nep-gth New Economics Papers
on Game Theory
Issue of 2009‒07‒03
eighteen papers chosen by
Laszlo A. Koczy
Budapest Tech and Maastricht University

  1. Decision Making in Unknown and Changing Environments By Karl Schlag; Andriy Zapechelnyuk
  2. Finite State Dynamic Games with Asymmetric Information: A Framework for Applied Work By Fershtman, Chaim; Pakes, Ariel
  3. Consistency and Monotonicity in One-Sided Assignment Problems By Bettina-Elisabeth Klaus; Alexandru Nichifor
  4. Costly Network Formation and Regular Equilibria By Francesco De Sinopoli; Carlos Pimienta
  5. Cooperation Under Incomplete Contracting By Habis Helga; Herings P. Jean-Jacques
  6. Grading Exams: 100, 99, 98,...or A, B, C? By Pradeep Dubey; John Geanakoplos
  7. How Communication Improves Efficiency in Bargaining: Reconciling Theory with Evidence By Saran Rene
  8. Inefficiency of equilibria in query auctions with continuous valuations By Grigorieva Elena; Herings P. Jean-Jacques; Müller Rudolf; Vermeulen Dries
  9. Strategic behavior in repeated voluntary contribution experiments By Mengel Friederike; Peeters Ronald
  10. Investments and the Holdup Problem in a Matching Market By Bester, Helmut
  11. Identification in Matching Games By Jeremy T. Fox
  12. Measuring Power And Satisfaction in Societies with Opinion Leaders: Dictator and Opinion Leader Properties By René van den Brink; Agnieszka Rusinowska; Frank Steffen
  13. The Structure of Unstable Power Systems By Joseph Abdou
  14. A Stability Index for Local Effectivity Functions By Joseph Abdou
  15. Conflict Networks By Jörg Franke; Tahir Öztürk
  16. Engineering Trust - Reciprocity in the Production of Reputation Information By Gary E. Bolton; Ben Greiner; Axel Ockenfels
  17. Inconsistent Incomplete Information: A Betting Experiment By Werner Güth; Loreto Llorente Erviti; Anthony Ziegelmeyer
  18. Nonparametric Identification of Auction Models with Non-Separable Unobserved Heterogeneity By Yingyao Hu, David McAdams and Matthew Shum

  1. By: Karl Schlag (Pompeu Fabra University); Andriy Zapechelnyuk (University of Bonn and Kyiv School of Economics)
    Abstract: We consider an agent who has to repeatedly make choices in an uncertain and changing environment, who has full information of the past, who discounts future payoffs, but who has no prior. We provide a learning algorithm that performs almost as well as the best of a given finite number of experts or benchmark strategies and does so at any point in time, provided the agent is sufficiently patient. The key is to find the appropriate degree of forgetting distant past. Standard learning algorithms that treat recent and distant past equally do not have the sequential epsilon optimality property.
    Keywords: Adaptive learning, experts, distribution-free, epsilon-optimality, Hannan regret
    JEL: C44 D81 D83
    Date: 2009–06
  2. By: Fershtman, Chaim; Pakes, Ariel
    Abstract: With applied work in mind, we define an equilibrium notion for dynamic games with asymmetric information which does not require a specification for players' beliefs about their opponent types. This enables us to define equilibrium conditions which, at least in principal, are testable and can be computed using a simple reinforcement learning algorithm. We conclude with an example that endogenizes the maintenance decisions for electricity generators in a dynamic game among electric utilities in which the costs states of the generators are private information.
    Keywords: Applied Markov Equilibrium; Dynamic Games; Dynamic Oligopoly
    JEL: C63 C73 L13
    Date: 2009–06
  3. By: Bettina-Elisabeth Klaus (Harvard Business School, Negotiation, Organizations & Markets Unit); Alexandru Nichifor (Department of Economics, Maastricht University)
    Abstract: One-sided assignment problems combine important features of two well-known matching models. First, as in roommate problems, any two agents can be matched and second, as in two-sided assignment problems, the payoffs of a matching can be divided between the agents. We take a similar approach to one-sided assignment problems as Sasaki (1995) for two-sided assignment problems and we analyze various desirable properties of solutions including consistency and weak pairwise-monotonicity. We show that for the class of solvable one-sided assignment problems (i.e., the subset of one-sided assignment problems with a non-empty core), if a subsolution of the core satisfies [indifference with respect to dummy agents, continuity, and consistency] or [Pareto indifference and consistency], then it coincides with the core (Theorems 1 and 2). However, we also prove that on the class of all one-sided assignment problems (solvable or not), no solution satisfies consistency and coincides with the core whenever the core is non-empty (Theorem 3). Finally, we comment on the difficulty in obtaining further positive results for the class of solvable one-sided assignment problems in line with Sasaki's (1995) characterizations of the core for two-sided assignment problems.
