
on Game Theory 
Issue of 2013‒08‒23
eleven papers chosen by Laszlo A. Koczy Hungarian Academy of Sciences and Obuda University 
By:  Marilda Sotomayor 
Abstract:  Rosenthal (1972) points out that the coalitional function form may be insufficient to analyze some strategic interactions of the cooperative normal form. His solution consists in representing games in effectiveness form, which explicitly describes the set of possible outcomes that each coalition can enforce by a unilateral deviation from any proposed outcome. This paper detects some nonappropriateness of the effectiveness representation with respect to the stability of outcomes against coalitional deviations. In order to correct such inadequacies, it is proposed a new model, called deviation function form, which modifies Rosenthal’s setting by also modeling the coalition structure, in an appropriate way, and by incorporating new kinds of coalitional interactions, which support the agreements proposed by deviating coalitions. This modification propitiates that the concept of stability of the matching models, viewed as a cooperative equilibrium concept, be translated to any game in the deviation function form and be confronted with the traditional notion of core. Precise answers are given to the questions raised. 
Keywords:  cooperative equilibrium; core; stability; matching 
JEL:  C78 D78 
Date:  2013–08–12 
URL:  http://d.repec.org/n?u=RePEc:spa:wpaper:2013wpecon9&r=gth 
By:  George J. Mailath (Department of Economics, University of Pennsylvania); Larry Samuelson (Department of Economics, Yale University) 
Abstract:  This paper, prepared for the Handbook of Game Theory, volume 4 (Peyton Young and Shmuel Zamir, editors, Elsevier Press), surveys work on reputations in repeated games of incomplete information. 
Keywords:  commitment, incomplete information, reputation bound, reputation effects, longrun relationships, reputations 
JEL:  C70 C73 
Date:  2013–06–27 
URL:  http://d.repec.org/n?u=RePEc:pen:papers:13044&r=gth 
By:  Chakrabarti, Subhadip; Ghintran, Amandine 
Abstract:  We investigate assignment of heterogeneous agents in trees where the allocation rule is given by the permission value. We focus on efficient hierarchies,namely those, for which the payoff of the top agent is maximized. For additive games, such hierarchies are always cogent, namely, more productive agents occupy higher positions. The result can be extended to nonadditive games with appropriate restrictions on the value function. Finally, we consider auctions where agents bid for positions in a two agent vertical hierarchy. Under simultaneous bidding, an equilibrium does not exist while sequential bidding always results in a noncogent hierarchy. 
Keywords:  permission value, hierarchies 
JEL:  C71 C72 
Date:  2013–07–27 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:49115&r=gth 
By:  James Tremewan; Chloé Le Coq; Alexander D. Wagner 
Abstract:  Using a group identity manipulation we examine the role of social preferences in an experimental oneshot centipede game. Contrary to what social preference theory would predict, we fnd that players continue longer when playing with outgroup members. The explanation we provide for this result rests on two observations: (i) players should only stop if they are suffciently conident that their partner will stop at the next node, given the exponentiallyincreasing payoffs in the game, and (ii) players are more likely to have this degree of certainty if they are matched with someone from the same group, whom they view as similar to themselves and thus predictable. We find strong statistical support for this argument. We conclude that group identity not only impacts a player's utility function, as identifed in earlier research, but also affects her reasoning about her partner's behavior. 
JEL:  C72 C91 C92 D83 
Date:  2013–08 
URL:  http://d.repec.org/n?u=RePEc:vie:viennp:1305&r=gth 
By:  Bernd Irlenbusch (University of Cologne); Rainer Michael Rilke (University of Cologne) 
Abstract:  This paper experimentally investigates into the effects of limited feedback on contributions in a repeated public goods game. We test whether feedback about good examples (i.e., the respective maximum contribution in a period) in contrast to bad examples (i.e., the minimum contributions) induces higher contributions. When the selection of feedback is nontransparent to the subjects, good examples boost cooperation while bad examples hamper them. No significant differences are observed between providing good or bad examples, when the feedback selection rule is transparent. Our results shed new light on how to design feedback provision in public goods settings. 
Keywords:  Public Goods, Feedback, Imperfect Conditional Cooperation, Experiment 
JEL:  H41 C92 D82 
Date:  2013–08–07 
URL:  http://d.repec.org/n?u=RePEc:cgr:cgsser:0404&r=gth 
By:  Nikhil Agarwal (Dept. of Economics, MIT); William Diamond (Dept. of Economics, Harvard University) 
Abstract:  We study estimation and nonparametric identification of preferences in twosided matching markets using data from a single market with many agents. We consider a model in which preferences of each side of the market is homogeneous, utility is non transferable utility and the observed matches are pairwise stable. We show that preferences are not identified with data on onetoone matches but are nonparametrically identified when data from manytoone matches are observed. This difference in the identifiability of the model is illustrated by comparing two simulated objective functions, one that does and the other that does not use information available in manytoone matching. We also prove consistency of a method of moments estimator for a parametric model under a data generating process in which the size of the matching market increases, but data only on one market is observed. Since matches in a single market are interdependent, our proof of consistency cannot rely on observations of independent matches. Finally, we present Monte Carlo studies of a simulation based estimator. 
