nep-gth New Economics Papers
on Game Theory
Issue of 2016‒02‒29
twenty-one papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Endogenous correlated network dynamics By Rui Gong; Frank Page; Myrna Wooders
  2. An Egalitarian Value for Cooperative Games with Incomplete Information By Salamanca Lugo, Andrés
  3. A fixed point theorem for measurable-selection-valued correspondences arising in game theory By Frank Page
  4. College Admissions with Entrance Exams: Centralized versus Decentralized By Isa E. Hafalir; Rustamdjan Hakimov; Dorothea Kübler; Morimitsu Kurino
  5. Endogenous market making and network formation By Briana Chang; Shengxing Zhang
  6. Coordination and Cheap Talk: Indirect versus Direct Messages By Buyukboyaci, Muruvvet; Kucuksenel, Serkan
  7. The selective vehicle routing problem in a collaborative environment By DEFRYN, Christof; SÖRENSEN, Kenneth; CORNELISSENS, Trijntje
  9. Overcoming Coordination Failure in a Critical Mass Game: Strategic Motives and Action Disclosure By Aidas Masiliunas
  10. A model of belief influence in large social networks By Antonio Jiménez-Martínez
  11. The value of information in risk-sharing environments with unawareness By Galanis, Spyros
  12. Two-stage contests with effort-dependent rewards By Sela, Aner
  13. Knowing me, imagining you: Projection and overbidding in auctions By Breitmoser, Yves
  14. Multidimensional auctions for long-term procurement contracts under the threat of early exit: the case of conservation auctions By Di Corato, Luca; Dosi, Cesare; Moretto, Michele
  15. Optimal sequential auctions By Mireia Jofre-Bonet; Martin Pesendorfer
  16. Le Mécanisme Optimal de Vote au Sein du Conseil des Représentants d'un Système Fédéral By Le Breton, Michel; Lepelley, Dominique; Merlin, Vincent
  17. Frustration and Anger in Games: A First Empirical Test of the Theory By Persson, Emil
  18. Bargaining under the Illusion of Transparency By Madarász, Kristóf
  19. Cooperation, Motivation and Social Balance By Bosworth, Steven J.; Singer, Tania; Snower, Dennis J.
  20. High-wage workers and high-productivity firms - a regional view on matching in Germany By Philipp Ehrl
  21. How (Not) to Integrate Blood Subtyping Technology to Kidney Exchange By Tayfun Sönmez; M. Utku Ünver; Özgür Yilmaz

  1. By: Rui Gong; Frank Page; Myrna Wooders
    Abstract: We model the structure and strategy of social interactions prevailing at any point in time as a directed network and we address the following open question in the theory of social and economic network formation: given the rules of network and coalition formation, preferences of individuals over networks, strategic behavior of coalitions in forming networks, and the trembles of nature, what network and coalitional dynamics are likely to emerge and persist. Our main contributions are to formulate the problem of network and coalition formation as a dynamic, stochastic game and to show that: (i) the game possesses a correlated stationary Markov equilibrium (in network and coalition formation strategies), (ii) together with the trembles of nature, this correlated stationary equilibrium determines an equilibrium Markov process of network and coalition formation, and (iii) this endogenous Markov process possesses a finite set of ergodic measures, and generates a finite, disjoint collection of nonempty subsets of networks and coalitions, each constituting a basin of attraction. Moreover, we extend to the setting of endogenous Markov dynamics the notions of pairwise stability (Jackson-Wolinsky, 1996) and the path dominance core (Page-Wooders, 2009a). We show that in order for any network-coalition pair to emerge and persist, it is necessary that the pair reside in one of finitely many basins of attraction. The results we obtain here for endogenous network dynamics and stochastic basins of attraction are the dynamic analogs of our earlier results on endogenous network formation and strategic basins of attraction in static, abstract games of network formation (Page and Wooders, 2009a), and build on the seminal contributions of Jackson and Watts (2002), Konishi and Ray (2003), and Dutta, Ghosal, and Ray (2005).
