
on Game Theory 
Issue of 2013‒08‒31
ten papers chosen by Laszlo A. Koczy Hungarian Academy of Sciences and Obuda University 
By:  Lars Ehlers; Bettina Klaus 
Abstract:  We study the simple model of assigning indivisible and heterogenous objects (e.g., houses, jobs, offices, etc.) to agents. Each agent receives at most one object and monetary compensations are not possible. For this model, known as the house allocation model, we characterize the class of rules satisfying unavailable object invariance, individual rationality, weak nonwastefulness, resourcemonotonicity, truncation invariance, and strategyproofness: any rule with these properties must allocate objects based on (implicitly induced) objects' priorities over agents and the agentproposing deferredacceptancealgorithm. 
Keywords:  Deferredacceptancealgorithm, indivisible objects allocation, resourcemonotonicity, strategyproofness 
JEL:  D63 D70 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:mtl:montec:062013&r=gth 
By:  Heller, Yuval 
Abstract:  Demichelis and Weibull (2008 AER) show that adding lexicographic lying costs to coordination games with cheap talk yields a sharp prediction: only the efficient outcome is evolutionarily stable. I demonstrate that this result is caused by the discontinuity of preferences, rather than by small lying costs per se. 
Keywords:  Lexicographic preferences, evolutionary stability, cheap talk. 
JEL:  C73 
Date:  2013–08–29 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:49375&r=gth 
By:  Gürkan, G.; Ozdemir, O.; smeers, Y. (Tilburg University, Center for Economic Research) 
Abstract:  Abstract: We analyze a twostage game of strategic firms facing uncertain demand and exerting market power in decentralized electricity markets. These firms choose their generation capacities at the first stage while anticipating a perfectly competitive future electricity spot market outcome at the second stage; thus it is a closed loop game. In general, such games can be formulated as an equilibrium problem with equilibrium constraints (EPEC) and examples have been posed in the literature that have multiple or no equilibria. Therefore, it is of interest to define general sets of conditions under which solutions exist and are unique, which would enhance the value of such models for policy andmarket intelligence purposes. In this paper, we consider various types of such a closed loop model regarding the underlying pricedemand relations (elastic and inelastic demand), the assumed demand uncertainty with a broad class of continuous distributions, and any finite number of players with symmetric or asymmetric costs. We establish sufficient conditions for the random demand’s probability distribution which guarantee existence and uniqueness of equilibria in most of the cases of this closed loop model. We identify a broad class of commonly used continuous probability distributions satisfying these conditions. 
Keywords:  electricity markets;strategic generation investment modeling;demand uncertainty;existence and uniqueness of equilibrium. 
JEL:  C62 C68 C72 D43 L94 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:dgr:kubcen:2013044&r=gth 
By:  Amit Kumar Maurya (Indira Gandhi Institute of Development Research); Shubhro Sarkar (Indira Gandhi Institute of Development Research) 
Abstract:  In a multilateral bargaining problem with one buyer and two heterogeneous sellers owning perfectly complementary units, we find that there exists an equilibrium which leads to inefficient delays when the buyer negotiates with the highervaluation seller first and where players are extremely impatient. We also find that the buyer prefers to negotiate with the lowervaluation seller first, except in an equilibrium where both the buyer and the lowervaluation seller choose to play strategies that lead negotiations between them to hold out. 
Keywords:  Multilateral bargaining, Bargaining order, Asymmetric sellers, Complete information, Subgame Perfection 
JEL:  C72 C78 
Date:  2013–08 
URL:  http://d.repec.org/n?u=RePEc:ind:igiwpp:2013015&r=gth 
By:  William Thomson (University of Rochester) 
Abstract:  A group of agents have claims on a resource, but there is not enough of it to honor all of the claims. How should it be divided? A group of agents decide to undertake a public project that they can jointly afford. How much should each of them contribute? This essay is an update of Thomson (2003), a survey of the literature devoted to the study of such problems. 
