nep-gth New Economics Papers
on Game Theory
Issue of 2016‒06‒09
eighteen papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Identification of Biased Beliefs in Games of Incomplete Information Using Experimental Data By Aguirregabiria, Victor; Xie, Erhao
  2. Behavioral Polymorphism in Bayesian Games By Raul V. Fabella
  3. Non-Revelation Mechanisms for Many-to-Many Matching: Equilibria versus Stability By Bettina Klaus; Flip Klijn
  4. Inheritance of Convexity for Partition Restricted Games By Alexandre Skoda
  5. Search Frictions, Competing Mechanisms and Optimal Market Segmentation By Cai, Xiaoming; Gautier, Pieter A.; Wolthoff, Ronald P.
  6. Search Frictions, Competing Mechanisms and Optimal Market Segmentation By Xiaoming Cai; Pieter Gautier; Ronald Wolthoff
  7. Mechanism Design with Two Types of Information By Seung Han Yoo
  8. Designing contests between heterogeneous contestants: An experimental study of tie-breaks and bid-caps in all-pay auctions By Llorente-Saguer, Aniol; Sheremeta, Roman M.; Szech, Nora
  9. Nullified equal loss property and equal division values By Sylvain Ferrières
  10. Envious Preferences in Two-sided Matching By Ahamad, Mazbahul
  11. Durability, Deadline, and Election Effects in Bargaining By Alp Simsek; Muhamet Yildiz
  12. Procedurally Fair Implementation: The Cost of Insisting on Symmetry By Korpela Ville
  13. Determining influential models By Michel Grabisch; Agnieszka Rusinowska
  14. Cooperation, Punishment and Organized Crime: A Lab-in-the-Field Experiment in Southern Italy By Nese, Annamaria; O'Higgins, Niall; Sbriglia, Patrizia; Scudiero, Maurizio
  15. Infinite horizon hydroelectricity games By Robles, Jack
  16. Bounded rationality as an essential component of the holdup problem By Erlei, Mathias; Roß, Wiebke
  17. Efficient Coalition-Proof Full Implementation By Mikhail Safronov
  18. Group and individual Time Preferences in Laboratory Experiments By Manami Tsuruta

  1. By: Aguirregabiria, Victor; Xie, Erhao
    Abstract: This paper studies the identification of players'; preferences and beliefs in empirical applications of discrete choice games using experimental data. The experiment comprises a set of games with similar features (e.g., two-player coordination games) where each game has different values for the players'; monetary payoffs. Each game can be interpreted as an experimental treatment group. The researcher assigns randomly subjects to play these games and observes the outcome of the game as described by the vector of players' actions. Data from this experiment can be described in terms of the empirical distribution of players' actions conditional on the treatment group. The researcher is interested in the nonparametric identification of players' preferences (utility function of money) and players' beliefs about the expected behavior of other players, without imposing restrictions such as unbiased or rational beliefs or a particular functional form for the utility of money. We show that the hypothesis of unbiased/rational beliefs is testable and propose a test of this null hypothesis. We apply our method to two sets of experiments conducted by Goeree and Holt (2001) and Heinemann, Nagel and Ockenfels (2009). Our empirical results suggest that in the matching pennies game, a player is able to correctly predict other player's behavior. In the public good coordination game, our test can reject the null hypothesis of unbiased beliefs when the payoff of the non-cooperative action is relatively low.
    Keywords: Testing biased beliefs; Multiple equilibria; Strategic uncertainty; Coordination game.
    JEL: C57 C72
    Date: 2016–05
  2. By: Raul V. Fabella (School of Economics, University of the Philippines Diliman; National Academy of Science and Technology)
    Abstract: J. Harsanyi introduced structural polymorphism in game theory, that is, there are many possible agent types such as “low productivity” or high productivity” with corresponding probability but all operating under one behavioral type, strict rationality. In this paper, we introduce behavioral polymorphism into Bayesian games. The multiplicity of behavioral types have become increasingly recognized and studied. Agents ascribe to each other a probability distribution across the possible types. They then choose the appropriate type as response to the possible type of the others which type determines the choice of strategy. We show in a dimorphic game model with the two types being strict rationality (SR) and utilitarian altruist (UA) that there always is a high enough assignment such that cooperation is the dominant strategy for both players in initially social dilemma games. Thus, the strategy set is endogenous in games with behavioral polymorphism. We argue that the assignment is based on some heuristics such as the counter-parties’ membership in some groups.
