nep-gth New Economics Papers
on Game Theory
Issue of 2015‒04‒11
nineteen papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Internal vs. core coalitional stability in the environmental externality game: A reconciliation By Tulkens, Henry
  2. Dynamic Games with Almost Perfect Information By He, Wei; Sun, Yeneng
  3. This article studies values for cooperative games with transferable utility. Numerous such values can be characterized by axioms of associated consistency, which require that a value is invariant under some parametrized linear transformation on the vector space of cooperative games with transferable utility. Xu et al. (2008, 2009, Linear Algebra Appl.), Xu et al. (2013, Linear Algebra Appl.), Hamiache (2010, Int. Game Theory Rev.) and more recently Xu et al. (2015, Linear Algebra Appl.) follow this approach by using a matrix analysis. The main drawback of these articles is the heaviness of the proofs to show that the matrix expression of the linear transformations is diagonalizable. By contrast, we provide quick proofs by relying on the Jordan normal form of the previous matrix. By Sylvain Béal; Eric Rémila; Philippe Solal
  4. Non-Manipulable House Allocation with Rent Control Revisited By Andersson , Tommy; Svensson, Lars-Gunnar
  5. Cooperation Dynamic in Repeated Games of Adverse Selection By Juan F. Escobar; Gastón Llanes
  6. Revisiting Methodological Individualism in Game Theory: The Contributions of Schelling and Bacharach By Lauren Larrouy
  7. Transferable and non transferable utility implementations of coalitional stability in integrated assessment models By KORNEK, Urik; LESSMANN, Kai; TULKENS, Henry
  8. Communication and Coordination in a Two-Stage Game By Bjedov, Tjaša; Madies, Thierry; Villeval, Marie Claire
  9. Whom are you talking with ? An experiment on credibility and communication structure By GRANDJEAN, Gilles; MANTOVANI, Marco; MAULEON, Ana; VANNETELBOSCH, Vincent
  10. Are Results of Social- and Self-Image Concerns in Voluntary Contributions Game Similar? By Martin Daniel Siyaranamual
  11. On Games and Equilibria with Coherent Lower Expectations By Giuseppe De Marco; Maria Romaniello
  12. The role of bounded rationality and imperfect information in subgame perfect implementation: an empirical investigation By Philippe Aghion; Ernst Fehr; Richard Holden; Tom Wilkening
  13. When No Bad Deed Goes Punished: A Relational Contracting Experiment in Ghana By Elwyn Davies; Marcel Fafchamps
  14. The Role of Psychology in Austrian Economics and Game Theory: Subjectivity and Coordination By Richard Arena; Lauren Larrouy
  15. On the impossibility of protecting risk-lovers By Toomas Hinnosaar
  16. A Game Theoretic Framework for Competing/Cooperating Retailers under price and advertising dependent demand By Dridi, Dhouha; Ben Youssef, Slim
  17. Can Farmers Create Efficient Information Networks? Experimental Evidence from Rural India By A. Stefano Caria; Marcel Fafchamps
  18. The rationality of expectations formation By DAVILA, Julio
  19. Heterogeneity in Spousal Matching Models By Fletcher, Jason M.; Padrón, Norma

  1. By: Tulkens, Henry (Université catholique de Louvain, CORE, Belgium)
    Abstract: In a game with positive externalities, such as e.g. the standard environmental externality game used in the analysis of international environmental agreements, the solutions having the property of coalitional internal stability, when they exist, are compared in this paper with the solutions with the property of ?-core stability. Key instruments for that comparison are the notions of stable imputations, on the one hand, and on the other, of partial agreement Nash equilibria relative to a coalition as they result from unacceptable, i.e. unstable imputations. The relation between internal and core stable solutions is claimed to be one of compatibility, the former concept complementing the latter in the games where internally stable solutions exist. But this class of games is more restricted than the one for which only ?-core solutions exist. The argument is first presented graphically, then analytically. The relations here exhibited between core and internal forms of stability arouse some concluding thoughts on efficiency, coalitional stability, and on motivations in sharing the surplus generated by cooperation in international environmental issues
    Keywords: environmental externalities, game theory, coalitions, core, internal stability
    JEL: C7 H4 H87 Q5
    Date: 2014–11–30
  2. By: He, Wei; Sun, Yeneng
    Abstract: This paper aims to solve two fundamental problems on finite or infinite horizon dynamic games with perfect or almost perfect information. Under some mild conditions, we prove (1) the existence of subgame-perfect equilibria in general dynamic games with almost perfect information, and (2) the existence of pure-strategy subgame-perfect equilibria in perfect-information dynamic games with uncertainty. Our results go beyond previous works on continuous dynamic games in the sense that public randomization and the continuity requirement on the state variables are not needed. As an illustrative application, a dynamic stochastic oligopoly market with intertemporally dependent payoffs is considered.
