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on Game Theory |
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Issue of 2013‒09‒13
ten papers chosen by Laszlo A. Koczy Hungarian Academy of Sciences and Obuda University |
| By: | John Duffy; Felix Munoz-Garcia |
| Abstract: | This paper investigates behavior in finitely repeated simultaneous and sequential-move prisoner's dilemma games when there is one-sided incomplete information and signaling about players' concerns for fairness, specifically, their preferences regarding "inequity aversion." In this environment, we show that only a pooling equilibrium can be sustained, in which a player type who is unconcerned about fairness initially cooperates in order to disguise himself as a player type who is concerned about fairness. This disguising strategy induces the uninformed player to cooperate in all periods of the repeated game, including the final period, at which point the player type who is unconcerned about fairness takes the opportunity to defect, i.e., he "backstabs" the uninformed player. Despite such last-minute defection, our results show that the introduction of incomplete information can actually result in a Pareto improvement under certain conditions. We connect the predictions of this "backstabbing" equilibrium with the frequently observed decline in cooperative behavior in the final period of finitely-repeated experimental games. |
| Keywords: | Prisoner\'s Dilemma, Social Preferences, Inequity Aversion, Incomplete Information, Siganling, Information Transmission |
| JEL: | C72 C73 D82 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:pit:wpaper:491&r=gth |
| By: | Smirnov, Vladimir; Wait, Andrew |
| Abstract: | We examine innovation as a timing game with complete information and observable actions in which firms decide when to enter a market. We characterize all pure strategy subgame perfect equilibria for the two-player symmetric game. In particular, we describe all subgame perfect equilibria when both the leader's and the followers' payoff functions are multi-peaked, non-monotonic and discontinuous. We find that there are potentially multiple equilibria, which could involve: joint adoption by both firms, with and without rent equalization; and, alternatively, single-firm adoption with a second-mover advantage. Economic applications are discussed including process and product innovation and the timing of the sale of an asset. |
| Keywords: | product innovation; process innovation; follower; leader; entry; timing games |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:syd:wpaper:2123/9340&r=gth |
| By: | Hougaard, Jens Leth (Department of Food and Resource Economics); Tvede, Mich (Newcastle University); Østerdal, Lars Peter (Department of Business and Economics) |
| Abstract: | We consider a cost sharing problem among agents on a line. The problem is closely related to the classic airport game, but in our model agents are characterized by their location, rather than their needed runway length. We characterize a family of cost allocation rules in which agents pay a share of the incremental costs as well as any debt from upstream agents, with the Bird rule (where agents pay their full incremental cost) and the ‘free rider’ rule (where the terminal agent pays everything) as the two extreme cases. We also extend the analysis to cost sharing among agents located on a fixed tree structure. |
| Keywords: | Airport game; cost allocation; axiomatic characterization; Bird Rule; Incremental cost sharing |
| JEL: | C71 D63 |
| Date: | 2013–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sdueko:2013_012&r=gth |
| By: | László Á. Kóczy (Óbuda University); Balázs Sziklai (Centre for Economic and Regional Studies, Hungarian Academy of Sciences) |
| Abstract: | Few elections attract so much attention as the Papal Conclave that elects the religious leader of over a billion Catholics worldwide. The Conclave is an interesting case of qualied majority voting with many participants and no formal voting blocks. Each cardinal is a well-known public figure with publicly available personal data and well-known positions on public matters. This provides excellent grounds for a study of spatial voting: In this brief note we study voting in the Papal Conclave after the resignation of Benedict XVI. We describe the method of the election and based on a simple estimation of certain factors that seem to influence the electors' preferences we calculate the power of each cardinal in the conclave as the Shapley-Shubik index of the corresponding voting game over a convex geometry. |
| Keywords: | Papal Conclave, game over convex geometry, Shapley-Shubik index JEL Codes: C71, C72 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:pkk:wpaper:1301&r=gth |
| By: | Axel Franzen; Sonja Pointner |
| Abstract: | We study the decision process in a group dictator game in which three subjects can distribute an initial endowment between themselves and a group of recipients. The experiment consists of two stages; first, individuals play a standard dictator game. Second, individuals are randomly matched into groups of three and communicate via instant messaging regarding the decision in the group dictator game. In contrast to former studies our results show that group decisions do not differ from individual decisions in the dictator game. Furthermore, the analysis of the chat history reveals that players make proposals according to their preferences as revealed in the single dictator game and that these proposals in groups drive the final allocation. |
| Keywords: | dictator game, group dictator game, fairness games, small group research |
| JEL: | B3 C79 C91 C92 D03 D7 |
| Date: | 2013–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:bss:wpaper:2&r=gth |
| By: | Ilwoo Hwang |
