nep-gth New Economics Papers
on Game Theory
Issue of 2011‒06‒25
thirteen papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. Fuzzy Cores and Fuzzy Balancedness By Gulick, G. van; Norde, H.W.
  2. Competitive Outcomes and the Inner Core of NTU Market Games By Sonja Brangewitz; Jan-Philip Gamp
  3. Rationality and Solutions to Nonconvex Bargaining Problems: Rationalizable, Asymmetric and Nash Solutions By Xu, Yongsheng; Yoshihara, Naoki
  4. Almost common value auctions: more equilibria. By Gisèle Umbhauer
  5. Escalation Bargaining: Theoretical Analysis and Experimental Test By Swee-Hoon Chuah; Robert Hoffmann; Jeremy Larner
  6. Strategy-Proof Compromises By Peter Postl
  7. The roles of incentives and voluntary cooperation for contractual compliance By Simon Gaechter; Esther Kessler; Manfred Koenigstein
  8. The computational complexity of rationalizing Pareto optimal choice behavior By Thomas DEMUYNCK
  9. Empathy, Guilt-Aversion and Patterns of Reciprocity By Vittorio Pelligra
  10. A model of coopetitive game and the Greek crisis By David Carf\'i; Daniele Schilir\'o
  11. Inequality and Risk-Taking Behaviour By Ed Hopkins
  12. Evidence for Dynamic Contracts in Sovereign Bank Lending By Peter Benczur; Cosmin Ilut
  13. A shapley value approach to pricing climate risks By Cooke, Roger M.

  1. By: Gulick, G. van; Norde, H.W. (Tilburg University, Center for Economic Research)
    Abstract: We study the relation between the fuzzy core and balancedness for fuzzy games. For regular games, this relation has been studied by Bondareva (1963) and Shapley (1967). First, we gain insight in this relation when we analyse situations where the fuzzy game is continuous. Our main result shows that any fuzzy game has a non-empty core if and only if it satisfies all (fuzzy) balanced inequalities. We also consider deposit games to illustrate the use of the main result.
    Keywords: Cooperative fuzzy games;fuzzy balancedness;fuzzy core
    JEL: C71
    Date: 2011
  2. By: Sonja Brangewitz (Institute of Mathematical Economics, Bielefeld University); Jan-Philip Gamp (Institute of Mathematical Economics, Bielefeld University)
    Abstract: We consider the inner core as a solution concept for cooperative games with non-transferable utility (NTU) and its relationship to competitive equilibria of markets that are induced by an NTU game. We investigate the relationship between certain subsets of the inner core for NTU market games and competitive payoff vectors of markets linked to the NTU market game. This can be considered as the case in between the two extreme cases of Qin (1993). We extend the results of Qin (1993) to a large class of closed subsets of the inner core: Given an NTU market game we construct a market depending on a given closed subset of its inner core. This market represents the game and further has the given set as the set of payoffs of competitive equilibria. It turns out that this market is not determined uniquely and thus we obtain a class of markets with the desired property.
    Keywords: Market Games, Competitive Payoffs, Inner Core
    JEL: C71 D51
    Date: 2011–06
  3. By: Xu, Yongsheng; Yoshihara, Naoki
    Abstract: Conditions α and β are two well-known rationality conditions in the theory of rational choice. This paper examines the implications of weaker versions of these two rationality conditions in the context of solutions to nonconvex bargaining problems. It is shown that, together with the standard axioms of efficiency and strict individual rationality, they imply rationalizability of solutions to nonconvex bargaining problems. We then characterize asymmetric Nash solutions by imposing a continuity and the scale invariance requirements. We also give a characterization of the Nash solution by using the two rationality conditions. These results make a further connection between solutions to non-convex bargaining problems and rationalizability of choice function in the theory of rational choice.
