nep-gth New Economics Papers
on Game Theory
Issue of 2016‒02‒17
seventeen papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Knowing me, imagining you: Projection and overbidding in auctions By Breitmoser, Yves
  2. Strategic Formation of Homogeneous Bargaining Networks By Gauer, Florian
  3. Local and Global Pollution and International Environmental Agreements in a Network Approach By Günther, Michael; Hellmann, Tim
  4. Common Values and the Coase Conjecture: Inefficiencies in Frictionless Contract (Re-)Negotiation By Gretschko, Vitali; Wambach, Achim
  5. The El Farol Problem Revisited By Böhm, Volker
  6. Bertrand-Edgeworth markets with increasing marginal costs and voluntary trading: Experimental evidence By Jacobs, Martin; Requate, Till
  7. Offizier und Gentleman? Eine experimentelle Untersuchung berufsbezogener Normen am Beispiel des Offiziers By Wiens, Marcus; Johannemann, Kirsten; Morasch, Karl; Hofmann, Martin
  8. Matching with Waiting Times: The German Entry-Level Labour Market for Lawyers By Dimakopoulos, Philipp D.; Heller, C.-Philipp
  9. Expectation-Based Loss Aversion and Strategic Interaction By Dato, Simon; Müller, Daniel; Grunewald, Andreas
  10. Learning faster or more precisely? Strategic experimentation in networks By Wuggenig, Mirjam
  11. On the Impact of Quotas and Decision Rules in Ultimatum Collective Bargaining By Grimm, Veronika; Feicht, Robert; Rau, Holger; Stephan, Gesine
  12. Incentives to Acquire Information under Mandatory versus Voluntary Disclosure By Schweizer, Urs
  13. Self-enforcing intergenerational social contract as a source of Pareto improvement and emission mitigation By Burghaus, Kerstin; Dao, Thang Nguyen; Edenhofer, Ottmar
  14. Electricity Markets: Designing Auctions Where Suppliers Have Uncertain Costs By Holmberg, Pär; Wolak, Frank A.
  15. The quality of child care: A signaling game with incomplete information By Fenge, Robert; Wrede, Matthias
  16. Cooperation, motivation and social balance By Bosworth, Steven; Singer, Tania; Snower, Dennis J.
  17. Prevalence and Determinants of Choice Bracketing - Experimental Evidence By Stracke, Rudi; Kerschbamer, Rudolf; Sunde, Uwe

  1. By: Breitmoser, Yves
    Abstract: People overestimate the probability that others share their values or preferences. I introduce type projection equilibrium (TPE) to capture such projection in Bayesian games. TPE allows each player to believe his opponents share his type with intermediate probability \rho. After establishing existence, I address my main question: How does projection affect behavior in games? I analyze auctions and distribution games. In auctions, projection implies an increased sense of competition, which induces overbidding in all (first-price) auctions. In addition, it biases the perceived value distribution, which induces cursed bidding in common value auctions. Thus, projection induces a hitherto neglected bias in bidding. It is novel in that it explains behavior across conditions and it is independently founded in psychology. I test projection equilibrium in multiple ways on existing data and find that it substantially improves on alternative concepts, both in isolation and in addition to them. The findings are cross-validated by testing projection of social preferences in distribution games.
    JEL: C72 C91 D44
    Date: 2015
  2. By: Gauer, Florian
    Abstract: We analyze a model of strategic network formation prior to a Manea (2011) bargaining game: ex-ante homogeneous players form an undirected network with explicit linking costs anticipating expected equilibrium payoffs from the subsequent sequential network bargaining. Assuming patient players, we provide a complete characterization of networks being pairwise (Nash) stable on a cost interval of positive length: specific disjoint unions of separated pairs, odd circles and isolated players constitute this class. Even for all single cost levels we are able to exclude a wide range of structures from being pairwise stable, including all other equitable networks. As an important implication, this reveals the diversity of possible bargaining outcomes to be substantially narrowed down provided pairwise stability. Further, we find that for sufficiently high costs the pairwise stable and efficient networks coincide whereas this does not hold if costs are low or at an intermediate level. As a robustness check, we also study the case of time-discounting players.
    JEL: C72 C78 D85
    Date: 2015
  3. By: Günther, Michael; Hellmann, Tim
    Abstract: Increasing concerns about climate change have given rise to the formation of International Environmental Agreements (IEAs) as a possible solution to limit global pollution eff ects. In this paper, we study the stability of IEAs in a repeated game framework where we restrict to strategies which are simple and invariant to renegotiation. Our main contribution to the literature on IEAs is that we allow for heterogeneous patterns of pollution such that additional to a global eff ect of pollution there are local pollution e ffects represented by a network structure. We show that stable IEAs exist if the network structure is balanced. Too large asymmetries in the degree of local spillovers may however lead to non-existence of stable structures.
