nep-gth New Economics Papers
on Game Theory
Issue of 2010‒01‒23
twelve papers chosen by
Laszlo A. Koczy
Budapest Tech and Maastricht University

  1. Bounding Rationality by Discounting Time By Lance Fortnow; Rahul Santhanam
  2. An Exploration of the Content of Social Norms using Simple Games By López-Pérez, Raúl; Vorsatz, Marc
  3. The Relation between Monotonicity and Strategy-Proofness By Bettina Klaus; Olivier Bochet
  4. Hierarchical Reasoning versus Iterated Reasoning in p-Beauty Contest Guessing Games By Breitmoser, Yves
  5. Risk Aversion and Optimal Reserve Prices in First and Second-Price Auctions, Second Version By Audrey Hu; Steven A. Matthews; Liang Zou
  6. Optimal Auction Design and Equilibrium Selection in Sponsored Search Auctions By Benjamin Edelman; Michael Schwarz
  7. A Non-empty Core May Not Coincide with the Uncovered Set in Spatial Voting Situations By A Bhattacharya; V Brosi; F Ciardiello
  8. Allocation rules for museum pass programs By Béal, Sylvain; Solal, Philippe
  9. Comunicación indirecta en situaciones de soborno y amenaza By Estrada, Fernando
  10. A Nash bargaining solution to models of tax and investment competition: tolls and investment in serial transport corridors By Bruno De Borger; Wilfried Pauwels
  11. SIGNALING IN AUCTIONS AMONG COMPETITORS By Benedikt von Scarpatetti; Cédric Wasser
  12. Buy-It-Now prices in eBay Auctions - The Field in the Lab By Tim Grebe; Radosveta Ivanova-Stenzel; Sabine Kröger