    Keywords: endogenous network dynamics; dynamic stochastic games of network formation; stationary Markov correlated equilibrium; equilibrium Markov process of network formation; basins of attraction; Harris decomposition; ergodic probability measures; dynamic path dominance core; dynamic pairwise stability
    JEL: A14 C71 C72
    Date: 2015–06
  2. By: Salamanca Lugo, Andrés
    Abstract: A bargaining solution concept generalizing the Harsanyi (1963) NTU value is defined for cooperative games with incomplete information. When compared with Myerson's (1984a) bargaining solution, our solution concept differs from the former in that we require coalitional agreements to be equitable when players make interpersonal utility comparisons in terms of some virtual utility scales. When there are only two players, the two solutions are easily seen to coincide (whenever utility weights are strictly positive), however they may differ for general n-person games. By using the concept of virtual utility, our bargaining solution reflects the fact that players negotiate at the interim stage.
    Keywords: Cooperative games, incomplete information, virtual utility.
    JEL: C71 C78 D82
  3. By: Frank Page
    Abstract: We establish a new fixed point result for measurable-selection-valued correspondences with nonconvex and possibly disconnected values arising from the composition of Caratheodory functions with an upper Caratheodory correspondence. We show that, in general, for any composition of Caratheodory functions and an upper Caratheodory correspondence, if the upper semicontinuous part of the underlying upper Caratheodory correspondence contains an upper semicontinuous sub-correspondence taking contractible values, then the induced measurable-selection-valued correspondence has fixed points. An excellent example of such a composition, from game theory, is provided by the Nash payoff correspondence of the parameterized collection of one-shot games underlying a discounted stochastic game. The Nash payoff correspondence is gotten by composing players’ parameterized collection of state-contingent payoff functions with the upper Caratheodory Nash equilibrium correspondence (i.e., the Nash correspondence). As an application, we use our fixed point result to establish existence of a stationary Markov equilibria in discounted stochastic games with uncountable state spaces and compact metric action spaces.
    Keywords: approximate Caratheodory selections; fixed points of nonconvex valued correspondences; contractible-valued sub-correspondences; weak star convergence; stationary Markov equilibria; discounted stochastic games.
    JEL: C7
    Date: 2015–09
  4. By: Isa E. Hafalir; Rustamdjan Hakimov; Dorothea Kübler; Morimitsu Kurino
    Abstract: We study a college admissions problem in which colleges accept students by ranking students’ efforts in entrance exams. Students’ ability levels affect the cost of their efforts. We solve and compare the equilibria of “centralized college admissions” (CCA) where students apply to all colleges and “decentralized college admissions” (DCA) where students only apply to one college. We show that lower ability students prefer DCA whereas higher ability students prefer CCA. Many predictions of the theory are supported by a lab experiment designed to test the theory, yet we find a number of differences that render DCA less attractive than CCA compared to the equilibrium benchmark.
    Keywords: College admissions, incomplete information, student welfare, contests, all-pay auctions, experiment.
    JEL: C78 D78 I21
    Date: 2016–01
  5. By: Briana Chang; Shengxing Zhang
    Abstract: This paper proposes a theory of intermediation in which intermediaries emerge endogenously as the choice of agents. In contrast to the previous trading models based on random matching or exogenous networks, we allow traders to explicitly choose their trading partners as well as the number of trading links in a dynamic framework. We show that traders with higher trading needs optimally choose to match with traders with lower needs for trade, and they build fewer links in equilibrium. As a result, traders with the least trading need turn out to be the most connected and have the highest gross trade volume. The model therefore endogenously generates a core-periphery trading network that we often observe: a financial architecture that involves a small number of large, interconnected institutions. We use this framework to study bid-ask spreads, trading volume, asset allocation.
    Keywords: over-the-counter market; core-periphery trading network; matching; intermediation
    JEL: C70 G1 G20
    Date: 2015–11
  6. By: Buyukboyaci, Muruvvet; Kucuksenel, Serkan
    Abstract: In this paper, we experimentally compare the effect of costless direct and indirect messages on the risky action choices, hence on coordinations in stag-hunt games. We show that there is no effect of costless indirect messages on the frequency of risky action choices and hence on coordination on the payoff-dominant equilibrium. With direct messages, however, we find that there is a significant effect of pre-play communication on efficient coordination. One potential reason of not seeing a significant effect of indirect messages is the difference in agents' message-interpretations. Another potential reason may be the existence of lie-averse agents.