Keywords:  claims problems; constrained equal awards rule; constrained equal losses rule; proportional rule; axiomatic approach; gametheoretic approach 
JEL:  C79 D63 D74 
Date:  2013–08 
URL:  http://d.repec.org/n?u=RePEc:roc:rocher:578&r=gth 
By:  Luca Lambertini (Department of Economics, University of Bologna, Italy) 
Abstract:  A methodological discussion is proposed, aiming at illustrating an analogy between game theory in particular (and mathematical economics in general) and quantum mechanics. This analogy relies on the equivalence of the two fundamental operators employed in the two fields, namely, the expected value in economics and the density matrix in quantum physics. I conjecture that this coincidence can be traced back to the contributions of von Neumann in both disciplines. 
Keywords:  expected value, density matrix, uncertainty, quantum games 
JEL:  B25 B41 C70 
Date:  2013–07 
URL:  http://d.repec.org/n?u=RePEc:rim:rimwps:40_13&r=gth 
By:  Yuntong Wang (Department of Economics, University of Windsor) 
Abstract:  An airline lands in a number of airports in a region. An airport serves a number of airlines. Each airport charges a given amount of emission fees to those airlines using the airport. The total emission fees from all airports in the region must be shared among all airlines. We propose an axiomatic approach to this airline emission fees problem. We suggest a sharing rule called the Decomposition rule that is based on a few simple axioms. The Decomposition rule coincides with the Shapley value of the game associated with the problem and is shown in the core. Thus, no alliance of airlines can reduce their emission fees by forming an independent coalition. On the other hand, we also show that the Decomposition rule is splitproof. In other words, no airline has an incentive to split into two or more airlines. 
Keywords:  Airline emission fees; Shapley value; core; splitproofness. 
JEL:  C71 D61 D62 
Date:  2013–08–26 
URL:  http://d.repec.org/n?u=RePEc:wis:wpaper:1308&r=gth 
By:  Camille Cornand (GATE Lyon SaintEtienne  Groupe d'analyse et de théorie économique  CNRS : UMR5824  Université Lumière  Lyon II  École Normale Supérieure  Lyon); Frank Heinemann (Fachgebiet Makroökonomik  Technische Universität Berlin) 
Abstract:  In games with strategic complementarities, public information about the state of the world has a larger impact on equilibrium actions than private information of the same precision, because the former is more informative about the likely behavior of others. This may lead to welfarereducing 'overreactions' to public signals as shown by Morris and Shin (2002). Recent experiments on games with strategic complementarities show that subjects attach a lower weight to public signals than theoretically predicted. Aggregate behavior can be better explained by a cognitive hierarchy model where subjects employ limited levels of reasoning. This paper analyzes the welfare effects of public information under such limited levels of reasoning and argues that for strategies according with experimental evidence, public information that is more precise than private information cannot reduce welfare, unless the policy maker has instruments that are perfect substitutes to private actions. 
Keywords:  coordination games; strategic uncertainty; private information; public information; higherorder beliefs; levels of reasoning 
Date:  2013–08–28 
URL:  http://d.repec.org/n?u=RePEc:hal:wpaper:halshs00855049&r=gth 
By:  Carole Bernard; Franck Moraux; Ludger Rueschendorf; Steven Vanduffel 
Abstract:  Most decision theories including expected utility theory, rank dependent utility theory and the cumulative prospect theory assume that investors are only interested in the distribution of returns and not about the states of the economy in which income is received. Optimal payoffs have their lowest outcomes when the economy is in a downturn, and this is often at odds with the needs of many investors. We introduce a framework for portfolio selection that permits to deal with statedependent preferences. We are able to characterize optimal payoffs in explicit form. Some applications in security design are discussed in detail. We extend the classical expected utility optimization problem of Merton to the statedependent situation and also give some stochastic extensions of the target probability optimization problem. 
Date:  2013–08 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:1308.6465&r=gth 
By:  Debing Ni (School of Management, University of Electronic Science and Technology of China); Yuntong Wang (Department of Economics, University of Windsor) 
Abstract:  This paper considers the cost sharing problem on a fixed tree network. It provides a characterization of the family of cost sharing methods satisfying the axioms of Additivity and the Independence of Irrelevant Costs. Additivity is a classical axiom. The Independence of Irrelevant Costs axiom is new and replaces the traditional Dummy axiom to capture the network structure of the model. 
Keywords:  Cost sharing; tree network. 
JEL:  C71 D70 
Date:  2013–08–25 
URL:  http://d.repec.org/n?u=RePEc:wis:wpaper:1307&r=gth 