nep-gth New Economics Papers
on Game Theory
Issue of 2011‒10‒15
23 papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. A Simple Approach for Organizing Behavior and Explaining Cooperation in Repeated Games By Asen Ivanov; Douglas D. Davis; Korenok Oleg
  2. Group Identity and Discrimination in Small Markets: Asymmetry of In-Group Favors By Gerhard Riener; Alexander Schacht
  3. Who acts more like a game theorist? Group and individual play in a sequential market game and the effect of the time horizon By Wieland Mueller; Fangfang Tan
  4. Which Way to Cooperate By Kaplan, Todd; Ruffle, Bradley
  5. A Simple Questionnaire Can Change Everything - Are Strategy Choices in Coordination Games Stable? By Lora R. Todorova; Siegfried K. Berninghaus; Bodo Vogt
  6. Payment schemes in random-termination experimental games By Katerina Sherstyuk; Nori Tarui; Majah-Leah Ravago; Tatsuyoshi Saijo
  7. Voluntary Participation and the Provision of Public Goods in Large Finite Economies By Hideo Konishi; Ryusuke Shinohara
  8. The public loss game: An experimental study of public bads By Schosser, Stephan; Vogt, Bodo
  9. On symmetry in the formation of stable partnerships By Gudmundsson, Jens
  10. How appropriate are myopic optimization models to predict decision behaviour: A comparison between agent-based models and business management games By Appel, Franziska; Musshoff, Oliver
  11. Truth-Telling and Trust in Sender-Receiver Games with Intervention By Mehmet Y. Gurdal; Ayca Ozdogan; Ismail Saglam
  12. Generalized reduced-form auctions: a network-flow approach By Yeon-Koo Che; Jinwoo Kim; Konrad Mierendorff
  13. On the existence and the number of limit cycles in evolutionary games By Moreira, Helmar Nunes; Araujo, Ricardo Azevedo
  14. Choosing a Licensee from Heterogeneous Rivals By Anthony Creane; Chiu Yu Ko; Hideo Konishi
  15. Bribing in second-price auctions By Rachmilevitch, Shiran
  16. Matching with (Branch-of-Choice) Contracts at United States Military Academy By Tayfun Sönmez; Tobias B. Switzer
  17. Bidding behavior in environmental contract auctions with incomplete monitoring By Romstad, Eirik; Alfnes, Frode
  18. The Multi-item Bisection Auction By Erlanson, Albin
  19. School Admissions Reform in Chicago and England: Comparing Mechanisms by their Vulnerability to Manipulation By Parag A. Pathak; Tayfun Sönmez
  20. Bidding for Army Career Specialties: Improving the ROTC Branching Mechanism By Tayfun Sönmez
  21. Altruistically Unbalanced Kidney Exchange By Tayfun Sönmez; M. Utku Ünver
  22. Divorce costs and marital dissolution in a one-to-one matching framework with nontransferable utilities By Saglam, Ismail
  23. Optimally Empty Promises and Endogenous Supervision By David A. Miller; Kareen Rozen

  1. By: Asen Ivanov (Department of Economics, VCU School of Business); Douglas D. Davis (Department of Economics, VCU School of Business); Korenok Oleg (Department of Economics, VCU School of Business)
    Abstract: We introduce a novel approach for organizing behavior and explaining cooperation in repeated games. Our approach is based on the idea that players differ according to an inherent propensity to cooperate that systematically affects behavior and cooperation levels. We formulate the empirical implications of this idea and test them in the lab. Our data support our approach. Our main conclusions are: (i) players’ strategies in a repeated game can be ranked along a single dimension, (ii) this ranking remains stable across repeated games, and (iii) the composition of a group, in terms of its players’ propensities, strongly affects cooperation levels.
    Keywords: repeated games, cooperation, experiment
    JEL: D74 C92
    Date: 2011–05
  2. By: Gerhard Riener (Graduate College "The Economics of Innovative Change", Friedrich Schiller University, Jena); Alexander Schacht (Graduate College "The Economics of Innovative Change", Friedrich Schiller University, Jena)
    Abstract: We experimentally study the inuence of induced group identity on the determination of prices and beliefs in a small market game. We create group identity through a focal point coordination game. Subjects play a three-person bargaining game where one seller can sell an indivisible good to one of two competing buyers under four different treatments varying the buyer-seller constellation. We find evidence of in group favoritism on the buyer side. However we do not detect a lower ask prices for in-group sellers for in-group buyers, indicating that in-group favoritism is in favor of the more powerful market participant.
