nep-gth New Economics Papers
on Game Theory
Issue of 2014‒11‒17
fifteen papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Trust in generosity: An experiment of the repeated Yes-No game By Werner Güth; Hironori Otsubo
  2. Stochastic stability in coalitional bargaining problems By Sawa, Ryoji
  3. A Simple Bargaining Model where Parties Make Errors By Van Essen, Matthew
  4. Priority-augmented House Allocation By Xiang Han
  5. Stochastic Games in Continuous Time: Persistent Actions in Long-Run Relationships, Second Version By J. Aislinn Bohren
  6. Coevolution of Deception and Preferences: Darwin and Nash Meet Machiavelli By Heller, Yuval; Mohlin, Erik
  7. A new solution for the roommate problem: The Q-stable matchings By Péter Biró; Elena Inarra; Elena Molis
  8. Bargaining Power and Value Sharing in Distribution Networks: A Cooperative Game Theory Approach By Roberto Roson; Franz Hubert
  9. Second thoughts: Theory and experiment in social dilemmas By Tatsuyoshi Saijo; Yoshitaka Okano
  10. Bottleneck congestion and distribution of work start times: The economics of staggered work hours revisited By Takayama, Yuki
  11. Intergenerational Cooperation: an Experimental Study on Beliefs By Kulesz, Micaela M.; Dittrich, Dennis A. V.
  12. Intergenerational games with dynamic externalities and climate change experiments By Katerina Sherstyuk; Nori Tarui; Majah-Leah V. Ravago
  13. Penalizing Cartels: The Case for Basing Penalties on Price Overcharge By Yannis Katsoulacos; Evgenia Motchenkova; David Ulph
  14. Pro-competitive rationing in multi-unit auctions By Pär Holmberg
  15. Sequential Auctions, Price Trends, and Risk Preferences By Audrey Hu; Liang Zou

  1. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Hironori Otsubo (Soka University)
    Abstract: This paper reports results of a 100-round Yes-No game experiment conducted under the random matching protocol. In contrast to ultimatum bargaining, the responder in the Yes-No game decides whether to accept without knowing the proposer's offer. Although both games have the same solution outcome (i.e., the proposer offers the smallest possible amount and the responder accepts), the set of equilibria of the ultimatum bargaining game is rather large whereas the equilibrium of the Yes-No game is essentially unique. Avrahami et al. (2013) found an immediate convergence to proposers offering an equal split in their repeated ultimatum bargaining experiment. Our main interest is which dynamics emerge when proposers and responders repeatedly play the Yes-No game. We found neither convergence to offering an equal split nor to the solution outcome. Most participants display a surprising constancy of behavior but the categories of behavior are rather rich.
    Keywords: Yes-No game, Repetition, Learning, Veto power, Laboratory experiment
    JEL: C72 C92
    Date: 2014–10–27
  2. By: Sawa, Ryoji
    Abstract: This paper examines a dynamic process of n-person coalitional bargaining problems. We study the stochastic evolution of social conventions by embedding a static bargaining setting in a dynamic process; Over time agents revise their coalitions and surplus distributions in the presence of stochastic payoff shocks which lead agents to make a suboptimal choice. Under a logit specification of choice probabilities, we find that the stability of a core allocation decreases in the wealth of the richest player, and that stochastically stable allocations are core allocations which minimize the wealth of the richest.
    Keywords: Stochastic stability; Coalitions; Logit-response dynamics; Bargaining.
    JEL: C71 C72 C73 C78
    Date: 2014–05–11
  3. By: Van Essen, Matthew
    Abstract: In this paper, we develop a bargaining model where parties (or their intermediaries) make errors when reporting their bid. We characterize the Nash equilibria of the game and show that there is a unique equilibrium where trade takes place. This trade equilibrium is shown to converge to the Nash Bargaining Solution of the problem as trembles diminish. Finally, we discuss our results in the context of the previous literature providing a critique of the model and analysis found in Carlsson (1991).
