nep-gth New Economics Papers
on Game Theory
Issue of 2012‒05‒08
eighteen papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. Unbeatable Imitation By Duersch, Peter; Oechssler, Jorg; Schipper, Burkhard C.
  2. The refined best-response correspondence in normal form games By Dieter Balkenborg; Josef Hofbauer; Christoph Kuzmics
  3. Invariance under type morphisms: the bayesian Nash equilibrium By Pintér, Miklós
  4. Interactive Purchasing Situations By Groote Schaarsberg, M.; Borm, P.E.M.; Hamers, H.J.M.; Reijnierse, J.H.
  5. A coalition formation value for games in partition function form By Michel Grabisch; Yukihiko Funaki
  6. The roles of incentives and voluntary cooperation for contractual compliance By Simon Gaechter; Esther Kessler; Manfred Koenigstein
  7. e-Incentive Compatible Competitive Equilibria in Economies with Indivisibilities By Andersson , Tommy; Ehlers, Lars; Svensson, Lars-Gunnar
  8. Escalation Bargaining: Theoretical Analysis and Experimental Test By Swee-Hoon Chuah; Robert Hoffmann; Jeremy Larner
  9. Destructor Game By Esther Kessler; Maria Ruiz-Martos; David Skuse
  10. Stability and Fairness in Models with a Multiple Membership By Le Breton, Michel; Moreno-Ternero, Juan D.; Savvateev, Alexei; Weber, Shlomo
  11. The value of lies in a power-to-take game with imperfect information By Besancenot, Damien; Dubart, Delphine; Vranceanu, Radu
  12. The stagnation effect and the individually strict monotonic path solutions By Jaume Garcia-Segarra; Miguel Gines-Vilar
  13. Voting Power in the EU Council of Ministers and Fair Decision Making in Distributive Politics By Le Breton, Michel; Montero, Maria; Zaporozhets, Vera
  14. Sequential Legislative Lobbying By Le Breton, Michel; Sudhölter, Peter; Zaporozhets, Vera
  15. Multi-Stage Sequential All-Pay Auctions By Segev, Ella; Sela, Aner
  16. Congestion management in electricity networks: Nodal, zonal and discriminatory pricing By Holmberg, P.; Lazarczyk, E.
  17. Becker Meets Ricardo: Multisector Matching with Social and Cognitive Skills By Robert J. McCann; Xianwen Shi; Aloysius Siow; Ronald Wolthoff
  18. Please don’t vote for me: strategic voting in a natural experiment with perverse incentives By Spenkuch, Jörg L.

  1. By: Duersch, Peter (University Heidelberg); Oechssler, Jorg (University Heidelberg); Schipper, Burkhard C. (University CA, Davis)
    Abstract: We show that for many classes of symmetric two-player games, the simple decision rule "imitate-if-better" can hardly be beaten by any strategy. We provide necessary and sufficient conditions for imitation to be unbeatable in the sense that there is no strategy that can exploit imitation as a money pump. In particular, imitation is subject to a money pump if and only if the relative payoff function of the game is of the rock-scissors-paper variety. We also show that a sufficient condition for imitation not being subject to a money pump is that the relative payoff game is a generalized ordinal potential game or a quasiconcave game. Our results apply to many interesting examples of symmetric games including 2 x 2 games, Cournot duopoly, price competition, public goods games, common pool resource games, and minimum effort coordination games.
    JEL: C72 C73 D43
    Date: 2012–04
  2. By: Dieter Balkenborg (Department of Economics, School of Business and Economics, University of Exeter); Josef Hofbauer (Department of Mathematics, University of Vienna); Christoph Kuzmics (Bielefeld University)
    Abstract: This paper provides an in-depth study of the (most) refined best reply correspondence introduced by Balkenborg, Hofbauer, and Kuzmics (2012). An example demonstrates that this correspondence can be very different from the standard best reply correspondence. In two-player games, however, the refined best reply correspondence of a given game is the same as the best reply correspondence of a slightly modified game. The modified game is derived from the original game by reducing the payoff by a small amount for all pure strategies that are weakly inferior. Weakly inferior strategies, for two-player games, are pure strategies that are either weakly dominated or are equivalent to a proper mixture of other pure strategies. Fixed points of the refined best reply correspondence are not equivalent to any known Nash equilibrium refinement. A class of simple communication games demonstrates the usefulness and intuitive appeal of the refined best reply correspondence.