    Keywords: Group identity, Experiments, Markets, Bargaining
    JEL: C91 D45 L13 L14
    Date: 2011–10–07
  3. By: Wieland Mueller; Fangfang Tan
    Abstract: Previous experimental results on one-shot sequential two-player games show that group de- cisions are closer to the subgame-perfect Nash equilbirum than individual decisions. We extend the analysis of inter-group versus inter-individual decision making to a Stackelberg market game, by running both one-shot and repeated markets. Whereas in the one-shot markets we ?nd no signi?cant di¤erences in the behavior of groups and individuals, we ?nd that the behavior of groups is further away from the subgame-perfect equilibrium of the stage game than that of individuals. To a large extent, this result is independent of the method of eliciting choices (sequential or strategy method) and the method used to account for observed ?rst- and second- mover behavior. We provide evidence on followers?response functions and electronic chats to o¤er an explanation for the di¤erential e¤ect that the time horizon of interaction has on the extent of individual and group players?(non)conformity with subgame perfectness.
    JEL: C72 C92 L13
    Date: 2011–09
  4. By: Kaplan, Todd (Department of Economics, University of Haifa); Ruffle, Bradley (Department of Economics, Ben-Gurion University)
    Abstract: We introduce a two-player, binary-choice game in which both players have a privately known incentive to enter, yet the combined surplus is highest if only one enters. Repetition of this game admits two distinct ways to cooperate: turn taking and cutoffs, which rely on the player's private value to entry. A series of experiments highlights the role of private information in determining which mode players adopt. If an individual's entry values vary little (e.g., mundane tasks), taking turns is likely; if these potential values are diverse (e.g., difficult tasks that differentiate individuals by skill or preferences), cutoff cooperation emerges.
    JEL: C90 Z13
    Date: 2011–10–04
  5. By: Lora R. Todorova (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Siegfried K. Berninghaus (Karlsruhe Institute of Technology (KIT), Institute for Economic Theory and Statistics); Bodo Vogt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: This paper presents results from an experiment designed to study the effect of self reporting risk preferences on strategy choices made in a subsequently played 2× 2 coordination game.The main finding is that the act of answering a questionnaire about one's own risk preferences significantly alters strategic behavior. Within a best response correspondence framework, this result can be explained by a change in either risk preferences or beliefs. We find that self reporting risk preferences induces an increase in subjects' risk aversion while keeping their beliefs unchanged. Our findings raise some questions about the stability of strategy choices in coordination games.
    Keywords: coordination game, questionnaire, risk preferences, beliefs, best response correspondence
    JEL: D81 C91 C72
    Date: 2011–09
  6. By: Katerina Sherstyuk (Department of Economics, University of Hawaii at Manoa); Nori Tarui (Department of Economics, University of Hawaii at Manoa); Majah-Leah Ravago (Department of Economics, University of Hawaii at Manoa); Tatsuyoshi Saijo (Department of Economics, Osaka University)
    Abstract: We consider payment schemes in experiments that model infinite-horizon games by using random termination. We compare paying subjects cumulatively for all periods of the game; with paying subjects for the last period only; with paying for one of the periods, chosen randomly. Theoretically, assuming expected utility maximization and risk neutrality, both the cumulative and the last-period payment schemes induce preferences that are equivalent to maximizing the discounted sum of utilities. The last-period payment is also robust under different attitudes towards risk. In comparison, paying subjects for one of the periods chosen randomly creates a present-period bias. Experimentally, we find that the cumulative payment appears the best in inducing long-sighted behavior.
    Keywords: economic experiments; infinite-horizon games; random termination
    JEL: C90 C73
    Date: 2011–03–01
  7. By: Hideo Konishi (Boston College); Ryusuke Shinohara (Shinshu University)
    Abstract: We consider a public good provision game with voluntary participation. Agents participating in the game provide a public good and pay the fees according to a mechanism (allocation rule), while nonparticipants can free-ride on the participants. We examine how the equilibrium public good provision level is affected by enlarging the population of an economy. We introduce a condition for an allocation rule, the asymptotic uniform continuity in replication (AUCR), which requires that small changes in the population must yield only small changes in the public good provision and which is satisfied by many mechanisms. We show that under AUCR, the equilibrium level of the public good converges to zero as the economy is replicated in the sense of Milleron (1972).
