nep-gth New Economics Papers
on Game Theory
Issue of 2014‒09‒25
fourteen papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Cooperation and Institution in Games By Okada, Akira
  2. Stable Networks in Homogeneous Societies By Tim Hellmann; Jakob Landwehr
  3. Strongly Symmetric Equilibria in Bandit Games By Hörner, Johannes; Klein, Nicolas; Rady, Sven
  4. Nash equilibria of games when players'preferences are quasi-transitive By Basu, Kaushik; Pattanaik, Prasanta K.
  5. Group contests of incomplete information By Philip Brookins; Dmitry Ryvkin
  6. Computation of equilibrium values in the Baron and Ferejohn bargaining model By Tasos Kalandrakis
  7. A Global Game with Strategic Substitutes and Complements: Comment By Eric Hoffmann; Tarun Sabarwal
  8. Should Auctions be Transparent? By Dirk Bergemann; Johannes Horner
  9. Categorization Based Belief Formations By Joerg Bleile
  10. The Social Evolution of Terror and Genocide across Time and Geographic Space: Perspectives from Evolutionary Game Theory By Charles Anderton
  11. Size Invariant Measures of Association : Characterization and Difficulties By Margherita NEGRI; Yves SPRUMONT
  12. Risk Capital Allocation: The Lorenz Set By Jens Leth Hougaard; Aleksandrs Smilgins
  13. Network Efficiency and the Banking System By Nicola Giocoli
  14. What is trustworthiness and what drives it? By James C. Cox; Rudolf Kerschbamer; Daniel Neururer

  1. By: Okada, Akira
    Abstract: Based on recent developments in non-cooperative coalitional bargaining theory, I review game theoretical analyses of cooperation and institution. The first part presents basic results of the random-proposer model and applies them to the problem of involuntary unemployment in a labor market. Extensions to cooperative games with externality and incomplete information are discussed. The second part considers enforceability of an agreement as an institutional foundation of cooperation. I re-examine the contractarian approach to the problem of cooperation under the view that individuals may voluntarily create an enforcement institution.
    JEL: C71 C72 C78 D02
    Date: 2014–09
  2. By: Tim Hellmann (Center for Mathematical Economics, Bielefeld University); Jakob Landwehr (Center for Mathematical Economics, Bielefeld University)
    Abstract: We study the structure of pairwise stable networks from a very general point. Rather than assuming a particular functional form of utility, we simply assume that the society is homogeneous, i.e. that agents’ utilities differ only with respect to their network position while their names do not matter. Existence of certain stable network structures is then implied by fairly general assumptions on externalities between links. Depending on the form of link externalities, either the empty or complete network are always pairwise stable, stable symmetric networks exist, or stable networks with a connected subgroup exist. If the society becomes more homogeneous, then it is possible to characterize the set of all pairwise stable networks: they are nested split graphs (NSG). We illustrate these results with many examples from the literature, including utility profiles that depend on centrality measures such as Bonacich centrality. In particular, for low discount factors every pairwise stable network is an NSG if utility is given by Bonacich centrality.
    Keywords: Network Formation, Pairwise Stability, Existence, Homogeneity, Convexity, Strategic Complements, Bonacich Centrality
    JEL: A14 C72 D85
    Date: 2014–08
  3. By: Hörner, Johannes; Klein, Nicolas; Rady, Sven
    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: 2014–08–17
  4. By: Basu, Kaushik; Pattanaik, Prasanta K.
    Abstract: Much of game theory is founded on the assumption that individual players are endowed with preferences that can be represented by a real-valued utility function. However, in reality human preferences are often not transitive. This is especially true for the indifference relation, which can lead an individual to make a series of choices which in their totality would be viewed as erroneous by the same individual. There is a substantial literature that raises intricate questions about individual liberty and the role of government intervention in such contexts. The aim of this paper is not to go into these ethical matters but to provide a formal structure for such analysis by characterizing games where individual preferences are quasi-transitive. The paper identifies a set of axioms which are sufficient for the existence of Nash equilibria in such'games.'