    JEL: C71 C78 D63 D71
    Date: 2011–05
  4. By: Gisèle Umbhauer
    Abstract: In almost common value auctions, even a very small private payoff advantage is usually supposed to have an explosive effect on the outcomes in a second- price sealed-bid auction. According to Bikhchandani (1988) and Klemperer (1997) the large set of equilibria obtained for common value auction games drastically shrinks, so that the advantaged player always wins the auction, at a price that sharply decreases the seller’s payoff. Yet this result has not been observed experimentally. In this paper, we show that Bikhchandani’s equilibria are not the only equilibria of the game. By allowing bids to not continuously depend on private information, we establish a new family of perfect equilibria with nice properties: the advantaged bidder does no longer win the auction regardless of her private information, she may pay a much higher price than in Bikhchandani’s equilibria, there is no ex post regret for both the winner and the looser, and the equilibria give partial support to some naïve behaviour observed experimentally.
    Keywords: common value auctions, second-price sealed-bid auctions, Nash equilibrium, perfect equilibrium.
    JEL: C72 D44
    Date: 2011
  5. By: Swee-Hoon Chuah (Nottingham University Business School, University of Nottingham); Robert Hoffmann (Nottingham University Business School, University of Nottingham); Jeremy Larner (Nottingham University Business School, University of Nottingham)
    Abstract: The standard chicken game is a popular model of certain important real scenarios but does not allow for the escalation behaviour these are typically associated with. This is problematic if the critical, final decisions in these scenarios are sensitive to previous escalation. We introduce and analyse, theoretically and by experiment, a new game which permits escalation behaviour. Compared with an equivalent chicken game, Pareto-suboptimal outcomes are significantly more frequent. This result is inconsistent with our rational choice analysis and possible psychological roots are explored.
    Keywords: escalation; brinkmanship; chicken game; experiments
    JEL: C72 C78 C91
    Date: 2011–05
  6. By: Peter Postl
    Abstract: We study strategy-proof decision rules in the variants of the canonical public good model proposed by Borgers and Postl (2009). In this setup, we fully characterize the set of budget-balanced strategy-proof deterministic mechanisms, which are simple threshold rules. For smooth probabilistic mechanisms we provide a necessary and sufficient condition for dominant strategy implementation. When allowing for discontinuities in the mechanism, our necessary condition remains valid, but additional conditions must hold for sufficiency. We also show that, among ex posts efficient rules, only dictatorial ones are strategy-proof. While familiar in spirit, this result is not the consequence of any known result in the literature.
    Keywords: Compromise, Dominant strategy implementation
    JEL: C72 D70 D80
    Date: 2011–06
  7. By: Simon Gaechter (University of Nottingham); Esther Kessler (University College London); Manfred Koenigstein (Universitaet Erfurt)
    Abstract: Efficiency under contractual incompleteness often requires voluntary cooperation in situations where self-regarding incentives for contractual compliance are present as well. Here we provide a comprehensive experimental analysis based on the gift-exchange game of how explicit and implicit incentives affect cooperation. We first show that there is substantial cooperation under non-incentive compatible contracts. Incentive-compatible contracts induce best-reply effort and crowd out any voluntary cooperation. Further experiments show that this result is robust to two important variables: experiencing Trust contracts without any incentives and implicit incentives coming from repeated interaction. Implicit incentives have a strong positive effect on effort only under non-incentive compatible contracts.
    Keywords: principal-agent games; gift-exchange experiments; incomplete contracts, explicit incentives; implicit incentives; repeated games; separability; experiments
    JEL: C70 C90
    Date: 2011–06
  8. By: Thomas DEMUYNCK
    Abstract: We consider a setting where a coalition of individuals chooses one or several alternatives from each set in a collection of choice sets. We examine the computational complexity of Pareto rationalizability. Pareto rationalizability requires that we can endow each individual in the coalition with a preference relation such that the observed choices are Pareto efficient. We differentiate between the situation where the choice function is considered to select all Pareto optimal alternatives from a choice set and the situation where it only contains one or several Pareto optimal alternatives. In the former case we find that Pareto rationalizability is an NP-complete problem. For the latter case we demonstrate that, if we have no additional information on the individual preference relations, then all choice behavior is Pareto rationalizable. However, if we have such additional information, then Pareto rationalizability is again NP-complete. Our results are valid for any coalition of size greater or equal than two.