    Keywords: Dynamic games; almost perfect information; perfect information; subgame-perfect equilibirum
    JEL: C62 C73 D0
    Date: 2015
  3. By: Sylvain Béal (CRESE, Université de Franche-Comté); Eric Rémila (Université de Saint-Etienne, CNRS UMR 5824 GATE Lyon Saint-Etienne); Philippe Solal (Université de Saint-Etienne, CNRS UMR 5824 GATE Lyon Saint-Etienne)
    Keywords: TU-games, associated consistency, linear transformation, matrix approach, Jordan normal form, Shapley value, center of gravity of imputation set, equal allocation of non-separable contributions.
    JEL: C71
    Date: 2015–03
  4. By: Andersson , Tommy (Department of Economics, Lund University); Svensson, Lars-Gunnar (Department of Economics, Lund University)
    Abstract: This paper considers a general house allocation problem with price restrictions and provides an extension of the main group non-manipulability result in Andersson and Svensson (2014, Econometrica).
    Keywords: house allocation; matching; non-manipulability; preference domains
    JEL: C78 D71
    Date: 2015–04–01
  5. By: Juan F. Escobar; Gastón Llanes
    Abstract: We study a class of repeated games with Markovian private information and characterize optimal equilibria as players become arbitrarily patient.  We show that seemingly non-cooperative action may occur in equilibrium and serve as signals of changes in private information. Players forgive such actions, and use the information they convey to adjust their continuation play. However, to forgive is not to forget: players keep track of the number of aggressions and enter into a punishment phase if that number becomes suspiciously high. Our model explains features of long-run relationships that are only barely understood, such as equilibrium defaults, unilateral price cuts, collusive price leadership, graduated sanctions, and restitutions. We also explore a model in which interactions are frequent and show how increasing the persistence of the process of types reduces informational fictions. Key words: Keywords: Repeated games, adverse selection, signaling, tacit collusion, price leadership, price cuts, equilibrium defaults, graduated sanctions.
    Date: 2015
  6. By: Lauren Larrouy (University of Nice Sophia Antipolis, France; GREDEG CNRS)
    Abstract: The purpose of this contribution is to illustrate how both Schelling and Bacharach’s methodologies can help scholars bring a new approach to behavioral game theory in which the nature of usual standard methodological individualism is insufficiently questioned. I aim to show that both Schelling and Bacharach question the nature of interactive rationality. They provide original insight concerning (i) the conditions of possibility of the existence of determinate solutions and (ii) the resolution process of games. Furthermore, their questioning of the methodological implications of the well-known trio of standard game theory (common knowledge, the transparency of reasons and the reduction of "strategic uncertainty" to "physical uncertainty") offers some ideas on how to build an alternative theory of games. As forerunners, they open an ongoing research program which can still be a fruitful source of methodological innovation regarding interactive rationality and its collective determinants.
