nep-gth New Economics Papers
on Game Theory
Issue of 2012‒02‒20
nineteen papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. Robust stochastic stability By Carlos Alós–Ferrer; Nick Netzer
  2. Core-stable rings in second price auctions with common values. By Orzach, Ram; Forges, Françoise
  3. On the existence of pure strategy equilibria in large generalized games with atomic players By Riascos Villegas, Alvaro; Torres-Martínez, Juan Pablo
  4. Essential stability for large generalized games By Correa, Sofía; Torres-Martínez, Juan Pablo
  5. The Value of social networks in rural Paraguay By Ligon, Ethan A.; Schechter, Laura
  6. μ-σ Games By Uwe Dulleck; Andreas Loffler
  7. A Dynamical Approach to Conflict Analysis By Sebastian Ille
  8. Network formation under institutional constraints By Olaizola Ortega, María Norma; Valenciano Llovera, Federico
  9. Two solution concepts for TU games with cycle-free directed cooperation structures. By Khmelnitskaya, A.; Talman, A.J.J.
  10. A Folk Theorem for Games when Frequent Monitoring Decreases Noise By Osório, Antonio
  11. A model of influence with a continuum of actions By Michel Grabisch; Agnieszka Rusinowska
  12. Noisy Stochastic Games By John Duggan
  13. Implementing quotas in university admissions: An experimental analysis By Braun, Sebastian; Dwenger, Nadja; Kübler, Dorothea; Westkamp, Alexander
  14. Inequality aversion and externalities By Gürtler, Marc; Gürtler, Oliver
  15. Motives for sharing in social networks By Ligon, Ethan; Schechter, Laura
  16. Compensating Wage Differentials in Stable Job Matching Equilibrium By Han, Seungjin; Yamaguchi, Shintaro
  17. Trust, Reciprocity, and Guanxi in China: An Experimental Investigation By Fei Song; C. Bram Cadsby; Yunyun Bi
  18. A game theoretical analysis of economic sanction By Shidiqi, khalifany ash; Pradiptyo, rimawan
  19. International Emission Strategies under the Threat of a Sudden Jump in Damages By Nkuiya, Bruno

  1. By: Carlos Alós–Ferrer; Nick Netzer
    Abstract: A strategy profile of a game is called robustly stochastically stable if it is stochastically stable for a given behavioral model independently of the specification of revision opportunities and tie-breaking assumptions in the dynamics. We provide a simple radius-coradius result for robust stochastic stability and examine several applications. For the logit-response dynamics, the selection of potential maximizers is robust for the subclass of supermodular N-player binary-action games. For the mistakes model, robust selection results obtain for best-reply dynamics in the same class of games under the weaker condition of strategic complementarity. Further, both the selection of risk-dominant strategies in coordination games under best-reply and the selection of “Walrasian” strategies in aggregative games under imitation are robust.
    Keywords: Learning in games, stochastic stability, radius-coradius theorems, logit-response dynamics, mutations, imitation
    JEL: C72 D83
    Date: 2012–02
  2. By: Orzach, Ram; Forges, Françoise
    Abstract: In a commonvalueauction in which the information partitions of the bidders are connected, all rings are core-stable. More precisely, the ex ante expected utilities of rings, at the (noncooperative) sophisticated equilibrium proposed by Einy et al. [Einy, E., Haimanko, O., Orzach, R., Sela, A., 2002. Dominance solvability of second-pricesauctions with differential information. Journal of Mathematical Economics 37, 247–258], describe a cooperative games in characteristic function form, in spite of the underlying strategic externalities. A ring is core-stable if the core of this characteristic function is not empty. Furthermore, every ring can implement its sophisticated equilibrium strategy by means of an incentive compatible mechanism. An example shows that, if the bidders’ information partitions are not connected, rings may no longer be core-stable.
    Keywords: Characteristic function; Partition form game; Core; Collusion; Bayesian game; Auctions;
    JEL: D44 C72 C71
    Date: 2011
  3. By: Riascos Villegas, Alvaro; Torres-Martínez, Juan Pablo
    Abstract: We consider a game with a continuum of players where only a finite number of them are atomic. Objective functions and admissible strategies may depend on the actions chosen by atomic players and on aggregate information about the actions chosen by non-atomic players. Only atomic players are required to have convex sets of admissible strategies and quasi-concave objective functions. We prove the existence of a pure strategy Nash equilibria. Thus, we extend to large generalized games with atomic players the results of equilibrium existence for non-atomic games of Schemeidler (1973) and Rath (1992). We do not obtain a pure strategy equilibrium by purification of mixed strategy equilibria. Thus, we have a direct proof of both Balder (1999, Theorem 2.1) and Balder (2002, Theorem 2.2.1), for the case where non-atomic players have a common non-empty set of strategies and integrable bounded codification of action profiles. Our main result is readily applicable to many interesting problems in general equilibrium. As an application, we extend Aumann (1966) result on the existence of equilibrium with a continuum of traders to a standard general equilibrium model with incomplete asset markets.
