nep-gth New Economics Papers
on Game Theory
Issue of 2015‒10‒17
fourteen papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. The impact of liberalizing cost-saharing on basic models of network formation By Olaizola Ortega, María Norma; Valenciano Llovera, Federico
  2. An allocation rule for dynamic random network formation By Jean-François Caulier; Michel Grabisch; Agnieszka Rusinowska
  3. The Ontology of Schelling's "Theory of Interdependent Decisions" By Lauren Larrouy
  4. Intermediation in Networks By Siedlarek, Jan-Peter
  5. Identification and Estimation of Dynamic Games when Players' Beliefs Are Not in Equilibrium By Aguirregabiria, Victor; Magesan, Arvind
  6. Premuneration Values and Investments in Matching Markets By George J. Mailath; Andrew Posltewaite; Larry Samuelson
  7. The sequential equal surplus division for rooted forest games and an application to sharing a river with bifurcations By Sylvain Béal; Amandine Ghintran; Eric Rémila; Philippe Solal
  8. Equilibria for Multi–leader Multi–follower Games with Vertical Information: Existence Results By Maria Carmela Ceparano; Jacqueline Morgan
  9. Optimal Relevance in Imperfect Information Games By Jorge M. Streb
  10. Overbidding and heterogeneous behavior in contest experiments: A comment on the endowment effect By Subhasish M. Chowdhury; Peter G. Moffatt
  11. Harsanyi's theorem without the sure-thing principle: On the consistent aggregation of Monotonic Bernoullian and Archimedean preferences By Stéphane Zuber
  12. The Gender Difference in the Value of Winning By Zhuoqiong Chen; David Ong; Roman Sheremeta
  13. Matching and credit frictions in the housing market By Eerola , Essi; Määttänen , Niku
  14. Investment strategy and selection bias: An equilibrium perspective on overconfidence By Jehiel, Philippe

  1. By: Olaizola Ortega, María Norma; Valenciano Llovera, Federico
    Abstract: This paper studies the impact of "liberalizing " the cost-sharing of links on some basic models of network formation. This is done in a setting where both doubly supported and singly supported links are possible, and which includes the two seminal models of network formation by Jackson and Wolinsky and Bala and Goyal as extreme cases. In this setting, the notion of pairwise stability is extended and it is proved that liberalizing cost-sharing for doubly supported links widens the range of values of the parameters where the efficient networks formed by such type of links are pairwise stable, while the range of values of the parameters where the efficient networks formed by singly supported links are pairwise stable shrinks, but the region where the latter are e¢ cient and pairwise stable remains the same.
    Keywords: unilateral link-formation, bilateral link-formation, cost-sharing, efficiency, stability, network formation
    JEL: C72 D20 J00 A14
    Date: 2015–09–12
  2. By: Jean-François Caulier (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS); Michel Grabisch (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)
    Abstract: Most allocation rules for network games presented in the literature assume that the network structure is fixed. We put explicit emphasis on the construction of networks and examine the dynamic formation of networks whose evolution across time periods is stochastic. Time-series of networks are studied that describe processes of network formation where links may appear or disappear at any period. Moreover, convergence to an efficient network is not necessarily prescribed. Transitions from one network to another are random and ruled by a stochastic process, typically a Markov chain. We propose the link-based scenario allocation rule for such dynamic random network formation processes and provide its axiomatic characterization. By considering a monotone game and a particular (natural) network formation process we recover the link-based flexible network allocation rule of Jackson (2015).
    Keywords: dynamic networks, network game, link-based allocation rule, Markov chain, characterization
    Date: 2015
  3. By: Lauren Larrouy (University of Nice Sophia Antipolis, France; GREDEG CNRS)
    Abstract: The present paper offers a methodological contribution on Schelling's insight into game theory drawing both on his proposition for a "reorientation of game theory" and his dynamic models of residential segregation. It aims to show how these respective works exhibit coherence in Schelling's thinking. It is often claimed that Schelling criticizes standard game theory without proposing any conceptual solution. To the contrary, I assert that the methodological constraints Schelling identifies in standard game theory support the proposition of a new type of modeling in the dynamic models of residential segregation: the first agent based modeling. I argue that the agent-based models provide a theoretic ground to formalize the methodological innovations proposed in his “reorientation of game theory.” To understand such a claim I stress the social ontology underlined in Schelling's conception of a "theory of interdependent decisions."
    Keywords: Schelling, ontology, game theory, residential segregation, agent-based models
    JEL: B41 B52 C72 D74 D81
    Date: 2015–03
  4. By: Siedlarek, Jan-Peter (Federal Reserve Bank of Cleveland)
    Abstract: I study intermediation in networked markets using a stochastic model of multilateral bargaining in which players compete on different routes through the network. I characterize stationary equilibrium payoffs as the fixed point of a set of intuitive value function equations and study efficiency and the impact of network structure on payoffs. There is never too little trade but there may be an inefficiency through too much trade in states where delay would be efficient. With homogeneous trade surplus the payoffs for players that are not essential to a trade opportunity go to zero as trade frictions vanish.
