nep-gth New Economics Papers
on Game Theory
Issue of 2012‒06‒05
twelve papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. Evolution towards asymptotic efficiency, preliminary version. By Stefano Demichelis
  2. On Continuity of Robust Equilibria By Ori Haimanko; Atsushi Kajii
  3. Moral Hypocrisy, Power and Social Preferences By Aldo Rustichini; Marie-Claire Villeval
  4. Contribution Norms in Heterogeneous Groups: A Climate Change Framing By Zoe Van der Hoven; Martine Visser; Kerri Brick
  5. The Carrot or the Stick: Water Allocation Strategies for Uzbekistan By Andrey Zaikin; Ana Espinola-Arredondo
  6. On the Exhaustiveness of Truncation and Dropping Strategies in Many-to-Many Matching Markets By Paula Jaramillo; Çagatay Kayi; Flip Klijn
  7. When Do We Learn to Cooperate? The Role of Social Learning in Social Dilemmas By Best, James A
  8. Overdissipation and Convergence in Rent-seeking Experiments: Cost structure and prize allocation rules. By Subhasish M. Chowdhury; Roman M. Sheremeta; Theodore L. Turocy
  9. The Anatomy of Error in Decision-making of Rationally Behaving Agents from the Perspective of the Theory of Bounded Rationality: Extension for Contextual Games By Tomas Otahal; Radim Valencik
  10. The roubstness of agent-based models of electricity wholesale markets By Newberry, D.
  11. Single-plateaued choice By Bossert Walter; Peters Hans
  12. Gradual Bidding in eBay-Like Auctions By Attila Ambrus; James Burns; Yuhta Ishii

  1. By: Stefano Demichelis (Department of Economics and Business, University of Pavia)
    Abstract: We show that in long repeated games, or in infinitely repeated games with discount rate close to one, payoffs corresponding to evolutionary stable sets are asymptotically efficient, as intuition suggests. Actions played at the beginning of the game are used as messages that allow players to coordinate on Pareto optimal outcomes in the following stages. The result builds a bridge between the theory of repeated games and that of communication games.
    Date: 2012–05
  2. By: Ori Haimanko (Department of Economics, Ben-Gurion University); Atsushi Kajii (Institute of Economic Research, Kyoto University)
    Abstract: We relax the Kajii and Morris (1997a) notion of equilibrium ro- bustness by allowing approximate equilibria when information in a game becomes incomplete. The new notion is termed "approximate robustness". The approximately robust equilibrium correspondence turns out to be upper hemicontinuous, unlike the (exactly) robust equilibrium correspondence. Another distinction comes to light when we show that, as a corollary of upper hemicontinuity, approximately robust equilibria exist in all zero-sum games. Thus, although approx- imate robustness is only a small variation of the original notion, it is strictly weaker than the latter, and its adoption enriches the domain of games for which robust equilibria exist.
    Keywords: incomplete information, robustness, Bayesian Nash equi- librium, ε-equilibrium, upper hemicontinuity, zero-sum games
    JEL: C72
    Date: 2012–05
  3. By: Aldo Rustichini (Department of Economics, University of Minnesota, 1925 4th Street South, 4-101 Hanson Hall, Minneapolis, MN 55455-0462, U.S.); Marie-Claire Villeval (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)
    Abstract: We show with a laboratory experiment that individuals adjust their moral principles to the situation and to their actions, just as much as they adjust their actions to their principles. We first elicit the individuals’ principles regarding the fairness and unfairness of allocations in three different scenarios (a Dictator game, an Ultimatum game, and a Trust game). One week later, the same individuals are invited to play those same games with monetary compensation. Finally in the same session we elicit again their principles regarding the fairness and unfairness of allocations in the same three scenarios. Our results show that individuals adjust abstract norms to fit the game, their role and the choices they made. First, norms that appear abstract and universal take into account the bargaining power of the two sides. The strong side bends the norm in its favor and the weak side agrees : Stated fairness is a compromise with power. Second, in most situations, individuals adjust the range of fair shares after playing the game for real money compared with their initial statement. Third, the discrepancy between hypothetical and real behavior is larger in games where real choices have no strategic consequence (Dictator game and second mover in Trust game) than in those where they do (Ultimatum game). Finally the adjustment of principles to actions is mainly the fact of individuals who behave more selfishly and who have a stronger bargaining power. The moral hypocrisy displayed (measured by the discrepancy between statements and actions chosen followed by an adjustment of principles to actions) appears produced by the attempt, not necessarily conscious, to strike a balance between self-image and immediate convenience.
