nep-gth New Economics Papers
on Game Theory
Issue of 2014‒01‒10
seven papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. Reference Dependent Altruism By Breitmoser, Yves; Tan, Jonathan H.W.
  2. Bargaining Power and Majoritarian Allocations By McCain , Roger
  3. Network Topology, Higher Orders of Stability and Efficiency By Chakrabarti, Subhadip; Tangsangasaksri, Supanit
  4. Explaining Behavior in the "11-20” Game By Lawrence C.Y Choo; Todd R. Kaplan
  5. A state-constrained differential game arising in optimal portfolio liquidation By Alexander Schied; Tao Zhang
  6. A Global Game with Heterogenous Priors By Wolfgang Kuhle
  7. When trust fades...: Can optimal mechanisms for policy decisions always be designed? By Major, Iván

  1. By: Breitmoser, Yves; Tan, Jonathan H.W.
    Abstract: In view of behavioral patterns left unorganized by current social preference theories, we propose a theory of reference dependent altruism (RDA). With RDA, one's degree of altruism increases at reference points. It induces equity and efficiency effects that are conditional on whether or not payoffs meet reference points. We verify the theory first by experimentally analyzing majority bargaining, where observed behavior contradicts existing theories but confirms RDA. Using parameter estimates from majority bargaining, we then make out-of-sample predictions for Charness-Rabin, Engelmann-Strobel, and Bolton-Ockenfels games. RDA organizes these seemingly disparate games out-of-sample, which validates our hypothesis that pro-social behavior primarily relates to reference points.
    Keywords: bargaining, non-cooperative game, laboratory experiment, social preferences, quantal response equilibrium
    JEL: C72 C78 D72
    Date: 2014–01–07
  2. By: McCain , Roger (School of Economics LeBow College of Business Drexel University)
    Abstract: It seems that decisions in many voting bodies might be described by a two-stage decision in which the first stage is a bargaining process and the second is a vote that is often a formality. This does not mean that the voting is irrelevant, but, rather, that it limits the threats that may be made and so influences bargaining power at the first stage. We will explore a two-stage game in which the first stage is a bargaining process and the game terminates if there is an agreement, while at the second stage, if there is no agreement at the first stage, a contested election is held to determine the joint strategy of the body. Bargaining power at the first stage is attributed to minimum winning coalitions in the possible second stage election. In an idealization of such a two-stage game, majority groups have equal bargaining power, and nonmajority groups have none. This paper uses a recent extension of bargaining theory that attributes bargaining power to groups as well as individuals and assumes that a minimum winning voting bloc has bargaining power one and other groups and individuals have bargaining power zero. For TU games, this yields a striking rule for the bargaining solution: the surplus generated by the coalition is either distributed as equal payouts, or distributed among the members with lesser individual rationality constraints, so that their payouts are equal, while others get their individual rationality constraints. In the tradition of cooperative game theory, we assume that the bargaining is successful and explicitly consider only the bargaining stage. In a digression, a model of a business enterprise as a TU game is developed, and the voting model is applied to contrast decisions in a worker cooperative (which makes decisions on the basis of majority rule among the employee members) with for-profit corporations and other organizational forms.
    Keywords: voting; cooperative games; bargaining
    JEL: C71 C78 D72
    Date: 2013–12–01
  3. By: Chakrabarti, Subhadip; Tangsangasaksri, Supanit
    Abstract: Stable networks of order r where r is a natural number refer to those networks that are immune to coalitional deviation of size r or less. In this paper, we introduce stability of a finite order and examine its relation with efficient networks under anonymous and component additive value functions and the component-wise egalitarian allocation rule. In particular, we examine shapes of networks or network architectures that would resolve the conflict between stability and efficiency in the sense that if stable networks assume those shapes they would be efficient and if efficient networks assume those shapes, they would be stable with minimal further restrictions on value functions.
    Keywords: Stability of order r, Efficiency, Network architecture
    JEL: C62 C71
    Date: 2014–01–06
  4. By: Lawrence C.Y Choo (Department of Economics, University of Exeter); Todd R. Kaplan (Department of Economics, University of Exeter and University of Haifa)
    Abstract: We investigate whether subjects’ behavior in the Arad and Rubinstein (2012) "11-20" game could be well explained by the k-level process described by the authors. We replicated their game in our baseline experiment and provided two other variations that retained the same mixed-strategy equilibrium but resulted in different predicted behavior by the k-level process. Our experiments results suggest that k-level process leads to inconsistent predictions. In contrast to the standard k-level process as in Arad and Rubinstein, we allow players to best respond stochastically in our "SK" model and compared the model’s statistical fit against the Quantal Response Equilibrium and Cognitive Hierarchy Model. The SK model and Cognitive Model were able to outperform the QRE in a statistical sense and performed as well as each other. In addition, theCognitiveHierarchy and to lesser extend the SK model, demonstrate consistent estimates. Our findings suggest that the behavioral assumptions of Arad and Rubinstein k-level process does not fully explain behavior in the "11-20" and better explanations could be obtained when one allows for stochastic best responds as in the SK and Cognitive Hierarchy Models.
    Keywords: k-level, Cognitive Hierarchy, Quantal Response Equilibrium, "11-20" money request game.
    JEL: C73 C91
    Date: 2014
  5. By: Alexander Schied; Tao Zhang
    Abstract: We consider $n$ risk-averse agents who compete for liquidity in an Almgren--Chriss market impact model. Mathematically, this situation can be described by a Nash equilibrium for a certain linear-quadratic differential game with state constraints. The state constraints enter the problem as terminal boundary conditions for finite and infinite time horizons. We prove existence and uniqueness of Nash equilibria and give closed-form solutions in some special cases. We also analyze qualitative properties of the equilibrium strategies and provide corresponding financial interpretations.
    Date: 2013–12
  6. By: Wolfgang Kuhle
    Abstract: This paper relaxes the common prior assumption in the public and private information game of Morris and Shin (2000, 2004). For the generalized game, where the agent's prior expectations are heterogenous, it derives a sharp condition for the emergence of unique/multiple equilibria. This condition indicates that unique equilibria are played if player's public disagreement is substantial. If disagreement is small, equilibrium multiplicity depends on the relative precisions of private signals and subjective priors. Extensions to environments with public signals of exogenous and endogenous quality show that prior heterogeneity, unlike heterogeneity in private information, provides a robust anchor for unique equilibria. Finally, irrespective of whether priors are common or not, we show that public signals can ensure equilibrium uniqueness, rather than multiplicity, if they are sufficiently precise.
    Date: 2013–12
  7. By: Major, Iván
    Abstract: Governments must usually take policy decisions with an imperfect knowledge of the economic actors' type or the actors' effort level. These issues are addressed within the framework of classic adverse selection or moral hazard models. I discuss in this paper how would the government's and the economic actors' behavior change if relevant information is double asymmetric, that is, it is not just the government that has limited information about the agents' type or effort level, but the economic actors also lack perfect information about the government's trustworthiness. Using the modeling tools of mechanism design I prove in the paper, that government - as principal - is only capable of applying perverse incentives towards the economic agents: it punishes well-behaving agents while it rewards the badly behaving ones. I apply the theoretical models to the regulatory issues of network industries, and specifically to the ICT industry. --
    Keywords: mechanism design,incentive theory,adverse selection,moral hazard,Bayesian games
    JEL: C73 D82
    Date: 2013

This nep-gth issue is ©2014 by Laszlo A. Koczy. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.