
on Game Theory 
Issue of 2012‒04‒10
seventeen papers chosen by Laszlo A. Koczy Hungarian Academy of Sciences and Obuda University 
By:  Timothy N. Cason (Department of Economics, Krannert School of Management, Purdue University); Anya C. Savikhin (Becker Friedman Institute for Economic Research, The University of Chicago); Roman Sheremeta (Argyros School of Business and Economics, Chapman University) 
Abstract:  Motivated by problems of coordination failure observed in weaklink games, we experimentally investigate behavioral spillovers for minimum and medianeffort coordination games. Subjects play these coordination games simultaneously and sequentially. The results show that successful coordination on the Pareto optimal equilibrium in the median game influences behavior in the minimum game when the games are played sequentially. Moreover, this positive, Paretoimproving spillover is present even when group composition changes across games, although the effect is not as strong. We also find that the precedent for uncooperative behavior in the minimum game does not influence play in the median game. These findings suggest guidelines for increasing cooperative behavior within organizations. 
Keywords:  coordination, orderstatistic games, experiments, cooperation, minimum game, median game, behavioral spillover 
JEL:  C72 C91 
Date:  2011 
URL:  http://d.repec.org/n?u=RePEc:chu:wpaper:1120&r=gth 
By:  Yakov Babichenko 
Abstract:  We consider smallinfluence anonymous games with a large number of players $n$ where every player has two actions. For this class of games we present a bestreply dynamic with the following two properties. First, the dynamic reaches Nash approximate equilibria fast (in at most $cn\ log n$ steps for some constant $c>0$). Second, Nash approximate equilibria are played by the dynamic with a limit frequency of at least $1e^{c'n}$ for some constant $c'>0$. 
Date:  2012–03 
URL:  http://d.repec.org/n?u=RePEc:huj:dispap:dp600&r=gth 
By:  Andersson, Ola (Research Institute of Industrial Economics (IFN)); Argenton, Cédric (CentER & TILEC); Weibull, Jörgen W. (Stockholm School of Economics) 
Abstract:  In games with continuum strategy sets, we model a player’s uncertainty about another player’s strategy, as an atomless probability distribution over the other player’s strategy set. We call a strategy profile (strictly) robust to strategic uncertainty if it is the limit, as uncertainty vanishes, of some sequence (all sequences) of strategy profiles in which every player’s strategy is optimal under his or her uncertainty about the others. General properties of this robustness criterion are derived and it is shown that it is a refinement of Nash equilibrium when payoff functions are continuous. We apply the criterion to a class of Bertrand competition games. These are discontinuous games that admit a continuum of Nash equilibria. Our robustness criterion selects a unique Nash equilibrium, and this selection agrees with recent experimental findings. 
Keywords:  Nash equilibrium; Refinement; Strategic uncertainty; Bertrand competition; Logconcavity 
JEL:  C72 D43 L13 
Date:  2012–03–30 
URL:  http://d.repec.org/n?u=RePEc:hhs:iuiwop:0910&r=gth 
By:  Marta Faias (Department of Economics, Universidade Nova de Lisboa); Emma MorenoGarcia (Department of Economics, Universidad de Salamanca); Myrna Wooders (Department of Economics, Vanderbilt University) 
Abstract:  Bergstrom, Blume and Varian (1986) provides an elegant gametheoretic model of an economy with one private good and one public good. Strategies of players consist of voluntary contributions of the private good to public good production. Without relying on first order conditions, the authors demonstrate existence of Nash equilibrium and an extension of Warr's neutrality result  any redistribution of endowment that left the set of contributors unchanged would induce a new equilibrium with the same total public good provision. The assumption of oneprivate good greatly facilities the results. We provide analogues of the Bergstrom, Blume and Varian results in a model allowing multiple private and public goods. In addition, we relate the strategic market game equilibrium to the private provision of equilibrium of Villanaci and Zenginobuz (2005), which provides a counterpart to the Walrasian equilibrium for a public goods economy. Our techniques follow those of Dubey and Geanakoplos (2003), which itself grows out of the seminal work of Shapley and Shubik (1977). Our approach also incorporates, into the strategic market game literature, economies with production, not previously treated and, as a byproduct, establishes a new existence of privateprovision equilibrium. 
