nep-gth New Economics Papers
on Game Theory
Issue of 2014‒04‒29
six papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. Investment and Competitive Matching By Georg Noldeke; Larry Samuelson
  2. Uncertain Information Structures and Backward Induction By Zuazo Gain, Peio
  3. Experimental Games on Networks: Underpinnings of Behavior and Equilibrium Selection By Charness, Gary; Feri, Francesco; Meléndez-Jiménez, Miguel A.; Sutter, Matthias
  4. The Effect of Ambient Noise on Cooperation in Public Good Games By Diederich, Johannes
  5. Cooperative decision-making for the provision of a locally undesirable facility By Ambec, Stefan; Kervinio, Yann
  6. Common Mistakes in Computing the Nucleolus By Guajardo, Mario; Jörnsten, Kurt

  1. By: Georg Noldeke (Faculty of Business and Economics, University of Basel); Larry Samuelson (Cowles Foundation, Yale University)
    Abstract: We study markets in which agents first make investments and then match into potentially productive partnerships. Equilibrium investments and the equilibrium matching will be efficient if agents can simultaneously negotiate investments and matches, but we focus on markets in which agents must first sink their investments before matching. In this sunk-investment setting additional equilibria may arise, exhibiting inefficiencies that we can interpret as coordination failures. All allocations satisfying a constrained efficiency property are equilibria, and the converse holds if preferences satisfy a separability condition. We identify sufficient conditions (most notably, quasiconcave utilities) for the investments of matched agents to satisfy an exchange efficiency property as well as sufficient conditions (most notably, a single-crossing property) for agents to be matched positive assortatively, with these conditions then forming the core of sufficient conditions for the efficiency of equilibrium allocations. Our analysis unifies and extends existing studies of investments in competitive matching markets.
    Keywords: Matching, Investment, Coordination failure, Positive assortative matching, Efficiency
    JEL: C7 D5
    Date: 2014–04
  2. By: Zuazo Gain, Peio
    Abstract: In everyday economic interactions, it is not clear whether sequential choices are visible or not to other participants: agents might be deluded about opponents'capacity to acquire,interpret or keep track of data, or might simply unexpectedly forget what they previously observed (but not chose). Following this idea, this paper drops the assumption that the information structure of extensive-form games is commonly known; that is, it introduces uncertainty into players' capacity to observe each others' past choices. Using this approach, our main result provides the following epistemic characterisation: if players (i) are rational,(ii) have strong belief in both opponents' rationality and opponents' capacity to observe others' choices, and (iii) have common belief in both opponents' future rationality and op-ponents' future capacity to observe others' choices, then the backward induction outcome obtains. Consequently, we do not require perfect information, and players observing each others' choices is often irrelevant from a strategic point of view. The analysis extends {from generic games with perfect information to games with not necessarily perfect information{the work by Battigalli and Siniscalchi (2002) and Perea (2014), who provide different sufficient epistemic conditions for the backward induction outcome.
    Keywords: perfect information, incomplete information, backward induction, rationality, strong belief, common belief
    JEL: C72 D82 D83
    Date: 2014–03–25
  3. By: Charness, Gary (University of California, Santa Barbara); Feri, Francesco (University of Innsbruck); Meléndez-Jiménez, Miguel A. (University of Malaga); Sutter, Matthias (European University Institute)
    Abstract: In this paper, we describe a series of laboratory experiments that implement specific examples of a more general network structure and we examine equilibrium selection. Specifically, actions are either strategic substitutes or strategic complements, and participants have either complete or incomplete information about the structure of a random network. Since economic environments typically have a considerable degree of complementarity or substitutability, this framework applies to a wide variety of settings. The degree of equilibrium play is striking, in particular with incomplete information. Behavior closely resembles the theoretical equilibrium whenever this is unique; when there are multiple equilibria, general features of networks, such as connectivity, clustering, and the degree of the players, help to predict informed behavior in the lab. People appear to be strongly attracted to maximizing aggregate payoffs (social efficiency), but there are forces that moderate this attraction: 1) people seem content with (in the aggregate) capturing only the lion's share of the efficient profits in exchange for reduced exposure to loss, and 2) uncertainty about the network structure makes it considerably more difficult to coordinate on a demanding, but efficient, equilibrium that is typically implemented with complete information.
    Keywords: random networks, incomplete information, connectivity, clustering, strategic substitutes, strategic complements, experiment
    JEL: C71 C91 D03 D85
    Date: 2014–04
  4. By: Diederich, Johannes
    Abstract: Environmental stressors such as noise, pollution, extreme temperatures, or crowding can pose relevant externalities in the economy if certain conditions are met. This paper presents experimental evidence that exposure to acute ambient noise decreases cooperative behavior in a standard linear public good game.
    Keywords: private provision of public goods; environmental stress; noise
    Date: 2014–04–16
  5. By: Ambec, Stefan; Kervinio, Yann
    Abstract: We consider the decentralized provision of a global public good with local external- ities in a spatially explicit model. Communities decide on the location of a facility that benefits everyone but exhibits costs to the host and its neighbors. They share the costs through transfers. We examine the cooperative game associated with this so-called NIMBY ("Not In My Back-Yard") problem. We derive and discuss conditions for core solutions to exist. These conditions are driven by the temptation to exclude groups of neighbors at any potential location. We illustrate the results in different spatial settings. In particular, we construct a hypothetical example on a real administrative unit in which the core is shown to be empty. These results clarify how property rights can affect cooperation and shed further light on a limitation of the Coase theorem.
    Keywords: NIMBY, externality, Coase theorem, pollution, waste, core, cooperative game, spatial model.
    JEL: C71 D62 Q53 R53
    Date: 2014–03–26
  6. By: Guajardo, Mario (Dept. of Business and Management Science, Norwegian School of Economics); Jörnsten, Kurt (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: Despite linear programming and duality have correctly been incorporated in algorithms to compute the nucleolus, we have found mistakes in how these have been used in a broad range of applications. Overlooking the fact that a linear program can have multiple optimal solutions and neglecting the relevance of duality appear to be crucial sources of mistakes in computing the nucleolus. We discuss these issues and illustrate them in mistaken examples collected from a variety of literature sources. The purpose of this note is to prevent these mistakes propagate longer by clarifying how linear programming and duality can be correctly used for computing the nucleolus.
    Keywords: Game theory; Nucleolus; Cost allocation; Linear programming; Duality
    JEL: C60 C61 C70
    Date: 2014–04–14

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