nep-gth New Economics Papers
on Game Theory
Issue of 2010‒10‒02
eighteen papers chosen by
Laszlo A. Koczy
Obuda University

  1. Coalition formation among farsighted agents By HERINGS, Jean - Jacques; MAULEON, Ana; VANNETELBOSCH, Vincent
  2. Endogenous preferences in games with type indeterminate players By Ariane Lambert-Mogiliansky
  3. A model of influence with an ordered set of possible actions By Agnieszka Rusinowska; Michel Grabisch
  4. Strategic Defense and Attack for Series and Parallel Reliability Systems: Comment By Dan Kovenock; Brian Roberson
  5. The Framing of Games and the Psychology of Play By Martin Dufwenberg; Simon Gaechter; Heike Hennig-Schmidt
  6. n-Person Nonconvex Bargaining: Efficient Proportional Solution By Jens Leth Hougaard; Mich Tvede
  7. Replicator Dynamic Learning in Muth's Model of Price Movements By Joel Carton; Eran A. Guse
  8. Ambiguous Information and Market Entry: An Experimental Study By Brandts, Jordi; Yao, Lan
  9. Multiple Equilibria in Tullock Contests By Subhasish M. Chowdhury; Roman M. Sheremeta
  10. A seCure reversion protocol that generates payoffs dominating correlated equilibrium By Cédric Wanko
  11. "Upping the ante": How to design efficient auctions with entry? By Laurent Lamy
  12. The Banzhaf Index in Complete and Incomplete Shareholding Structures: A New Algorithm By Marc Levy
  13. Fairness and Cheating By Daniel Houser; Stefan Vetter; Joachim Winter
  14. Risk attitude, beliefs, and information in a corruption game: An experimental analysis By Berninghaus, Siegfried; Haller, Sven; Krüger, Tyll; Neumann, Thomas; Schosser, Stephan; Vogt, Bodo
  15. Firm corruption in the presence of an auditor By Michael Dietrich; Jolian McHardy
  16. A Tale of Two Externalities: Environmental Policy and Market Structure By Ana Espinola-Arredondo; Felix Munoz-Garcia
  17. A Dynamic Duopoly Investment Game under Uncertain Market Growth By Boyer, Marcel; Lasserre, Pierre; Moreaux, Michel
  18. The Optimal Climate Policy Portfolio when Knowledge Spills Across Sectors By Emanuele Massetti; Lea Nicita

  1. By: HERINGS, Jean - Jacques (Department of Economics, Maastricht University, 6200 MD Maastricht, The Netherlands); MAULEON, Ana (FNRS; CEREC, Facultés universitaires Saint-Louis, B-1000 Brussels, Belgium; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium); VANNETELBOSCH, Vincent (FNRS and Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)
    Abstract: A set of coalition structures P is farsightedly stable (i) if all possible deviations from any coalition structure p belonging to P to a coalition structure outside P are deterred by the threat of ending worse off or equally well off, (ii) if there exists a farsighted improving path from any coalition structure outside the set leading to some coalition structure in the set, and (iii) if there is no proper subset of P satisfying the first two conditions. A non-empty farsightedly stable set always exists. We provide a characterization of unique farsightedly stable sets of coalition structures and we study the relationship between farsighted stability and other concepts such as the largest consistent set and the von Neumann-Morgenstern farsightedly stable set. Finally, we illustrate our results by means of coalition formation games with positive spillovers.
    Keywords: coalition formation, farsighted players, stability
    Date: 2010–05–01
  2. By: Ariane Lambert-Mogiliansky
    Abstract: The Type Indeterminacy model is a theoretical framework that uses some elements of quantum formalism to model the constructive preference perspective suggested by Kahneman and Tversky. In this paper we extend the TI-model from simple to strategic decision-making and show that TI-games open a new field of strategic interaction. We first establish an equivalence result between static games of incomplete information and static TI-games. We next develop a new solution concept for non-commuting dynamic TI-games. The updating rule captures the novelty brought about by Type Indeterminacy namely that in addition to affecting information and payoffs, the action of a player impacts on the profile of types. We provide an example showing that TI-game predictions cannot be obtained as Bayes Nash equilibrium of the corresponding classical game.
