nep-gth New Economics Papers
on Game Theory
Issue of 2012‒10‒06
thirteen papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. Axioms of invariance for TU-games By Béal, Sylvain; Rémila, Eric; Solal, Philippe
  2. On the exhaustiveness of truncation and dropping Strategies in many-to-many matching markets By Paula Jaramillo; Cagatay Kayi; Flip Klijn
  3. Fooling the Nice Guys: The effect of lying about contributions on public good provision and punishment By Bernd Irlenbusch; Janna Ter Meer
  4. Nash Codes for Noisy Channels. By Penélope Hernández; Bernhard von Stengel
  5. Is trust an ambiguous rather than a risky decision By Sacha Bourgeois-Gironde; Anne Corcos; François Pannequin
  6. Information Feedback and Contest Structure in Rent-Seeking Games By Francesco Fallucchi; Elke Renner; Martin Sefton
  7. Strategic Experimentation with Private Payoffs By Heidhues, Paul; Rady, Sven; Strack, Philipp
  8. Aversions to trust By Sacha Bourgeois-Gironde; Anne Corcos François Pannequin
  9. Conditional Cooperation and Disclosure in Developing Countries By Martinsson, Peter; Pham-Khanh, Nam; Villegas-Palacio, Clara
  10. A Survey of Experimental Research on Contests, All-Pay Auctions and Tournaments By Emmanuel Dechenaux; Dan Kovenock; Roman Sheremeta
  11. Efficiency and Bargaining Power in the Interbank Loan Market By Jason Allen; James Chapman; Federico Echenique; Matthew Shum
  12. Principal-Agent Settings with Random Shocks By Jared Rubin; Roman Sheremeta
  13. Directed Search and the Bertrand Paradox By Athanasios Geromichalos

  1. By: Béal, Sylvain; Rémila, Eric; Solal, Philippe
    Abstract: We introduce new axioms for the class of all TU-games with a fixed but arbitrary player set, which require either invariance of an allocation rule or invariance of the payoff assigned by an allocation rule to a specified subset of players in two related TU-games. Comparisons with other axioms are provided. These new axioms are used to characterize the Shapley value, the equal division rule, the equal surplus division rule and the Banzhaf value. The classical axioms of efficiency, anonymity, symmetry and additivity are not used.
    Keywords: uniform addition invariance ; uniform transfer invariance ; Shapley value ; equal division rule ; equal surplus division rule ; Banzhaf value
    JEL: C71
    Date: 2012–09–24
  2. By: Paula Jaramillo; Cagatay Kayi; Flip Klijn
    Abstract: We consider two-sided many-to{many matching markets in which each worker may work for multiple _rms 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 reshu_ing). 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.
    Date: 2012–09–26
  3. By: Bernd Irlenbusch (University of Cologne); Janna Ter Meer (University of Cologne)
    Abstract: Our study takes an individual perspective on receiver credulity in a public good setting with deceptive messages. In a laboratory experiment, subjects play a public good game with punishment in which feedback on actual contributions is obscured. Instead, subjects can communicate what they have contributed through a post-hoc announcement mechanism. Using subject’s social value orientation, we show that those highest on the measure are too optimistic towards announcements of their fellow group members. This, in turn, influences payoff-relevant decisions: those high on social value orientation contribute more to the public good and punish their fellow group members less.
    Keywords: public goods, punishment, lying, receiver credulity
    JEL: C92 D03 H41 D02
    Date: 2012–08
  4. By: Penélope Hernández (ERI-CES); Bernhard von Stengel (London School of Economics)
    Abstract: This paper studies the stability of communication protocols that deal with transmission errors. We consider a coordination game between an informed sender and an uninformed decision maker, the receiver, who communicate over a noisy channel. The sender's strategy, called a code, maps states of nature to signals. The receiver's best response is to decode the received channel output as the state with highest expected receiver payoff. Given this decoding, an equilibrium or ``Nash code'' results if the sender encodes every state as prescribed. We show two theorems that give sufficient conditions for Nash codes. First, a receiver-optimal code defines a Nash code. A second, more surprising observation holds for communication over a binary channel which is used independently a number of times, a basic model of information transmission: Under a minimal ``monotonicity'' requirement for breaking ties when decoding, which holds generically, any code is a Nash code.
