
on Game Theory 
Issue of 2013‒12‒29
seventeen papers chosen by Laszlo A. Koczy Hungarian Academy of Sciences and Obuda University 
By:  OKADA, Akira 
Abstract:  We consider a noncooperative twoperson sequential bargaining game with incomplete information. Player types are verifiable when a contract is implemented. We show that there is no delay in agreements and the inscrutability principle holds under the property of independence of irrelevant types (IIT), whereby the response of every type of player is independent of proposals to other player types. We prove the existence of a stationary sequential equilibrium satisfying IIT and a selfselection property for every discount factor for future payoffs. We also show that the equilibrium proposal of every player converges to the ex post Nash bargaining solution as the discount factor goes to one. 
Keywords:  bargaining, incomplete information, mechanism selection, ex post Nash bargaining solution, noncooperative games 
JEL:  C72 C78 D82 
Date:  2013–12 
URL:  http://d.repec.org/n?u=RePEc:hit:econdp:201315&r=gth 
By:  Johannes Horner (Cowles Foundation, Yale University); Satoru Takahashi (National University of Singapore); Nicolas Vieille (HEC Paris) 
Abstract:  This paper characterizes an equilibrium payoff subset for Markovian games with private information as discounting vanishes. Monitoring is imperfect, transitions may depend on actions, types be correlated and values interdependent. The focus is on equilibria in which players report truthfully. The characterization generalizes that for repeated games, reducing the analysis to static Bayesian games with transfers. With correlated types, results from mechanism design apply, yielding a folk theorem. With independent private values, the restriction to truthful equilibria is without loss, except for the punishment level; if players withhold their information during punishmentlike phases, a "folk" theorem obtains also. 
Keywords:  Bayesian games, Repeated games, Folk theorem 
JEL:  C72 C73 
Date:  2013–12 
URL:  http://d.repec.org/n?u=RePEc:cwl:cwldpp:1933&r=gth 
By:  Tejada, J.; Borm, P.E.M.; Lohmann, E.R.M.A. (Tilburg University, Center for Economic Research) 
Abstract:  Abstract: We present a unifying framework for transferable utility coalitional games that are derived from a nonnegative matrix in which every entry represents the value obtained by combining the corresponding row and column. We assume that every row and every column is associated with a player, and that every player is associated with at most one row and at most one column. The instances arising from this framework are called matching games, and they encompass assignment games and permutation games as two polar cases. We show that the core of a matching game is always nonempty by proving that the set of matching games coincides with the set of permutation games. Then we focus on two separate problems. First, we exploit the wide range of situations comprised in our framework to investigate the relationship between matching games with different player sets but defined by the same underlying matrix. We show that the core is not only immune to the merging of a row player and a column player, but also to the reverse manipulation, i.e., to the splitting of a player into a row player and a column player. Other common solution concepts fail to be either mergingproof or splittingproof in general. Second, we focus on permutation games only and we analyze the set of all matrices that define permutation games with the same core. In contrast to assignment games, we show that there can be multiple matrices whose entries cannot be raised without modifying the core of the corresponding permutation game and that, for small instances, every such matrix defines an exact game. 
Keywords:  matching situations;permutation games;assignment games 
JEL:  C71 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:dgr:kubcen:2013069&r=gth 
By:  Herings P.J.J.; Meshalkin A.V.; Predtetchinski A. (GSBE) 
Abstract:  We study the division of a surplus under majoritarian bargaining in the threeperson case. In a stationary equilibrium as derived by Baron and Ferejohn 1989, the proposer offers one third times the discount factor of the surplus to a second player and allocates no payoff to the third player, a proposal which is accepted without delay. Laboratory experiments show various deviations from this equilibrium, where different offers are typically made and delay may occur before acceptance. We address the issue to what extent these findings are compatible with subgame perfect equilibrium and characterize the set of subgame perfect equilibrium payoffs for any value of the discount factor. We show that for any proposal in the interior of the space of possible agreements there exists a discount factor such that the proposal is made and accepted. We characterize the values of the discount factor for which equilibria with oneperiod delay exist. We show that any amount of equilibrium delay is possible and we construct subgame perfect equilibria such that arbitrary long delay occurs with probability one. 
Keywords:  Noncooperative Games; Bargaining Theory; Matching Theory; 
JEL:  C72 C78 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:dgr:umagsb:2013072&r=gth 
By:  Julia Belau 
Abstract:  A well known and simple game to model markets is the glove game where worth is produced by building matching pairs. For glove games, diff erent concepts, like the Shapley value, the restricted Shapley value or the Owen value, yield diff erent distributions of worth. Moreover, computational eff ort of these values is in general very high. This paper provides effi cient allocation formulas of the component restricted Shapley value and the Owen value for glove games in case of efficient coalitions. 