    Keywords: Generalized games; Non-convexities; Pure-strategy Nash equilibrium
    JEL: C72 C62
    Date: 2012–01
  4. By: Correa, Sofía; Torres-Martínez, Juan Pablo
    Abstract: We address the essential stability of Cournot-Nash equilibria for generalized games with a continuum of players, where only a finite number of them are atomic. Given any set of generalized games continuously parameterized by a complete metric space, we analyze the robustness of equilibria to perturbations on parameters.
    Keywords: Essential equilibria; Essential sets and components; Generalized games
    JEL: C72 C62
    Date: 2012–01
  5. By: Ligon, Ethan A. (University of California, Berkeley. Dept of agricultural and resource economics); Schechter, Laura (University of Wisconsin, Madison)
    Abstract: We conduct field experiments in rural Paraguay to measure the value of reciprocity within social networks in a set of fifteen villages. These experiments involve conducting dictator- type games; different treatments involve manipulating the information and choice that individuals have in the game. These different treatments allow us to measure and distinguish between different motives for giving in these games. The different motives we're able to measure include a general benevolence, directed altruism, fear of sanctions, and reciprocity within the social network. We're further able to draw inferences from play in the games regarding the sorts of impediments to trade which must restrict villagers' ability to share in states of the world when no researchers are present running experiments and measuring outcomes.
    Date: 2011–02
  6. By: Uwe Dulleck (QUT); Andreas Loffler
    Abstract: Risk aversion in game theory is usually modelled using expected utility, which has been critized early on leading to an extensive literature on generalized expected utility. In this paper we are first to apply μ-σ theory to the analysis of (static) games. μ-σ theory is widely accepted in the finance literature, using it allows us to study the effect on uncertainty endogenous to the game, i.e. mixed equilibria. In particular, we look at the case of linear μ-σ utility functions and determine the best response strategy. In the case of 2x2- and NxM-games we are able to characterize all mixed equilibria.
    Date: 2012–01–13
  7. By: Sebastian Ille
    Abstract: The Conflict Analysis approach by Hipel and Fraser (1984) is well equipped to model repeated games. Players are assumed to posses a sequential reasoning that allows them to ( not necessarily correctly) anticipate the reaction of other players to their strategies. An individual?s best response strategy is thus defined based on this projection, adding additional stability conditions to strategic choice and increasing the set of potential equilibria beyond pure Nash equilibria. Yet, the original Conflict Analysis approach lacks the ability to genuinely model dynamic repeated games, in which past play defines the condition for future interactions. This article will illustrate how the original model can be adapted to include endogenous individual preferences that are defined by the strategic choice of players during past play, allowing to model the reciprocal connection between preferential change and best response play in repeated games. A dummy game serves as an exemplar and helps to visualise the results obtained from this extension.
    Keywords: Game Theory, Repeated Games, Computational Methods, Non-Nash Equilibria, Dominated Strategies
    JEL: C62 C65 D74 D83 D84
    Date: 2012–02–13
  8. By: Olaizola Ortega, María Norma; Valenciano Llovera, Federico
    Abstract: We study the effects of institutional constraints on stability, efficiency and network formation. An exogenous "societal cover" consisting of a collection of possibly overlapping subsets covering the set of players specifies the social organization in different groups or "societies". It is assumed that a player may imitiate links only with players that belong to at least one society that she also belongs to, thus restricting the feasible strategies and networks. In this setting, we examine the impact of such societal constraints on stable/efficient architectures and on dynamics. We also study stability and stochastic stability in the presence of decay.
    Keywords: network, stability, dynamics, decay, stochastic stability
    JEL: A14 C72 D20 J00
    Date: 2011–05
  9. By: Khmelnitskaya, A.; Talman, A.J.J. (Tilburg University)
    Date: 2011
  10. By: Osório, Antonio
    Abstract: This paper studies frequent monitoring in an infinitely repeated game with imperfect public information and discounting, where players observe the state of a continuous time Brownian process at moments in time of length _. It shows that a limit folk theorem can be achieved with imperfect public monitoring when players monitor each other at the highest frequency, i.e., _. The approach assumes that the expected joint output depends exclusively on the action profile simultaneously and privately decided by the players at the beginning of each period of the game, but not on _. The strong decreasing effect on the expected immediate gains from deviation when the interval between actions shrinks, and the associated increase precision of the public signals, make the result possible in the limit. JEL: C72/73, D82, L20. KEYWORDS: Repeated Games, Frequent Monitoring, Public Monitoring, Brownian Motion.
