nep-gth New Economics Papers
on Game Theory
Issue of 2016‒07‒30
eleven papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Rationalizable Persuasion By Makoto Shimoji
  2. Equity and bargaining power in ultimatum games By Rodriguez-Lara, Ismael
  3. Payoff dependent dynamics and coordination games By Hwang, Sung-Ha; Newton, Jonathan
  4. A Note on Shapley Ratings in Brain Networks By Musegaas, Marieke; Dietzenbacher, Bas; Borm, Peter
  5. Divide and compromise By Rodrigo A. Velez; Antonio Nicolo
  6. To deter or to moderate? Alliance formation in contests with incomplete information By Kai A. Konrad; Florian Morath
  7. Contests with a stochastic number of players: Experimental evidence By Luke Boosey; Philip Brookins; Dmitry Ryvkin
  8. The prisoner’s dilemma in Cournot models: when endogenizing the level of competition leads to competitive behaviors. By Ibrahim Abada; Andreas Ehrenmann
  9. Acquiring information through peers By Bernard Herskovic; Joao Ramos
  10. From Bottom of the Barrel to Cream of the Crop: Sequential Screening with Positive Selection By Tirole, Jean
  11. Systemic Risk and Stochastic Games with Delay By Rene Carmona; Jean-Pierre Fouque; Seyyed Mostafa Mousavi; Li-Hsien Sun

  1. By: Makoto Shimoji
    Abstract: We analyze multi-receiver Bayesian persuasion games with heterogeneous beliefs, originating from Kamenica and Gentzkow (2011). We directly examine the sender's messages, which are supported by rationalizability. With no strategic interactions at the stage game, the sender's optimization problem can be viewed as a set of linear programming problems. We also show some generic properties of solutions. With strategic interactions at the stage game, we provide examples on two aspects of communication (only arising with the receivers' strategic interactions): "talking about others privately" and "tacit understandings", of which the latter is implied by forward induction.
    Keywords: Bayesian Persuasion Games, Multiple Receivers, Heterogeneous Beliefs
    JEL: C72 D83
    Date: 2016–07
  2. By: Rodriguez-Lara, Ismael
    Abstract: This paper studies the extent to which offers and demands in ultimatum games are consistent with equity theory when there is a joint endowment to be distributed. Using a within-subject design, we also investigate the importance of the bargaining power by comparing the subjects’ behavior in the ultimatum and the no-veto-cost game, which differ in the possible cost of responders rejecting the proposers’ offer. Our findings suggest that proposers are willing to reward responders for their contribution to the joint endowment in any of the two games. As for responders, their behavior is consistent with equity theory only in the no-veto-cost game (in which a rejection is costless for them) when the game is first played. When the no-veto-cost game is played after the ultimatum game, we observe that the responders’ demands usually exceed their contribution to the endowment. Finally, this paper reports evidence that the ultimatum and the no-veto-cost game differ in terms of efficiency and rejection rates.
    Keywords: equity, fairness, bargaining power, ultimatum game, no-veto-cost game, joint production, efficiency, rejection rates.
    JEL: C91 D3 D6 D63
    Date: 2016–07–16
  3. By: Hwang, Sung-Ha; Newton, Jonathan
    Abstract: This paper considers populations of agents whose behavior when playing some underlying game is governed by perturbed best (or better) response dynamics with perturbation probabilities that depend log-linearly on payoffs, a class that includes the logit choice rule. A convention is a state at which every agent plays a strategy that corresponds to the same strict Nash equilibrium of the underlying game. For coordination games with zero payoffs off-diagonal, it is shown that the difficulty of leaving the basin of attraction of a convention can be well approximated by only considering paths of transitions on which an identical perturbation repeatedly affects one of the populations.