    Keywords: game theory, interactive rationality, framing, focal point, team reasoning, methodological individualism
    JEL: B21 B41 C72 D03 D79 D81
    Date: 2015–03
  7. By: KORNEK, Urik (Postdam Institute for Climate Impact Research); LESSMANN, Kai (Postdam Institute for Climate Impact Research); TULKENS, Henry (Université catholique de Louvain, CORE, Belgium)
    Abstract: To study the stability of coalitions in the standard game theoretic model of international environmental agreements, two alternative concepts are used: potential internal stability and core stability. Both concepts make use of the possibility of reallocating payoffs within a coalition through transfers, formulated in terms of transferable utility among the players. For international applications where players are countries, such as done in the growing literature on integrated assessment models, non-transferable utility games would be economically better suited. In this note, we provide a framework for comparing the treatment of coalitions in five game theoretically minded integrated assessment models, from that point of view. Under way, we extend the definition of the two stability concepts to games without transferable utility, assuming instead the transferability of some physical good. We also show that potential internal stability and blocking power of coalitions can be tested by solving a simple optimization problem.
    Date: 2014–11–05
  8. By: Bjedov, Tjaša (University of Fribourg); Madies, Thierry (University of Fribourg); Villeval, Marie Claire (CNRS, GATE)
    Abstract: We study the impact of communication on behavior in a two-stage coordination game with asymmetric payoffs. We test experimentally whether individuals can avoid a head-to-head confrontation by means of coordinated strategies. In particular we analyze whether and how quickly a conflict-avoidance take-turn strategy can emerge. First, our results show that players learn to solve the conflict by choosing opposite options at both stages of the game. Second, many adopt a take-turn strategy to sustain coordination over time and alleviate the inequality induced by the asymmetry of payoffs. Third, communication increases the likelihood of conflict resolution even when a single pair member has the right to communicate.
    Keywords: coordination, communication, turn taking, conflict, experiment
    JEL: C91 D74 L15 H71
    Date: 2015–03
  9. By: GRANDJEAN, Gilles (CEREC, Université Saint-Louis - Bruxelles); MANTOVANI, Marco (CEREC, Université Saint-Louis - Bruxelles; DEMS, University of Milan - Bicocca); MAULEON, Ana (CEREC, Université Saint-Louis - Bruxelles; Universit√© catholique de Louvain, CORE, Belgium); VANNETELBOSCH, Vincent (CEREC, Université Saint-Louis - Bruxelles; Université catholique de Louvain, CORE, Belgium)
    Abstract: The paper analyzes the role of the structure of communication - i.e. who is talking with whom - on the choice of messages, on their credibility and on actual play. We run an experiment in a three-player coordination game with Pareto ranked equilibria, where a pair of agents has a profitable joint deviation from the Pareto-dominant equilibrium. According to our analysis of credibility, the subjects should communicate and play the Pareto optimal equilibrium only when communication is public. When pair of agents exchange messages privately, the players should play the Pareto dominated equilibrium and disregard communication. The experimental data conform to our predictions: the agents reach the Pareto-dominant equilibrium only when announcing to play it is credible. When private communication is allowed, lying is prevalent, and players converge to the Pareto-dominated equilibrium. Nevertheless, at the individual level, players’ beliefs and choices tend to react to messages even when these are non-credible.
    Date: 2014–11–05
  10. By: Martin Daniel Siyaranamual (Department of Economics, Padjadjaran University)
    Abstract: Social interactions may encourage the cooperative behaviours by triggering either self-image concerns (when one sees others’ decisions without being seen) or social-image concerns (when one’s decision is seen by others). A laboratory experiment is designed to compare these two concerns directly, using a four-players finitely repeated public goods experiment on two directed star networks, self-image and social-image networks. The comparison of the players voluntary contributions in both types of networks reveals that their contributing behaviours are statistically indistinguishable. However, the players who belong to the self-image network are more willing to conform with the group behaviours, meaning that they will increase (reduce) the contributions if theirs are below (above) their groups average. Furthermore, I also find evidence that the contributing behaviours are more stable in the self-image networks than in the social-image network.
