are endogenous and account for the evolution of cooperation when all the players are initially entirely selfish. In particular, within motivationally heterogeneous agents embedded in a social network, we adopt a variant of the indirect evolutionary approach, where material payoffs play a critical role, and assume that a coevolutionary process occurs in which subjective preferences gradually evolve due to a key mechanism involving behavioral choices, relational intensity and degree of social openness. The simulations we carried out led to strongly consistent results with regard to the evolution of player types, the dynamics of material payoffs, the creation of significant interpersonal relationships among agents and the frequency of cooperation. In the long run, cooperation turns out to be the strategic choice that obtains the best performances, in terms of material payoffs, and "nice guys", far from finishing last, succeed in coming out ahead.
    Keywords: Behavioral Economics; Cooperation; Prisoner's Dilemma; Social Evolution; Heterogeneous Social Preferences; Indirect Evolutionary Approach
    JEL: B41 C73 D74 Z13
    Date: 2008–06–24
  7. By: Giovanni Villani
    Abstract: Cooperative investments in R&D are a significant driving force of the modern economy. As it well-known, the R&D investments are uncertain and the strategic alliances create synergies and additional information that increase the success probabilities about R&D projects. The theory of real option games takes into account both the flexibility value of an investment opportunity and the strategic considerations. In particular way, while the non-cooperative options are exercised in the interest of the option holders' payoffs, the cooperative ones are exercised in order to maximize the total partnership value. In our model we develop an interaction between two firms that invest in R&D and we show the effects of cooperative synergies on several equilibriums. Moreover, we consider that the R&D investments are characterized by positive network externalities that induce more benefits in case of reciprocal R&D success.
    Keywords: Real Exchange Options; Cooperation games; Information Revelation; R&D investments.
    JEL: G13 C71 D80 O32
    Date: 2008–10
  8. By: Brice Magdalou; Dimitri Dubois; Phu Nguyen-Van
    Abstract: We experimentally investigate cooperative behavior in a social dilemma situation, where the socially efficient outcome may be encouraged by risk aversion and/or inequality aversion. The first part of our experiment is devoted to the elicitation of subjects' aversion profile, taking care to not confuse the two dimensions. Subjects are then grouped by three according to their aversion profiles, and interact in a repeated social dilemma game. In this game, agents are characterised by a social status so that higher the agent's status, higher will be her earnings. Cooperation is costly for a majority of agents at each period, but statuses can be reversed in future periods. We show that cooperation is strongly in°uenced by the group's aversion profile. Groups averse in both dimensions cooperate more than groups averse in only one dimension. Moreover cooperation seems to be more affected by risk aversion, whereas one might interpret cooperative behavior as an inequality averse or altruistic attitude.
    Date: 2009–02
  9. By: Emmanuel PETIT (GREThA UMR CNRS 5113)
    Abstract: We study the impact of induced positive or negative emotions on economic decisions in a negotiation context. Decision was assessed with a well studied social task, the Ultimatum game. In this task, subjects had to make decisions to either accept or reject fair or unfair offers from other players. Emotion was induced with short movie clips. Our results show that participants induced with negative emotions (such as anger or indignation) reject significantly more unfair offers than subjects induced with positive emotions (such as joy or elation). These results demonstrate that even subtle emotions can play an important role in biasing decision making.
    Keywords: Moral emotions, negotiation, induction procedure
    JEL: A12 C70 C91
    Date: 2009
  10. By: Jerry Busemeyer; Ariane Lambert-Mogiliansky
    Abstract: The Type Indeterminacy model is a theoretical framework that formalizes the constructive preference perspective suggested by Kahneman and Tversky. In this paper we explore an extention of the TI-model from simple to strategic decision-making. A 2X2 game is investigated. We first show that in a one-shot simultaneaous move setting the TI-model is equivalent to a standard incomplete information model. We then let the game be preceded by a cheap-talk promise exchange game. We show in an example that in the TI-model the promise stage can have impact on next following behavior when the standard classical model predicts no impact whatsoever. The TI approach differs from other behavioral approaches in identifying the source of the effect of cheap-talk promises in the intrinsic indeterminacy of the players' type.
    Date: 2009
  11. By: Shchetinin, Oleg
    Abstract: I develop a model of contracting under reciprocal altruism accounting for some evidence which is paradoxical from the point of view of neoclassical models with selfish actors. My model predicts the crowding-out effect observed in the Trust Game with the possibility of a fine; for the Control Game the model predicts that an equilibrium can exhibit "no effect of control", "hidden cost of control", or "positive effect of control", depending on the characteristics of the actors, as observed in the lab. This suggests that reciprocal altruism modeling could be fruitful more generally in applications of contract theory.
    Keywords: Reciprocal Altruism; Extrinsic and intrinsic motivation; Behavioral Economics; Signaling; Contract Theory.
    JEL: M54 D82 C72
    Date: 2009–02–16
  12. By: Vikas Kumar (Indira Gandhi Institute of Development Research)
    Abstract: This paper provides a cradle-to-grave model for political union between two unequally endowed states. We introduce negotiated, contested, and time-consistent contested constitutions to address various classes of merger problems. Merger agreement is shown to be path dependent and, in some cases, time inconsistent. The possibility of contest constrains the set of mutually agreeable tax rates and provides stability to a constitution. Demographic heterogeneity constrains the set of mutually agreeable mergers. Rent extracted by technologically advanced province for transferring technology to the backward province in a union is shown to be increasing in complexity of technology but bounded from above. The model can also support the possibility of historical cycles of political geography. The main contribution of this paper is to highlight the role of technology gap and unequal distribution of resources in all the above cases.
    Keywords: Bargaining, Constitution, Contest, Political Union
    JEL: C72 C78 D02 D72 D74 F51 K39
    Date: 2008–11
  13. By: Choe, Chongwoo; Ishiguro, Shingo
    Abstract: This paper studies internal organization of a firm using an incomplete contracting approach a la Grossman-Hart-Moore and Aghion-Tirole. The two key ingredients of our model are externalities among tasks that require coordination, and investment in task-specific human capital. We compare three types of organizational structures: centralization where the decision authority for all tasks is given to the party without task-specific human capital, decentralization where the decision authority for each task is given to the party with necessary human capital, and hierarchical delegation where the decision authority is allocated in a hierarchical fashion. Centralization is optimal when externalities and the requisite coordination are the main issue in organization design. Decentralization is optimal if the investment in human capital is more important. Hierarchical delegation is optimal in the intermediate case. We also discuss the optimal pattern of hierarchical delegation as well as several directions extending the basic model.
    Keywords: Delegation; Incomplete Contracts; Hierarchy
    JEL: D23 C70 L22
    Date: 2008–07

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