    Date: 2012–04
  3. By: Pintér, Miklós
    Abstract: Ely and Peski (2006) and Friedenberg and Meier (2010) provide examples when changing the type space behind a game, taking a "bigger" type space, induces changes of Bayesian Nash Equilibria, in other words, the Bayesian Nash Equilibrium is not invariant under type morphisms. In this paper we introduce the notion of strong type morphism. Strong type morphisms are stronger than ordinary and conditional type morphisms (Ely and Peski, 2006), and we show that Bayesian Nash Equilibria are not invariant under strong type morphisms either. We present our results in a very simple, finite setting, and conclude that there is no chance to get reasonable assumptions for Bayesian Nash Equilibria to be invariant under any kind of reasonable type morphisms.
    Keywords: Games with incomplete information; Bayesian Nash Equilibrium; Type space
    JEL: D80 C72
    Date: 2011
  4. By: Groote Schaarsberg, M.; Borm, P.E.M.; Hamers, H.J.M.; Reijnierse, J.H. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: This paper introduces a new class of interactive cooperative purchasing situations and provides an explicit alternative characterization of the nucleolus of cooperative games, which offers an alternative to Kohlberg (1971). In our cooperative purchasing situation, the unit price of a commodity depends on the largest order quantity within a cooperating group of players. Due to a decreasing unit price function, players can obtain cost savings by purchasing cooperatively. However, to establish fruitful cooperation a decision has to be made about an adequate allocation of the corresponding cost savings. We analyze Maximum Cooperative Purchasing (MCP)-situation from the perspective of allocation by defining corresponding cooperative MCP-games. It turns out that in an MCP-game all coalitional values can be determined from the values of two-player coalitions. Moreover, it is shown that a decreasing unit price function is a sufficient condition for a non-empty core: the Direct Price solution is both a core element and a marginal vector. It is seen that the nucleolus of an MCP-game can be derived in polynomial time from the Direct Price solution, using a socalled nucleolus determinant. To show this result, the explicit alternative characterization of the nucleolus is used. Using the decomposition of an MCP-game into unanimity games we find an explicit expression for the Shapley value. Interestingly, the Shapley value can be interpreted as a specific tax and subsidize system. Finally, the behavior of the three solution concepts is compared numerically.
    Keywords: cooperative purchasing;direct pricing;nucleolus;Shapley value.
    JEL: C71
    Date: 2012
  5. By: Michel Grabisch (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne); Yukihiko Funaki (School of political science and economics, Waseda University - Waseda University)
    Abstract: The coalition formation problem in an economy with externalities can be adequately modeled by using games in partition function form (PFF games), proposed by Thrall and Lucas. If we suppose that forming the grand coalition generates the largest total surplus, a central question is how to allocate the worth of the grand coalition to each player, i.e., how to find an adequate solution concept, taking into account the whole process of coalition formation. We propose in this paper the original concepts of scenario-value, process-value and coalition formation value, which represent the average contribution of players in a scenario (a particular sequence of coalitions within a given coalition formation process), in a process (a sequence of partitions of the society), and in the whole (all processes being taken into account), respectively. We give also two axiomatizations of our coalition formation value.
    Keywords: game theory; coalition formation; games in partition function form; Shapley value
    Date: 2012
  6. By: Simon Gaechter (University of Nottingham); Esther Kessler (University College London); Manfred Koenigstein (Universitaet Erfurt)
    Abstract: Efficiency under contractual incompleteness often requires voluntary cooperation in situations where self-regarding incentives for contractual compliance are present as well. Here we provide a comprehensive experimental analysis based on the gift-exchange game of how explicit and implicit incentives affect cooperation. We first show that there is substantial cooperation under non-incentive compatible contracts. Incentive-compatible contracts induce best-reply effort and crowd out any voluntary cooperation. Further experiments show that this result is robust to two important variables: experiencing Trust contracts without any incentives and implicit incentives coming from repeated interaction. Implicit incentives have a strong positive effect on effort only under non-incentive compatible contracts.
    Keywords: principal-agent games; gift-exchange experiments; incomplete contracts, explicit incentives; implicit incentives; repeated games; separability; experiments
    JEL: C70 C90
    Date: 2011–06
  7. By: Andersson , Tommy (Department of Economics, Lund University); Ehlers, Lars (Université de Montréal); Svensson, Lars-Gunnar (Department of Economics, Lund University)
    Abstract: We consider competitive allocation rules for problems where a number of indivisible objects and a fixed amount of money is allocated among a group of agents. It is known that in “large” economies, such rules are almost incentive compatible meaning that any agent can only profitably gain from manipulation by e. In “small” economies, we identify under classical preferences the competitive allocations where any agent can profitably gain from manipulation in monetary terms at most by e with e being minimal. If preferences are quasi-linear, then we can find a competitive allocation rule such that for any problem, all agents can gain by exactly e from manipulation.
    Keywords: e-Incentive Compatibility; Competitive Equilibrium; Budget-Balance; Indivisibilities.