    Keywords: coordination, cheap talk, risk information, costless messages
    JEL: C72 C91 D82 D84
    Date: 2016–01–21
  7. By: DEFRYN, Christof; SÖRENSEN, Kenneth; CORNELISSENS, Trijntje
    Abstract: We consider a selective vehicle routing problem, in which customers belonging to different partners in a logistic coalition are served in a single logistic operation with multiple vehicles. Each partner determines a cost of non-delivery (CND) for each of its customers, and a central algorithm creates an operational plan, including the decision on which customers to serve and in which trip. The total transportation cost of the coalition is then divided back to the partners through a cost allocation mechanism. This paper investigates the effect on the cost allocation of a partner’s strategy on non-delivery penalties (high/low) and the properties of its customer locations (distance to the depot, degree of clustering). The effect of the cost allocation method used by the coalition is also investigated. We compare the well-known Shapley value cost allocation method to our novel problem-specific method: the CND-weighted cost allocation method. We prove that an adequate cost allocation method can provide an incentive for each partner to behave in a way that benefits the coalition. Further, we develop a transformation that is able to transform any cost allocation into an individually rational one without losing this incentive.
    Keywords: Horizontal collaboration, Selective vehicle routing problem, Collaborative vehicle routing, Cost allocation
    Date: 2015–03
  8. By: Matias Nunez (Université Paris IX - Paris Dauphine); Dimitrios Xefteris (University of Cyprus [Nicosia] - University of Cyprus)
    Abstract: We consider a class of indirect mechanisms, the Approval ones, in which the players' strategies coincide with the subsets of the outcome space. We focus on the single-peaked domain and we prove that: a) each of these rules is characterized by a unique equilibrium outcome and b) for every strategy-proof single-peaked rule there exists an Approval one that unanimously implements it. That is, Approval rules fix the problem of equilibrium-outcome multiplicity that is inherent to the ensuing games of strategy-proof single-peaked rules and, perhaps more importantly, promote social coherence: the implemented outcome is approved by every player.
    Keywords: Indirect Mechanisms ,Nash Implementation,Strategy-proof,Unanimity
    Date: 2016–02–06
  9. By: Aidas Masiliunas (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université)
    Abstract: We study whether coordination failure is more often overcome if players can easily disclose their actions. In an experiment subjects first choose their action and then choose whether to disclose this action to other group members, and disclosure costs are varied between treatments. We find that no group overcomes coordination failure when action disclosure costs are high, but half of the groups do so when the costs are low. Simulations with a belief learning model can predict which groups will overcome coordination failure, but only if it is assumed that players are either farsighted, risk-seeking or pro-social. To distinguish between these explanations we collected additional data on individual preferences and the degree of farsightedness. We find that in the low cost treatment players classified as more farsighted more often deviate from an inefficient convention and disclose this action, while the effect of risk and social preferences is not significant.
    Keywords: lock-in,coordination failure,learning,strategic teaching,information,collective action,critical mass
    Date: 2016–02
  10. By: Antonio Jiménez-Martínez (Division of Economics, CIDE)
    Abstract: This paper develops a model of evolution of beliefs through communication in an exogenous social network. We assume that the agents are Bayesian updaters and that the network enables them to listen to the opinion of others about some uncertain parameter of interest. We explore the effects of the network on the agents' long-run first-order beliefs about the parameter and investigate the aggregation of private information in large societies. Each agent observes private signals about the value of the unknown parameter and, according to his connections in the network, receives private messages from others as well. A message conveys some information about the signal observed by the sender and about the messages that the sender receives from other indirectly connected agents. The informativeness of a message is not strategically chosen but it is exogenously given by the intensity of the connection. Both signals and messages are independent and identically distributed across time but not necessarily across agents. We first characterize the long-run behavior of an agent's beliefs in terms of some entropy-based measures of the conditional distributions of signals and messages available to the agent. Then, we show that the achievement of a consensus in the society is closely related to the presence of prominent agents who are able to change the evolution of other agents' opinions over time. Finally, we show that the influence of the prominent agents must not be very high in order for the agents to aggregate correctly their private sources of information in the long-run.