    Keywords: (One-sided) assignment problems, consistency, core, matching.
    JEL: C71 C78 D63
    Date: 2009–06
  4. By: Francesco De Sinopoli (Dipartimento di Scienze Economiche, Universita degli Studi di Verona); Carlos Pimienta (School of Economics, The University of New South Wales)
    Abstract: We prove that for generic network-formation games where players incur some strictly positive cost to propose links the number of Nash equilibria is finite. Furthermore all Nash equilibria are regular and, therefore, stable sets.
    Keywords: Network-formation games; Regular equilibrium; Stable sets
    JEL: C62 C72 D85
    Date: 2009–06
  5. By: Habis Helga; Herings P. Jean-Jacques (METEOR)
    Abstract: We examine the notion of the core when cooperation takes place in a setting with time and uncertainty. We do so in a two-period general equilibrium setting with incomplete markets. Market incompleteness implies that players cannot make all possible binding commitments regarding their actions at different date-events. We unify various treatments of dynamic core concepts existing in the literature. This results in definitions of the Classical Core, the Segregated Core, the Two-stage Core, the Strong Sequential Core, and the Weak Sequential Core. Except for the Classical Core, all these concepts can be defined by requiring absence of blocking in period 0 and at any date-event in period 1. The concepts only differ with respect to the notion of blocking in period 0. To evaluate these concepts, we study three market structures in detail: strongly complete markets, incomplete markets in finance economies, and incomplete markets in settings with multiple commodities.
    Keywords: mathematical economics;
    Date: 2009
  6. By: Pradeep Dubey (SUNY, Stonybrook); John Geanakoplos (Cowles Foundation, Yale University)
    Abstract: We introduce grading into games of status. Each player chooses effort, pro­ducing a stochastic output or score. Utilities depend on the ranking of all the scores. By clustering scores into grades, the ranking is coarsened, and the incen­tives to work are changed. We apply games of status to grading exams. Our main conclusion is that if students care primarily about their status (relative rank) in class, they are often best motivated to work not by revealing their exact numerical exam scores (100, 99, ...,1), but instead by clumping them into coarse categories (A,B,C). When student abilities are disparate, the optimal absolute grading scheme is always coarse. Furthermore, it awards fewer A’s than there are alpha-quality students, creating small elites. When students are homogeneous, we characterize optimal absolute grading schemes in terms of the stochastic dominance between student performances (when they shirk or work) on subintervals of scores, show­ing again why coarse grading may be advantageous. In both the disparate case and the homogeneous case, we prove that ab­solute grading is better than grading on a curve, provided student scores are independent.
    Keywords: Status, Grading, Incentives, Education, Exams
    JEL: C70 I20 I30
    Date: 2009–06
  7. By: Saran Rene (METEOR)
    Abstract: Previous theoretical literature proved the existence of an upper bound on efficiency in bilateral bargaining. In contrast, experiments consistently find players obtaining higher efficiency than the upper bound if they are allowed to communicate before the 1/2-double auction. We bridge this gap between theory and experiments by introducing an epsilon proportion of behavioral-type players who always truthfully reveal their valuations and declare a keenness to trade before bidding in the 1/2-double auction. Preplay communication is used by the strategic types to communicate their "tougher'''' bargaining position, forcing the behavioral types to adopt a "weaker'''' position. This further induces the strategic types to decrease the shading/exaggeration in the announcement of their valuations lest they miss the chance to trade with the "weaker'''' behavioral types. As a result, for any epsilon>0, the efficiency in equilibrium is greater than the upper bound.
