nep-gth New Economics Papers
on Game Theory
Issue of 2011‒08‒15
seven papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. ‘Lead, Follow or Cooperate’: Endogenous Timing & Cooperation in Symmetric Duopoly Games. By Marco Marini; Giorgio Rodano
  2. The (sub-)optimality of the majority rule By Schmitz, Patrick W.; Tröger, Thomas
  3. Endogenous equilibria in liquid markets with frictions and boundedly rational agents By Paolo Dai Pra; Fulvio Fontini; Elena Sartori; Marco Tolotti
  4. Core and Equilibria under ambiguity By Luciano De Castro; Marialaura Pesce; Nicolas Yannelis
  5. Limited Rationality and Strategic Interaction: A Probabilistic Multi-Agent Model By Yves Ortiz; Martin schüle
  6. Path dependence in public-good games By Lisa Bruttel; Tim Friehe
  7. Entry deterrence in banking: the role of cost asymmetry and adverse selection By Mallick, Indrajit

  1. By: Marco Marini (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo" and CREI, Università di Roma III); Giorgio Rodano (Dipartimento di Informatica e Sistemistica "Antonio Ruberti", Università di Roma "La Sapienza")
    Abstract: The aim of this paper is to extend Hamilton and Slutsky's (1990) endogenous timing game by including the possibility for players to cooperate. At an initial stage players are assumed to announce both their purpose to play early or late a given duopoly game as well as their intention to cooperate or not with their rival. The cooperation and timing formation rule is rather simple: when both players agree to cooperate and play with a given timing, they end up playing their actions coordinately and simultaneously. Otherwise, they play as singletons with the timing as prescribed by their own announcement. We check for the existence of a subgame perfect Nash equilibrium (in pure strategies) of such a cooperation-timing duopoly game. Two main results on the emergence of cooperation are provided. If players' actions in the symmetric duopoly game are strategic substitutes and there is no discount, cooperating early (as a grand coalition) is a subgame perfect equilibrium of the extended timing-cooperation game. Conversely, cooperating late (at period two) represents an equilibrium when playersstrategies are strategic complements. Other equilibria are also possible. Most importantly, our model shows that, in general, the success of cooperation is a¤ected by the endogenous timing of the game. Moreover, the slope of players' best-replies appears crucial both for the success of cooperation as well as for the players' choice of sequencing their market actions.
    Keywords: Endogenous Timing, Cooperation
    JEL: C70 C71 D23 D43
    Date: 2011
  2. By: Schmitz, Patrick W.; Tröger, Thomas
    Abstract: We consider collective choice from two alternatives. Ex ante, each agent is uncertain about which alternative she prefers, and may be uncertain about the intensity of her preferences. An environment is given by a probability distribution over utility vectors that is symmetric across agents and neutral across alternatives. In many environments, the majority voting rule maximizes agents' ex-ante expected utilities among all anonymous and dominant-strategy implementable choice rules. But in some environments where the agents' utilities are stochastically correlated, other dominant-strategy choice rules are better for all agents. If utilities are stochastically independent across agents, majority voting is ex-ante optimal among all anonymous and incentive-compatible rules. We also compare rules from an interim viewpoint.
    Keywords: majority rule
    JEL: D72
    Date: 2011–06
  3. By: Paolo Dai Pra (Department of Pure and Applied Mathematics, Università di Padova); Fulvio Fontini ("M. Fanno" Department of Economics and Management, Università di Padova); Elena Sartori (Department of Management, Università Ca' Foscari Venezia); Marco Tolotti (Department of Management, Università Ca' Foscari Venezia)
    Abstract: In this paper we propose a simple binary mean field game, where N agents may decide whether to trade or not a share of a risky asset in a liquid market. The asset's returns are endogenously determined taking into account demand and transaction costs. Agents' utility depends on the aggregate demand, which is determined by all agents' observed and forecasted actions. Agents are boundedly rational in the sense that they can go wrong choosing their optimal strategy. The explicit dependence on past actions generates endogenous dynamics of the system. We, firstly, study under a rather general setting (risk attitudes, pricing rules and noises) the aggregate demand for the asset, the emerging returns and the structure of the equilibria of the asymptotic game. It is shown that multiple Nash equilibria may arise. Stability conditions are characterized, in particular boom and crash cycles are detected. Then we precisely analyze properties of equilibria under significant examples, performing comparative statics exercises and showing the stabilizing property of exogenous transaction costs.
    Keywords: Endogenous dynamics; Nash equilibria; Bounded rationality; Transaction costs; Mean field games; Random utility
    JEL: D81 C62 C72
    Date: 2011–08
  4. By: Luciano De Castro; Marialaura Pesce; Nicolas Yannelis
    Abstract: This paper introduces new core and Walrasian equilibrium notions for an asymmetric information economy with non-expected utility preferences. We prove existence and incentive compatibility results for the new notions we introduce.
    Date: 2011–03–07
  5. By: Yves Ortiz (Study Center Gerzensee); Martin schüle (Institute of Neuroinformatics, University of Zurich and ETH Zurich)
    Abstract: We develop a multi-agent framework based on probabilistic cellular automata theory to describe off-equilibrium dynamics in the context of the economic problem of price adjustment in different strategic situations as investigated experimentally by Fehr and Tyran (2001) and (2008). It is found that the main experimental findings, namely suboptimal aggregate behavior in terms of sluggish adjustment after a fully anticipated money shock, can be reproduced and largely explained by the interaction of sophisticated and naive agents. Furthermore, a range of conceptual issues as e.g. the source of endogenous beliefs on the other players rationality is addressed within our multi-agent framework. We find that, if costs/payoffs act as driver of rational behavior, then endogenous beliefs and consequential aggregate behavior are driven by the particular off-equilibrium time-dependent payoff/cost profile rather than by total off- equilibrium payoffs/costs that naive agents face in the respective strategic situation.
    Date: 2011–08
  6. By: Lisa Bruttel; Tim Friehe
    Abstract: This paper presents experimental evidence that contributions to a public good can be path-dependent for a limited time span. We study a repeated linear public-good game with punishment opportunities. Our data shows that subjects who had experienced a higher marginal return on public-good contributions in rounds 1-10 contributed more to the public good in rounds 11 and 12, even though they faced the same marginal return as the control group in these later rounds. In contrast, di erences in contributions were not significant when comparing subjects bearing the same current costs of punishment points, but having had different costs in the past.
    Keywords: public-good game, team, punishment, path dependence, experiment
    Date: 2011
  7. By: Mallick, Indrajit
    Abstract: Abstract In this paper, we review and explore the strategic mechanisms that deter entry in banking. The literature relies on externality between banks to generate entry deterrence. Typically, the externality generated is caused by differential adverse selection faced by incumbents and entrants. In this paper it is shown that adverse selection problem between a bank and its borrowers is neither a necessary nor a sufficient condition for entry deterrence. We show that cost asymmetry between different types of incumbents and private information about costs can generate conditional entry deterrence. This source of externality can cause entry deterrence just as other types of externalities created by differential adverse selection. Forward contracts can act as signaling device for incumbent costs. Incorporating adverse selection problem in the credit market in fact relaxes entry conditions: entry can take place even if the incumbent is of strong type and can signal credibly.
    Keywords: Key Words: Entry Deterrence; Cost Asymmetry; Adverse Selection; Signaling
    JEL: C70 G21
    Date: 2011–07–08

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