nep-gth New Economics Papers
on Game Theory
Issue of 2016‒04‒23
nineteen papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Bounded Rationality and Correlated Equilibria By Germano, Fabrizio; Zuazo-Garin, Peio
  2. Incentive compatible networks and the delegated networking principle By Rui Gong; Frank Page
  3. Can there be a market for cheap-talk information? Some experimental evidence By Cabrales, Antonio; Feri, Francesco; Gottardi, Piero; Meléndez-Jiménez, Miguel A.
  4. Allocation rules for coalitional network games By Jean-François Caulier; Ana Mauleon; Vincent Vannetelbosch
  5. Accuracy and Retaliation in Repeated Games with Imperfect Private Monitoring: Experiments and Theory By Yutaka Kayaba; Hitoshi Matsushima; Tomohisa Toyama
  6. Robustness of Full Revelation in Multisender Cheap Talk By Meyer, Margaret A; Moreno de Barreda, Inés; Nafziger, Julia
  7. Intergenerational Games with Dynamic Externalities and Climate Change Experiments By Ekaterina Sherstyuk; Nori Tarui; Majah-Leah Ravago; Tatsuyoshi Saijo
  8. Bases and Transforms of Set Functions By Michel Grabisch
  9. Playing the game the others want to play: Keynes’ beauty contest revisited. By Camille Cornand; Rodolphe Dos Santos Ferreira
  10. Reducing the role of random numbers in matching algorithms for school admission By Hulsbergen, Wouter
  11. Competitive Fair Division under linear preferences By Anna Bogomolnaia; Herve Moulin
  12. Explicit vs. Statistical Preferential Treatment in Affirmative Action: Theory and Evidence from Chicago's Exam Schools By Umut Dur; Parag A. Pathak; Tayfun Sönmez
  13. Collusion with a Greedy Center in Position Auctions By Emmanuel LORENZON
  14. Reward and punishment in a team contest By Heine F.A.; Strobel M.
  15. Gathering support from rivals: the two agent case with random order By Bannikova, Marina; Giménez Gómez, José M. (José Manuel)
  16. Multidimensional matching By Pierre-Andr\'e Chiappori; Robert McCann; Brendan Pass
  17. Sustainability of common pool resources: A field-experimental approach By Raja Timilsina; Koji Kotani; Yoshio Kamijo
  18. A Dynamic Model of Elementary School Choice By Nicolás Grau
  19. Pooling data across markets in dynamic Markov games By Taisuke Otsu; Martin Pesendorfer; Yuya Takahashi

  1. By: Germano, Fabrizio; Zuazo-Garin, Peio
    Abstract: We study an interactive framework that explicitly allows for nonrational behavior. We do not place any restrictions on how players' behavior deviates from rationality. Instead we assume that there exists a probability p such that all players play rationally with at least probability p, and all players believe, with at least probability p, that their opponents play rationally. This, together with the assumption of a common prior, leads to what we call the set of p-rational outcomes, which we define and characterize for arbitrary probability p. We then show that this set varies continuously in p and converges to the set of correlated equilibria as p approaches 1, thus establishing robustness of the correlated equilibrium concept to relaxing rationality and common knowledge of rationality. The p-rational outcomes are easy to compute, also for games of incomplete information, and they can be applied to observed frequencies of play to derive a measure p that bounds from below the probability with which any given player chooses actions consistent with payoff maximization and common knowledge of payoff maximization. Keywords: strategic interaction, correlated equilibrium, robustness to bounded rationality, approximate knowledge, incomplete information, measure of rationality, experiments. JEL Classification: C72, D82, D83.
