nep-gth New Economics Papers
on Game Theory
Issue of 2016‒06‒14
twelve papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Equilibria of Deferred Acceptance with Complete Lists By Bettina Klaus; Flip Klijn
  2. Exploring the gap between perfect Bayesian equilibrium and sequential equilibrium By Giacomo Bonanno
  3. Single versus Multiple Randomization in Matching Mechanisms By André Schmelzer
  4. On the Economics of Crisis Contracts By Elias, Aptus; Gersbach, Hans; Volker, Britz
  5. A Mean Field Game of Optimal Stopping By Marcel Nutz
  6. Tacit collusion and market concentration under network effects By Rupayan Pal; Marcella Scrimitore
  7. Adversarial decision-making: Choosing between models constructed by interested parties By Froeb, Luke M.; Ganglmair, Bernhard; Tschantz, Steven
  8. Homophily and Transitivity in Dynamic Network Formation By Bryan S. Graham
  9. Entry Games and Free Entry Equilibria By Michele Polo
  10. Cutthroats or comrades: Information sharing among competing fund managers By Ganglmair, Bernhard; Holcomb, Alex; Myung, Noah
  11. Robustness of subgame perfect implementation By Eccles, Peter; Wegner, Nora
  12. Multicountry Appropriation of the Commons, Externalities, and Firm Preferences for Regulation By Akhundjanov, Sherzod

  1. By: Bettina Klaus; Flip Klijn
    Abstract: We study the structure of the set of (Nash) equilibria of a deferred acceptance game with complete lists: for a given marriage market with complete lists, men propose to women truthfully while women can accept or reject proposals strategically throughout the deferred-acceptance algorithm. Zhou (1991) studied this game and showed that a matching that is stable with respect to the true preferences can be supported by some preference profile (possibly a non-equilibrium one) if and only if it can be supported by an equilibrium as well. In particular, this result implies the existence of equilibria since the men-optimal stable matching is supported by true preferences and hence an equilibrium outcome. We answer an open question Zhou posed by showing that there need not exist an equilibrium matching that weakly dominates all other equilibrium matchings from the women's point of view (Theorem 2). We complement Zhou's and our findings by showing that the set of equilibrium matchings also need not be "connected" (Example 2).
    Keywords: matching; stability; complete lists; Nash equilibria
    JEL: C72 C78 D47
    Date: 2016–04
  2. By: Giacomo Bonanno (Department of Economics, University of California Davis)
    Abstract: In (5) a solution concept for extensive-form games was introduced, called perfect Bayesian equilibrium (PBE), and shown to be a strict refinement of subgame-perfect equilibrium; it was also shown that, in turn, sequential equilibrium (SE) is a strict refinement of PBE. In (6) the notion of PBE was used to provide a characterization of SE in terms of a strengthening the two defining components of PBE (besides sequential rationality), namely AGM consistency and Bayes consistency. In this paper we explore the gap between PBE and SE by identifying solution concepts that lie strictly between PBE and SE; these solution concepts embody a notion of ?conservative? belief revision. Furthermore, we provide a method for determining if a plausibility order on the set of histories is choice measurable, which is a necessary condition for a PBE to be a SE.
    Keywords: Plausibility order; conservative belief revision; Bayesian updating, independence, sequential equilibrium
    JEL: C7
    Date: 2016–05–25
  3. By: André Schmelzer (Max Planck Institute for Research on Collective Goods)
    Abstract: This paper experimentally studies an essential institutional feature of matching markets: Randomization of allocation priorities. I compare single and multiple randomization in the student assignment problem with ties. The Gale-Shapley deferred acceptance algorithm is employed after indifferences in school priorities are resolved by either random procedure. The main result is that a significant fraction of individuals prefers multiple to single randomization, although both are equivalent in expectation. Multiple randomization is perceived to be fairer. One theoretical explanation is the failure to disregard compound lotteries. These results show that random procedures are not inherently neutral with respect to preferences and fairness perceptions.