    Keywords: sender-receiver game, communication, noisy channel
    JEL: C72 D82
    Date: 2012–05
  5. By: Sacha Bourgeois-Gironde (IJN - Institut Jean-Nicod - CNRS : UMR8129 - Ecole Normale Supérieure de Paris - ENS Paris - Ecole des Hautes Etudes en Sciences Sociales (EHESS), LEM - Laboratoire d'Économie Moderne - Université Paris II - Panthéon-Assas : EA4442); Anne Corcos (LEM - Laboratoire d'Économie Moderne - Université Paris II - Panthéon-Assas : EA4442); François Pannequin (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, ENS Cachan - Ecole Normale Supérieure de Cachan - École normale supérieure de Cachan - ENS Cachan)
    Abstract: According to an early approach, the decision to trust in the one-shot anonymous trust game is intuitively tantamount to a risky decision: the willingness to bet on the reciprocation of my investment. In a seminal study, Eckel and Wilson (2004) explored the correlation between risk attitudes (as elicited through a Holt and Laury mechanism) and the behavior of investors in the trust game. They found no correlation: trust decision cannot be viewed as a risky decision. However, since the probabilities of possible returns are unknown, we argue that trust behavior may correlate more specifically with ambiguity aversion rather than with risk aversion. We therefore modified Eckel and Wilson's experimental procedure in order to investigate the question as to whether trust is an ambiguous decision. We extended Holt and Laury switching-point elicitation mechanism between risky lotteries to ambiguous lotteries as Chrakravarty and Roy (2009) did. We then ran an experimental session including a standard one shot anonymous trust game (OSG). We found significant negative correlations between aversion to ambiguity and behavior in OSG. This result is a plea in favor of a decision-theoretical analogy between choices in ambiguous lotteries and trust-games.
    Keywords: trust, risk aversion, ambiguity
    Date: 2012–08–10
  6. By: Francesco Fallucchi (School of Economics, University of Nottingham); Elke Renner (School of Economics, University of Nottingham); Martin Sefton (School of Economics, University of Nottingham)
    Abstract: We investigate the role of information feedback in rent-seeking games with two different contest structures. In the stochastic contest a contestant wins the entire rent with probability equal to her share of rent-seeking expenditures; in the deterministic contest she receives a share of the rent equal to her share of rent-seeking expenditures. Information feedback has very different effects depending on the contest structure. We observe the highest rent dissipation in stochastic contests when players only get feedback on own choices and earnings. In these contests aggregate expenditures usually exceed the value of the rent. We find that giving additional feedback about rivals? choices and earnings moderates average expenditures. In contrast, in deterministic contests average expenditures converge to equilibrium levels when subjects only get feedback about own choices and earnings. In these contests additional feedback about rivals? choices and earnings has the opposite effect of raising average expenditures.
    Keywords: contests, rent-seeking, information, learning, imitation, experiments
    Date: 2012–12
  7. By: Heidhues, Paul; Rady, Sven; Strack, Philipp
    Abstract: We consider two players facing identical discrete-time bandit problems with a safe and a risky arm. In any period, the risky arm yields either a success or a failure, and the first success reveals the risky arm to dominate the safe one. When payoffs are public information, the ensuing free-rider problem is so severe that the equilibrium number of experiments is at most one plus the number of experiments that a single agent would perform. When payoffs are private information and players can communicate via cheap talk, the socially optimal symmetric experimentation profile can be supported as a perfect Bayesian equilibrium for sufficiently optimistic prior beliefs. These results generalize to more than two players whenever the success probability per period is not too high. In particular, this is the case when successes occur at the jump times of a Poisson process and the period length is sufficiently small.
    Keywords: Strategic Experimentation; Bayesian Learning; Cheap Talk; Two-Armed Bandit; Information Externality.
    JEL: C73 D83
    Date: 2012–09–25
  8. By: Sacha Bourgeois-Gironde (IJN - Institut Jean-Nicod - CNRS : UMR8129 - Ecole Normale Supérieure de Paris - ENS Paris - Ecole des Hautes Etudes en Sciences Sociales (EHESS), LEM - Laboratoire d'Économie Moderne - Université Paris II - Panthéon-Assas : EA4442); Anne Corcos François Pannequin (LEM - Laboratoire d'Économie Moderne - Université Paris II - Panthéon-Assas : EA4442)
    Abstract: In this article, we focus on two types of "aversion" which we deem essential aspects of the notion of trust: betrayal aversion (social) and ambiguity aversion (a special case of aversion to uncertainty). Based on trust-games studies in experimental economics and neuroeconomics, our main goal is to assess the conceptual, behavioral and neurobiological connections between betrayal and ambiguity aversions. From a social and individual psychological point of view the bottom line of our trusting behavior could be our general aversion to ambiguous signals. We approach social trust in the terms of a phenomenon based on uncertainty aversion.Specifically, a reduction of the perceived uncertainty of a social interaction tends to build up a trusting climate conducive to trade by decreasing betrayal aversion.We hypothesize that betrayal aversion and ambiguity aversion bear such a negative correlation. Focusing on this potential negative correlation our approach clearly differs from more positive accounts of trust centred on altruism.