    Keywords: public good provision, participation game, replicated economy
    JEL: C72 H41
    Date: 2011–08–26
  8. By: Schosser, Stephan; Vogt, Bodo
    Abstract: We analyze cooperative behavior of participants who faced a loss. In particular, we extend the Public Good Game by a fixed loss in the beginning of every period. We show that humans change their behavior compared to corresponding studies with gains only. First, in contrast to literature on gains, we observe significant order effects. When participants first play a treatment with punishment, they cooperate less and face higher punishment costs than when first playing a treatment without punishment. The changes are that drastic that punishment does not pay in the first case, while it does in the later. Second, for participants first playing without punishment the contributions in the very first period of play determine the contributions throughout both treatments of the game, yielding higher contributions in the punishment treatment than when playing with gains. Participants punishing first, show no comparable behavior. --
    Keywords: public good,punishment,losses,experiment
    Date: 2011
  9. By: Gudmundsson, Jens (Department of Economics, Lund University)
    Abstract: In this note, we examine the connection between the roommate model and the partnership formation model (Talman and Yang, 2011, Journal of Mathematical Economics 47, 206-212). Upon noting that both occasionally lack equilibria we look at the stable partnerships model, a combination of the former models and interpretable as one with a social planner. We find two sufficient conditions for the existence of stable matchings in the stable partnerships model, where one relates to efficiency, and one (the symmetry condition) to fairness. Finally, we provide examples from the fair sharing literature on dividing common values that satisfy the symmetry condition.
    Keywords: One-sided matching; partnership formation; symmetry condition; stability
    JEL: C62 D02 D60
    Date: 2011–09–30
  10. By: Appel, Franziska; Musshoff, Oliver
    Abstract: Agent-based models (ABM) are used in many cases of policy assessment in agriculture. But the behavioural assumptions of these models consider farmers as myopic optimizing profit maximizers. In this contribution we compare the behaviour of myopic computer agents with the behaviour of students playing a multi period business management game. We aim to answer the question, how far are agent-based models valid to map ârealâ human behaviour, so that ABM can be used well for policy impact assessment.
    Keywords: Agent-based models, business management games, policy impact analysis, Research Methods/ Statistical Methods, C63, C93, D22, Q18,
    Date: 2011–09–02
  11. By: Mehmet Y. Gurdal; Ayca Ozdogan; Ismail Saglam
    Date: 2011–10
  12. By: Yeon-Koo Che; Jinwoo Kim; Konrad Mierendorff
    Abstract: We develop a network-flow approach for characterizing interim-allocation rules that can be implemented by ex post allocations. The network method can be used to characterize feasible interim allocations in general multi-unit auctions where agents face hierarchical capacity constraints. We apply the method to solve for an optimal multi-object auction mechanism when bidders are constrained in their capacities and budgets.
    Keywords: Reduced-form auctions, network-flow approach, Gale’s demand theorem, hierarchy of capacity constraints
    JEL: D44
    Date: 2011–09
  13. By: Moreira, Helmar Nunes; Araujo, Ricardo Azevedo
    Abstract: In this paper it is shown that an extended evolutionary system proposed by Hofbauer and Sigmund (1998) may be transformed into a Kukles system. Then a Dulac-Cherkas function related to the Kukles system is derived, which allows us to determine the number of limit cycles or its non-existence.
    Keywords: limit cycles; evolutionary game theory; Kukles system; Dulac-Cherkas function
    JEL: C02 C73
    Date: 2011
  14. By: Anthony Creane (Michigan State University); Chiu Yu Ko (Boston College); Hideo Konishi (Boston College)
    Abstract: We examine a firm that can license its production technology to a rival when firms are heterogeneous in production costs. We show that a complete technology transfer from one firm to another always increases joint profit under weakly concave demand when at least three firms remain in the industry. A jointly profitable transfer may reduce social welfare, although a jointly profitable transfer from the most efficient firm always increases welfare. We also consider two auction games under complete information: a standard first-price auction and a menu auction by Bernheim and Whinston (1986). With natural refinement of equilibria, we show that the resulting licensees are ordered by degree of efficiency: menu auction, simple auction, and joint-profit maximizing licensees, in (weakly) descending order.