    Keywords: Disease Control&Prevention,Economic Theory&Research,Teaching and Learning,Information Security&Privacy,Biodiversity
    Date: 2014–09–01
  5. By: Philip Brookins (Department of Economics, Florida State University); Dmitry Ryvkin (Department of Economics, Florida State University)
    Abstract: We prove the existence of monotone pure strategy Bayesian equilibria in two types of contests between groups under incomplete information: (i) individual-level private information group contests, where each player only knows her own ability, and (ii) group-level private information group contests, where each player knows the abilities of all members of her group. In the latter case, we also show that the equilibrium is unique. We provide the results of exploratory numerical computations and discuss the qualitative properties of the equilibria.
    Keywords: contest, group, incomplete information
    JEL: D72 C72 C02
    Date: 2014–09
  6. By: Tasos Kalandrakis (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 14627-0158)
    Abstract: Computation of exact equilibrium values for n-player divide-the-dollar legislative bargaining games as in Baron and Ferejohn (1989) with general quota voting rules, recognition probabilities, and discount factors, can be achieved by solving at most n bivariate square linear systems of equations. This approach recovers Eraslan's (2002) uniqueness result and relies on a characterization of equilibria in terms of two variables that satisfy a pair of piecewise linear equations.
    Date: 2014–08
  7. By: Eric Hoffmann (Department of Economics, The University of Kansas); Tarun Sabarwal (Department of Economics, University of Kansas)
    Abstract: In a 2007 paper, "A global game with strategic substitutes and complements", by Karp, L., I.H. Lee, and R. Mason, Games and Economic Behavior, 60(1), 155-175, an argument is made to show existence of Bayesian-Nash equilibrim in global games that may include both strategic substitutes and complements. This note documents a gap in the proof of that statement.
    Date: 2014–09
  8. By: Dirk Bergemann (Cowles Foundation, Yale University); Johannes Horner (Cowles Foundation, Yale University)
    Abstract: We investigate the role of market transparency in repeated first-price auctions. We consider a setting with independent private and persistent values. We analyze three distinct disclosure regimes regarding the bid and award history. In the minimal disclosure regime each bidder only learns privately whether he won or lost the auction. In equilibrium the allocation is efficient and the minimal disclosure regime does not give rise to pooling equilibria. In contrast, in disclosure settings where either all or only the winner’s bids are public, an inefficient pooling equilibrium with low revenues exists.
    Keywords: First price auction, Repeated auction, Private bids, Information revelation
    JEL: D44 D82 D83
    Date: 2010–08
  9. By: Joerg Bleile (Center for Mathematical Economics, Bielefeld University)
    Abstract: An agent needs to determine a belief over potential outcomes for a new problem based on past observations gathered in her database (memory). There is a rich literature in cognitive science showing that human minds process and order information in categories, rather than piece by piece. We assume that agents are naturally equipped (by evolution) with a efficient heuristic intuition how to categorize. Depending on how available categorized information is activated and processed, we axiomatize two different versions of belief formation relying on categorizations. In one approach an agent relies only on the estimates induced by the single pieces of information contained in so called target categories that are activated by the problem for which a belief is asked for. Another approach forms a prototype based belief by averaging over all category-based estimates (so called prototypical estimates) corresponding to each category in the database. In both belief formations the involved estimates are weighted according to their similarity or relevance to the new problem. We impose normatively desirable and natural properties on the categorization of databases. On the stage of belief formation our axioms specify the relationship between different categorized databases and their corresponding induced (category or prototype based) beliefs. The axiomatization of a belief formation in Billot et al. (Econometrica, 2005) is covered for the situation of a (trivial) categorization of a database that consists only of singleton categories and agents basically do not process information categorical.
    Keywords: Belief formation, prior, case-based reasoning, similarity, categorization, prototype
    JEL: D81 D83
    Date: 2014–07
  10. By: Charles Anderton (Department of Economics and Accounting, College of the Holy Cross)
    Abstract: This article uses evolutionary game theory to reveal the interpersonal and geographic characteristics of a society that make it vulnerable to a conquest from within by terrorist organizations and genocide architects. Under conditions identified in the space-less version of the model, entrepreneurs of violence can create the social metamorphosis of a peaceful people group into one that supports or does not resist violence against an out-group. The model is extended into geographic space by analyzing interactions among peaceful and aggressive phenotypes in Moore and von Neumann neighborhoods. The model also reveals policy interventions in which the social evolution of aggression never gets started or comes to a halt if already underway.