Keywords:  Glove game; imbalanced market; imhapley value; owen value; effi ciency;computational complexity 
JEL:  C71 
Date:  2013–12 
URL:  http://d.repec.org/n?u=RePEc:rwi:repape:0456&r=gth 
By:  Xiao Yu Wang 
Abstract:  Mechanisms which implement stable matchings are often observed to work well in practice, even in environments where the stable outcome is not unique, information is complete, and the number of players is small. Why might individuals refrain from strategic manipulation, even when the complexity cost of manipulation is low? I study a twosided, onetoone matching problem with no side transfers, where utility is interdependent in the following intuitive sense: an individual's utility from a match depends not only on her preference ranking of her assigned partner, but also on that partner's ranking of her. I show that, in a world of complete information and linear interdependence, a unique stable matching emerges, and is attained by a modified GaleShapley deferred acceptance algorithm. As a result, a stable rule supports truthtelling as an equilibrium strategy. Hence, these results offer a new intuition for why stable matching mechanisms seem to work well in practice, despite their theoretic manipulability: individuals may value being liked. 
Keywords:  twosided matching, interdependent utility, stability 
JEL:  C78 D82 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:duk:dukeec:1322&r=gth 
By:  Grundel, S.; Borm, P.E.M.; Hamers, H.J.M. (Tilburg University, Center for Economic Research) 
Abstract:  Abstract: In a resource allocation problem there is a commonpool resource, which has to be divided among agents. Each agent is characterized by a claim on this pool and an individual concave reward function on assigned resources. An assignment of resources is optimal if the total joint reward is maximized. We provide a necessary and sufficient condition for optimality of an assignment. Analyzing the associated allocation problem of the maximal total joint reward, we consider corresponding resource allocation games. It is shown that these games have a nonempty core and thus allow for stable allocations. Moreover, an explicit expression for the nucleolus of these games is provided. 
Keywords:  Resource Allocation Games;Concave Reward Function;Core;Nucleolus 
JEL:  C71 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:dgr:kubcen:2013078&r=gth 
By:  Sanjit Dhami; Ali alNowaihi 
Abstract:  Standard equilibrium concepts in game theory find it difficult to explain the empirical evidence in a large number of static games such as prisoners’ dilemma, voting, public goods, oligopoly, etc. Under uncertainty about what others will do in oneshot games of complete and incomplete information, evidence suggests that people often use evidential reasoning (ER), i.e., they assign diagnostic significance to their own actions in forming beliefs about the actions of other like minded players. This is best viewed as a heuristic or bias relative to the standard approach. We provide a formal theoretical framework that incorporates ER into static games by proposing evidential games and the relevant solution concept evidential equilibrium (EE). We derive the relation between a Nash equilibrium and an EE. We also apply EE to several common games including the prisoners’ dilemma and oligopoly games. 
Keywords:  Evidential reasoning; causal reasoning; evidential games; social projec tion functions; ingroups and outgroups; evidential equilibria and consistent eviden tial equilibria; Nash equilibria; the prisoners.dilemma and oligopoly games; common knowledge and epistemic foundations. 
Date:  2013–11 
URL:  http://d.repec.org/n?u=RePEc:lec:leecon:13/25&r=gth 
By:  Marco LiCalzi (Dept. of Management, Università Ca' Foscari Venezia); Nadia Maagli (UniversitŽ Paris1PantheonSorbonne) 
Abstract:  Two agents endowed with different individual conceptual spaces are engaged in a dialectic process to reach a common understanding. We model the process as a simple noncooperative game and demonstrate three results. When the initial disagreement is focused, the bargaining process has a zerosum structure. When the disagreement is widespread, the zerosum structure disappears and the unique equilibrium requires a retraction of consensus: two agents who individually agree to associate a region with the same concept end up rebranding it as a different concept. Finally, we document a conversers' dilemma: such equilibrium outcome is Paretodominated by a cooperative solution that avoids retraction. 
Keywords:  cognitive maps, language differences, semantic bargaining, organisational codes, mental models. 
JEL:  C78 D83 
Date:  2013–12 
URL:  http://d.repec.org/n?u=RePEc:vnm:wpdman:66&r=gth 
By:  Nils Roehl (University of Paderborn) 
Abstract:  Suppose some individuals are allowed to engage in different groups at the same time and they generate a certain welfare by cooperation. Finding appropriate ways for distributing this welfare is a nontrivial issue. The purpose of this work is to analyze twostage allocation procedures where first each group receives a share of the welfare which is then, subsequently, distributed among the corresponding members. To study these procedures in a structured way, cooperative games and network games are combined in a general framework by using mathematical hypergraphs. Moreover, several convincing requirements on allocation procedures are discussed and formalized. Thereby it will be shown, for example, that the Position Value and iteratively applying the Myerson Value can be characterized by similar axiomatizations. 
