nep-gth New Economics Papers
on Game Theory
Issue of 2009‒08‒22
nine papers chosen by
Laszlo A. Koczy
Budapest Tech and Maastricht University

  1. Continuity of the value and optimal strategies when common priors change By Einy, Ezra; Haimanko, Ori; Tumendemberelz, Biligbaatar
  2. Bimodal Bidding in Experimental All-Pay Auctions By Christiane Ernst; Christian Thöni
  3. Limit Solutions for Finite Horizon Bargaining Problems By Haruo Imai; Hannu Salonen
  4. Endogenous Information Acquisition in Coordination Games By David P. Myatt; Chris Wallace
  5. Nonparametric identification of auction models with non-separable unobserved heterogeneity By Yingyao Hu; David McAdams; Matthew Shum
  6. Bargaining and social structure By Edoardo Gallo
  7. Effort Maximization in Asymmetric N-person Contest Games By Jörg Franke; Christian Kanzow; Wolfgang Leininger; Alexandra Väth
  8. Marriage, Cohabitation and Commitment By Iyigun, Murat
  9. Real Options and Game Theoretical Approaches to Real Estate Development Projects: Multiple Equilibria and the Implications of Different Tie-Breaking Rules By Tommaso Gabrieli; Gianluca Marcato

  1. By: Einy, Ezra; Haimanko, Ori; Tumendemberelz, Biligbaatar
    Abstract: We show that the value of a zero-sum Bayesian game is a Lipschitz continuous function of the players' common prior belief, with respect to the total variation metric (that induces the topology of setwise convergence on beliefs). This is unlike the case of general Bayesian games, where lower semi-continuity of Bayesian equilibrium payoffs rests on the convergence of conditional beliefs (Engl (1994), Kajii and Morris (1998)). We also show upper, and approximate lower, semi-continuity of the optimal strategy correspondence with respect to the total variation norm, and discuss approximate lower semi-continuity of the Bayesian equilibrium correspondence in the context of zero-sum games.
    Keywords: Zero-Sum Bayesian Games, Common Prior, Value, Optimal Strategies, Upper Semi-Continuity, Lower Approximate Semi-Continuity
    JEL: C72
    Date: 2009–07
  2. By: Christiane Ernst; Christian Thöni
    Abstract: We report results from experimental first-price, sealed-bid, all-pay auctions for a good with a common and known value. We observe bidding strategies in groups of two and three bidders and under two extreme information conditions. As predicted by the Nash equilibrium, subjects use mixed strategies. In contrast to the prediction under standard assumptions bids are drawn from a bimodal distribution: very high and very low bids are much more frequent than intermediate bids. Standard risk preferences cannot account for our results. However, bidding behavior is consistent with the predictions of a model with reference dependent preferences as proposed by the prospect theory.
    Keywords: All-pay Auction; Prospect Theory, Experiment
    JEL: D44 D72 D80 C91
    Date: 2009–08
  3. By: Haruo Imai (Kyoto Institute of Economic Research, Kyoto University, Kyoto, Japan); Hannu Salonen (Department of Economics and PCRC, University of Turku, 20014 Turku, Finland)
    Abstract: We investigate a random proposer bargaining game with a dead line. A bounded time interval is divided into bargaining periods of equal length and we study the limit of the subgame perfect equilibrium outcome as the number of bargaining periods goes to infinity while the dead line is kept fixed. This limit is close to the Raiffa solution when the time horizon is very short. If the dead line goes to infinity the limit outcome converges to the time preference Nash solution. The limit outcome is given an axiomatic characterization as well.
    Keywords: Nash solution, Raiffa solution, bargaining
    JEL: C71 C72 C78
    Date: 2009–06
  4. By: David P. Myatt; Chris Wallace
    Abstract: In the context of a “beauty contest” coordination game (in which pay-offs depend on the proximity of actions to an unobserved state variable and to the average action) players choose how much costly attention to pay to various informative signals; they endogenously select information sources and how carefully to listen to them. Each signal has an underlying accuracy (how precisely it identifies the state variable) and a clarity (how easy it is for players to understand what the signal says). The unique information-acquisition equilibrium has interesting properties: only a subset of signals are assigned positive weight and attention; these are the clearest signals available, even if such signals have poor underlying accuracy; the size of the subset shrinks as the complementarity of players’ actions becomes more acute; and, if actions are more complementary, the information endogenously acquired in equilibrium is more public in nature.
    Keywords: Coordination games, Information acquisition, Publicity, Beauty-contest games
    JEL: C72 D83
    Date: 2009
  5. By: Yingyao Hu (Institute for Fiscal Studies and Johns Hopkins University); David McAdams; Matthew Shum
    Abstract: <p>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.</p>
    Date: 2009–07
  6. By: Edoardo Gallo
