nep-gth New Economics Papers
on Game Theory
Issue of 2010‒11‒13
ten papers chosen by
Laszlo A. Koczy
Obuda University

  1. Climate Change and Game Theory By Wood, Peter John
  2. Feature-based Choice and Similarity in Normal-form Games: An Experimental Study. By Giovanna Devetag; Sibilla Di Guida
  3. On the impossibility of fair risk allocation By Csóka, Péter; Pintér, Miklós
  4. Smooth multibidding mechanisms By David Pérez-Castrillo; Nicolas Quérou
  5. Never retreat, never surrender: The bargaining power of commitment in the Hawk-Dove game By Luis Alejandro Palacio García; Alexandra Cortés Aguilar
  6. A within-subject analysis of other-regarding preferences By Blanco, Mariana; Engelmann, Dirk; Normann, Hans-Theo
  7. Legitimate Punishment, Feedback, and the Enforcement of Cooperation By Marco Faillo; Daniela Grieco; Luca Zarri
  8. Ordinal efficiency under the lens of duality theory By Athanassoglou, Stergios
  9. Voting in international environmental agreements: Experimental evidence from the lab By Dannenberg, Astrid
  10. Vertical mergers, foreclosure and raising rivals' costs: Experimental evidence By Normann, Hans-Theo

