nep-gth New Economics Papers
on Game Theory
Issue of 2014‒08‒28
seven papers chosen by
Laszlo A. Koczy
Magyar Tudományos Akadémia

  1. Strongly Symmetric Equilibria in Bandit Games By Johannes Horner; Nicolas Klein; Sven Rady
  2. Robust Equilibria in Location Games By Berno Buechel; Nils Roehl
  3. Two-Stage Allocation Rules By Nils Roehl
  4. An ultimatum game with multidimensional response strategies By Werner Güth; M. Vittoria Levati; Chiara Nardi; Ivan Soraperra
  5. Strategic Behavior and Social Outcomes in a Bottleneck Queue: Experimental Evidence By Breinbjerg, Jesper; Sebald, Alexander; Østerdal, Lars Peter
  6. Dissolution of Partnerships in Infinitely Repeated Games By Alistair Wilson; Hong Wu
  7. Handing out guns at a knife fight: behavioral limitations of subgame-perfect implementation By Ernst Fehr; Michael Powell; Tom Wilkening

  1. By: Johannes Horner (Cowles Foundation, Yale University); Nicolas Klein (Universite de Montreal); Sven Rady (University of Bonn)
    Abstract: This paper studies strongly symmetric equilibria (SSE) in continuous-time games of strategic experimentation with Poisson bandits. SSE payoffs can be studied via two functional equations similar to the HJB equation used for Markov equilibria. This is valuable for three reasons. First, these equations retain the tractability of Markov equilibrium, while allowing for punishments and rewards: the best and worst equilibrium payoff are explicitly solved for. Second, they capture behavior of the discrete-time game: as the period length goes to zero in the discretized game, the SSE payoff set converges to their solution. Third, they encompass a large payoff set: there is no perfect Bayesian equilibrium in the discrete-time game with frequent interactions with higher asymptotic efficiency.
    Keywords: Two-armed bandit, Bayesian learning, Strategic experimentation, Strongly symmetric equilibrium
    JEL: C73 D83
    Date: 2014–08
  2. By: Berno Buechel (University of Hamburg); Nils Roehl (University of Paderborn)
    Abstract: In the framework of spatial competition, two or more players strategically choose a location in order to attract consumers. It is assumed standardly that consumers with the same favorite location fully agree on the ranking of all possible locations. To investigate the necessity of this questionable and restrictive assumption, we model heterogeneity in consumers' distance perceptions by individual edge lengths of a given graph. A profile of location choices is called a ``robust equilibrium'' if it is a Nash equilibrium in several games which differ only by the consumers' perceptions of distances. For a finite number of players and any distribution of consumers, we provide a full characterization of all robust equilibria and derive structural conditions for their existence. Furthermore, we discuss whether the classical observations of minimal differentiation and inefficiency are robust phenomena. Thereby, we find strong support for an old conjecture that in equilibrium firms form local clusters.
    Keywords: spatial competition, Hotelling-Downs, networks, graphs, Nash equilibrium, median, minimal differentiation
    JEL: C72 D49 P16 D43
    Date: 2013–02
  3. 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 non-trivial issue. The purpose of this work is to analyze two-stage 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
  4. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena); M. Vittoria Levati (University of Verona and Max Planck Institute of Economics, Strategic Interaction Group, Jena); Chiara Nardi (University of Verona); Ivan Soraperra (University of Verona)
    Abstract: We enrich the choice task of responders in ultimatum games by allow- ing them to independently decide whether to collect what is offered to them and whether to destroy what the proposer demanded. Such a multidimensional response format intends to cast further light on the motives guiding responder behavior. Using a conservative and strin- gent approach to type classification, we find that the overwhelming majority of responder participants choose consistently with outcome- based preference models. There are, however, few responders that destroy the proposer's demand of a large pie share and concurrently reject their own offer, thereby suggesting a strong concern for integrity.
    Keywords: Ultimatum, Social preferences, Incomplete information, Experiments
    JEL: C72 C91 D63 D74
    Date: 2014–08–19
  5. By: Breinbjerg, Jesper (Department of Business and Economics); Sebald, Alexander (Department of Economics); Østerdal, Lars Peter (Department of Business and Economics)
    Abstract: We consider a class of three-player queuing games where players independently choose when to arrive at a bottleneck facility that serves only one at a time. Players are impatient for service but cannot arrive before the facility opens and they dislike time spent in queue. We derive the equilibrium arrivals under the first-in-first-out (FIFO), last-in-first-out (LIFO), and service-in-random-order (SIRO) queue disciplines and compare these equilibrium predictions to outcomes from a laboratory experiment. LIFO provides higher equilibrium welfare than FIFO and SIRO since the players arrive such that lower congestion is induced. Experimental evidence confirms that employing different queue disciplines indeed affects the strategic behavior of players and thereby the level of congestion. The experimental participants do not, however, behave as prescribed by the equilibrium predictions. They obtain significantly higher welfare than prescribed by equilibrium under all queue disciplines. Our results moreover suggest that people perceive LIFO as the most unfair of the three disciplines although the theoretical results suggest that it is welfare optimal.
    Keywords: Queue disciplines; congestion; equilibrium; experiments; fairness
    JEL: C72 D62 D63 R41
    Date: 2014–08–13
  6. By: Alistair Wilson; Hong Wu
    Abstract: We experimentally examine repeated partnerships with imperfect monitoring, where participants can unilaterally sever partnerships at any time. The experiment examines effects from changes in the value of an outside-the-partnership option. We find four main results where partners have access to the same outside option: i) the presence of a dissolution option increases cooperation; ii) the use of dissolution is dictated by individual rationality; iii) where dissolution is used as a punishment, subjects increases lenient, but are still forgiving; iv) overall efficiency is non-monotone in the outside option. An extension examines asymmetric outside options finding: advantages to terminating first-movers creates highly inefficient outcomes; a last-mover advantage is less inefficient but reduces forgiveness; while an arbitrator-mechanism assigning higher payoffs to `more-deserving` parties increases efficiency.
    Keywords: Key words and phrases: Repeated Games, Endogenous Termination, Dissolution clauses, Imperfect public monitoring, Dynamic games
    JEL: C92 D01 D86 D90
    Date: 2014–08
  7. By: Ernst Fehr; Michael Powell; Tom Wilkening
    Abstract: The assumption that payoff-relevant information is observable but not verifiable is important for many core results in contract, organizational and institutional economics. However, subgame-perfect implementation (SPI) mechanisms - which are based on off-equilibrium arbitration clauses that impose fines for lying and the inappropriate use of arbitration - can be used to render payoff-relevant observable information verifiable. Thus, if SPI mechanisms work as predicted they undermine the foundations of important economic results based on the observable but non-verifiable assumption. Empirical evidence on the effectiveness of SPI mechanisms is, however, scarce. In this paper we show experimentally that SPI mechanisms have severe behavioral limitations. They induce retaliation against legitimate uses of arbitration and thus make the parties reluctant to trigger arbitration. The inconsistent use of arbitration eliminates the incentives to take first-best actions and leads to costly disagreements such that individuals - if given the choice - opt out of the mechanism in the majority of the cases. Incentive compatible redesigns of the mechanism solve some of these problems but generate new ones such that the overall performance of the redesigned mechanisms remains low. Our results indicate that there is little hope for SPI mechanisms to solve verifiability problems unless they are made retaliation-proof and, more generally, robust to other-regarding preferences.
    Keywords: Implementation theory, incomplete contracts, experiments
    JEL: D23 D71 D86 C92
    Date: 2014–08

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