    Keywords: Communication networks, Bayesian updating, private signals, private messages, consensus, correct limiting beliefs
    JEL: D82 D83 D85
    Date: 2014–04
  11. By: Galanis, Spyros
    Abstract: The value of information is examined in a risk-sharing environment with unawareness and complete markets. Information and awareness are symmetric among agents, who have a clear understanding of their actions and deterministic payoffs. We show with examples that public information can make some agents strictly better off at the expense of others, contrasting the standard results of Hirshleifer [1971] and Schlee [2001] that the value of public information is negative for all when risk averse agents are fully insured. We identify the source of this problem to be that, as awareness varies across states, it creates an “awareness signal†that the agents misunderstand and treat asymmetrically. As a result, risk-sharing opportunities that are available when this signal is not used, vanish when it is used. Depending on the allocation of endowments, this asymmetry makes some agents strictly better off and others strictly worse off. We identify a property, Conditional Independence, which we show is sufficient for the value of public information to be negative for all.
    Date: 2016–01–25
  12. By: Sela, Aner
    Abstract: We study two-stage all-pay contests where there is synergy between the stages. The reward for each contestant is fixed in the first stage while it is effort-dependent in the second one. We assume that a player's effort in the first stage either increases (positive synergy) or decreases (negative synergy) his reward in the second stage. The subgame perfect equilibrium of this contest is analyzed with either positive or negative synergy. We show, in particular, that whether the contestants are symmetric or asymmetric their expected payoffs may be higher under negative synergy than under positive synergy. Consequently, they prefer smaller rewards (negative synergy) over higher ones (positive synergy).
    Keywords: effort-dependent rewards; two-stage all-pay contests
    JEL: C70 D44 L12 O32
    Date: 2016–02
  13. By: Breitmoser, Yves
    Abstract: Overbidding in auctions has been attributed to risk aversion, loser regret, level-k, and cursedness, though relying on different identifying assumptions. I argue that "type projection" organizes these findings and better captures observed behavior. Type projection formally models that people tend to believe others have object values similar to their own -- a robust psychological phenomenon that naturally applies to auctions. First, I show that type projection implies the main behavioral phenomena in auctions, including increased sense of competition (like loser regret) and broken Bayesian updating (like cursedness). Second, re-analyzing data from seven experiments, I show that type projection explains the stylized facts of behavior across private and common value auctions. Third, in a structural analysis nesting existing approaches and emphasizing robustness, type projection consistently captures behavior best, in-sample and out-of-sample. The results reconcile bidding patterns across conditions and have implications for behavioral and empirical analyses as well as policy.
    Keywords: auctions, overbidding, winner's curse, projection, risk aversion, cursed equilibrium, limited depth of reasoning
    JEL: C7 C91 D44
    Date: 2016–01–22
  14. By: Di Corato, Luca (Department of Economics, Swedish University of Agricultural Sciences); Dosi, Cesare (Department of Economics and Management, University of Padova); Moretto, Michele (Department of Economics and Management, University of Padova)
    Abstract: In this paper we study how early-exit options, embedded in long-term procurement contracts which do not provide for sufficiently strong incentives against contract breach, can affect bidding behaviors in multidimensional procurement auctions and the parties' expected payoffs. We show first that bidders' payoff is lower when competing for contracts with unenforceable contract terms. Secondly, that neglecting the risk of opportunistic behavior by sellers can lead to contract awards that do not maximize the buyer's potential payoff. Finally, we make suggestions about how to mitigate potential misallocations, by pointing out the role of eligibility rules and competition among bidders.
    Keywords: Public procurement; Scoring auctions; Contract breach; Real options; Conservation contracts
    JEL: C61 D44 D86 Q24 Q28
    Date: 2015–08–30
  15. By: Mireia Jofre-Bonet; Martin Pesendorfer
    Abstract: Sequential sealed first-price and open descending-price procurement auctions are studied. We examine which procurement auction rule achieves the low procurement cost. We show that the answer to this policy question depends on whether the items are complements or substitutes. With substitutes, the first-price procurement auction is preferred, while with complements, the open descending-price procurement auction is preferred. We also illustrate the procurement cost minimizing auction and the auction rule preferred by the bidders. With substitutes, bidders prefer the open descending-price procurement auction, while with complements bidders prefer the first-price procurement auction.