    JEL: C72 D85 Q50
    Date: 2015
  4. By: Gretschko, Vitali; Wambach, Achim
    Abstract: We consider the contracting problem of a principal who faces an agent with private information and cannot commit to not renegotiate a chosen contract. To analyze this problem, we propose an infinite horizon negotiation protocol in which renegotiation is frictionless, executed without delay and there are no restrictions on how many times the contracts can be renegotiated. We provide a general characterization of renegotiation-proof outcomes and show that those outcomes are supported by a Perfect Bayesian Equilibrium of the negotiation game. The general characterization of renegotiation-proof outcomes provides a powerful and simple to use tool for finding such outcomes in specific environments. Thus, we proceed by applying the results to adverse selection environments with private and common values. We show that with private values and common values of the 'Spence' type only fully efficient and separating contracts can be renegotiation proof. However, with common values of the 'Rothschild-Stiglitz' type inefficient and (partial) pooling contracts may constitute renegotiation-proof outcomes.
    JEL: C73 C78 D82
    Date: 2015
  5. By: Böhm, Volker
    Abstract: This note shows that in a large class of El Farol models the failure of agents to find rational prediction rules which stabilize is not due to a non-existence of perfect rules, but rather to the failure of agents to identify the correct class of predictors from which the perfect ones can be chosen. What appears as a need to search for boundedly rational predictors originates from the non existence of stable confirming self-referential orbits induced by predictors selected from the wrong class. Specifically, it is shown that, within a specified class of the model and due to a structural non-convexity (or discontinuity), symmetric Nash equilibria of the associated static game may fail to exist generically depending on the utility level of the outside option. If they exist, they may induce the least desired outcome while, generically, asymmetric equilibria are uniquely determined by a positive maximal rate of attendance. The sequential setting turns the static game into a dynamic economic law of the Cobweb type for which there always exist nontrivial epsilon-perfect predictors implementing epsilon-perfect steady states as stable outcomes. If zero participation is a Nash equilibrium of the game there exists a unique perfect predictor implementing the trivial equilibrium as a stable steady state. In general, Nash equilibria of the one-shot game are among the $\epsilon-$perfect foresight steady states of the dynamic model. If agents randomize in an i.i.d. fashion over indifferent decisions the induced random Cobweb law together with recursive predictors becomes an iterated function system (IFS). There exist unbiased predictors with associated stable stationary solutions for appropriate randomizations supporting nonzero asymmetric equilibria which are not mixed Nash equilibria of the one-shot game. However, the least desired outcome remains as the unique stable stationary outcome for epsilon=0 if it is a Nash equilibrium of the static game.
    JEL: C70 C72 D84
    Date: 2015
  6. By: Jacobs, Martin; Requate, Till
    Abstract: Price competition with increasing marginal costs, though relevant for many markets, appears as an under-researched field in the experimental oligopoly literature. We provide results from an experiment that varies the number of firms as well as the demand rationing and matching schemes in Bertrand-Edgeworth markets with increasing marginal costs and voluntary trading. We find that prices and profits are substantially higher in duopoly than in triopoly and with proportional compared to efficient demand rationing. The matching rule has little effect on prices and profits. Nash equilibrium predictions do not capture observed behavior. Neither the mixed-strategy Nash equilibria of the underlying one-shot game nor, for the fixed matching condition, the symmetric stationary outcome pure-strategy Nash equilibria of the infinitely repeated game are supported by the data. In contrast to results from related experiments, behavior is largely more competitive than predicted by Nash equilibrium theory. Individual pricing decisions can predominantly be explained by either myopic best responses (Edgeworth cycles) or simple imitative behavior, where the complexity of the decision situation plays a crucial role in which behavioral pattern applies.
    Keywords: Bertrand-Edgeworth,demand rationing,increasing marginal costs,Edgeworth cycles,oligopoly,laboratory experiment
    JEL: C72 C90 D43 L13
    Date: 2016
  7. By: Wiens, Marcus; Johannemann, Kirsten; Morasch, Karl; Hofmann, Martin
    Abstract: In dieser experimentellen Studie untersuchen wir das kooperative Verhalten von Offizieren (bzw. Offiziersanwärtern) der Bundeswehr. Dabei betrachten wir ihre Interaktionen sowohl untereinander als auch gegenüber zivilen Probanden. Unsere Kernhypothesen sind, dass sich die angehenden Offiziere aufgrund ihrer stark auf Gemeinschaftssinn ausgerichteten Ausbildung (Kameradschaft) und einem auf gesellschaftliche Verantwortung hin orientierten Selbstverständnis (Sozialkapital) sowohl untereinander als auch gegenüber den zivilen Probanden kooperativer verhalten als eine rein zivile Vergleichsgruppe. Wir ziehen hierfür mit dem Diktatorspiel, dem Ultimatumspiel sowie dem Investitionsspiel drei etablierte Standardexperimente heran, mit denen sich jeweils bestimmte Facetten (pro)sozialer bzw. kooperativer Motivation messen und voneinander unterscheiden lassen. Im Experiment verhalten sich Soldaten im Durchschnitt signifikant altruistischer, kooperativer, vertrauensvoller und vertrauenswürdiger. Dies gilt in den meisten Fällen nicht nur für das Verhalten unter Soldaten sondern auch von Soldaten gegenüber Zivilisten.