Keywords:  Public goods, market games, equilibrium, Nash equilibrium, private provision, voluntary contributions 
JEL:  D01 D40 D51 
Date:  2012–02 
URL:  http://d.repec.org/n?u=RePEc:van:wpaper:1201&r=gth 
By:  Michał Krawczyk (University of Warsaw, Faculty of Economic Sciences); Fabrice Le Lec (Catholic University of Lille, Lille Economie & Management UMR CNRS 8179) 
Abstract:  We propose an experimental method whose purpose is to induce selfish behavior in games for a broad class of social preferences. It provides a theoretical framework for testing game theoretical predictions by confronting subjects with a commonly known payoff matrix actually representing their preferences. The paper describes the empirical tests of this method based on the comparison of results from several popular experimental games played with and without our methodology. Apart from it being a test of validity of the method, our experiment helps answer the question of how useful social preferences could be in explaining commonly observed deviations from selfish rationality. Results suggest that our method does induce more selfish behaviors: a substantial part of the difference between predictions based on selfishness and observed behaviors seems indeed driven by such preferences. But they also indicate that a considerable share is left untouched, perhaps giving weight to alternative explanations. 
Keywords:  social preference, experimental game theory, ultimatum game, public goods game, trust game, prisoner's dilemma, dictator game 
JEL:  A13 C65 C72 D63 D03 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:war:wpaper:201206&r=gth 
By:  Tsakas, Nikolas 
Abstract:  This paper considers a model of observational learning in social networks. Every period, the agents observe the actions of their neighbors and their realized outcomes, and they imitate the most successful. First, we study the case where the network has finite population and we show that, regardless of the structure, the population converges to a monomorphic steady state, i.e. where every agent chooses the same action. Subsequently, we extend our analysis to infinitely large networks and we differentiate the cases where agents have bounded neighborhoods, with those where they do not. Under bounded neighborhoods, an action is diffused to the whole population if it is the only one initially chosen by infinitely many agents. If there exist more than one such actions, we provide an additional sufficient condition in the payoff structure, which ensures convergence for any network. Without the assumption of bounded neighborhoods, we show that an action can survive even if it is initially chosen by a single agent and also that a network can be in steady state without this being monomorphic. 
Keywords:  Social Networks; Learning; Diffusion; Imitation 
JEL:  D03 D83 D85 
Date:  2012–03–23 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:37796&r=gth 
By:  Kleppe, J.; Borm, P.E.M.; Hendrickx, R.L.P.; Reijnierse, J.H. (Tilburg University, Center for Economic Research) 
Abstract:  We apply the procedure to both existing and new classes of cooperative situations: sequencing situations without initial ordering, maintenance problems, minimum cost spanning tree situations, travelling salesman problems, shared taxi problems and travelling repairman problems. 
Keywords:  cooperative situation;order problem representation;transferable utility game;generalised Bird allocation. 
JEL:  C 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:dgr:kubcen:2012029&r=gth 
By:  Jiménez Gómez, José Manuel; Peris, Josep E. 
Abstract:  In a distribution problem, and specfii cally in bankruptcy issues, the Proportional (P) and the Egalitarian (EA) divisions are two of the most popular ways to resolve the conflict. The Constrained Equal Awards rule (CEA) is introduced in bankruptcy literature to ensure that no agent receives more than her claim, a problem that can arise when using the egalitarian division. We propose an alternative modi cation, by using a convex combination of P and EA. The recursive application of this new rule finishes at the CEA rule. Our solution concept ensures a minimum amount to each agent, and distributes the remaining estate in a proportional way. Keywords: Bankruptcy problems, Proportional rule, Equal Awards, Convex combination of rules, Lorenz dominance. JEL classi fication: C71, D63, D71. 
Keywords:  Fallida, Jocs cooperatius, Economia del benestar, Elecció social, 33  Economia, 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:urv:wpaper:2072/182645&r=gth 
By:  Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University); Timothy Shields (Argyros School of Business and Economics, Chapman University) 
Abstract:  We examine subjects' behavior in senderreceiver games where there are gains from trade and alignment of interests in one of the two states. We elicit subjects' beliefs, risk and otherregarding preferences. Our design also allows us to examine the behavior of subjects in both roles, to determine whether the behavior in one role is the best response to the subject's own behavior in the other role. The results of the experiment indicate that 60 percent of senders adopt deceptive strategies by sending favorable message when the true state of the nature is unfavorable. Nevertheless, 67 percent of receivers invest conditional upon a favorable message. The investing behavior of receivers cannot be explained by risk preferences or as a best response to subject's own behavior in the sender's role. However, it can be rationalized by accounting for elicited beliefs and otherregarding preferences. Finally, the honest behavior of some senders can be explained by otherregarding preferences. Thus we find liars do believe, and individuals who care about the payoffs of others tend to be honest. 