    Keywords: Jocs no-cooperatius (Matemàtica), Teoria de la informació (Economia), 33 - Economia,
    Date: 2015
  2. By: Rui Gong; Frank Page
    Abstract: We construct a model of a principal-agent game of network formation (over layered networks) with asymmetric information and we consider the following two questions: (1) Is it possible for the principal to design a mechanism that links the reports of agents about their private information and the set of connections allowed and recommended by the principal via the mechanism in such a way that players truthfully reveal their private information to the principal and follow the recommendations specified by the mechanism. (2) An even more fundamental question we address is whether or not it is possible for the principal to achieve the same outcome (as that achieved via a mechanism and centralized reporting) by instead choosing a profile of sets of allowable ways to connect (here modeled as player—club specific sets - or catalogs - of networks) and then delegating connection choices to each pair of agents. We call this approach to network formation with incomplete information delegated networking and we show, under relatively mild conditions on our game-theoretic model of network formation, that strategic network formation with incomplete information, implemented via a mechanism and centralized reporting, is equivalent to implementation via delegated networking with monitoring.
    Keywords: Incentive compatible multilayered networks; delegated networking principle; delegation principle; bilateral incentive compatibility; mechanism design; catalog games
    JEL: J1 F3 G3
    Date: 2016–02–15
  3. By: Cabrales, Antonio; Feri, Francesco; Gottardi, Piero; Meléndez-Jiménez, Miguel A.
    Abstract: This paper reports on experiments testing the viability of markets for cheap talk information. We find that these markets are fragile. The reasons are surprising given the previous experimental results on cheap-talk games. Our subjects provide low-quality information even when doing so does not increase their monetary payoff. We show that this is not because subjects play a different (babbling) equilibrium. By analyzing subjects’ behavior in another game, we find that those adopting deceptive strategies tend to have envious or non-pro-social traits. The poor quality of the information transmitted leads to a collapse of information markets.
    Keywords: Experiment, Cheap talk, Auction, Information Acquisition, Information Sale
    JEL: D83 C72 G14
    Date: 2016
  4. By: Jean-François Caulier (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Ana Mauleon (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain, CEREC - Université Saint-Louis - Bruxelles); Vincent Vannetelbosch (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain, CEREC - Université Saint-Louis - Bruxelles)
    Abstract: Coalitional network games are real-valued functions defined on a set of players organized into a network and a coalition structure. We adopt a flexible approach assuming that players organize themselves the best way possible by forming the efficient coalitional network structure. We propose two allocation rules that distribute the value of the efficient coalitional network structure: the atom-based flexible coalitional network allocation rule and the player-based flexible coalitional network allocation rule.
    Keywords: cooperative game theory, allocation rules,Coalition, Networks
    Date: 2015–11
  5. By: Yutaka Kayaba (Hitotsubashi University); Hitoshi Matsushima (University of Tokyo); Tomohisa Toyama (Kogakuin University)
    Abstract: We experimentally examine repeated prisoners' dilemma with random termination, where monitoring is imperfect and private. Our estimation indicates that a significant proportion of subjects follow generous Tit-For-Tat (g-TFT) strategies, straightforward extensions of Tit-For-Tat. However, the observed retaliating policies are inconsistent with the g-TFT equilibria. Contrarily to the theory, subjects tend to retaliate more with high accuracy than with low accuracy. They tend to retaliate more than the theory predicts with high accuracy, while they tend to retaliate lesser with low accuracy. In order to describe these results as unique equilibrium, we demonstrate an alternative theory that incorporates naivete and reciprocity.
    Date: 2016–03
  6. By: Meyer, Margaret A; Moreno de Barreda, Inés; Nafziger, Julia
    Abstract: This paper studies information transmission in a two-sender, multidimensional cheap talk setting where there are exogenous restrictions on the feasible set of policies for the receiver. Such restrictions, which are present in most applications, can, by limiting the punishments available to the receiver, prevent the existence of fully revealing equilibria (FRE). We focus on FRE that are i) robust to small mistakes by the senders, in that small differences between the senders' messages result in only small punishments by the receiver, and ii) independent of the magnitudes of the senders' bias vectors. For convex policy spaces in an arbitrary number of dimensions, we prove that if there exists a FRE satisfying property ii), then there exists one satisfying both i) and ii). Thus the requirement of robustness is, under these assumptions, not restrictive. For convex policy spaces in two dimensions, we provide a simple geometric condition, the Local Deterrence Condition, on the directions of the senders' biases relative to the frontier of the policy space, that is necessary and sufficient for the existence of a FRE satisfying i) and ii). We also provide a specific policy rule, the Min Rule, for the receiver that supports a FRE satisfying i) and ii) whenever one exists. The Min Rule is the anonymous rule that punishes incompatible reports in the least severe way, subject to maintaining the senders' incentives for truthtelling, no matter how large their biases. We characterize necessary and sufficient conditions for collusion-proofness of a FRE supported by the receiver using the Min Rule and show that if such a FRE is not collusion-proof, then no other FRE satisfying ii) can be collusion-proof. We extend our existence results to convex policy spaces in more than two dimensions and to non-convex two-dimensional spaces. Finally, our necessary and sufficient condition, as well as our specific policy rule, can be easily adapted if the receiver is uncertain about the directions of the biases and/or if the biases vary with the state of the world.
