nep-gth New Economics Papers
on Game Theory
Issue of 2009‒06‒10
ten papers chosen by
Laszlo A. Koczy
Budapest Tech and Maastricht University

  1. Noncooperative Foundations of Stable Sets in Voting Games. By Vincent Anesi
  2. Bargaining, Coalitions and Externalities: a Comment on Maskin By Geoffroy de Clippel; Roberto Serrano
  3. A Dynamic Theory of Fidelity Networks with an Application to the Spread of HIV/AIDS By Roland Pongou; Roberto Serrano
  4. Strategic Information Transmission in Networks By Andrea Galeotti; Christian Ghiglino; Francesco Squintani
  5. Lowest Unique Bid Auctions with Signals By Andrea Gallice
  6. Supply Function Equilibria of Pay-as-Bid Auctions By Holmberg, Pär
  7. Mis-match, Re-match, and Investment By Thomas Gall; Patrick Legros; Andrew F. Newman
  8. Implementation and Partial Provability By Elchanan Ben-Porath; Barton L. Lipman
  9. Identifying Preferences under Risk from Discrete Choices By Pierre-Andre Chiappori; Amit Gandhi; Bernard Salanie; Francois Salanie
  10. Optimal Categorization By Mohlin, Erik

  1. By: Vincent Anesi (University of Nottingham)
    Abstract: This note investigates the noncooperative foundations of von Neumann-Morgenstern (vN-M) stable sets in voting games. To do so, we study subgame perfect equilibria of a noncooperative legislative bargaining game, based on underlying simple games. The following results emerge from such an exercise: Every stable set of the underlying simple game is the limit set of undominated pure-strategy Markov perfect equilibria, and of strategically stable sets of undominated subgame perfect equilibria of the bargaining game with farsighted voters.
    Keywords: Legislative bargaining, committee, strategic stability, stable set.
    JEL: C71 C78 D71
    Date: 2009–05
  2. By: Geoffroy de Clippel; Roberto Serrano
    Abstract: We first observe that two of Maskin’s results do not extend beyond three players: we construct a four-player partition function with nonpositive externalities whose unique solution is inefficient, as well as a four-player characteristic function that has a unique efficient solution for each ordering of the players, but for which the payoff vector obtained by averaging these solutions over the different orderings does not coincide with the Shapley value. On the other hand, we reinforce Maskin’s insight that externalities may play a crucial role in generating inefficiency. Many existing solutions on how to share profits assume or derive the property of efficiency. Yet we argue that players may have an interest to choose with whom to bargain. We illustrate how this may trigger inefficiency, especially in the presence of externalities, even if bargaining among any group of agents results in an efficient distribution of the surplus they can produce. We also provide some sufficient conditions for efficiency.
    Keywords: externalities; coalition formation; Shapley value
    Date: 2008
  3. By: Roland Pongou; Roberto Serrano
    Abstract: We study the dynamic stability of fidelity networks, which are networks that form in a mating economy of agents of two types (say men and women), where each agent desires direct links with opposite type agents, while engaging in multiple partnerships is considered an act of infidelity. Infidelity is punished more severely for women than for men. We consider two stochastic processes in which agents form and sever links over time based on the reward from doing so, but may also take non-beneficial actions with small probability. In the first process, an agent who invests more time in a relationship makes it stronger and harder to break by his/her partner; in the second, such an agent is perceived as weak. Under the first process, only egalitarian pairwise stable networks (in which all agents have the same number of partners) are visited in the long run, while under the second, only anti-egalitarian pairwise stable networks (in which all women are matched to a small number of men) are. Next, we apply these results to find that under the first process, HIV/AIDS is equally prevalent among men and women, while under the second, women bear a greater burden. The key message is that anti-female discrimination does not necessarily lead to higher HIV/AIDS prevalence among women in the short run, but it does in the long run.
    Keywords: Fidelity networks; anti-female discrimination; stochastic stability; HIV/AIDS; union formationmodels
    Date: 2009
  4. By: Andrea Galeotti; Christian Ghiglino; Francesco Squintani
    Abstract: We introduce a tractable model of cheap talk among players located on networks. In our model, a player can send a message to another player if and only if he is linked to him. We derive a sharp equilibrium and welfare characterization which reveals two basic insights. In equilibrium, the willingness of a player to communicate with a neighbor decreases with the number of opponents who communicate with the neighbor. The ex-ante equilibrium welfare of every player increases not only with the number of truthful reports transmitted in the network, but also when truthful reports are more evenly distributed across players. We apply our findings to the analysis of homophily in communities, to organization design, and to the study of endogenous network formation. Communication across communities decreases as communities become larger, and communication may be asymmetric: From large communities to small ones. In our set up, fully decentralized organizations maximize all players’ welfare. Further, decentralized networks, where information may flow asymmetrically, endogenously form in equilibrium. Finally, we introduce the possibility of public communication in networks, and identify conditions under which public communication Pareto dominates private communication.
    Date: 2009–05–28
  5. By: Andrea Gallice