    Keywords: microeconomics ;
    Date: 2009
  8. By: Grigorieva Elena; Herings P. Jean-Jacques; Müller Rudolf; Vermeulen Dries (METEOR)
    Abstract: Query auctions are iterative auctions in which bidders have to select in each round an action from a finite set. We show that, when bidders have continuous valuations, any ex post equilibrium in an ex post individually rational query auction can only be ex post efficient when the running time of the auction is infinite for almost all realizations of valuations of thebidders. Thus, when valuations are drawn from a continuous probability distribution, efficiency can only be bought at the expense of a running time that is infinite with probability one. For two bidders we even show this to be true when we only require efficiency with probability one.
    Keywords: mathematical economics;
    Date: 2009
  9. By: Mengel Friederike; Peeters Ronald (METEOR)
    Abstract: We conduct a repeated VCM (voluntary contribution mechanism) experiment using thestrategy method. We compare a partner and a stranger design and find that participantsin the partner treatment provide (i) higher initial contributions, (ii) higher contributionson average over all periods, and (iii) contributions that do not vary more strongly withpast contributions than participants in the stranger treatment. We conclude from ourevidence that strategic motives can account for a large share of the treatment differencestypically observed in this literature.
    Keywords: public economics ;
    Date: 2009
  10. By: Bester, Helmut
    Abstract: This paper studies investment incentives in the steady state of a dynamic bilateral matching market. Because of search frictions, both parties in a match are partially locked-in when they bargain over the joint surplus from their sunk investments. The associated holdup problem depends on market conditions and is more important for the long side of the market. In the case of investments in homogenous capital only the agents on the short side acquire ownership of capital. There is always underinvestment on both sides of the market. But when market frictions become negligible, the equilibrium investment levels tend towards the first-best.
    Keywords: Holdup Problem; Investments; Matching Market
    JEL: C78 D23 D92
    Date: 2009–06
  11. By: Jeremy T. Fox
    Abstract: I study a many-to-many, two-sided, transferable-utility matching game. Consider data on matches or relationships between agents but not on the choice set of each agent. I investigate what economic parameters can be learned from data on equilibrium matches and agent characteristics. Features of a production function, which gives the surplus from a match, are nonparametrically identified. In particular, the ratios of complementarities from multiple pairs of inputs are identified. Also, the ordering of production levels is identified.
    JEL: C14 C3 C35 C71 D4 L22
    Date: 2009–06
  12. By: René van den Brink (VU University Amsterdam); Agnieszka Rusinowska (Université Lumière Lyon); Frank Steffen (The University of Liverpool - Management School (ULMS))
    Abstract: A well known and established model in communication policy in sociology and marketing is that of opinion leadership. Opinion leaders are actors in a society who are able to affect the behavior of other members called followers. Hence, opinion leaders might have a considerable impact on the behavior of markets and other social agglomerations being made up of individual actors choosing among different alternatives. For marketing or policy purposes it is interesting to investigate the effect of different opinion leader-follower structures in markets or other collective decision-making situations in a society. We study a two-action model in which the members of a society are to choose one action, for instance, to buy or not to buy a certain joint product, or to vote yes or no on a specific proposal. Each of the actors has an inclination to choose one of the actions. By definition opinion leaders have some power over their followers, and they exercise this power by influencing the behavior of their followers, i.e. their choice of action. After all actors have chosen their actions, a decision-making mechanism determines the collective choice resulting from the individual choices. Using bipartite digraphs we introduce satisfaction and power scores which allow us to analyze the actors' satisfaction and power with respect to the collective choice for societies with different opinion leader-follower structures. Moreover, we study common dictator and opinion leader properties of the above scores and illustrate our findings for a society with five members.
    Keywords: Bipartite digraph; influence; inclination; collective choice; opinion leader; follower; satisfaction; power; dictator properties; opinion leader properties
    JEL: C7 D7
    Date: 2009–06–11
  13. By: Joseph Abdou (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: A power system is modeled by an interaction form, the solution of which is called a settlement. By stability we mean the existence of some settlement for any preference profile. Like in other models of power structure, instability is equivalent to the existence of a cycle. Structural properties of the system like maximality, regularity, superadditivity and exactness are defined and used to determine the type of instability that may affect the system. A stability index is introduced. Loosely speaking this index measures the difficulty of the emergence of configurations that produce a deadlock. As applications we have a characterization of solvable game forms, an analysis of the structure of their instability and a localization of their stability index in case where solvability fails.