Keywords:  Allocation Rules, Economic and Social Networks, Hypergraphs, Myerson Value, Position Value 
JEL:  C71 D85 L22 
Date:  2013–12 
URL:  http://d.repec.org/n?u=RePEc:pdn:wpaper:73&r=gth 
By:  Daniela Grieco (Department of Economics (University of Verona)); Marco Faillo (Department of Economics, University of Trento); Luca Zarri (Department of Economics (University of Verona)) 
Abstract:  We experimentally investigate cooperation within a finitely repeated public goods game framework where peer punishment is possible but, unlike previous work, in each round access to sanctioning power is exclusively awarded to the group’s top contributor. We compare this mechanism with a treatment where the right to punish is assigned to one randomly selected subject (O’Gorman et al., 2009), as well as with classic discretionary punishment (Fehr and Gächter, 2000) and with ‘legitimate punishment’ (Faillo et al., 2013). We show that the “Top Contributors as Punishers” mechanism is extremely effective in both raising cooperation and welfare, compared to the randomly selected punisher treatment and to discretionary punishment. This interestingly occurs despite the fact that the (first and secondorder) free riding problem may lead subjects to perceive the new institution as an excessively demanding one: in fact, the lure of the top contributor role induces many subjects to significantly contribute and many top contributors to incur relevant costs to sanction others. 
Keywords:  Public Goods Games; Cooperation; Legitimacy; Solitary Punishment; Behavioral Mechanism Design. 
JEL:  C73 C91 D02 D63 
Date:  2013–12 
URL:  http://d.repec.org/n?u=RePEc:ver:wpaper:24/2013&r=gth 
By:  Diasakos, Theodoros M; Koufopoulos, Kostas 
Abstract:  This paper revisits the problem of adverse selection in the insurance market of Rothschild and Stiglitz [28]. We propose a simple extension of the gametheoretic structure in Hellwig [14] under which Nashtype strategic interaction between the informed customers and the uninformed firms results always in a particular separating equilibrium. The equilibrium allocation is unique and Paretoefficient in the interim sense subject to incentivecompatibility and individual rationality. In fact, it is the unique neutral optimum in the sense of Myerson [22]. 
Keywords:  Insurance Market, Adverse Selection, Incentive Efficiency, 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:edn:sirdps:509&r=gth 
By:  Ulrik H. Nielsen (Department of Economics, Copenhagen University); JeanRobert Tyran (Centre for Economic Policy Research (CEPR), University of Vienna, Department of Economics, Copenhagen University); Erik Wengström (Department of Economics, Copenhagen University) 
Abstract:  We use the strategy method to classify subjects into cooperator types in a largescale online Public Goods Game and find that free riders spend more time on making their decisions than conditional cooperators and other cooperator types. This result is robust to reversing the framing of the game and is not driven by free riders lacking cognitive ability, confusion, or natural swiftness in responding. Our results suggest that conditional cooperation serves as a norm and that free riders need time to resolve a moral dilemma. 
Keywords:  Response Time, Free Riding, Public Goods, Experiment 
JEL:  C70 C90 D03 
Date:  2013–09–04 
URL:  http://d.repec.org/n?u=RePEc:kud:kuiedp:1308&r=gth 
By:  Sunku Hahn (Yonsei University) 
Keywords:  business cycles 
Date:  2013–12 
URL:  http://d.repec.org/n?u=RePEc:yon:wpaper:2013rwp60&r=gth 
By:  Nadine Leonhardt 
Abstract:  The present paper explicitly models the principalagent relationship between a democratic population and its elected representative within a standard war bargaining setup. I fi nd that the specific structure of this relationship and the problems resulting from it help overcome information asymmetries in crisis bargaining. This provides an alternative theoretic explanation of democracies‘ signaling advantage which may turn out to be more realistic than the concept of audience costs. 
Keywords:  Democratic peace; principalagent problems; crisis bargaining 
JEL:  C78 D74 J52 
Date:  2013–11 
URL:  http://d.repec.org/n?u=RePEc:rwi:repape:0453&r=gth 
By:  Brigitte Granville; Dominik Nagly 
Abstract:  This paper studies the bargaining power of the debtors versus the creditors in Europe’s Economic and Monetary Union (EMU). 
Keywords:  Bargaining power, competitiveness, disagreement cost, European Monetary Union, internal devaluation, transfer union 
JEL:  C79 E02 E42 E58 E61 
Date:  2013–12 
URL:  http://d.repec.org/n?u=RePEc:cgs:wpaper:47&r=gth 
By:  Xiao Yu Wang 
Abstract:  This note identifies a moral hazard environment in which a piecewise linear compensation scheme is optimal. Both the principal and the agent have CARA utility, mean output is increasing in the agent's noncontractible input, and output is distributed according to a Laplace distribution, which resembles a normal distribution (e.g. it is symmetric about the mean), but has fatter tails. The key property of the Laplace distribution is that the likelihood ratio is a piecewise constant, where the discontinuity occurs at the mean. The value of this approach is twofold: First, a tractable, empiricallyobserved wage scheme emerges as the equilibrium in a simple static contracting model. Second, the optimal piecewise linear scheme cleanly separates insurance and incentive provision. The linearity at output levels away from the mean captures insurance, while the jump at the mean captures incentive provision. Hence, this model is wellsuited for studying a wide variety of principalagent problems in risky environments subject to moral hazard, such as the effect of risk and moral hazard considerations on employment relationships in developing economies. 
Keywords:  principal agent problems, moral hazard, linear incentive schemes, insurance, incentives 
JEL:  C70 D86 O12 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:duk:dukeec:1323&r=gth 