
on Game Theory 
Issue of 2012‒04‒17
eleven papers chosen by Laszlo A. Koczy Hungarian Academy of Sciences and Obuda University 
By:  Teng , Jimmy 
Abstract:  This paper introduces a new game theoretic equilibrium, Bayesian equilibrium by iterative conjectures (BEIC). It requires agents to make predictions, starting from first order uninformative predictive distribution functions (or conjectures) and keep updating with statistical decision theoretic and game theoretic reasoning until a convergence of conjectures is achieved. In a BEIC, rationality is achieved for strategies and conjectures. The BEIC approach is capable of analyzing a larger set of games than current Nash Equilibrium based games theory, including games with inaccurate observations, games with unstable equilibrium and games with double or multiple sided incomplete information games. On the other hand, for the set of games analyzed by the current games theory, it generates far lesser equilibriums and normally generates only a unique equilibrium. It also resolves inconsistencies in equilibrium results by different solution concepts in current games theory. 
Keywords:  new equilibrium concept; iterative conjectures; convergence; Bayesian decision theory; Schelling point 
JEL:  D84 D81 C72 
Date:  2011–12–15 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:37969&r=gth 
By:  Julia Belau 
Abstract:  In an economic or social situation where agents have to group in order to achieve common goals, how can we calculate the coalitional rents of the agents arising from the coalition formation? Once we have formalized the situation via a TUgame and a network describing the economic structure, we can apply different allocation rules to assign the coalitional rents to the agents. We specifically analyze situations where parties with a specific vote distribution in a parliament have to build agreements in order to reach some required quorum. In this situation, we want to measure the (relative) distribution of power. We analyze the allocation rules called Position value (Meessen (1988) and Borm et al. (1992)) and graphchivalue (Casajus (2009)). Applying the generalized framework (Gómez et al. (2008)), a framework where coalitions are not established yet, we fi nd that the graphchivalue does not differ for networks referring to the same coalition while the Position value takes into account the specific role of an agent within the network, i.e. the communication path. We define and characterize a new outside option sensitive value, the Kappavalue, which takes into account both outside options and the role of an agent within the network. 
Keywords:  Cooperative games; graphrestricted games; networks; position value; outside options; minimal winning coalitions 
JEL:  C71 D85 H10 
Date:  2012–04 
URL:  http://d.repec.org/n?u=RePEc:rwi:repape:0326&r=gth 
By:  Kyungmin Kim; Antonio Penta 
Abstract:  We study the problem of efficient auction design in environments with interdependent values, under arbitrary common knowledge assumptions. We propose a simple mechanism and show that, under a rather mild condition, it "robustly" achieves efficiency. Our mechanism consists in a standard Vickrey auction, preceded by one round of communication, where agents report their private signals and receive transfers from the designer. We interpret the transfers as the cost for the designer to robustly achieve efficiency. We introduce a notion of robust informational size and show that the transfers are small if agents are informationally small in our sense. Furthermore, the transfers are decreasing in the amount of information available to the designer and in the strength of the common knowledge assumptions. In other words, the more robust the efficient implementation result, the higher the cost of achieving efficiency. We thus formalize the intuitive idea of a tradeoff between robustness and efficient implementation and analyze the determinants of the "cost of robustness". 
Keywords:  Cost of robustness; efficient auctions; informational size; interdependent values; robust mechanism design 
JEL:  C72 D82 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:cca:wpaper:248&r=gth 
By:  Schilirò, Daniele; Carfì, David 
Abstract:  In the present work we propose an original analytical model of coopetitive game. We shall apply this analytical model of coopetition (based on normal form game theory) to the Greek crisis, while conceiving this game theory model at a macro level. We construct two realizations of such model, trying to represent possible realistic macroeconomic scenarios of the GermanyGreek strategic interaction. We shall suggest  after a deep and complete study of the two samples  feasible transferable utility solutions in a properly coopetitive perspective for the divergent interests which drive the economic policies in the euro area. 
Keywords:  Euro area; macroeconomc policy; competition; cooperation; coopetition; normal form games games 
JEL:  F42 F40 C71 F41 O52 C72 
Date:  2012–03 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:37855&r=gth 
By:  Sambuddha Ghosh; Seungjin Han 
Abstract:  Competing mechanism games involve multiple principals contracting with one or more agents. This paper extends the static model of Epstein and Peters (1999) to the repeated setting, allowing agents' types to evolve over time according to a Markov process. Actions are perfectly monitored, but types and messages are private information. Perhaps surprisingly, when discounting is low the dynamic game is more tractable in the following senses. First, each principal's minmax value relative to arbitrarily general mechanisms equals that relative to simpler mechanisms, often direct mechanisms. This contrasts with oneshot games, where the minmax cannot be explicitly computed because it is not expresssible in terms of simple mechanisms. Second, the above result allows equilibrium payoffs to be expressed in terms of primitives of the model. From the applied perspective, this paper provides a sufficient class of simple mechanisms to which one can restrict attention without loss of generality. 
