nep-gth New Economics Papers
on Game Theory
Issue of 2012‒01‒18
ten papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. A Discounted Stochastic Game with No Stationary Nash Equilibrium By Yehuda Levy
  2. Restoring Damaged Trust with Promises, Atonement and Apology. By Eric Schniter; Roman M. Sheremeta; Daniel Sznycer
  3. Robust Predictions in Games with Incomplete Information By Dirk Bergemann; Stephen Morris
  4. Hidden information, bargaining power, and efficiency: an experiment. By Cabrales, Antonio; Charness, Gary; Villeval, Marie Claire
  5. Leading by Words in Privileged Groups By Johannes Weisser
  6. Efficient Coordination in Weakest-Link Games By Riedl Arno; Rohde Ingrid M.T.; Strobel Martin
  7. Leading by example in intergroup competition: An experimental approach By Johannes Weisser
  8. Crossing the Point of No Return: A Public Goods Experiment By Urs Fischbacher; Werner GŸth; M. Vittoria Levati
  9. Full agreement and the provision of threshold public goods By Federica Alberti; Edward J. Cartwright
  10. Efficiency versus Optimality in Procurement By Peter Postl

  1. By: Yehuda Levy
    Abstract: We present an example of a discounted stochastic game with a continuum of states, finitely many players and actions, and deterministic transitions, that possesses no measurable stationary equilibria, or even stationary approximate equilibria. The example is robust to perturbations of the payoffs, the transitions, and the discount factor, and hence gives a strong nonexistence result for stationary equilibria. The example is a game of perfect information, and hence it also does not possess stationary extensive-form correlated equilibrium. Markovian equilibria are also shown not to exist in appropriate perturbations of our example.
    Keywords: Stochastic Game, Discounting, Stationary Equilibrium
    Date: 2012–01–11
  2. By: Eric Schniter (Economic Science Institute, Chapman University); Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University); Daniel Sznycer (Center for Evolutionary Psychology, University of California, Santa Barbara)
    Abstract: In an experiment using two consecutive trust games, we study how “cheap” signals such as promises and messages are used to restore damaged trust and encourage new trust where it did not previously exist. In these games, trustees made non-binding promises of investment-contingent returns, then investors decided whether to invest, and finally trustees decided how much to return. After an unexpected second game was announced, but before it commenced, trustees could send a one-way message. This naturalistic quasi-experimental design allowed us to observe the endogenous emergence of trust-relevant behaviors and focus on naturally occurring remedial strategies used by promise-breakers and distrusted trustees, their effects on investors, and subsequent outcomes. In the first game 16.6% of trustees were distrusted and 18.8% of trusted trustees broke promises. Trustees distrusted in the first game used promises closer to equal splits and messaging to encourage trust in the second game. To restore damaged trust, promise-breakers used larger new promises (signals of intended atonement) and messaging (usually with apology). On average, investments in each game paid off for investors and trustees, suggesting that cheap signals foster profitable trust-based exchanges in these economic games.
    Keywords: promise, atonement, apology, cheap talk, cheap signals, remedial strategies, trust game, reciprocity, experiments
    Date: 2011
  3. By: Dirk Bergemann; Stephen Morris
    Date: 2012–01–09
  4. By: Cabrales, Antonio; Charness, Gary; Villeval, Marie Claire
    Abstract: We devise an experiment to explore the effect of different degrees of bargaining power on the design and the selection of contracts in a hidden-information context. In our benchmark case, each principal is matched with one agent of unknown type. In our second treatment, a principal can select one of three agents, while in a third treatment an agent may choose between the contract menus offered by two principals. We first show theoretically how different ratios of principals and agents affect outcomes and efficiency. Informational asymmetries generate inefficiency. In an environment where principals compete against each other to hire agents, these inefficiencies may disappear, but they are insensitive to the number of principals. In contrast, when agents compete to be hired, efficiency improves dramatically, and it increases in the relative number of agents because competition reduces the agents’ informational monopoly power. However, this environment also generates a high inequality level and is characterized by multiple equilibria. In general, there is a fairly high degree of correspondence between the theoretical predictions and the contract
    Keywords: Experiment; Hidden information; Bargaining power; Competition; Efficiency;
    JEL: A13 B49 C92 D21 J41
    Date: 2011
  5. By: Johannes Weisser (IMPRS Uncertainty, MPI for Economics, Jena)
    Abstract: Koukoumelis et al. (2010, 2012) have shown that one-way communication enhances contributions to public goods. We investigate the effectiveness of one-way communication, when the benefits from the public good are asymmetric and the sender of a message is the main beneficiary of cooperation. Our results show that, in the absence of communication opportunities, contribution behavior may be inversely related to other group members' marginal benefits from the public good. The effectiveness of one-way communication, however, remains unaffected even though compliance with a sender's suggestion to cooperate generates unfavorable payoff inequalities for message receivers. The results also indicate that one-way messages have to relate to the experimental game to enhance cooperation. Merely "giving someone a voice" is not sufficient.
