nep-gth New Economics Papers
on Game Theory
Issue of 2009‒08‒16
fourteen papers chosen by
Laszlo A. Koczy
Budapest Tech and Maastricht University

  1. Kalai-Smorodinsky Bargaining Solution Equilibria By Giuseppe De Marco; Jacqueline Morgan
  2. Axiomatizations of Two Types of Shapley Values for Games on Union Closed Systems By René van den Brink; Ilya Katsev; Gerard van der Laan
  3. Efficiency and Collusion Neutrality of Solutions for Cooperative TU-Games By René van den Brink
  4. Neural networks as a learning paradigm for general normal form games By Spiliopoulos, Leonidas
  5. Contests with Rank-Order Spillovers By Michael R. Baye; Dan Kovenock; Casper G. de Vries
  6. On the Truly Noncooperative Game of Island Life II: Evolutionary Stable Economic Development Strategy in Brief By Funk, Matt
  7. Another characterization of quasisupermodularity By Kukushkin, Nikolai S.
  8. Punishment with Uncertain Outcomes in the Prisoner’s Dilemma By Peter Duersch; Maroš Servátka
  9. Attitudes to Ambiguity in One-Shot Normal-Form Games: An Experimental Study By Asen Ivanov
  10. A Dynamic Oligopoly Game of the US Airline Industry: Estimation and Policy Experiments By Aguirregabiria, Victor; Ho, Chun-Yu
  11. Bargaining Unexplained By Dan Usher
  12. Social Effects in a Multi-Agent Investment Game. An Experimental Analysis By Luigi Mittone; Matteo Ploner
  13. A Repeated Game Heterogeneous-Agent Wage-Posting Model By Steinbacher, Matej; Steinbacher, Matjaz; Steinbacher, Mitja
  14. Lobbying of Firms by Voters By Matthias Dahm; Robert Dur; Amihai Glazer

  1. By: Giuseppe De Marco (Università di Napoli Parthenope); Jacqueline Morgan (Università di Napoli Federico II and CSEf)
    Abstract: Multicriteria games describe strategic interactions in which players, having more than one criterion to take into account, don't have an a-priori opinion on the rel- ative importance of all these criteria. Roemer (2005) introduces an organizational interpretation of the concept of equilibrium: each player can be viewed as running a bargaining game among criteria. In this paper, we analyze the bargaining problem within each player by considering the Kalai-Smorodinsky bargaining solution. We provide existence results for the so called Kalai-Smorodinsky bargaining solution equilibria for a general class of disagreement points which properly includes the one considered in Roemer (2005). Moreover we look at the refinement power of this equilibrium concept and show that it is an effective selection device even when combined with classical refinement concepts based on stability with respect to perturbations such as the the extension to multicriteria games of the Selten's (1975) trembling hand perfect equilibrium concept.
    Date: 2009–07–30
  2. By: René van den Brink (VU University Amsterdam); Ilya Katsev (Russian Academy of Sciences); Gerard van der Laan (VU University Amsterdam)
    Abstract: A situation in which a finite set of players can obtain certain payoffs by cooperation can be described by a cooperative game with transferable utility, or simply a TU-game. A (single-valued) solution for TU-games assigns a payoff distribution to every TU-game. A well-known solution is the Shapley value. In the literature various models of games with restricted cooperation can be found. So, instead of allowing all subsets of the player set N to form, it is assumed that the set of feasible coalitions is a subset of the power set of N. In this paper we consider such sets of feasible coalitions that are closed under union, i.e. for any two feasible coalitions also their union is feasible. We consider and axiomatize two solutions or rules for these games that generalize the Shapley value: one is obtained as the conjunctive permission value using a corresponding superior graph, the other is defined as the Shapley value of a modified game similar as the Myerson rule for conference structures.
    Keywords: TU-game; restricted cooperation; union closed system; Shapley value; permission value; superior graph; axiomatization
    JEL: C71
    Date: 2009–07–17
  3. By: René van den Brink (VU University Amsterdam)
    Abstract: Three well-known solutions for cooperative TU-games are the Shapley value, the Banzhaf value and the equal division solution. In the literature various axiomatizations of these solutions can be found. Axiomatizations of the Shapley value often use efficiency which is not satisfied by the Banzhaf value. On the other hand, the Banzhaf value satisfies collusion neutrality which is not satisfied by the Shapley value. Both properties seem desirable. However, neither the Shapley value nor the Banzhaf value satisfy both. The equal division solution does satisfy both axioms and, moreover, together with symmetry these axioms characterize the equal division solution. Further, we show that there is no solution that satisfies efficiency, collusion neutrality and the null player property. Finally, we show that a solution satisfies efficiency, collusion neutrality and linearity if and only if there exist exogenous weights for the players such that in any game the worth of the 'grand coalition' is distributed proportional to these weights.