    Keywords: behavioral polymorphism; Bayesian games; cooperation; dominant strategy
    JEL: C70 C72
    Date: 2016–05
  3. By: Bettina Klaus; Flip Klijn
    Abstract: We study many-to-many matching markets in which agents from a set A are matched to agents from a disjoint set B through a two-stage non-revelation mechanism. In the first stage, A-agents, who are endowed with a quota that describes the maximal number of agents they can be matched to, simultaneously make proposals to the B-agents. In the second stage,B-agents sequentially, and respecting the quota, choose and match to available A-proposers. We study the subgame perfect Nash equilibria of the induced game. We prove that stable matchings are equilibrium outcomes if all A-agents' preferences are substitutable. We also show that the implementation of the set of stable matchings is closely related to the quotas of the A-agents. In particular, implementation holds when A-agents' preferences are substitutable and their quotas are non-binding.
    Keywords: matching; mechanisms; stability; substitutability
    JEL: C78 D78
    Date: 2016–04
  4. By: Alexandre Skoda (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: A correspondence P associates to every subset A ⊆ N a partition P(A) of A and to every game (N,v), the P-restricted game (N,vP) defined by vP(A) = ∑ (F ∈ P(A)) v(F) for all A ⊆ N. We give necessary and sufficient conditions on P to have inheritance of convexity from (N,v) to (N,vP). The main condition is a cyclic intersecting sequence free condition. As a consequence, we only need to verify inheritance of convexity for unanimity games and for the small class of extremal convex games (N,vS) (for any Ø ≠ S ⊆ N) defined for any A ⊆ N by vS(A) = |A ∩ S | − 1 if |A ∩ S | ≥ 1, and vs(A) = 0 otherwise. In particular when (N,v) corresponds to Myerson's network-restricted game inheritance of convexity can be verified by this way. For the Pmin correspondence (Pmin(A) is built by deleting edges of minimum weight in the subgraph GA of a weighted communication graph G, we show that inheritance of convexity for unanimity games already implies inheritance of convexity. Assuming only inheritance of superadditivity, we also compute the Shapley value of the restricted game (N,vP) for an arbitrary correspondence P.
    Keywords: communication network,cooperative game,restricted game,partitions
    Date: 2016–05
  5. By: Cai, Xiaoming (Tongji University); Gautier, Pieter A. (Vrije Universiteit Amsterdam); Wolthoff, Ronald P. (University of Toronto)
    Abstract: In a market in which sellers compete for heterogeneous buyers by posting mechanisms, we analyze how the properties of the meeting technology affect the allocation of buyers to sellers. We show that a separate submarket for each type of buyer is the efficient outcome if and only if meetings are bilateral. In contrast, a single market with all agents is optimal if and only if the meeting technology satisfies a novel condition, which we call "joint concavity." Both outcomes can be decentralized by sellers posting auctions combined with a fee that is paid by (or to) all buyers with whom the seller meets. Finally, we compare joint concavity to two other properties of meeting technologies, invariance and non-rivalry, and explain the differences.
    Keywords: search frictions, matching function, meeting technology, heterogeneity, competing mechanisms
    JEL: C78 D44 D83
    Date: 2016–05
  6. By: Xiaoming Cai (Tongji University, PR China); Pieter Gautier (VU University Amsterdam, the Netherlands); Ronald Wolthoff (University of Toronto, Canada)
    Abstract: In a market in which sellers compete for heterogeneous buyers by posting mechanisms, we analyze how the properties of the meeting technology affect the allocation of buyers to sellers. We show that a separate submarket for each type of buyer is the efficient outcome if and only if meetings are bilateral. In contrast, a single market with all agents is optimal if and only if the meeting technology satisfies a novel condition, which we call "joint concavity." Both outcomes can be decentralized by sellers posting auctions combined with a fee that is paid by (or to) all buyers with whom the seller meets. Finally, we compare joint concavity to two other properties of meeting technologies, invariance and non-rivalry, and explain the differences.