    Keywords: Evolution; Coordination; Logit, Payoff dependence
    Date: 2016–07
  4. By: Musegaas, Marieke (Tilburg University, Center For Economic Research); Dietzenbacher, Bas (Tilburg University, Center For Economic Research); Borm, Peter (Tilburg University, Center For Economic Research)
    Abstract: We consider the problem of computing the in uence of a neuronal structure in a brain network. Abraham, Kotter, Krumnack, and Wanke (2006) computed this influence by using the Shapley value of a coalitional game corresponding to a directed network as a rating. Kotter, Reid, Krumnack, Wanke, and Sporns (2007) applied this rating to large-scale brain networks, in particular to the macaque visual cortex and the macaque prefrontal cortex. We introduce an alternative coalitional game that is more intuitive from a game theoretical point of view. We use the Shapley value of this game as an alternative rating to analyze the macaque brain networks and corroborate the findings of Kotter et al. (2007). Moreover, we show how missing information on the existence of certain connections can readily be incorporated into this game and the corresponding Shapley rating.
    Keywords: brain networks; coalitional games; Shapley value
    JEL: C71
    Date: 2016
  5. By: Rodrigo A. Velez (Texas A&M University, Department of Economics); Antonio Nicolo (School of Economics University of Manchester and Department of Economics University of Padua)
    Abstract: We introduce a symmetrized version of the popular divide and choose mechanism for the allocation of a collectively owned indivisible good among two agents when monetary compensation is available. Our proposal retains the simplicity of divide and choose and corrects its ex-post asymmetry. When there is complete information, i.e., agents know each other well, it implements in subgame perfect equilibria a unique allocation that would be obtained by a balanced market. By correcting the ex-post asymmetry of divide and choose, our proposal may reduce welfare losses documented by laboratory studies for both divide and choose and auction-type mechanisms.
    Keywords: indivisible goods, no-envy, implementation in subgame perfect equilibria
    JEL: D63 C72
    Date: 2016–07–10
  6. By: Kai A. Konrad; Florian Morath
    Abstract: We consider two players' choice about the formation of an alliance ahead of conflict in a framework with incomplete information about the strength of co-players. When deciding on alliance formation, players anticipate the self-selection of other players and the informational value of own and other players' choices. In the absence of these signaling effects, strong players have an incentive to stand alone, which leads to a separating equilibrium. This separating equilibrium can be destabilized by deception incentives if beliefs are updated on the basis of endogenous alliance formation choices. Weak players may find it attractive to appear strong in order to deter competitors from positive effort choices. Strong players may find it attractive to appear weak in order to give their competitors a false sense of security and then beat them with little effort. Moreover, appearing weak allows players to free-ride when alliances are formed.
    Keywords: alliance; incomplete information; endogenous formation; all-pay contest
    JEL: D72 D74
    Date: 2015–12
  7. By: Luke Boosey (Department of Economics, Florida State University); Philip Brookins (Max Planck Institute for Research on Collective Goods); Dmitry Ryvkin (Department of Economics, Florida State University)
    Abstract: In many contest situations, the number of participants is not observable at the time of investment. We design a laboratory experiment to study individual behavior in Tullock (lottery) contests with group size uncertainty. There is a fixed pool of n potential players, each with independent probability q of participating. As shown by Lim and Matros (2009), the unique symmetric equilibrium investment level in this setting can exhibit non-monotonicity with respect to both n and q. We independently manipulate each of the parameters and test the implied comparative statics predictions. Our results provide considerable support for the theory, both in terms of comparative statics and point predictions. In stark contrast to the experimental literature on contests with certain group size, where overbidding relative to equilibrium is widely documented, we find remarkable agreement between the observed average investment and the equilibrium investment levels in all but one treatment.