    Keywords: licensing, production costs, technology transfer, auction games
    JEL: D4 L24 L4
    Date: 2011–09–30
  15. By: Rachmilevitch, Shiran (Department of Economics, University of Haifa)
    Abstract: An IPV 2-bidder second-price auction is preceded by two rounds of bribing: prior to the auction each bidder can try to bribe his rival to depart from the auction, so that he (the briber) will become the sole participant and obtain the good for the reserve price. Bribes are offered sequentially according to an exogenously given order - there is a first mover and a second mover. I characterize the unique efficient collusive equilibrium in monotonic strategies; in it, the second mover extracts the entire collusive gain. This equilibrium remains an equilibrium even when valuations are interdependent, and if they are separable then the full surplus extraction result continues to hold. Additionally, a family of pooling equilibria is studied, in which all the types of the first mover offer the same bribe.
    Keywords: Second-price auctions, collusion, bribing, signaling, surplus extraction
    JEL: D44 D82
    Date: 2011–10–06
  16. By: Tayfun Sönmez (Boston College); Tobias B. Switzer (United States Air Force)
    Abstract: Branch selection is a key decision in a cadet's military career. Cadets at USMA can increase their branch priorities at a fraction of slots by extending their service agreement. This real-life matching problem fills an important gap in market design literature. Although priorities fail a key substitutes condition, the agent-optimal stable mechanism is well-defined, and in contrast to the current USMA mechanism it is fair, stable, and strategy-proof. Adoption of this mechanism benefits cadets and the Army. This new application shows that matching with contracts model is practically relevant beyond traditional domains that satisfy the substitutes condition.
    Keywords: Market Design, Matching with Contracts, Stability, Strategy-Proofness
    JEL: C78 D63 D78
    Date: 2011–05–01
  17. By: Romstad, Eirik; Alfnes, Frode
    Abstract: It is well known from the compliance literature that whenever it costly to monitor agents' compliance to contract terms, compliance is likely to be incomplete. This paper goes one step further by examining the implications of incomplete monitoring on agent's sales offers in auctions for environmental contracts. From a monitoring perspective we show allocation contracts to least cost also produces another gain â that less resources need to be spend on monitoring and enforcement. To get full use of this insight one needs to have auction procedures that provide incentives for truthful revelation of agents' private alternate incomes. Our second result is that the incentives for truthful revelation is lost when monitoring is incomplete unless the expected value of compliance exceeds the expected value of noncompliance. We demonstrate this result theoretically and through an economic experiment using an induced value reverse multi unit auction.
    Keywords: environmental contract auctions, monitoring and compliance, truthful revelation, Environmental Economics and Policy, Resource /Energy Economics and Policy,
    Date: 2011–09–02
  18. By: Erlanson, Albin (Department of Economics, Lund University)
    Abstract: This paper proposes an iterative sealed-bid auction for selling multiple heterogeneous items with unit-demand agents. It generalizes the single item bisection auction (Grigorieva Et. al, 2007) to the environment with multiple heterogeneous items. We show that it elicits a minimal amount of information on preferences required to find the Vickrey-Clark-Groves outcome (Clarke, 1971, Groves, 1973, Vickrey, 1961), when there are two items for sale and an arbitrary number of agents.
    Keywords: Bisection Auction; Multi-item; Unit-demand; Sealed-bid
    JEL: C72 D44
    Date: 2011–10–07
  19. By: Parag A. Pathak (MIT); Tayfun Sönmez (Boston College)
    Abstract: In Fall 2009, officials from Chicago Public Schools changed their assignment mechanism for coveted spots at selective college preparatory high schools midstream. After asking about 14,000 applicants to submit their preferences for schools under one mechanism, the district asked them to re-submit their preferences under a new mechanism. Officials were concerned that "high-scoring kids were being rejected simply because of the order in which they listed their college prep preferences" under the abandoned mechanism. What is somewhat puzzling is that the new mechanism is also manipulable. This paper introduces a method to compare mechanisms based on their vulnerability to manipulation. Under our notion, the old mechanism is more manipulable than the new Chicago mechanism. Indeed, the old Chicago mechanism is at least as manipulable as any other plausible mechanism. A number of similar transitions between mechanisms took place in England after the widely popular Boston mechanism was ruled illegal in 2007. Our approach provides support for these and other recent policy changes involving matching mechanisms.