    Keywords: search frictions; matching function; meeting technology; competing mecha- nisms; heterogeneity
    JEL: C78 D44 D83
    Date: 2016–05–17
  7. By: Seung Han Yoo (Department of Economics, Korea University, Seoul, Republic of Korea)
    Abstract: In many real world situations, a principal faces an agent who has two different types of information: one associated with contractible actions and the other not. We first establish an impossibility result such that the principal cannot implement a nonlinear mechanism given the information constraint. The main result shows that the principal can still obtain the second-best payoff with a direct mechanism by characterizing incentives of a supervisor. The nature of incompleteness suggests a foundation of incomplete contract, the agent’s information structure, and thus demands a different solution, an informational hierarchical structure with the supervisor. This result has new implications for the theory of the firm to explain the origin of a firm’s decentralized system, as opposed to what the standard mechanism theory offers.
    Keywords: Two types of information, Incomplete contract, Information structure
    JEL: C72
    Date: 2016
  8. By: Llorente-Saguer, Aniol; Sheremeta, Roman M.; Szech, Nora
    Abstract: A well-known theoretical result in the contest literature is that greater heterogeneity decreases performance of contestants because of the "discouragement effect." Leveling the playing field by favoring weaker contestants through bid-caps and favorable tie-breaking rules can reduce the discouragement effect and increase the designer's revenue. We test these predictions in an experiment. Our data show that indeed, strengthening weaker contestants through tie-breaks and bid-caps significantly diminishes the discouragement effect. Bid-caps can also improve revenue. Most deviations from Nash equilibrium can be explained by the level-k model of reasoning.
    Keywords: all-pay auction,rent-seeking,bid-caps,tie-breaks,contest design
    JEL: C72 C91 D72
    Date: 2016
  9. By: Sylvain Ferrières (Université de Bourgogne Franche-Comté, CRESE)
    Abstract: We provide characterizations of the equal division values and their convex mixtures, using a new axiom on a fixed player set based on player nullification which requires that if a player becomes null, then any two other players are equally affected. Two economic applications are also introduced concerning bargaining under risk and common-pool resource appropriation
    Keywords: Player nullification, equal division, equal surplus division, bargaining under risk, common-pool resource
    JEL: C71
    Date: 2016–05
  10. By: Ahamad, Mazbahul
    Abstract: We develop a model of two-sided matching problem with individual-sided envious preferences that originate from an emulative envy effect in which a more desirable state that is preferred is owned by the other individual. We assume envious preferences influence an individual’s decision to enter into a two-sided network instead of being unassigned. In this paper, we show that an individual-sided envious preference leads to a stable matching under a two-sided market framework. Applying the mechanism of the model to behavioral contract theory, we show that individual-proposing envious acceptance leads to stable farmer-buyer contract matching considering buyer’s time invariant preference. We further argue that individual’s envious preference also contributes to herd-type acceptance that dominates individual’s logical preferences in participation decision under a less risky environment.
    Keywords: Behavioral contract design, Envious acceptance algorithm, Emulative envy effect, Envious preference, Herd-type acceptance, Market design, Network effect, Agribusiness, Agricultural and Food Policy, Industrial Organization, Institutional and Behavioral Economics, D47, D81, D86, L14,
    Date: 2016–05–23
  11. By: Alp Simsek; Muhamet Yildiz
    Abstract: We propose a tractable model of bargaining with optimism. The distinguishing feature of our model is that the bargaining power is durable and changes only due to important events such as elections. Players know their current bargaining powers, but they can be optimistic that events will shift the bargaining power in their favor. We define congruence (in political negotiations, political capital) as the extent to which a party's current bargaining power translates into its expected payoff from bargaining. We show that durability increases congruence and plays a central role in understanding bargaining delays, as well as the finer bargaining details in political negotiations. Optimistic players delay the agreement if durability is expected to increase in the future. The applications of this durability effect include deadline and election effects, by which upcoming deadlines or elections lead to ex-ante gridlock. In political negotiations, political capital is highest in the immediate aftermath of the election, but it decreases as the next election approaches.