    Keywords: Teoria de jocs, 33 - Economia, 65 - Gestió i organització. Administració i direcció d'empreses. Publicitat. Relacions públiques. Mitjans de comunicació de masses,
    Date: 2011–10–27
  11. By: Michel Grabisch (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne)
    Abstract: We generalize a two-action (yes-no) model of influence to a framework in which every player has a continuum of actions, among which he has to choose one. We assume the set of actions to be an interval. Each player has an inclination to choose one of the actions. Due to influence among players, the final decision of a player, i.e., his choice of one action, may be different from his original inclination. In particular, a coalition of players with the same inclination may influence another player with different inclination, and as a result of this influence, the decision of the player is closer to the inclination of the influencing coalition than his inclination was. We introduce a measure of such a positive influence of a coalition on a player. Several unanimous influence functions in this generalized framework are considered. Also the set of fixed points under a given influence function is analyzed. Furthermore, we study linear influence functions and discuss their convergence. For a linear unanimous function, we find necessary and sufficient conditions for the existence of the positive influence of a coalition on a player, and we calculate the value of the influence index. We also introduce a measure of a negative influence of a coalition on a player.
    Date: 2011
  12. By: John Duggan (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 14627-0158)
    Abstract: This paper establishes existence of a stationary Markov perfect equilibrium in general stochastic games with noise—a component of the state that is nonatomically distributed and not directly affected by the previous period’s state and actions. Noise may be simply a payoff-irrelevant public randomization device, delivering known results on existence of correlated equilibrium as a special case. More generally, noise can take the form of shocks that enter into players’ stage payoffs and the transition probability on states. The existence result is applied to a model of industry dynamics and to a model of dynamic electoral competition.
    Date: 2012–02
  13. By: Braun, Sebastian; Dwenger, Nadja; Kübler, Dorothea; Westkamp, Alexander
    Abstract: Quotas for special groups of students often apply in school or university admission procedures. This paper studies the performance of two mechanisms to implement such quotas in a lab experiment. The first mechanism is a simplified version of the mechanism currently employed by the German central clearinghouse for university admissions, which first allocates seats in the quota for top-grade students before allocating all other seats among remaining applicants. The second is a modified version of the student-proposing deferred acceptance (SDA) algorithm, which simultaneously allocates seats in all quotas. Our main result is that the current procedure, designed to give top-grade students an advantage, actually harms them, as students often fail to grasp the strategic issues involved. The modified SDA algorithm significantly improves the matching for top-grade students and could thus be a valuable tool for redesigning university admissions in Germany. --
    Keywords: college admissions,experiment,quotas,matching,Gale-Shapley mechanism,Boston mechanism
    JEL: C78 C92 D78 I20
    Date: 2012
  14. By: Gürtler, Marc; Gürtler, Oliver
    Abstract: We conduct a general analysis of the effects of inequality aversion on decisions by homogeneous players in static and dynamic games. We distinguish between direct and indirect effects of inequality aversion. Direct effects are present when a player changes his action to affect disutility caused by inequality. Indirect effects occur when the own action is changed to affect other players' actions. We provide necessary and sufficient conditions for the occurrence of either effect. Moreover, we examine the direction of the effects. Whereas indirect effects induce players to internalize externalities they impose on others, direct effects act in the opposite direction. --
    Keywords: inequality aversion,externalities,direct effects,indirect effects
    JEL: C72 D62 D63
    Date: 2011
  15. By: Ligon, Ethan (University of California, Berkeley. Dept of agricultural and resource economics); Schechter, Laura (University of Wisconsin, Madison)
    Abstract: What motivates people in rural villages to share? We first elicit a baseline level of sharing using a standard, anonymous dictator game. Then using variants of the dictator game that allow for either revealing the dictator's identity or allowing the dictator to choose the recipient, we attribute variationin sharing to three different motives. The first of these, directed altruism, is related to preferences, while the remaining two are incentive-related(sanctions and reciprocity). We observe high average levels of sharing in ourbaseline treatment, while variation across individuals depends importantlyon the incentive-related motives. Finally, variation in measured reciprocity within the experiment predicts observed 'real-world' gift-giving, while other motives measured in the experiment do not predict behavior outside the experiment.
