nep-gth New Economics Papers
on Game Theory
Issue of 2016‒08‒14
six papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Dynamic Behavior and Player Types in Majoritarian Multi-Battle Contests By Alan Gelder; Dan Kovenock
  2. Allocation of risk capital in a cost cooperative game induced by a modified Expected Shortfall By Bernardi Mauro; Roy Cerqueti; Arsen Palestini
  3. Learning to Coordinate: Co-Evolution and Correlated Equilibrium By Alejandro Lee-Penagos
  4. Efficiency of Flexible Budgetary Institutions By T. Renee Bowen; Ying Chen; Hülya K. Eraslan; Jan Zápal
  5. Bringing Real Market Participants' Real Preferences into the Lab: An Experiment that Changed the Course Allocation Mechanism at Wharton By Eric Budish; Judd B. Kessler

  1. By: Alan Gelder (Economic Science Institute, Chapman University); Dan Kovenock (Economic Science Institute, Chapman University)
    Abstract: In a dynamic contest where it is costly to compete, a player who is behind must decide whether to surrender or to keep fighting in the face of bleak odds. We experimentally examine the game theoretic prediction of last stand behavior in a multi-battle contest with a winning prize and losing penalty, as well as the contrasting prediction of surrendering in the corresponding contest with no penalty. We find varied evidence in support of these hypotheses in the aggregated data, but more conclusive evidence when scrutinizing individual player behavior. Players’ realized strategies tend to conform to one of several “types”. We develop a taxonomy to classify player types and study how these types interact and how their incidence varies across treatments. Contrary to the theoretical prediction, escalation is the predominant behavior, but last stand and surrendering behaviors also arise at rates responsive to the importance of losing penalties.
    Keywords: Dynamic Contest, Multi-Battle Contest, Player Type, Experiment, All-Pay Auction, Escalation, Last Stand, Maximin
    JEL: C73 C92 D44 D72 D74
    Date: 2016
  2. By: Bernardi Mauro; Roy Cerqueti; Arsen Palestini
    Abstract: The standard theory of coherent risk measures fails to consider individual institutions as part of a system which might itself experience instability and spread new sources of risk to the market participants. In compliance with an approach adopted by Shapley and Shubik (1969), this paper proposes a cooperative market game where agents and institutions play the same role can be developed. We take into account a multiple institutions framework where some of them jointly experience distress events in order to evaluate their individual and collective impact on the remaining institutions in the market. To carry out this analysis, we define a new risk measure (SCoES), generalising the Expected Shortfall of Acerbi (2002) and we characterise the riskiness profile as the outcome of a cost cooperative game played by institutions in distress (a similar approach was adopted by Denault 2001). Each institution's marginal contribution to the spread of riskiness towards the safe institutions in then evaluated by calculating suitable solution concepts of the game such as the Banzhaf--Coleman and the Shapley--Shubik values.
    Date: 2016–08
  3. By: Alejandro Lee-Penagos (School of Economics, University of Nottingham)
    Abstract: In a coordination game such as the Battle of the Sexes, agents can condition their plays on external signals that can, in theory, lead to a Correlated Equilibrium that can improve the overall payoffs of the agents. Here we explore whether boundedly rational, adaptive agents can learn to coordinate in such an environment. We find that such agents are able to coordinate, often in complex ways, even without an external signal. Furthermore, when a signal is present, Correlated Equilibrium are rare. Thus, even in a world of simple learning agents, coordination behavior can take on some surprising forms.
    Keywords: Battle of the Sexes, Correlated Equilibrium, Evolutionary Game Theory, Learning Algorithms, Coordination Games, Adaptive Agents
    Date: 2016–11
  4. By: T. Renee Bowen; Ying Chen; Hülya K. Eraslan; Jan Zápal
    Abstract: Which budgetary institutions result in efficient provision of public goods? We analyze a model with two parties bargaining over the allocation to a public good each period. Parties place different values on the public good, and these values may change over time. We focus on budgetary institutions that determine the rules governing feasible allocations to mandatory and discretionary spending programs. Mandatory spending is enacted by law and remains in effect until changed, and thus induces an endogenous status quo, whereas discretionary spending is a periodic appropriation that is not allocated if no new agreement is reached. We show that discretionary only and mandatory only institutions typically lead to dynamic inefficiency and that mandatory only institutions can even lead to static inefficiency. By introducing appropriate flexibility in mandatory programs, we obtain static and dynamic efficiency. An endogenous choice of mandatory and discretionary programs, sunset provisions and state-contingent mandatory programs can provide this flexibility in increasingly complex environments.
    JEL: C73 C78 D61 D78 H61
    Date: 2016–07
  5. By: Eric Budish; Judd B. Kessler
    Abstract: This paper reports on an experimental test of a new market design that is attractive in theory but makes the common and potentially unrealistic assumption that “agents report their type”; that is, that market participants can perfectly report their preferences to the mechanism. Concerns about preference reporting led to a novel experimental design that brought real market participants’ real preferences into the lab, as opposed to endowing experimental subjects with artificial preferences as is typical in market design. The experiment found that market participants were able to report their preferences “accurately enough” to realize efficiency and fairness benefits of the mechanism even while preference reporting mistakes meaningfully harmed mechanism performance. The experimental results persuaded the Wharton School to adopt the new mechanism and helped guide its practical implementation. It is hoped that the experimental design methodology may be of use to other market design researchers, either for evaluating or improving preference reporting for existing mechanisms or for bringing other new mechanisms that utilize rich preference information from theory to practice.
    JEL: C78 C9 D47
    Date: 2016–07
  6. By: Dhillon, Amrita (King's College London); Krishnan, Pramila (University of Cambridge and CEPR); Patnam, Manasa (CREST, ENSAE, Paris); Perroni, Carlo (University of Warwick)
    Abstract: The literature on the effects of natural resource abundance on economic growth is converging to the view that institutions play a central role. In this paper, we exploit the break up of three of the biggest Indian states, comprising areas with some of the largest endowments of natural resources in the country, to explore how the link between electoral accountability and natural resource abundance can explain differences in outcomes. Our theoretical framework shows that while states inheriting a larger share of natural resources after break up are potentially richer, the spatial distribution of these natural resources within these state can worsen economic outcomes by lowering electoral accountability. We employ a sharp regression discontinuity design to estimate the causal effect of secession and concentrated resources on growth and inequality at the sub-regional level, using data on satellite measurements of night-time lights. Consistent with our theoretical predictions, the economic effect of secession is generally favourable. However, states that inherit a large fraction of mineral rich constituencies experience worse outcomes. This may be accounted for by lower electoral accountability in those areas.
    Keywords: Natural Resources and Economic Performance, Political Secession, Fiscal Federalism JEL Classification: C72, D72, H77, O13, O43, Q34
    Date: 2016

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