Keywords:  experiment, strategic communication, beliefs, lying, deception, otherregarding preferences 
JEL:  C72 C91 D82 D83 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:chu:wpaper:1205&r=gth 
By:  Omer Edhan 
Abstract:  We introduce ideas and methods from distribution theory into value theory. This novel approach enables us to construct new diagonal formulas for the Mertens value and the Neyman value on a large space of nondifferentiable games. This in turn enables us to give an affirmative answer to the question, first posed by Neyman, whether the Mertens value and the Neyman value coincide “modulo Banach limits”? The solution is an intermediate result towards a characterization of values of norm 1 of vector measure games with bounded variation. 
Date:  2012–03 
URL:  http://d.repec.org/n?u=RePEc:huj:dispap:dp602&r=gth 
By:  Jiménez Gómez, José Manuel; Peris, Josep E. 
Abstract:  The idea of ensuring a guarantee (a minimum amount of the resources) to each agent has recently acquired great relevance, in both social and politi cal terms. Furthermore, the notion of Solidarity has been treated frequently in redistribution problems to establish that any increment of the resources should be equally distributed taking into account some relevant characteris tics. In this paper, we combine these two general concepts, guarantee and solidarity, to characterize the uniform rules in bankruptcy problems (Con strained Equal Awards and Constrained Equal Losses rules). Keywords: Constrained Equal Awards, Constrained Equal Losses, Lower bounds, Bankruptcy problems, Solidarity. JEL classification: C71, D63, D71. 
Keywords:  Fallida, Jocs cooperatius, Economia del benestar, Elecció social, 33  Economia, 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:urv:wpaper:2072/182646&r=gth 
By:  Seungjin Han; Shintaro Yamaguchi 
Abstract:  This paper studies a stable job matching equilibrium and the implicit pricing of nonwage 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 nonwage 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 
URL:  http://d.repec.org/n?u=RePEc:mcm:deptwp:201201&r=gth 
By:  Britta Hoyer 
Abstract:  "The enemy of my enemy is my friend." This common adage, which seems to be adhered to in social interactions (e.g. high school cliques or work relationships) as well as in political alliances within countries and between countries, describes the ability of groups or people to work together when they face an opponent, although otherwise they have little in common. In social psychology this phenomenon has been termed the "common enemy effect". Such group behavior can be studied using networks to depict the players within a group and the relationships between them. In this paper we study the effect of a common enemy on a model of network formation, where selfinterested, myopic players can use links to build a network, knowing that they are facing a common enemy who can disrupt the links within the network and whose goal it is to minimize the overall value of the network. We find that introducing such a common enemy can lead to the formation of stable and efficient networks which would not be stable without the threat of disruption. However, we also find that fragmented networks as well as the empty networks are also stable. While the common enemy can thus have a positive effect on the incentives of players to form an efficient network, it can also lead to fragmentation and disintegration of the network. 
Keywords:  strategic network disruption, strategic network design, noncooperative network games 
JEL:  C72 D85 
Date:  2012–03 
URL:  http://d.repec.org/n?u=RePEc:use:tkiwps:1206&r=gth 
By:  Jingjing Zhang 
Abstract:  This paper examines whether and how cheap talk communication can facilitate withingroup coordination when two unequal sized groups compete for a prize that is shared equally among members of the winning group, regardless of their (costly) contributions to the group’s success. We find that allowing group members to communicate before making contribution decisions improves coordination. To measure how much miscoordination remains, we employ a control treatment where miscoordination is eliminated by asking group members to reach a unanimous contribution decision. Average group contributions are not significantly different in this control treatment. Cheap talk communication thus completely solves miscoordination within groups and makes group members act as a single agent. Furthermore, it is the larger group that benefits from communication at the expense of the smaller group. Finally, content analysis of group communication reveals that after the reduction of withingroup strategic uncertainty, groups reach selfenforcing agreements on how much to contribute, designate specific contributors according to a rotation scheme, and quickly discover the logic of the mixedstrategy equilibrium. 