    Keywords: bargaining; financial networks; intermediation; matching; middlemen; networks; over-the-counter markets; stochastic games
    JEL: C73 C78 L14
    Date: 2015–10–09
  5. By: Aguirregabiria, Victor; Magesan, Arvind
    Abstract: This paper deals with the identification and estimation of dynamic games when players' beliefs about other players' actions are biased, i.e., beliefs do not represent the probability distribution of the actual behavior of other players conditional on the information available. First, we show that a exclusion restriction, typically used to identify empirical games, provides testable nonparametric restrictions of the null hypothesis of equilibrium beliefs. Second, we prove that this exclusion restriction, together with consistent estimates of beliefs at several points in the support of the special state variable (i.e., the variable involved in the exclusion restriction), is sufficient for nonparametric point-identification of players' payoff and belief functions. The consistent estimates of beliefs at some points of support may come either from an assumption of unbiased beliefs at these points in the state space, or from available data on elicited beliefs for some values of the state variables. Third, we propose a simple two-step estimation method and a sequential generalization of the method that improves its asymptotic and finite sample properties. We illustrate our model and methods using both Monte Carlo experiments and an empirical application of a dynamic game of store location by retail chains. The key conditions for the identification of beliefs and payoffs in our application are the following: (a) the previous year's network of stores of the competitor does not have a direct effect on the profit of a firm, but the firm's own network of stores at previous year does affect its profit because the existence of sunk entry costs and economies of density in these costs; and (b) firms' beliefs are unbiased in those markets that are close, in a geographic sense, to the opponent's network of stores, though beliefs are unrestricted, and potentially biased, for unexplored markets which are farther away from the competitors' network. Our estimates show significant evidence of biased beliefs. Furthermore, imposing the restriction of unbiased beliefs generates a substantial attenuation bias in the estimate of competition effects.
    Keywords: dynamic games; estimation; identification; market entry-exit; rational behavior; rationalizability
    JEL: C73 L13
    Date: 2015–10
  6. By: George J. Mailath (Dept. of Economics, University of Pennsylvania); Andrew Posltewaite (Dept. of Economics, University of Pennsylvania); Larry Samuelson (Cowles Foundation, Yale University)
    Abstract: We analyze a model in which agents make investments and then match into pairs to create a surplus. The agents can make transfers to reallocate their pretransfer ownership claims on the surplus. Mailath, Postlewaite and Samuelson (2013) showed that when investments are unobservable, equilibrium investments are generally inefficient. In this paper we work with a more structured model that is sufficiently tractable to analyze the nature of the investment inefficiencies. We provide conditions under which investment is inefficiently high or low and conditions under which changes in the pretransfer ownership claims on the surplus will be Pareto improving, as well as examine how the degree of heterogeneity on either side of the market affects investment efficiency.
    Keywords: Matching, Investments, Premuneration values, Underinvestment, Transfers
    JEL: C7 D4
    Date: 2015–10
  7. By: Sylvain Béal (CRESE - Centre de REcherches sur les Stratégies Economiques - Université de Franche-Comté); Amandine Ghintran (EQUIPPE - Economie Quantitative, Intégration, Politiques Publiques et Econométrie - PRES Université Lille Nord de France - Université Charles-de-Gaulle Lille 3 - Sciences humaines et sociales - Université Lille 1 - Sciences et technologies - Université Lille II - Droit et santé); Eric Rémila (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS); Philippe Solal (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS)
    Abstract: We introduce a new allocation rule, called the sequential equal surplus division for rooted forest TU-games. We provide two axiomatic characterizations for this allocation rule. The first one uses the classical property of component efficiency plus an edge deletion property. The second characterization uses standardness, an edge deletion property applied to specific rooted trees, a consistency property, and an amalgamation property. We also provide an extension of the sequential equal surplus division applied to the problem of sharing a river with bifurcations.
    Keywords: Water allocation,Amalgamation,Rooted forest,Sequential equal surplus division,Consistency,Fairness
    Date: 2014
  8. By: Maria Carmela Ceparano (Università di Napoli Federico II); Jacqueline Morgan (Università di Napoli Federico II and CSEF)
    Abstract: We consider a two–stage multi–leader multi–follower game where the action chosen by any leader is observed by only one “exclusive” follower. Many real–world situations can be modeled as such a game, for example in Pagnozzi and Piccolo, Vertical Separation with Private Contracts, The Economic Journal (2012), where competing manufacturers (the leaders) delegate retail decisions to exclusive retailers (the followers) offering a private contract. This game, called with vertical information, may have an infinity of Nash equilibria but it is not possible to refine using the concept of subgame perfect Nash equilibrium since the associate extensive form has no proper subgames. This motivates the introduction of selections of Nash equilibria based on the beliefs that each follower has about the actions observed by the other followers. In this paper, focusing on the concept of equilibrium under passive beliefs for a general model, we show the effectiveness of the concept and we investigate the existence of such a selection for significative classes of problems satisfying conditions of minimal character on possibly discontinuous data.