    Abstract: In this experimental study we examine the behavior of Bundeswehr officers and officer candidates regarding their willingness to cooperate. Due to the military training which focuses on comradeship and reliable teamwork even under extreme conditions, we expect a strong bond between soldiers and therefore more cooperation among them. Furthermore there are additional norms for soldiers that explicitly call for social responsibility and an appropriate behavior relative to civilians. For that reason we also expect more altruism and trust of soldiers compared to pure civilian groups. To explore these issues in an experimental setting, the subjects had to play the dictator game, the ultimatum game, and the trust game. These three established experiments allow us to measure and distinguish between different aspects of social and cooperative motivation. We find that soldiers are on average more altruistic, more cooperative, and more trusting as well as more trustworthy. These results do not only hold for the interaction among soldiers but in most cases also with regard to the behavior of soldiers towards civilians.
    Keywords: Experiment,Game Theory,Fairness,Trust,Reputation,Professional Norms,Military,In-Group Favoritism,Dictator game,Ultimatum game,Trust game
    JEL: C72 C78 C91 D01 D63 D64
    Date: 2015
  8. By: Dimakopoulos, Philipp D.; Heller, C.-Philipp
    Abstract: We study the allocation of German lawyers to different regional courts for their compulsory legal traineeship. The number of applicants exceeds the number of available positions in a given time period in some regions, so that not all lawyers can be matched simultaneously. As a consequence some lawyers have to wait before they obtain a position. First, we analyse the currently used Berlin mechanism and demonstrate that it is unfair and that it does not respect improvements. Second, we introduce a matching with contracts model, using waiting time as the contractual term, for which we suggest an appropriate choice function for the courts that respects the capacity constraints of each court for each period. Despite the failure of the unilateral substitutes condition, under a weak assumption on lawyers preferences, a lawyer-optimal stable allocation exists. Using existing results, we can show that the resulting mechanism is strategy-proof, fair and respects improvements. Third, we extend our proposed mechanism to allow for a more flexible allocation of positions over time.
    JEL: C78 D82
    Date: 2015
  9. By: Dato, Simon; Müller, Daniel; Grunewald, Andreas
    Abstract: This paper provides a comprehensive analysis regarding strategic interaction under expectation-based loss-aversion. First, we develop a coherent framework for the analysis by extending the equilibrium concepts of K szegi and Rabin (2006, 2007) to strategic interaction and demonstrate how to derive equilibria. Second, we delineate how expectation-based loss-averse players differ in their strategic behavior from their counterparts with standard expected-utility preferences. Third, we analyze equilibrium play under expectation-based loss aversion and comment on the existence of equilibria.
    JEL: C72 D03 D81
    Date: 2015
  10. By: Wuggenig, Mirjam
    Abstract: The paper analyzes a dynamic model of rational strategic learning in a network. It complements existing literature by providing a detailed picture of short-run dynamics in a game of strategic experimentation where agents are located in a social network. We show that the delay in information transmission caused by incomplete network structures may induce players to increase own experimentation efforts. As a consequence a complete network can fail to be optimal even if there are no costs for links. This means that in the design of networks there exists a trade-off between the speed of learning and accuracy.
    JEL: C73 D83 D85
    Date: 2015
  11. By: Grimm, Veronika; Feicht, Robert; Rau, Holger; Stephan, Gesine
    Abstract: We conduct multi-person one-shot ultimatum games that reflect important aspects of collective bargaining. In all treatments a proposer has to divide a pie among herself and six recipients that are divided into two groups of three. The proposer cannot discriminate among, but across group members. Acceptance decisions are taken by a committee of three representatives from one or both groups. In a 2x2 design we vary (i) representation in the decision committee (one vs. both groups) and (ii) the decision rule (unanimity vs. majority voting). We find that (i) representation of a group in the committee is crucial for receiving a significant share, (ii), proposals are more balanced if both groups have veto power (iii) acceptance rates are only high when the environment gives a clear idea of what an appropriate proposal is. Non--binding communication reduces rejection rates and proposer shares.