    Date: 2011–06
  9. By: Vittorio Pelligra
    Abstract: This paper reports the results of an experiment aimed at investigating the link between empathy, anticipated guilt and pro-social behavior. In particular we test the hypothesis that empathy modulates the anticipatory effect of guilt in bargaining situations and, more specifically, that it correlates with subjects’ willingness to give and to repay trust in an investment game. We also control for the effect of individual risk attitude. Our main results show that empathy significantly influences players’ pattern of restitution in the investment game and that risk-propensity weakly affects the decision to trust; we also find a significant gender difference in the distribution of empathy. These results seem to indicate that empathy affects pro-social behavior in a more complex way than previously hypothesized by existing models of social preferences.
    Keywords: Trust; Reciprocity; Guilt-Aversion; Empathy
    JEL: C78 C91 D63
    Date: 2011
  10. By: David Carf\'i; Daniele Schilir\'o
    Abstract: In the present work we propose an original analytical model of coopetitive game. We try to apply this analytical model of coopetition - based on game theory and conceived at a macro level - to the Greek crisis, suggesting feasible solutions in a cooperative perspective for the divergent interests which drive the economic policies in the euro area.
    Date: 2011–06
  11. By: Ed Hopkins
    Abstract: This paper investigates social infuences on attitudes to risk and offers an evolutionary explanation of risk-taking by young low-ranked males. Becker, Murphy and Werning (2005) found that individuals about to participate in a status tournament may take fair gambles even though they are risk averse in both wealth and status. Here their model is generalised by use of the insight of Hopkins and Kornienko (2010) that in a tournament or status competition one can consider equality in terms of the status or rewards available as well as in initial endowments. While Becker et al. found that risk-taking is increasing in the equality of initial endowments, it is found here that it is increasing in the inequality of rewards in the tournament. Further, it is shown that the poorest will be risk loving if the lowest level of status awarded is su±ciently low. Thus, the disadvantaged in society rationally engage in risky behavior when social rewards are su±ciently unequal. Finally, as greater inequality in terms of social status induces gambling, it can cause greater inequality of wealth.
    Keywords: risk, status, inequality.
    JEL: C72 D31 D62 D63 D81
    Date: 2011–05–17
  12. By: Peter Benczur; Cosmin Ilut
    Abstract: This paper presents direct evidence for self-enforcing dynamic contracts in sovereign bank lending. Unlike the existing empirical literature, its instrumental variables method allows for distinguishing a direct influence of past repayment problems on current spreads (a "punishment" effect in prices) from an indirect effect through higher expected future default probabilities. Such a punishment provides positive surplus to lenders after a default, a feature that characterizes dynamic contracts. Using data on bank loans to developing countries between 1973-1981 and constructing continuous variables for credit history, we find evidence that most of the influence of past repayment problems is through the direct, punishment channel.
    Keywords: reputation, dynamic contracts, sovereign bank loan spreads, rational expectations, default risk
    JEL: C73 D86 F34 G12 G14 G15
    Date: 2011
  13. By: Cooke, Roger M.
    Abstract: This paper prices the risk of climate change by calculating a lower bound for the price of a virtual insurance policy against climate risks associated with the business as usual (BAU) emissions path. In analogy with ordinary insurance pricing, this price depends on the current risk to which society is exposed on the BAU emissions path and on a second emissions path reflecting risks that society is willing to take. The difference in expected damages on these two paths is the price which a risk neutral insurer would charge for the risk swap excluding transaction costs and profits, and it is also a lower bound on society's willingness to pay for this swap. The price is computed by (1) identifying a probabilistic risk constraint that society accepts, (2) computing an optimal emissions path satisfying that constraint using an abatement cost function, (3) computing the extra expected damages from the business as usual path, above those of the risk constrained path, and (4) apportioning those excess damages over the emissions per ton in the various time periods. The calculations follow the 2010 US government social cost of carbon analysis, and are done with DICE2009. --
    Keywords: Climate change,insurance premium,Shapley value,DICE
    JEL: C71 Q54
    Date: 2011

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