Keywords:  Group competition, threshold public goods, coordination, cheap talk communication, content analysis, experiments 
JEL:  C72 C92 D72 H41 
Date:  2012–04 
URL:  http://d.repec.org/n?u=RePEc:zur:econwp:069&r=gth 
By:  Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University); William A. Masters (Department of Food and Nutrition Policy, Tufts University); Timothy N. Cason (Department of Economics, Krannert School of Management, Purdue University) 
Abstract:  This study provides a unified theoretical and experimental framework in which to compare three canonical types of competition: winnertakeall contests won by the best performer, winnertakeall lotteries where probability of success is proportional to performance, and proportionalprize contests in which rewards are shared in proportion to performance. We introduce random noise to reflect imperfect information, and collect independent measures of risk aversion, otherregarding preferences, and the utility of winning a contest. The main finding is that efforts are consistently higher with winnertakeall contests. The lottery contests have the same Nash equilibrium as proportional prizes, but induce contestants to choose higher efforts and receive lower, more unequal payoffs. This result may explain why contest designers who seek only to elicit effort offer lumpsum prizes, even though contestants would be better off with proportional rewards. 
Keywords:  contests, rentseeking, lotteries, incentives in experiments, risk aversion 
JEL:  C72 D72 D74 J33 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:chu:wpaper:1204&r=gth 
By:  Pradeep Dubey (Center for Game Theory, Department of Economics, Stony Brook University); Siddhartha Sahi (Dept. of Mathematics, Rutgers University, New Brunswick) 
Abstract:  Consider agents who undertake costly effort to produce stochastic outputs observable by a principal. The principal can award a prize deterministically to the agent with the highest output, or to all of them with probabilities that are proportional to their outputs. We show that, if there is sufficient diversity in agents' skills relative to the noise on output, then the proportional prize will, in a precise sense, elicit more output on average, than the deterministic prize. Indeed, assuming agents know each others' skills (the complete information case), this result holds when any Nash equilibrium selection, under the proportional prize, is compared with any individually rational selection under the deterministic prize. When there is incomplete information, the result is still true but now we must restrict to Nash selections for both prizes. We also compute the optimal scheme, from among a natural class of probabilistic schemes, for awarding the prize; namely that which elicits maximal effort from the agents for the least prize. In general the optimal scheme is a monotonic step function which lies "between" the proportional and deterministic schemes. When the competition is over small fractional increments, as happens in the presence of strong contestants whose base levels of production are high, the optimal scheme awards the prize according to the "log of the odds," with odds based upon the proportional prize. 
Keywords:  Deterministic/proportional/optimal prizes, Games of complete/incomplete information, Nash equilibrium, Individually rational strategies 
JEL:  C70 C72 C79 D44 D63 D82 
Date:  2012–04 
URL:  http://d.repec.org/n?u=RePEc:cwl:cwldpp:1858&r=gth 
By:  Ramon Flores (Universidad Carlos III de Madrid); Maurice Koster (University of Amsterdam); Ines Lindner (VU University Amsterdam); Elisenda Molina (Universidad Carlos III de Madrid) 
Abstract:  This paper proposes a new measure for a group's ability to lead society to adopt their standard of behavior, which in particular takes account of the time the group takes to convince the whole society to adopt their position. This notion of a group's power to initiate action is computed as the reciprocal of the resistance against it, which is in turn given by the expected absorption time of a related finite state partial Markov chain that captures the social dynamics. The measure is applicable and meaningful in a variety of models where interaction between agents is formalized through (weighted) binary relations. Using Percolation Theory, it is shown that the group power is monotonic as a function of groups of agents. We also explain the differences between our measure and those discussed in the literature on Graph Theory, and illustrate all these concerns by a thorough analysis of two particular cases: the Wolfe Primate Data and the 11S hijackers' network. 
Keywords:  Collective action; Social networks; Influence and diffusion models; Network intervention; Group centrality measures 
JEL:  C79 D01 D71 
Date:  2012–03–29 
URL:  http://d.repec.org/n?u=RePEc:dgr:uvatin:20120032&r=gth 