nep-gth New Economics Papers
on Game Theory
Issue of 2009‒10‒17
eight papers chosen by
Laszlo A. Koczy
Budapest Tech and Maastricht University

  1. Evolutionary Stability of Prospect Theory Preferences By Marc Oliver Rieger
  2. Strategic Tax Competition: An Experimental Study By Sailesh Gunessee
  3. Marshallian Money, Welfare, and Side-Payments By Chen-Zhong Qin; Lloyd S. Shapley; Martin Shubik
  4. Dynamics of intrahousehold bargaining By Andaluz, Joaquín; Marcén, Miriam; Molina, José Alberto
  5. Confusion and Reinforcement Learning in Experimental Public Goods Games By Ralph-C. Bayer; Elke Renner; Rupert Sausgruber
  6. Equilibrium blocking in large quasilinear economies By Yusuke Kamishiro; Roberto Serrano
  7. The folk solution and Boruvka's algorithm in minimum cost spanning tree problems By Bergantiños, Gustavo; Vidal-Puga, Juan
  8. Default Penalty as Disciplinary and Selection Mechanism in Presence of Multiple Equilibria By Juergen Huber; Martin Shubik; Shyam Sunder

  1. By: Marc Oliver Rieger (Institute of Mathematical Economics, Bielefeld University)
    Abstract: We demonstrate that in simple 2 X 2 games (cumulative) prospect theory preferences can be evolutionarily stable, i.e. a population of players with prospect theory preferences can not be invaded by more rational players. This holds also if probability weighting is applied to the probabilities of mixed strategies. We also show that in a typical game with infinitely many strategies, the "war of attrition", probability weighting is evolutionarily stable. Finally, we generalize to other notions of stability. Our results may help to explain why probability weighting is generally observed in humans, although it is not optimal in usual decision problems.
    Keywords: prospect theory, existence of Nash equilibria, evolutionary stability
    JEL: C70 C73 D81
    Date: 2009–10
  2. By: Sailesh Gunessee (Nottingham University Business School China)
    Abstract: We study the effect of a payoff advantage, symmetric payoff change and policymakers interaction on choices in tax competition games. To examine the first two effects a standard symmetric game is respectively compared to an asymmetric game where one player has a payoff advantage and to another symmetric game where both players have symmetrically higher payoffs. When payoffs are asymmetric, we find that if policymakers have a payoff disadvantage they are more likely to compete. Instead policymakers with a payoff advantage are keener to tax above equilibrium. Our results also show there is a payoff size effect where choices are brought closer to equilibrium when payoffs are symmetrically higher. These two effects are further studied when players interact repeatedly. With repeated interaction cooperation is sustained only in the symmetric games but fail to materialise in the asymmetric game. A regression analysis of our results reveals further differences between these games.
    Keywords: Tax Competition; Experimental Economics; Asymmetry.
    JEL: H21 H73 C92
    Date: 2009–10–08
  3. By: Chen-Zhong Qin (Dept. of Economics, University of California, Santa Barbara); Lloyd S. Shapley (Dept. of Economics, University of California, Los Angeles); Martin Shubik (Cowles Foundation, Yale University)
    Abstract: A link between a no-side-payment (NSP) market game and a side-payment (SP) market game can be established by introducing a sufficient amount of an ideal utility-money of constant marginal utility to all agents. At some point when there is "enough money" in the system, if it is "well distributed" the new game will be a SP game. This game can also be related to a pure NSP game where a set of default parameters have been introduced. These parameters play a role similar to the parameters specifying the interpersonal comparisons in the side-payment game. We study this game for the properties of the delta-core and consider both the conditions for the uniqueness of competitive equilibria and a new approach to the second welfare theorem. A discussion of the relationship between market games and strategic market games is also noted.
    Keywords: delta-core, enough money, market games
    JEL: C71 C72 D51 E4
    Date: 2009–09
  4. By: Andaluz, Joaquín; Marcén, Miriam; Molina, José Alberto
    Abstract: This paper studies the dynamics of bargaining in an intrahousehold context. To explore long-term partner relationships, we analyse bilateral bargaining by considering that spouses take decisions sequentially. We conclude that, for the spouse who takes the second decision, a greater discount factor increases the set of possible sustainable agreements, as well as the proportion of time that this agent devotes to a family good.