    Date: 2010
  3. By: Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Michel Grabisch (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: In the paper, a yes-no model of influence is generalized to a multi-choice framework. We introduce and study weighted influence indices of a coalition on a player in a social network, where players have an ordered set of possible actions. Each player has an inclination to choose one of the actions. Due to mutual influence among players, the final decision of each player may be different from his original inclination. In a particular case, the decision of the player is closer to the inclination of the influencing coalition than his inclination was, i.e., the distance between the inclinations of the player and of the coalition is greater than the distance between the decision of the player and the inclination of the coalition in question. The weighted influence index which captures such a case is called the weighted positive influence index. We also consider the weighted negative influence index, where the final decision of the player goes farther away from the inclination of the coalition. We consider several influence functions defined in the generalized model of influence and study their properties. The concept of a follower of a given coalition, and its particular case, a perfect follower, are defined. The properties of the set of followers are analyzed.
    Keywords: weighted positive influence index; weighted negative influence index; influence function; follower of a coalition; perfect follower; kernel
    Date: 2010
  4. By: Dan Kovenock; Brian Roberson
    Abstract: Hausken (2008a) formulates a contest-theoretic model of the attack and defense of a network of targets. This note identies a technical error that invalidates Hausken's characterization of Nash equilibrium for a substantial portion of the parameter space that he examines and provides necessary conditions for his solution to form a pure- strategy Nash equilibrium. Many of the existing results in the contest-theoretic liter- ature on the attack and defense of networks of targets rely upon Hausken's (2008a) characterization and require corresponding parameter restrictions. When these restric- tions are not met, the analysis of Clark and Konrad (2007) and Kovenock and Roberson (2010a) provides a foundation for constructing mixed-strategy Nash equilibria.
    Keywords: Game theory; Reliability theory; OR in military; Con ict; Contest; Network; Colonel Blotto game
    JEL: C72 D74 H56
    Date: 2010–09
  5. By: Martin Dufwenberg; Simon Gaechter; Heike Hennig-Schmidt
    Abstract: Psychological game theory can provide rational-choice-based framing effects; frames influence beliefs, beliefs influence motivations. We explain this theoretically and explore empirical relevance experimentally. In a 2×2 design of one-shot public good games we show that frames affect subject’s first- and second-order beliefs, and contributions. From a psychological gametheoretic framework we derive two mutually compatible hypotheses about guilt aversion and reciprocity under which contributions are related to second- and first-order beliefs, respectively. Our results are consistent with either.
    Keywords: framing, psychological game theory, guilt aversion, reciprocity, public good games, voluntary cooperation
    JEL: C91 C72 D64 Z13
    Date: 2010–09
  6. By: Jens Leth Hougaard (Department of Food and Resource Economics, University of Copenhagen); Mich Tvede (Department of Economics, University of Copenhagen)
    Abstract: For n-person bargaining problems the family of proportional solutions (introduced and characterized by Kalai) is generalized to bargaining problems with non-convex payoff sets. The so-called "efficient proportional solutions" are characterized axiomatically using natural extensions of the original axioms provided by Kalai.
    Keywords: n-person non-convex bargaining; proportional solutions; egalitarian solution
    JEL: C78
    Date: 2010–09
  7. By: Joel Carton (Department of Economics, Florida International University); Eran A. Guse (Department of Economics, West Virginia University)
    Abstract: We investigate the stability properties of Muth's model of price movements when agents choose a production level using replicator dynamic learning. It turns out that when there is a discrete set of possible production levels, possible stable states and stability conditions differ between adaptive learning and replicator dynamic learning. Furthermore, we show that the stability disparities between the two types of learning are due to the way asymptotic stability is defined under the replicator dynamics.
    Keywords: Asymptotic stability, replicator dynamics, cobweb model, E-stability, Nash equilibria.
    JEL: C62 C73 D83
    Date: 2010
  8. By: Brandts, Jordi; Yao, Lan
    Abstract: We study experimentally how entry into a market with uncertain capacity is affected by the type of information potential entrants have available. Our focus is on behavior in a two-market entry game. In the risky information market there are two possible market capacities, both known to occur with probability 1/2. In the ambiguous information market the two possible market capacities effectively occur with probability 1/2 but participants are only told that there is uncertainty about capacities. We find that average entry is higher under ambiguous information than under risky information. To control for comparison effects and the effects of strategic interaction in the two market environment we also study a two-lottery individual decision problem and one market entry games with ambiguous and risky information. For these two cases the experimental results show no difference between information conditions. Our results are consistent with the notion that complex strategic interaction leads to higher market entry under ambiguous information.
