
on Game Theory 
By:  Okada, Akira 
Abstract:  Based on recent developments in noncooperative coalitional bargaining theory, I review game theoretical analyses of cooperation and institution. The first part presents basic results of the randomproposer 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 reexamine 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 
URL:  http://d.repec.org/n?u=RePEc:hit:econdp:201411&r=gth 
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 
URL:  http://d.repec.org/n?u=RePEc:bie:wpaper:517&r=gth 
By:  Hörner, Johannes; Klein, Nicolas; Rady, Sven 
Abstract:  This paper studies strongly symmetric equilibria (SSE) in continuoustime 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 discretetime 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 discretetime game with frequent interactions with higher asymptotic efficiency. 
Keywords:  TwoArmed Bandit; Bayesian Learning; Strategic Experimentation; Strongly Symmetric Equilibrium 
JEL:  C73 D83 
Date:  2014–08–17 
URL:  http://d.repec.org/n?u=RePEc:trf:wpaper:469&r=gth 
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 realvalued 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 quasitransitive. 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 
URL:  http://d.repec.org/n?u=RePEc:wbk:wbrwps:7037&r=gth 
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) individuallevel private information group contests, where each player only knows her own ability, and (ii) grouplevel 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 
URL:  http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2014_09_02&r=gth 
By:  Tasos Kalandrakis (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 146270158) 
Abstract:  Computation of exact equilibrium values for nplayer dividethedollar 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 
URL:  http://d.repec.org/n?u=RePEc:roc:wallis:wp65&r=gth 
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), 155175, an argument is made to show existence of BayesianNash 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 
URL:  http://d.repec.org/n?u=RePEc:kan:wpaper:201403&r=gth 
By:  Dirk Bergemann (Cowles Foundation, Yale University); Johannes Horner (Cowles Foundation, Yale University) 
Abstract:  We investigate the role of market transparency in repeated firstprice 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 
URL:  http://d.repec.org/n?u=RePEc:cwl:cwldpp:1764r&r=gth 
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 categorybased 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, casebased reasoning, similarity, categorization, prototype 
JEL:  D81 D83 
Date:  2014–07 
URL:  http://d.repec.org/n?u=RePEc:bie:wpaper:519&r=gth 
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 spaceless 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 outgroup. 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 
URL:  http://d.repec.org/n?u=RePEc:hcx:wpaper:1407&r=gth 
By:  Margherita NEGRI; Yves SPRUMONT 
Abstract:  A measure of association is rowsize invariant if it is unaffected by the mutliplication of all entries in a row of a crossclassi cation table by a same positive number. It is classsize 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 classsize invariant measure of association assigns to each mxn crossclassi fication table a number which depends only on the crossproduct 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 aboveprovided that total mass in each class remains constant. We prove that no continuous rowsize invariant measure of association is monotonic if m 4. 
Keywords:  association, contingency tables, marginfree measures, size invariance, monotonicity, transfer principle 
Date:  2014 
URL:  http://d.repec.org/n?u=RePEc:mtl:montec:102014&r=gth 
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 subunits. 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 wellknown coherent methods. Finally, we discuss how to deal with nonuniqueness of the Lorenz set. 
Keywords:  Risk capital, Cost allocation, Lorenz undominated elements of the core, Coherent risk allocation, Egalitarian allocation 
Date:  2014–05 
URL:  http://d.repec.org/n?u=RePEc:foi:msapwp:03_2014&r=gth 
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 
URL:  http://d.repec.org/n?u=RePEc:thk:rnotes:41&r=gth 
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 otherregarding preferences  like altruism, inequality aversion, quasimaximin, etc.; (ii) dealresponsiveness  reacting to actions that allow for a mutual improvement by adopting behavior that implies a mutual improvement; (iii) giftresponsiveness  reacting to choices that allow the trustee to obtain an improvement by adopting actions that benefit the trustor; and (iv) vulnerabilityresponsiveness  reacting to the vulnerability of the trustor by adopting actions that do not hurt the trustor. Our results indicate that  besides unconditional otherregarding preferences  vulnerabilityresponsiveness 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, dealresponsiveness, giftresponsiveness, vulnerabilityresponsiveness, generosity, reciprocity 
JEL:  C70 C91 D63 D64 
Date:  2014–09 
URL:  http://d.repec.org/n?u=RePEc:inn:wpaper:201423&r=gth 