    Keywords: Moral hypocrisy, fairness, social preferences, power, self-deception
    JEL: D03 D63 C91 C7
    Date: 2012
  4. By: Zoe Van der Hoven; Martine Visser; Kerri Brick (SALDRU, School of Economics, University of Cape Town)
    Abstract: While results from public good games with homogeneous players reflect the contribution norm of equal contributions, it is unclear what contribution norm will arise in a heterogeneous setting. Climate change is a perfect example of a social dilemma involving heterogeneous agents. As such, using a public good game with a climate change framing, this study examines what contribution norm arises when players are asymmetric in terms of their impact on the public good (mitigation). The climate change framing exacerbates equity considerations and ultimately increases the difficulty of finding a generalizable concept of fairness (contribution norm) acceptable to both player-types. The efficacy of communication as a means to promoting public good provision is also considered. The default contribution norm, irrespective of player-type, was to free-ride. With the introduction of communication, two dominant contribution norms emerge: free-riding and perfect cooperation.
    Keywords: public good; contribution norm; communication; heterogeneity; climate change
    JEL: H41 Q54 Q58
    Date: 2012
  5. By: Andrey Zaikin; Ana Espinola-Arredondo (School of Economic Sciences, Washington State University)
    Abstract: Irrigation water is a constrained common-pool resource in Uzbekistan that leads to an increasing competition over its allocation among farmers. We examine how the management of the commons in this region affects individual strategic behavior. We conduct an experiment with farmers from Uzbekistan in which two policies are analyzed, a penalty and a bonus. The paper studies a non-cooperative game and identifies the efficient use of water for irrigation. We compare our theoretical results with the experimental observations. Our findings suggest that the penalty and bonus mechanisms are effective in reducing individual water appropriation compared to the benchmark case in which these mechanisms are absent. Finally, we identify two different effects that drive subjects’ opportunistic behavior.
    Keywords: Common-pool resources; Experiment; Non-Cooperative Games; Uzbekistan; Water
    JEL: Q25 C72 C93 H41
    Date: 2012–05
  6. By: Paula Jaramillo; Çagatay Kayi; Flip Klijn
    Abstract: We consider two-sided many-to-many matching markets in which each worker may work for multiple firms and each rm may hire multiple workers. We study individual and group manipulations in centralized markets that employ (pairwise) stable mechanisms and that require participants to submit rank order lists of agents on the other side of the market. We are interested in simple preference manipulations that have been reported and studied in empirical and theoretical work: truncation strategies, which are the lists obtained by removing a tail of least preferred partners from a preference list, and the more general dropping strategies, which are the lists obtained by only removing partners from a preference list (i.e., no reshuffling).We study when truncation / dropping strategies are exhaustive for a group of agents on the same side of the market, i.e., when each match resulting from preference manipulations can be replicated or improved upon by some truncation / dropping strategies. We prove that for each stable mechanism, truncation strategies are exhaustive for each agent with quota 1 (Theorem 1). We show that this result cannot be extended neither to group manipulations (even when all quotas equal 1 - Example 1), nor to individual manipulations when the agent's quota is larger than 1 (even when all other agents' quotas equal 1 - Example 2). Finally, we prove that for each stable mechanism, dropping strategies are exhaustive for each group of agents on the same side of the market (Theorem 2), i.e., independently of the quotas.
    Keywords: matching, many-to-many, stability, manipulability, truncation strategies, dropping strategies
    JEL: C78 D60
    Date: 2012–05
  7. By: Best, James A
    Abstract: In this paper, I look at the interaction between social learning and cooperative behavior. I model this using a social dilemma game with publicly observed sequential actions and asymmetric information about pay offs. I find that some informed agents in this model act, individually and without collusion, to conceal the privately optimal action. Because the privately optimal action is socially costly the behavior of informed agents can lead to a Pareto improvement in a social dilemma. In my model I show that it is possible to get cooperative behavior if information is restricted to a small but non-zero proportion of the population. Moreover, such cooperative behavior occurs in a finite setting where it is public knowledge which agent will act last. The proportion of cooperative agents within the population can be made arbitrarily close to 1 by increasing the finite number of agents playing the game. Finally, I show that under a broad set of conditions that it is a Pareto improvement on a corner value, in the ex-ante welfare sense, for an interior proportion of the population to be informed.
