nep-gth New Economics Papers
on Game Theory
Issue of 2015‒09‒18
twelve papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Markov Perfect Equilibria in Stochastic Revision Games By Lovo , Stefano; Tomala , Tristan
  2. Polluted River Problems and Games with a Permission Structure By René van den Brink; Simin He; Jia-Ping Huang
  3. Real time tacit bargaining, payoff focality, and coordination complexity: Experimental evidence By Wolfgang Luhan; Anders Poulsen; Michael Roos
  4. Effective Labor Relations Laws and Social Welfare By Landeo, Claudia; Nikitin, Maxim
  5. Communication, Leadership and Coordination Failure By Lu Dong; Maria Montero; Alex Possajennikov
  6. A Complete Characterization of Equilibria in Two-type Common Agency Screening Games By Martimort, David; Semenov, Aggey; Stole, Lars
  7. Stipulated Damages as a Rent-Extraction Mechanism: Experimental Evidence By Landeo, Claudia; Spier, Kathryn
  8. The Incorrect Usage of Propositional Logic in Game Theory: The Case of Disproving Oneself By Meinhardt, Holger Ingmar
  9. "Iterated Kalai-Smorodinsky-Nash Compromise" By Ismail Saglam
  10. Incentive Contracts for Teams: Experimental Evidence By Landeo, Claudia; Spier, Kathryn
  11. An Experimental Study of Intergenerational Altruism with Parent-Child Pairs By Hideo Akabayashi; Akiko Kamesaka; Ryosuke Nakamura; Masao Ogaki; Teruyuki Tamura
  12. Agent based simulations visualize Adam Smith's invisible hand by solving Friedrich Hayek's Economic Calculus By Klaus Jaffe

  1. By: Lovo , Stefano (HEC); Tomala , Tristan
    Abstract: We introduce the model of Stochastic Revision Games where a finite set of players control a state variable and receive payoffs as a function of the state at a terminal deadline. There is a Poisson clock which dictates when players are called to choose of revise their actions. This paper studies the existence of Markov perfect equilibria in those games. We give an existence proof assuming some form of correlation.
    Keywords: Stochastic Revision Games; Games Theory; Equilibria
    JEL: C73
    Date: 2015–09–01
  2. By: René van den Brink (VU University, the Netherlands); Simin He (University of Amsterdam, the Netherlands); Jia-Ping Huang (VU University, the Netherlands)
    Abstract: Polluted rivers are harmful to human, animals and plants living along it. To reduce the harm, cleaning costs are generated. However, when the river passes through several different countries or regions, a relevant question is how should the costs be shared among the agents. Ni and Wang (2007) first consider this problem as cost sharing problems on a river network, shortly called polluted river problems. They consider rivers with one spring which was generalized by Dong, Ni, and Wang (2012) to rivers with multiple springs. They introduce and axiomatize three cost sharing methods: the Local Responsibility Sharing (LRS) method, the Upstream Equal Sharing (UES) method and the Downstream Equal Sharing (DES) method. In this paper, we show that the UES and DES methods can also be obtained as the conjunctive permission value of an associated game with a permission structure, where the permission structure corresponds to the river structure and the game is determined by the cleaning costs. Then, we show that several axiomatizations of the conjunctive permission value also give axiomatizations of the UES and DES methods, of which one is comparable with the one from Dong, Ni, and Wang (2012). Besides, by applying another solution, the disjunctive permission value, to polluted river games with a permission structure we obtain a new cost allocation method for polluted river problems. We axiomatize this solution and compare it with the UES method.
    Keywords: Polluted river; cost sharing; axiomatization; permission values
    JEL: C71 D61 D62
    Date: 2015–09–08
  3. By: Wolfgang Luhan (Ruhr University Bochum); Anders Poulsen (University of East Anglia); Michael Roos (Ruhr University Bochum)
    Abstract: We report experimental data from a bargaining situation where two decision makers tacitly make their decisions, and earn and cumulate their payoffs in real time. Examples include fishermen choosing fishing spots, interaction among neighbors who prefer not to talk, military conflict, and tacit duopoly. The data can be organized and explained in terms of focal properties of feasible payoffs, and the complexity of coordinating on the intertemporal behavior required to achieve these payoffs. Bargainers trade off payoff focality and coordination complexity, and behavior can be systematically inefficient.