    Keywords: cheap talk; full revelation; information transmission; multisender; robustness
    JEL: C72 D82 D83
    Date: 2016–04
  7. By: Ekaterina Sherstyuk (University of Hawaii at Manoa, Department of Economics); Nori Tarui (University of Hawaii at Manoa, Department of Economics); Majah-Leah Ravago (School of Economics, University of the Philippines Diliman); Tatsuyoshi Saijo (Kochi University of Technology)
    Abstract: Dynamic externalities are at the core of many long-term environmental problems, from species preservation to climate change mitigation. We use laboratory experiments to compare welfare outcomes and underlying behavior in games with dynamic externalities under two distinct settings: traditionally studied games with infinitely-lived decision makers, and more realistic intergenerational games. We show that if decision makers change across generations, resolving dynamic externalities becomes more challenging for two distinct reasons. First, decision makers' actions may be short-sighted due to their limited incentives to care about the future generations' welfare. Second, even when the incentives are perfectly aligned across generations, increased strategic uncertainty of the intergenerational setting may lead to an increased inconsistency of own actions and beliefs about the others, making own actions more myopic. Access to history and advice from previous generations may improve dynamic efficiency, but may also facilitate coordination on non-cooperative action paths.
    Keywords: economic experiments; dynamic externalities; intergenerational games; climate change
    Date: 2015–05
  8. By: Michel Grabisch (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)
    Abstract: The paper studies the vector space of set functions on a finite set X, which can be alternatively seen as pseudo-Boolean functions, and including as a special cases games. We present several bases (unanimity games, Walsh and parity functions) and make an emphasis on the Fourier transform. Then we establish the basic dual-ity between bases and invertible linear transform (e.g., the Möbius transform, the Fourier transform and interaction transforms). We apply it to solve the well-known inverse problem in cooperative game theory (find all games with same Shapley value), and to find various equivalent expressions of the Choquet integral.
    Keywords: set function, capacity, basis, transform, Moebius transform, Choquet integral
    Date: 2016
  9. By: Camille Cornand; Rodolphe Dos Santos Ferreira
    Abstract: In Keynes’ beauty contest, agents make choices by referring to their expectations of some fundamental value and of the conventional value to be set by the market. In doing so, agents respond to fundamental and strategic motives, respectively. The prevalence of either motive is usually set exogenously. Our contribution is to consider whether agents favor one of the two motives when the relative weights put on them are taken as strategic variables. We show that the strategic motive tends to prevail over the fundamental one, yielding a disconnection of agents’ actions from the fundamental. This is done in a simple valuation game emphasizing the role of public information. We then extend the same result to competition between the owners of two firms, by using a delegation game in which informational issues are embedded into a broader microfounded setting.
    Keywords: beauty contest, dispersed information, public signals, coordination, competition.
    Date: 2016
  10. By: Hulsbergen, Wouter
    Abstract: New methods for solving the college admissions problem with indifference are presented and characterised with a Monte Carlo simulation in a variety of simple scenarios. Based on a qualifier defined as the average rank, it is found that these methods are more efficient than the Boston and Deferred Acceptance algorithms. The improvement in efficiency is directly related to the reduced role of random tie-breakers. The strategy-proofness of the new methods is assessed as well.