    Keywords: trust game - betrayal aversion - ambiguity aversion - neuroeconomics
    Date: 2012–11–25
  9. By: Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Pham-Khanh, Nam (Department of Economics, School of Business, Economics and Law, Göteborg University); Villegas-Palacio, Clara (Dept of Geosciences and Environment,)
    Abstract: Understanding the motivations behind people’s voluntary contributions to public goods is crucial for the broader issues of economic and social development. By using the experimental design of Fischbacher et al. (2001), we investigate the distribution of contribution types in two developing countries with very high collectivism rating – Colombia and Vietnam – and compare our findings with those previously found in developed countries. We also investigate the effect of introducing disclosure of contribution on the distribution of contribution types and on the contribution itself. Overall, our experiments show that the distribution of contribution types remains unaffected by the disclosure of contributions and, on average, is similar both in the two countries and when compared with previous findings with the exception of proportion of free-riders.<p>
    Keywords: Conditional cooperation; Disclosure; Experiment; Public Goods.
    JEL: C72 C92 H41
    Date: 2012–09–25
  10. By: Emmanuel Dechenaux (Department of Economics, Kent State University); Dan Kovenock (Economic Science Institute, Chapman University); Roman Sheremeta (Argyros School of Business and Economics, Chapman University)
    Abstract: Many economic, political and social environments can be described as contests in which agents exert costly efforts while competing over the distribution of a scarce resource. These environments have been studied using Tullock contests, all-pay auctions and rank-order tournaments. This survey provides a review of experimental research on these three canonical contests. First, we review studies investigating the basic structure of contests, including the contest success function, number of players and prizes, spillovers and externalities, heterogeneity, and incomplete information. Second, we discuss dynamic contests and multibattle contests. Then we review research on sabotage, feedback, bias, collusion, alliances, and contests between groups, as well as real-effort and field experiments. Finally, we discuss applications of contests to the study of legal systems, political competition, war, conflict avoidance, sales, and charities, and suggest directions for future research.
    Keywords: contests, all-pay auctions, tournaments, experiments
    JEL: C7 C9 D7 H4 J4 J7 K4 L2 M5
    Date: 2012
  11. By: Jason Allen; James Chapman; Federico Echenique; Matthew Shum
    Abstract: Using detailed loan transactions-level data we examine the efficiency of an overnight interbank lending market, and the bargaining power of its participants. Our analysis relies on the equilibrium concept of the core, which imposes a set of no-arbitrage conditions on trades in the market. For Canada we show that while the market is fairly efficient, some degree of inefficiency persists throughout our sample. The level of inefficiency matches distinct phases of both the Bank of Canada’s operations as well as phases of the 2007- 2008 financial crisis, where more liquidity intervention implies more inefficiency. We find that bargaining power tilted sharply towards borrowers as the financial crisis progressed, and towards riskier borrowers. This supports a nuanced version of the Too- Big-To-Fail story, whereby participants continued to lend to riskier banks at favorable rates, not because of explicit support to the riskier banks provided by governmental authorities, but rather due to the collective self-interest of these banks.
    Keywords: Financial Institutions; Payment; clearing; and settlement systems
    JEL: C71 G21 G28 E58
    Date: 2012
  12. By: Jared Rubin (Argyros School of Business and Economics, Chapman University); Roman Sheremeta (Argyros School of Business and Economics, Chapman University)
    Abstract: Using a gift exchange experiment, we show that the ability of reciprocity to overcome incentive problems inherent in principal-agent settings is greatly reduced when the agent’s effort is distorted by random shocks and transmitted imperfectly to the principal. Specifically, we find that gift exchange contracts without shocks encourage effort and wages well above standard predictions. However, the introduction of random shocks reduces wages and effort, regardless of whether the shocks can be observed by the principal. Moreover, the introduction of shocks significantly reduces the probability of fulfilling the contract by the agent, the payoff of the principal, as well as total welfare.
    Keywords: gift exchange, principal-agent model, contract theory, reciprocity, effort, shocks, laboratory experiment
    JEL: C72 C91 D63 D81 H50
    Date: 2012
  13. By: Athanasios Geromichalos (Department of Economics, University of California Davis)
    Abstract: I study a directed search model of oligopolistic competition, extended to incorporate general capacity constraints, congestion effects, and pricing based on ex-post realized demand. I show that as long as any one of these ingredients is present, the Bertrand paradox will fail to hold. Hence, I argue that, despite the emphasis that has been placed by the literature on sellers’ capacity constraints as a resolution to the paradox, the existence of such constraints is only a subcase of a general class of environments where the paradox fails. More precisely, Bertrand’s paradox will not arise whenever the buyers’ expected utility from visiting a specific seller is decreasing in that seller’s realized demand.
    Keywords: Directed Search, Bertrand Paradox, Capacity Constraints, Congestion Effects, State-contingent Pricing
    JEL: C78 D43 L13
    Date: 2012–09–25

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