    Keywords: multi–leader multi–follower games; selection of equilibria; passive beliefs; existence; discontinuous data; information; fixed points; set–valued map
    Date: 2015–10–13
  9. By: Jorge M. Streb
    Abstract: To help incorporate natural language into economic theory, this paper does two things. First, the paper extends to imperfect information games an equilibrium concept developed for incomplete information games, so natural language can be formalized as a vehicle to convey information about actions as well as types. This equilibrium concept is specific to language games, because information is conveyed by the sender through the message’s literal meaning. Second, the paper proposes an equilibrium refinement which selects the sender’s most preferred equilibrium. The refinement captures the notion that the speaker seeks to improve its status quo, aiming at optimal relevance. Explicit coordination through verbal communication parallels the idea of implicit coordination through focal points.
    Keywords: cheap talk, signs, semantics, pragmatics, relevance, equilibrium selection
    JEL: D83 C72
    Date: 2015–10
  10. By: Subhasish M. Chowdhury (University of East Anglia); Peter G. Moffatt (University of East Anglia)
    Abstract: We revisit the meta-analysis of Sheremeta (2013) on overbidding in contest experiments and focus on the effect of endowment on overbidding. Whereas Sheremeta (2013) assumes that there is a monotonic relationship between endowment and overbidding in his meta-analysis, Baik et al. (2014) find an inverted-U shaped relationship in the analysis of a single experiment. We use the same data as in Sheremeta (2013), but employ a different econometric model which leads to support for the inverted-U shaped relationship. Following Baik et al. (2014) we explain the result in terms of a wealth effect.
    Keywords: experiments, contests, overbidding, endowment, meta-analysis
    JEL: C72 C91
    Date: 2015–10–09
  11. By: Stéphane Zuber (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: This paper studies the extension of Harsanyi's theorem (Harsanyi, 1995) in a framework involving uncertainty. It seeks to extend the aggregation result to a wide class of Monotonic Bernoullian and Archimedean preferences (Cerreia-Vioglio et al., 2011) that subsumes many models of choice under uncertainty proposed in the literature. An impossibility result is obtained, unless we are in the specific framework where all individuals and the decision-maker are subjective expected utility maximizers sharing the same beliefs. This implies that non-expected utility preferences cannot be aggregated consistently
    Keywords: Harsanyi's theorem; Pareto principle; Monotonic Bernoullian and Archimedean preferences; Subjective Expected Utility
    JEL: D71 D81
    Date: 2015–09
  12. By: Zhuoqiong Chen (London School of Economics, Department of Management); David Ong (Peking University, HSBC Business School, Shenzhen); Roman Sheremeta (Case Western Reserve University, Weatherhead School of Management and Economic Science Institute, Chapman University)
    Abstract: We design an all-pay auction experiment in which we reveal the gender of the opponent. Using this design, we find that women bid higher than men, but only when bidding against other women. These findings, interpreted through a theoretical model incorporating differences in risk attitude and the value of winning, suggest that women have a higher value of winning than men.
    Keywords: experiments, all-pay auction, competitiveness, gender differences
    JEL: C91 J3 J7
    Date: 2015
  13. By: Eerola , Essi (Bank of Finland Research); Määttänen , Niku (Research Institute of the Finnish Economy, Aalto University and HECER)
    Abstract: We study the interaction of matching and credit frictions in the housing market. In the model, risk-averse households may save or borrow in order to smooth consumption over time and finance owner housing. Prospective sellers and buyers meet randomly and bargain over the price. We analyze how borrowing constraints influence house price determination in the presence of matching frictions. We also show that credit frictions greatly magnify the effects of matching frictions. For instance, in the presence of matching frictions, a moderate tightening of the borrowing constraint increases idiosyncratic price dispersion and the average time-on-the-market substantially.
    Keywords: housing; borrowing constraint; matching
    JEL: C78 E21 R21
    Date: 2015–10–05
  14. By: Jehiel, Philippe
    Abstract: Prospective investors of new projects consider the returns of implemented projects with similar (observed) attributes and invest if the empirical mean return exceeds the cost. The steady states of such economies result in suboptimal investment decisions due to the selection bias in the sampling procedure. Assuming higher attributes are associated with higher returns, there is systematic overinvestment as compared with the Bayesian benchmark, thereby illustrating that selection bias may explain entrepreneurial overconfidence. Various extensions are considered to illustrate the negative externality that rational investors exert on other investors, the effect of correlation between the attributes considered by various investors, and how trading may be affected by the sampling procedure.
    Keywords: investment strategy; overconfidence; selection bias
    JEL: C70 D82 D83 D84
    Date: 2015–10

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