  1. By: Wood, Peter John
    Abstract: This survey paper examines the problem of achieving global cooperation to reduce greenhouse gas emissions. Contributions to this problem are reviewed from non-cooperative game theory, cooperative game theory, and implementation theory. Solutions to games where players have a continuous choice about how much to pollute, games where players make decisions about treaty participation, and games where players make decisions about treaty ratication, are examined. The implications of linking cooperation on climate change with cooperation on other issues, such as trade, is examined. Cooperative and non-cooperative approaches to coalition formation are investigated in order to examine the behaviour of coalitions cooperating on climate change. One way to achieve cooperation is to design a game, known as a mechanism, whose equilibrium corresponds to an optimal outcome. This paper examines some mechanisms that are based on conditional commitments, and could lead to substantial cooperation.
    Keywords: Climate change negotiations, game theory, implementation theory, coalition formation, subgame perfect equilibrium, Environmental Economics and Policy,
    Date: 2010–05
  2. By: Giovanna Devetag; Sibilla Di Guida
    Abstract: In this paper we test the effect of descriptive "features" on initial strategic behavior in normal form games, where "descriptive" are all those features that can be modified without altering the (Nash) equilibrium structure of a game. We observe that our experimental subjects behave according to some simple heuristics based on descriptive features, and that these heuristics are stable even across strategically different games. This suggests that a categorization of games based on features may be more accurate in predicting agents' initial behavior than the standard categorization based on Nash equilibria, as shown by the analysis of individual behavior. Analysis of choice patterns and individual response times suggests that non-equilibrium choices may be due to the use of incorrect and simplified mental representations of the game structure, rather than to beliefs in other players' irrationality. Of the four stationary concepts analyzed (Nash equilibrium, QRE, action sampling, and payoff sampling), QRE results the best in fitting the data.
    Keywords: normal form games; one-shot games; response times; dominance; similarity; categorization; focal points
    JEL: C72 C91 C92
    Date: 2010–11
  3. By: Csóka, Péter; Pintér, Miklós
    Abstract: Measuring and allocating risk properly are crucial for performance evaluation and internal capital allocation of portfolios held by banks, insurance companies, investment funds and other entities subject to financial risk. We show that by using a coherent measure of risk it is impossible to allocate risk satisfying the natural requirements of (Solution) Core Compatibility, Equal Treatment Property and Strong Monotonicity. To obtain the result we characterize the Shapley value on the class of totally balanced games and also on the class of exact games.
    Keywords: Coherent Measures of Risk; Risk Allocation Games; Totally Balanced Games; Exact Games; Shapley value; Solution core
    JEL: C71 G10
    Date: 2010–11–07
  4. By: David Pérez-Castrillo; Nicolas Quérou
    Abstract: We propose a smooth multibidding mechanism for environments where a group of agents have to choose one out of several projects (possibly with the help of a social planner). Our proposal is related to the multibidding mechanism (Pérez-Castrillo and Wettstein, 2002) but it is "smoother" in the sense that small variations in an agent's bids do not lead to dramatic changes in the probability of selecting a project. This mechanism is shown to possess several interesting properties. Unlike in the study by Pérez Castrillo and Wettstein (2002), the equilibrium outcome is unique. Second, it ensures an equal sharing of the surplus that it induces. Finally, it enables reaching an outcome as close to effciency as is desired.
    Keywords: mechanism design, NIMBY
    JEL: D78 D72
    Date: 2010–11–05
  5. By: Luis Alejandro Palacio García (Universidad Industrial de Santander (Colombia) and Universidad de Granada (Spain)); Alexandra Cortés Aguilar (Universidad Industrial de Santander (Colombia) and Universidad de Granada (Spain))
    Abstract: This paper studies experimentally the conditions that improve bargaining power using threats in a negotiation process. Following Schelling’s (1960) ideas we choose the hawk-dove game because is the simplest negotiation environment with inequity distribution in equilibrium. The analysis is focused on three essential elements of commitment: the possibility of a player to announce his own actions, the credibility of these messages and the experience acquired in the negotiation process. The empirical evidence shows that, in the first period, subjects do not realize the bargaining power of commitment. When the game is repeated and experience increases, subjects gradually understand the advantages of a threat, turning the payoffs into their favor. Credibility is also relevant for the relation, if subjects can choose their message, it is common to find strategic liars, and their rivals punish this behavior.
    Keywords: Credible threats, negotiation, experiments
    Date: 2010–10–01
  6. By: Blanco, Mariana; Engelmann, Dirk; Normann, Hans-Theo
    Abstract: We assess the predictive power of a model of other-regarding preferences - inequality aversion - using a within-subjects design. We run four different experiments (ultimatum game, dictator game, sequential-move prisoners' dilemma and public-good game) with the same sample of subjects. We elicit two parameters of inequality aversion to test several hypotheses across games. We find that within-subject tests can differ markedly from aggregate-level analyses. Inequality-aversion has predictive power at the aggregate level but performs less well at the individual level. The model seems to capture various behavioral motives in different games but the correlation of these motives is low within subjects. --
    Keywords: behavioral economics,experimental economics,inequality aversion,otherregarding preferences
    JEL: C72 C91
    Date: 2010
  7. By: Marco Faillo (Department of Economics, University of Trento); Daniela Grieco (Department of Economics (University of Verona)); Luca Zarri (Department of Economics (University of Verona))
    Abstract: In the framework of a finitely repeated public goods game with costly punishment options, we introduce a novel restrictive setup where a principle of legitimacy holds, in the sense that only virtuous behavior (that is, being a high contributor) allows one to gain access to sanctioning opportunities (‘entitlement’) and only wrongful behavior (that is, being a low contributor) makes one a potential target of peer punishment (‘desert’). As a consequence, acting virtuously guarantees that it will not be possible to be punished by less virtuous subjects (‘immunity’). These restrictions, by allowing for ‘legitimate punishment’ only, rule out by construction so called antisocial punishment as well as vengeful behavior. Moreover, we manipulate the amount of information over others’ contributions that subjects receive before making their punishment decisions. Our preliminary results show that restrictions lead to an increase of cooperation levels and virtuous restrictions combined with detailed feedback on peers’ contribution significantly increase contribution levels and make cooperation sustainable over time.
    Keywords: Experimental Economics, Public Good Games, Costly Punishment, Cooperation, Legitimacy, Immunity
    JEL: C72 C91 C92 D23 D72
    Date: 2010–11
  8. By: Athanassoglou, Stergios
    Abstract: An allocation's ordinal efficiency deficit (OED) is defined as the greatest ordinal efficiency loss that can result from its application. More precisely, an allocation's OED is the negative of the greatest total amount by which it may be stochastically dominated by another feasible allocation. Thus, an allocation is ordinally efficient if and only if its OED is zero. Using this insight, we set up a linear program whose optimal objective value corresponds to a given allocation's OED. Furthermore, we show that the OED is a piecewise-linear convex function on the set of allocations. We use the optimal dual variables of the linear program to construct a profile of von Neumann-Morgenstern (vNM) utilities that is compatible with the underlying ordinal preferences, and which is a subgradient of the OED at the given allocation. When the given allocation is ordinally efficient, our analysis implies that it is ex-ante welfare maximizing at the constructed vNM profile, and we recover the ordinal efficiency theorem due to McLennan (2002)
    Keywords: random assignment; ordinal efficiency; linear programming; duality
    JEL: C61 D01 D60
    Date: 2010–08–20
  9. By: Dannenberg, Astrid
    Abstract: This paper experimentally analyzes the effects if signatories to an international environmental agreement (IEA) apply different voting schemes to determine the terms of the agreement. To this end, unanimity, qualified majority voting, and simple majority voting are compared with respect to the resulting pollution abatement level and social welfare. At first sight in line with theoretical predictions, the experiment shows that the change of the voting scheme implemented in an IEA does not significantly change social welfare. However, changing the majority required to determine the terms of an IEA alters the 'depth and breadth' of cooperation. The coalitions under the unanimity rule are relatively large and implement moderate effort levels while the coalitions with majority votes implement very high effort levels but attract only few participants. --
    Keywords: international environmental agreements,cooperation, voting
    JEL: C72 C92 D71 H41
    Date: 2010
  10. By: Normann, Hans-Theo
    Abstract: The hypothesis that vertically integrated firms have an incentive to foreclose the input market because foreclosure raises its downstream rivals' costs is the subject of much controversy in the theoretical industrial organization literature. A powerful argument against this hypothesis is that, absent commitment, such foreclosure cannot occur in Nash equilibrium. The laboratory data reported in this paper provide experimental evidence in favor of the hypothesis. Markets with a vertically integrated firm are signifiantly less competitive than those where firms are separate. While the experimental results violate the standard equilibrium notion, they are consistent with the quantalresponse generalization of Nash equilibrium. --
    Keywords: experimental economics,foreclosure,quantal response equilibrium,raising rival's costs,vertical integration
    JEL: C72 C90 D43
    Date: 2010

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