nep-gth New Economics Papers
on Game Theory
Issue of 2011‒03‒05
seven papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. Common reasoning in games: a Lewisian analysis of common knowledge of rationality By Robin Cubitt; Robert Sugden
  2. Cooperation amongst competing agents in minority games By Deepak Dhar; V. Sasidevan; Bikas K. Chakrabarti
  3. Interdependent Preferences and Strategic Distinguishability By Dirk Bergemann; Stephen Morris; Satoru Takahashi
  4. Myopic or Farsighted? An Experiment on Network Formation By Marco Mantovani; Georg Kirchsteiger; Ana Mauleon; Vincent Vannetelbosch
  5. One Player Games versus Two Player Games: Comparing Agribusiness Cooperatives with Investor-Owned Business Models By Parker, Frederick
  6. 'Hiding behind a small cake' in a newspaper dictator game By Axel Ockenfels; Peter Werner
  7. Global emission ceiling versus international cap and trade: What is the most efficient system when countries act non-cooperatively? By Jacqueline Morgan; Fabien Prieur

  1. By: Robin Cubitt (School of Economics, University of Nottingham); Robert Sugden (School of Economics, University of East Anglia)
    Abstract: The game-theoretic assumption of ‘common knowledge of rationality’ leads to paradoxes when rationality is represented in a Bayesian framework as cautious expected utility maximisation with independent beliefs (ICEU). We diagnose and resolve these paradoxes by presenting a new class of formal models of players’ reasoning, inspired by David Lewis’s account of common knowledge, in which the analogue of common knowledge is derivability in common reason. We show that such models can consistently incorporate any of a wide range of standards of decision-theoretic practical rationality. We investigate the implications arising when the standard of decision-theoretic rationality so assumed is ICEU.
    Keywords: Common reasoning; common knowledge; common knowledge of rationality; David Lewis; Bayesian models of games
    Date: 2011–01
  2. By: Deepak Dhar; V. Sasidevan; Bikas K. Chakrabarti
    Abstract: We study a variation of the minority game. There are N agents. Each has to choose between one of two alternatives everyday, and there is reward to each member of the smaller group. The agents cannot communicate with each other, but try to guess the choice others will make, based only the past history of number of people choosing the two alternatives. We describe a simple probabilistic strategy using which the agents acting independently, can still maximize the average number of people benefitting every day. The strategy leads to a very efficient utilization of resources, and the average deviation from the maximum possible can be made of order $(N^{\epsilon})$, for any $\epsilon >0$. We also show that a single agent does not expect to gain by not following the strategy.
    Date: 2011–02
  3. By: Dirk Bergemann (Cowles Foundation, Yale University); Stephen Morris (Dept. of Economics, Princeton University); Satoru Takahashi (Dept. of Economics, Princeton University)
    Abstract: A universal type space of interdependent expected utility preference types is constructed from higher-order preference hierarchies describing (i) an agent's (unconditional) preferences over a lottery space; (ii) the agent's preference over Anscombe-Aumann acts conditional on the unconditional preferences; and so on. Two types are said to be strategically indistinguishable if they have an equilibrium action in common in any mechanism that they play. We show that two types are strategically indistinguishable if and only if they have the same preference hierarchy. We examine how this result extends to alternative solution concepts and strategic relations between types.
    Keywords: Interdependent preferences, Higher-order preference hierarchy, Universal type space, Strategic distinguishability
    JEL: C79 D82 D83
    Date: 2010–09
  4. By: Marco Mantovani; Georg Kirchsteiger; Ana Mauleon; Vincent Vannetelbosch
    Abstract: Pairwise stability (Jackson and Wolinsky, 1996) is the standard stability concept in network formation. It assumes myopic behavior of the agents in the sense that they do not forecast how others might react to their actions. Assuming that agents are farsighted, related stability concepts have been proposed. We design a simple network formation experiment to test these theories. Our results provide support for farsighted stability and strongly reject the idea of myopic behavior.
    Keywords: Network fomation; Experiment; Myopic and farsighted stability
    JEL: D85 C91 C92
    Date: 2011–02
  5. By: Parker, Frederick
    Abstract: Cooperative business firms are prevalent in agribusiness, yet no concise generalized model exists to demonstrate how and why cooperative firms differ from, and may be selected over, the more common investor owned business firm. It is shown within a generic transaction game that cooperatives fill both producer and consumer roles as an aggregated player that is expected to maximize aggregate producer and consumer payoffs rather than maximizing either payoff separately, which contrasts with investor owned firms as essentially two player games between separate and competing producers and consumers where each player seeks to maximize their separate payoff individually. A cardinally valued game theoretic matrix is used to demonstrate the expected differences between these one-player versus two-player games, which clearly demonstrates that cooperatives are expected to achieve greater total payoffs and social welfare relative to investor owned firms, because investor owned firms generate dead weight loss when maximizing producer surpluses as expected under prevailing microeconomic theory. The use of cardinal payoff values rather than ordinal is important because it permits aggregation of payoffs within the model, and because it directly reflects the cardinal payoffs actually used in agribusiness decisions, such as revenue, expense and profit measures. The results may indicate the reason that cooperative firms are selected and have been successful in agribusiness. However, weaknesses of the cooperative model are also discussed, conjecturing that cooperatives may be preferable to investor owned businesses under limited circumstances but because these circumstances occur frequently in agribusiness the cooperative model is observed more frequently there.
    Keywords: Cooperatives, Game Theory, Collective Action, Agricultural Economics, Theory of the Firm, Agribusiness, B5, C7, D7, L2, L3, Q1,
    Date: 2011
  6. By: Axel Ockenfels; Peter Werner
    Abstract: We conduct an Internet dictator game experiment in collaboration with the popular German Sunday paper "Welt am Sonntag", employing a wider and more representative subject pool than standard laboratory experiments. Recipients either knew or did not know the size of the cake distributed by the dictator. We find that, in case of incomplete information, some dictators 'hide behind the small cake', supporting the notion that some agents' beliefs directly enter the social utility function.
    Keywords: dictator game, psychological games, incomplete information, newspaper experiment
    Date: 2011–02–25
  7. By: Jacqueline Morgan (Università di Napoli Federico II and CSEf); Fabien Prieur (LAMETA, Université Montpellier I and INRA)
    Abstract: We model climate change negotiations as a two-stage game. In the first stage, players have to agree on a global emission cap (GEC). In the second stage, they non cooperatively choose either their emission level or their emission quota, depending on whether emission trading is allowed, under the cap that potentially binds them together. When the cap is non binding, there exists a unique Nash equilibrium. When the emission cap is binding, among all the coupled constraints Nash equilibria (solutions of an equivalent quasi-variational inequality), we select a normalized equilibrium by solving a variational inequality which has a unique solution. In both cases (with or without emission trading), we can show that there exists a non-empty range of values for which setting a binding cap improves all players’ payoff. We can also identify a non empty set of values, for the global cap, such that the GEC system alone allows the world economy to reach a level of aggregate payoff (respectively of aggregate emissions) higher than (respectively lower than) the level resulting from the international cap and trade (ITC) system alone. In other words, from a global perspective, the GEC outperforms the ITC system.
    Keywords: climate change, international cap and trade system, national emission quotas, global emission cap, normalized equilibria, variational and quasi-variational inequalities.
    JEL: Q28 C72
    Date: 2011–02–21

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