    Keywords: bargaining, real time interaction, payoff focality, coordination complexity, bounded rationality
    JEL: C70 C72 C92
    Date: 2015–07–15
  4. By: Landeo, Claudia (University of Alberta, Department of Economics); Nikitin, Maxim (National Research University Higher School of Economics)
    Abstract: Effective labor relations laws determine the allocation of bargaining power between the parties involved in labor disputes, and hence, influence social welfare. The right to strike, the types of legal strikes, and the right to hire replacement workers are fundamental components of labor relations laws in the public sector. Strikes by public school teachers, which are common in real-world settings, involve particularly high social costs. We theoretically study the social welfare effects of labor relations laws that permit the effective use of replacement teachers in case of strikes. These laws refer to the explicit right to hire replacement teachers and to the prohibition of intermittent strikes. We present a sequential bargaining game of incomplete information. Our model explicitly includes a law component, which captures the impact of effective labor relations laws. We conduct social welfare analysis and demonstrate that these laws reduce bargaining impasse and increase social welfare.
    Keywords: Labor Relations Laws; Social Welfare; Bargaining Impasse; Replacement Teachers Laws; Intermittent Strikes Laws; Non-Cooperative Games; Asymmetric Information; Perfect Bayesian Equilibrium
    JEL: C72 D82 J52 J58
    Date: 2015–09–01
  5. By: Lu Dong (Department of Economics, University of Nottingham); Maria Montero (Department of Economics, University of Nottingham); Alex Possajennikov (Department of Economics, University of Nottingham)
    Abstract: Using experimental methods, this paper investigates the limits of communication and leadership in aiding group coordination in a minimum effort game. Choosing the highest effort is the payoff dominant Nash equilibrium in this game, and communication and leadership are expected to help in coordinating on such an equilibrium. We consider an environment in which the benefits of coordination are low compared to the cost of mis-coordination. In this environment, players converge to the most inefficient equilibrium in the absence of a leader. We look at two types of leaders: a cheap-talk leader-communicator who suggests an effort level but is free to choose a different level from the one suggested, and a first-mover leader whose choice of effort is observed by the rest of the group. We study whether leadership can prevent coordination failure and whether leadership allows coordination on a higher effort after a history of coordination fail- ure. We find that in this tough environment both types of leadership are insufficient to escape from the low-effort equilibrium but leadership has some (limited) ability to prevent coordination failure. With the help of the strategy method for the followers' responses we find that the main reason for the persistence of coordination failure in this environment is the presence of followers who do not follow (or would not have followed) the leader.
    Keywords: minimum effort game, coordination failure, communication, leadership
    Date: 2015
  6. By: Martimort, David; Semenov, Aggey; Stole, Lars
    Abstract: We characterize the complete set of equilibrium allocations to a two-type intrinsic common agency screening game as the set of solutions to a self-generating optimization program. The program, in turn, can be thought of as a maximization problem facing a fictional “surrogate” principal with a simple set of incentive constraints that embed the non-cooperative behavior of principals in the underlying game. After providing a complete characterization of equilibrium outcomes, we refine the set by imposing a requirement of biconjugacy on equilibrium tariffs: In biconjugate equilibria, the surrogate principal’s incentive constraints are described by marginal conditions. Biconjugate equilibria always exist, they are simple to compute, and they are robust in the sense that they remain equilibria when “out-of-equilibrium” output-price pairs are pruned. After characterizing the set of biconjugate equilibrium allocations, we ask what is the best equilibrium for the principals from an ex ante perspective. We show that the allocation that maximizes the principals’ ex ante collective payoff among all possible equilibria is distinct from the best allocation in the refined set of biconjugate equilibria, although their qualitative properties remain similar.
    Keywords: Intrinsic common agency, aggregate games, screening contracts.
    JEL: D82 D86
    Date: 2015–08–19
  7. By: Landeo, Claudia (University of Alberta, Department of Economics); Spier, Kathryn (Harvard Law School)
    Abstract: This paper experimentally studies stipulated damages as a rent-extraction mechanism. We demonstrate that contract renegotiation induces the sellers to propose the lowest stipulated damages and the entrants to offer the highest price more frequently. We show that complete information about the entrant’s cost lowers exclusion of high-cost entrants. Unanticipated findings are observed. The majority of sellers make more generous offers than expected. Rent extraction also occurs in renegotiation environments. Our findings from the dictatorial seller and buyer-entrant communication treatments suggest the presence of social preferences.
    Keywords: Stipulated Damages; Rent Extraction; Market Foreclosure; Renegotiation; Social Preferences; Experiments
    JEL: C72 C91 D86 K12 K21 L42
    Date: 2015–08–29
  8. By: Meinhardt, Holger Ingmar
    Abstract: Recently, we had to realize that more and more game theoretical articles have been published in peer-reviewed journals with severe logical deficiencies. In particular, we observed that the indirect proof was not applied correctly. These authors confuse between statements of propositional logic. They apply an indirect proof while assuming a prerequisite in order to get a contradiction. For instance, to find out that ``if A then B'' is valid, they suppose that the assumptions ``A and not B'' are valid to derive a contradiction in order to deduce ``if A then B''. Hence, they want to establish the equivalent proposition ``A and not B implies A and not A'' to conclude that ``if A then B''is valid. In fact, they prove that a truth implies a falsehood, which is a wrong statement. As a consequence, ``if A then B'' is invalid, disproving their own results. We present and discuss some selected cases from the literature with severe logical flaws, invalidating the articles.