    JEL: C71 C78 D63 D71 D78
    Date: 2012–04–25
  8. By: Swee-Hoon Chuah (Nottingham University Business School, University of Nottingham); Robert Hoffmann (Nottingham University Business School, University of Nottingham); Jeremy Larner (Nottingham University Business School, University of Nottingham)
    Abstract: The standard chicken game is a popular model of certain important real scenarios but does not allow for the escalation behaviour these are typically associated with. This is problematic if the critical, final decisions in these scenarios are sensitive to previous escalation. We introduce and analyse, theoretically and by experiment, a new game which permits escalation behaviour. Compared with an equivalent chicken game, Pareto-suboptimal outcomes are significantly more frequent. This result is inconsistent with our rational choice analysis and possible psychological roots are explored.
    Keywords: escalation; brinkmanship; chicken game; experiments
    JEL: C72 C78 C91
    Date: 2011–05
  9. By: Esther Kessler (University College London, Behavioural & Brain Sciences Unit); Maria Ruiz-Martos (Department of Economics, Universitat Jaume I); David Skuse (University College London, Behavioural & Brain Sciences Unit)
    Abstract: Destructive behavior has mostly been investigated by games in which all players have the option to simultaneously destroy (burn) their partners' money. In the destructor game, players are randomly paired and assigned the roles of destructor versus passive player. The destructor player chooses to destroy or not to destroy a share of his passive partner's earnings. The passive partner cannot retaliate. In addition, a random event (nature) destroys a percentage of some passive subject's earnings. From the destructor player's view, destruction is benefit-less, costless, hidden and unilateral. Unilateral destruction diminishes with respect to bilateral destruction studies, but it does not vanish: 15% of the subjects choose to destroy. This result suggests that, at least for some, destruction is intrinsically pleasurable.
    Keywords: anti-social behaviour, nastiness, money-burning
    JEL: C72 C90 D82
    Date: 2012
  10. By: Le Breton, Michel; Moreno-Ternero, Juan D.; Savvateev, Alexei; Weber, Shlomo
    Abstract: This article studies a model of coalition formation for the joint production (and finance) of public projects, in which agents may belong to multiple coalitions. We show that, if projects are divisible, there always exists a stable (secession-proof) structure, i.e., a structure in which no coalition would reject a proposed arrangement. When projects are in-divisible, stable allocations may fail to exist and, for those cases, we resort to the least core in order to estimate the degree of instability. We also examine the compatibility of stability and fairness on metric environments with indivisible projects. To do so, we explore, among other things, the performance of several well-known solutions (such as the Shapley value, the nucleolus, or the Dutta-Ray value) in these environments.
    JEL: C71
    Date: 2012–05
  11. By: Besancenot, Damien (University of Paris 13 and CEPN); Dubart, Delphine (ESSEC Business School); Vranceanu, Radu (ESSEC Business School)
    Abstract: Humans can lie strategically in order to leverage on their negotiation power. For instance, governments can claim that a "scapegoat" third party is responsible for reforms that impose higher costs on citizens, in order to make the pill sweeter. This paper analyzes such communication strategy within a variant of the ultimatum game. The first player gets an endowment, and the second player can impose a tax on it. The former can reject the allocation submitted by the tax-setter. A third party is then allowed to levy its own tax, and its intake is private information to the tax-setter. In a frameless experiment, 65% of the subjects in the tax-setter role overstate the tax levied by the third party in order to manipulate taxpayer’s expectations and submit less advantageous offers; on average, for every additional currency unit of lie, measured by the gap between the claimed and the actual tax, they would reduce their offer by 0.43 currency units.
    Keywords: Ultimatum game; Taxation; Lies; Deception; Asymmetric information
    JEL: C91 D82 D83
    Date: 2012–03–16
  12. By: Jaume Garcia-Segarra (Department of Economics, Universitat Jaume I); Miguel Gines-Vilar (Department of Economics, Universitat Jaume I)
    Abstract: Several bargaining solutions could fail to capture advantage from having sets closer to the same utopia point. If the whole frontier of the set is improved maintaining the same utopia point, these solutions outcome remains stagnant at the same point. We called this phenomena the stagnation effect. In order to reflect the idea that if the bargaining set is improved maintaining the same utopia point, then, the solution should also be improved, we introduce the utopia continuity axiom. We propose and characterize, for n-agent problems, the family of the individually strict monotonic solutions. This family is a common subset of the family of the strongly monotonic solutions characterized by Thomson and Myerson (1980)[8] and the individually monotonic solutions characterized by Peters and Tijs (1984)[4] and (1985)[5].
    Keywords: Bargaining, Axiomatization, Efficiency, Monotonicity.