    Keywords: student assignment, Boston mechanism, matching, strategy-proofness
    Date: 2011–01–01
  20. By: Tayfun Sönmez (Boston College)
    Abstract: Motivated by historically low retention rates of graduates at USMA and ROTC, the Army recently introduced branch-for-service incentives programs where cadets could bid an additional three years of active duty service obligation to obtain higher priority for their desired career specialties. The full potential of this highly innovative program is not utilized, due to the ROTC's choice of a poorly behaved cadet-branch matching mechanism. Not only does the ROTC mechanism effectively block the access of a large fraction of moderately high-skilled cadets to key career branches, but it is also highly vulnerable to preference manipulation and encourages effort reduction, potentially compromising human capital accumulation of the Army. Building on recent advances in matching markets, we propose a design that eliminates each of these deficiencies and also benefits the Army by mitigating several policy problems that the Army has identified. In contrast to the ROTC mechanism, our design utilizes market principles more elaborately, and it can be interpreted as a hybrid between a market mechanism and a priority-based allocation mechanism.
    Keywords: Market Design, Matching with Contracts, Stability, Strategy-Proofness
    JEL: C78 D63 D78
    Date: 2011–09–01
  21. By: Tayfun Sönmez (Boston College); M. Utku Ünver (Boston College)
    Abstract: Although a pilot national live-donor kidney exchange program was recently launched in the US, the kidney shortage is increasing faster than ever. A new solution paradigm is able to incorporate compatible pairs in exchange. In this paper, we consider an exchange framework that has both compatible and in- compatible pairs, and patients are indifferent over compatible pairs. Only two-way exchanges are permitted due to institutional constraints. We explore the structure of Pareto-efficient matchings in this framework. The mathematical structure of this model turns out to be quite novel. We show that under Pareto-efficient matchings, the same number of patients receive transplants, and it is possible to construct Pareto-efficient matchings that match the same incompatible pairs while matching the least number of compatible pairs. We extend the celebrated Gallai-Edmonds Decomposition in the combinatorial optimization literature to our new framework. We also conduct comparative static exercises on how this decomposition changes as new compatible pairs join the pool.
    Keywords: Kidney Exchange, Market Design, Matching
    JEL: C78 D78 D02 D63
    Date: 2011–10–01
  22. By: Saglam, Ismail
    Abstract: In this paper, we use a two-period one-to-one matching model with incomplete information to examine the effect of changes in divorce costs on marital dissolution. Each individual who has a nontransferable expected utility about the quality of each potential marriage decides whether to marry or to remain single at the beginning of the first period. Those who married in the first period learn the qualities of their marriages at the beginning of the second period and then decide whether to stay married or to unilaterally divorce. We show that for any society, there exist matching environments where the probability of the marital dissolution is not decreasing in divorce costs under a gender-optimal matching rule. In such environments an allocation effect of divorce costs with ambiguous sign outweighs an incentive effect which is always negative.
    Keywords: One-to-one matching; marriage dissolution; divorce; incomplete information
    JEL: C78 J12
    Date: 2011–10
  23. By: David A. Miller (University of California, San Diego); Kareen Rozen (Cowles Foundation, Yale University)
    Abstract: We study optimal contracting in a team setting with peer monitoring and moral hazard. This environment reflects stylized characteristics of production environments with complex tasks: agents have many opportunities to shirk, task-level monitoring is needed to provide useful incentives, and it is difficult to write performance-based clauses into explicit contracts. Incentives are provided informally, using wasteful punishments like guilt and shame, or slowed promotion. These features give rise to optimal contracts with "empty promises" and endogenous supervision structures. Agents make promises that they don’t necessarily intend to keep, leading to the optimal concentration of supervisory responsibility in the hands of one or two agents.
    Keywords: Partnership, Teams, Moral hazard, Monitoring, Supervision, Costly punishments
    JEL: C72 D86
    Date: 2011–10

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