  1. By: Lance Fortnow; Rahul Santhanam
    Abstract: Consider a game where Alice generates an integer and Bob wins if he can factor that integer. Traditional game theory tells us that Bob will always win this game even though in practice Alice will win given our usual assumptions about the hardness of factoring. We define a new notion of bounded rationality, where the payoffs of players are discounted by the computation time they take to produce their actions. We use this notion to give a direct correspondence between the existence of equilibria where Alice has a winning strategy and the hardness of factoring. Namely, under a natural assumption on the discount rates, there is an equilibriumwhere Alice has a winning strategy iff there is a linear-time samplable distribution with respect to which Factoring is hard on average. We also give general results for discounted games over countable action spaces, including showing that any game with bounded and computable payoffs has an equilibrium in our model, even if each player is allowed a countable number of actions. It follows, for example, that the Largest Integer game has an equilibrium in our model though it has no Nash equilibria or E-Nash equilibria.
    Keywords: Bounded rationality; Discounting; Uniform equilibria; Factoring game
    JEL: C72 D58
    Date: 2009–11–16
  2. By: López-Pérez, Raúl (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.); Vorsatz, Marc (Fundación de Estudios de Economía Aplicada–FEDEA)
    Abstract: The literature on social norms stresses that compliance with norms is approved while deviance is disapproved. Based on this, we explore the content of social norms using experimental data from five dictator games with a feedback stage. Our data suggests that subjects either care about a reciprocity or an efficiency norm.
    Keywords: approval; disapproval; dictator game; experiment; social Norms.
    JEL: A13 C72 D64 Z13
    Date: 2010–01
  3. By: Bettina Klaus; Olivier Bochet
    Abstract: The Muller-Satterthwaite Theorem (Muller and Satterthwaite, 1977) establishes the equivalence between Maskin monotonicity and strategy-proofness, two cornerstone conditions for the decentralization of social choice rules. We consider a general model that covers public goods economies as in Muller and Satterthwaite (1977) as well as private goods economies. For private goods economies we use a weaker condition than Maskin monotonicity that we call unilateral monotonicity. We introduce two easy-to-check domain conditions which separately guarantee that (i) unilateral/Maskin monotonicity implies strategy-proofness (Theorem 1) and (ii) strategy-proofness implies unilateral/Maskin monotonicity (Theorem 2). We introduce and discuss various classical single-peaked domains and show which of the domain conditions they satisfy (see Propositions 1 and 2 and an overview in Table 1). As a by-product of our analysis, we obtain some extensions of the Muller-Satterthwaite Theorem as summarized in Theorem 3. We also discuss some new "Muller-Satterthwaite domains" (e.g.,Proposition 3).
    Keywords: Muller-Satterthwaite Theorem; restricted domains; rich domains; single-peaked domains; strategy-proofness; unilateral/Maskin monotonicity
    JEL: D71
    Date: 2010–01
  4. By: Breitmoser, Yves
    Abstract: This paper analyzes strategic choice in p-beauty contests. We first show that it is not generally a best reply to guess the expected target value (accounting for the own weight) even in games with n>2 players and that iterated best response sequences are not unique even after perfect/cautious refinement. This implies that standard formulations of ``level-k'' models are neither exactly nor uniquely rationalizable by belief systems based on iterated best response. Second, exact modeling of iterated reasoning weakens the fit considerably and reveals that equilibrium types dominate the populations. We also show that ``levels of reasoning'' cannot be measured regardless of the underlying model. Third, we consider a ``nested logit'' model where players choose their level. It dispenses with belief systems between players and is rationalized by a random utility model. Besides being internally consistent, nested logit equilibrium fits better than three variants of the level-k model in standard data sets.
    Keywords: logit equilibrium; hierarchical response; level-k; beauty contest
    JEL: C44 C72
    Date: 2010–01–10
  5. By: Audrey Hu (Tinbergen Institute University of Amsterdam); Steven A. Matthews (Department of Economics, University of Pennsylvania); Liang Zou (Faculty of Economics and Business, University of Amsterdam)
    Abstract: This paper analyzes the effects of buyer and seller risk aversion in first and second-price a uctions. The setting is the classic one of symmetric and independent private values, with ex ante homogeneous bidders. However, the seller is able to optimally set the reserve price. In both auctions the seller’s optimal reserve price is shown to decrease in his own risk aversion, and more so in the first-price auction. Thus, greater seller risk aversion increases the ex post efficiency of both auctions, and especially that of the first-price auction. The seller’s optimal reserve price in the first-price, but not in the second-price, auction decreases in the buyers’ risk aversion. Thus, greater buyer risk aversion also increases the ex post efficiency of the first but not the second-price auction. At the interim stage, the first-price auction is preferred by all buyer types in a lower interval, as well as by the seller.
    Keywords: first-price auction, second-price auction, risk aversion, reserve price
    JEL: D44
    Date: 2009–04–22
  6. By: Benjamin Edelman (Harvard Business School, Negotiation, Organizations & Markets Unit); Michael Schwarz (Yahoo! Research Labs)
    Date: 2010–01
  7. By: A Bhattacharya; V Brosi; F Ciardiello
    Abstract: In this note it is shown that in contradiction to the well-known claim in Cox (AJPS, 1987) (repeated in a number of subsequent works), the uncovered set in a spatial voting situation does not necessarily coincide with the core even when the core is non-empty.
    Keywords: spatial voting models; uncovered set; core; stable set
    JEL: C71 C72
    Date: 2010–01
  8. By: Béal, Sylvain; Solal, Philippe
    Abstract: We consider natural axioms for allocating the income of museum pass programs. Two allocation rules are characterized and are shown to coincide with the Shapley value and the equal division solution of the associated TU-game introduced by Ginsburgh and Zang (2003).
    Keywords: Museum pass program; fair treatment; Shapley value; equal division solution
    JEL: C71
    Date: 2009–12–09
  9. By: Estrada, Fernando
    Abstract: The aim of this paper is to explain the relevance of the theory of indirect communication strategy and negotiating conflict. Based on Thomas Schelling illustrates indirect communication cases: bribery and threats. It shows that both bribery and threats are rational preference mechanisms, whose functions can be expressed in non-linear diagrams. This analysis also contributes to the theory of strategic games very different from zero. Indirect communication is a fundamental basis for strategic action in various forms of conflict, from war to irregular traffic jams caused by vehicular traffic. Our particular interest in the bribery and the threat is related to common cases in the colombian conflict.
    Keywords: Strategy of Conflict; indirect communication; negotiation; bribery; threats; indirect speech acts.
    JEL: D74 D79
    Date: 2009–03–09
  10. By: Bruno De Borger (University of Antwerp); Wilfried Pauwels (University of Antwerp)
    Abstract: The purpose of this paper is to study toll and investment competition along a serial transport corridor competition allowing for partial cooperation between regional governments. Partial cooperation is modeled as a Nash bargaining problem with endogenous disagreement points. We show that the bargaining approach to partial cooperation implies lower tolls and higher quality and capacity investment than fully non-cooperative behavior. Moreover, under bargaining, strategic behavior at the investment stage induces regions to offer lower quality and invest less in capacity as compared to full cooperation. Finally, Nash bargaining partially resolves the problem of welfare losses due to toll and capacity competition pointed out in the recent literature.
    Keywords: Nash bargaining, tax competition, congestion pricing
    JEL: H71 H77 R48 R42
    Date: 2010
  11. By: Benedikt von Scarpatetti (University of Basel); Cédric Wasser (Humboldt University of Berlin)
    Abstract: We consider a model of oligopolistic firms that have private information about their cost structure. Prior to competing in the market a competitive advantage, i.e., a cost reducing technology, is allocated to a subset of the firms by means of a multi-object auction. After the auction either all bids or only the prices to be paid are revealed to all firms. This provides an opportunity for signaling. Whether there exists an equilibrium in which bids perfectly identify the bidders’ costs generally depends on the type and fierceness of the market competition, the specific auction format, and the bid announcement policy.
    Keywords: Auction; Oligopoly; Signaling
    JEL: D44 L13 D43 D82 C72
    Date: 2010–01
  12. By: Tim Grebe (Gesellschaft für Innovationsforschung und Beratung mbH); Radosveta Ivanova-Stenzel (Institut für Wirtschaftstheorie I, Humboldt Universität zu Berlin); Sabine Kröger (Département d'économie, Université LavalPavillon J.A.DeSève)
    Abstract: Electronic commerce has grown extraordinarily over the years, with online auctions being extremely successful forms of trade. Those auctions come in a variety of different formats, such as the Buy-It-Now auction format on eBay, that allows sellers to post prices at which buyers can purchase a good prior to the auction. Even though, buyer behavior is well studied in Buy-It-Now auctions, as to this point little is known about how sellers set Buy-It-Now prices. We investigate into this question by analyzing seller behavior in Buy-It-Now auctions. More precisely, we combine the use of a real online auction market (the eBay platform and eBay traders) with the techniques of lab experiments. We find a striking link between the information about agents provided by the eBay market institution and their behavior. Information about buyers is correlated with their deviation from true value bidding. Sellers respond strategically to this information when deciding on their Buy-It-Now prices. Thus, our results highlight potential economic consequences of information publicly available in (online) market institutions.
    Keywords: electronic markets, experience, online auctions, BIN price, buyout price, single item auction, private value, experiment
    JEL: C72 C91 D44 D82
    Date: 2010–01

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