    JEL: C78 D74
    Date: 2012
  13. By: Le Breton, Michel (TSE); Montero, Maria; Zaporozhets, Vera (TSE)
    Abstract: We analyze and evaluate the di¤erent decision rules describing the Council of Ministers of the EU starting from 1958 up to now. Most of the existing studies use the Banzhaf index (for binary voting) or the Shapley-Shubik index (for distributive politics). We argue in favor of the nucleolus as a power measure in distributive situations and an alternative to the Shapley-Shubik index. We then calculate the nucleolus and compare the results of our calculations with the conventional measures. In the second part, we analyze the power of the European citizens as measured by the nucleolus under the egalitarian criterion proposed by Felsenthal and Machover (1998), and characterize the first best situation. Based on these results we propose a methodology for the de sign of the optimal (fair) decision rules. We perform the optimization exercise for the earlier stages of the EU within a restricted domain of voting rules, and conclude that Germany should receive more than the other three large countries under the optimal voting rule.
    JEL: C71 C72 C78 D63 D72
    Date: 2012–05
  14. By: Le Breton, Michel; Sudhölter, Peter; Zaporozhets, Vera
    Abstract: In this paper, we analyze the equilibrium of a sequential game-theoretical model of lobbying, due to Groseclose and Snyder (1996), describing a legislature that vote over two alternatives, where two opposing lobbies compete by bidding for legislators?votes. In this model, the lobbyist moving ?rst su¤ers from a second mover advantage and will make an o¤er to a panel of legislators only if it deters any credible counter-reaction from his opponent, i.e., if he anticipates to win the battle. This paper departs from the existing literature in assuming that legislators care about the consequence of their votes rather than their votes per se. Our main focus is on the calculation of the smallest budget that the lobby moving ?rst needs to win the game and on the distribution of this budget across the legislators. We study the impact of the key parameters of the game on these two variables and show the connection of this problem with the combinatorics of sets and notions from cooperative game theory.
    Date: 2012–05
  15. By: Segev, Ella; Sela, Aner
    Abstract: We study multi-stage sequential all-pay contests (auctions) where heterogeneous contestants are privately informed about a parameter (ability) that affects their cost of effort. We characterize the sub-game perfect equilibrium of these multi-stage sequential all-pay contests and analyze the effect of the number of contestants, their types, and their order on the expected highest effort.
    Keywords: All-pay auctions; Sequential contests
    JEL: D44
    Date: 2012–04
  16. By: Holmberg, P.; Lazarczyk, E.
    Abstract: Wholesale electricity markets use different market designs to handle congestion in the transmission network. We compare nodal, zonal and discriminatory pricing in general networks with transmission constraints and loop flows. We conclude that in large games with many producers who are allowed to participate in the real-time market the three market designs result in the same efficient dispatch. However, zonal pricing with counter-trading results in additional payments to producers in exportconstrained nodes.
    Keywords: Congestion management, wholesale electricity market, transmission network, nodal pricing, zonal pricing with countertrading, discriminatory pricing, large game
    JEL: C72 D44 D61 L13 L94
    Date: 2012–04–25
  17. By: Robert J. McCann; Xianwen Shi; Aloysius Siow; Ronald Wolthoff
    Abstract: This paper presents a tractable framework for studying frictionless matching in school, work, and marriage when individuals have heterogeneous social and cognitive skills. In the model, there are gains to specialization and team production, but specialization requires communication and coordination between team members, and individuals with more social skills communicate and coordinate at lower resource cost. The theory delivers full task specialization in the labor and education markets, but incomplete specialization in marriage. It also captures well-known matching patterns in each of these sectors, including the commonly observed many-to-one matches in firms and schools. Equilibrium is equivalent to the solution of an utilitarian social planner solving a linear programming problem.
    Keywords: Matching, Specialization, Comparative Advantage, Span of Control, Education, Marriage
    JEL: C78 J24 J31 D50
    Date: 2012–04–30
  18. By: Spenkuch, Jörg L.
    Abstract: Whether individuals vote strategically is one of the most important questions at the intersection of economics and political science. Exploiting a flaw in the German electoral system by which a party may gain seats by receiving fewer votes, this paper documents patterns of strategic voting in a large, real world election. During the 2005 elections to the Bundestag, the sudden death of a right-wing candidate necessitated a by-election in one electoral district. Knowing the results in all other districts and aware of the paradoxical incentives in place, a substantial fraction of the electorate reacted tactically and either voted for a party other than their most preferred one, or abstained. As a result, the Christian Democratic Union won an additional mandate, extending its narrow lead over the Social Democrats.
    Keywords: voting; strategic voting; manipulation of elections
    JEL: D7 D72 P16
    Date: 2012–04

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.