    JEL: C92 C78 C91
    Date: 2015
  12. By: Schweizer, Urs
    Abstract: This paper compares the incentives of a party to acquire information prior to negotiating contractual terms with a second party. Two legal regimes are compared: disclosing information before negotiations start is mandatory or it remains voluntary. By assumption, information can only truthfully be disclosed but, under voluntary disclosure, the fact that no evidence was found cannot credibly be communicated. If the party that may acquire information enjoys encompassing bargaining power, the incentives to acquire information will be excessive relative to first best quite generally. Otherwise, more surprisingly, acquisition incentives turn out insufficient even under voluntary disclosure for an informational setting referred to as selfish acquisition. For another setting, referred to as cooperative acquisition, the incentives under voluntary disclosure are even lower as compared with mandatory disclosure. All results hold independently of the underlying bargaining structure and equilibrium selection as exclusive use of constraints is made that hold for equilibrium payoffs from any bargaining game.
    JEL: K12 C72 D82
    Date: 2015
  13. By: Burghaus, Kerstin; Dao, Thang Nguyen; Edenhofer, Ottmar
    Abstract: We consider, in a general equilibrium overlapping generations (OLG) model with environmental externalities, a contract between successive generations, whereby agents of the current working-age generation privately invest a share of their labor income in pollution mitigation in exchange for a transfer to their old-age capital income paid by the next generation. We analyze under which conditions there exist contracts which are Pareto-improving compared to an equilibrium without contract and characterize the set of Pareto-improving mitigation-transfer combinations, the Pareto frontier and the Nash bargaining solution. Further, we prove that steady state emissions under a Pareto-improving contract are lower than without a contract. In the second part of the paper, we study a non-cooperative setting, taking into account that credibly committing to a contract might not be possible. We show that there exists mitigation transfer schemes which are both Pareto-improving and give no generation an incentive to deviate from the provisions of the contract.
    JEL: Q52 D70 C72
    Date: 2015
  14. By: Holmberg, Pär (Research Institute of Industrial Economics (IFN)); Wolak, Frank A. (Program on Energy and Sustainable Development (PESD) and Department of Economics, Stanford University)
    Abstract: We analyse how the market design influences the bidding behaviour in multi-unit auctions, such as wholesale electricity markets. It is shown that competition improves for increased market transparency and we identify circumstances where the auctioneer prefers uniform to discriminatory pricing. We note that political risks could significantly worsen competition in hydro-dominated markets. It would be beneficial for such markets to have clearly defined contingency plans for extreme market situations.
    Keywords: cost uncertainty; asymmetric information; uniform-price auction; discriminatory pricing; Bertrand game; market transparency; wholesale electricity market; treasury auction; Bayesian Nash equilibria
    JEL: C72 D43 D44 L13 L94
    Date: 2015–12–18
  15. By: Fenge, Robert; Wrede, Matthias
    Abstract: This paper analyzes the e ects of asymmetric information between parents and child care centers about the quality of child care. In a dynamic game of incomplete information the child care center sends a signal about its child care quality. The parents cannot observe the true quality. By updating the information the parents decide whether they enforce high quality. We consider policy measures to increase the ex-post probability of high quality. Some measures turn out to have negative e ects on ex-post quality. Furthermore, we determine the welfare in the perfect Bayesian equilibria and the welfare-maximizing e ort to increase the probability of high quality.
    JEL: J13 C73 D19
    Date: 2015
  16. By: Bosworth, Steven; Singer, Tania; Snower, Dennis J.
    Abstract: This paper examines the reflexive interplay between individual decisions and social forces to analyze the evolution of cooperation in the presence of "multi-directedness", whereby people's preferences depend on their psychological motives. People have access to multiple, discrete motives. Different motives may be activated by different social settings. Inter-individual differences in dispositional types affect the responsiveness of people's motives to their social settings. The evolution of these dispositional types is driven by changes in the frequencies of social settings. In this context, economic policies can influence economic decisions not merely by modifying incentives operating through given preferences, but also by influencing people's motives (thereby changing their preferences) and by changing the distribution of dispositional types in the population (thereby changing their motivational responsiveness to social settings).
    Keywords: motivation,reflexivity,cooperation,social dilemma,endogenous preferences,dispositions
    JEL: A13 C72 D01 D03 D62 D64
    Date: 2016
  17. By: Stracke, Rudi; Kerschbamer, Rudolf; Sunde, Uwe
    Abstract: This paper investigates whether the timing of rewards affects behavior in multi-stage contests. Abstracting from discounting, theory predicts that it is irrelevant for behavior whether agents are immediately rewarded for succeeding on a particular stage, or whether the reward is delayed until the interaction on the subsequent stage is decided. When testing this prediction using a two-stage contest in lab experiments, we fnd that stage-2 efforts are identical in immediate and delayed reward treatments, while stage-1 effort is significantly lower if rewards are immediate. This difference can be explained by the salience of continuation values, which is strongly affected by the timing of rewards.
    JEL: C72 M52 J33
    Date: 2015

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