    Keywords: Asymmetric information, cooperation, effciency, social learning, social dilemmas,
    Date: 2011
  8. By: Subhasish M. Chowdhury (School of Economics, and Centre for Behavioural and Experimental Social Science, University of East Anglia, Norwich); Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University, USA); Theodore L. Turocy (School of Economics, and Centre for Behavioural and Experimental Social Science, University of East Anglia, Norwich)
    Abstract: We study experimentally the effects of cost structure and prize allocation rules on the performance of rent-seeking contests. Most previous studies use a lottery prize rule and linear cost, and find both overdissipation relative to Nash equilibrium prediction and significant variation in individual subject efforts. In a 2 2 design, we investigate the effects of sharing the prize proportionally and of a convex cost function, while holding fixed the Nash equilibrium prediction for effort. We find that the share rule results in average effort closer to the Nash prediction, lower variation in individual efforts, and convergence of the distribution of individual efforts towards Nash over time. Combining the share rule with a convex cost function further enhances these results. Our findings indicate that a significant amount of subjects’ non-equilibrium behavior in contests can be explained by features of the experimental design. These results contribute towards design guidelines for contests based on behavioral principles that take into account contest features that may not affect the Nash equilibrium prediction. These lessons suggest design guidelines for future experiments on contests.
    Keywords: rent-seeking, contest, contest design, experiments, quantal response, over-dissipation
    JEL: C72 C91 D72
    Date: 2012
  9. By: Tomas Otahal (Department of Economics, Faculty of Business and Economics, Mendel University in Brno); Radim Valencik (University of Finance and Administration)
    Abstract: How can errors in decision-making by rationally behaving individuals be explained? The concepts of bounded rationality proposed by H. Simon and of imperfect information in the complex reality by F. Hayek attack the over-restrictive assumption of perfectly informed individuals or organisms in neoclassical microeconomics. Since this assumption excludes erroneous decision-making, some results must be explained by questioning the rationality assumption. In this paper, we show that erroneous decision-making of individuals and organisms is not necessarily erroneous if we look at the contextual games which individuals and organisms play in the complex reality. This helps to explain errors in the decision-making of individuals or organisms, while maintaining the assumption of rational behavior. At the same time, we show that the errors observed in the contextual analysis of games in the decision-making of individuals or organisms can only be apparent.
    Keywords: Bounded rationality, complex systems, contextual games, erroneous behavior, rational decision-making
    JEL: D01 C73
    Date: 2012–06
  10. By: Newberry, D.
    Abstract: Agent-based modelling is an attractive way of finding equilibria in complex problems involving strategic behaviour, particularly in electricity markets with transmission constraints. However, while it may be possible to demonstrate convergence of learning behaviour to a Nash equilibrium, that is not sufficient to establish that the equilibrium is robust against more sophisticated strategy choices. This note examines two particular forms of agent-based modelling used in electricity market models, both variants of mark-up pricing, and demonstrates that they are robust against other strategies.Keywords: Electric utilities, industrial policy, political economy
    Keywords: agent-based modelling, electricity markets, mark-up equilibria, stability, oligopoly, learning
    JEL: C63 C73 D43 L10 L13 L94
    Date: 2012–05–28
  11. By: Bossert Walter; Peters Hans (METEOR)
    Abstract: Single-plateaued preferences generalize single-peaked preferences by allowing for multiple bestelements. These preferences have played an important role in areas such as voting,strategy-proofness andmatching problems. We examine the notion of single-plateauedness in a choice-theoretic setting.Single-plateaued choice is characterized by means of a collinear interval continuity property inthe presence of independence of irrelevant alternatives. Further results establish that our notionof single-plateauedness conforms to the motivation underlying the term and we analyze theconsequences of alternative continuity properties. The importance of basic assumptions such asclosedness and convexity is discussed.
    Keywords: microeconomics ;
    Date: 2012
  12. By: Attila Ambrus; James Burns; Yuhta Ishii
    Abstract: This paper shows that in online auctions like eBay, if bidders are not continuously participating in the auction but can only place bids at random times, then many different equilibria arise besides truthful bidding, despite the option to leave proxy bids. These equilibria can involve gradual bidding, periods of inactivity, and waiting to start bidding towards the end of the auction--bidding behaviors common on eBay. In a common value environment, we characterize a class of equilibria that include the best and worst equilibria for the seller. The revenue of the seller in the latter can be a small fraction of what could be obtained at a sealed-bid second-price auction. For large number of bidders, we show that the worst equilibrium has the feature that bidders are passive until near the end of the auction, and then they start bidding incrementally.
    Date: 2012

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