    Keywords: college admission problem; deferred acceptance algorithm; Boston algorithm; Zeeburg algorithm; pairwise exchange algorithm; strategic behaviour
    JEL: I2
    Date: 2016–03–12
  11. By: Anna Bogomolnaia; Herve Moulin
    Date: 2016–01
  12. By: Umut Dur; Parag A. Pathak; Tayfun Sönmez
    Abstract: Affirmative action schemes must confront the tension between admitting the highest scoring applicants and ensuring diversity. In Chicago's affirmative action system for exam schools, applicants are divided into one of four socioeconomic tiers based on the characteristics of their neighborhood. Applicants can be admitted to a school either through a slot reserved for their tier or through a merit slot. Equity considerations motivate equal percentage reserves for each tier, but there is a large debate on the total size of these reserve slots relative to merit slots. An issue that has received much less attention is the order in which slots are processed. Since the competition for merit slots is influenced directly by the allocation to tier slots, equal size reserves are not sufficient to eliminate explicit preferential treatment. We characterize processing rules that are tier-blind. While explicit preferential treatment is ruled out under tier-blind rules, it is still possible to favor certain tiers, by exploiting the distribution of scores across tiers, a phenomenon we call statistical preferential treatment. We characterize the processing order that is optimal for the most disadvantaged tier assuming that these applicants systematically have lower scores. This policy processes merit slots prior to any slots reserved for tiers. Our main result implies that Chicago has been providing an additional boost to the disadvantaged tier beyond their reserved slots. Using data from Chicago, we show that the bias due to processing order for the disadvantaged tier is comparable to that from the 2012 decrease in the size of the merit reserve.
    JEL: C78 I21
    Date: 2016–03
  13. By: Emmanuel LORENZON
    Abstract: In this paper we aim at studying the sensitivity of the Generalized Second-Price auction to bidder collusion when monetary transfers are allowed. We propose a model of position auction that incorporates third-parties as agents facilitating collusion in complete information. We show that the first-best collusive outcome can be achieved under any Nash condition. Under the locally envy-free criterion, we find that if the collusive gain is uniformly redistributed among members, the best that can be achieved is Vickrey-Clarkes-Groves outcome. Bidders do not have sufficient incentives to reduce even more their expressed demand. We then provide elements upon which an incentive compatible fee can be set by the center. We provide conditions under which bidders can enhance efficient collusion. Doing so we also contribute to the literature on collusion in multiple-objects simultaneous auctions.
    Keywords: Auctions, Online advertising, Position auctions; Bidding ring, Cartel
    JEL: D44 C72 M3 L41
    Date: 2016
  14. By: Heine F.A.; Strobel M. (GSBE)
    Abstract: A team contest entails both public good situations within the teams as well as a contest across teams. In an experimental study, we analyse behaviour in such a team contest when allowing to punish or to reward other group members. Moreover, we compare two types of contest environment One in which two groups compete for a prize and another one in which we switch off the between-group element of the team contest. Unlike what experimental studies in isolated public goods games indicate, we find that reward giving, as opposed to punishing, induces higher contributions to the group project. Furthermore, comparing treatment groups, expenditures on rewarding other co-players are significantly higher than those for punishing. This is particularly pronounced for the between-group contest.