    JEL: C73 C78 D74 D78
    Date: 2016–05
  12. By: Korpela Ville (Department of Economics, University of Turku)
    Abstract: We derive a necessary and a sufficient condition for Nash implementation with a procedurally fair mechanism. Our result has a nice analogue with the path-braking result of Maskin [Nash equilibrium and welfare optimality, Rev. Econ. Stud. 66 (1999) 23-38.], and therefore, it allows us to give a simple characterization of those choice rules that are implementable, but not in a procedurally fair way. This reveals the constraints that insisting on procedural fairness impose on the collective.
    Keywords: Characterization; Implementation; Nash equilibrium; Other regarding preferences; Procedural fairness
    JEL: C72 D64 D70 D71
  13. 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); Agnieszka Rusinowska (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: We consider a model of opinion formation based on aggregation functions. Each player modifies his opinion by arbitrarily aggregating the current opinion of all players. A player is influential for another player if the opinion of the first one matters for the latter. A generalization of influential player to a coalition whose opinion matters for a player is called influential coalition. Influential players (coalitions) can be graphically represented by the graph (hypergraph) of influence, and the convergence analysis is based on properties of the hypergraphs of influence. In the paper, we focus on the practical issues of applicability of the model w.r.t. the standard opinion formation framework driven by the Markov chain theory. For the qualitative analysis of convergence, knowing the aggregation functions of the players is not required, but one only needs to know the influential coalitions for every player. We propose simple algorithms that permit to fully determine the influential coalitions. We distinguish three cases: the symmetric decomposable model, the anonymous model, and the general model.
    Abstract: Nous considérons un modèle de formation d'opinion basé sur les fonctions d'agrégation. Chaque agent modifie son opinion en agrégeant de manière arbitraire l'opinion des autres agents. Un agent est influent pour un autre agent si l'opinion du premier compte pour ce dernier. Une généralisation de la notion d'agent influent mène à la notion de coalition influente pour un agent. Les agents (coalitions) influents peuvent être représentés graphiquement par un graphe d'influence (hypergraphe d'influence), et l'analyse de la convergence du modèle est basée sur les propriétés des hypergraphes d'influence. Dans l'article, nous nous focalisons sur les aspects pratiques d'applicabilité du modèle par rapport au cadre standard de formation d'opinion régi par une chaîne de Markov. Il n'est pas nécessaire de connaître les fonctions d'agrégation pour l'analyse qualitative de la convergence, pour laquelle la connaissance des coalitions influentes suffit. Nous proposons des algorithmes simples qui permettent de déterminer complètement les coalitions influentes. Nous distinguons trois cas : le modèle décomposable symétrique, le modèle anonyme et le modèle général.
    Keywords: social network,opinion formation,aggregation function,influential coalition,algorithm,réseau social,formation d'opinion,fonction d'agrégation,coalition influente,algorithme
    Date: 2016–04
  14. By: Nese, Annamaria (University of Salerno); O'Higgins, Niall (ILO International Labour Organization); Sbriglia, Patrizia (University of Naples II); Scudiero, Maurizio (Ministry of Justice, Italy)
    Abstract: This paper reports the results of an experimental investigation which allows a deeper insight into the nature of social preferences amongst organized criminals and how these differ from "ordinary" criminals on the one hand and from the non‐criminal population in the same geographical area on the other. We provide experimental evidence on cooperation and response to sanctions by running Prisoner's Dilemma and Third Party Punishment games on three different pools of subjects; students, 'Ordinary Criminals' and Camorristi (Neapolitan 'Mafiosi'). The latter two groups being recruited from within prisons. We are thus able to separately identify 'Prison' and 'Camorra' effects. Camorra prisoners show a high degree of cooperativeness and a strong tendency to punish, as well as a clear rejection of the imposition of external rules even at significant cost to themselves. In contrast, ordinary criminals behave in a much more opportunistic fashion, displaying lower levels of cooperation and, in the game with Third Party punishment, punishing less as well as tending to punish cooperation (almost as much) as defection. Our econometric analyses further enriches the analysis demonstrating inter alia that individuals' locus of control and reciprocity are associated with quite different and opposing behaviours amongst different participant types; a strong sense of self‐determination and reciprocity both imply a higher propensity to cooperate and to punish for both students and Camorra inmates, but quite the opposite for ordinary criminals, further reinforcing the contrast between the behaviour of ordinary criminals and the strong internal mores of Camorra clans.