    Keywords: Terrorism, Terrorism, Genocide, Game Theory
    JEL: C73 D74 H56
    Date: 2014–09
  11. By: Margherita NEGRI; Yves SPRUMONT
    Abstract: A measure of association is row-size invariant if it is unaffected by the mutliplication of all entries in a row of a cross-classi…cation table by a same positive number. It is class-size invariant if it is unaffected by the mutliplication of all entries in a class (i.e., a row or a column). We prove that every class-size invariant measure of association as-signs to each mxn cross-classi…fication table a number which depends only on the cross-product ratios of its 2x2 subtables. We propose a monotonicity axiom requiring that the degree of association should increase after shifting mass from cells of a table where this mass is below its expected value to cells where it is above-provided that total mass in each class remains constant. We prove that no continuous row-size invariant measure of association is monotonic if m 4.
    Keywords: association, contingency tables, margin-free measures, size invariance, monotonicity, transfer principle
    Date: 2014
  12. By: Jens Leth Hougaard (Department of Food and Resource Economics, University of Copenhagen); Aleksandrs Smilgins (Department of Food and Resource Economics, University of Copenhagen)
    Abstract: Risk capital allocation problems have been widely discussed in the academic literature. We consider a company with multiple subunits having individual portfolios. Hence, when portfolios of subunits are merged, a diversification benefit arises: the risk of the company as a whole is smaller than the sum of the risks of the individual sub-units. The question is how to allocate the risk capital of the company among the subunits in a fair way. In this paper we propose to use the Lorenz set as an allocation method. We show that the Lorenz set is operational and coherent. Moreover, we propose a set of new axioms related directly to the problem of risk capital allocation and show that the Lorenz set satisfies these new axioms in contrast to other well-known coherent methods. Finally, we discuss how to deal with non-uniqueness of the Lorenz set.
    Keywords: Risk capital, Cost allocation, Lorenz undominated elements of the core, Coherent risk allocation, Egalitarian allocation
    Date: 2014–05
  13. By: Nicola Giocoli
    Abstract: Inspired by the Coasean “market vs firm” dichotomy, we offer a new definition of efficiency by applying the notions of network cost and network efficiency as developed in complex network theory. Network analysis is relevant for every system of interconnected exchanging agents. One such system is the banking sector. It is showed that the notions hereby presented may improve upon the predictions of Allen & Gale’s standard model, where agents exchange liquidity and where troubles in a local area of the network may lead to systemic collapse.
    Date: 2014–06–10
  14. By: James C. Cox; Rudolf Kerschbamer; Daniel Neururer
    Abstract: This paper reports the results of experiments designed to isolate the impact of various combinations of the following motives on trustworthiness: (i) unconditional other-regarding preferences - like altruism, inequality aversion, quasi-maximin, etc.; (ii) deal-responsiveness - reacting to actions that allow for a mutual improvement by adopting behavior that implies a mutual improvement; (iii) gift-responsiveness - reacting to choices that allow the trustee to obtain an improvement by adopting actions that benefit the trustor; and (iv) vulnerability-responsiveness - reacting to the vulnerability of the trustor by adopting actions that do not hurt the trustor. Our results indicate that - besides unconditional other-regarding preferences - vulnerability-responsiveness is an important determinant of trustworthiness even in cases where the vulnerability of the trustor does not come together with a gift to the trustee. Motivated by our empirical findings we provide formal definitions of trust and trustworthiness based on revealed willingness to accept vulnerability and the response to it.
    Keywords: trustworthiness, trust, trust game, investment game, deal-responsiveness, gift-responsiveness, vulnerability-responsiveness, generosity, reciprocity
    JEL: C70 C91 D63 D64
    Date: 2014–09

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