    Keywords: Interaction form, effectivity function, stability index, Nash equilibrium, strong equilibrium, solvability, acyclicity, Nakamura number, collusion.
    Date: 2009–05
  14. By: Joseph Abdou (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: We study the structure of unstable local effectivity functions defined for n players and p alternatives. A stability index based on the notion of cycle is introduced. In the particular case of simple games, the stability index is closely related to the Nakamura Number. In general it may be any integer between 2 and p. We prove that the stability index for maximal effectivity functions and for maximal local effectivity functions is either 2 or 3.
    Keywords: Stability index, acyclicity, strong Nash Equilibrium, core, solvability, consistency, simple game, effectivity function.
    Date: 2009–01
  15. By: Jörg Franke; Tahir Öztürk
    Abstract: Conflict parties are frequently involved into more than one conflict at a given time. In this paper the interrelated structure of conflictive relations is modeled as a conflict network where opponents are embedded in a local structure of bilateral conflicts. Conflict parties invest in specific conflict technology to attack their respective rivals and defend their own resources.We show that there exists a unique equilibrium for this conflict game and examine the relation between aggregated equilibrium investment (interpreted as conflict intensity) and underlying network characteristics. The derived results have implications for peaceful resolutions of conflicts because neglecting the fact that opponents are embedded into an interrelated conflict structure might have adverse consequences for conflict intensity.
    Keywords: Network games, conflicts, conflict resolution
    JEL: C72 D74 D85
    Date: 2009–06
  16. By: Gary E. Bolton (Department of Supply Chain & Information Systems, Pennsylvania State University); Ben Greiner (School of Economics, The University of New South Wales); Axel Ockenfels (Department of Economics, University of Cologne)
    Abstract: Reciprocal feedback distorts the production and content of reputation information, hampering trust and trade efficiency. Data from eBay and other sources combined with laboratory data provide a robust picture of how reciprocity can be guided by changes in the way feedback information flows through the system, leading to more accurate reputation information, more trust and more efficient trade.
    Keywords: market design; reputation; trust; reciprocity; eBay
    JEL: C73 C9 D02 L14
    Date: 2009–03
  17. By: Werner Güth (Max Planck Institute Jena, Strategic Interaction Group); Loreto Llorente Erviti (Universidad Publica de Navarra, Pamplona); Anthony Ziegelmeyer (Max Planck Institute Jena, Strategic Interaction Group)
    Abstract: We study two person-betting games with inconsistent commonly know beliefs, using an experimental approach. In our experimental games, participants bet against one another, each bettor choosing one of two possible outcomes, and payoff odds are know at the time bets are placed. Bettors' beliefs are always commonly known. Participants play a series of betting games, in some of which the occurrence probabilities of the two outcomes differ between bettors (inconsistent beliefs) while in others the same occurrence probabilities prevail for both bettors (consistent beliefs). In the betting games with consistent commonly know beliefs, we observe that participants refrain from betting. In the betting games with inconsistent commonly know beliefs, we observe significant betting rates and the larger the discrepancy between the two bettors' subjective expectations the larger the volume of bets. Our experimental results contrast with the existing evidence on zero-sum betting games according to which participants' irrational inclination to bet is difficult to eliminate.
    Keywords: Betting, Common prior, Harsanyi consistency, Experimental Economics.
    JEL: C72 C92 D84
    Date: 2009–06–11
  18. By: Yingyao Hu, David McAdams and Matthew Shum
    Abstract: We propose a novel methodology for nonparametric identification of first-price auction models with independent private values, which accommodates auction-specific unobserved heterogeneity and bidder asymmetries, based on recent results from the econometric literature on nonclassical measurement error in Hu and Schennach (2008). Unlike Krasnokutskaya (2009), we do not require that equilibrium bids scale with the unobserved heterogeneity. Our approach accommodates a wide variety of applications, including settings in which there is an unobserved reserve price, an unobserved cost of bidding, or an unobserved number of bidders, as well as those in which the econometrician fails to observe some factor with a non-multiplicative effect on bidder values.
    Date: 2009–06

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