    Keywords: Cooperative Games; Design of Experiments: Laboratory, Group Behavior; Microeconomic Behavior: Underlying Principles;
    JEL: C92 D01 C71
    Date: 2015
  15. By: Bannikova, Marina; Giménez Gómez, José M. (José Manuel)
    Abstract: Which alternative is selected when voters are called to participate in a sequential voting? Does the ordering matter? The current approach is the first attempt to analyze these questions. Specifically, we propose a two- alternative sequential voting procedure in which two voters are randomly ordered. Each voter has complete information about the preference of both of them. The alternative is implemented if there is unanimity. We obtain that the most patient individual has some advantage in the election, but it is not enough to guarantee that his most-preferred alternative will be selected. The probability to vote first also plays a central role, since the election also depends on the voting order. Keywords: Sequential Voting; Random order; Sub-game perfect equilibrium
    Keywords: Elecció (Psicologia), Eleccions, 32 - Política,
    Date: 2015
  16. By: Pierre-Andr\'e Chiappori; Robert McCann; Brendan Pass
    Abstract: We present a general analysis of multidimensional matching problems with transferable utility, paying particular attention to the case in which the dimensions of heterogeneity on the two sides of the market are unequal. A particular emphasis is put on problems where agents on one side of the market are multidimensional and agents on the other side are uni-dimensional, we describe a general approach to solve such problems. Lastly, we analyze several examples, including an hedonic model with differentiated products, a marriage market model where wives are differentiated in income and fertility, and a competitive variation of the Rochet-Chon\'e problem. In the latter example, we show that the bunching phenomena, observed by Rochet and Chon\'e in the monopoly context, do not occur in the competitive context
    Date: 2016–04
  17. By: Raja Timilsina (Kochi University of Technology); Koji Kotani (School of Economics and Management, Kochi University of Technology); Yoshio Kamijo (School of Economics and Management, Kochi University of Technology)
    Abstract: Sustainability has become a key issue in managing natural resources together with growing concerns for capitalism, environmental and resource problems. We hypothesize that ongoing modernization of competitive societies, which we call "capitalism," affects human nature and preference in utilizing common pool resources, further endangering the sustainability. To test the hypothesis, this paper designs and implements a dynamic common pool resource game in the two types of Nepalese fields: (i) rural (non capitalistic) and (ii) urban (capitalistic) areas. We find that a proportion of prosocial people in the urban is lower than that in the rural, and urban people deplete resources more quickly than rural people. The composition of proself and prosocial people in a group and the degree of capitalism (rural vs. urban) are crucial in the sense that an increase of prosocial members in a group and the rural dummy positively affect resource sustainability by approximately 65% and by 45%, respectively. Overall, this paper concludes that when societies move toward more capitalistic environments, sustainability of common pool resources tends to be lost through changes in people’s preferences, social norms, customs and assumptions for other people. It implies that people may gradually be losing their coordination abilities for social dilemmas of resource sustainability in capitalistic societies.
    Keywords: sustainability, dynamic common pool resource, capitalism, field experiment
    Date: 2016–04
  18. By: Nicolás Grau
    Abstract: This paper builds and estimates a dynamic model of elementary school choice using detailed Chilean administrative data. In the model, parents care about different features of primary schools: school’s socioeconomic composition, quality (measured as the school’s contribution to standardized test scores), religiosity, location, type of administration, tuition fee and GPA standard. Parents are heterogeneous in two dimensions: whether they have the skills needed to understand public information about quality (standardized tests), and their involvement in their child’s school. The results suggest that: (1) Parents care about school quality, but to a moderate degree. (2) Parents have an important misperception about school quality, which results in a less favorable opinion about the quality of public schools, relative to private schools. (3) If parents were only concerned about quality, they would choose public schools more often. (4) Admission restrictions play a relevant role; otherwise, parents would choose private school more frequently.
    Date: 2016–01
  19. By: Taisuke Otsu; Martin Pesendorfer; Yuya Takahashi
    Abstract: This paper proposes several statistical tests for finite state Markov games to examine whether data from distinct markets can be pooled. We formulate homogeneity tests of (i) the conditional choice and state transition probabilities, (ii) the steady-state distribution, and (iii) the conditional state distribution given an initial state. The null hypotheses of these homogeneity tests are necessary conditions (or maintained assumptions) for poolability of the data. Thus rejections of these null imply that the data cannot be pooled across markets. Acceptances of these null are considered as supporting evidences for the maintained assumptions of estimation using pooled data. In a Monte Carlo study we find that the test based on the steady-state distribution performs well and has high powereven with small numbers of markets and time periods. We apply the tests to the empirical study of Ryan (2012) that analyzes dynamics of the U.S. Portland Cement industry and assess if the data across markets can be pooled.
    Keywords: dynamic Markov game; poolability; multiplicity of equilibria; hypothesis testing
    JEL: C12 C72 D44
    Date: 2016

This nep-gth issue is ©2016 by László Á. Kóczy. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.