    Keywords: Social-image; Self-image; Directed network; Public good experiment
    JEL: C92 D19 H41 Z13
    Date: 2015–02
  11. By: Giuseppe De Marco (Università di Napoli Parthenope and CSEF); Maria Romaniello (Seconda Università di Napoli)
    Abstract: Different solution concepts for strategic form games have been introduced in order to weaken the consistency assumption that players' beliefs - about their opponents strategic choices - are correct in equilibrium. The literature has shown that ambiguous beliefs are an appropriate device to deal with this task. In this note, we introduce an equilibrium concept in which players do not know the opponents' strategies in their entirety but only the coherent lower expectations of some random variables that depend on the actual strategies taken by the others. This equilibrium concept generalizes the already existing concept of equilibrium with partially specified probabilities by extending the set of feasible beliefs and allowing for comparative probability judgements. We study the issue of the existence of the equilibrium points in our framework and find that equilibria exist under rather classical assumptions.
    Date: 2015–04–01
  12. By: Philippe Aghion; Ernst Fehr; Richard Holden; Tom Wilkening
    Abstract: In this paper we conduct a laboratory experiment to test the extent to which Moore and Repullo's subgame perfect implementation mechanism induces truth-telling in practice, both in a setting with perfect information and in a setting where buyers and sellers face a small amount of uncertainty regarding the good's value. We find that Moore-Repullo mechanisms fail to implement truth-telling in a substantial number of cases even under perfect information about the valuation of the good. This failure to implement truthtelling is due to beliefs about the irrationality of one's trading partner. Therefore, although the mechanism should - in theory - provide incentives for truth-telling, many buyers in fact believe that they can increase their expected monetary payoff by lying. The deviations from truth-telling become significantly more frequent and more persistent when agents face small amounts of uncertainty regarding the good's value. Our results thus suggest that both beliefs about irrational play and small amounts of uncertainty about valuations may constitute important reasons for the absence of Moore-Repullo mechanisms in practice.
    Keywords: Implementation theory, incomplete contracts, experiments
    JEL: D23 D71 D86 C92
    Date: 2015–03
  13. By: Elwyn Davies; Marcel Fafchamps
    Abstract: This paper uses experimental methods to study the impact of limited enforcement and reputation on employer-worker relations in labour markets in Ghana. Participants, students recruited from universities in Accra, Ghana are designated as either employers or workers and play a gift-exchange game on a tablet computer. In this game, employers make wage offers to workers, who can then choose to accept or reject and, after accepting, what effort level to exert. Five treatments were used to assess the impact of limited enforcement, competition between employers and reputation. Each participants plays four games, consisting of five trading periods. We find different results from earlier experiments in developed countries: while these experiments have found strong evidence for relational contracting and conditional reciprocity, we do not find evidence for this. We find that a subgroup of workers exerts very low effort levels, but that this low effort of the workers is not punished by employers, who are not responsive in their wage offers to what the workers did previously. As a result, on average, the workers capture most of the profits. Introducing competition or a multilateral reputation mechanism does not significantly improve this.
    Keywords: Relational contracting, conditional reciprocity, gift-exchange game, punishment strategies, Ghana
    JEL: C71 D2 D86 E24 O16
    Date: 2015
  14. By: Richard Arena (University of Nice Sophia Antipolis, France; GREDEG CNRS); Lauren Larrouy (University of Nice Sophia Antipolis, France; GREDEG CNRS)
    Abstract: In this contribution we relate the respective works of two important economists, Friedrich von Hayek and Michael Bacharach, namely one of the main intellectual leaders of the Austrian Schools and one of the most original game theorists. Hayek and Bacharach are two authors - few in number – who do not conceive that economic analysis could be built without the help of psychology. They both considered that subjective perceptions of the real world provide the first stage of decision processes and that, within this stage, psychological factors played a fundamental role. Therefore, they both proposed how perceptions, economic rationality and social coordination could be combined. However economists who really accept to take psychology into account often face new difficulties. The incorporation of subjectivity in economic behaviour can make much more complex the analysis of economic and social coordination. To overtake these new difficulties we will see that both Hayek and Bacharach integrate a specific approach to human cognition and resort to an evolutionary explanation of social coordination. This is the main message we deliver in this contribution.