    Date: 2011–12
  16. By: Han, Seungjin; Yamaguchi, Shintaro
    Abstract: This paper studies a stable job matching equilibrium and the implicit pricing of non-wage job characteristics. It departs from the previous literature by allowing worker heterogeneity in productivity instead of preferences, giving rise to a double transaction problem in a hedonic model. We show explicitly how wage differences across jobs can be decomposed into compensating wage differentials for non-wage job characteristics and differences in worker productivity. We also derive sufficient conditions for an assortative job matching and a stable matching condition in a model with continuous agent types. Empirical evidence from the U.S. Census and job amenity data from the Dictionary of Occupational Titles strongly supports our theory.
    Keywords: assortative matching, compensating wage differentials, hedonic model, stable matching equilibrium, worker productivity heterogeneity
    JEL: C78 J31
    Date: 2012–01–30
  17. By: Fei Song (Ted Rogers School of Management, Ryerson University); C. Bram Cadsby (Department of Economics, University of Guelph); Yunyun Bi (Taiping Asset Management, Shanghai, China)
    Abstract: We examine the influence of social distance on levels of trust and reciprocity in China. Social distance, reflected in the indigenous concept of guanxi, is of central importance to Chinese culture. In Study 1, some participants participated in two financially salient trust games to measure behavior, one with an anonymous classmate and the other with an anonymous, demographically identical nonclassmate. Other participants, drawn from the same population, completed hypothetical surveys to gauge both hypothetical behavior and expectations of others. Social distance effects on actual and hypothetical behavior were statistically consistent. The results together corroborated the hypothesized negative relationship between trust and social distance. However, reciprocity was not responsive to social distance. Study 2 found that affect-based trust, but not cognition-based trust, played a mediating role in the relationship between social distance and interpersonal trust in a hypothetical scenario. We conclude that close guanxi ties in China engender affect-based trust, which is extended to shouren classmates. This is true despite the fact that no more cognition-based trust is placed nor reciprocity received or expected from classmates compared to demographically identical shengren nonclassmates.
    Keywords: Experiment; Affect-based Trust; China; Guano; Reciprocity; Trust; Social Distance
    JEL: C91 D03 D69
    Date: 2012
  18. By: Shidiqi, khalifany ash; Pradiptyo, rimawan
    Abstract: Economic sanction has been widely used and increasingly a popular tool in maintaining peace and political stability in the world. The use of economic sanction, as opposed to the use of military power, to punish target countries have been supported by the Charter of United Nations (UN). Tsebelis (1990) modelled economic sanctions using game theory and found that any attempt to increase the severity of the sanctions was counterintuitive, namely the policy reduced the likelihood of sender country(s) in enforcing economic sanction, however, it did not change the probability of the target country(s) in violating international agreement/law. This paper focuses on the refinement of the sanction game proposed by Tsebelis (1990) to analyse international relations. Recent findings from various studies on the effectiveness of economic sanction have been used to reconstruct the game. In contrast to Tsebelis’(1990) findings, any attempt to increase the severity of economic sanction may reduce the probability of the target country(s) in violating international agreement/law. A similar result was obtained in the case for which the sender country(s) applies any policy in preventing violation of international agreement/law by providing aids, assistances, and incentives to the target country.
    Keywords: Economic Sanction; the Sanction/Inspection Games; Mixed Strategy Equilibrium
    JEL: F51 K42 C72
    Date: 2011–02–25
  19. By: Nkuiya, Bruno
    Abstract: We characterize the equilibrium level of emissions, the equilibrium stock of global pollution and the discounted net social welfare for both the cooperative and non-cooperative equilibria when the countries face the threat of a sudden irreversible jump in the global damages at an unknown date. The goal is to analyze the impact of this type of uncertainty on the equilibrium behavior of the countries. We find that it can have a significant effect on those equilibria. Countries reduce their emissions to mitigate their exposure to this threat. As the level of threat rises, countries adjust their emissions to lower the stock of pollutant. However, although initially this threat has the effect of lowering the discounted net welfare, it can in the long run have a net positive effect on welfare. The emissions trajectory is non-monotonic and discontinuous, but only under the threat.
    Keywords: Global pollution, Environmental uncertainty, regime shift, stochastic differential games, Environmental Economics and Policy, C61, C7, D81, Q54,
    Date: 2011–11

This nep-gth issue is ©2012 by Laszlo A. Koczy. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.