    Keywords: Nash Program, Nash Bargaining Solution, Equilibrium Selection, Nash Demand Game
    JEL: C7 C71 C72 C78
    Date: 2014–09–28
  4. By: Xiang Han (Southern Methodist University)
    Abstract: We consider the standard indivisible object allocation problem without monetary transfer and allow each object to have a weak priority over agents. It is well known that generally in such a problem stability (or no justified-envy) is not compatible with efficiency. We characterize the priority structures for which a stable and efficient assignment always exists, as well as the priority structures which admit a stable, efficient and (group) strategy-proof rule. While house allocation and housing market are two classical allocation problems that admit a stable, efficient and group strategy-proof rule, any priority-augmented allocation problem with more than three objects admits such a rule if and only if it is decomposable into a sequence of subproblems, each of which has the house allocation or the housing market structure.
    Keywords: Indivisible object, priority, house allocation, housing market, stability, group strategy-proofness
    JEL: C78 D71
    Date: 2014–10
  5. By: J. Aislinn Bohren (Department of Economics, University of Pennsylvania)
    Abstract: This paper studies a class of continuous-time stochastic games in which the actions of a long-run player have a persistent effect on payoffs. For example, the quality of a firm's product depends on past as well as current effort, or the level of a policy instrument depends on a government's past choices. The long-run player faces a population of small players, and its actions are imperfectly observed. I establish the existence of Markov equilibria, characterize the Perfect Public Equilibria (PPE) pay-offset as the convex hull of the Markov Equilibria payoff set, and identify conditions for the uniqueness of a Markov equilibrium in the class of all PPE. The existence proof is constructive: it characterizes the explicit form of Markov equilibria payoffs and actions, for any discount rate. Action persistence creates a crucial new channel to generate intertemporal incentives in a setting where traditional channels fail, and can provide permanent non-trivial incentives in many settings. These results offer a novel framework for thinking about reputational dynamics of firms, governments, and other long-run agents.
    Keywords: Continuous Time Games, Stochastic Games, Reputation
    JEL: C73 L1
    Date: 2011–11–01
  6. By: Heller, Yuval; Mohlin, Erik
    Abstract: We develop a framework in which individuals preferences co-evolve with their abilities to deceive others regarding their preferences and intentions. We show that a pure outcome is stable, essentially if and only if it is an efficient Nash equilibrium. All individuals have the same deception ability in such a stable state. In contrast, there are non-pure outcomes in which non-Nash outcomes are played, and different deception abilities co-exist. We extend our model to study preferences that depend also on the opponent's type.
    Keywords: Evolution of Preferences; Indirect Evolutionary Approach, Theory of Mind; Depth of Reasoning; Deception.
    JEL: C72 C73
    Date: 2014–08–30
  7. By: Péter Biró (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Department of Economics, Stanford University); Elena Inarra (BRiDGE, University of the Basque Country (UPV/EHU) and Instituto de Economía Pública); Elena Molis (GLOBE, Departamento de Teoría e Historia Económica, Universidad de Granada)
    Abstract: The aim of this paper is to propose a new solution for the roommate problem with strict references. We introduce the solution of maximum irreversibility and consider almost stable matchings (Abraham et al. [2]) and maximum stable matchings (Tan [30] [32]). We find that almost stable matchings are incompatible with the other two solutions. Hence, to solve the roommate problem we propose matchings that lie at the intersection of the maximum irreversible matchings and maximum stable matchings, which are called Q-stable matchings. These matchings are core consistent and we offer an efficient algorithm for computing one of them. The outcome of the algorithm belongs to an absorbing set.