    Keywords: Transferable Utility Game; Solution Concepts; Axiomatization; Propositional Logic, Material Implication; Circular Reasoning (circulus in probando); Indirect Proof; Proof by Contradiction; Proof by Contraposition; Cooperative Oligopoly Games
    JEL: C71
    Date: 2015–09–14
  9. By: Ismail Saglam (Department of Economics, Ipek University)
    Abstract: In this paper, we present a new n-person bargaining solution, which we call Iterated Kalai-Smorodinsky-Nash Compromise. We show that this solution is the unique solution satisfying a new axiom called Kalai-Smorodinsky-Nash Decomposability.
    Keywords: Cooperative Bargaining, Nash Solution, Kalai-Smorodinsky Solution, Decomposability
    Date: 2015–09
  10. By: Landeo, Claudia (University of Alberta, Department of Economics); Spier, Kathryn (Harvard Law School)
    Abstract: This paper reports the results of an experiment on incentive contracts for teams. The agents, whose efforts are complementary, are rewarded according to a sharing rule chosen by the principal. Depending on the sharing rule, the agents confront endogenous prisoner's dilemma or stag-hunt environments. Our main findings are as follows. First, we demonstrate that ongoing interaction among team members positively affects the principal's payoff . Greater team cooperation is successfully induced with less generous sharing rules in infinitely-repeated environments. Second, we provide evidence of the positive effects of communication on team cooperation in the absence of ongoing team interaction. Fostering communication among team members does not significantly affect the principal's payoff , suggesting that agents' communication is an imperfect substitute for ongoing team interaction. Third, we show that offering low sharing rules can back re. The agents are willing to engage in costly punishment (shirking) as retaliation for low offers from the principal. Our findings suggest that offering low sharing rules is perceived by the agents as unkind behavior and hence, triggers negative reciprocity.
    Keywords: Moral Hazard in Teams; Prisoners Dilemma; Stag-Hunt Games; Infinitely-Repeated Games; Communication; Reciprocity; Laboratory Experiments
    JEL: C72 C90 D86 K10 L23
    Date: 2015–08–25
  11. By: Hideo Akabayashi (Faculty of Economics, Keio University); Akiko Kamesaka (School of Business Administration, Aoyama Gakuin University); Ryosuke Nakamura (Graduate School of Economics, Hitotsubashi University); Masao Ogaki (Faculty of Economics, Keio University); Teruyuki Tamura (Graduate School of Economics, Sophia University)
    Abstract: In the standard intergenerational altruism model in which the child's utility level is an argument in the parent's utility function, there are no conflicts of interests between the parent and the child if they need to reach an agreement about the amount and the timing of a present that child receives from a third party. On the other hand, in the intergenerational altruism models of cultural transmission of preferences, this may not be true. This difference in two classes of the models can be used to distinguish between them in experiments. We conducted a time preference experiment to compare individual and joint decision makings with parent-child pairs in which (1)the child alone, (2) the parent alone, and (3) the parent-child pair as a group make decisions about the amount and the timing of the payment to the child. The experimental results are not consistent with the standard intergenerational altruism model but consistent with models of cultural transmission of preferences.
    Keywords: intergenerational altruism, model of cultural transmission of preferences, time preference experiment, individual and joint decisions
    JEL: C93 D14 E2
    Date: 2014–08
  12. By: Klaus Jaffe
    Abstract: Inspired by Adam Smith and Friedrich Hayek, many economists have postulated the existence of invisible forces that drive economic markets. These market forces interact in complex ways making it difficult to visualize or understand the interactions in every detail. Here I show how these forces can transcend a zero-sum game and become a win-win business interaction, thanks to emergent social synergies triggered by division of labor. Computer simulations with the model Sociodynamica show here the detailed dynamics underlying this phenomenon in a simple virtual economy. In these simulations, independent agents act in an economy exploiting and trading two different goods in a heterogeneous environment. All and each of the various forces and individuals were tracked continuously, allowing to unveil a synergistic effect on economic output produced by the division of labor between agents. Running simulations in a homogeneous environment, for example, eliminated all benefits of division of labor. The simulations showed that the synergies unleashed by division of labor arise if: Economies work in a heterogeneous environment; agents engage in complementary activities whose optimization processes diverge; agents have means to synchronize their activities. This insight, although trivial if viewed a posteriori, improve our understanding of the source and nature of synergies in real economic markets and might render economic and natural sciences more consilient.
    Date: 2015–09

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