    Keywords: market design, school choice, mechanism design, experiment, deferred acceptance algorithm, randomization, tie-breaking
    JEL: C78 C91 D78 D81
    Date: 2016–05
  4. By: Elias, Aptus; Gersbach, Hans; Volker, Britz
    Abstract: We examine the impact of so-called "Crisis Contracts" on bank managers' risk-taking incentives and on the probability of banking crises. Under a Crisis Contract, managers are required to contribute a pre-specified share of their past earnings to finance public rescue funds when a crisis occurs. This can be viewed as a retroactive tax that is levied only when a crisis occurs and that leads to a form of collective liability for bank managers. We develop a game-theoretic model of a banking sector whose shareholders have limited liability, so that society at large will suffer losses if a crisis occurs. Without Crisis Contracts, the managers' and shareholders' interests are aligned, and managers take more than the socially optimal level of risk. We investigate how the introduction of Crisis Contracts changes the equilibrium level of risk-taking and the remuneration of bank managers. We establish conditions under which the introduction of Crisis Contracts will reduce the probability of a banking crisis and improve social welfare. We explore how Crisis Contracts and capital requirements can supplement each other and we show that the efficacy of Crisis Contracts is not undermined by attempts to hedge.
    JEL: C79 G21 G28
    Date: 2016–05
  5. By: Marcel Nutz
    Abstract: We formulate a stochastic game of mean field type where the agents solve optimal stopping problems and interact through the proportion of players that have already stopped. Working with a continuum of agents, typical equilibria become functions of the common noise that all agents are exposed to, whereas idiosyncratic randomness can be eliminated by an Exact Law of Large Numbers. Under a structural monotonicity assumption, we can identify equilibria with solutions of a simple equation involving the distribution function of the idiosyncratic noise. Solvable examples allow us to gain insight into the uniqueness of equilibria and the dynamics in the population.
    Date: 2016–05
  6. By: Rupayan Pal (Indira Gandhi Institute of Development Research); Marcella Scrimitore (University of Salenta)
    Abstract: In an infnitely repeated Cournot game with trigger strategy punishment, we demonstrate that the relationship between market concentration and collusion sustainability depends on the strength of network externalities. The latter is shown to interact with the number of firms and to affect the profitability of cooperation vs. competition, which delivers the result, challenging conventional wisdom, that lower market concentration can make collusion more stable.
    Keywords: Collusion, market concentration, network ekects
    JEL: L13 L14 L41
    Date: 2016–04
  7. By: Froeb, Luke M.; Ganglmair, Bernhard; Tschantz, Steven
    Abstract: In this paper, we characterize adversarial decision-making as a choice between competing interpretations of evidence ("models") constructed by interested parties. We show that if a court cannot perfectly determine which party's model is more likely to have generated the evidence, then adversaries face a tradeoff: a model further away from the best (most likely) interpretation has a lower probability of winning, but also a higher payoff following a win. We characterize equilibrium when both adversaries construct optimal models, and use the characterization to compare adversarial decision-making to an inquisitorial benchmark. We find that adversarial decisions are biased, and the bias favors the party with the less-likely, and more extreme, interpretation of the evidence. Court bias disappears when the court is better able to distinguish between the likelihoods of the competing models, or as the amount of evidence grows.
    Keywords: adversarial justice; evidence-based decision-making; expert testimony; inquisitorial justice; litigation; persuasion games; science vs. advocacy
    JEL: C72 D74 K41
    Date: 2016–03–28
  8. By: Bryan S. Graham
    Abstract: In social and economic networks linked agents often share additional links in common. There are two competing explanations for this phenomenon. First, agents may have a structural taste for transitive links -- the returns to linking may be higher if two agents share links in common. Second, agents may assortatively match on unobserved attributes, a process called homophily. I study parameter identifiability in a simple model of dynamic network formation with both effects. Agents form, maintain, and sever links over time in order to maximize utility. The return to linking may be higher if agents share friends in common. A pair-specific utility component allows for arbitrary homophily on time-invariant agent attributes. I derive conditions under which it is possible to detect the presence of a taste for transitivity in the presence of assortative matching on unobservables. I leave the joint distribution of the initial network and the pair-specific utility component, a very high dimensional object, unrestricted. The analysis is of the `fixed effects' type. The identification result is constructive, suggesting an analog estimator, whose single large network properties I characterize.