    Keywords: roommate problem, almost stable, maximum stable, absorbing set
    JEL: C61 C63 C71 C78
    Date: 2014–09
  8. By: Roberto Roson; Franz Hubert
    Abstract: This paper illustrates a methodology for analyzing bargaining games on network markets, by means of numerical models that can be calibrated with real data. Economic incentives to join or to expand a network depend on how the network surplus is being distributed, which in turn depends on a variety of factors: position of each agent (e.g., a country) in a specific network, its reliability in the cooperation scheme (e.g., geo-political stability), existence of market distortions and availability of outside options (e.g., alternative energy sources). This study is aimed at presenting a game theory methodology that can be applied to real world cases, having the potential to shed light on several political economy issues. The methodology is presented and illustrated with application to a fictitious network structure. The method is based on a two-stage process: first, a network optimization model is used to generate payoff values under different coalitions and network structures; a second model is subsequently employed to identify cooperative game solutions. Any change in the network structure entails both a variation in the overall welfare level and in the distribution of surplus among agents, as it affects their relative bargaining power. Therefore, expected costs and benefits, at the aggregate as well as at the individual level, can be compared to assess the economic viability of any investment in network infrastructure. A number of model variants and extensions are also considered: changing demand, exogenous instability factors, market distortions, externalities and outside options.
    Keywords: Network Markets, Cooperative Games, Distribution Networks, Bargaining.
    JEL: C63 C71 L95
    Date: 2014
  9. By: Tatsuyoshi Saijo (Kochi University of Technology); Yoshitaka Okano (Kochi University of Technology)
    Abstract: This paper shows that second thoughts are not an innocent device in our daily life, but is human wisdom that plays an important role in resolving problems such as social dilemmas. We design the simplest possible mechanism to achieve Pareto efficiency in social dilemmas, and then compare the performance of this mechanism with and without second thoughts. First, second thoughts change the payoff structure of the game in favor of cooperation. Second, the mechanism with second thoughts performs very well experimentally, even from the first period. Third, this mechanism is robust even when players deviate from rational choices.
    Keywords: Second thoughts, Social Dilemma, Cooperation
    JEL: C72 C92 D74
    Date: 2014–10
  10. By: Takayama, Yuki
    Abstract: Since the seminal work of Henderson (1981), a number of studies examined the effect of staggered work hours by analyzing models of work start time choice that consider the trade-off between negative congestion externalities and positive production externalities. However, these studies described traffic congestion using flow congestion models. This study develops a model of work start time choice with bottleneck congestion and discloses the intrinsic properties of the model. To this end, this study extends Henderson’s model to incorporate bottleneck congestion. By utilizing the properties of a potential game, we characterize equilibrium and optimal distributions of work start times. We also show that Pigouvian tax/subsidy policies generally yield multiple equilibria and that the first-best optimum must be a stable equilibrium under Pigouvian policies, whereas the second-best optimum in which policymakers cannot eliminate queuing congestion can be unstable.
    Keywords: staggered work hours; bottleneck congestion; production effects; potential game; stability; Pigouvian policies;
    JEL: C62 C72 C73 D62 R41 R48
    Date: 2014–08–30
  11. By: Kulesz, Micaela M.; Dittrich, Dennis A. V.
    Abstract: We report on an experiment in which subjects older than 55 years old and subjects younger than 26 years old play repeatedly 4 versions of the centipede game. For each game we define four treatments that allow us to study cooperation and belief formation of these two age groups. We find that beliefs about the others' age group shape the outcome: while seniors are cooperative and generous with juniors when they incur lower opportunity costs, for juniors it is when playing with seniors that they learn the way to the theoretical solution by smoothly decreasing their cooperation levels.
    Keywords: Centipede Game, Age differences, Decision Making, Beliefs, Social Preferences.