    Keywords: Efficiency; Collusion neutrality; Shapley value; Banzhaf value; Equal division solution; Impossibility
    JEL: C71
    Date: 2009–07–22
  4. By: Spiliopoulos, Leonidas
    Abstract: This paper addresses how neural networks learn to play one-shot normal form games through experience in an environment of randomly generated game payoffs and randomly selected opponents. This agent based computational approach allows the modeling of learning all strategic types of normal form games, irregardless of the number of pure and mixed strategy Nash equilibria that they exhibit. This is a more realistic model of learning than the oft used models in the game theory learning literature which are usually restricted either to repeated games against the same opponent (or games with different payoffs but belonging to the same strategic class). The neural network agents were found to approximate human behavior in experimental one-shot games very well as the Spearman correlation coefficients between their behavior and that of human subjects ranged from 0.49 to 0.8857 across numerous experimental studies. Also, they exhibited the endogenous emergence of heuristics that have been found effective in describing human behavior in one-shot games. The notion of bounded rationality is explored by varying the topologies of the neural networks, which indirectly affects their ability to act as universal approximators of any function. The neural networks' behavior was assessed across various dimensions such as convergence to Nash equilibria, equilibrium selection and adherence to principles of iterated dominance.
    Keywords: Behavioral game theory; Learning; Global games; Neural networks; Agent-based computational economics; Simulations; Complex adaptive systems; Artificial intelligence
    JEL: C45 C70 C73
    Date: 2009–08–12
  5. By: Michael R. Baye (Indiana University); Dan Kovenock (University of Iowa); Casper G. de Vries (Erasmus University)
    Abstract: This paper presents a unified framework for characterizing symmetric equilibrium in simultaneous move, two-player, rank-order contests with complete information, in which each player's strategy generates direct or indirect affine "spillover" effects that depend on the rank-order of her decision variable. These effects arise in natural interpretations of a number of important economic environments, as well as in classic contests adapted to recent experimental and behavioral models where individuals exhibit inequality aversion or regret. We provide the closed-form solution for the symmetric Nash equilibria of this class of games, and show how it can be used to directly solve for equilibrium behavior in auctions, pricing games, tournaments, R&D races, models of ligitation, and a host of other contests.
    Keywords: Contests; Auctions; Spillovers
    JEL: C72 C73 D43 D44 D74
    Date: 2009–07–28
  6. By: Funk, Matt
    Abstract: This paper offers a solution to 'The Problem of Sustainable Economic Development' on islands. This hypothesis offers a foundational, sub-game solution to The Island Survival Game, a counterintuitive, dominant economic development strategy for ‘islands’ (and relatively insular states). This discourse also tables conceptual building blocks, prerequisite analytical tools, and a guiding principle for The Earth Island Survival Game, a bounded delay supergame which models 'The Problem of Sustainable Economic Development' at the global level. We begin our exploration with an introduction to The Principle of Relative Insularity, a postulate which informs ESS for ‘island’ and ‘continental’ players alike. Next, we model ‘island’ economic development with two bio-geo-politico-economic models and respective strategies: The Mustique Co. Development Plan, and The Prince Edward Island Federal-Provincial Program for Social and Economic Advancement. These diametrically opposed strategies offer an extraordinary comparative study. One island serves as a highly descriptive model for 'The Problem of Sustainable Economic Development'; the other model informs ESS. 'The Earth Island Survival Game' serves as a remarkable learning tool, offering lessons which promote islander survival, resource holding power, cooperative behaviour, and independence by illuminating the illusive path toward sustainable economic development.
    Keywords: Non-cooperative games; evolutionary game theory; relative insularity; islands; tragedy of the commons; sustainable economic development; theory of value; resource holding power; evolutionary stable strategy; natural selection; long distance dispersal
    JEL: O1 O13 C72
    Date: 2009–08–13
  7. By: Kukushkin, Nikolai S.
    Abstract: An ordering on a lattice is quasisupermodular if and only if inserting it into any parametric optimization problem with the single crossing property cannot destroy the monotonicity of the set of optima. More detailed conditions for the monotonicity of the set of optima in a parameter influencing the preference ordering are also obtained.
    Keywords: best response correspondence; increasing correspondence; single crossing; quasisupermodular ordering
    JEL: C72
    Date: 2009–08–03
  8. By: Peter Duersch (Department of Economics, Universität Heidelberg); Maroš Servátka (Department of Economics and Finance, University of Canterbury)
    Abstract: This paper experimentally investigates whether risk-averse individuals punish less if the outcome of punishment is uncertain than when it is certain. Our design includes three treatments: Baseline in which the one-shot prisoner’s dilemma game is played; Certain Punishment in which the prisoner’s dilemma game is followed by a punishment stage allowing subjects to decrease the other player’s payoff by 2 Euros; and Uncertain Punishment in which subjects could decrease the other player’s payoff with a 50% probability by 1 Euro and with a 50% probability by 3 Euros. We find that in all cases the risk-averse subjects are equally likely to cooperate in the prisoner’s dilemma and equally likely to punish in the second stage in either of the two punishment treatments.