    Keywords: Market entry games; Experiment; Risk; Ambiguity.
    JEL: D81 C92 M2 L1 C72
    Date: 2010–08–14
  9. By: Subhasish M. Chowdhury (School of Economics, University of East Anglia); Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University)
    Abstract: We find the sufficient conditions for the existence of multiple equilibria in Tullock-type contests and show that asymmetric equilibria may arise even under symmetric prize and cost structures. We also identify contests in the literature where multiple equilibria exist under reasonably weak conditions.
    Keywords: rent-seeking, contest, asymmetric equilibrium, multiple equilibria
    JEL: C62 C72 D72 D74
    Date: 2010–09–17
  10. By: Cédric Wanko
    Abstract: We define the reversion protocol of a voluntarily implementable Bayesian mechanism in which risk-averse players have no incentive to cheat or to deviate from the mediator’s recommendation and that can greatly improve their equilibrium expected payoffs as compared to those generated through coordination applied to the results of an unsatisfactory mediation.
    Date: 2010–09
  11. By: Laurent Lamy
    Abstract: In the symmetric independent private value model, we revisit auctions with entry by adding two additional ingredients: difficulties to commit to the announced mechanism, in particular not to update the reserve price after bidders took their entry decisions, and seller's ex ante uncertainty on her reservation value which calls for flexibility. Shill bidding or ex post rights to cancel the sale may provide some valuable flexibility in second price auctions. However, both fail to be efficient since the seller may keep the good while it would be efficient to allocate it to the highest bidder. The English auction with jump bids and cancelation rights is shown to implement the first best in large environments. On the positive side, special emphasis is put on the equilibrium analysis of auctions with shill bidding and on a variety of associated new insights including counterintuitive comparative statics and a comparison with posted-prices.
    Date: 2010
  12. By: Marc Levy
    Abstract: In this global world many firms present a complex shareholding structure with indirect participation, such that it may become difficult to assess a firm’s controllers. Furthermore, if there are numerous dominant shareholders, the control can be shared between them. Determining who has the most influence often is a difficult task. To measure this influence, game theory allows modeling voting game and computing the Banzhaf index. This paper first offers a new algorithm to compute this index in all structures and suggests some modelisations of the floating shareholder. Then, our model is applied to a real case study: The French Group Lafarge. This exemplary case demonstrates how the float’s structure and hidden coalition can impact the power relationship between dominant shareholders.
    Keywords: Ownership structure; Control; Banzhaf index
    JEL: C63 G32 L22
    Date: 2010–09
  13. By: Daniel Houser (George Mason University); Stefan Vetter (University of Munich); Joachim Winter (University of Munich)
    Abstract: We present evidence from a laboratory experiment showing that individuals who believe they were treated unfairly in an interaction with another person are more likely to cheat in a subsequent unrelated game. Specifically, subjects first participated in a dictator game. They then flipped a coin in private and reported the outcome. Subjects could increase their total payoff by cheating, i.e., lying about the outcome of the coin toss. We found that subjects were more likely to cheat in reporting the outcome of the coin flip when: 1) they received either nothing or a very small transfer from the dictator; and 2) they claimed to have been treated unfairly. This is consistent with the view that experiencing a norm violation is sufficient to justify the violation of another norm at the expense of a third party. This result extends the growing literature on social norms.