    Keywords: Public goods, One-way communication, Privileged groups, Asymmetric marginal benefit
    JEL: C72 C91 C92 D74 H41
    Date: 2012–01–06
  6. By: Riedl Arno; Rohde Ingrid M.T.; Strobel Martin (METEOR)
    Abstract: Existing experimental research on behavior in weakest-link games shows overwhelmingly theinability of people to coordinate on the efficient equilibrium, especially in larger groups. Wehypothesize that people will be able to coordinate on efficient outcomes, provided they havesufficient freedom to choose their interaction neighborhood. We conduct experiments with mediumsized and large groups and show that neighborhood choice indeed leads to coordination on the fullyefficient equilibrium, irrespective of group size. This leads to substantial welfare effects.Achieved welfare is between 40 and 60 percent higher in games with neighborhood choice thanwithout neighborhood choice. We identify exclusion as the simple but very effective mechanismunderlying this result. In early rounds, high performers exclude low performers who in consequence‘learn’ to become high performers.
    Keywords: microeconomics ;
    Date: 2011
  7. By: Johannes Weisser (IMPRS Uncertainty, MPI for Economics, Jena)
    Abstract: We investigate leading by example in a public goods game in scenarios with and without intergroup competition. Leading by example is implemented via a sequential decision protocol. We examine both one-shot and repeated interaction and make use of the strategy method to characterize followers' conditional responses to the leader's contribution. The results show that only follower but not leader behavior is affected by the introduction of intergroup competition. The change in follower behavior is best described as an increase in cooperation which is not conditional on the leader's decision. When groups interact repeatedly, we do not find that leading by example is able to foster cooperation by itself. It only significantly improves contributions when it is accompanied by intergroup competition.
    Keywords: Public goods, Leading by example, Intergroup competition, Strategy method
    JEL: C72 C91 C92 D74 H41
    Date: 2012–01–06
  8. By: Urs Fischbacher; Werner GŸth; M. Vittoria Levati
    Abstract: Participants in a public goods experiment receive private or common signals regarding the so-called 'point of no return', meaning that if the groupÕs total contribution falls below this point, all payoffs are reduced. An individual faces the usual conflict between private and collective interests above the point of no return, while he incurs the risk of damaging everyone by not surpassing the point. Our data reveal that contributions are higher if the cost of not reaching the threshold is high. In particular if the signal is private, many subjects are not willing to provide the necessary contribution.
    Keywords: Public goods, provision point mechanism, experiments, reduction factor, signal
    Date: 2011
  9. By: Federica Alberti (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Edward J. Cartwright (School of Economics, University of Kent, Canterbury)
    Abstract: We report threshold public good experiments in which group members not only need to be individually willing to contribute enough to provide the public good but also have to agree with each other on what every group members should contribute. We find strong support to the hypothesis that full agreement increases successful provision, although it takes a few repetitions before group members can successfully coordinate. This is consistent with our theoretical results that full agreement works because it increases criticality of each individual decision. The existence of a focal point makes it possible for the group members to successfully coordinate.
    Keywords: Public good, threshold, full agreement, focal point, experiment, coordination
    JEL: C72 H41
    Date: 2012–01–06
  10. By: Peter Postl
    Abstract: We study procurement procedures that simultaneously determine specification and price of a good. Suppliers can offer and produce the good in either of two possible specifications, both of which are equally good for the buyer. Production costs are interdependent and unknown at the time of bidding. Each supplier receives two signals about production cost, one per specification. Our model is a special case of the interdependent-value settings with multi-dimensional types in Jehiel and Moldovanu (2001) where an efficient and incentive compatible mechanism exists. We characterize equilibrium bidding behavior if the winning supplier is selected purely on the basis of price, regardless of the specification offered. While there is a positive chance of obtaining an inefficient specification, this procurement mechanism involves lower information rents than efficient mechanisms, suggesting that there is a trade-off between minimizing expected expenditure for the good, and ensuring that the efficient specification is chosen.
    Keywords: Procurement, interdependent valuations, multi-dimensional information, efficient mechanisms, optimal mechanisms
    JEL: C72 D44 D82
    Date: 2011–12

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