    JEL: C9
    Date: 2014–04
  12. By: Katerina Sherstyuk (University of Hawaii at Manoa); Nori Tarui (University of Hawaii at Manoa); Majah-Leah V. Ravago (University of the Philippines Diliman)
    Abstract: Dynamic externalities are at the core of many long-term environmental problems, from species preservation to climate change mitigation. We use laboratory experiments to compare welfare outcomes and underlying behavior in games with dynamic externalities under two distinct settings: traditionally studied games with infinitely-lived decision makers, and more realistic intergenerational games. We show that if decision makers change across generations, resolving dynamic externalities becomes more challenging for two distinct reasons. First, decision makers' actions may be short-sighted due to their limited incentives to care about the future generations' welfare. Second, even when the incentives are perfectly aligned across generations, increased strategic uncertainty of an intergenerational setting may lead to an increased inconsistency of own actions and beliefs about the others, making own actions more myopic. Intergenerational learning through history and advice from previous generations may improve dynamic efficiency, but may also lead to persistent myopic bias.
    Keywords: economic experiments, dynamic externalities, intergenerational games, climate change
    Date: 2014–11
  13. By: Yannis Katsoulacos (Athens University of Economics and Business, Greece); Evgenia Motchenkova (VU University Amsterdam); David Ulph (University of St Andrews, United Kingdom)
    Abstract: In this paper we set out the welfare economics based case for imposing cartel penalties on the cartel overcharge rather than on the more conventional bases of revenue or profits (illegal gains). To do this we undertake a systematic comparison of a penalty based on the cartel overcharge with three other penalty regimes: fixed penalties; penalties based on revenue, and penalties based on profits. Our analysis is the first to compare these regimes in terms of their impact on both (i) the prices charged by those cartels that do form; and (ii) the number of stable cartels that form (deterrence). We show that the class of penalties based on profits is identical to the class of fixed penalties in all welfare-relevant respects. For the other three types of penalty we show that, for those cartels that do form, penalties based on the overcharge produce lower prices than tho se based on profit)while penalties based on revenue produce the highest prices. Further, in conjunction with the above result, our analysis of cartel stability (and thus deterrence), shows that penalties based on the overcharge out-perform those based on profits, which in turn out-perform those based on revenue in terms of their impact on each of the following welfare criteria: (a) average overcharge; (b) average consumer surplus; (c) average total welfare.
    Keywords: Antitrust Enforcement, Antitrust Law, Cartel, Oligopoly, Repeated Games
    JEL: D43 C73
    Date: 2014–09–26
  14. By: Pär Holmberg
    Abstract: In multi-unit auctions, such as auctions of commodities and securities, and financial exchanges, it is necessary to specify rationing rules to break ties between multiple marginal bids. The standard approach in the literature and in pratice is to ration marginal bids proportionally. This paper shows how bidding can be made more competitive if the rationing rule instead gives increasing priority to bidders with a small volume of marginal bids at clearing prices closer to the reservation price. In comparison to standard rationing, such a rule can have almost the same effect on the competitiveness of bids as a doubling of the number of bidders.
    Keywords: Divisible-good auctions, multi-unit auctions, rationing rules, bidding format
    JEL: C72 D44 D45
    Date: 2014–10–03
  15. By: Audrey Hu (University of Amsterdam, the Netherlands); Liang Zou (University of Amsterdam, the Netherlands)
    Abstract: We analyze sequential Dutch and Vickrey auctions where risk averse, or risk preferring, bidders may have heterogeneous risk exposures. We derive and characterize a pure strategy equilibrium of both auctions for arbitrary number of identical objects. A sufficient, and to certain extent necessary, condition for this result is that bidders' marginal utilities are log-submodular in income and type. We then show that when bidders are risk averse (preferring), the equilibrium price sequences should be downward (upward) drifting, and in each period the conditional expected revenue is higher (lower) in the Dutch than in the Vickrey sequential auctions. In particular, the "declining price anomaly" is perfectly consistent with nonincreasing absolute risk aversion when bidders have exposures to background risk.
    Keywords: sequential auction, background risk, risk preferences, declining prices, log-submodularity
    JEL: D44 D82
    Date: 2014–10–20

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