    Keywords: Sequential auctions; Optimal auctions; Complementarities; Substitutes
    JEL: D4 D44 D82 L00 L13
    Date: 2014–03
  16. By: Le Breton, Michel; Lepelley, Dominique; Merlin, Vincent
    Date: 2016–02
  17. By: Persson, Emil (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Anger can be a strong behavioral force, with important consequences for human interaction. For example, angry individuals may become hostile in their dealings with others, and this has strategic consequences. Battigalli, Dufwenberg, and Smith (2015; BDS) develop a formal framework where frustration and anger affect interaction and shape economic outcomes. This paper designs an experiment testing the predictions based on central concepts of their theory. The focus is on situations where other-responsibility is weak or nonexistent, and in this specific context I find only limited support for the theory: While unfulfilled expectations about material payoffs seem to generate negative emotions in subjects, which is in line with BDS' conceptualization of frustration, behavior is generally not affected by these emotions to the extent predicted by the theory.
    Keywords: Emotion; Anger; Blame; Psychological games; Experiment
    JEL: C72 C91 D03
    Date: 2016–02
  18. By: Madarász, Kristóf
    Abstract: An uninformed seller offers an object to a privately informed buyer. The buyer projects information and exaggerates the probability that the seller is informed. Letting the buyer bargain and name her own price raises the seller's payoff above the full-commitment payoff. Under seller-offer bargaining, any positive degree of projection implies a full reversal of the Coasian result in stationary strategies. As delay between offers decreases, the seller raises his initial price and, in the limit, extracts the full surplus from trade. Dynamic bargaining without price-commitment is revenue-optimal. Existing experimental evidence is consistent with the comparative static predictions of the model.
    Keywords: Bargaining; Coase Conjecture.; Information Projection; Pricing
    JEL: C79 D03
    Date: 2015–02
  19. By: Bosworth, Steven J. (Kiel Institute for the World Economy); Singer, Tania (Max Planck Institute for Human Cognitive and Brain Sciences); Snower, Dennis J. (Kiel Institute for the World Economy)
    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: 2016–02
  20. By: Philipp Ehrl
    Abstract: This paper analyzes assortative matching between employers and employees and its interrelations with the employment density of local labor markets in Germany. I devote attention to the identiication of accurate quality measures: plants’ total factor productivity and workers’ fixed effect. Two different methods then yield evidence in favor of positive assortative matching. The correlation between both quality measures is positive. Wage gains amount up to 4% when both quality levels are equal. In a fairly general matching model, this shape of the wage curve arises due to complementarities of qualities in the production function. When generally higher productivities and wages in dense regions (caused by agglomeration economies and sorting) are not controlled for, the strength of matching and wage gains are overestimated. I also find that regional differences in matching quality cannot be attributed to the local density and unemployment rate.
    Keywords: matching, agglomeration, unobserved skill, two-way fixed effects, TFP
    JEL: C78 J31 R11
    Date: 2014–05
  21. By: Tayfun Sönmez (Boston College); M. Utku Ünver (Boston College); Özgür Yilmaz (Koç University)
    Abstract: Even though kidney exchange became an important source of kidney transplants over the last decade with the introduction of market design techniques to organ transplantation, the shortage of kidneys for transplantation is greater than ever. Due to biological disadvantages, patient populations of blood types B/O are disproportionately hurt by this increasing shortage. The disadvantaged blood types are overrepresented among minorities in the US. In order to mitigate the disproportionate harm to these biologically disadvantaged groups, the UNOS reformed in 2014 the US deceased-donor kidney-allocation system, utilizing a technological advance in blood typing. The improved technology allows a certain fraction of blood type A kidneys, referred to as subtype A2 kidneys, to be transplanted to medically qualified patients of blood types B/O. The recent reform prioritizes subtype A2 deceased-donor kidneys for blood type B patients only. When restricted to the deceased-donor allocation system, this is merely a distributional reform with no adverse impact on the overall welfare of the patient population. In this paper we show that the current implementation of the reform has an unintended consequence, and it de facto extends the preferential allocation to kidney exchange as well. Ironically this “spillover” not only reduces the number of living-donor transplants for the overall patient population, but also for the biologically disadvantaged groups who are the intended beneficiaries of the reform. We show that minor variations of the current policy do not suffer from this unintended consequence, and we make two easy-to-implement, welfare-increasing policy recommendations.
    Keywords: Market design, matching, kidney exchange
    JEL: C71 C78 D02 D63 I10
    Date: 2016–01–15

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