    Keywords: Family Bargaining; Stackelberg Game; Family Good.
    JEL: C71 J12 C62 C72
    Date: 2009–10–08
  5. By: Ralph-C. Bayer; Elke Renner; Rupert Sausgruber
    Abstract: We use a limited information environment to mimic the state of confusion in an experimental, repeated public goods game. The results show that reinforcement learning leads to dynamics similar to those observed in standard public goods games. However, closer inspection shows that individual decay of contributions in standard public goods games cannot be fully explained by reinforcement learning. According to our estimates, learning only accounts for 41 percent of the decay in contributions in standard public goods games. The contribution dynamics of subjects, who are identified as conditional cooperators, differ strongly from the learning dynamics, while a learning model estimated from the limited information treatment tracks behavior for subjects, who cannot be classified as conditional cooperators, reasonably well.
    Keywords: public goods experiments, learning, limited information, confusion, conditional cooperation
    JEL: C90 D83 H41
    Date: 2009–09
  6. By: Yusuke Kamishiro (Brown University); Roberto Serrano (Brown University and IMDEA Ciencias Sociales)
    Abstract: We study information transmission in large interim quasilinear economies using the theory of the core. We concentrate on the core with respect to equilibrium blocking, a core notion in which information is transmitted endogenously within coalitions, as blocking can be understood as an equilibrium of a communication mechanism used by players in coalitions. We consider independent, ex-post and signal-based replicas of the basic economy. For each, we offer an array of negative and positive convergence results as a function of the complexity of the mechanisms used by coalitions. We identify conditions under which asymmetric information remains as an externality and non-market outcomes stay in the core, as well as those for the core to converge to the set of incentive compatible ex-post Walrasian allocations. Further, all the results are robust to the relaxation of the incentive constraints, and hence suggest a process through which information may get incorporated into a fully revealing equilibrium price function. Keywords: Core w.r.t. Equilibrium Blocking, Core Convergence, Independent Replicas, Ex-Post Replicas, Signal-Based Replicas, Information Transmission, Communication Mechanisms, Mediation, Rational Expectations Equilibrium.
    Keywords: Core w.r.t. Equilibrium Blocking; Core Convergence; Independent Replicas; Ex-Post Replicas; Signal-Based Replicas; Information Transmission; Communication Mechanisms; Mediation; Rational Expectations
    JEL: C71 C72 D51 D82
    Date: 2009–10–09
  7. By: Bergantiños, Gustavo; Vidal-Puga, Juan
    Abstract: The Boruvka's algorithm, which computes the minimum cost spanning tree, is used to define a rule to share the cost among the nodes (agents). We show that this rule coincides with the folk solution, a very well-known rule of this literature.
    Keywords: minimum cost spanning tree; Boruvka's algorithm; folk solution
    JEL: C7
    Date: 2009–10–13
  8. By: Juergen Huber (University of Innsbruck); Martin Shubik (Cowles Foundation, Yale University); Shyam Sunder (Yale University)
    Abstract: Closed exchange and production-and-exchange economies may have multiple equilibria, a fact that is usually ignored in macroeconomic models. Our basic argument is that default and bankruptcy laws are required to prevent strategic default, and these laws can also serve to provide the conditions for uniqueness. In this paper we report experimental evidence on the effectiveness of this approach to resolving multiplicity: society can assign default penalties on fiat money so the economy selects one of the equilibria. Our data show that the choice of default penalty takes the economy to the neighborhood of the chosen equilibrium. The theory and evidence together reinforce the idea that accounting, bankruptcy and possibly other aspects of social mechanisms play an important role in resolving the otherwise mathematically intractable challenges associated with multiplicity of equilibria in closed economies. Additionally we discuss the meaning and experimental implications of default penalties that support an active bankruptcy-modified competitive equilibrium.
    Keywords: Bankruptcy penalty, Financial institutions, Fiat money, Multiple equilibria, Experimental gaming
    JEL: C73 C92 D51 E42 G21 G33
    Date: 2009–10

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