Keywords:  dynamic competing mechanisms, minmax values, direct mechanisms, folk theorem, robust equilibria 
JEL:  C73 D82 
Date:  2012–04 
URL:  http://d.repec.org/n?u=RePEc:mcm:deptwp:201203&r=gth 
By:  Emanuele Gerratana (SIPA, Columbia University); Levent Kockesen (Koç University) 
Abstract:  This paper characterizes the equilibrium outcomes of twostage games in which the second mover has private information and can sign renegotiable contracts with a neutral thirdparty. Our aim is to understand whether renegotiationproof thirdparty contracts can confer a strategic advantage on the second mover. We first analyze nonrenegotiable contracts and show that a “folk theorem” holds: Any outcome in which the second mover best responds to the first mover’s action and the first mover obtains a payoff at least as large as his “individually rational payoff” can be supported. Renegotiationproofness imposes some restrictions, which is most transparent in games with externalities, i.e., games in which the first mover’s payoff increases (or decreases) in the second mover’s action. In such games, a similar folk theorem holds with renegotationproof contracts as well, but the firstmover’s individually rational payoff is in general higher. 
Keywords:  ThirdParty Contracts, Strategic Delegation, Renegotiation, Asymmetric Information, RenegotiationProofness, Durability. 
JEL:  C72 D80 L13 
Date:  2012–04 
URL:  http://d.repec.org/n?u=RePEc:koc:wpaper:1208&r=gth 
By:  Mullat, Joseph E. 
Abstract:  Playing a bargaining game the players are trying to enlarge their share of a sugarpie. However, HE is not very keen on sweets and does not prefer a piece of the pie if the size of the pie is too small or too large. In HIS view, too small or too large pies are not of a reasonable quality. In contrast, SHE, the second actor, likes sweets what ever they are. HE is a soft negotiator but SHE is a tough negotiator. The paper addresses the problem: what should be HIS power of negotiations if an equal ½division of the pie is desirable. 
Keywords:  bargaining power; bargaining game 
JEL:  C78 
Date:  2012–04–07 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:37901&r=gth 
By:  Madhav S. Aney (School of Economics, Singapore Management University) 
Abstract:  Why do agents engage in costly dispute resolution such as litigation and arbitration when costless settlement is available? I present a model with one sided asymmetric information where the payoff from litigation for both agents depends on the beliefs of the uninformed agent. Taking these payoffs as their outside options, agents negotiate over the allocation of an indivisible object that is in dispute and transfers. It is shown that it is impossible to implement an allocation that satisfies budget balance that guarantees the agents their payoff from conflict when agents can quit negotiations unilaterally at any stage. 
Date:  2012–04 
URL:  http://d.repec.org/n?u=RePEc:siu:wpaper:182012&r=gth 
By:  Klemens Keldenich 
Abstract:  This paper presents a laboratory experiment to measure the effect of group membership on individual behavior in modified dictator games. The results suggest that this effect is influenced by the degree of group membership saliency. A withinsubject design is employed: in stage 1, each subject decides individually; in stage 2, the subjects are divided into groups of three and one person is selected at random from each group to make the decision (the “hierarchical decision rule”). In stage 3, additional preplay communication in the group is allowed before the decision and, in stage 4, the decisions are again made on an individual basis. Interestingly, the dictators behave more selfishly when group members are not allowed to communicate. However, if groups are allowed to communicate, decisions do not differ from individual choices. Chat content shows that groups are concerned with reaching a consensus, even though talk is “cheap” and only one group member will make the binding decision. 
Keywords:  Group decision making; social comparison; leadership; communication 
JEL:  C91 C92 D71 
Date:  2012–03 
URL:  http://d.repec.org/n?u=RePEc:rwi:repape:0322&r=gth 
By:  Christos A. Ioannou; Julian Romero 
Abstract:  We modify the selftuning Experience Weighted Attraction (EWAlite) model of Camerer, Ho, and Chong (2007) and use it as a computer testbed to study the likely performance of a set of twostate automata in four symmetric 2 x 2 games. The model suggested allows for a richer specification of strategies and solves the inference problem of going from histories to beliefs about opponents' strategies, in a manner consistent with \belieflearning". The predictions are then validated with data from experiments with human subjects. Relative to the action reinforcement benchmark model, our modified EWAlite model can better account for subjectbehavior. 
Date:  2012–04 
URL:  http://d.repec.org/n?u=RePEc:pur:prukra:1269&r=gth 
By:  LAURENT BOUTON (Department of Economics, Boston University) 
Abstract:  This paper analyzes the properties of runoff electoral systems when voters are strategic. A model of threecandidate runoff elections is presented, and two new features are included: the risk of upset victory in the second round is endogenous, and many types of runoff systems are considered. Three main results emerge. First, runoff elections produce equilibria in which only two candidates receive a positive fraction of the votes. Second, a sincere voting equilibrium does not always exist. Finally, runo¤ systems with a threshold below 50% produce an Ortega effect that may lead to the systematic victory of the Condorcet loser. 
Keywords:  Runoff Elections, Duverger's Law and Hypothesis, Condorcet Loser, Poisson Games 
JEL:  C72 D72 
Date:  2012–01 
URL:  http://d.repec.org/n?u=RePEc:bos:wpaper:wp2012001&r=gth 