| Abstract: | I study a dynamic one-sided-offer bargaining model between a seller and a buyer under incomplete information. The seller knows the quality of his product while the buyer does not. During bargaining, the seller randomly receives an outside option, the value of which depends on the hidden quality. If the outside option is sufficiently important, there is an equilibrium in which the uninformed buyer fails to learn the quality and continues to make the same randomized offer throughout the bargaining process. As a result, the equilibrium behavior produces an outcome path that resembles the outcome of a bargaining deadlock and its resolution. The equilibrium with deadlock has inefficient outcomes such as a delay in reaching an agreement and a breakdown in negotiations. Bargaining inefficiencies do not vanish even with frequent offers, and they may exist when there is no static adverse selection problem. Under stronger parametric assumptions, the equilibrium with deadlock is unique under a monotonicity criterion, and all equilibria exhibit inefficient outcomes. |
| Keywords: | bargaining game, asymmetric information, bargaining deadlock, delay, failure of learning, Coase conjecture |
| JEL: | C78 D82 D83 |
| Date: | 2013–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:13-050&r=gth |
| By: | Lucie Ménager (LEM - Laboratoire d'Économie Moderne - Université Paris II - Panthéon-Assas : EA4442, EQUIPPE - ECONOMIE QUANTITATIVE, INTEGRATION, POLITIQUES PUBLIQUES ET ECONOMETRIE - Université Lille III - Sciences humaines et sociales) |
| Abstract: | We study the effect of cheap talk between bidders on the outcome of a first-price procurement game with N sellers in which bidding is costly. Although no side-payements or commitments are allowed, we show that the game admits a unique family of symmetric equilibria in which sellers use communication to collude on a subset of participants and/or to reveal information about their valuation. Contrary to the conventional wisdom, the buyer's expected revenue and the surplus need not decrease with collusion, and the ex-ante surplus increases with the amount of information revealed in equilibrium. This is because when communication is cheap, bidders cannot directly collude on higher prices. Rather, communication leads to a competition between fewer, but more aggressive bidders, which entails more allocative efficiency and a decrease in the total wasteful entry cost. |
| Keywords: | Communication; procurement; collusion |
| Date: | 2013–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00856078&r=gth |
| By: | Volker Benndorf; Dorothea Kübler; Hans-Theo Normann; |
| Abstract: | We study the voluntary revelation of private, personal information in a labor-market experiment with a lemons structure where workers can reveal their productivity at a cost. While rational revelation improves a worker's payoff, it imposes a negative externality on others and may trigger further unraveling. Our data suggest that subjects reveal their productivity less frequently than predicted in equilibrium. A loaded frame emphasizing personal information about workers' health leads to even less revelation. We show that three canonical behavioral models all predict too little rather than too much revelation: level-k reasoning, quantal-response equilibrium,and to a lesser extent inequality aversion. |
| Keywords: | information revelation, privacy, lemons market, level-k reasoning, quantal response equilibrium, inequality aversion |
| JEL: | C72 C90 C91 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2013-040&r=gth |
| By: | Giorgia Barboni; Tania Treibich |
| Abstract: | The widespread evidence of multiple bank lending relationships in credit markets suggests that firms are interested in setting up a diversity of banking links. However, it is hard to know from the empirical data whether a firm's observed number of lenders is symptomatic of financial constraints or rather a well-designed strategy. We design an experimental credit market to analyze the determinants of multiple bank lending relationships, both from the demand and the supply side. Our results show that borrowers prefer multiple lending when they are credit rationed and unable to stabilize their lending source, whatever their risk level. Moreover, rationed borrowers are less likely to repay and display a higher tendency to switch between lenders. At the same time, we observe that the determinants of lending change according to the type of information available on the loan applicants. Overall, our findings support the view that the number of banking relationships is mainly determined by the supply side. |
| Keywords: | Repeated games, experiment, information asymmetries, multiple lending, relationship lending |
| JEL: | C72 C73 C92 G21 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2013-28&r=gth |
| By: | Schroyen, Fred (Dept. of Economics, Norwegian School of Economics and Business Administration); Treich, Nicolas (Toulouse School of Economics) |
| Abstract: | Two wealth effects typically arise in any contest: i) wealth decreases the marginal cost of effort, but also ii) decreases the marginal benefit of winning the contest. In this paper, we introduce three types of strategic contest models depending on whether the first, second, or both wealth effects play a role: namely, a privilege contest, an ability contest, and a rent-seeking contest. Our theoretical analysis reveals that the effects of wealth and wealth inequality are strongly “contestdependent” and are complex in the sense that they depend on the decisiveness of the contest and on the higher-order derivatives of the utility functions of wealth. Our analysis thus does not support general claims that the rich should lobby more or that low economic growth and wealth inequality should lead to additional conflicts. |
| Keywords: | Conflict; contest; rent-seeking; wealth; risk aversion; lobbying; power; redistribution. |
| JEL: | C72 D72 D74 D81 |
| Date: | 2013–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2013_013&r=gth |