    Keywords: experimental economics, economics of crime, models of identity, prisoner's dilemma, third party punishment
    JEL: A13 D63 D23 C92 K42 Z13
    Date: 2016–04
  15. By: Robles, Jack
    Abstract: We present an infinite horizon game between a hydro power plant and a thermal power plant. The Markov perfect equilibrium is characterized and related to the closed loop equilibrium of a one year finite horizon game. We show that the infinite horizon and one year horizon models make predictions which are surprisingly similar. Essential differences in predictions are noted.
    Keywords: Energy market, Hydroelectricity, Markov Perfect Equilibrium, Cournot competition,
    Date: 2016
  16. By: Erlei, Mathias; Roß, Wiebke
    Abstract: We provide experimental evidence for the hypothesis that bounded rationality is an important element of the theory of the firm. We implement a simplified version of a mechanism designed to perfectly solve the holdup problem under conditions of perfect rationality (Maskin 2002). We test whether this mechanism is able to perfectly solve our experimental holdup problem or may at least improve economic performance. We find that this is not the case: the implementation of the mechanism worsens economic performance. We reconstruct the main features of participants' behavior by applying the logit agent quantal response equilibrium (McKelvey and Palfrey 1998) as an equilibrium concept that takes players' potential mistakes into account.
    Keywords: bounded rationality,transaction costs,incomplete contracts,experiment,mechanism design
    JEL: D23 C92 L23
    Date: 2015
  17. By: Mikhail Safronov
    Abstract: D'Apresmont Gerard-Varet (AGV) mechanism implements efficient social choice in a budget-balanced manner, however it is susceptible to a joint misreport by a coalition of agents, and it may have inefficient equilibria. This paper extends AGV mechanism by putting more structure on its monetary transfers; in the resulting direct mechanism each agent is paid the Shapley value generated from the expected externalities his report imposes on others. This makes each group of agents to be paid in total the expected externality their report imposes on others, and makes it Bayesian incentive compatible to report truthfully. Moreover, any agent can guarantee to receive his ex ante efficient payoff by reporting truthfully, making all equilibria efficient. It is generically impossible to make truthful report a dominant strategy for all coalitions.
    Date: 2016–03–18
  18. By: Manami Tsuruta (Graduate School of Economics, Osaka University)
    Abstract: In this paper I analyze how different between groups and individual time preferences. I compare two hypothesis | Altruistic decision making and Selfish majority decision making | by laboratory experiments. In Altruistic decision making hypothesis I assume Altruistic people who discount themselves more than other group members, thus discount more themselves more than group decision making. In Selfish majority decision making hypothesis I assume selfish people and group time preferences are decided by majority rule. In experiments group are three persons. There are three condition. (1)Individual decision making for themselves. (2)Individual decision making for other group members. (3)Group decision making. In Group decision making Subjects anonymously talk with each other by PC. I found three results. First, people discount more in individual decision making for themselves than in group decision making. Second, Selfish majority decision making hypothesis is supported. Third, Reason why Individual time preferences and group time preferences differ is due to distortion of individual discount factor.
    Keywords: time preference, laboratory experiment, group decision making
    JEL: C91 C92 D03
    Date: 2016–05

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