    Keywords: Austrian economic theory, game theory, cognitive psychology, subjectivism, social coordination
    JEL: B21 B40 B53 C72 D01 D11 D50
    Date: 2015–03
  15. By: Toomas Hinnosaar
    Abstract: Risk-neutral sellers can extract high profits from risk-loving buyers by selling them lotteries. To limit this problem, gambling is heavily regulated in most countries. I show that protecting risk-loving buyers against profit-maximizing sellers is essentially impossible. Even if buyers are risk-loving in the weakest sense, the seller can construct a nonrandom winner-pays auction that ensures unbounded profits. The result holds even if the seller cannot use any mechanism that resembles a lottery and only requires that buyers are asymptotically risk loving. This condition is satisfied, for example, when preferences satisfy Savage’s axioms or with prospect theory preferences.
    Keywords: risk-loving agents, auctions, gambling, prospect theory
    JEL: D82 D44 C72 D81
    Date: 2015
  16. By: Dridi, Dhouha; Ben Youssef, Slim
    Abstract: In this paper, we develop a game theoretic model for cooperative advertising in a supply chain consisting of a monopolistic manufacturer selling its product to the consumer only through competing duopolistic retailers. We consider a new form of the demand function which is an additive form. The demand is influenced by both retail price and advertising expenditures. To identify optimal advertising and pricing decisions, we discuss three possible games (two non cooperative games including Stackelberg-Cournot and Stackelberg-Collusion, and one cooperative game) and then we compare the various decision variables and the profits for all cases and also with similar results of the existing literature to develop some important insights.
    Keywords: game theory, supply chain, pricing, advertising, cooperative advertising, retail competition, retail cooperation, cooperation.
    JEL: C7 M3
    Date: 2015–03–29
  17. By: A. Stefano Caria; Marcel Fafchamps
    Abstract: We run an artefactual field experiment in rural India which tests whether farmers can create efficient networks in a repeated link formation game, and whether group categorization results in homophily and loss of network efficiency. We find that the efficiency of the networks formed in the experiment is significantly lower than the efficiency which could be achieved under selfish, rational play. Many individual decisions are consistent with selfish rationality and with a concern for overall welfare, but the tendency to link with the ‘most popular’ farmer in the network causes large efficiency losses. When information about group membership is disclosed, social networks become more homophilous, but not significantly less efficient. Networks play an important role in the diffusion of innovations in developing countries. If they are inefficiently structured, there is scope for development policies that support diffusion.
    Date: 2015
  18. By: DAVILA, Julio (Université catholique de Louvain, CORE, Belgium)
    Abstract: Rational expectations do not require beliefs to be consistent with history and with what agents can conclude from it. Actually, at a rational expectations equilibrium agents may hold beliefs that explain poorly the history they observe, even when restricted to only those rationalizing their choices. This paper shows that if agents hold rationally formed expectations instead —in the sense of following from beliefs that explain history better than any other beliefs justifying their choices— then additional allocations unsupported by rational expectations can be shown to be equilibrium outcomes. By means of this result, it is established too that adding common knowledge of the rationality of the formation of expectations —on top of that of rationality of choices and market clearing— does not suffice either to guarantee rational expectations. Interestingly, the rationally formed expectations equilibria produced in this paper exhibit a sunspot-like volatility that do not rely on an explicit sunspot mechanism.
    Keywords: rationality, expectations, overlapping generations
    JEL: D84 D5 E3
    Date: 2014–11–05
  19. By: Fletcher, Jason M. (University of Wisconsin-Madison); Padrón, Norma (Yale University)
    Abstract: An important paper by Chiappori et al. (2012) has proposed an elegant and parsimonious model of spousal matching over multi-dimensional characteristics. Importantly, the model suggests specific testable assumptions that allow researchers to uncover marginal rates of substitution (MRS) between spousal traits, and the authors use the Panel Study of Income Dynamics to show that the model is not rejected by the data. In this paper, we extend the analysis to two additional representative samples of US couples and find in each case, the data reject the MRS implication of the model.
    Keywords: marriage market, marriage matching, multidimensional matching, trade-offs, spouses, body mass index (BMI), education
    JEL: D1 J1 C78
    Date: 2015–03

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