    Abstract: This paper presents a bargaining model between individuals belonging to different groups where the equilibrium outcome depends on the communication network within each group. Belonging to a group gives an informational advantage: connections help to gather information about past transactions and this information can be used to make more accurate demands in future bargaining rounds. In the long-term there is a unique stochastically stable equilibruim which depends on the peripheral or least connected individuals in each group. Comparative statistics shows that a denser and more homogeneous network allows members of a group to obtain a better deal. An empirical analysis of the observed price differential between Asian and white buyers in New York’s Fulton fish market is consistent with these predictions. An extension explores an alternative set-up where buyers and sellers belong to the same communication network: if the network is regular and the agents are homogeneous then the equilibrium division in 50-50.
    Keywords: Network, Noncooperative bargaining, Core-periphery networks, Fulton fish market, 50-50 division.
    JEL: C73 C78 D83
    Date: 2009
  7. By: Jörg Franke; Christian Kanzow; Wolfgang Leininger; Alexandra Väth
    Abstract: This paper provides existence and characterization of the optimal contest success function under the condition that the objective of the contest designer is total effort maximization among n heterogeneous players. Heterogeneity of players makes active participation of a player in equilibrium endogenous with respect to the specific contest success function adopted by the contest designer. Hence, the aim of effort maximization implies the identification of those players who should be excluded from making positive efforts.We give a general proof for the existence of an optimal contest success function and provide an algorithm for the determination of the set of actively participating players.This is turn allows to determine optimal efforts in closed form.An important general feature of the solution is that maximization of total effort requires at least three players to be active.
    Keywords: Effort maximization, existence of solution, asymmetric contests, participation constraints
    JEL: C72 D72
    Date: 2009–07
  8. By: Iyigun, Murat (University of Colorado, Boulder)
    Abstract: This paper combines partner matching with an intra-household allocation model where couples decide if they want to marry or cohabitate. Marriage encourages but does not ensure a higher level of spousal commitment, which in turn can generate a larger marital surplus. Individuals’ marital preferences and commitment costs vary, and sorting equilibria are based on individuals’ marital preferences and propensity to commit. In all equilibria, some married couples are able to cooperate and operate efficiently, but some married and all cohabiting couples act with limited commitment and non-cooperatively. When spousal marital commitment costs are gender symmetric, there is a pure-sorting equilibrium in which all partners who prefer to act with commitment in marriage are matched with someone who has the same preference. In such an equilibrium, the benefits of marital commitment accrue to both partners. When commitment costs are not gender neutral, there can also be mixed-matching equilibria in which a partner who is willing to act with commitment in marriage is matched with someone who is not. In all such equilibria, the benefits of marital commitment accrue only to those men or women who are in short supply. Consequently, a shortage of men (women) who can maritally commit makes all women (men) worse off and materially indifferent between marriage or cohabitation. An excess supply of men who prefer marriage not only reduces the marriage incentives of men and raises those of women, but also the marital commitment incentives of men. As a corollary, if the gains from marriage fall, not only will more individuals choose to cohabitate but more married couples will act non-cooperatively.
    Keywords: collective model, intra-household bargaining, modes of partnership choice
    JEL: C78 D61 D70
    Date: 2009–08
  9. By: Tommaso Gabrieli; Gianluca Marcato (School of Real Estate & Planning, University of Reading)
    Abstract: This paper builds on a fast growing literature which introduces game theory in the analysis of real option investments in a competitive setting. Specifically, in this paper we focus on the issue of multiple equilibria and on the implications that different equilibrium selections may have for the pricing of real options and for subsequent strategic decisions. We present some theoretical results of the necessary conditions to have multiple equilibria and we show under which conditions different tie-breaking rules result in different economic decisions. We then present a numerical exercise using the information set obtained on a real estate development in South London. We find that risk aversion reduces option value and this reduction decreases marginally as negative externalities decrease.
    Keywords: game theory and real options, equilibrium selection, real estate development
    JEL: C73 D81 D11
    Date: 2009

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