    JEL: C1 C14 C23 C25 D85
    Date: 2016–04
  9. By: Michele Polo
    Abstract: This Chapter reviews the theoretical liteature on entry games and free entry equilibria. We show that a wide range of symmetric oligopoly models share common comparative statics properties. Individual profits and quantities decrease in the number of firms, and tend to competitive or monopolistic competitive equilibria when the number of firms increases indefinitely. The maximum number of firms sustainable in a symmetric long run equilibrium depends on technology (economies of scale), preferences (market size) and strategies (toughness of price competition). On the normative side, in homogeneous product markets the business stealing effect drives the result of excessive entry, whereas adding product differentiation and the utillity from variety may revert the result. We then consider asymmetric free entry equilibria that exploit the aggregative nature of many oligopoly models. Finally, we discuss endogenous sunk costs and persistent concentration and frictionless entry and contestable markets.
    Keywords: Entry, Free entry equilibria, endogenous and exogsnous sunk costs, contestable markets
    JEL: L1 L13 D43
    Date: 2015
  10. By: Ganglmair, Bernhard; Holcomb, Alex; Myung, Noah
    Abstract: Recent evidence of correlated trading among networked fund managers provides an indication that professional investors exchange investment ideas. To examine the motivations underlying this type of collaboration, we design a laboratory experiment in which competing fund managers share ideas until either chance or one of the fund managers (by choice to obtain a competitive advantage) terminates the exchange. We find that managers are more willing, and likely, to share when their rival's ability and intention to share in return are high. For a manager's decision to share, subjective expectations about rivals' intentions matter more than common expectations about their ability.
    Keywords: conversation, correlated trading, experimental finance, fund managers, hedge funds, information sharing, word-of-mouth communication
    JEL: C72 C91 D8 G02 G14 G23
    Date: 2016–05–06
  11. By: Eccles, Peter (Universidad Carlos III de Madrid); Wegner, Nora (Bank of England)
    Abstract: In this paper we consider the robustness of subgame perfect implementation in situations when the preferences of players are almost perfectly known. More precisely, we consider a class of information perturbations where in each state of the world players know their own preferences with certainty and receive almost perfectly informative signals about the preferences of other players. We show that implementations using two-stage sequential move mechanisms are always robust under this class of restricted perturbations, while those using more stages are often not.
    Keywords: Implementation; subgame perfect equilibrium; robustness
    JEL: D04 D82
    Date: 2016–05–13
  12. By: Akhundjanov, Sherzod
    Abstract: This paper analyzes a common property resource (such as oil field or water reservoir) shared by two countries in the presence of two forms of bilateral externalities: the tragedy of the commons, and the environmental damage resulting from the exploitation of the resource. We demonstrate that both cooperative and non-cooperative forms of regulation produce a negative effect on firms' profits, as they increase firms' unit production costs. However, regulation can also entail a positive effect on profits, given that it mitigates industry overproduction. We show that the magnitude of these two effects depends not only on the type of regulatory instrument, but also on the rate of resource extraction and the environmental damage in each country. We identify conditions under which the positive effect of regulation dominates its negative effect, thus increasing firms' profits and ultimately incentivizing them to support the introduction of regulation, either at the national or international level.
    Keywords: Common property resource, Bilateral externalities, Transboundary externalities, Environmental Economics and Policy, Industrial Organization, Public Economics, Resource /Energy Economics and Policy, H23, Q38, C71, C72,
    Date: 2016

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