Keywords:  Twosided matching, Identification, Estimation 
JEL:  C13 C14 C78 
Date:  2013–08 
URL:  http://d.repec.org/n?u=RePEc:cwl:cwldpp:1905&r=gth 
By:  Alexey Kushnir 
Abstract:  We consider general social choice environments with private values and correlated types. Each agent's matrix of conditional probabilities satisfies the full rank condition. We show that for any Bayesian incentive compatible mechanism there exists a dominant strategy incentive compatible mechanism that delivers the same interim expected utilities to all agents and generates at least the same social surplus. In addition, if there is a social alternative that is inferior to the other alternatives for all agents the dominant strategy incentive compatible mechanism matches exactly the social surplus. These results extend to environments with interdependent values satisfying the single crossing condition. 
Keywords:  Mechanism design, Bayesian implementation, dominant strategy implementation, full surplus extraction, correlation 
JEL:  D82 
Date:  2013–08 
URL:  http://d.repec.org/n?u=RePEc:zur:econwp:129&r=gth 
By:  Yukihiro Nishimura (Graduate School of Economics, Osaka University) 
Abstract:  This paper explores the outcome of noncooperative decision making by elected politicians under transnational externalities. We reexamine the extent of a voter’s incentives for supporting politicians who are less green than the median voter, a phenomenon called “political race to the bottom.” We provide a setup in which each country is endowed with the fixed amount of endowment available for consumption, and the part of the endowments can be used for improvement of the environment. When the degree of spillovers of public inputs becomes strong enough, there arises the following equilibrium: one of the elected politicians pays no attention to the environment, but the median voter becomes the elected politician in the other country. This equilibrium is different from the model by Buchholz et al. (2005, “International Environmental Agreements and Strategic Voting”, Scandinavian Journal of Economics 107(1), 175195), in which countries can choose emissions without an upper bound. 
Date:  2013–07 
URL:  http://d.repec.org/n?u=RePEc:sin:wpaper:13a006&r=gth 
By:  Giacomo Rondina (University of California, San Diego) 
Abstract:  We study the stability properties of Rational Expectations equilibria in dynamic models with incomplete information when the information set of agents is slightly perturbed. We show that equilibria where the endogenous variables resolve the information incompleteness can be informationally fragile, in the sense that a slight perturbation in the endogenous information set of the agents along the equilibrium path can lead to a breakdown of the equilibrium dynamics. We then construct a class of dynamic rational expectations equilibria that are informationally stable for the same parameter space where other equilibria are informationally fragile. We show that an equilibrium that is informationally fragile is not leastsquares learnable, while an equilibrium that is informationally stable always is. We finally present an application to a macroeconomic equilibrium model with productivity shocks and nominal rigidities under incomplete information that shows that both informationally fragile and stable equilibria can be obtained, with quite different shocks propagation properties. 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:red:sed013:83&r=gth 
By:  S. Goyal; A. Vigier 
Abstract:  Connections between individuals facilitate the exchange of goods, resources and information and create benefits. These connections may be exploited by adversaries to spread their attacks as well. What is the optimal way to design and defend networks in the face of attacks? We develop a model with a Designer and an Adversary. The Designer moves first and chooses a network and an allocation of defense resources across nodes. The Adversary then allocates attack resources on nodes and determines how successful attacks should navigate the network. Our main result is that, in a wide variety of circumstances, a star network with all defense resources allocated to the central hub node is optimal for the Designer. The Adversary targets undefended peripheral nodes; upon capture of these nodes the resources mount a concerted attack on the center. 
Keywords:  Networks, computer security, Tullock contests, connectivity 
Date:  2013–08–15 
URL:  http://d.repec.org/n?u=RePEc:cam:camdae:1327&r=gth 
By:  Mario Eboli 
Abstract:  This paper puts forward a novel approach to the analysis of direct contagion in financial networks. Financial systems are here represented as flow networks i.e., directed and weighted graphs endowed with source nodes and sink nodes – and the propagation of losses and defaults, originated by an exogenous shock, is here represented as a flow that crosses such a network. In establishing existence and uniqueness of such a flow function, we address a know problem of indeterminacy that arise, in financial networks, from the intercyclicity of payments. Sufficient and necessary conditions for uniqueness are pinned down. We embed this result in an algorithm that, while computing the propagation caused by a shock, controls for the emergence of possible indeterminacies. We then apply some properties of network flows to investigate the relation between the structures of a financial networki.e. the size and the pattern of obligations  and its exposure to default contagion 
Keywords:  systemic risk, financial contagion, financial networks, flow networks 
JEL:  C63 G01 G33 
Date:  2013–08 
URL:  http://d.repec.org/n?u=RePEc:kie:kieliw:1862&r=gth 