    Abstract: A lowest unique bid auction allocates a good to the agent who submits the lowest bid that is not matched by any other bid. This peculiar auction format is becoming increasingly popular over the Internet. We show that when all the bidders are rational such a selling mechanism can lead to positive profits only if there is a large mismatch between the auctioneer's and the bidders' valuation. On the contrary, the auction becomes highly lucrative if at least some bidders are myopic. In this second case, we analyze the key role played by the existence of some private signals that the seller sends to the bidders about the status of their bids. Data about actual auctions confirm the profitability of the mechanism and the limited rationality of the bidders.
    Keywords: Lowest unique bid auctions; Signals; Bounded rationality.
    JEL: D44 C72 D82
    Date: 2009
  6. By: Holmberg, Pär (Research Institute of Industrial Economics (IFN))
    Abstract: This paper characterizes the Nash equilibrium in a pay-as-bid (discriminatory), divisible-good, procurement auction. Demand by the auctioneer is uncertain as in the supply function equilibrium model. A closed form expression is derived. Existence of an equilibrium is ensured if the hazard rate of the perfectly inelastic demand is monotonically decreasing and sellers have non-decreasing marginal costs. Multiple equilibria can be ruled out for markets, for which the auctioneer’s demand exceeds suppliers’ capacity with a positive probability. The derived equilibrium can be used to model strategic bidding behaviour in pay-as-bid electricity auctions, such as the balancing mechanism of United Kingdom. Offer curves and mark-ups of the derived equilibrium are compared to results for the SFE of a uniform-price auction.
    Keywords: Supply Function Equilibrium; Pay-as-bid Auction; Discriminatory Auction; Divisible
    JEL: C62 D43 D44 L11 L13 L94
    Date: 2009–01–29
  7. By: Thomas Gall (Boston University and University of Bonn); Patrick Legros (ECARES, Universit´e Libre de Bruxelles and CEPR); Andrew F. Newman (Boston University and CEPR)
    Abstract: Mobility depends essentially on investment, which often occurs in environments in which individuals match (school) or will match after investing (the labor market). Where partners can transfer surplus to each other only imperfectly (NTU), the pattern of matching will typically be inefficient, involving too much segregation, and providing a possible rationale for ”associational redistribution” such as affirmative action: a social planner who could enforce a matching outcome that differs from the market outcome may raise aggregate social surplus. We show that this static inefficiency due to NTU can be exacerbated in a dynamic environment in which individuals’ productive types are determined by investments made before they match. In contrast to TU models there will typically be investment distortions, with high types over-investing and low types under-investing. We study several forms of associational redistribution, assessing the differential effects of achievement-based and background-based polices; early-stage and later-stage policies; and interactions between them.
    Keywords: Matching, nontransferable utility, affirmative action, segregation, education
    JEL: C78 I28 H52 J78
    Date: 2009–05
  8. By: Elchanan Ben-Porath (Department of Economics and Center for Rationality, Hebrew University); Barton L. Lipman (Department of Economics, Boston University)
    Abstract: We extend implementation theory by allowing the social choice function to depend on more than just the prole of preferences of the agents and by allowing agents to support their statements with hard evidence. We show that a simple condition on the evidence structure which is necessary for the implementation of a social choice function f when the preferences of the agents are state independent is also sufficient for implementation for any preferences (including state dependent) if the social planner can perform small monetary transfers and there are at least three players. If transfers can be large, f can be implemented in a game with perfect information when there are at least two players under an additional boundedness assumption. In both cases, transfers only occur off the equilibrium path. Finally, in the special but important case of allocation problems, under weak conditions, f can be implemented in a perfect information game with at least two players and no transfers. In all cases, the use of evidence enables implementation which is robust in the sense that the social planner needs very little information about the preferences, beliefs, and evidence of the agents and the agents need little information about each others' preferences.
    Date: 2009–04
  9. By: Pierre-Andre Chiappori; Amit Gandhi; Bernard Salanie; Francois Salanie
    Date: 2009–05
  10. By: Mohlin, Erik (Dept. of Economics, Stockholm School of Economics)
    Abstract: The importance of categorical reasoning in human cognition is well-established in psychology and cognitive science, and it is generally acknowledged that one of the most important functions of categorization is to facilitate prediction. This paper provides a model of optimal categorization. In the beginning of each period a subject observes a two-dimensional object in one dimension and wants to predict the object's value in the other dimension. The subject partitions the space of objects into categories. She has a data base of objects that were observed in both dimensions in the past. The subject determines what category the new object belongs to on the basis of observation of its first dimension. The average value in the second dimension, of objects in this category in the data base, is used as prediction for the object at hand. At the end of each period the second dimension is observed and the observation is stored in the data base. The main result is that the optimal number of categories is determined by a trade-off between (a) decreasing the size of categories in order to enhance category homogeneity, and (b) increasing the size of categories in order to enhance category sample size.
    Keywords: Categorization; Priors; Prediction; Similarity-Based Reasoning.
    JEL: C72
    Date: 2009–05–31

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