    Keywords: contest, stochastic number of players, experiment
    JEL: C72 C91 D72 D82
    Date: 2016–07
  8. By: Ibrahim Abada; Andreas Ehrenmann
    Abstract: In resource based economies, regulating the production and export activities have always been an important challenge. Examples in oil and gas show that different behaviors have been adopted ranging from the export monopoly to the complete opening of the export market. This paper tries to explain this multitude of solutions via strategic interactions. When modeling imperfect competition, players are separated in two categories: those who exert market power and those who are competitive and propose the good at their marginal supply cost. Letting a player freely choose whether it wants to exert market power or not when it optimizes its utility is not discussed in the literature. This paper addresses this issue by letting the players choose the level of competition they want to exert in the market. To do so, we analyze the behavior of two countries competing to supply a market with a homogeneous good in an imperfect competition setting. Each country decides the number of firms it authorizes to sell in the market. The interaction between the firms is of a Nash-Cournot type, where each one exerts market power and is in competition with all other firms allowed to sell, whether they belong to the same country or not. Each country optimizes its utility, that is the sum of the profits of its firms. We have studied four kinds of interaction between the countries. The first calculates the closed loop Nash equilibrium of the game between the countries. The second setup analyzes the cartel when the countries collude. The third focuses on the open loop Nash equilibrium and the fourth models a bi-level Stackelberg interaction where one country plays before the other. We demonstrate that in the closed loop Nash equilibrium, our setting leads to the prisoner’s dilemma: the equilibrium occurs when both countries authorize all their firms to sell in the market. In other words, countries willingly chose not to exert market power. This result is at first sight similar to the Allaz & Vila (1993) result but is driven by a completely different economic reasoning. In the Stackelberg and coordinated solutions, the market is on the contrary very concentrated and the countries strongly reduce the number of firms that enter the market in order to fully exert market power and increase the price. The open loop result lies in between: the countries let all their firms sell but market power remains strong. These results suggest that the prisoner’s dilemma outcome is due to the conjectural inconsistency of the Nash equilibrium. Finally, in the Stackelberg setting, we give countries the choice of being leader or follower and demonstrate that the counter-intuitive competitive outcome is very unlikely to occur in the market.
    Keywords: Imperfect competition, export oligopoly, open and closed loop Nash equilibrium
    JEL: L13 L7
    Date: 2016–07–21
  9. By: Bernard Herskovic (UCLA Anderson School of Management); Joao Ramos (NYU)
    Abstract: We study information acquisition from peers when agents’ actions balance adaptation and coordination motives. Agents acquire information personally and may obtain additional information by connecting to other agents. Although equally informative regarding adaptation, the source’s relative position in the information structure is relevant to form expectations about actions of other players. In our setting, information sources are not perfectly substitutable, and the information of an “opinion maker†—an agent whose information is more public—is more informative of how others act. We show that, when players choose their connections, (i) it is always preferable to connect to opinion makers, and (ii) opinion makers have less incentives to form links. These two results characterize the endogenous shape of the network: Any strict equilibrium of the network formation game generates a hierarchical information structure. Furthermore, if the marginal cost of acquiring information is increasing, the information structure is “core-periphery†. We take advantage of the simplicity of the equilibrium information structure to provide two applications. First, we analyze how much of the aggregate volatility of forecast can the information structure account for. Second, we study the origins of leadership: how individual characteristics influence the role of the agent in the information structure.
    Date: 2016
  10. By: Tirole, Jean
    Abstract: In a number of interesting environments, dynamic screening involves positive selection: in contrast with Coasian dynamics, only the most motivated remain over time. The paper provides conditions under which the principal's commitment optimum is time consistent and uses this result to derive testable predictions under permanent or transient shocks. It also identifies environments in which time consistency does not hold despite positive selection, and yet simple equilibrium characterizations can be obtained.
    Keywords: repeated relationships, screening, positive selection, time consistency, shifting preferences, exit games.
    JEL: C72 D42 D82
    Date: 2016–07
  11. By: Rene Carmona; Jean-Pierre Fouque; Seyyed Mostafa Mousavi; Li-Hsien Sun
    Abstract: We propose a model of inter-bank lending and borrowing which takes into account clearing debt obligations. The evolution of log-monetary reserves of $N$ banks is described by coupled diffusions driven by controls with delay in their drifts. Banks are minimizing their finite-horizon objective functions which take into account a quadratic cost for lending or borrowing and a linear incentive to borrow if the reserve is low or lend if the reserve is high relative to the average capitalization of the system. As such, our problem is an $N$-player linear-quadratic stochastic differential game with delay. An open-loop Nash equilibrium is obtained using a system of fully coupled forward and advanced backward stochastic differential equations. We then describe how the delay affects liquidity and systemic risk characterized by a large number of defaults. We also derive a close-loop Nash equilibrium using an HJB approach.
    Date: 2016–07

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