    Keywords: experiment, prisoner’s dilemma, punishment, risk aversion, uncertainty
    JEL: C72 C91
    Date: 2009–07
  9. By: Asen Ivanov (Department of Economics, VCU School of Business)
    Abstract: Based on an experiment in the lab, we classify behavior in one-shot normal-form games along three important dimensions. The first dimension, which is of main interest, is about whether subjects are ambiguity-loving, ambiguity-neutral, or ambiguity-averse. The second dimension is about whether subjects are risk-loving, risk-neutral, or risk-averse. The third dimension is about whether subjects are naive or strategic. Our main result is that, in our main treatment, 32/46/22 percent of subjects are classified as ambiguity-loving/ambiguity-neutral/ ambiguity-averse.
    Keywords: games, experiments, beliefs, ambiguity, risk
    JEL: C72 C92 C51 D81 D84
    Date: 2009–08
  10. By: Aguirregabiria, Victor; Ho, Chun-Yu
    Abstract: This paper studies the contribution of demand, costs, and strategic factors to the adoption of hub-and-spoke networks in the US airline industry. Our results are based on the estimation of a dynamic oligopoly game of network competition that incorporates three groups of factors that may explain hub-and-spoke networks: (1) travelers may value the services associated with the scale of operation of an airline in the hub airport; (2) operating costs and entry costs in a route may decline with the airline's scale of operation in the origin and destination airports (e.g., economies of scale and scope); and (3) a hub-and-spoke network may be an effective strategy to deter the entry of other carriers. We estimate the model using data from the Airline Origin and Destination Survey with information on quantities, prices, and entry and exit decisions for every airline company in the routes between the 55 largest US cities. As methodological contributions, we propose and apply a method to reduce the dimension of the state space in dynamic games, and a procedure to deal with the problem of multiple equilibria when using a estimated model to make counterfactual experiments. We find that the most important factor to explain the adoption of hub-and-spoke networks is that the cost of entry in a route declines importantly with the scale of operation of the airline in the airports of the route. For some of the larger carriers, strategic entry deterrence is the second most important factor to explain hub-and-spoke networks.
    Keywords: Airline industry; Hub-and-spoke networks; Entry costs; Industry dynamics; Estimation of dynamic games; Counterfactual experiments in models with multiple equilibria.
    JEL: C10 L93 L13 C63 L10 C35 C73
    Date: 2009–08–09
  11. By: Dan Usher (Queen's University)
    Abstract: We know that people strike bargains and that civilized life could not proceed otherwise. We do not know how bargains are struck. We have no explanation of bargaining, comparable to the general equilibrium in the economy, accounting for essential features of bargaining as we know it with reference to universal self-interested behaviour subject only to economy-wide rules. This claim is supported here in a survey of the principal models of bargaining: as a reflection of a shared sense of fairness, as an imposed sequence of offers, as a source of transaction cost and as a species of conflict. Also discussed is the dual role of bargaining in politics as a necessary complement to voting and as an impediment to the exploitation of minority groups.
    Keywords: Bargaining, Comprimise, Fairness, Self-interest, Transaction cost, conflict
    JEL: C7
    Date: 2009–08
  12. By: Luigi Mittone; Matteo Ploner
    Abstract: We experimentally investigate social effects in a principal-agent setting with incomplete contracts. The strategic interaction scheme is based on the well-known Investment Game (Berg et al., 1995). In our setting four agents (i.e., trustees) and one principal (i.e., trustor) are interacting and the access to choices of peers in the group of trustees is experimentally manipulated. Overall, subjects are positively influenced by peer's choices they observe. However, the positive interaction between choices is not strong enough to raise the reciprocity of those observing at the same level of those whose choices are observed.
    Date: 2009
  13. By: Steinbacher, Matej; Steinbacher, Matjaz; Steinbacher, Mitja
    Abstract: In the paper, we simulate a heterogeneous-agent version of the wage-posting model as derived by Montgomery (1991) with homogeneous workers and differently-productive employers. Wage policy of particular employer is positively correlated with employer’s productivity level and the wage policy of the competitor. However, it is a less productive employer whose wage posting could also outweigh the posting of a more productive employer, though only temporarily.
    Keywords: Job-search model; Wage posting; Heterogeneous agents; Numerical optimization
    JEL: C78 J31 D83 C15
    Date: 2009–08
  14. By: Matthias Dahm (Universitat Rovira i Virgili); Robert Dur (Erasmus University Rotterdam, CESifo, IZA); Amihai Glazer (University of California, Irvine)
    Abstract: A firm may induce voters or elected politicians to support a policy it favors by suggesting that it is more likely to invest in a district whose voters or representatives support the policy. In equilibrium, no one vote may be decisive, and the policy may gain strong support though the majority of districts suffer from adoption of the program. When votes reveal information about the district, the firm's implicit promise or threat can be credible.
    Keywords: Lobbying; voting; special interests; influence
    JEL: C72 D72 D78
    Date: 2009–07–31

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