    Keywords: cheating; social norms; experimental design
    JEL: C91 D63
    Date: 2010–09
  14. By: Berninghaus, Siegfried; Haller, Sven; Krüger, Tyll; Neumann, Thomas; Schosser, Stephan; Vogt, Bodo
    Abstract: For our experiment on corruption we designed a coordination game to model the influence of risk attitudes, beliefs, and information on behavioral choices and determined the equilibria. We observed that the participants' risk attitudes failed to explain their choices between corrupt and non-corrupt behavior. Instead, beliefs appeared to be a better predictor of whether or not they would opt for the corrupt alternative. Furthermore, varying the quantity of information available to players (modeled by changing the degree of uncertainty) provided additional insight into the players' propensity to engage in corrupt behavior. The experimental results show that a higher degree of uncertainty in the informational setting reduces corruption. --
    Keywords: Corruption,game theory,experiment,risk attitude,beliefs
    JEL: D73 K42 C91 C92
    Date: 2010
  15. By: Michael Dietrich (Department of Economics, The University of Sheffield); Jolian McHardy (Department of Economics, The University of Sheffield)
    Abstract: This paper develops a framework to explore firm corruption taking account of interaction with an auditor. The basic idea is that an auditor can provide auditing and other (consultancy) services. The extent of the other services depends on firm profitability. Hence auditor profitability can increase with firm corruption that may provide an incentive to collude in corrupt practices. This basic idea is developed using a game theoretic framework. It is shown that a multiplicity of equilibria exist from stable corruption, through auditor controlled corruption, via multiple equilibria to honesty on behalf of both actors. Following the development of the model various policy options are highlighted that show the difficulty of completely removing corrupt practices.
    Keywords: Firm corruption, auditor corruption, perfect equilibrium
    JEL: C70 D21 K42 L21
    Date: 2010–07
  16. By: Ana Espinola-Arredondo; Felix Munoz-Garcia (School of Economic Sciences, Washington State University)
    Abstract: This paper examines the two externalities that a country's environmental regulation imposes on other country's welfare: an environmental externality, due to transboundary pollution, and a competitive advantage externality, as regulations affect domestic firms' abatement costs, which impact the profits of their foreign competitors. We first analyze the emission standards that countries independently set under different market structures and then compare them with the standards set under international environmental agreements that internalize one or both types of externalities. The paper hence disentangles the effect of each externality. We show that firms’ profits increase when countries participate in international treaties if the environmental damage from pollution is relatively low and such pollution is not significantly transboundary. We hence demonstrate that international environmental agreements can serve as cooperative devices firms use to ameliorate overproduction and increase profits, without the need to form collusive agreements.
    Keywords: Transboundary pollution, strategic environmental policy, international environmental agreement, market structure
    JEL: C72 F12 H23 Q28
    Date: 2010–05
  17. By: Boyer, Marcel (Université de Montréal); Lasserre, Pierre (Université du Québec à Montréal); Moreaux, Michel (Toulouse School of Economics (IDEI and LERNA))
    Abstract: We model investments in capacity in a homogeneous product duopoly facing uncertain demand growth. Capacity building is achieved through adding production units that are durable and lumpy and whose cost is irreversible. There is no exogenous order of moves, no first-mover or second-mover advantage, no commitment, and no finite horizon; while building their capacity over time, firms compete `a la Cournot in the product market. We investigate Markov Perfect Equilibrium (MPE) paths of the investment game, which may include preemption episodes and tacit collusion episodes. However, when firms have not yet invested in capacity, the sole pattern that is MPEcompatible is a preemption episode with firms investing at different times, but both have equal value. The first such investment may occur earlier, and therefore be riskier, than socially optimal. When both firms hold capacity, tacit collusion episodes may be MPE-compatible with firms investing simultaneously at a postponed time (generating an investment wave in the industry). We show that the emergence of such episodes is favored by higher demand volatility, faster market growth, and lower discount rate (cost of capital).
    JEL: C73 D43 D92 L13
    Date: 2010–07–06
  18. By: Emanuele Massetti (Fondazione Eni Enrico Mattei and Euro-Mediterranean Center for Climate Change); Lea Nicita (Fondazione Eni Enrico Mattei)
    Abstract: This paper studies the implications for climate policy of the interactions between environmental and knowledge externalities. Using a numerical analysis performed with the hybrid integrated assessment model WITCH, extended to include mutual spillovers between the energy and the non-energy sector, we show that the combination between environmental and knowledge externalities provides a strong rationale for implementing a portfolio of policies for both emissions reduction and the internalisation of knowledge externalities. Moreover, we show that implementing technology policy as a substitute for stabilisation policy is likely to increase global emissions.
    Keywords: Technical Change, Climate Change, Development, Innovation, Spillovers
    JEL: C72 H23 Q25 Q28 O31 O41 Q54
    Date: 2010–07

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